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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File Number
March 31, 1996 0-21336
THE 3DO COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 94-3177293
(State or other (I.R.S. employer identification number)
jurisdiction of
incorporation or
organization)
600 Galveston Drive, Redwood City, California 94063
(Address of principal executive offices and
zip code)
(415) 261-3000
(Registrant's telephone number, including area code)
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Securities registered pursuant to 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of May 31, 1996, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $207,559,213 (based upon the closing sales
price of such stock as reported by the Nasdaq National Market on such date).
Shares of Common Stock held by each officer, director, and holder of 5% or more
of the outstanding Common Stock on that date have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of May 31, 1996, the number of outstanding shares of the Registrants' Common
Stock was 26,694,900.
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PART 1
Item 1. BUSINESS
Except for the historical information, this discussion and analysis
includes certain forward-looking statements that involve risks and
uncertainties. Such statements represent the Company's reasonable judgment on
the future and are subject to risks and uncertainties that could cause the
Company's actual results and financial position to differ materially. Such
factors include, without limitation: the extent to which the Company will
receive and/or recognize revenue from the M2 Technology Licensing Agreement
with Matsushita Electric Industrial Co., Ltd. ("Matsushita"), the extent to
which the Company will receive and/or recognize revenue from its Joint
Development and License Agreement with Cirrus Logic, Inc. ("Cirrus Logic");
the Company's ability to successfully leverage its core technologies into
other markets; the Company's ability to develop software products for new
platforms and the timeliness, cost, and market demand for such products created
as part of its software development activities; and the effect of competitive
factors in the marketplace, including the market acceptance of certain formats
and the timing and release of competitors' products. The Company undertakes no
obligation to publicly release the result of any revisions to the
forward-looking statements contained herein to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
BUSINESS OVERVIEW
The 3DO Company ("3DO" or the "Company") designs, integrates, licenses and
sells interactive technologies and applications software products. The Company
is focused on creating technologies and entertainment products for the advanced
64-bit market and is engaged in the development of software titles for multiple
hardware platforms including the IBM-compatible PC-CDROM platform (the "PC"),
the 64-bit M2 platform to be developed by Matsushita, and the Internet, and
enhancing and leveraging the Company's existing technologies beyond the video
game console market to the personal computer and digital video markets.
The Company was incorporated as SMSG, Inc., under the laws of
California, in September 1991, commenced operations in October 1991, and
changed its name to The 3DO Company in September 1992. The Company is a
successor to a California general partnership named Medio, which was formed in
October 1990 and dissolved in September 1991. In April 1993, the Company
reorganized as a Delaware holding company. In April 1993, the Company acquired
a California partnership named NTG, L.P., and one of its partners, NTG, Inc.,
in exchange for 3DO common stock and cash. The Company's common stock became
publicly traded on the Nasdaq National Market in May 1993 under the symbol
THDO. The Company has subsidiaries in Japan and the United Kingdom. The Company
acquired the business of Cyclone Studios in November 1995 and Archetype
Interactive Corporation in May 1996. References to "3DO" or the "Company" mean
The 3DO Company, a Delaware corporation, and its subsidiaries and predecessor
entities.
The Company's initial business model was as a licensor of technology to
hardware manufacturers and software developers to enable the establishment of a
new interactive video entertainment platform, the 3DO Interactive Multiplayer
system (the "3DO Multiplayer"). The 3DO Multiplayer was launched in October
1993, and was the first 32-bit, CDROM-based, video game console product to
market.
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The video game hardware platform market is extremely competitive. Both
Sega Enterprises, Ltd. ("Sega"), and Sony Computer Entertainment Inc. ("Sony")
introduced 32-bit CDROM video game console products in 1995 which competed
directly with the 3DO Multiplayer, and Nintendo Company, Ltd. ("Nintendo") is
expected to introduce its 64-bit game console, the Ultra 64, in the United
States later this year. During the last half of calendar 1995 and the first
five months of calendar 1996, consumer demand waned for the 3DO Multiplayer.
During 1995, Sanyo Electric Co., Ltd. ("Sanyo"), and Creative Technology Ltd.
("Creative Technology") decided not to pursue additional investment in
manufacturing or marketing their respective versions of the 3DO Multiplayer. In
February 1996, LG Electronics Inc. ("Goldstar") stated that they would exit the
32-bit video game business and ceased manufacturing their version of the 3DO
Multiplayer. Recently Matsushita has indicated that they would not
manufacture any additional 3DO Multiplayers. In light of these factors,
third-party developers and the Company have discontinued development of
software titles for this platform.
The Company developed a next generation 64-bit technology (the "M2
Technology") and licensed this technology to Matsushita, on an exclusive basis,
in December 1995, for an upfront license fee of $100 million plus certain
ongoing royalties. This license provides Matsushita with exclusive rights to use
and sublicense 3DO's M2 Technology. In the video game console market Matsushita
was granted and has retained the exclusive rights to develop and manufacture
video game console products using the M2 Technology, and Matsushita will control
the timing of any product launch, the pricing and marketing of any such
products, and any third-party licensing activities pertaining to such products.
The Company has undertaken a diversification plan to design, integrate,
license and sell products directed at the 64-bit interactive entertainment
market. The Company has been reorganized into two principal business units: a
technology development and licensing group called "3DO Systems" and an
entertainment software development and publishing group called "Studio 3DO."
3DO Systems designs and licenses technologies for the 64-bit consumer and
PC markets. The group licensed the Company's M2 Technology to Matsushita.
Recently, it licensed the 3-D portion of the M2 Technology to Cirrus Logic, a
leader in video graphics controllers, for the development of high-end 3-D
graphics chips for PCs. Additionally, the 3DO Systems group develops and markets
digital video encoding products, called MPEGXpress, and M2 development systems
to software development companies for the creation of 64-bit software products.
Studio 3DO is focused on creating software titles for the 64-bit
interactive entertainment markets, and designs products for the PC, M2, and the
Internet platforms. Studio 3DO has released several titles for the 32-bit 3DO
Multiplayer platform, including "Bladeforce", "Killing Time" and "Captain
Quazar." Many of Studio 3DO's titles have received high ratings and awards from
the industry's top gaming publications. Studio 3DO is also creating interactive
entertainment applications for the Internet.
3DO SYSTEMS
M2 Technology
3DO is currently completing the development of its M2 Technology, which the
Company believes will further advance the realism and experiences offered by
interactive entertainment, education and information applications. The 64-bit,
CDROM-based M2
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Technology is designed to deliver advanced processing performance and
high-quality graphics and digital video for interactive consumer entertainment
software.
In December 1995, the Company and Matsushita entered into a definitive
license agreement, pursuant to which the Company granted Matsushita a perpetual,
exclusive, worldwide license, with the right to grant sublicenses, with respect
to the M2 Technology, for use in both hardware and software for games and all
other applications (the "Technology Licensing Agreement"). The license was
granted in exchange for an upfront license payment of $100 million, and for
certain royalties which shall be paid to 3DO for certain software products
manufactured after January 1, 1998, which are compatible with the M2 Technology.
Under the terms of the Technology Licensing Agreement, Matsushita has granted
3DO a non-exclusive license to use the M2 Technology for the development,
manufacture and distribution of hardware products designed for use in the
computer field, of software and peripherals compatible with hardware products
developed by Matsushita or its sublicensees that incorporate the M2 Technology,
and of development systems to third parties outside of Japan that are authorized
by Matsushita to develop and publish software products compatible with hardware
products that incorporate the M2 Technology. Revenue pertaining to the license
fees under the Technology Licensing Agreement is being recognized by the Company
using the percentage-of-completion method based on the costs incurred to fulfill
its commitments to deliver technology as specified in the agreement. The Company
estimates that it will recognize revenue in connection with the Technology
Licensing Agreement through the fourth quarter of the Company's fiscal year
ending March 31, 1998.
On April 24, 1996, the Company agreed to make certain modifications to the
M2 system design, pursuant to the terms of an addendum (the "Addendum") to the
Technology Licensing Agreement. As consideration for providing engineering and
certain support services, the Company will receive an aggregate fee of
approximately $4.5 million to be received in installments in fiscal 1997 and
1998. The payments by Matsushita are contingent upon the Company meeting certain
milestones by particular dates, as stipulated in the Addendum. The Company
intends to recognize this revenue as these milestones are achieved.
Based on the exclusive nature of the Technology License Agreement, the
Company will have no rights or obligations for the introduction or subsequent
management of any M2 video game console product. There is currently no such
product in the marketplace and the existence and potential growth of any M2
console installed base is strictly dependent on the actions of Matsushita.
PC Technology
PC customers are demanding increased graphics performance for a variety of
reasons, including digital video (e.g., MPEG) and 3-D graphics speed for games,
CAD/CAM, and for other uses. The Company believes that to take full advantage of
such applications requires an advanced 64-bit graphics coprocessor. The Company
believes that its M2 Technology can address certain aspects of that demand. In
February 1996, the Company licensed the 3-D graphics portion of the M2
Technology to Cirrus Logic, a leader in video graphics controllers, for the
development of high-end 3-D graphics chips for the PC market. Under the terms of
the Joint Development and License Agreement (the "Cirrus Agreement") the Company
will develop certain modifications to the "3-D Engine", which is a component of
the proprietary semiconductor technology which is part of the M2 Technology. As
consideration under such agreement, the Company is to receive a non-refundable
amount not to exceed $7.8 million, of which $1.5 million was received as of
March 31, 1996. Revenue pertaining to the Cirrus Agreement will be recognized
using the
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percentage-of-completion method. It is the Company's intention to pursue other
such licensing deals with respect to its M2 technologies in the PC market. There
can be no assurance that any additional licenses can be obtained.
3DO has licensed its digital-to-analog video encoding technology to VLSI
Technology, Inc., for use in multimedia computer and information appliance
products. Similar technologies were previously licensed by the Company to C-Cube
Microsystems, GEC Plessey Semiconductors, Inc., and Advanced RISC Machines, Ltd.
Digital Video Products
The Company has developed a family of video encoding products, called
MPEGXpress, which offer a low-cost solution for professional MPEG-1 and MPEG-2
video encoding and decoding. These products offer realtime encoding solutions
for content to be used in video games, video CDs, corporate authoring, and
Internet applications. The Company's MPEGXpress products include component video
inputs, extensive digital filtering and up to 5 megabit-per-second rates
enabling professional image quality at real-time encoding rates.
STUDIO 3DO
Studio 3DO is the interactive entertainment, software development and
publishing unit within the Company. This group develops original content for
multiple platforms including the PC, M2, and the Internet. Studio 3DO has
published 10 titles for the 3DO Multiplayer, the most recent release being
"Snowjob", which shipped in May 1996. No additional development is currently
planned for the 3DO Multiplayer. Studio 3DO currently has 28 titles under
development, approximately 10 of which are expected to be released in fiscal
1997, provided that such products can be developed in a timely manner. The first
titles to be released for the PC are expected to include "John Daly Golf";
"Starfighter", a flight strategy game; "3DO Games: Decathlon"; "Game Guru Game
Enhancer", a utility product that provides helpful hints on some of the best
selling PC games; and enhanced versions of some of Studio 3DO's most popular
titles, including "Killing Time", "Bladeforce", "Snowjob", and "Captain Quazar"
which were originally developed for the 3DO Multiplayer. Studio 3DO expects to
support Microsoft Corporation's ("Microsoft") Direct 3-D application programmer
interface. Additionally, all software products on the PC will run under
Microsoft's Windows 95 operating system.
Studio 3DO has over 130 people concentrating on internal development
activities. All internal development is expensed as incurred. Studio 3DO also
uses a number of external developers to meet its development and title release
requirements. It is the Company's expectation that over half of Studio 3DO's
development activities will be undertaken by external third-party developers.
The Company has begun development of multiple player entertainment titles
for the Internet. The Company is expected to spend over $5 million in fiscal
1997 developing its first set of titles for the Internet. The Company expects
that these titles will be introduced in early fiscal 1998 and therefore no
revenue will be generated from such products in fiscal 1997 to cover the related
development expenses. Additionally, in May 1996, the Company acquired Archetype
Interactive Corporation, an Internet game company. This company has a single
product on the Internet, known as "Meridian 59." This product is currently in
Beta trials. The Company expects to release a production version of Meridian 59
by the end of calendar 1996.
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MARKET AND COMPETITION
Entertainment Software
The interactive entertainment market is characterized by multiple platforms
with no single platform achieving market dominance. In addition, technology
lifecycles have been compressed, resulting in multiple generations of video game
hardware being purchased at retail including 8-bit, 16-bit and 32-bit platforms
in the United States and much of the rest of the world, while the first 64-bit
platform was released by Nintendo in Japan during June 1996. These factors
create additional expense and risk to develop and market products for multiple
platforms in order to reach the mass market. The development costs for 32-bit
and 64-bit titles have increased dramatically due to an increased emphasis on
video and graphics performance. It is not unusual to have a video game cost over
$1 million to develop. It is important, therefore, for a company to develop and
market products across multiple platforms in order to recoup costs and position
the product to achieve a satisfactory return on investment. The Company is
currently developing products for three different hardware platforms: the PC,
the M2 platform and the Internet. The Company expects that it will make
substantial investments in research and development of products for operation on
these advanced platforms. If the Company invests in a platform that does not
achieve significant market penetration, the Company's planned revenues from such
compatible products will not be achieved and the Company may not recover its
development investment. Conversely, if the Company does not choose or is unable
to obtain the rights to develop products for a platform that achieves
significant market success, its revenue growth may also be adversely affected.
Today, the Company does not have a license to develop products for some of the
most popular platforms including the Sony, Sega, and Nintendo proprietary
platforms. Although the Company does have the ability to license its titles to
publishers who do have such licenses, the revenue from such licensing activity
is significantly less than the revenue which could be generated from direct
publishing. There can be no assurance that the Company will correctly make such
platform choices or will be able to obtain the rights to develop products for
certain platforms.
In addition to entering certain markets for the first time, the Company is
also focused on markets with relatively small installed bases and limited
historical sales, specifically the advanced 64-bit and Internet markets. In
addition, the Company is developing products for the M2 platform, a platform
which is still under development. The Company believes that early investment in
these advanced products is strategically important in order to position the
Company as a leader in these emerging markets. In the short term, this strategy
may negatively affect the Company's financial performance by delaying revenues
until the 64-bit market achieves a sufficiently large installed base and the use
of the Internet gains market acceptance for interactive entertainment
applications and, with respect to the M2 platform, until M2 video game hardware
products are commercially released and gain market acceptance. In the event that
these platforms fail to achieve significant market acceptance, the Company's
revenues would be materially adversely affected.
The market for interactive multimedia software products is highly
competitive. Important factors in marketing entertainment software titles
include product features, quality and reliability, brand recognition, hardware
compatibility, ease of understanding and operation, dealer merchandising, access
to existing distribution channels and retail shelf space, advertising, pricing,
and availability and quality of support services.
A variety of companies offer products that compete directly with one or
more of the Company's products. These direct competitors vary in size from very
small companies with limited resources to companies with financial, managerial
and technical resources substantially greater than those of the Company. The
Company's competitors include
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manufacturers of hardware platform systems such as Nintendo, Sega and Sony
(together with their third-party licensees); diversified media and entertainment
companies such as Walt Disney Company, Viacom International, Inc. and Time
Warner Enterprises, Inc.; large independent multi-platform software developers
such as Electronic Arts Inc. ("Electronic Arts"), Acclaim Entertainment, Inc.,
Lucas Arts Entertainment Co., and Spectrum HoloByte, Inc.; and publishers of
personal computer software such as Microsoft, Maxis, Inc., and Sierra On-line,
Inc. In addition, companies in industries such as cable television and
telecommunications, many of which have significant financial resources, have
begun to diversify or have announced plans to enter the interactive software
market. These new entrants have the potential to become significant competitors.
3DO's software products are being designed for markets which are expected
to undergo significant changes, due in part to the introduction, or planned
introduction, of new hardware platforms and electronic delivery systems, and the
entry and participation of new industries and companies. Severe competition
exists for retail shelf space in the consumer software industry. A number of
factors, including the Company's historic performance, discounts to retailers,
inventory and return policies, customer service, product support, brand
recognition, perceived quality and entertainment value of specific titles, and
marketing activities all affect access to distributors and retailers.
The Company is entering new markets with its software products,
specifically the PC and Internet markets. This will, to some degree, require
distribution through distributors and retailers who have, in the past, not
carried the Company's products. There will be intense competition in procuring
adequate distribution of the Company's software products. There can be no
assurance that the Company will succeed in obtaining sufficient distribution to
enable its products to achieve market success. In addition, sales of advanced
multimedia entertainment products are becoming increasingly "hits" driven. Fewer
products in that market are successful and publishers of these games, including
the Company, must incur substantial marketing and sales expenses to promote
retailers' sales of such products. The Company has and will continue to publish
titles in a number of different categories or "genres." The Company's focus is
to develop products for the categories with the highest consumer interest
including sports, action, strategy, adventure, simulations and role playing.
Interactive entertainment software products typically have life spans of
only 3 to 12 months. Accordingly, the Company will need to constantly develop
and bring to market new products that achieve market acceptance quickly. The
Company's future success will depend in large part on its ability to develop and
introduce new products on a timely basis. New products must keep pace with
competitive offerings, adapt to new hardware platforms and emerging industry
standards, and provide additional functionality. If the Company is unable, due
to resource constraints or technological or other reasons, to develop and
introduce such products in a timely manner, this inability would have a material
adverse effect on its operating results and financial condition. There can be no
assurance that the Company will be able to complete the timely development and
commercially release new software products in a timely manner and that achieve
market acceptance.
Graphics Technologies
The Company intends to utilize its graphics technology for the video game
console market and for personal computer graphics acceleration devices. The
Company believes that market demand, particularly focused on support of 3-D
graphics and the incorporation of MPEG technology, will grow rapidly over the
next few years as the industry works toward delivering arcade-class video games
on PCs.
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Several dozen established and new entities are competing in the graphics
accelerator market, including established companies such as Creative Labs, Inc.,
Oak Technology, S3, Inc. and Trident Microsystems, Inc. and newer companies such
as Chromatic Research Inc., Rendition, Inc., 3Dfx Interactive, Inc. and
VideoLogic, Inc. Competition for the creation of graphics accelerator devices
can be segmented into three categories: semiconductor companies, fabless
semiconductor companies and technology licensing companies. 3DO's entry strategy
is to compete as a licensor of its graphics technology to a limited number of
established semiconductor companies. The Company's agreement with Cirrus Logic,
in which 3DO licensed its 64-bit 3-D Engine, is 3DO's initial execution of the
strategy.
In addition, the Company intends to continue to design and develop 3-D
graphics technologies to exploit opportunities in the video game console market.
It is the Company's intention to leverage these same technologies into the PC
marketplace. In the console market there is a very limited number of potential
customers as the market is dominated by Sony, Sega and Nintendo. Matsushita has
announced plans to launch a platform based on the M2 Technology. There can be no
assurance that any of the Company's future technologies will be licensed by any
of these or any new customers.
The market for graphics technologies is highly competitive, with a large
number of competitors, almost all of which have substantially greater financial
and technological resources than those of the Company. In addition, many of
these companies are well-established in the semiconductor industry. The
principal competitive factors in the market for computer graphics semiconductor
products are price, performance, brand recognition, product quality,
availability, breadth of product line, service and OEM support, the timing of
new product releases, and the emergence of new standards for graphics,
multimedia and personal computers. Price competition in the computer graphics
chip industry is intense. The rapid pace of technological change in the
computer graphics chip market places a premium on the Company's ability to
develop and improve its graphics technologies. For these reasons, the Company
believes its success in this market will be directly linked to the Company's
ability to develop and license new graphics technologies that are responsive to
market needs. There can be no assurance that the Company will be able to
successfully develop any such technologies in a timely manner or will be able to
license such technologies, if developed, to third parties.
RESEARCH AND DEVELOPMENT
The Company believes that continued investment in research and development
is critical to the Company's future success. During the past fiscal year, a
majority of the Company's expenses have been for the design of the M2
Technology. The Company's engineering staff is currently focused on completing
the development of the M2 Technology, completing the tools required to
efficiently develop video games for the M2 platform, modifying the M2 "3-D
Engine" as part of a joint development with Cirrus Logic, and developing
technologies for the video game console and PC market places. The Company
intends to continue to design and develop 3-D graphics technologies to exploit
opportunities in the video game console, PC, and digital video markets. The
market for these technologies will be characterized by shorter lifecycles and
more intense competition as many companies enter these expanding markets. There
can be no assurance that the Company can successfully design and develop
products which achieve market acceptance and achieve levels of sales which will
enable the Company to recoup its development costs.
During the fiscal year the Company significantly expanded its
entertainment software development efforts and began developing advanced 64-bit
products for the PC and M2 platforms, in addition to developing software
products for the 3DO Multiplayer. There is currently no active development on
titles for the 3DO Multiplayer. All development resources are currently working
on titles for the M2, PC and Internet platforms. The Company contracts with a
number of external developers to accommodate its development requirements.
Currently about half of the Company's development is contracted through external
developers and this percentage is expected to grow. The Company's agreements
with its external developers usually call for significant advances or prepaid
royalties to be paid to the developer during the development process as well as
certain ongoing royalties.
The Company invests in the creation of software tools and utilities that
are used in the development of software products. These tools are being designed
to allow for more
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cost-effective product development and the ability to more
efficiently convert products from one hardware platform to another.
The Company makes substantial investments in research and development of
software products for new hardware platforms, such as the M2 platform, which the
Company anticipates will become popular. Such investment occurs one to two years
in advance of shipment of such platforms. If the Company invests in the
development of products for a platform that does not achieve significant market
penetration, the Company's planned revenues from those products will not be
achieved and the Company may not recover its development investment. Conversely,
if the Company does not choose to develop for a platform that achieves
significant market success or is unable to obtain the rights to develop products
for such platforms, its revenue growth may also be adversely affected. There can
be no assurance that the Company will correctly make such platform choices or
will be able to obtain adequate rights to develop products for such platforms.
SEASONALITY AND VARIABILITY OF OPERATING RESULTS
The market for "entertainment software" is highly seasonal. The
Company's revenues are expected to be affected by the seasonal nature of the
market, which is characterized by increased sales in the fourth calendar
quarter coinciding with the holiday selling season and typically a seasonal low
in revenues in the quarter ending in June. Seasonal trends may also be affected
by general economic or industry factors. The Company's revenues may also
reflect substantial variations as a result of the timing of the introductions
of and demand for any particular software titles which the Company has
published and/or distributed. Such demand may increase or decrease as a result
of a number of factors, such as consumer preferences, product announcements by
competitors and the popularity of particular hardware platforms, that cannot be
predicted. The software industry is characterized by frequent product delays
which can materially adversely affect the sales of a product if a product is
not released in time for the holiday season.
In addition, the Company expects that its operating results will experience
significant fluctuation as a result of changes in the composition of the
Company's revenues, the timing of new video game hardware and software product
introductions by the Company's competitors, the timeliness with which the
Company releases its products to the market, the Company's investments in
research and development, and expenditures on marketing and promotional
programs.
Product development schedules, particularly for new hardware platforms such
as the M2 platform, are difficult to predict because they involve creative
processes, use of new development tools for new platforms, and the learning
process associated with development for new technologies, as well as other
factors. In addition, CDROM products frequently include substantial amounts of
content and are complex, time-consuming and costly to develop, which can cause
additional development and scheduling risks. These development risks can cause
particular difficulties in predicting quarterly results. Failure to meet product
development schedules may cause a shortfall in shipments in any quarter and may
cause the operating results for such quarter to fall significantly below
anticipated levels.
The Company has stock-balancing programs for its software products that,
under certain circumstances and up to a specified amount, allow for the exchange
of software products by resellers. The Company also typically provides for price
protection for its software products that, under certain conditions, allows the
reseller a price reduction from the Company for unsold products. The Company
maintains a policy of exchanging products or giving credits, but does not
typically give cash refunds. The risk of price protection
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requirements is increasing as a result of the maturing and the increasingly
hit-based nature of the video game market. Moreover, the risk of product returns
may increase as new hardware platforms become more popular or market factors
force the Company to make changes in its distribution system. Although the
Company monitors and manages the volume of its sales to retailers and
distributors and their inventories in an effort to prevent overstocking in the
distribution channel, which can result in high returns or the requirement for
substantial price protection in subsequent periods, there can be no assurance
that the Company can adequately anticipate the demand for its products. The
Company reserves for returns and price protection based on estimated future
returns of products, taking into account promotional activities, the timing of
new product introductions, distributor and retailer inventories of the Company's
products and other factors. There can be no assurance that actual returns or
price protection will not exceed the Company's reserves.
The distribution channels through which consumer software products are sold
have been characterized by change, including consolidations and financial
difficulties of certain distributors and retailers and the emergence of new
retailers such as general mass merchandisers. The bankruptcy or other business
difficulties of a distributor or retailer could render the Company's accounts
receivable from such entity uncollectible, which could have an adverse effect on
the operating results and financial condition of the Company. In addition, an
increasing number of companies are competing for access to these channels. The
Company's arrangements with its distributors and retailers may be terminated by
either party at any time without cause. Distributors and retailers often carry
products that compete with those of the Company. Retailers of the Company's
products typically have a limited amount of shelf space and promotional
resources for which there is intense competition. There can be no assurance that
distributors and retailers will purchase the Company's products or provide the
Company's products with adequate levels of shelf space and promotional support.
The Company's revenues are also affected by the timing of payments under
agreements with companies that license the Company's technologies. These
licenses can represent significant revenues to the Company which can cause
fluctuation in quarterly results. Also, where there are contractual obligations
of the Company to complete certain technology, the Company will recognize
revenues on the "percentage-of-completion" method, and the progress made in
completing the engineering of such technology will affect the revenue recognized
in any particular quarter.
The percentage breakdown by principal source of the Company's revenues for
the three fiscal years in which the Company earned revenue is as follows:
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1996 1995 1994
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Royalties and license fees 64% 61% 26%
Software publishing 19% 11% --
Development systems and other sales 17% 28% 74%
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Matsushita and its affiliates represent, in fiscal year 1996, a major
customer of the Company, providing more than 60% of the Company's revenues as a
software publisher, as an authorized CD pressing facility in Japan, and as a
licensee of the Company's technologies. With the Technology License Agreement
this percentage is expected to be even higher in fiscal year 1997.
The Company continues to be dependent on the technological, manufacturing,
marketing, financial and other resources of third parties such as Matsushita,
with which it has established or is attempting to establish commercial or
strategic relationships. The Company relies on third parties to develop,
manufacture, market and distribute 3DO licensed technology, such as Matsushita
with respect to the M2 Technology. Although
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certain companies have made financial investments in 3DO and established
strategic, technical or marketing relationships with 3DO, such companies may
choose not to utilize the Company's technology and could develop products or
technologies that compete directly with products based upon the Company's
technology. No third party is contractually obligated to perform any of the
activities on which the Company depends in order to meet its business
objectives. In addition, there can be no assurance that these third parties will
commit any resources to the commercialization of the Company's technology.
ACQUISITIONS
During November 1995, the Company acquired the business of Cyclone
Studios, an 18 person software developer located in the greater San Francisco
area. The purchase price consisted of cash, stock and potential future
consideration based upon the financial performance of the new division. On May
31, 1996, the Company acquired all of the outstanding capital stock of
Archetype Interactive Corporation ("Archetype"), a 10 person Internet software
developer, also based in the greater San Francisco area. Archetype's only
product is called "Meridian 59", a multiuser role playing game designed to be
played over the Internet. These acquisitions will place a strain on the
Company's management, operational, financial and administrative resources.
There can be no assurance that the Company will be able to successfully
integrate these entities into the Company, or that such acquisitions will be
profitable for the Company.
On May 30, 1996, the Company entered into a letter of intent agreement to
purchase certain assets and assume certain liabilities of New World Computing,
Inc. ("NWC"), an entertainment software company located in Agoura Hills,
California. As consideration for the purchase, the Company will issue
approximately 1.2 million shares of its common stock to NWC's shareholder. The
actual number of shares to be issued by the Company is subject to adjustments
based on the amount of certain NWC assets and liabilities on the closing date,
which is expected to occur in early July 1996. In addition, under the terms of
the letter of intent, the Company will be obligated to make a cash payment to
NWC in the event that the value of the 3DO stock issued in the transaction falls
below $10 per share during a period following the closing date. The Company
intends to account for the acquisition using the purchase method of accounting.
INTERNATIONAL OPERATIONS
In December 1995, the Company sold its Japanese developer support business
for the 3DO Multiplayer platform to Matsushita. The Company continues to
maintain a subsidiary in Japan, Studio 3DO K.K. However, as of March 31, 1996,
this entity had no employees and was not conducting any business activities.
The Company maintains a subsidiary in the United Kingdom, 3DO Europe, Ltd.,
which is responsible for the marketing and distribution of the Company's
entertainment software products outside of North America.
PROPRIETARY RIGHTS AND LICENSES
The Company's success will depend in part on its ability to obtain and
enforce intellectual property protection for its technology in the United States
and other countries. The Company has several United States patent applications
which are presently pending in the U.S. Patent and Trademark Office and has
filed for protection of certain patents in various countries under the
protection of the Patent Cooperation Treaty. In the U.S., six
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patents have been issued and three more have been allowed but have not yet
issued. The Company has not been notified that any of its other patent
applications will issue. The Company may file additional applications as it
deems appropriate for patents covering its technology. The Company's existing
patents will expire between the years 2011 and 2013.
The Company also relies on its trade secrets and proprietary know-how,
which it seeks to protect in part by confidentiality agreements with its
employees, consultants, vendors and current and prospective licensees. The
Company's license agreements prohibit unauthorized disclosure and unauthorized
reverse engineering of the Company's technologies.
The Company relies in part on copyright laws to prevent unauthorized
duplication or distribution of its software, written materials and audiovisual
works. Existing copyright laws and enforcement procedures afford only limited
protection, particularly in certain jurisdictions outside the United States.
3DO has applied for trademark protection in the United States and
approximately 36 other countries, including Japan and the United Kingdom, for
the Company name and logo and, in a limited number of countries, for the names
of certain hardware and software products. The Company has obtained nine federal
registrations of its trademarks in the United States. To date, the Company has
received approximately 25 Notices of Allowance from the U.S. Patent and
Trademark Office for its Intent to Use Trademark application of its marks in a
variety of international classes. The Company has other pending applications for
its "3DO" word mark, logo and names of various hardware and software products.
The Company has experienced difficulty in registering some of its marks in
various jurisdictions, including Japan. Once obtained, the term of a United
States trademark registration is ten years from the date of issuance of the
registration, and may be renewed. The Company licenses its name and logo for use
in connection with authorized product offerings marketed and distributed by such
licensees.
From time to time, the Company receives communications from third parties
asserting that features or content of certain of the Company's or its licensees'
products infringe upon intellectual property rights held by such third parties.
The Company has been notified by a third party that such third party believes
that the Company's initial hardware design, the 3DO Multiplayer system,
infringes upon one or more of such third party's patents. The Company is
evaluating this claim in the event litigation is instigated. As the number of
patents and products in the Company's industry increases and as the
functionality of these products further overlap, the Company believes that
products based on its technology will increasingly become the subject of
infringement claims by third parties. If such claims occur, the Company could
incur substantial costs in defending itself.
EMPLOYEES
On March 31, 1996, the Company's personnel included 344 full-time employees
and 44 independent contractors in the United States. These persons provided
services in the following functional areas: 175 in engineering and operations,
20 in sales and marketing, 134 in studio, and 59 in finance, administration,
distribution and legal services. On March 31, 1996, the Company's Japanese
subsidiary had no employees. On March 31, 1996, the Company's European
subsidiary employed a total of 3 persons, all involved in sales and marketing.
Many of the Company's employees are highly skilled. The Company's business
depends, to a great extent, on its ability to attract and retain skilled
employees. The
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interactive multimedia industry is characterized by a high level of employee
mobility and aggressive recruiting of skilled personnel, and, as such, the
Company competes for its employees with interactive multimedia companies as well
as other high technology companies in the hardware and software industries, many
of which have substantially greater resources than the Company. There can be no
assurance that the Company will be able to attract and retain skilled employees,
and the loss of skilled employees could have a material, adverse effect on the
Company's business. The employees and the Company are not parties to any
collective bargaining agreements. The Company believes that its relations with
its employees are good.
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RISK FACTORS
CHANGE IN STRATEGY
The Company is in the process of establishing operations as a
multi-platform entertainment software developer and publisher, and also intends
to leverage its 3-D graphics technologies into the PC market. The Company
expects that such change in strategy will result in a change in the composition
of the Company's revenues. Since commencement of operations, the Company has
been developing interactive multimedia technologies. Prior to December 1995,
the Company generated a majority of its revenue from software royalties and
pressing fees on titles published by its software licensees for the 3DO
Multiplayer platform. In the near term, the Company expects to derive the
majority of its revenue from technology licensing fees and the publishing and
distribution of internally and externally developed software titles. For most
of fiscal year 1995 and fiscal year 1996, the focus of the Company's business
was on maximizing royalty revenues from license and pressing fees from
third-party software products compatible with the 3DO Multiplayer format.
However, the 3DO Multiplayer format failed to achieve market acceptance. The
Company expects that its future revenues will mostly be in the form of
technology license fees from the Company's licenses pertaining to its M2
Technology. Revenues to the Company under the M2 Technology License Agreement
and the Cirrus Agreement are dependent on the Company fulfilling certain
commitments under such agreements, and there can be no assurance that the
Company will fulfill its obligations under such agreements, and any such
failure of the Company to fulfill its obligations, or any failure of such
licensees to pay the fees under such agreements as they become due, would have
a material adverse effect upon the Company's business, operating results and
financial condition. Although the Company commenced operations in 1991, the
Company has a very limited operating history upon which an evaluation of the
Company and its current strategy can be based. The Company is at an early stage
of development in its new business strategy and is subject to all of the risks
inherent in the establishment of a new business enterprise. To address these
risks, the Company must, among other things, establish technical feasibility
and complete development of its M2 and other technology, respond to competitive
developments, continue to attract, retain and motivate qualified personnel, and
support the development and marketing of products based on the Company's
technology. The Company's decision to focus its efforts on software title
publishing and distribution for PCs and the M2 platform is predicated on the
assumption that in the future the installed hardware base of PCs and the M2
platform will be large enough to permit this portion of 3DO's business to
operate profitably. There can be no assurance that the Company's assumption
will be correct. There can be no assurance that the Company will be able to
successfully compete as an entertainment software developer and publisher, nor
that the Company will be able to successfully leverage its 3-D graphics
technologies into the PC market. Any failure to achieve these goals could have
a material adverse effect upon the Company's business, operating results and
financial condition.
CHANGING PRODUCT PLATFORMS AND FORMATS
The Company is entering new markets with its software products,
specifically the PC and Internet markets. The markets for entertainment software
and entertainment software platforms are undergoing rapid technological change.
As a result, the Company must continually anticipate and adapt its products to
emerging platforms and evolving consumer preferences. The introduction of new
platforms and technologies can render existing products obsolete and
unmarketable. Development of entertainment software products for new hardware
platforms requires substantial investments in research and development for
technologies such as motion capture, digitized speech and sound effects, music
and full motion video and requires the Company to anticipate and develop
products for those platforms that will ultimately be successful. Generally,
software development efforts must occur well in advance of the release of new
platforms in order to introduce new products on a timely basis following the
release of such platforms. Although the Company intends to develop and market
entertainment software for certain advanced and emerging platforms, the
development and marketing efforts in connection therewith may require greater
financial and technical resources than currently possessed by the Company. In
addition, there can be no assurance that the platforms for which the Company
develops products will achieve market acceptance and, as a result, there can be
no assurance that the Company's development efforts with respect to such new
platforms will lead to marketable products or products that generate sufficient
revenues to offset research and development costs incurred in connection with
the creation of such products. There can be no assurance that the Company will
be successful in developing and marketing
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products for new platforms. Failure to develop products for new platforms that
achieve significant market acceptance would have a material adverse effect on
the Company's business, operating results and financial condition. Furthermore,
the Company does not have a license to develop products for certain of the most
popular platforms, including the Sony, Sega and Nintendo proprietary platforms.
Finally, the Company's products must maintain compatibility with certain
hardware, software and hardware accessories. Any changes in any of such
third-party product designs that result in incompatibility of the Company's
products could result in significant product returns and obsolescence.
DEPENDENCE ON PC MARKET
The Company's future success is in part dependent on the PC market,
which is extremely dynamic and has historically been characterized by wide
fluctuations in product supply and demand. From time to time, the PC industry
has also experienced significant downturns, often in connection with, or in
anticipation of, declines in general economic conditions. Furthermore, rapid
technological change in PC hardware may render the currently installed base of
PCs and the Company's technology obsolete. There can be no assurance that unit
sales of PCs will continue at their present levels or increase in the future.
The Company's revenues from its entertainment software products will be
dependent on marketing and distribution of titles to an installed base of PC
users. Any decrease in demand for PCs would have a material adverse effect on
the Company's operating results.
DEPENDENCE ON INTERACTIVE MULTIPLE PLAYER GAMES ON INTERNET PLATFORM
The Company's future success is in part dependent upon continued growth
in the use of the Internet. Rapid growth in the use of and interest in the
Internet is a recent phenomenon. The Internet may not prove to be a viable
commercial marketplace for a number of reasons, including potentially inadequate
development of the necessary infrastructure, such as a reliable network
infrastructure, or timely development of performance improvements including high
speed modems. In addition, to the extent that the Internet continues to
experience significant growth in the number of users and level of use, there can
be no assurance that the Internet infrastructure will continue to be able to
support the demands placed upon it by any such growth. In addition, the Internet
could lose its viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity, or due to increased government regulation. Changes in or insufficient
availability of telecommunications services to support the Internet also could
result in slower response times and adversely affect usage of entertainment
software developed for the Internet. If the use of the Internet does not grow,
or if the Internet infrastructure does not effectively support the growth that
may occur, the Company's business, results of operations and financial
conditions would be materially adversely affected.
There can be no assurance that multiple player games over the Internet
will become popular or widespread. The Company has had limited experience in
this area and only recently acquired Archetype, an Internet game company.
Various technical issues relating to multiple player games over the Internet
exist, such as system compatibility problems and inadequate infrastructure.
There has been little evidence of success in this area and a profitable business
model to capitalize on the interactive entertainment and game market on the
Internet has not yet been established.
DEPENDENCE ON THE M2 TECHNOLOGY
The Company has undertaken a diversification plan to design, integrate,
license and sell products directed at the 64-bit interactive entertainment
market. The Company's next generation 64-bit M2 Technology, which has been
licensed to Matsushita and Cirrus Logic, has not yet been fully developed. The
Company is dependent on Matsushita, as the exclusive licensee, to develop and
manufacture video game console products using the M2 Technology. Matsushita will
control the timing of any product launch, the pricing and marketing of any such
products, and any third-party licensing activities pertaining to such products.
Matsushita has not yet completed development of its production version of a
video game console based on the M2 Technology, and there can be no assurance
that Matsushita or any future hardware system licensee will be able to
manufacture such a video game console in large enough quantities or at low
enough costs to enable this product to be priced competitively. The video game
hardware platform market is extremely competitive and the Company's previous
experience with the 3DO Multiplayer platform, the first 32-bit, CDROM-based,
video game console in the market, demonstrates the
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perils involved with the development of new video game hardware technology. An
installed base of hardware using the M2 Technology is necessary for the Company
to successfully develop and market entertainment software for such hardware
base. There can be no assurance that the M2 Technology will offer advantages
over alternative technologies sufficient to generate market acceptance.
PRODUCT DEVELOPMENT
The Company's future success is based in substantial part upon its
ability to develop new technology for the 64-bit consumer entertainment product
market and the PC market, to create software titles for the 64-bit interactive
entertainment markets and design products for the PC, M2 and the Internet
platforms. Software product development schedules, particularly for new hardware
platforms such as the M2 and Internet platforms, are difficult to predict
because they involve creative processes, use of new development tools for new
platforms, and the learning processes associated with development for new
technologies, as well as other factors. As a result of their complexity,
software products frequently contain undetected errors or failures, especially
when first introduced or when new versions or enhancements are released. Despite
extensive product testing prior to the release of new products, the Company may
discover errors in its products after their initial release. There can be no
assurance that, despite testing by the Company, errors will not be found in new
products and product revisions released by the Company in the future. The
occurrence of such errors could result in significant losses to the Company. Any
such occurrence also could result in reduced market acceptance of the Company's
products, which could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, CDROM and Internet
multiple player products frequently include more content and are more complex,
time-consuming and costly to develop than simpler PC or video game console
products and accordingly, cause additional development and scheduling risk. As a
result, there can be no assurance that the Company will achieve its goal of
releasing up to ten Studio 3DO titles during fiscal 1997 or of releasing a
production version of Meridian 59 in calender 1996. These development risks can
cause particular difficulties in predicting quarterly results. Failure to meet
product development schedules may cause a shortfall in shipments in any quarter
and may cause the operating results for such quarter to fall significantly below
anticipated levels.
SHORT PRODUCT LIFESPANS
Interactive entertainment software products typically have life spans
of only 3 to 12 months. Accordingly, the Company will need to constantly develop
and bring to market new products that achieve market acceptance quickly. The
Company's future success will depend in large part on its ability to develop and
introduce new products on a timely basis. New products must keep pace with
competitive offerings, adapt to new hardware platforms and emerging industry
standards, and provide additional functionality. If the Company is unable, due
to resource constraints or technological or other reasons, to develop and
introduce such products in a timely manner, this inability would have a material
adverse effect on its operating results and financial condition. There can be no
assurance that the Company will be able to complete the timely development of,
and commercially release, new software products that achieve market acceptance.
TECHNOLOGICAL CHANGE
The market for interactive multimedia products is characterized by
rapidly changing technology and user preferences, evolving formats for
compression of audio and video data and frequent new product introductions. Even
if the Company's technology and related software titles gain broad market
acceptance, the Company's success will depend, among other things, upon the
ability of the Company and its licensees to achieve and maintain technological
leadership and to remain competitive in terms of price and product performance.
The Company's pursuit of these technical improvements and other
technological goals will require substantial expenditures, and there can be no
assurance that any of these technical improvements will be developed or that the
Company or its licensees will achieve or maintain technological leadership. Any
material failure of the Company or its licensees to develop or incorporate any
planned improvement would adversely affect the widespread adoption of the
Company's technology and the introduction and sale of future products based on
the Company's technology, and would increase the likelihood that competitive
technologies will become broadly accepted. There can be no assurance that
products or technologies developed by others will not render obsolete the
Company's technology and the products based on the Company's technology.
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COMPETITION
The Company is entering new markets with its software products,
specifically the PC and Internet markets. This will, to some degree, require
distribution through distributors and retailers who have not, in the past,
carried the Company's products. There will be intense competition in procuring
adequate distribution of the Company's software products. There can be no
assurance that the Company will succeed in obtaining sufficient distribution to
enable its products to achieve market success.
The markets in which 3DO's software products compete are expected to
undergo significant changes, due in part to the introduction, or planned
introduction, of new hardware platforms and electronic delivery systems, and the
entry and participation of new industries and companies. Severe competition
exists for retail shelf space in the consumer software industry. A number of
factors, including the Company's historic performance, discounts to retailers,
inventory and return policies, customer service, product support, brand
recognition, perceived quality and entertainment value of specific titles, and
marketing activities all affect access to distributors and retailers. In
addition, sales of interactive entertainment products are becoming increasingly
"hits" driven. Fewer products in that market are successful and publishers of
these games, including the Company, must incur substantial marketing and sales
expenses to promote retailers' sales of such products.
A variety of companies offer products that compete directly with one or
more of the Company's products. These direct competitors vary in size from very
small companies with limited resources to companies with financial, managerial
and technical resources substantially greater than those of the Company. The
Company's competitors include manufacturers of hardware platform systems such as
Nintendo, Sega and Sony (together with third-party licensees); diversified media
and entertainment companies such as Walt Disney Company, Viacom International,
Inc. and Time Warner Enterprises, Inc.; large independent multi-platform
software developers such as Electronic Arts, Acclaim Entertainment, Inc.,
Lucas Arts Entertainment Co., and Spectrum HoloByte, Inc.; and publishers of
personal computer software such as Microsoft, Maxis, Inc. and Sierra On-line,
Inc. In addition, companies in industries such as cable television and
telecommunications, many of which have significant financial resources, have
begun to diversify or have announced plans to enter the interactive software
market. These new entrants have the potential to become significant
competitors.
VARIABILITY OF OPERATING RESULTS
The Company expects that its operating results will experience
significant fluctuation as a result of changes in the composition of the
Company's revenues, the timing of new video game hardware and software product
introductions by the Company's competitors, the timeliness with which the
Company releases its products to the market, fluctuations in the PC market, the
financial impact of acquisitions of other companies by the Company, and the
Company's investments in research and development, and expenditures on marketing
and promotional programs.
The market for entertainment software is highly seasonal. The Company's
revenues are expected to be affected by the seasonal nature of the market, which
is characterized by increased sales in the fourth calendar quarter coinciding
with the holiday selling season and typically a seasonal low in revenues in the
quarter ending in June. Seasonal trends may also be affected by general economic
or industry factors. The Company's revenues may also reflect substantial
variations as a result of the timing of the introduction of and demand for a
particular software title it has published and/or distributed. Such demand may
increase or decrease as a result of a number of factors, such as consumer
preferences, product announcement by competitors and the popularity of
particular hardware platforms, that cannot be predicted. The software industry
is characterized by frequent product delays which can materially adversely
affect the sales of a product if the product is not released in time for the
holiday season.
The Company's revenues are also affected by the timing of payments
under agreements with companies that license the Company's technologies. These
licenses can represent significant revenues to the Company which can cause
fluctuation in quarterly results. Also, where there are contractual obligations
of the Company to complete certain technology, the Company will recognize
revenues on the "percentage of completion" method, and the progress made in
completing the engineering of such technology will affect the revenue recognized
in any particular quarter.
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The Company has stock-balancing programs for its software products
that, under certain circumstances and up to a specified amount, allow for the
exchange of software products by resellers. The Company also typically provides
for price protection for its software products that, under certain conditions,
allows the reseller a price reduction from the Company for unsold products. The
Company maintains a policy of exchanging products or giving credits, but does
not typically give cash refunds. The risk of price protection requirements is
increasing as a result of the maturing and the increasingly hit-based nature of
the video game market. Moreover, the risk of product returns may increase as new
hardware platforms become more popular or market factors force the Company to
make changes in its distribution system. Overstocking in the distribution
channel can result in high returns or the requirement for substantial price
protection in subsequent periods. The Company provides for reserves for returns
and price protection based on estimated future returns of products, taking into
account promotional activities, the timing of new product introductions,
distributor and retailer inventories of the Company's products and other
factors. There can be no assurance that actual returns or price protection will
not exceed the Company's reserves.
DEPENDENCE ON DISTRIBUTORS
The distribution channels through which consumer software products are
sold have been characterized by change, including consolidations and financial
difficulties of certain distributors and retailers and the emergence of new
retailers such as general mass merchandisers. The bankruptcy or other business
difficulties of a distributor or retailer could render the Company's accounts
receivable from such entity uncollectible, which could have an adverse effect on
the operating results and financial condition of the Company. In addition, an
increasing number of companies are competing for access to these channels. The
Company's arrangements with its distributors and retailers may be terminated by
either party at any time without cause. Distributors and retailers often carry
products that compete with those of the Company. Retailers of the Company's
products typically have a limited amount of shelf space and promotional
resources for which there is intense competition. There can be no assurance that
distributors and retailers will purchase the Company's products or provide the
Company's products with adequate levels of shelf space.
DEPENDENCE ON THIRD PARTIES
The Company continues to be dependent on the technological,
manufacturing, marketing, financial and other resources of third parties with
which it has established or is attempting to establish commercial relationships.
The Company relies on third parties to develop, manufacture, market and
distribute products that incorporate technology licensed from 3DO, such as
Matsushita and Cirrus Logic with respect to the M2 technology. The Company's
licensees may choose not to utilize the Company's technology and could develop
products or technologies that compete directly with products based upon the
Company's technology. No third party is contractually obligated to perform any
of the activities on which the Company depends in order to meet its business
objectives. In addition, there can be no assurance that these third parties will
commit any resources to the commercialization of the Company's technology.
Further, a licensee's financial or other resource limitations may prevent such
licensee from commercializing products based on the Company's technology. The
Company's 3DO unit also depends upon third-party developer to complete its
contractual obligations to the Company would avdersely affect Studio 3DO's
ability to complete and release titles which would adversely affect the
Company's operating results.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends in large part on the continued
service of its key technical, marketing, sales and management personnel. Given
the Company's early stage of development, the Company is dependent on its
ability to recruit, retain and motivate high quality personnel, especially
highly skilled engineers, programmers and artists involved in the ongoing
hardware and software development required to define future interactive hardware
systems, refine existing interactive technologies, introduce enhancements for
future applications, and develop novel software titles. The Company is
particularly dependent on the skills and contributions of several key
individuals, any one of whom may voluntarily terminate employment with the
Company at any time and whose departure would have a material adverse effect on
the Company's business. The Company is particularly dependent upon its Chief
Executive Officer, Trip Hawkins, who is also acting as the head of Studio 3DO.
The Company does not have "key person" life insurance policies on any of its
employees. The interactive multimedia industry is characterized by a high level
of employee mobility and aggressive recruiting of
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skilled personnel. The Company competes with computer hardware, software and
entertainment companies for the recruitment of skilled personnel. There can be
no assurance that the Company's current employees will continue to work for the
Company or that the Company will be able to obtain the services of additional
personnel necessary for the Company's growth.
RECENT ACQUISITIONS
The Company acquired the business of Cyclone Studios ("Cyclone"), a
software developer, during November of 1995. In May of 1996, the Company
acquired all the outstanding capital stock of Archetype Interactive
Corporation, a developer of a multi-user role playing game to be played over
the Internet, and entered into a letter of intent to purchase the assets and
assume certain liabilities of New World Computing, Inc. , an entertainment
software company. Each of these acquisitions represented the addition of new
products and personnel to the Company, which has caused changes in the
allocation of management and other resources, marketing strategies and
production systems. The Company's ability to manage its acquired businesses
effectively will depend on its ability to hire additional management and
technical personnel and to continue to improve the operating, financial and
management systems and controls in each of its operating units. There can be no
assurance that the Company will be able to successfully integrate these
acquired businesses or other companies which the Company may acquire in the
future with the current operations of the Company.
FUTURE ACQUISITIONS
The Company is in the process of establishing operations as a
multi-platform entertainment software developer and its strategy may involve, in
part, acquisitions of products, technologies or businesses from third parties.
Identifying and negotiating these acquisitions may divert substantial management
time away from the Company's operations. An acquisition could absorb substantial
cash resources, could require the Company to incur or assume debt obligations,
or could involve the issuance of additional equity securities of the Company.
The issuance of additional equity securities could dilute and could represent an
interest senior to the rights of then outstanding common stock. An acquisition
which is accounted for as a purchase, like the acquisitions of Cyclone and NWC,
could involve significant one-time non-cash write-offs, and could involve the
amortization of goodwill over a number of years, which would adversely affect
earnings in those years. Acquisitions outside the entertainment software area
may be viewed by outside market analysts as a diversion of the Company's focus
on entertainment software. For these reasons, the market for the Company's stock
may react positively or negatively to the announcement of any acquisition. Any
acquisition will require attention from the Company's management to integrate
the acquired entity into the Company's operations, may require the Company to
develop expertise outside its existing businesses and may result in departures
of management of the acquired entity. An acquired entity may have unknown
liabilities, and its business may not achieve the results anticipated at the
time of the acquisition. Any acquisitions that adversely affect the operations
of the Company may have an adverse impact on the Company's stock price.
PROPRIETARY RIGHTS AND LICENSES
The Company's success will depend in part on its ability to obtain and
enforce intellectual property protection for its technology in both the United
States and other countries. The Company has filed a number of patent
applications with the United States Patent and Trademark Office ("U.S. Patent
Office") and international counterparts of certain of these applications with
the United States Receiving Office pursuant to the Patent Cooperation Treaty.
The Company intends to file additional applications as it deems appropriate for
patents covering its technology. The process of obtaining patent protection is
expensive and absorbs substantial management and engineering time. No assurance
can be given that any patents will issue from these applications or that, if
any patent does issue, the claims allowed will be sufficiently broad to protect
the key aspects of the Company's technology or that the patent laws will
provide effective legal or injunctive remedies to stop any infringement of the
Company's patents. In addition, no assurance can be given that any patent
issued to the Company will not be challenged, invalidated or circumvented, that
the rights granted under patents will provide competitive advantages to the
Company, or that the Company's competitors will not independently develop or
patent technologies that are substantially equivalent or superior to the
Company's technology.
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The Company also relies on trade secrets and proprietary know-how which
it seeks to protect, in part, by confidentiality agreements with its employees,
consultants, developers, vendors, and current and prospective licensees. The
Company's license agreements prohibit unauthorized disclosure or unauthorized
reverse engineering of the Company's licensed technology. However, the Company
expects that third parties may attempt to reverse engineer its technology
without authorization and there can be no assurance that the Company's
confidentiality and license agreements will not be breached or that the Company
would have adequate remedies for any breach. As a result, the Company may not
have an adequate remedy if a competitor disassembles or reverse engineers
products based on the Company's proprietary technology, even if the technology
is protected by trade secret or copyright law. There can be no assurance that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors.
The Company relies in part on copyright laws to prevent unauthorized
duplication or distribution of its software, written materials and audiovisual
works. The Company is also considering seeking protection of its semiconductor
circuit designs under applicable mask work right laws. Existing copyright and
mask work right laws afford only limited protection, particularly in certain
jurisdictions outside the United States where the Company may seek to license
its technology. There can be no assurance that the copyright laws or mask work
right laws will adequately protect the Company's technology.
The Company licenses its name and logo for use in connection with
authorized products. The Company has experienced difficulty in registering some
of its marks in various jurisdictions, including Japan. There can be no
assurance that the Company will obtain sufficient trademark protection for these
marks, that these marks will not be duplicated without authorization, or that
the Company will have adequate remedies for trademark infringement in any
country.
From time to time, the Company receives communications from third
parties asserting that features or content of certain of the Company's or its
licensees' products infringe upon intellectual property rights held by such
third parties. The Company has been notified by a third party that such third
party believes that the Company's initial hardware design, the 3DO Multiplayer
system, infringes upon one or more of such third party's patents. The Company is
evaluating this claim in the event litigation is instigated. As the number of
patents and products in the Company's industry increases and as the
functionality of these products further overlaps, the Company believes that
products based on its technology will increasingly become the subject of
infringement claims. The Company could incur substantial costs in defending
itself or its licensees in litigation brought by others, or in prosecuting
infringement claims against third parties. The Company could also incur
substantial costs in interference proceedings declared by the U.S. Patent Office
in connection with one or more of the Company's or a third party's patents or
patent applications. Those proceedings could result in an adverse decision as to
the priority of the Company's inventions. A third party claiming infringement
may be able to obtain an injunction or other equitable relief, which could
effectively block the ability of the Company's licensees to import into the
United States or to distribute and sell hardware or software products licensed
by the Company. This would materially adversely affect the Company. Such a third
party could also assert claims for substantial damages against the Company, its
licensees or distributors of such licensees' products, which could inhibit the
manufacture or sale of licensed products. In the event of a claim of
infringement, the Company or its licensees may be required to obtain one or more
licenses from third parties. There can be no assurance that the Company or its
hardware and software licensees will be able to obtain from third parties any
required license to technology at a reasonable cost or at all. Failure by the
Company or its hardware and software licensees to obtain any such license would
have a material adverse impact on the Company.
VOLATILITY OF STOCK PRICE
Market prices of securities of companies engaged in the entertainment
software industry have been highly volatile. Factors such as announcements of
the introduction of new products by the Company or its competitors,
announcements of joint development efforts or corporate partnerships in the
entertainment software field, market conditions in the technology,
entertainment, cable, telecommunications and other emerging growth company
sectors, and rumors relating to the Company or its competitors, have had and may
in the future have a significant impact on the market price of the
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<PAGE> 21
Company's common stock. Further, the stock market has experienced volatility
that has particularly affected the market prices of equity securities of many
high technology and development stage companies such as those in the
entertainment software and semiconductor industries that has often been
unrelated to the operating performance of such companies. These market
fluctuations may adversely affect the price of the Company's common stock.
Item 2. PROPERTIES
As of May 31, 1996, the Company leased approximately 92,000 square feet of
facilities in Redwood City, California, and 7,600 square feet in San Mateo,
California, for an aggregate monthly rent expense of approximately $139,000. An
additional 8,000 square feet in Redwood City is under negotiation. These
facilities house the Company's administrative, research, development and sales
operations. The lease with respect to the existing Redwood City facilities
expires in August 1997 with an option to extend for one year. The lease for the
San Mateo site expires during May 1999. The Company also leases office space in
the United Kingdom for the sales and marketing activities of the Company's
subsidiary, 3DO Europe, Ltd. The Company believes that these facilities are
adequate for its current needs.
Item 3. LEGAL PROCEEDINGS
In May 1994, the Company and certain officers and directors were named in
complaints filed in U.S. District Court, Northern District of California. The
consolidated complaint alleged violations of the federal securities laws based
on alleged misrepresentations and omissions in the Company's initial public
offering prospectus and based on allegedly false and misleading statements by
representatives of the Company during the period from May 3, 1993 to May 19,
1994 regarding the Company's business. The plaintiffs sought to bring suit on
behalf of a class consisting of all purchasers of the Company's securities
during that period. The amount of damages sought was unspecified. On July 19,
1995, all claims against the Company and its officers and/or directors were
dismissed with prejudice. The plaintiffs have appealed this dismissal. The
present briefing on this appeal is scheduled for mid-1996.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended March 31, 1996.
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<PAGE> 22
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock trades publicly on the Nasdaq National Market under
the symbol "THDO." The following table sets forth for the periods indicated the
quarterly high and low closing sales prices of the Common Stock on the Nasdaq
National Market.
<TABLE>
<CAPTION>
Closing Sales
Prices
------------------
High Low
------ ------
<S> <C> <C>
Fiscal Year Ended March 31, 1995:
First Quarter $23.13 $ 9.88
Second Quarter 21.63 13.50
Third Quarter 24.25 9.50
Fourth Quarter 13.88 8.75
Fiscal Year Ended March 31, 1996:
First Quarter 17.31 11.25
Second Quarter 15.63 11.00
Third Quarter 12.88 9.00
Fourth Quarter 11.25 9.00
</TABLE>
As of May 31, 1996, there were approximately 852 holders of record of 26,694,900
shares of outstanding Common Stock.
Dividend Policy
The Company has not paid any dividends since its inception and does not intend
to pay any dividends on its Common Stock in the foreseeable future.
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<PAGE> 23
Item 16. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(in thousands, Period from
except for per share amounts) Fiscal Years Ended March 31, October 1, 1991
---------------------------------------------------- (inception) to
1996 1995 1994 1993 March 31, 1992
--------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Total revenues $ 37,918 $ 30,380 $ 10,295 $ -- $ --
Total cost of revenues 7,914 7,177 3,464 -- --
--------- --------- --------- --------- --------
Gross profit 30,004 23,203 6,831 -- --
--------- --------- --------- --------- --------
Operating expenses:
Research and development 41,184 36,483 23,412 11,434 2,146
Sales and marketing 6,837 11,777 8,248 1,993 64
General and administrative 9,535 7,504 6,175 2,008 552
Market development advertising 924 4,926 -- -- --
Stock incentive -- 8,359 -- -- --
Acquisition of NTG royalty rights -- -- 21,353 -- --
--------- --------- --------- --------- --------
Total operating expenses 58,480 69,049 59,188 15,435 2,762
--------- --------- --------- --------- --------
Operating loss (28,476) (45,846) (52,357) (15,435) (2,762)
Net interest and other income 684 437 976 50 29
--------- --------- --------- --------- --------
Loss before income and foreign
withholding taxes (27,792) (45,409) (51,381) (15,385) (2,733)
Income and foreign
withholding taxes 6,876 853 50 1 1
--------- --------- --------- --------- --------
Net loss $ (34,668) $ (46,262) $ (51,431) $ (15,386) $ (2,734)
========= ========= ========= ========= ========
Net loss per share $ (1.36) $ (2.04) $ (2.60) $ (1.02) $ (0.18)
========= ========= ========= ========= ========
Shares used in per share
calculations 25,456 22,697 19,747 15,018 15,014
========= ========= ========= ========= ========
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands) March 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
-------- --------- -------- -------- --------
Balance Sheet Data:
Cash and available-for-sale
securities $ 50,145 $ 14,346 $ 14,301 $ 2,827 $ 1,081
Working capital $ (6,951) $ 10,826 $ 10,494 $ (1,175) $ 1,149
Total assets $ 63,330 $ 34,161 $ 25,870 $ 6,437 $ 1,792
Total long-term liabilities $ 1,831 $ 6,529 $ 2,152 $ 2,920 873
Total stockholders' equity (deficit) $ 131 $ 15,685 $ 15,879 $ (959) 784
</TABLE>
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<PAGE> 24
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The following discussion is intended to assist in the understanding and
assessment of significant changes and trends relating to the results of
operations and financial condition of The 3DO Company, together with its
consolidated subsidiaries (the "Company"). This discussion and analysis should
be read in conjunction with the Company's consolidated financial statements and
notes thereto.
Private Securities Litigation Reform Act Safe Harbor Statement
Except for the historical information, this discussion and analysis includes
certain forward-looking statements that involve risks and uncertainties.
Such statements represent the Company's reasonable judgment on the future
and are subject to risks and uncertainties that could cause the Company's
actual results and financial position to differ materially. Such factors
include, without limitation: the extent to which the Company will receive
and/or recognize revenue from the M2 Technology Licensing Agreement with
Matsushita Electric Industrial Co., Ltd. ("Matsushita"), the extent to
which the Company will receive and/or recognize revenue from its Joint
Development and License Agreement with Cirrus Logic, Inc. ("Cirrus Logic"); the
Company's ability to successfully leverage its core technologies into other
markets; the Company's ability to develop software products for new platforms
and the timeliness, cost, and market demand for such products created as part
of its software development activities; and the effect of competitive factors
in the marketplace, including the market acceptance of certain formats and the
timing and release of competitors' products. The Company undertakes no
obligation to publicly release the result of any revisions to the
forward-looking statements contained herein to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Overview
Since commencement of its operations in October 1991, the Company has been
developing interactive technologies and software applications. To date, it has
devoted a majority of its resources to research and development activities,
marketing and licensing its technology, recruiting and supporting third-party
licensees, and expanding its administrative organization. More recently and in
the future the Company will devote greater resources to its multi-platform
software publishing and distribution businesses, and other businesses derived
from leveraging its graphics technologies into other markets.
Prior to December 1995, the Company generated a majority of its revenue from
software royalties and pressing fees on titles published by its software
licensees for the 3DO Multiplayer platform. The Company has also derived revenue
from the sale of development systems to licensees, license fees for rights to
manufacture 3DO-formatted CDs, software title development activities whereby the
Company developed titles under contract for publishing by third parties,
engineering activities under contract to third parties, technology licensing
fees, and the licensing and distribution of software titles published by the
Company and others. Revenue has also been generated from royalties paid by
semiconductor foundries upon their sale of licensed chipsets to hardware system
manufacturers (see "Results of Operations" below.)
In the near term, the Company expects to derive the majority of its revenue from
technology licensing fees and the publishing and distribution of internally and
externally developed software titles. While revenue from title development for
third parties was a
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<PAGE> 25
significant contributor to revenue for fiscal year 1994 and for the first
quarter of fiscal year 1995, the Company does not expect any additional such
revenue as the Company now funds and publishes its own software titles. For most
of fiscal year 1995 and fiscal year 1996, the focus of the Company's business
was on maximizing royalty revenues from the pressing of third-party software CDs
that played on the 3DO Multiplayer systems marketed and distributed by Panasonic
and Goldstar, which failed to achieve market acceptance. As a result, this
third-party CD pressing royalty stream is expected to decrease significantly, to
less than 1% of revenue in fiscal year 1997. The Company is in the process of
establishing operations as a multi-platform entertainment software developer and
publisher, and also intends to leverage its 3-D graphics technologies into
multiple markets. These technology revenues will mostly be in the form of
license fees with the near term focus on the video game console, PC, and digital
video markets.
The Company generally recognizes revenue from the sale of software titles,
development systems, or digital video systems at the time of shipment. Revenue
from the M2 Technology License Agreement with Matsushita, and the Joint
Development and License Agreement with Cirrus Logic, and other engineering
contracts, is recognized using the percentage-of-completion method.
The Company and Matsushita entered into a definitive license agreement, dated
December 7, 1995, pursuant to which the Company granted Matsushita a perpetual,
exclusive, worldwide license, with the right to grant sublicenses, with respect
to the Company's 64-bit interactive multimedia technology known as "M2" (the "M2
Technology") for use in both hardware and software for games and for all other
applications (the "Technology License Agreement"). The license was granted in
exchange for an upfront license payment of $100 million to be paid in two
installments and for certain royalties which shall be paid for certain software
products manufactured after January 1, 1998, which are compatible with the M2
Technology. As of March 31, 1996, the Company had received the first installment
of the license fee of $60 million, less $6.0 million in Japanese withholding
taxes, of which $14.5 million has been recognized as revenue for the fiscal year
ended March 31, 1996. As of March 31, 1996, the Company had incurred
approximately $4.3 million of costs in connection with fulfilling its
commitments under the Technology Licensing Agreement. The remaining $40 million
payment, less $4.0 million in Japanese withholding taxes, is scheduled to be
received by June 30, 1996, provided that the Company has delivered to Matsushita
certain deliverable items pertaining to the M2 Technology pursuant to the
Technology Licensing Agreement.
On April 24, 1996, the Company agreed to make certain modifications to the M2
system design, pursuant to the terms of an addendum (the "Addendum") to the
Technology Licensing Agreement. As consideration for providing engineering and
certain support services, the Company will receive an aggregate fee of
approximately $4.5 million to be received in installments in fiscal 1997 and
1998. The payments by Matsushita are contingent upon the Company timely meeting
certain milestones, as stipulated in the addendum. The Company intends to
recognize this revenue as these milestones are achieved.
Concurrent with the execution of the Technology License Agreement, Matsushita
and the Company entered into a separate stock purchase and license agreement
whereby Matsushita acquired all of the outstanding capital stock of 3DO Japan
Co., Ltd. for $668,000, the approximate book value of the entity at the date of
closing. This entity of approximately 14 people was responsible for the
third-party support activities of the 32-bit 3DO Multiplayer platform.
In February 1996, the Company licensed the 3-D graphics portion of the M2
Technology to Cirrus Logic, a leader in video graphics controllers, for the
development of high-end 3-D
-25-
<PAGE> 26
graphics chips for the PC market. Under the terms of the Joint Development and
License Agreement with Cirrus Logic (the "Cirrus Agreement") the Company will
develop certain modifications to the "3-D Engine", which is a component of its
proprietary semiconductor technology. As consideration under such agreement, the
Company is to receive a non-refundable amount not-to-exceed $7.8 million, of
which $1.5 million was received as of March 31, 1996 and the remaining $6.3
million is scheduled to be paid as certain dates are achieved and as the Company
fulfills its obligations specified under the agreement. Revenue pertaining to
the Cirrus Agreement will be recognized using the percentage-of-completion
method based on the costs incurred to fulfill its commitments as specified in
the agreement. As of March 31, 1996, the Company had recognized $0.1 million of
revenue in connection with the Cirrus Agreement.
In November of 1995, the Company acquired the business, including all
of the assets and certain of the liabilities of Cyclone Studios, a software
developer. Consideration for the purchase consisted of upfront cash and stock,
and potential future consideration based upon the financial performance of the
respective new division. The upfront portion of the purchase price,
approximately $880,000, was expensed as acquired in-process research and
development in the third quarter of fiscal 1996.
On May 31, 1996, the Company acquired all the outstanding capital stock
of Archetype Interactive Corporation ("Archetype"), a 10 person software
developer of a multi-user role playing game designed to be played over the
Internet. In exchange for the outstanding capital stock of Archetype, the
Company issued shares of its common stock to the Archetype shareholders. The
Company intends to account for this acquisition under the "pooling of interests"
method.
On May 30, 1996, the Company entered into a letter of intent to
purchase the assets and assume certain liabilities of New World Computing, Inc.
("NWC"), an entertainment software company. As consideration for the purchase,
the Company will issue approximately 1.2 million shares of its common stock to
NWC. The actual number of shares to be issued by the Company will be subject to
adjustments based upon certain NWC assets and liabilities on the closing date,
which is anticipated to occur in early July 1996. In addition, under the terms
of the letter of intent, the Company will be obligated to make a cash payment to
NWC in the event that the value of the 3DO stock issued in the transaction falls
below $10 per share during a period following the closing date. The closing of
the transaction will be subject to the Company's satisfactory completion of due
diligence and other customary conditions of closing. The Company intends to
account for the acquisition using the purchase method of accounting.
The Company expects that its operating results will fluctuate as a
result of a wide variety of factors, including changes in the composition of the
Company's revenues, the timing of new hardware and software product
introductions by its licensees and by its competitors, the Company's
expenditures on research and development, marketing and promotional programs,
and the general state of the national and global economies. In addition, the
Company's revenue will be affected by the seasonal nature of the market for
consumer electronics products and variations as a result of the demand for
particular software titles.
The market for the Company's interactive multimedia software products
is highly competitive. A variety of companies offer products that compete
directly with the Company's software products. The Company has recently
announced a strategy to develop games for the PC platform. The market for PC
entertainment software products is hit-driven, price sensitive and characterized
by a large number of similar products competing for limited retail shelf space.
The Company also intends to develop games for the M2 platform, which is expected
to be manufactured and marketed by Matsushita. However, until the Company has
successfully "ported" or created new games for the PC
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<PAGE> 27
platform or until the M2 platform is launched and a reasonable installed base is
created, both of which could take many quarters, the Company's ability to
successfully compete in these markets is unknown. Publishing revenues associated
with titles specifically for the 3DO Multiplayer platform are expected to
decline substantially.
The Company's technology business is also very competitive. The focus of this
business is the design and licensing of 64-bit 3-D graphics technologies for the
video game console and PC markets. There have been a number of new entrants into
these markets over the past two years introducing low-cost, high-performance
graphics chips. Although agreements have been signed with Matsushita and Cirrus
Logic to license the Company's technology, there can be no assurance that any
future agreements of this nature can be completed.
-27-
<PAGE> 28
Results of Operations
The following discussions compare the results of operations for the fiscal year
ended March 31, 1996, to the fiscal year ended March 31, 1995, and the fiscal
year ended March 31, 1995, to the fiscal year ended March 31, 1994. The
operating results for each of the years ended March 31, 1996, 1995 and 1994 are
not necessarily indicative of operating results in future periods. The following
comparative information should be read in conjunction with the consolidated
financial statements and notes thereto for each period discussed, as well as the
information presented in other sections of management's discussion and analysis.
Fiscal Year 1996 Compared to Fiscal Year 1995
<TABLE>
<CAPTION>
Years ended March 31 Change
--------------------------------------------- --------------------
1996 %(a) 1995 %(a) Amount %
--------- ------ ------------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Royalties and license fees $ 24,074 63.5 $ 18,593 61.2 $ 5,481 29.5
Software publishing 7,330 19.3 3,287 10.8 4,043 123.0
Development systems and other 6,514 17.2 8,500 28.0 (1,986) (23.4)
--------- ------ --------- ------ --------- -----
Total revenues 37,918 100.0 30,380 100.0 7,538 24.8
--------- ------ --------- ------ --------- -----
Cost of revenues:
Royalties and license fees 694 2.9 2,200 11.8 (1,506) (68.5)
Software publishing 3,989 54.4 1,526 46.4 2,463 161.4
Development systems and other 3,231 49.6 3,451 40.6 (220) (6.4)
--------- ------ --------- ------ --------- -----
Total cost of revenues 7,914 20.9 7,177 23.6 737 10.3
--------- ------ --------- ------ --------- -----
Gross profit 30,004 79.1 23,203 76.4 6,801 29.3
--------- ------ --------- ------ --------- -----
Operating expenses:
Research and development 41,184 108.6 36,483 120.1 4,701 12.9
Sales and marketing 6,837 18.0 11,777 38.8 (4,940) (42.0)
General and administrative 9,535 25.2 7,504 24.7 2,031 27.1
Market development advertising 924 2.4 4,926 16.2 (4,002) (81.2)
Stock incentive -- -- 8,359 27.5 (8,359) (100.0)
--------- ------ --------- ------ --------- -----
Total operating expenses 58,480 154.2 69,049 227.3 (10,569 (15.3)
--------- ------ --------- ------ --------- -----
Operating loss (28,476) (75.1) (45,846) (150.9) 17,370 (37.9)
Net interest and other
income 684 1.8 437 1.4 247 56.5
--------- ------ --------- ------ --------- -----
Loss before income and foreign
withholding taxes (27,792) (73.3) (45,409) (149.5) 17,617 (38.8)
Income and foreign
withholding taxes 6,876 18.1 853 2.8 6,023 706.1
--------- ------ --------- ------ --------- -----
Net loss $ (34,668) (91.4) $ (46,262) (152.3) $ 11,594 (25.1)
========= ====== ========= ====== ========= ======
</TABLE>
(a) Percentage of total revenues except cost of revenue components, which are a
percentage of their respective revenue amounts.
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<PAGE> 29
Revenue for the year ended March 31, 1996, increased by approximately $7.5
million (25%) from $30.4 million in fiscal 1995 to $37.9 million in fiscal year
1996. Royalties and license fees were the largest component of revenue and
accounted for approximately 64% and 61% for the years ended March 31, 1996 and
1995, respectively, and represented approximately a $5.5 million (30%) increase
compared to the prior year. Royalties and license fees consisted of technology
license fees, software royalties, pressing fees, semiconductor royalties and MDF
revenue (see Note A of the notes to the consolidated financial statements).
Included in technology license fees for the fiscal year ended March 31, 1996, is
$14.5 million of the $100.0 million license fee under the Technology License
Agreement with Matsushita (see "Overview" section above). There were no
technology license fees in the prior fiscal year. The revenue recognition
methodology for the Technology License Agreement is based upon the
percentage-of-completion method, as the Company fulfills its commitments to
deliver technology as specified in the agreement. Software royalties and
pressing fees decreased from $14.9 million in fiscal 1995 to $6.7 million in
fiscal year 1996 due to the upfront license fee from Matsushita for the right to
manufacture 3DO-formatted CDs in Japan earned in fiscal year 1995, which was
absent in fiscal year 1996, and decreases in sales of software products being
manufactured by third-party publishers. In light of the fact that the 3DO
Multiplayer did not achieve market acceptance, the Company expects software
royalties and pressing fees related to the 3DO Multiplayer platform to decrease
substantially in the future.
Software publishing revenue of approximately $7.3 million for the year ended
March 31, 1996, increased by approximately $4.0 million (123%) compared to the
prior fiscal year, which resulted from the Company's increased publishing and
distribution activities. Software publishing revenue is generated by the
Company's publishing, distribution, and licensing, of externally and internally
developed software titles. In June 1995, the Company entered into an agreement
under which the Company granted Matsushita the right to license, manufacture and
distribute certain software titles developed by or for 3DO. During the fiscal
year 1996, the Company recognized approximately $1.4 million in software
publishing revenues under this agreement. The increase in software publishing
revenue is also attributed to sales from the release of ten published and three
distributed titles during fiscal year 1996. Software revenue is recorded net of
reserves for price protection and returns.
Development systems and other revenue of $6.5 million for fiscal 1996 decreased
approximately $2.0 million (23%), compared to the prior fiscal year. This
decrease is comprised of a $1.1 million decrease in development systems revenue
and a decrease of approximately $0.9 million in other revenue compared to the
prior year. For the fiscal year ended March 31, 1996, development system sales
of $3.3 million have decreased as new software development on the Company's 3DO
Multiplayer platform has declined. This decrease is partially offset by
shipments of M2 development systems, which commenced in July 1995. Other revenue
for the fiscal year 1996 totaled approximately $3.2 million of revenue and is
primarily comprised of engineering and development services and encryption and
duplication revenues. The decrease is primarily due to the decision to eliminate
software development activities for other publishers.
Cost of revenues of approximately $7.9 million increased by approximately $0.7
million (10%), compared to the prior year. Cost of revenues consists of direct
costs associated with software titles sold and development systems products,
amortization of prepaid royalties (described in Note A of the notes to the
consolidated financial statements), and hardware systems incentives accrued on
all chipsets shipped into distribution. Internal development costs on software
title development for the Company's published titles or for third-party
publishers is recognized as incurred and included in research and development
expenses. Costs of revenues, as a percentage of revenue, were approximately 21%
for the fiscal year ended March 31, 1996, compared to approximately 24% for the
same period in
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<PAGE> 30
fiscal 1995. The decrease is primarily due to the increased proportion of
royalties and license fee revenue recognized for the year ended March 31, 1996,
which has significantly lower associated costs of revenues, compared to all
other types of revenues.
Research and development expenses of approximately $41.2 million increased by
approximately $4.7 million (13%) for the year ended March 31, 1996, compared to
fiscal year 1995. The increases are attributable to (i) the additional reserves
for prepaid royalties in the fiscal year, which resulted from disappointing
sales during the holiday season; (ii) increases in software title development
for the 3DO Multiplayer system, as well as 64-bit development for the M2 and the
PC platforms; and (iii) a research and development in-process charge associated
with the acquisition of Cyclone Studios, a software developer. The Company
anticipates that research and development expenses will increase in future
periods due to the Company's increasing levels of software development
activities.
Sales and marketing expenses of approximately $6.8 million decreased by
approximately $4.9 million (42%) for fiscal year 1996, compared to the prior
fiscal year, primarily due to reduced television advertising expenditures in the
fiscal year.
General and administrative expenses of approximately $9.5 million increased by
approximately $2.0 million (27%) for fiscal year 1996, compared to the prior
fiscal year, primarily due to the additional reserves recorded for bad debt,
legal and other expenses.
Stock incentive expenses of approximately $8.4 million for the fiscal year ended
March 31, 1995, represents the market value of the stock issued or to be issued
under the stock incentive program described in Note J of the notes to the
consolidated financial statements. The stock incentive program concluded on
December 31, 1994, and there was no comparable expense for the fiscal year ended
March 31, 1996.
In October 1994, the Company established a Market Development Fund ("MDF")
program under which a pressing fee is charged to authorized CD pressing
facilities for each copy of a licensed software title that is manufactured
outside of Japan. Marketing expenses under the MDF program decreased by
approximately $4.0 million (81%) in the fiscal year ended March 31, 1996,
compared to the prior fiscal year. The MDF program started in October 1994, and,
until December 31, 1994, all funds collected under this program were used for
advertising and promoting the 3DO format and product family. Starting in January
1995, a portion of the MDF funds have been used for advertising and promotions
and the remaining funds have or will be paid to certain hardware system
licensees, based on hardware systems shipped into certain markets.
Net interest and other income increased from $0.4 million to approximately $0.7
million for the years ended March 31, 1995 and 1996, respectively. The net
increase was primarily due to an increase in interest income, due to increased
cash balances associated with payments received under the M2 Technology License
Agreement, and a reduction of other expense, which was partially off-set by an
increase in interest expense on capital leases.
The provision for income and foreign withholding taxes increased to
approximately $6.9 million for the fiscal year compared to the prior fiscal
year. The increase in the current fiscal year is primarily attributable to $6.0
million in foreign withholding taxes associated with a payment received under
the Technology License Agreement with Matsushita (see "Overview" section above
for further information).
-30-
<PAGE> 31
Fiscal Year 1995 Compared to Fiscal Year 1994
<TABLE>
<CAPTION>
Year ended March 31 Change
-------------------------------------------- ---------
1995 %(a) 1994 %(a) Amount %
---------- ------ --------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Royalties and license fees $ 18,593 61.2 $ 2,718 26.4 $ 15,875 584.1
Software publishing 3,287 10.8 -- -- 3,287 --
Development systems and other 8,500 28.0 7,577 73.6 923 12.2
---------- ------ --------- ------ --------- -------
Total revenues 30,380 100.0 10,295 100.0 20,085 195.1
---------- ------ --------- ------ --------- -------
Cost of revenues:
Royalties and license fees 2,200 11.8 498 18.3 1,702 341.8
Software publishing 1,526 46.4 -- -- 1,526 --
Development systems and other 3,451 40.6 2,966 39.1 485 16.4
---------- ------ --------- ------ --------- -------
Total cost of revenues 7,177 23.6 3,464 33.6 3,713 107.2
---------- ------ --------- ------ --------- -------
Gross profit 23,203 76.4 6,831 66.4 16,372 239.7
---------- ------ --------- ------ --------- -------
Operating expenses:
Research and development 36,483 120.1 23,412 227.4 13,071 55.8
Sales and marketing 11,777 38.8 8,248 80.1 3,529 42.8
General and administrative 7,504 24.7 6,175 60.0 1,329 21.5
Market development advertising 4,926 16.2 -- -- 4,926 --
Stock incentive 8,359 27.5 -- -- 8,359 --
Acquisition of NTG royalty rights -- -- 21,353 207.4 (21,353) (100.0)
---------- ------ --------- ------ --------- -------
Total operating expenses 69,049 227.3 59,188 574.9 9,861 16.7
---------- ------ --------- ------ --------- -------
Operating loss (45,846) (150.9) (52,357) (508.6) 6,511 (12.4)
Net interest and other
income 437 1.4 976 9.5 (539) (55.2)
---------- ------ --------- ------ --------- -------
Loss before income and foreign
withholding taxes (45,409) (149.5) (51,381) (499.1) 5,972 (11.6)
Income and foreign
withholding taxes 85 2.8 50 0.5 803 1,606.0
---------- ------ --------- ------ --------- -------
Net loss $(46,262) (152.3) $ (51,431) (499.6) $ 5,169 (10.1)
========== ====== ========= ====== ========= =======
</TABLE>
(a) Percentage of total revenues except cost of revenue components, which are a
percentage of their respective revenue amounts.
Revenue for the year ended March 31, 1995, increased by approximately $20.1
million to $30.4 million, as compared to the prior year. Royalties and license
fees of approximately $18.6 million were the largest component of revenue for
the year ended March 31, 1995, compared to approximately $2.7 million in the
prior year. The $18.6 million in royalties and license fees consists of software
royalties, pressing fees, semiconductor royalties and MDF revenue (see Note A of
the notes to the consolidated financial statements). The increase in software
royalties and license fees is due to a significant increase in the sale of
software products being manufactured by third-party publishers and the
nonrefundable license fee from Matsushita for the right to manufacture
3DO-formatted CDs in Japan. The 3DO Multiplayer system was introduced in Japan
in March 1994; therefore only one month of Japanese market software royalty
revenue is reflected in fiscal year 1994.
-31-
<PAGE> 32
Software publishing revenue of approximately $3.3 million for fiscal year 1995
(no comparable revenue in the prior year) resulted from the Company's publishing
and distribution of externally and internally developed software titles.
Development systems and other revenue increased by approximately $0.9 million
(12%), compared to the prior fiscal year, and is comprised of an approximate
$1.3 million decrease of development systems revenue and an approximate $2.2
million increase of other revenue compared the prior year. Development systems
sales have decreased as the growth in software licensees has declined. Included
in other revenue for the fiscal year ended March 31, 1995, is approximately $1.4
million of revenue recognized for engineering and software development services
provided to U S West, software development for third-party publishers and other
revenue. The Company discontinued software development for third-party
publishers in connection with the establishment of its own publishing efforts.
Cost of revenues increased by approximately $3.7 million (107%), compared to the
prior year. Cost of revenues consists of direct costs associated with
development systems, products and software titles sold, amortization of prepaid
royalties (described in Note A of the notes to the consolidated financial
statements), and hardware systems incentives accrued on all chipsets shipped
into distribution. Internal development costs on software title development for
the Company's published titles or for third-party publishers is recognized as
incurred and included in research and development expenses. Costs of revenues
decreased, as a percentage of revenue, for the fiscal year ended March 31, 1995,
compared to the same period in fiscal 1994. The decrease is primarily due to the
increased proportion of royalties and license fee revenue recognized for the
year ended March 31, 1995, which has significantly lower associated costs of
revenues.
Research and development expenses increased by approximately $13.1 million (56%)
for the year ended March 31, 1995, compared to fiscal year 1994. This increase
is primarily attributable to increased staffing and related expenses associated
with commercialization and support of the Company's current technologies and the
development and engineering of its next-generation technology.
Sales and marketing expenses increased by approximately $3.5 million (43%) for
fiscal year 1995, compared to the prior fiscal year, primarily due to a $2.3
million increase in advertising programs and other marketing expenses and a $1.2
million increase attributable to the Company's operations in Japan. Sales and
marketing expenses include the costs of recruitment and support of licensees in
North America, Asia and Europe.
General and administrative expenses increased by approximately $1.3 million
(22%) for fiscal year 1995, compared to fiscal year 1994, primarily due to the
additional administrative, legal and financial activities required to support
the Company's operations and the costs associated with the implementation of
integrated finance and operations software applications.
Stock incentive expense of approximately $8.4 million for the fiscal year ended
March 31, 1995, represents the market value of the stock to be issued under the
stock incentive program described in Note J of the notes to the consolidated
financial statements. The stock incentive program ended on December 31, 1994.
-32-
<PAGE> 33
Another significant component of operating expenses for the fiscal year ended
March 31, 1995 is $4.9 million of advertising expenses under the MDF program.
There was no comparable expense for the prior year.
Net interest and other income decreased from $1.0 million to approximately $0.4
million for the years ended March 31, 1994 and 1995, respectively, due primarily
to an increase in interest expense on capital leases.
The majority of the provision for income and foreign withholding taxes, for the
fiscal year ended March 31, 1995, is attributable to foreign withholding taxes
due on certain foreign software royalty and pressing fee revenues.
Liquidity and Capital Resources
The Company's principal sources of liquidity are its cash and cash equivalent
balances and short-term investments, which totaled approximately $50.1 million
and $14.3 million as of March 31, 1996 and 1995, respectively. The increase in
fiscal 1996 was primarily attributed to the payment received in connection with
the Technology License Agreement with Matsushita. See Note H of the notes to the
consolidated financial statements. In July 1995, the Company completed a private
equity financing of approximately $16.6 million. The current ratio (current
assets to current liabilities) was .89 to 1 as of March 31, 1996, compared to
1.91 to 1 as of March 31, 1995. This deterioration is primarily due to increases
in deferred revenue and current hardware incentive obligations balances as of
March 31, 1996, which were partially offset by increased cash and short-term
investments balances. Net cash provided by operating activities was $22.5
million for the fiscal year ended March 31, 1996, which compares with net cash
used by operating activities of $33.3 million for the same period in fiscal
1995. This positive cash turnaround was primarily due to the $54.0 million cash
payment, net of foreign withholding tax, received from Matsushita. For the
fiscal year ended March 31, 1996, the Company invested approximately $3.3
million ($3.4 million in the prior year) in fixed assets, excluding assets
acquired under capital lease obligations, which were primarily purchases of
computer equipment, software applications and office furnishings. The Company
anticipates spending over $5.0 million for fixed assets in fiscal year 1997.
Remaining hardware incentive and royalty rebate obligations associated with
licensee sales of the 3DO Multiplayer total $2.9 million, all of which will
be paid on or before April 1, 1997.
The Company anticipates that the additional proceeds scheduled to be received in
connection with the Technology License Agreement with Matsushita, existing cash
resources, future lease and working capital financing and all other sources of
funds should be sufficient to fund the Company's activities through the end of
fiscal year 1997. There can be no assurance that additional capital will not be
required in fiscal year 1997 since cash flows will be affected by the rate at
which the Company develops, publishes and distributes software titles and the
resulting sale of these products, the market acceptance of such products, the
levels of advertising and promotions required to promote market acceptance, and
the resources required to complete the Company's next generation technology. The
Company anticipates that it may require additional capital beyond fiscal year
1997. The level of financing required beyond fiscal year 1997 will depend on
these and other factors. If the Company needs to raise additional funds through
public or private financing, no assurance can be given that additional financing
will be available or that, if available, it will be available on terms
acceptable to the Company or its stockholders. Additional financings may result
in substantial and immediate dilution to existing stockholders. If adequate
funds are not available to satisfy either short- or long-term capital
requirements, the Company may be required to curtail its operations
significantly or to obtain funds through arrangements with strategic partners or
others that may require the Company to relinquish material rights to certain of
its technologies and/or potential markets.
-33-
<PAGE> 34
As part of the acquisition of Cyclone Studios, the Company has committed up to
$3.0 million to fund the working capital requirements of its Cyclone Studio
division for software development activities. As part of its business strategy,
the Company frequently evaluates opportunities to enter into strategic
alliances, joint ventures, acquisitions of businesses, products or technologies
and other similar transactions. Except for the New World Computing transaction,
as described in the "Overview" section, the Company has no present
understanding, commitment or agreement with respect to any such transactions.
The Company leases approximately 92,000 square feet in facilities in Redwood
City, California, and an additional 7,600 square feet in San Mateo, California
for an aggregate monthly rent expense of approximately $139,000. The leases
expire in August 1997 and during May 1999 respectively. The Company also leases
office space in London on a short-term basis.
-34-
<PAGE> 35
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Independent Auditors' Report, Consolidated Financial Statements and Notes to
Consolidated Financial Statements follow on Pages 36 through 53.
-35-
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The 3DO Company:
We have audited the accompanying consolidated balance sheets of The 3DO Company
and subsidiaries as of March 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the years in the three-year period ended March 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The 3DO Company and
subsidiaries as of March 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three-year period ended March
31, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Jose, California
May 9, 1996, except as to Note S,
which is as of May 30, 1996.
-36-
<PAGE> 37
THE 3DO COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
March 31,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,459 $ 4,846
Short-term investments 40,686 9,500
Accounts receivable, net 2,060 5,811
Prepaid and other current assets 2,212 2,616
--------- ---------
Total current assets 54,417 22,773
Property and equipment, net 8,642 10,619
Deposits and other assets 271 769
--------- ---------
Total assets $ 63,330 $ 34,161
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,905 $ 3,436
Accrued expenses 3,814 4,413
Deferred revenue 47,818 802
Current portion of capital lease obligations 1,424 1,631
Current portion of hardware incentive obligations 4,620 652
Other current liabilities 1,787 1,013
--------- ---------
Total current liabilities 61,368 11,947
Capital lease obligations, net of current portion 1,287 2,467
Hardware incentive obligations, net of current portion -- 2,993
Other liabilities 544 1,069
--------- ---------
Total liabilities 63,199 18,476
--------- ---------
Commitments
Stockholders' equity:
Preferred stock, $.01 par value; 5,000 shares
authorized; no shares issued -- --
Common stock, $.01 par value; 50,000 shares authorized;
26,003 and 23,482 shares issued and outstanding, respectively 260 235
Additional paid-in capital 150,541 130,965
Cumulative translation adjustment (189) 298
Accumulated deficit (150,481) (115,813)
--------- ---------
Total stockholders' equity 131 15,685
--------- ---------
Total liabilities and stockholders' equity $ 63,330 $ 34,161
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-37-
<PAGE> 38
THE 3DO COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended March 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Royalties and license fees $ 24,074 $ 18,593 $ 2,718
Software publishing 7,330 3,287 --
Development systems and other 6,514 8,500 7,577
-------- -------- --------
Total revenues 37,918 30,380 10,295
-------- -------- --------
Cost of revenues:
Royalties and license fees 694 2,200 498
Software publishing 3,989 1,526 --
Development systems and other 3,231 3,451 2,966
-------- -------- --------
Total cost of revenues 7,914 7,177 3,464
-------- -------- --------
Gross profit 30,004 23,203 6,831
-------- -------- --------
Operating expenses:
Research and development 41,184 36,483 23,412
Sales and marketing 6,837 11,777 8,248
General and administrative 9,535 7,504 6,175
Market development advertising 924 4,926 --
Stock incentive -- 8,359 --
Acquisition of NTG royalty rights -- -- 21,353
-------- -------- --------
Total operating expenses 58,480 69,049 59,188
-------- -------- --------
Operating loss (28,476) (45,846) (52,357)
Net interest and other income 684 437 976
-------- -------- --------
Loss before income and foreign
withholding taxes (27,792) (45,409) (51,381)
Income and foreign
withholding taxes 6,876 853 50
-------- -------- --------
Net loss $(34,668) $(46,262) $(51,431)
======== ======== ========
Net loss per common and common
equivalent share $ (1.36) $ (2.04) $ (2.60)
======== ======== ========
Common and common equivalent shares
used in computing per share amounts 25,456 22,697 19,747
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-38-
<PAGE> 39
THE 3DO COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED MARCH 31, 1996, 1995, AND 1994
(in thousands)
<TABLE>
<CAPTION>
Convertible Stock-
Preferred Stock Common Stock Additional Cumulative Accu- holders'
------------------- ------------------- Paid-in translation mulated equity
Shares Amount Shares Amount Capital adjustment Deficit (deficit)
-------- -------- -------- ------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of March 31, 1993 13,500 $ 17,096 1,178 $ 65 $ -- $ -- $(18,120) $ (959)
Incorporation in Delaware,
$.01 par value (53) 53 --
Issuance of common stock for
acquisition 1,840 18 20,682 20,700
Sale of common stock from
initial public offering, net of
issuance costs of $4,574 3,485 35 47,510 47,545
Conversion of Series A and B
convertible preferred stock
to common stock (13,500) (17,096) 13,500 135 16,961 --
Exercise of common stock
options 20 3 3
Foreign currency translation 21 21
Net loss (51,431) (51,431)
-------- -------- -------- ------- -------- -------- --------- ---------
Balances as of March 31, 1994 -- -- 20,023 200 85,209 21 (69,551) 15,879
Sale of common stock, net of
issuance costs of $654 2,984 30 36,248 36,278
Sale of common stock
through employee stock
plans and other plans 475 5 1,149 1,154
Common stock to be issued
under stock incentive
program 8,359 8,359
Foreign currency translation 277 277
Net loss (46,262) (46,262)
-------- -------- -------- ------- -------- -------- --------- ---------
Balances as of March 31, 1995 -- -- 23,482 235 130,965 298 (115,813) 15,685
Sale of common stock, net of
issuance costs of $5 1,580 16 16,537 16,553
Issuance of common stock for
acquisition 50 506 506
Sale of common stock
through employee stock
plans and other plans 491 5 2,537 2,542
Common stock issued under
stock incentive program 400 4 (4) --
Foreign currency translation (487) (487)
Net loss (34,668) (34,668)
-------- -------- -------- ------- -------- -------- --------- ---------
Balances as of March 31, 1996 -- $ -- 26,003 $ 260 $150,541 $ (189) $(150,481) $ 131
======== ======== ======== ======= ======== ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-39-
<PAGE> 40
THE 3DO COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended March 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(34,668) $(46,262) $(51,431)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 5,630 5,080 2,872
Acquisition of NTG royalty rights -- -- 20,700
Stock incentive -- 8,359 --
Deferred revenue 46,713 (1,623) (572)
In-process research and development 828 -- --
Changes in operating assets and liabilities:
Accounts receivable, net 3,751 (3,895) (1,916)
Prepaid and other assets 902 (833) (2,041)
Accounts payable (1,531) 908 (530)
Accrued expenses (618) 1,913 2,052
Hardware incentives 975 2,618 375
Other liabilities 547 441 1,270
-------- -------- --------
Net cash provided by (used in) operating activities 22,529 (33,294) (29,221)
-------- -------- --------
Cash flows from investing activities:
Short-term investments, net (31,155) 2,273 (11,798)
Capital expenditures (3,265) (3,410) (6,874)
Acquisition of a business entity (442) -- --
-------- -------- --------
Net cash used in investing activities (34,862) (1,137) (18,672)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 19,095 37,432 47,548
Payments on capital lease obligations (1,631) (960) --
-------- -------- --------
Net cash provided by financing activities 17,464 36,472 47,548
-------- -------- --------
Effect of foreign currency translation (518) 302 21
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 4,613 2,343 (324)
Cash and cash equivalents at beginning of year 4,846 2,503 2,827
-------- -------- --------
Cash and cash equivalents at end of year $ 9,459 $ 4,846 $ 2,503
======== ======== ========
Supplemental disclosure of cash paid during the year:
Interest $ 757 $ 442 $ 12
Income and foreign withholding taxes $ 6,776 $ 760 $
1
Supplemental disclosure of noncash investing and
financing transactions:
Preferred stock converted into common stock $ -- $ -- $ 17,096
Assets acquired under capital lease obligations $ 245 $ 5,059 $ --
Common stock issued in connection with
acquisition of a business entity $ 506 $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
-40-
<PAGE> 41
THE 3DO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
A. Summary of the Company and Significant Accounting Policies
In April 1993, The 3DO Company was incorporated as a Delaware holding company.
The accompanying consolidated financial statements include the accounts of The
3DO Company and its wholly owned subsidiaries (the "Company"): The 3DO Company
(a California Corporation); 3DO Japan Co., Ltd. (sold December 7, 1995, see Note
H, "Matsushita Electric Industrial Co., Ltd. Agreements," for further
information); Studio 3DO K.K.; and 3DO Europe Ltd. All significant intercompany
balances and transactions have been eliminated in consolidation. Certain
prior-year amounts have been reclassified to conform to the current year's
presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents and Short-term Investments
Cash equivalents include highly liquid investments with original maturities of
90 days or less.
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," for investments held as of or acquired after April 1, 1994. Under
the provisions of SFAS No. 115, the Company has classified its investments in
certain debt securities as "available-for-sale." Such investments are recorded
at fair value, with unrealized gains and losses reported as a separate component
of stockholders' equity. Fair value is based on quoted market prices for these
or similar investments. Realized gains and losses are recorded in the
accompanying consolidated statements of operations and were immaterial during
the periods presented. The cost of securities sold is based upon the specific
identification method (see Note B, "Available-for-sale Securities").
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are
calculated using the straight-line method over the shorter of the estimated
useful lives or lease terms, if applicable, of the assets, which range from one
to five years.
-41-
<PAGE> 42
THE 3DO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
Revenue Recognition
The Company recognizes revenue from royalty and pressing fee agreements upon
receipt of documentation indicating that the compact disc ("CD") manufacturer
shipped CDs to the software title developers or publishers, or the licensed
chipset foundry shipped chipsets to the hardware manufacturers. Revenue from
license fees is being recognized using the percentage-of-completion method based
on the costs incurred by the Company to fulfill its contractual obligation to
develop specified deliverable items. Revenue from the sale of software titles
published and distributed by the Company and development systems is recognized
at the time of shipment, provided the Company has no outstanding obligations.
Subject to certain limitations, the Company permits customers to obtain
exchanges of software titles published and distributed by the Company, within
certain specified periods, and provides price protection on certain unsold
merchandise. Software publishing revenue is reflected net of an allowance for
returns and price protection. Revenue from software title development agreements
for third-party publishers and third-party engineering agreements are recognized
upon the attainment of contractual milestones (approximating the
percentage-of-completion method) and is included in Development systems and
other revenues in the accompanying consolidated statements of operations.
Revenue from software maintenance, including maintenance bundled with the
development systems, is recognized on a straight-line basis over the term of the
agreement, generally one year, and is included in other revenue.
Deferred revenue consists primarily of payments received in advance of revenue
being earned under an agreement with Matsushita Electric Industrial Co., Ltd.
(see Note H, "Matsushita Electric Industrial Co., Ltd. Agreements," for further
information), engineering and development agreements, certification fees and
deposits.
Prepaid Royalties
Prepaid royalties represent prepayments made to independent software developers
under development agreements and are included in Prepaid and other current
assets. Prepaid royalties are expensed at the contractual royalty rate as cost
of revenues based on actual net product sales. Management evaluates the future
realization of prepaid royalties quarterly, and charges to expense any amounts
that management deems unlikely to be amortized at the contractual royalty rate
through product sales. Royalty advances are classified as current and noncurrent
assets based upon estimated net product sales within the next year.
Internal development costs on software title development for the Company's
published titles or for third-party publishers are recognized as incurred and
shown in Operating expenses.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. A valuation allowance is recorded to reduce deferred
tax assets to an amount whose realization is more likely than not.
-42-
<PAGE> 43
THE 3DO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
Foreign Currency Translation
The functional currencies of the Company's foreign subsidiaries are the local
currencies. The Company translates assets and liabilities to U.S. dollars at the
current exchange rate as of the applicable balance sheet date. Revenue and
expenses are translated at the average exchange rates prevailing during the
period. Adjustments resulting from the translation of the foreign subsidiaries'
financial statements are reported as a separate component of stockholders'
equity. Gains and losses from foreign currency transactions are a result of the
effect of exchange rate changes on transactions denominated in currencies other
than the functional currencies. Net gains and losses resulting from foreign
exchange transactions were immaterial during the periods presented.
Net Loss Per Share
Net loss per share is computed based on the weighted average number of common
shares outstanding, and common equivalent shares from stock options, when
dilutive, using the treasury stock method. Common equivalent shares were
comprised of common and preferred stock issued as well as stock options granted
during the twelve-month period prior to the initial public offering (using the
treasury stock method and initial public offering price) and have been included
for all periods presented through the closing date. The computation for the net
loss per share for the years ended March 31, 1996 and 1995, includes common
stock to be issued under the stock incentive program, described in Note J,
"Incentive and Promotional Programs."
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." SFAS No. 121 requires long-lived assets to be evaluated for
impairment whenever events or changes in circumstance indicate that the carrying
value may not be recoverable. The Company will adopt SFAS No. 121 in fiscal 1997
and does not expect its provisions to have a material effect on the Company's
consolidated results of operations.
-43-
<PAGE> 44
THE 3DO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
B. Available-for-sale Securities
Available-for-sale securities classified as current assets as of March 31, 1996
and 1995, included the following:
<TABLE>
<CAPTION>
March 31,
--------------------------
1996 1995
---------- ----------
(in thousands) Aggregate Aggregate
fair value fair value
---------- ----------
<S> <C> <C>
Short-term investments:
U. S. Treasury and other
government agencies obligations $35,662 $ 9,500
Commercial debt securities 5,024 --
------- -------
Total short-term investments 40,686 9,500
Cash equivalents:
Money market funds 9,459 814
------- -------
Total available-for-sale securities $50,145 $10,314
======= =======
</TABLE>
The aggregate fair value of the Company's investment in available-for-sale
securities as of March 31, 1996, by contractual maturity, consisted of the
following:
<TABLE>
<CAPTION>
(in thousands) Aggregate
fair value
----------
<S> <C>
Due in one year or less $ 48,621
Due in one to two years 1,524
--------
$ 50,145
========
</TABLE>
The aggregate fair value approximates amortized cost.
C. Allowance for Doubtful Accounts, Returns and Price Protection
The following summarizes the activity for the allowance for doubtful accounts,
returns and price protection for the years ended March 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
(in thousands)
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year $ 249 $ 175 $ --
Additions 4,540 129 188
Deductions (2,460) (55) (13)
------- ------- -------
Balance at end of year $ 2,329 $ 249 $ 175
======= ======= =======
</TABLE>
-44-
<PAGE> 45
THE 3DO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
D. Property and Equipment
Property and equipment as of March 31, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
(in thousands) March 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Computer and manufacturing equipment $ 15,345 $ 12,526
Furniture, fixtures and leasehold improvements 3,425 3,462
Computer software 3,859 2,988
-------- --------
Property and equipment, at cost 22,629 18,976
Less accumulated depreciation and amortization (13,987) (8,357)
-------- --------
Property and equipment, net $ 8,642 $ 10,619
======== ========
</TABLE>
As of March 31, 1996 and 1995, property and equipment includes approximately
$5.3 million and $5.1 million, respectively, of assets acquired under capital
lease obligations. Accumulated amortization related to these lease obligations
was approximately $3.4 million and $1.7 million as of March 31, 1996 and 1995,
respectively.
Depreciation and amortization expense associated with property and equipment
amounted to approximately $5.6 million, $5.1 million and $2.8 million for the
fiscal years ended March 31, 1996, 1995 and 1994, respectively.
E. Accrued Expenses
Accrued expenses as of March 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
(in thousands) March 31,
------------------------
1996 1995
------ ------
<S> <C> <C>
Accrued compensation $1,435 $1,163
Other 2,379 3,250
------ ------
$3,814 $4,413
====== ======
</TABLE>
F. Stockholders' Equity
Common Stock
As of March 31, 1995, 200,000 shares of common stock held by founders of the
Company were subject to repurchase by the Company at $0.05 per share. During the
year ended March 31, 1995, the Company repurchased 22,177 shares at $0.05 per
share. As of March 31, 1996 and 1995, 24,133 shares and 140,387 shares,
respectively, of common stock also held by the founders were subject to
repurchase by the Company at $6.00 per share. The Company's right of repurchase
expires monthly, subject to continued employment of the founders, over a
five-year period.
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<PAGE> 46
THE 3DO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
G. Stock Plans
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan whereby eligible employees may
authorize payroll deductions of up to 15% of their compensation to purchase
shares at 85% of the lower of the fair market value of the common stock on the
date of commencement of the 2-year offering period, or on the last day of each
six-month purchase period. The plan commenced in September 1994. In fiscal years
1996 and 1995, 179,059 shares and 66,132 shares, respectively, were issued by
the Company to employees, at a price ranging from $8.02 to $8.50, and $8.50 per
share, respectively. As of March 31, 1996 and 1995, the Company had 754,809 and
933,868 shares, respectively, of common stock reserved for future issuance under
the plan.
Stock Option Plans
The Company's 1993 Incentive Stock Plan (the "Plan") authorizes the granting of
incentive and non-qualified stock options and stock purchase rights to
employees. Incentive stock options must be granted with exercise prices at least
equal to the fair market value of the common stock on the date of grant, as
determined by the Company's Board of Directors. Non-qualified stock options and
stock purchase rights must be granted with exercise prices at least equal to 85%
of the fair market value of the common stock on the grant date, as determined by
the Board of Directors. Stock options generally vest over a sixty-month period.
Unexercised options generally expire ten years from date of grant. Stock
purchase rights generally vest over a sixty-month period, during which time the
Company has an option to repurchase the stock, or a portion thereof, if
employment is terminated.
As of March 31, 1996 and 1995, 9,618,275 and 5,769,570 shares, respectively, of
common stock have been authorized for issuance under the Plan.
-46-
<PAGE> 47
THE 3DO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
Transactions for the years ended March 31, 1996, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
Options Options outstanding
available ------------------------------
for grant Shares Price per share
----------- ---------- ---------------
<S> <C> <C> <C>
Balances as of March 31, 1993 82,141 2,089,692 $ 0.05- 9.00
Options:
Authorized 1,850,000 -- --
Granted (2,568,900) 2,568,900 14.00- 44.00
Terminated 1,058,897 (1,058,897) 0.05- 44.00
Exercised -- (19,510) 0.05- 0.40
----------- ---------- ---------------
Balances as of March 31, 1994 422,138 3,580,185 0.05- 23.50
Options:
Authorized 1,641,571 -- --
Granted (3,848,563) 3,848,563 9.75-23.25
Terminated 2,949,570 (2,949,570) 0.05-25.75
Exercised -- (430,730) 0.05-9.875
----------- ---------- ---------------
Balances as of March 31, 1995 1,164,716 4,048,448 0.05-10.75
Options:
Authorized 3,848,705 -- --
Granted (2,627,704) 2,627,704 9.63-17.31
Terminated 1,057,208 (1,035,031) 0.05-17.31
Exercised -- (312,592) 0.05-10.75
----------- ---------- ---------------
Balances as of March 31, 1996 3,442,925 5,328,529 $ 0.05-17.31
=========== ========== ===============
</TABLE>
As of March 31, 1996, 1995 and 1994, 1,486,055, 854,011 and 591,160 options,
respectively, were exercisable. In November 1993, December 1993, May 1994, and
December 1994, the Board of Directors approved the repricing of options granted
at prices in excess of $34.00, $23.50, $9.875 and $10.75 per share,
respectively, for all employees, including executive officers. Subsequently, in
April 1996, the Board of Directors approved the repricing of options at prices
in excess of $8.25 for all employees, including executive officers.
H. Matsushita Electric Industrial Co., Ltd. Agreements
The Company and Matsushita entered into a definitive license agreement, dated
December 7, 1995, pursuant to which the Company granted Matsushita a perpetual,
exclusive, worldwide license, with the right to grant sublicenses, with respect
to the Company's 64-bit interactive multimedia technology known as "M2"
technology (the "M2 Technology") for use in both hardware and software for games
and for all other applications (the "Technology License Agreement"). The license
was granted in exchange for an upfront license payment of $100 million to be
paid in two installments and for certain royalties which shall be paid for
certain software products manufactured after January 1, 1998, which are
compatible with the M2 Technology. As of March 31, 1996, the Company had
received the first installment of the license fee of $60 million, less $6.0
million in Japanese withholding taxes, from Matsushita, of which $14.5 million
has been recognized as revenue for the fiscal year ended March 31, 1996. As of
March 31, 1996, the Company had incurred approximately $4.3 million of costs in
connection with fulfilling its
-47-
<PAGE> 48
THE 3DO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
commitments under the Technology License Agreement. This amount is included in
research and development expenses. The remaining $40 million payment is
scheduled to be received by June 30, 1996, provided that the Company has
delivered to Matsushita certain deliverable items pertaining to the M2
Technology pursuant to the Technology License Agreement. Under the terms of the
Technology License Agreement, Matsushita has granted the Company a nonexclusive
license to use the M2 Technology for the development, manufacture and
distribution of software and peripherals compatible with hardware products
developed by Matsushita or its sublicensees that incorporate the M2 Technology,
as well as for the development, manufacture and distribution of development
systems to third parties outside of Japan that are authorized by Matsushita to
develop software products compatible with hardware products that incorporate the
M2 Technology. Revenue pertaining to the license fees under the Technology
License Agreement are being recognized by the Company using the percentage of
completion method based on the cost incurred to fulfill its commitments to
deliver technology as specified in the agreement. In April 1996, the parties
agreed to an addendum to this agreement (see Note S, "Subsequent Events -
Addendum to Matsushita Technology License Agreement," for further information).
In conjunction with the above transaction, Matsushita and the Company entered
into a separate stock purchase and license agreement whereby Matsushita acquired
all of the outstanding capital stock of 3DO Japan Co., Ltd.
I. Cirrus Logic, Inc.
On February 29, 1996, the Company and Cirrus Logic, Inc. ("Cirrus Logic")
entered into a Joint Development and License Agreement (the "Cirrus Agreement")
regarding the Company's development and license to Cirrus Logic of certain
modifications to the "3-D Engine," which is a component of the Company's
proprietary semiconductor technology. As consideration under the Cirrus
Agreement, the Company is to receive a nonrefundable amount not to exceed $7.8
million, of which $1.5 million was received as of March 31, 1996, and the
remaining $6.3 million is scheduled to be paid as certain dates are achieved and
as the Company fulfills its obligations specified under the Cirrus Agreement.
Revenue pertaining to the Cirrus Agreement will be recognized using the
percentage of completion method based on the costs incurred to fulfill its
commitments as specified in the agreement. As of March 31, 1996, the Company had
recognized $0.1 million of revenue in connection with the Cirrus Agreement.
J. Incentive and Promotional Programs
Incentive Programs
The Company provided a manufacturing incentive of $3.00, $4.00 and $5.00 for
each hardware system distributed in calendar years 1995, 1994 and 1993,
respectively. These incentive payments were accrued as the obligations arose and
expensed as a cost of revenue. The Company accrued approximately $3.3 million
and $2.6 million as of March 31, 1996 and 1995, respectively. Subsequently, one
of the Company's hardware licensees has elected to receive 47,090 shares of the
Company's stock in lieu of a cash payment of $0.4 million. In addition, a cash
payment of $0.7 million was paid on April 1, 1996. The remaining amount due
under this program of $2.2 million is scheduled to be paid on April 1, 1997.
-48-
<PAGE> 49
THE 3DO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
The Company entered into an agreement with its hardware system licensees to
provide two shares of the Company's common stock for each of the hardware
systems incorporating the Company's technology that they shipped from February
1, 1994 through September 30, 1994, at or below certain suggested retail prices.
This program was extended through December 31, 1994, for one of the licensees.
The market value of the stock to be issued under this incentive program was
recognized as an expense at the time the Company incurred the obligation to
issue the stock and is separately reflected in the accompanying consolidated
statements of operations. As of March 31, 1996, the Company had issued 400,000
shares under this program and anticipates issuing the remaining 90,090 shares
during the next fiscal year.
Promotional Program
In October 1994, the Company established a Market Development Fund ("MDF")
program under which a pressing fee is charged to authorized CD pressing
facilities for the manufacture of compact discs compatible with the 3DO
Multiplayer format. Under the program, a pressing fee is charged for each copy
of any such software title that is manufactured outside of Japan. In the quarter
ended December 31, 1994, all funds collected under this program were used for
advertising and promoting the 3DO Multiplayer format and related product family.
Beginning January 1, 1995, a portion of the MDF funds were used by the Company
for advertising and promotions and the remainder will be paid to the hardware
system licensees, based on hardware systems shipped in certain markets, to
encourage Licensees' production and the reduction of the pricing of such
systems. All such pressing fees are recognized as revenue, and the amount due to
hardware systems licensees is accrued and recorded as an offset to revenue, as
the applicable CDs are pressed. The related advertising and promotions
expenditures under the program are recorded as incurred and are separately
reflected as an operating expense in the accompanying consolidated statements of
operations.
K. Net Interest and Other Income
Net interest and other income for the fiscal years ended March 31, 1996, 1995
and 1994, consisted of the following:
<TABLE>
<CAPTION>
(in thousands) Years ended March 31,
-------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Interest income $ 1,422 $ 1,123 $ 1,008
Interest expense (757) (442) (59)
Other income (expense), net 19 (244) 27
------- ------- -------
$ 684 $ 437 $ 976
======= ======= =======
</TABLE>
-49-
<PAGE> 50
THE 3DO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
L. Income Taxes
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
(in thousands) Years ended March 31,
------------------------
1996 1995 1994
------- ----- ----
<S> <C> <C> <C>
Current:
Federal $ 502 $ -- $ --
State and local 1 1 1
Foreign 6,373 852 49
------- ----- ----
Total current 6,876 853 50
------- ----- ----
Total deferred -- -- --
------- ----- ----
Total income taxes $ 6,876 $ 853 $ 50
======= ===== ====
</TABLE>
Income tax expense represents foreign income and withholding taxes, federal
alternative minimum tax and minimum California franchise tax.
The tax effect of temporary differences that give rise to significant portions
of deferred tax assets as of March 31, 1996 and 1995, are presented as follows:
<TABLE>
<CAPTION>
(in thousands) March 31,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Deferred tax asset:
Depreciation and amortization $ 2,232 $ 2,061
Accrued expenses and reserves 1,058 2,392
Deferred revenue 18,848 333
Deferred research and development costs 5,089 4,510
Net operating loss carry-forwards 26,194 35,882
Tax credit carryforwards 12,815 4,284
-------- --------
Total gross deferred tax assets 66,236 49,462
Less valuation allowance (66,236) (49,462)
-------- --------
Net deferred tax assets $ -- $ --
======== ========
</TABLE>
The valuation allowance increased $16,774,000 in the year ended March 31, 1996.
As of March 31, 1996, the Company had cumulative federal net operating loss
carryforwards of approximately $77 million for federal income tax purposes,
which if not offset against future taxable income, will expire in the fiscal
years 2008 through 2010. There is no California net operating loss, primarily
due to capitalization of research and development costs for California purposes.
-50-
<PAGE> 51
THE 3DO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
As of March 31, 1996, the Company had unused research and development tax
credits of approximately $3.5 million and $1.7 million available to reduce
future federal and California income taxes, respectively, expiring through
fiscal year 2011. The Company also has foreign tax credits of approximately $7.0
million available to reduce future federal income taxes, expiring through fiscal
year 2000. There are also minimum tax credits of approximately $0.5 million
available to reduce future federal income taxes, which will carryforward
indefinitely.
M. Line of Credit
The Company has available a $2.0 million line of credit bearing interest at the
bank's prime rate. The bank's prime rate as of March 31, 1996, was 8.25%. The
line of credit agreement is secured by the Company's demand deposit accounts
with the bank. As of March 31, 1996, the Company had $2.0 million available on
this line of credit, which expires on March 17, 1997.
N. Lease Commitments
The Company leases its facilities under several operating lease agreements. The
Company also leases certain office equipment under noncancelable operating
leases. Lease payments for the fiscal years ended March 31, 1996, 1995 and 1994,
were $1.7 million, $1.9 million and $1.5 million, respectively.
The Company has entered into various capital lease agreements for computer
equipment and furniture. The typical lease period is 24 to 36 months. Lease
payments for the fiscal years ended March 31, 1996 and 1995, were $2.3 million
and $1.3 million, respectively.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
(in thousands)
Capital Operating
Fiscal year ending March 31, leases leases
------- ----------
<S> <C> <C>
1997 $ 1,787 $ 1,592
1998 1,175 538
1999 318 --
------- -------
Total minimum lease payments 3,280 $ 2,130
=======
Less amount representing interest (569)
-------
Present value of minimum lease payments 2,711
Less current portion (1,424)
-------
Total long-term obligations $ 1,287
=======
</TABLE>
O. Related Party Transactions
During the years ended March 31, 1996, 1995 and 1994, the Company recognized
$26.2 million, $12.1 million and $4.3 million of revenue, respectively, from
certain stockholders. As of March 31, 1996 and 1995, $1.7 million and $1.9
million, respectively, was due from these stockholders.
-51-
<PAGE> 52
THE 3DO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
As of March 31, 1996 and 1995, the Company had deferred revenue of $46.1 million
and $0.4 million, respectively, from certain stockholders.
During the years ended March 31, 1996, 1995 and 1994, the Company acquired $1.1
million, $0.6 million and $1.9 million, respectively, of inventory, prototype
materials and engineering services from certain stockholders. As of March 31,
1996 and 1995, $0.5 million and $0.8 million, respectively, was due to these
stockholders. Additionally, as of March 31, 1996 and 1995, $5.1 million and $3.9
million, respectively, was due to certain stockholders under incentive programs,
described in Note J, "Incentive and Promotional Programs."
P. Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk are primarily cash, cash equivalents, short-term investments, and
accounts receivable. The Company's investment portfolio consists of diversified
investment-grade securities. The Company's policy limits the amount of credit
exposure to investments in any one issue, and the Company believes no
significant concentration of credit risks exists with respect to these
investments.
Credit risk in receivables is limited to distributors, CD pressers, software
developers, foundry and software licensees and affiliated labels. The Company
performs ongoing credit evaluations of its customers' financial condition and
requires prepayments when deemed necessary.
For the fiscal years ended March 31, 1996 and 1995, the Company had sales to one
related party customer of $22.9 million and $8.5 million, respectively. For the
fiscal year ended March 31, 1994, the Company had total sales to two related
party customers of $4.3 million ($2.2 million and $2.1 million, respectively).
Q. Acquisitions
Cyclone Studios
In November of 1995, the Company acquired the business, including all of the
assets and certain of the liabilities, of Cyclone Studios, a software developer.
Consideration for the purchase consisted of cash, stock, other consideration,
and potential future consideration based upon the financial performance of the
respective new division. A portion of the purchase price was expensed as
acquired in-process research and development. This transaction has been
accounted for using the purchase method of accounting. In addition, the Board of
Directors granted options to purchase 200,000 shares of the Company's common
stock to former employees and officers of Cyclone Studios. These options were
granted under the Plan and become vested upon the earlier of (a) the achievement
of certain financial performance milestones or (b) December 31, 2005. These
options have an exercise price of $10.125 per share (see Note G, "Stock Plans,"
for subsequent repricing information), equal to the fair market value of the
Company's common stock on the date of grant.
The results of operations of Cyclone Studios prior to the acquisition date are
not considered material to the consolidated results of operations of the Company
and, accordingly, pro forma financial statement information has not been
disclosed.
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<PAGE> 53
THE 3DO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
NTG
On April 16, 1993, the Company acquired a California partnership named NTG,
L.P., and one of its two partners, NTG, Inc. The sole asset of NTG, L.P.
consisted of a royalty agreement with the Company under which the Company was
obligated to pay certain royalties. As a result of this transaction, that
royalty agreement was terminated. The Company issued an aggregate of 1,840,000
shares of its common stock, paid $600,000 to certain former shareholders of NTG,
Inc., and paid $53,000 in transaction costs, for a total aggregate purchase
price of $21,400,000. In addition, the Company's Board of Directors granted
options to purchase 347,084 shares of common stock to former employees and
officers of NTG Engineering, Inc. These options were granted under the Plan,
have a vesting period of sixty months and have an exercise price of $6.00 per
share, equal to the fair market value of the Company's common stock on the date
of grant, as determined by the Company's Board of Directors. For accounting
purposes, this transaction was treated as a purchase of certain rights to future
royalties and were expensed at the closing of the transaction.
R. Export Sales
The Company had export sales, primarily to Japan and the United Kingdom, of
approximately $7.0 million , $17.1 million and $4.0 million for the fiscal years
ended March 31, 1996, 1995 and 1994, respectively.
S. Subsequent Events
Addendum to Matsushita Technology Agreement
On April 24, 1996, the Company agreed to make certain modifications to the M2
system design, pursuant to the terms of an addendum (the "Addendum") to the
Technology Licensing Agreement. As consideration for providing engineering and
certain support services, the Company will receive an aggregate fee of
approximately $4.5 million to be received in installments in fiscal 1997 and
1998. The payments by Matsushita are contingent upon the Company timely meeting
certain milestones, as stipulated in the addendum. The Company intends to
recognize this revenue as these milestones are achieved.
Acquisition of New World Computing, Inc.
On May 30, 1996, the Company entered into a letter of intent agreement to
purchase certain assets and assume certain liabilities of New World Computing,
Inc. ("NWC"), an entertainment software company. As consideration for the
purchase, the Company will issue approximately 1.2 million shares of its common
stock to NWC's shareholder. The actual number of shares to be issued by the
Company is subject to adjustments based on the amount of certain NWC assets and
liabilities on the closing date, which is anticipated to occur in July 1996. In
addition, under the terms of the letter of intent, the Company will be obligated
to make a cash payment to NWC in the event that the value of the 3DO stock
issued in the transaction falls below $10 per share during a period following
the closing date. The Company intends to account for the acquisition using
the purchase method of accounting.
-53-
<PAGE> 54
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
-54-
<PAGE> 55
PART III
Item 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The executive officers and directors of the Company and their ages as
of March 31, 1996, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Trip Hawkins 42 Chairman of the Board and Chief Executive
Officer
Hugh C. Martin, Jr. 42 President and Director
James Alan Cook 46 Executive Vice President, General Counsel
and Secretary
Robert B. Faber 35 Managing Director, 3DO Europe Ltd.
Tobin E. Farrand 35 Senior Vice President, Engineering
Robert A. Lindsey 44 Senior Vice President, Marketing and
General Manager, Studio 3DO
Paul J. Milley 42 Chief Financial Officer
John A. Orcutt 43 Senior Vice President, Business Operations
David H. Horowitz(1) 67 Director
Vinod Khosla(2) 41 Director
Charles S. Paul(2) 46 Director
Robert W. Pittman(1) 42 Director
</TABLE>
- --------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Mr. Hawkins, the founder of the Company, has been Chairman of the Board
and Chief Executive Officer of the Company since September 1991. He also served
as President of the Company from September 1991 until October 1995, and he
served as Secretary from September 1991 until February 1993. From August 1982 to
December 1990, Mr. Hawkins served as president of Electronic Arts, Inc. He
served as the chief executive officer of Electronic Arts from August 1982 until
May 1991, and was chairman of its board of directors from August 1982 until July
1994. Prior to founding Electronic Arts, Mr. Hawkins was a director of marketing
at Apple Computer, Inc.
Mr. Martin became President of the Company in October 1995 and was
appointed to the Board of Directors in April 1996. He previously served as the
Company's Chief Operating Officer from January 1993 until October 1995 and had
been the Company's Senior Vice President, Engineering and Operations from May
1992 until January 1993. From March 1988 to April 1992, he served as a director
and then a senior director of Apple Computer, Inc. Previously, Mr. Martin
co-founded and served as the vice president and chief development officer of
Ridge Computers, where he co-designed one of the industry's first commercial
RISC processors.
Mr. Cook became Executive Vice President, General Counsel and Secretary
of the Company in April 1996. From July 1994 until April 1996 he was Senior Vice
President, General Counsel and Secretary, and had been the Company's Vice
President, General Counsel and Secretary since January 1993. From January 1990
to January 1993, he was a partner in the law firm of Cook and Lefevre. From June
1985 to December 1989, he was a sole practitioner operating as the Law Offices
of James Alan Cook.
-55-
<PAGE> 56
Mr. Faber became Managing Director of 3DO Europe Ltd. in August 1994
and had been Senior Vice President, Sales and Marketing since January 1993. He
served as Vice President, Sales and Marketing from June 1992 to January 1993.
From October 1991 to June 1992, he served as vice president of strategic
planning and new business development for the Simon & Schuster Technology Group,
a publishing division of Paramount Communications, Inc. From January 1991 to
September 1991, he was a vice president of marketing of Worlds of Wonder, Inc.
From November 1985 to January 1991, Mr. Faber was employed by NEC Technologies,
a subsidiary of NEC Corporation of Japan, most recently as an assistant vice
president of software marketing.
Mr. Farrand became the Company's Senior Vice President, Engineering in
March 1996. He previously served as Senior Vice President Hardware Engineering
and Operations from February 1994; became Vice President, Hardware Engineering
and Operations in November 1993; and served as Vice President, Hardware
Engineering from July 1992 until November 1993. From June 1982 to June 1992, he
was employed by Apple, most recently as manager of the RISC Products Group.
Mr. Lindsey became Senior Vice President, Marketing and General
Manager, Studio 3DO in December 1994. From April 1993 to December 1994 he was
group director of marketing at Sega of America. Prior to Sega, he served as vice
president of sales and marketing at Strategic Simulations, Inc. from September
1989 to March 1993. From 1985 to 1988 he was director of software development,
and from 1988 to 1989 he was director of business development at Epyx, Inc. Mr.
Lindsey was appointed to the board of directors of the Interactive Digital
Software Association in March 1996.
Mr. Milley became Chief Financial Officer in October 1995. He
previously served as Vice President, Finance from December 1994; served as
Principal Accounting Officer from September 1994; and served as Senior Director,
Finance and Administration from October 1993. He served as senior vice president
and chief financial officer at ComputerLand Corp. from July 1991 to July 1993
and as vice president and corporate controller from July 1989.
Mr. Orcutt became Senior Vice President, Business Operations in
December 1994. Previously, he was president and Chief Executive Officer at
Nomadic Systems (subsequently named SmartDelta, Inc.) from August 1993 to
December 1994 and vice president, sales and marketing from November 1991 to
August 1993. SmartDelta, Inc. filed for Chapter 7 bankruptcy on February 1,
1996, in U.S. bankruptcy Court, Northern District of California. From January
1988 to November 1991, Mr. Orcutt served as vice president and general manager
of the Distributed Systems Division at Unisys/Convergent Technologies and
president of its Open Systems subsidiary.
Mr. Horowitz has been a director of the Company since September 1991.
Since 1985, he has been an investor and consultant in the entertainment and
communications industries. From September 1989 to January 1992, he was Of
Counsel to the law firm of Proskauer Rose Goetz & Mendelsohn. He was president
and chief executive officer of MTV Networks Inc. from 1984 to 1985 and was a
member of the office of the president and co-chief operating officer of Warner
Communications Inc. from 1977 to 1984.
Mr. Khosla has been a director of the Company since September 1991. He
has been a general partner of Kleiner Perkins Caufield & Byers since November
1987. Mr. Khosla is also a director of PictureTel Corporation, a manufacturer of
video teleconferencing equipment, and Spectrum HoloByte, Inc., a publisher of
interactive games.
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<PAGE> 57
Mr. Paul has been a director of the Company since April 1992. Since
March 1996, he has been chairman and chief executive officer of Sega GameWorks
LLC, a joint venture between Sega Enterprises Ltd., MCA Inc., and DreamWorks
LLC. From 1989 to 1996, he served as a director and executive vice president of
MCA Inc., an entertainment company. From 1985 to 1989, he served as a vice
president of MCA Inc. Mr. Paul is also a director of National Golf Properties, a
real estate investment trust, and Interplay Productions, a software development
company.
Mr. Pittman has been a director of the Company since September 1991.
Since November 1995 he has served as managing partner and Chief Executive
Officer of Century 21 Real Estate Corp. From March 1990 until October 1995, he
served as president and chief executive officer of Time Warner Enterprises, a
division of Time Warner Entertainment Company, LP. From December 1991 until
October 1995, Mr. Pittman had also served as chairman and chief executive
officer of Six Flags Entertainment Corporation, the second largest theme park
operator in the United States. In September 1989, he joined Warner
Communications Inc. as an executive advisor to the Chairman. From December 1986
to September 1989, he was president and chief executive officer of Quantum
Media, Inc., a diversified entertainment company. Prior to December 1986, he
served as president and chief executive officer of MTV Networks, and was the
creator of the MTV network. He also serves as a director of HFS, Incorporated;
AMRE, Inc.; America Online, Inc. and Excite, Inc.
All executive officers, directors and holders of more than 10% of the
Company's Common Stock ("Section 16 Persons") reported all transactions in the
Company's Common Stock in filings with the Securities Exchange Commission
("SEC") as required under Section 16(a) of the Securities Exchange Act of 1934 .
Mr. Pittman and Mr. Paul serve as Class A directors, and their terms
end as of the 1996 Annual Meeting of Stockholders. Mr. Khosla and Mr. Horowitz
serve as Class B directors with their terms ending as of the 1997 Annual Meeting
of Stockholders. Mr. Hawkins and Mr. Martin serve as Class C directors, and
their terms end as of the 1998 Annual Meeting of Stockholders. Officers are
appointed by the Board of Directors and serve at the discretion of the Board.
There are no family relationships among the directors and executive officers of
the Company.
-57-
<PAGE> 58
Item 11. EXECUTIVE COMPENSATION
Compensation Tables
Summary Compensation Table. The following table sets forth the
compensation paid by the Company to the Chief Executive Officer and the four
most highly compensated executive officers of the Company other than the Chief
Executive Officer (collectively the "Named Officers") during the last fiscal
year.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term
-------------------- Compensation
Name and Principal Fiscal Salary Bonus Options/SARS(1) All Other
Position Year ------ ----- # Compensation(2)
- ------------------ ------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
Trip Hawkins 1996 $290,042 -0- 50,000 $720
Chairman and Chief 1995 $270,923 -0- 510,000(4) $750
Executive Officer(3) 1994 $236,475 -0- 500,000 $786
Hugh C. Martin 1996 $270,800 -0- 80,000 $197,206(5)
President and Director 1995 $230,308 -0- 101,000(6) $720
1994 $195,673 -0- 75,000 $450
James Alan Cook 1996 $226,237 -0- 68,000 $630
Exec. Vice President, 1995 $200,577 -0- 38,000(7) $642
General Counsel, and 1994 $175,126 -0- 4,000 $612
Secretary
Robert B. Faber 1996 $286,070(8) -0- 18,000 $247,530(9)
Managing Director, 1995 $267,527(8) -0- 28,000(10) $510
3DO Europe Ltd. 1994 $166,884 -0- 4,000 $308
Tobin E. Farrand 1996 $185,866 -0- 68,000 $530
Senior Vice President, 1995 $167,077 -0- 44,000(11) $504
Engineering 1994 $144,131 -0- 20,000 $254
</TABLE>
(1) On April 9, 1996 the Board of Directors authorized the exchange of
all options (including those held by the individuals named in the above
table) with an exercise price exceeding $8.25 for options with an
exercise price of $8.25, provided the optionee agreed to certain changes
inthe option vesting schedule.
(2) The amounts represent premiums paid by the Company for group term life
insurance.
(3) See "Employment Contract" below.
(4) Includes 500,000 shares originally granted in 1994 at $25.75 per share
that in 1995 were exchanged for new options at $9.875 per share, after
Mr. Hawkins agreed to certain adjustments to the option vesting schedule.
(5) Includes a gain of $196,500 realized upon the sale of shares acquired
through the exercise of incentive stock options.
(6) Includes 75,000 shares originally granted in 1994 at $25.75 per share
that in 1995 were exchanged for new options at $9.875 per share, after
Mr. Martin agreed to certain adjustments to the option vesting schedule;
and includes 8,000 shares originally granted in 1995 at $14.50 per share
that in 1995 were exchanged for new
-58-
<PAGE> 59
options at $10.75 per share, after Mr. Martin agreed to certain
adjustments to the option vesting schedule.
(7) Includes 4,000 shares originally granted in 1994 at $25.75 per share that
in 1995 were exchanged for new options at $9.875 per share, after Mr.
Cook agreed to certain adjustments to the option vesting schedule; and
includes 12,000 shares originally granted in 1995 at $14.50 per share
that in 1995 were exchanged for new options at $10.75 per share, after
Mr. Cook agreed to certain adjustments to the option vesting schedule.
(8) This amount includes compensation and expenses related to Mr. Faber's
overseas assignment.
(9) Includes a gain of $246,992 realized upon the sale of shares acquired
through the exercise of incentive stock options and shares purchased
through the Employee Stock Purchase Plan.
(10) Includes 4,000 shares originally granted in 1994 at $25.75 per share that
in 1995 were exchanged for new options at $9.875 per share, after Mr.
Faber agreed to certain adjustments to the option vesting schedule; and
includes 10,000 shares originally granted in 1995 at $14.50 per share
that in 1995 were exchanged for new options at $10.75 per share, after
Mr. Faber agreed to certain adjustments to the option vesting schedule.
(11) Includes 20,000 shares originally granted in 1994 at $25.75 per share
that in 1995 were exchanged for new options at $9.875 per share, after
Mr. Farrand agreed to certain adjustments to the option vesting schedule;
and includes 8,000 shares originally granted in 1995 at $14.50 per share
that in 1995 were exchanged for new options at $10.75 per share, after
Mr. Farrand agreed to certain adjustments to the option vesting schedule.
Employment Contract. On September 30, 1991, Mr. Hawkins entered into a
five-year employment agreement with the Company that currently provides for an
annual base salary of $290,000, a bonus payable in the discretion of the Board
of Directors, and salary and bonus reviews at least annually. The agreement, as
amended to date, provides that Mr. Hawkins' optioned shares shall continue to
vest in accordance with their applicable vesting schedules, provided that Mr.
Hawkins devotes at least fifty percent (50%) of his business efforts and time to
the Company, and provided further that he is not employed by any third party
during that time period. In the event Mr. Hawkins' employment is terminated
without cause after a change in control of the Company, Mr. Hawkins will become
fully vested in his shares.
Option Grants in Last Fiscal Year. The following table sets forth
certain information concerning grants of stock options to each of the Named
Officers during the fiscal year ended March 31, 1996. The table also sets forth
hypothetical gains or "opinion spreads" for the options at the end of their
respective ten-year terms. These gains are based on the assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted over the full option term. Actual gains, if any, on option exercises are
dependent on the future performance of the Company's Common Stock and overall
market conditions.
-59-
<PAGE> 60
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
% of Total Annual Rate of
Options Stock Price
Granted to Appreciation
Employees for Options Term(3)
Options in Fiscal Price Expiration -----------------------
Name Granted(1) Year Per Share(2) Date 5% 10%
- ---------------- ---------- ---------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Trip Hawkins 40,000 1.6% $11.875 05/26/05 $298,725 $757,028
10,000 0.4% $11.875 09/29/05 $74,681 $189,257
Hugh C. Martin 20,000 0.8% $11.875 05/26/05 $149,362 $378,514
60,000 2.4% $11.500 08/11/05 $433,937 $1,099,682
James Alan Cook 28,000 1.1% $11.875 05/26/05 $209,107 $529,919
40,000 1.6% $11.500 08/11/05 $289,292 $733,122
Robert B. Faber 8,000 0.3% $11.875 05/26/05 $59,745 $151,406
10,000 0.4% $11.875 09/29/05 $74,681 $189,257
Tobin E. Farrand 28,000 1.1% $11.875 05/26/05 $209,107 $526,919
40,000 1.6% $11.500 08/11/05 $289,292 $733,122
</TABLE>
- --------------------
(1) The options referenced in the foregoing table are intended to be incentive
stock options to the extent permitted by applicable law. The Company's
1993 Incentive Stock Plan (the "Incentive Plan") also provides for the
grant of non-qualified stock options. Incentive stock options may be
granted under the Incentive Plan at an exercise price no less than market
value on the date of grant. For so long as the Company's Common Stock is
listed on the Nasdaq National Market, the fair market value is the closing
sale price for the Common Stock. Non-qualified options may be granted at
an exercise price of no less than 85% of market value on the date of
grant. Options generally become exercisable as to 20% of the shares
subject to the option one year after commencement of employment, and as to
the remainder in equal monthly installments (accrued on a monthly basis)
over the succeeding 48 months. In addition, options accelerate in full and
become immediately exercisable upon a merger, unless such options are
assumed or replaced by equivalent options by the successor corporation.
Options generally terminate on the earlier of three months after
termination of the optionee's employment by or services to the Company, or
ten years after grant.
(2) On April 9, 1996, the Board of Directors authorized the exchange
of all options (including those held by the individuals named in the above
table) with an exercise price exceeding $8.25 for options with an exercise
price of $8.25, provided the optionee agreed to certain adjustments to
the option vesting schedule.
(3) The 5% and 10% assumed annualized rates of compound stock price
appreciation are based on the exercise prices shown in the table, are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or a projection by the Company of future
Common Stock prices.
-60-
<PAGE> 61
Aggregate Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options In-the-Money Options
Acquired at March 31, 1996 at March 31, 1996(1)
on --------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Trip Hawkins -- -- 225,759 334,241 $0 $0
Hugh C. Martin 20,000 $196,500 168,136 184,864 $1,215,097 $418,403
James Alan Cook -- -- 67,621 126,379 $451,497 $261,003
Robert B. Faber 70,000 $714,525 19,945 61,055 $156,362 $252,013
Tobin E. Farrand -- -- 29,296 114,704 $167,772 $189,228
</TABLE>
- --------------
(1) On April 9, 1996, the Board of Directors authorized the exchange of all
options (including those held by the individuals named in the above table)
with an exercise price exceeding $8.25 for options with an exercise price
of $8.25, provided the optionee agreed to certain adjustments to the
option vesting schedule.
-61-
<PAGE> 62
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of March
31, 1996, by (i) each stockholder known by the Company to be the beneficial
owner of more than 5% of the Company's Common Stock, (ii) each director, (iii)
the Company's Chief Executive Officer and the Company's four other most highly
compensated executive officers serving in that capacity as of March 31, 1996
(together, the "named Officers") and (iv) all executive officers and directors
as a group.
<TABLE>
<CAPTION>
Shares Beneficially Owned (1)
Five Percent Stockholders, -----------------------------
Directors and Executive Officers Number Percent
-----------------------------
<S> <C> <C>
Electronic Arts, Inc. ...................... 3,235,668 12.4
1450 Fashion Island Boulevard
San Mateo, California 94404
Matsushita Electric Industrial Co. Ltd. .... 3,147,459 12.1
1066 Kadoma
Osaka 571, Japan
Trip Hawkins(2) ............................ 2,467,401 9.5
600 Galveston Drive
Redwood City, California 94063
David H. Horowitz(3) ....................... 28,625 *
Vinod Khosla(4) ............................ 184,735 *
Charles S. Paul ............................ -- --
Robert W. Pittman .......................... 1,000 *
Hugh C. Martin(5) .......................... 177,490 *
James Alan Cook(6) ......................... 78,346 *
Robert B. Faber(7) ......................... 73,985 *
Tobin E. Farrand(8) ........................ 73,834 *
All executive officers and directors
as a group (12 persons)(9) 3,141,515 12.1
</TABLE>
- --------------------
* Less than 1%
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons and entities named in the
table have sole voting and sole investment power with respect to all
shares of Common Stock beneficially owned.
-62-
<PAGE> 63
(2) Includes 242,499 shares subject to an option exercisable within 60 days
of March 31, 1996.
(3) Includes 23,002 shares subject to an option exercisable within 60 days
of March 31, 1996.
(4) Includes 16,000 shares held by Mr. Khosla's wife, Neeru Khosla.
(5) Includes 177,490 shares subject to an option exercisable within 60 days
of March 31, 1996.
(6) Includes 78,346 shares subject to an option exercisable within 60 days of
March 31, 1996.
(7) Includes 23,985 shares subject to an option exercisable within 60 days of
March 31, 1996.
(8) Includes 32,842 shares subject to an option exercisable within 60 days of
March 31, 1996.
(9) Includes shares held beneficially by executive officers and directors as
shown in the foregoing table.
-63-
<PAGE> 64
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated herein by reference to the
Company's Proxy Statement for the 1996 annual meeting of stockholders.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
Page(s) in
1. Index to Consolidated Financial Statements Form 10-K
Independent Auditors' Report 36
Consolidated Balance Sheets at March 31, 1996 and 1995 37
Consolidated Statements of Operations for the years ended
March 31, 1996, 1995 and 1994. 38
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended March 31, 1996, 1995 and 1994. 39
Consolidated Statements of Cash Flows for the years ended
March 31, 1996, 1995 and 1994. 40
Notes to Consolidated Financial Statements 41-53
2. Financial Statement Schedules
There are no financial statement schedules filed as part of this Form
10-K.
3. Exhibits
The following exhibits are filed as part of, or incorporated by reference
into, this report:
Number Exhibit Title
------ -------------
2.01 -- Contribution Agreement dated as of March 4, 1993 by
and among the Registrant, the 3DO Company, a
California corporation, 3DO Merger Sub, Technology
West Partners, L.P., the shareholders of NTG, Inc.
and NTG Engineering, Inc.(2)
3.03 -- Registrant's Restated Certificate of Incorporation.
3.04 -- Registrant's Delaware Bylaws, as amended.
4.01 -- Form of Specimen Certificate for Registrant's Common
Stock.(2)
4.02 -- Third Stockholders' Rights Agreement, dated as of
January 13, 1993, between the Registrant and various
investors.
10.01 -- Series A Preferred Stock Exchange Agreement between
the Registrant and Electronic Arts Inc. dated as of
September 30, 1991.(2)
10.02 -- Series A Preferred Stock Purchase Agreement by and
among the Registrant and Kleiner Perkins Caufield &
Byers V, KPCB Zaibatsu Fund I, Technology Partners
West, Fund IV, and Time Warner Enterprises, Inc.
dated as of September 30, 1991.(2)
-64-
<PAGE> 65
10.03 -- Series A Preferred Stock Purchase Agreement between
the Registrant and Matsushita Electric Industrial
Co., Ltd. dated as of March 24, 1992.(2)
10.04 -- Series B Preferred Stock Purchase Agreement
between the Registrant and a group of investors
including American Telephone & Telegraph Company,
Electronic Arts Inc., Toby Farrand, Trip Hawkins,
David Horowitz, Kleiner Perkins Caufield & Byers V,
Matsushita Electric Industrial Co., Ltd., and Time
Warner Entertainment Company, L.P., dated as of
January 5, 1993.(1)(2)
10.05 -- Medio Development System License Agreement between
the Registrant and Electronic Arts Inc. dated as of
September 30, 1991, as amended.(1)(2)
10.06 -- Publishing Option Agreement between the Registrant
and Electronic Arts Inc. dated as of September 30,
1991.(1)(2)
10.07 -- Equipment Transfer and Security Agreement between
Electronic Arts Inc. and the Registrant dated as of
September 30, 1991.(2)
10.08 -- Secured Promissory Note between the Registrant and
Electronic Arts Inc. dated as of September 30,
1991.(2)
10.09 -- Strategic Contribution and Medio Cable Agreement
between the Registrant and Time Warner Enterprises,
Inc. as amended through March 31, 1992.(1)(2)
10.10 -- Strategic Contribution Agreement between the
Registrant and Matsushita Electric Industrial Co.,
Ltd. dated April 9, 1992.(1)(2)
10.11 -- Technology Purchase Agreement between the Registrant
and Kleiner Perkins Caufield & Byers V, NTG
Engineering, Inc., David Needle and RJ Mical dated as
of September 30, 1991.(2)
10.12 -- KPCB Option Agreement among the Registrant and
Electronic Arts Inc., Kleiner Perkins Caufield &
Byers V and KPCB Zaibatsu Fund I dated as of
September 30, 1991, as amended.(2)
10.13 -- 1991 Incentive Stock Plan of the Registrant.(2)
10.14 -- 1993 Incentive Stock Plan of the Registrant.(2)
10.15 -- Form of Restricted Stock Purchase Agreement of the
Registrant.(2)
10.16 -- Form of Incentive Stock Option Agreement of the
Registrant.(2)
10.17 -- Form of Nonstatutory Stock Option Agreement of the
Registrant.(2)
10.18 -- 401(k) Plan of the Registrant.(2)
10.19 -- Sublease between NCR Comten, Inc. and the Registrant,
for office space at 1820 Gateway Drive, Suite 109,
San Mateo, California.(2)
10.20 -- Form of Lease between Golden Century Investment
Company, Inc. and the Registrant for office space at
1820 Gateway Drive, San Mateo, California.(2)
10.21 -- Employment Agreement between the Registrant and
William M. Hawkins III dated as of February 1993.(2)
10.21A -- Amendment to Employment Agreement between the
Registrant and William M. Hawkins III, dated as of
March 22, 1994.(5)
10.22 -- Form of Indemnity Agreement.(2)
10.23 -- Consumer Interactive Multiplayer License Agreement
between the Registrant and Matsushita Electric
Industrial Co., Ltd. dated March 5, 1993.(1)(2)
10.24 -- Covenant Not to Compete and Non-Solicitation
Agreement between the Registrant and Dave Needle
dated as of March 4, 1993.(2)
10.25 -- Covenant Not to Compete and Non-Solicitation
Agreement between the Registrant and Dave Morse dated
as of March 4, 1993.(2)
10.26 -- Covenant Not to Compete and Non-Solicitation
Agreement between the Registrant and RJ Mical dated
as of March 4, 1993.(2)
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<PAGE> 66
10.27 -- Stock Restriction Agreement between the Registrant
and Dave Needle dated as of March 4, 1993.(2)
10.28 -- Stock Restriction Agreement between the Registrant
and Dave Morse dated as of March 4, 1993.(2)
10.29 -- Stock Restriction Agreement between the Registrant
and RJ Mical dated as of March 4, 1993.(2)
10.30 -- Form of Software License Agreement.(2)
10.31 -- Form of Stock Purchase Agreement between the
Registrant and William M. Hawkins III.(2)
10.32 -- Form of Stock Purchase Agreement between the
Registrant and Namco Limited.(2)
10.33 -- Letter of Intent dated January 5, 1993 between the
Registrant and American Telephone & Telegraph
Company.(1)(2)
10.34 -- Lease between Seaport Centre Venture Phase I and the
Registrant for office space at 600 Galveston Drive,
Building 5, Redwood City, California.(6)
10.34A -- First Amendment to Lease between Seaport Centre
Venture Phase I and the Registrant for office space
at 600 Galveston Drive, Building 5, Redwood City,
California.(5)
10.34B -- Second Amendment to Lease between Seaport Centre
Venture Phase I and the Registrant for office space
at 600 Galveston Drive, Building 5, Redwood City,
California.
10.35 -- Letter of Intent dated June 1, 1993 between the
Registrant and American Telephone & Telegraph
Company.(3)
10.36 -- Letter between the Registrant and MCA Entertainment,
Inc. dated September 29, 1993.(1)(5)
10.37 -- Memorandum of Understanding between the Registrant
and Creative Technology, Ltd. dated March 8,
1994.(1)(5)
10.38 -- Memorandum of Understanding between the Registrant
and Scientific-Atlanta, Inc. dated December 9,
1993.(1)(5)
10.39 -- Letter of Intent between the Registrant and
Matsushita Electric Industrial Co., Ltd. dated
effective March 3, 1994.(1)(5)
10.40 -- Letter of Agreement between the Registrant and
Creative Technology Ltd., dated May 10, 1994.(1)(6)
10.41 -- Supplemental Letter of Agreement between the
Registrant and Creative Technology Ltd., dated May
27, 1994.(1)(6)
10.42 -- Compact Disc Pressing License Agreement between the
3DO Company and Matsushita Electric Industrial Co.,
Ltd.(1)(7)
10.43 -- Technology Licensing Agreement between the Registrant
and Matsushita Electric Industrial Co., Ltd., Dated
December 7, 1995.(8)(9)
10.44 -- Joint Development and License Agreement between
Registrant and Cirrus Logic, Inc., dated February 29,
1996.(9)
10.45 -- Addendum dated April 24, 1996, to Technology
Licensing Agreement between the Registrant and
Matsushita Electric Industrial Co., Ltd., dated
December 7, 1995.(9)
11.01 -- Computation of Net Loss Per Share.
21.01 -- List of Subsidiaries of the Registrant.
23.01 -- Consent of Independent Auditors.
24.01 -- Power of Attorney
27.01 -- Financial Data Schedule.
(1) Confidential treatment has been granted with respect to
certain portions of this document.
-66-
<PAGE> 67
(2) Incorporated by reference to the same-numbered exhibit filed
with the Registrant's Registration Statement on Form S-1 No.
33-59166.
(3) Incorporated by reference to the same-numbered exhibit filed
with the Registrant's Annual Report on Form 10-K for the
year ended March 31, 1993.
(4) Incorporated by reference to the same-numbered exhibit filed
with the Registrant's Quarterly Report on Form 10-Q for the
period ended June 30, 1993.
(5) Incorporated by reference to the same-numbered exhibit filed
with the Registrant's Registration Statement on Form S-1 No.
33-71364.
(6) Incorporated by reference to the same-numbered exhibit filed
with the Registrant's Annual Report on Form 10-K for the
year March 31, 1994.
(7) Incorporated by reference to the same-numbered exhibit filed
with Registrant's Quarterly Report on Form 10-Q/A for the
period ended December 31, 1994.
(8) Incorporated by reference to the same-numbered exhibit filed
with Registrant's Quarterly Report on Form 10-Q/A for the
period ended December 31, 1995.
(9) Confidential Treatment has been requested with respect to
certain portions of this document.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended March 31,
1996.
(c) Exhibits:
The registrant hereby as part of this Form 10-K the exhibit listed in
Item 14(a)3, as set forth above.
(d) Financial Statement Schedules:
There are no financial statement schedules filed as part of this Form
10-K.
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<PAGE> 68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
THE 3DO COMPANY
a Delaware Corporation
By: /S/ PAUL J. MILLEY
--------------------------------
Paul J. Milley
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
(Duly Authorized Officer)
Date: June 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------------------- -------------------------------------------- -----------------
<S> <C> <C>
/S/ WILLIAM M. HAWKINS, III Chairman of the Board of Directors and Chief June 28, 1996
- ----------------------------------- Executive Officer (Principal Executive
William M. Hawkins, III Officer)
/S/ PAUL J. MILLEY Chief Financial Officer (Principal Financial June 28, 1996
- ----------------------------------- Officer and Principal Accounting Officer)
Paul J. Milley
/S/ DAVID H. HOROWITZ Director June 28, 1996
- -----------------------------------
David H. Horowitz
/S/ VINOD KHOSLA Director June 28, 1996
- -----------------------------------
Vinod Khosla
/S/ HUGH C. MARTIN, JR. President and Director June 28, 1996
- -----------------------------------
Hugh C. Martin, Jr.
/S/ CHARLES S. PAUL Director June 28, 1996
- -----------------------------------
Charles S. Paul
/S/ ROBERT W. PITTMAN Director June 28, 1996
- -----------------------------------
Robert W. Pittman
</TABLE>
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<PAGE> 69
THE 3DO COMPANY
Report on form 10-K for
the year ended March 31, 1996
INDEX TO EXHIBITS*
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Exhibit Name Numbered Page
- ------- ------------ -------------
<S> <C> <C>
3.03 Restated Certificate of Incorporation.
3.04 Bylaws, as amended
10.44 Joint Development and License Agreement between Registrant
and Cirrus Logic, Inc., dated February 29, 1996.(1)
10.45 Addendum dated April 24, 1996, to Technology Licensing
Agreement between the Registrant and Matsushita Electric
Industrial Co., Ltd., dated December 7, 1995. (1)
11.01 Computation of Net Loss Per Share.
21.01 List of Subsidiaries of the Registrant.
23.01 Consent of Independent Auditors.
24.01 Power of Attorney.
27.01 Financial Data Schedule.
</TABLE>
* Only exhibits actually filed are listed. Exhibits incorporated by reference
are set forth in the exhibit listing included in Item 14 of the Report on
Form 10-K.
(1) Confidential treatment is being requested with respect to certain portions
of these Exhibits.
-69-
<PAGE> 1
EXHIBIT 3.03
RESTATED CERTIFICATE OF INCORPORATION
OF
THE 3DO COMPANY
The 3DO Company, a Corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is The 3DO Company. The 3DO Company was
originally incorporated under the same name, and the original Certificate of
Incorporation of the corporation was filed with the Secretary of State of the
State of Delaware on September 15, 1992 and a Restated Certificate of
Incorporation of the corporation was filed with the Secretary of State of the
State of Delaware on March 25, 1993. The Restated Certificate of Incorporation
was amended on May 20, 1994.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Restated Certificate of
Incorporation of this corporation.
3. The text of the Restated Certificate of Incorporation, as amended to
date, is hereby restated and further amended to read in its entirety as follows:
ARTICLE 1: NAME. The name of the Corporation is The 3DO Company (the
"Company").
ARTICLE 2: REGISTERED OFFICE. The location and post office address of
the Company's registered office in the State of Delaware is Corporation Trust
Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The
name of the registered agent at such address is The Corporation Trust Company.
ARTICLE 3: PURPOSE. The purpose of the Company is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE 4: AUTHORIZED CAPITAL STOCK.
4.1 Authorization of Shares. The total number of shares of all classes
of stock which the Company has authority to issue is Fifty-Five Million
(55,000,000) shares, consisting of two classes: Fifty Million (50,000,000)
shares of Common Stock, par value $0.01 per share, and Five Million (5,000,000)
shares of Preferred Stock, par value $0.01 per share.
4.2 Designation of Future Series of Preferred Stock. The Board of
Directors is authorized, subject to any limitations prescribed by the law of the
State of Delaware, to provide in a resolution or resolutions for the issuance of
the shares of Preferred Stock in one or more series, and, by filing a
Certificate
1
<PAGE> 2
of Designation pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, to fix the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions thereof,
and to increase or decrease the number of shares of any such series (but not
below the number of shares of such series then outstanding). The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the stock of the Company entitled to vote, unless a
vote of any other holders is required pursuant to a Certificate of Designation
establishing a series of Preferred Stock.
4.3 Voting Rights of Common Stock. Each holder of shares of Common
Stock shall be entitled to one vote for each share thereof held.
ARTICLE 5: CLASSIFIED BOARD OF DIRECTORS. The Company's Board of
Directors shall be divided into three classes designated as Class A, Class B,
and Class C, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the board of directors.
At the annual meeting of the stockholders to be held in 1996, the term of office
of the initial Class A directors shall expire and Class A directors shall
thereafter be elected for a full term of three years. At the annual meeting of
the stockholders to be held in 1997, the term of office of the initial Class B
directors shall expire and Class B directors shall thereafter be elected for a
full term of three years. At the annual meeting of the stockholders to be held
in 1998, the term of office of the initial Class C directors shall expire and
Class C directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
Notwithstanding the foregoing provisions of this Article 5, each
director shall serve until his or her successor is duly elected and qualified or
until his or her earlier death, resignation, or removal. No decrease in the
number of directors constituting the board of directors shall shorten the term
of any incumbent director. Vacancies on the board may be filled by the remaining
directors for the remainder of the full class term.
ARTICLE 6: WRITTEN BALLOTS. Elections of directors need not be by
written ballot unless the Bylaws of the Company shall so provide.
ARTICLE 7: AMENDMENT OF BYLAWS. In furtherance and not in limitation of
the powers conferred by the statute, the Board of Directors is expressly
authorized to adopt, alter, amend, or repeal the Bylaws of the Company.
ARTICLE 8: LIMITATION OF LIABILITY. To the fullest extent permitted by
law, no director of the Company shall be personally liable for monetary damages
for breach of fiduciary duty as director. Without limiting the effect of the
preceding sentence, if the Delaware General Corporation Law is hereafter amended
to authorize the further elimination or limitation of the liability of a
director, then the liability of a director of the Company shall be eliminated or
limited to the fullest extent permitted by the Delaware General Corporation Law,
as so amended.
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Neither any amendment nor repeal of this Article 8, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article 8, shall eliminate, reduce or otherwise adversely affect any limitation
on the personal liability of a director of the Company existing at the time of
such amendment, repeal or adoption of such an inconsistent provision.
4. The amendments to the Corporation's Restated Certificate of
Incorporation, as amended to date, which are incorporated in this Restated
Certificate of Incorporation have been duly adopted by the Corporation's Board
of Directors in accordance with Section 242 of the General Corporation Law of
the State of Delaware and by the stockholders of the Corporation at the
Corporation's annual meeting of stockholders held on September 7, 1995, in
accordance with Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which
restates and integrates and further amends the provisions of the Restated
Certificate of Incorporation of the Company as amended to date, has been duly
executed and attested by the Secretary this 26th day of January, 1996.
The 3DO Company
By: /s/ Hugh C. Martin, Jr.
-----------------------------
Hugh C. Martin, Jr.
President
Attest:
By: /s/ James Alan Cook
----------------------------------
James Alan Cook,
Secretary
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<PAGE> 1
EXHIBIT 3.04
- -------------------------------------------------------------------------------
BYLAWS
OF
THE 3DO COMPANY
(a Delaware Corporation)
As Adopted April 14, 1993,
and subsequently amended through April 9, 1996
- -------------------------------------------------------------------------------
<PAGE> 2
BYLAWS
OF
THE 3DO COMPANY
A Delaware Corporation
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article I - STOCKHOLDERS...............................................................1
Section 1.1: Annual Meetings...............................................1
Section 1.2: Special Meetings..............................................1
Section 1.3: Notice of Meetings............................................1
Section 1.4: Adjournments..................................................1
Section 1.5: Quorum........................................................1
Section 1.6: Organization..................................................2
Section 1.7: Voting; Proxies...............................................2
Section 1.8: Fixing Date for Determination of Stockholders of Record.......2
Section 1.9: List of Stockholders Entitled to Vote.........................3
Section 1.10: Action by Written Consent of Stockholders.....................3
Section 1.11: Inspectors of Elections.......................................4
Section 1.12: Notice of Stockholder Business; Nominations...................4
Section 1.13: Notice of Cumulative Voting...................................6
Article II - BOARD OF DIRECTORS........................................................6
Section 2.1: Number; Qualifications........................................6
Section 2.2: Election; Resignation; Removal; Vacancies.....................7
Section 2.3: Regular Meetings..............................................7
Section 2.4: Special Meetings..............................................7
Section 2.5: Telephonic Meetings Permitted.................................7
Section 2.6: Quorum; Vote Required for Action..............................7
Section 2.7: Organization..................................................7
Section 2.8: Written Action by Directors...................................8
Section 2.9: Powers........................................................8
Section 2.10: Compensation of Directors.....................................8
Article III - COMMITTEES...............................................................8
Section 3.1: Committees....................................................8
Section 3.2: Committee Rules...............................................8
Article IV - OFFICERS..................................................................9
Section 4.1: Generally.....................................................9
Section 4.2: Chief Executive Officer.......................................9
Section 4.3: Chairman of the Board.........................................9
Section 4.4: President.....................................................9
Section 4.5: Chief Operating Officer......................................10
Section 4.6: Vice President...............................................10
Section 4.7: Chief Financial Officer......................................10
Section 4.8: Treasurer....................................................10
Section 4.9: Secretary....................................................10
Section 4.10: Delegation of Authority......................................10
Section 4.11: Removal......................................................10
</TABLE>
<PAGE> 3
TABLE OF CONTENTS (Cont'd)
<TABLE>
<S> <C>
Article V - STOCK.....................................................................10
Section 5.1: Certificates.................................................10
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance
of New Certificates.....................................11
Section 5.3: Other Regulations............................................11
Article VI - INDEMNIFICATION..........................................................11
Section 6.1: Indemnification of Officers and Directors....................11
Section 6.2: Advance of Expenses..........................................11
Section 6.3: Non-Exclusivity of Rights....................................12
Section 6.4: Indemnification of Contracts.................................12
Section 6.5: Effect of Amendment..........................................12
Article VII - NOTICES.................................................................12
Section 7.1: Notice.......................................................12
Section 7.2: Waiver of Notice.............................................12
Article VIII - INTERESTED DIRECTORS...................................................12
Section 8.1: Interested Directors; Quorum.................................12
Article IX - MISCELLANEOUS............................................................13
Section 9.1: Fiscal Year..................................................13
Section 9.2: Seal.........................................................13
Section 9.3: Form of Records..............................................13
Section 9.4: Reliance Upon Books and Records..............................13
Section 9.5: Certificate of Incorporation Governs.........................13
Section 9.6: Severability.................................................13
Article X - AMENDMENT.................................................................14
Section 10.1: Amendments...................................................14
</TABLE>
ii
<PAGE> 4
BYLAWS
OF
THE 3DO COMPANY
(a Delaware Corporation)
As Adopted April 14, 1993,
and subsequently amended through April 9, 1996
ARTICLE I
STOCKHOLDERS
Section 1.1: Annual Meetings. An annual meeting of stockholders shall
be held for the election of directors at such date, time and place, either
within or without the State of Delaware, as the Board of Directors shall each
year fix. Any other proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special Meetings of stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board, the
Chief Executive Officer, the President, the holders of shares of the Corporation
that are entitled to cast not less than ten percent (10%) of the total number of
votes entitled to be cast by all stockholders at such meeting, or by a majority
of the members of the Board of Directors. Special meetings may not be called by
any other person or persons. If a special meeting of stockholders is called by
any person or persons other than by a majority of the members of the Board of
Directors, then such person or persons shall call such meeting by delivering a
written request to call such meeting to each member of the Board of Directors,
and the Board of Directors shall then determine the time, date and place of such
special meeting, which shall be held not more than one hundred twenty (120) nor
less than thirty-five (35) days after the written request to call such special
meeting was delivered to each member of the Board of Directors.
Section 1.3: Notice of Meetings. Written notice of all meetings of
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable law or the Certificate of
Incorporation of the Corporation, such notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 1.4: Adjournments. Any meeting of stockholders may adjourn from
time to time to reconvene at the same or another place, and notice need not be
given or any such adjourned meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken; provided, however,
that if the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, then a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting. At the adjourned meeting the Corporation may transact
any business that might have been transacted at the original meeting.
Section 1.5: Quorum. At each meeting of stockholders the holders of a
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law. If a quorum shall fail
to attend any meeting, the chairman of the meeting or the holders of a majority
of the shares entitled to vote who are present, in person or by proxy, at the
meeting may adjourn the meeting. Shares of the Corporation's stock belonging to
the Corporation or to another corporation, if a majority of the shares entitled
to vote in the election of directors of such other corporation are held,
directly or indirectly, by the Corporation, shall neither be entitled to
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vote nor be counted for quorum purposes; provided, however, that the foregoing
shall not limit the right of the Corporation or any other corporation to vote
any shares of the Corporation's stock held by it in a fiduciary capacity.
Section 1.6: Organization. Meetings of stockholders shall be presided
over by such person as the Board of Directors may designate, or, in the absence
of such a person, the Chairman of the Board, or, in the absence of such person,
the President of the Corporation, or, in the absence of such person, such person
as may be chosen by the holders of a majority of the shares entitled to vote who
are present, in person or by proxy, at the meeting. Such person shall be
chairman of the meeting and, subject to Section 1.11 hereof, shall determine the
order of business and the procedure at the meeting, including such regulation of
the manner of voting and the conduct of discussion as seems to him or her to be
in order. The Secretary of the Corporation shall act as secretary of the
meeting, but in his or her absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 1.7: Voting; Proxies. Unless otherwise provided by law or the
Certificate of Incorporation, and subject to the provisions of Section 1.8 of
these Bylaws, each stockholder shall be entitled to one vote for each share of
stock held by such stockholder. Each stockholder entitled to vote at a meeting
of stockholders, or to express consent or dissent to corporate action in writing
without a meeting, may authorize another person or persons to act for such
stockholder by proxy. Such a proxy may be prepared, transmitted and delivered in
any manner permitted by applicable law. Voting at meetings of stockholders need
not be by written ballot unless such is demanded at the meeting before voting
begins by a stockholder or stockholders holding shares representing at least one
percent (1%) of the votes entitled to vote at such meeting, or by such
stockholder's or stockholders' proxy; provided, however, that an election of
directors shall be by written ballot if: (a) the Corporation's Certificate of
Incorporation then expressly permits cumulative voting for the election of
directors and such election of directors is to be conducted by cumulative
voting; or (b) demand is so made by any stockholder at the meeting before voting
begins. If a vote is to be taken by written ballot, then each such ballot shall
state the name of the stockholder or proxy voting and such other information as
the chairman of the meeting deems appropriate. Directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote in the election of directors. Unless
otherwise provided by applicable law, the Certificate of Incorporation or these
Bylaws, every matter other than the election of directors shall be decided by
the affirmative vote of the holders of a majority of the shares of stock
entitled to vote thereon that are present in person or represented by proxy at
the meeting and are voted for or against the matter.
Section 1.8: Fixing Date for Determination of Stockholders of Record.
(a) Generally. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors and which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. If no record date is fixed by the
Board of Directors, then the record date shall be as provided by applicable law.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) Stockholder Request for Action by Written Consent. Any
stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent without a meeting shall, by written notice
to the Secretary of the Corporation, request the Board of Directors to fit a
record date for such consent. Such request shall include a brief description of
the action proposed to be taken and any other information required by Section
1.13 of these Bylaws
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<PAGE> 6
regarding notice of cumulative voting. The Board of Directors shall, within ten
(10) days after the date on which such a request is received, adopt a resolution
fixing the record date. Such record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. If no record date
has been fixed by the Board of Directors within ten (10) days after the date on
which such a request is received, then the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, to
its principal place of business, or to any officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, then the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.
Section 1.9: List of Stockholders Entitled to Vote. A complete list of
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present at the meeting.
Section 1.10: Action by Written Consent of Stockholders.
(a) Procedure. Unless otherwise provided by the Certificate of
Incorporation, and except as set forth in Section 1.8(b) above, any action
required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Written stockholder consents shall bear the date of signature of each
stockholder who signs the consent and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, to its principal
place of business or to any officer or agent of the Corporation having custody
of the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. No written consent shall
be effective to take the action set forth therein unless, within sixty (60) days
of the earliest dated consent delivered to the Corporation in the manner
provided above, written consents signed by a sufficient number of stockholders
to take the action set forth therein are delivered to the Corporation in the
manner provided above.
(b) Notice of Consent. Prompt notice of the taking of
corporate action by stockholders without a meeting by less than unanimous
written consent of the stockholders shall be given to those stockholders who
have not consented thereto in writing and, in the case of a Certificate Action
(as defined below), if the Delaware General Corporation Law so requires, such
notice shall be given prior to filing of the certificate in question. If the
action which is consented to requires the filing of a certificate under the
Delaware General Corporation Law (a "Certificate Action"), then if the Delaware
General Corporation Law so requires, the certificate so filed shall-state that
written stockholder consent has been given in accordance with Section 228 of the
Delaware General Corporation Law and that written notice of the taking of
corporate action by stockholders without a meeting as described herein has been
given as provided in such section.
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<PAGE> 7
Section 1.11: Inspectors of Elections.
(a) Applicability. Unless otherwise provided in the
Corporation's Certificate of Incorporation or required by the Delaware General
Corporation Law, the following provisions of this Section 1.11 shall apply only
if and when the Corporation has a class of voting stock that is: (i) listed on a
national securities exchange; (ii) authorized for quotation on an interdealer
quotation system of a registered national securities association; or (iii) held
of record by more than 2,000 stockholders; in all other cases, observance of the
provisions of this Section 1.11 shall be optional, and at the discretion of the
Corporation.
(b) Appointment. The Corporation shall, in advance of any
meeting of stockholders, appoint one or more inspectors of election to act at
the meeting and make a written report thereof. The Corporation may designate one
or more persons as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at a meeting of stockholders,
the person presiding at the meeting shall appoint one or more inspectors to act
at the meeting.
(c) Inspector's Oath. Each inspector of election, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability.
(d) Duties of Inspectors. At a meeting of stockholders, the
inspectors of election shall (i) ascertain the number of shares outstanding and
the voting power of each share, (ii) determine the shares represented at a
meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period of time a record of
the disposition of any challenges made to any determination by the inspectors,
and (v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance of
the duties of the inspectors.
(e) Opening and Closing of Polls. The date and time of the
opening and the closing of the polls for each matter upon which the stockholders
will vote at a meeting shall be announced by the inspectors at the meeting. No
ballot, proxies or votes, nor any revocations thereof or changes thereto, shall
be accepted by the inspectors after the closing of the polls unless the Court of
Chancery upon application by a stockholder shall determine otherwise.
(f) Determinations. In determining the validity and counting
of proxies and ballots, the inspectors shall be limited to an examination of the
proxies, any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section 212(c)(2) of the Delaware
General Corporation Law, ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable information
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks, brokers, their nominees or similar persons which represent more
votes than the holder of a proxy is authorized by the record owner to cast or
more votes than the stockholder holds of record. If the inspectors consider
other reliable information for the limited purpose permitted herein, the
inspectors at the time they make their certification of their determinations
pursuant to this Section 1.11 shall specify the precise information considered
by them, including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
Section 1.12: Notice of Stockholder Business; Nominations.
(a) Annual Meeting of Stockholders.
(i) Nominations of persons for election to the Board
of Directors and the proposal of business to be considered by the stockholders
shall be made at an annual meeting of
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stockholders (A) pursuant to the Corporations notice of such meeting, (B) by or
at the direction of the Board of Directors, or (C) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of the notice
provided for in this Section 1.12, who is entitled to vote at such meeting and
who complies with the notice procedures set forth in this Section 1.12.
(ii) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause (C) of
subparagraph (a)(i) of this Section 1.12, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for stockholder action. To be timely,
a stockholder's notice must be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of business on the ninetieth
(90th) day prior to the first anniversary of the preceding year's annual meeting
(except in the case of the 1993 annual meeting, for which such notice shall be
timely if delivered in the same time period as if such meeting were a special
meeting governed by subparagraph (b) of this Section 1.12); provided, however,
that in the event that the date of the annual meeting is more than thirty (30)
days before or more than sixty (60) days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or the close of business on the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made by
the Corporation. Such stockholder's notice shall set forth: (a) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (1) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner, and (2) the class and number of shares of the Corporation that are owned
beneficially and held of record by such stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence
of subparagraph (a)(ii) of this Section 1.12 to the contrary, in the event that
the number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement by the Corporation
naming all of the nominees for director or specifying the size of the increased
board of directors at least seventy (70) days prior to the first anniversary of
the preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at least
seventy (70) days prior to such annual meeting), a stockholder's notice required
by this Section 1.12 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary of the Corporation at the principal executive office
of the Corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall
be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of such meeting.
Nominations of persons for election to the Board of Directors may be made at a
special meeting of stockholders at which directors are to be elected pursuant to
the Corporation's notice of such meeting (i) by or at the direction of the Board
of Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 1.12. In the event
the Corporation
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calls a special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder may nominate a person
or persons (as the case may be), for election to such position(s) as specified
in the Corporation's notice of meeting, if the stockholder's notice required by
subparagraph (a)(ii) of this Section 1.12 shall be delivered to the Secretary of
the Corporation at the principal executive offices of the Corporation not
earlier than the ninetieth (90th) day prior to such special meeting and not
later than the close of business on the later of the sixtieth (60th) day prior
to such special meeting or the tenth (10th) day following the day on which
public announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
(c) General.
(i) Only such persons who are nominated in accordance
with the procedures set forth in this Section 1.12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.12. Except as otherwise provided by law or these
bylaws, the chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth in this Section 1.12 and, if any proposed nomination or business is not in
compliance herewith, to declare that such defective proposal or nomination shall
be disregarded.
(ii) For purposes of this Section 1.12, the term
"public announcement" shall mean disclosure in a press release reported by the
Dow Jones News Service, Associated Press or comparable national news service or
in a document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of
this Section 1.12, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth herein. Nothing in this Section 1.12 shall be
deemed to affect any rights of stockholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 1.13: Notice of Cumulative Voting. No stockholder of the
Corporation shall be entitled to cumulate such stockholder's votes in any
election of directors unless the Corporation's Certificate of Incorporation then
authorizes cumulative voting for the election of directors and, (i) in the case
of an election of directors at any annual or special meeting of stockholders, a
stockholder has first delivered to the Secretary of the Corporation, at least
five (5) days in advance of such meeting, written notice of such stockholder's
intention to cumulate such stockholder's votes for the election of directors at
such meeting; or (ii) in the case of an election of any director or directors by
written consent without a meeting where such action by written consent is
requested by a stockholder, the stockholder first requesting such action by
written consent without a meeting states, in the written notice required to be
given to the Secretary of the Company under Section 1.8(b) of these bylaws, that
such stockholder intends to cumulate such stockholder's votes for the election
of directors in such action by written consent without a meeting.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall
consist of no less than five (5) nor more than eleven (11) members. The exact
number of directors shall be six (6) until changed, within the limits specified
above, by an amendment of these Bylaws amending this Section 2.1, duly adopted
by the Board of Directors or by the stockholders. This range of number of
directors may be changed, or a definite number may be fixed, by a duly adopted
amendment to the Certificate of Incorporation or by an amendment to this Section
2.1 duly adopted by the Board
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of Directors or by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote. No decrease in the authorized number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director. Directors need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
Directors shall initially consist of the person or persons elected by the
incorporator or named in the Corporation's initial Certificate of Incorporation.
Each director shall hold office until the next annual meeting of stockholders
and until his or her successor is elected and qualified, or until his or her
earlier death, resignation or removal. Any director may resign at any time upon
written notice to the Corporation. Subject to the rights of any holders of
Preferred Stock then outstanding: (i) any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors; provided, however
that if the Corporation's Certificate of Incorporation then authorizes
cumulative voting for the election of directors, if less than the entire Board
of Directors is to be removed, then no director may be removed without cause if
the votes cast against such director's removal would be sufficient to elect such
director if such votes were then cumulatively voted at an election of the entire
Board of Directors; and (ii) any vacancy occurring in the Board of Directors for
any cause, and any newly created directorship resulting from any increase in the
authorized number of directors to be elected by all stockholders having the
right to vote as a single class, may be filled by the stockholders, by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
Section 2.3: Regular Meetings. Regular meetings of the Board of
Directors may be held at such places, within or without the State of Delaware,
and at such times as the Board of Directors may from time to time determine.
Notice of regular meetings need not be given if the date, times and places
thereof are fixed by resolution of the Board of Directors.
Section 2.4: Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President or a
majority of the members of the Board of Directors then in office and may be held
at any time, date or place, within or without the State of Delaware, as the
person or persons calling the meeting shall fix. Notice of the time, date and
place of such meeting shall be given, orally or in writing, by the person or
persons calling the meeting to all directors at least four (4) days before the
meeting if the notice is mailed, or at least twenty-four (24) hours before the
meeting if such notice is given by telephone, hand delivery, telegram, telex,
mailgram, facsimile or similar communication method. Unless otherwise indicated
in the notice, any and all business may be transacted at a special meeting.
Section 2.5: Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee of the Board, may participate in a meeting of the
Board or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to
conference telephone or similar communications equipment shall constitute
presence in person at such meeting.
Section 2.6: Quorum: Vote Required for Action. At all meetings of the
Board of Directors a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by law, the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 2.7: Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, or in his or her absence by the
President, or in his or her absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
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Section 2.8: Written Action by Directors. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
such committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or committee,
respectively.
Section 2.9: Powers. The Board of Directors may, except as otherwise
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
Section 2.10: Compensation of Directors. Directors, as such, may
receive, pursuant to a resolution of the Board of Directors, fees and other
compensation for their services as directors, including without limitation their
services as members of committees of the Board of Directors.
ARTICLE III
COMMITTEES
Section 3.1: Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of the committee, the
member or members thereof present at any meeting of such committee who are not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent provided in a resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors as provided in subsection (a) of
Section 151 of the Delaware General Corporation Law, fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation, or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation, or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Sections 251 or 252 of the Delaware
General Corporation Law, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the Corporation; and
unless the resolution of the Board of Directors expressly so provides, no such
committee shall have the power or authority to declare a dividend, authorize the
issuance of stock or adopt a certificate of ownership and merger pursuant to
section 253 of the Delaware General Corporation Law.
Section 3.2: Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
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ARTICLE IV
OFFICERS
Section 4.1: Generally. The officers of the Corporation shall consist
of a Chief Executive Officer and/or a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers, including a Chairman of the
Board of Directors and/or Chief Financial Officer, as may from time to time be
appointed by the Board of Directors. All officers shall be elected by the Board
of Directors; provided, however, that the Board of Directors may empower the
Chief Executive Officer of the Corporation to appoint officers other than the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer or the Treasurer. Each officer shall hold office until his or
her successor is elected and qualified or until his or her earlier resignation
or removal. Any number of offices may be held by the same person. Any officer
may resign at any time upon written notice of the Corporation. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise may be filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the
Board of Directors and such supervisory powers, if any, as may be given the
Board of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are:
(a) To act as the general manager and, subject to the control of the
Board of Directors, to have general supervision, direction and control of the
business and affairs of the Corporation;
(b) To preside at all meetings of the stockholders;
(c) To call meetings of the stockholders to be held at such times and,
subject to the limitations prescribed by law or by these Bylaws, at such places
as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds,
conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and
other papers and instruments in writing which have been authorized by the Board
of Directors or which, in the judgment of the Chief Executive Officer, should be
executed on behalf of the Corporation; to sign certificates for shares of stock
of the Corporation; and, subject to the direction of the Board of Directors, to
have general charge of the property of the Corporation and to supervise and
control all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation unless the
Board of Directors shall designate the Chairman of the Board or another officer
to be the Chief Executive Officer. If there is no President, and the Board of
Directors has not designated any other officer to be the Chief Executive
Officer, then the Chairman of the Board shall be the Chief Executive Officer.
Section 4.3: Chairman of the Board. The Chairman of the Board shall
have the power to preside at all meetings of the Board of Directors and shall
have such other powers and duties as the Board of Directors may from time to
time prescribe.
Section 4.4: President. Unless otherwise designated by the Board of
Directors, and subject to the supervisory powers of the Chief Executive Officer
(if the Chief Executive Officer is not the President), and subject to such
supervisory powers and authority as may be given by the Board of Directors to
the Chairman of the Board and/or to any other officer, the President shall be
the Chief Executive Officer of the Corporation. Subject to the provisions of
these Bylaws and to the direction of the Board of Directors, the President shall
have the responsibility for the general management the control of the business
and affairs of the Corporation and the general supervision and direction of all
of the officers, employees and agents of the Corporation (other than the Chief
Executive Officer, if the Chief Executive Officer is not the President) and
shall
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perform all duties and have all powers that are commonly incident to the office
of President or that are delegated to the President by the Board of Directors.
Section 4.5: Chief Operating Officer. Unless otherwise designated by
the Board of Directors, subject to the provisions of these Bylaws and subject to
the supervisory powers of the Chief Executive Officer and the President, the
Chief Operating Officer shall have the responsibility for the general management
and control of the day-to-day business and the day-to-day affairs of the
Corporation and the general supervision and direction of all of the officers,
employees and agents of the Corporation (other than the Chief Executive Officer
and the President) and shall perform all duties and have all powers that are
commonly incident to the office of the Chief Operating Officer or that are
delegated to the Chief Operating Officer by the Board of Directors.
Section 4.6: Vice President. Each Vice President shall have all such
powers and duties as are commonly incident to the office of Vice President, or
that are delegated to him or her by the Board of Directors or the Chief
Executive Officer. A Vice President may be designated by the Board to perform
the duties and exercise the powers of the Chief Executive Office in the event of
the Chief Executive Officer's absence or disability.
Section 4.7: Chief Financial Officer. Subject to the direction of the
Board of Directors and the President, the Chief Financial Officer shall perform
all duties and have all powers that are commonly incident to the office of chief
financial officer.
Section 4.8: Treasurer. The treasurer shall have custody of all monies
and securities of the Corporation. The treasurer shall make such disbursements
of the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions. The Treasurer shall also perform such
other duties and have such other powers as are commonly incident to the office
of Treasurer, or as the Board of Directors or the President may from time to
time prescribe.
Section 4.9: Secretary. The Secretary shall issue or cause to be issued
all authorized notices for, and shall keep, or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall perform
such other duties and have such other powers as are commonly incident to the
office of Secretary, or as the Board of Directors or the President may from time
to time prescribe.
Section 4.10: Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 4.11: Removal. Any officer of the Corporation shall serve at
the pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
ARTICLE V
STOCK
Section 5.1: Certificates. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the Corporation by the Chairman
or Vice-Chairman of the Board of Directors, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any and all of the signatures on
the certificate may be a facsimile.
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Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of
New Certificates. The Corporation may issue a new certificate of stock in the
place of any certificate previously issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to agree
to indemnify the Corporation and/or to give the Corporation a bond sufficient to
indemnify it, against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
Section 5.3: Other Regulations. The issue, transfer, conversion and
registration of stock certificates shall be governed by such other regulations
as the Board of Directors my establish.
ARTICLE VI
INDEMNIFICATION
Section 6.1: Indemnification of Officers and Directors. Each person who
was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he
or she (or a person of whom he or she is the legal representative), is or was a
director or officer of the Corporation or a Reincorporated Predecessor (as
defined below) or is or was serving at the request of the Corporation or a
Reincorporated Predecessor (as defined below) as a director or officer of
another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by the Delaware General Corporation Law, against all expenses, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes and
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that the Corporation shall indemnify any such person seeking
indemnity in connection with a proceeding (or part thereof) initiated by such
person only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. As used herein, the term "Reincorporated
Predecessor" means a corporation that is merged with and into the Corporation in
a statutory merger where (a) the Corporation is the surviving corporation of
such merger; or (b) the primary purpose of such merger is to change the
corporate domicile of the Reincorporated Predecessor to Delaware.
Section 6.2: Advance of Expenses. The Corporation shall pay all
expenses (including attorneys' fees) incurred by such a director or officer in
defending any such proceeding as they are incurred in advance of its final
disposition; provided, however, that unless then so prohibited by the Delaware
General Corporation Law, the payment of such expenses incurred by such a
director or officer in advance of the final disposition of such proceeding shall
be made only upon delivery to the Corporation of an undertaking, by or on behalf
of such director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
indemnified under this Article VI or otherwise; and provided, further, that the
Corporation shall not be required to advance any expenses to a person against
whom the Corporation directly brings a claim, in a proceeding, alleging that
such person has breached his or her duty of loyalty to the Corporation,
committed an act or omission not in good faith or that involved intentional
misconduct or a knowing violation of law, or derived an improper personal
benefit from a transaction.
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Section 6.3: Non-Exclusivity of Rights. The rights conferred on any
person in this Article VI shall not be exclusive of any other right that such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders
or disinterested directors, or otherwise. Additionally, nothing in this Article
VI shall limit the ability of the Corporation, in its discretion, to indemnify
or advance expenses to persons whom the Corporation is not obligated to
indemnify or advance expenses pursuant to this Article VI.
Section 6.4: Indemnification Contracts. The Board of Directors is
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification rights
to such person. Such rights may be greater than those provided in this Article
VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or modification
of any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.
ARTICLE VII
NOTICES
Section 7.1: Notice. Except as otherwise specifically provided herein
or required by law, all notices required to be given pursuant to these Bylaws
shall be in writing and may in every instance be effectively given by hand
delivery (including use of a delivery service), by depositing such notice in the
mail, postage prepaid, or by sending such notice by prepaid telegram, telex,
overnight express courier, mailgram or facsimile. Any such notice shall be
addressed to the person to whom notice is to be given at such person's address
as it appears on the records of the Corporation. The notice shall be deemed
given (i) in the case of hand delivery, when received by the person to whom
notice is to be given or by any person accepting such notice on behalf of such
person, (ii) in the case of delivery by mail, upon deposit in the mail, (iii) in
the case of delivery by overnight express courier, on the first business day
after such notice is dispatched, and (iv) in the case of delivery via telegram,
telex, mailgram, or facsimile, when dispatched.
Section 7.2: Waiver of Notice. Whenever notice is required to be given
under any provision of these bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof that authorizes
the contact or transaction, or solely because his, her
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or their votes are counted for such purpose, if: (i) the material facts as to
his, her or their relationship or interest and as to the contract or transaction
are disclosed or are known to the Board of Directors or the committee, and the
Board or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; (ii) the material facts as to
his, her or their relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof, or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
ARTICLE IX
MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a corporate
seal, which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.
Section 9.3: Form of Records. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, magnetic tape,
diskettes, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 9.4: Reliance Upon Books and Records. A member of the Board of
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying in
good faith upon records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of any
conflict between the provisions of the Corporation's Certificate of
Incorporation and Bylaws, the provisions of the Certificate of Incorporation
shall govern.
Section 9.6: Severability. If any provision of these Bylaws shall be
held to be invalid, illegal, unenforceable or in conflict with the provisions of
the Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws (including without
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Certificate of Incorporation, that are not themselves invalid, illegal,
unenforceable or in conflict with the Certificate of Incorporation) shall remain
in full force and effect.
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ARTICLE X
AMENDMENT
Section 10.1: Amendments. Stockholders of the Corporation holding a
majority of the Corporation's outstanding voting stock shall have the power to
adopt, amend or repeal Bylaws. To the extent provided in the Corporation's
Certificate of Incorporation, the Board of Directors of the Corporation shall
also have the power to adopt, amend or repeal Bylaws of the Corporation, except
insofar as Bylaws adopted by the stockholders shall otherwise provide.
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CERTIFICATION OF BYLAWS
OF
THE 3DO COMPANY
(a Delaware Corporation)
KNOW ALL BY THESE PRESENTS:
I, James Alan Cook, certify that I am Secretary of the 3DO Company, a
Delaware Corporation (the "Company"), that I am duly authorized to make and
deliver this certification, and that the attached Bylaws are a true and correct
copy of the Bylaws of the Company in effect as of the date of this certificate.
Dated: April 9, 1996
/s/ James Alan Cook
--------------------------
James Alan Cook, Secretary
<PAGE> 1
EXHIBIT 10.44
JOINT DEVELOPMENT AND LICENSE AGREEMENT
The 3DO Company ("3DO") and Cirrus Logic, Inc. ("Cirrus Logic") enter into this
Joint Development and License Agreement (the "Agreement") as of this 29th day of
February, 1996 ("Effective Date").
RECITALS
3DO has developed an existing semiconductor device known as "BDA" ("BDA") that
includes, among other things, a component designated by the parties as the
"3DEngine" (as defined in Section 1.4 below). Cirrus wishes to have 3DO develop
certain modifications to the 3DEngine and to obtain a nonexclusive license of
such 3DEngine to incorporate the 3DEngine in semiconductor devices developed by
Cirrus Logic, and 3DO wishes to make such modifications and grant such license,
on the terms and conditions set forth in this Agreement. Accordingly, in
consideration of the mutual representations, warranties, covenants, and other
terms and conditions contained herein, and other good and valuable
consideration, the sufficiency of which is hereby acknowledged, 3DO and Cirrus
Logic agree as follows:
TERMS AND CONDITIONS
1. Definitions.
1.1. "3DO Deliverable Items" means the specific information and
materials of or concerning the 3DEngine set forth in Exhibit A, attached hereto,
and any other information and materials of or concerning the 3DEngine provided
by 3DO to Cirrus Logic in connection with this Agreement.
1.2. "Development Period" means the period beginning upon commencement
of the Development Program and ending upon the earliest of (i) acceptance by
Cirrus Logic of the last of the 3DO Deliverables set forth in Exhibit A,
attached hereto, (ii) exercise by Cirrus Logic of its right to terminate 3DO
engineering services pursuant to Section 7, below, (iii) exercise by Cirrus
Logic of its right to receive source code in accordance with Section 28, below,
or (iv) termination of this Agreement.
1.3. "Development Program" means the development work to be undertaken
by both parties under the terms and conditions of this Agreement in order to
obtain an initial production version of Magnum in accordance with the Magnum
Specifications.
1.4. "3DEngine" means the memory controller, bus interface, 3D setup
engine and 3D rendering engine components of BDA described in Exhibit B,
attached hereto, as they exist on the Effective Date, together with (i) the
modifications to such components specifically required to be made under this
Agreement and (ii) any other modifications to such components completed by 3DO
during the Development Period (whether or not arising from the Development
Program) as to which 3DO has the right to grant licenses to Cirrus Logic of the
scope contemplated by this Agreement, except that the "3DEngine" expressly
excludes (a) any version or derivative of such components designed for a
product configuration to comply with the MPEG2 or Digital Versatile Disc
("DVD") standard and (b) any modifications designed for any version or
derivative.
1.5. "PCI Bus" means Peripheral Component Interface, the 32/64-bit
local bus architecture developed by Intel, IBM and DEC, among others.
1.6. "Magnum" means a Product to be developed by Cirrus Logic in
accordance with this Agreement that integrates the VGA Logic with the 3DEngine.
The parties anticipate that Magnum will be the first Product developed and
manufactured by Cirrus Logic under this Agreement.
1.7. "Magnum Specifications" means the feature and functionality
requirements set forth in Exhibit B, attached hereto.
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1.8. "Multi-Purpose Computers" means computers with a multiplicity of
functions and purposes. Without limitation, "Multi-Purpose Computers" expressly
excludes any video game device or other dedicated-purpose system.
1.9. "Net Revenues" means the gross revenues recognized by Cirrus Logic
and its Subsidiaries for the sale or other distribution of Products, but not
including separate related charges for (i) sales and use taxes, excise taxes,
customs duties and other similar taxes (excluding in any event taxes on Cirrus
Logic's net income), (ii) shipping and/or insurance charges, (iii) bad debts,
and (iv) the amount of any refunds and/or credits, but only to the extent that
such refunds and/or credits are actually recognized against such gross revenues.
Net Revenues will be determined in accordance with United States generally
accepted accounting principles consistently applied.
1.10. "NRE Expenses" means nonrecurring engineering expenses incurred
by 3DO. "NRE Expenses" are hereby agreed to be equal to the rate of
$[CONFIDENTIAL TREATMENT REQUESTED] per person year and to the rate of
$[CONFIDENTIAL TREATMENT REQUESTED] per person day for any partial person years
(unless otherwise agreed to in writing for any particular additional engineering
services under section 5.3, below).
1.11. "Product" means a semiconductor device now or hereafter developed
by Cirrus Logic that incorporates all or a portion of the 3DEngine.
1.12. "Royalty Bearing Product" means a Product sold or otherwise
distributed by Cirrus Logic or its Subsidiaries, excluding Products (a)
distributed at no charge solely for demonstration, evaluation, training,
development or promotional purposes or (b) sold to 3DO.
1.13. "Subsidiary" means, with respect to a party, an entity as to
which such party owns and controls at least seventy percent (70%) of the capital
stock and/or other equity (or, in the case of a noncorporate entity, equivalent
interests) representing the right to vote for the election of directors or
another managing authority, but such entity shall be deemed to be a Subsidiary
only so long as such ownership and control exist.
1.14. "VGA Logic" means the video graphics adapter core logic comprised
of components such as the controller, bus interface, buffer, digital to analog
converter, 2D acceleration logic, video functions and other related components
as incorporated into Magnum.
2. Technology License Grant.
2.1. 3DO hereby grants to cirrus Logic, subject to the terms and
conditions of this Agreement, a non-exclusive, non-transferable (except as
provided in Section 31.3, below), worldwide, irrevocable (except as set forth in
Section 27, below) license (i) to design and develop modifications to and
derivatives of the 3DEngine, (ii) to use the 3DEngine, including such
modifications and derivatives, in the design and development of Products, and
(iii) to manufacture, import, use, offer to sell, sell and otherwise distribute
such Products, in each case solely for Multi-Purpose Computers. Such license
shall include (a) the right to use trade secrets, copyrights, mask work rights
and patents, if any, relating to the 3DEngine that are necessary for the design
and development of such modifications and the manufacture, import, use, offer to
sell, sale and other distribution of such Products for Multi-Purpose Computers
and (b) the right to use, reproduce and modify the 3DO Deliverable Items in
connection with the design and development of such modifications and the
manufacture, import, use, offer to sell, sale and other distribution of such
Products for Multi-Purpose Computers.
2.2. Cirrus Logic shall not (and shall have not right to) sublicense
any of its rights or licenses under this Agreement, except that Cirrus Logic may
have sublicense the rights set forth in this Section 2 to one or more of its
Subsidiaries, provided that (i) Cirrus Logic shall be responsible for compliance
by the Subsidiaries with the terms and conditions of this Agreement to the same
extent as Cirrus Logic itself, (ii) any act or omission of the Subsidiaries
shall constitute an act or omission of Cirrus Logic, and (iii) the Subsidiaries
shall agree in writing that they are subject to the terms and conditions of this
Agreement and that 3DO shall have a right of action against the Subsidiaries to
the same extent as Cirrus Logic itself with respect to a breach of any
obligation relating to this Agreement by such Subsidiary.
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<PAGE> 3
2.3. Cirrus Logic shall not (and shall have no right to) have its
rights or licenses under this Agreement exercised by any third party (and,
without limitation, shall have no "have developed" or "have made" rights) except
as follows:
(a) Cirrus Logic may engage third-party contractors to engage
in design and development of modifications to the 3DEngine, solely for the
benefit of Cirrus Logic, provided that the third parties agree in writing (i)
that the 3DO Deliverables and other Confidential Information of 3DO may be used
only for the design and development of modifications to the 3DEngine for the
sole benefit of Cirrus Logic, (ii) to confidentiality requirements, including,
without limitation, restrictions on disclosure and use of 3DO Deliverable Items
and other Confidential Information of 3DO, no less strict than those required by
Cirrus Logic for its own comparable confidential and proprietary information,
and (iii) that all right, title and interest in and to their work product,
including, without limitation, any design and development related to the
3DEngine and modifications thereto, are assigned to Cirrus Logic;
(b) Cirrus Logic may engage third-party semiconductor
manufacturers (including but not limited to foundry and ASIC manufacturers),
assemblers and test facilities to fabricate, assemble and/or test the Products,
solely for the benefit of Cirrus Logic, provided that (i) the Products are sold
by the manufacturer (and any such assemblers and test facilities) only to Cirrus
Logic, (ii) the manufacturer, assembler or test facility is not provided with
any Confidential Information of 3DO except for materials required for
fabrication, assembly and/or testing of such Products and (iii) the
manufacturer, assembler or test facility agrees in writing (A) that the
Confidential Information, if any, provided to the manufacturers, assembler or
test facility may be used only for fabrication, assembly and/or testing of
Products for the sole benefit of Cirrus Logic, and (B) to confidentiality
requirements, including, without limitation, restrictions on disclosure and use
of 3DO Deliverable Items and other Confidential Information of 3DO, no less
strict than those required by Cirrus Logic for its own comparable confidential
and proprietary information; and
(c) Cirrus Logic may disclose 3DO Deliverable Items and other
Confidential Information to third parties participating with Cirrus Logic in (i)
joint development of a Product or of an interface of third party proprietary
technology into a Product, or (ii) integration of a Product into systems
(including board-level systems) or with other semiconductor devices, but solely
as necessary for such joint development or integration, provided that (A) such
third parties agree in writing (1) that the 3DO Deliverable Items and other
Confidential Information of 3DO may be used only for such joint development
and/or integration for the sole benefit of Cirrus Logic, and (2) to
confidentiality requirements, including, without limitation, restrictions on
disclosure and use of 3DO Deliverable Items and other Confidential Information
of 3DO, no less strict than those required by Cirrus Logic for its own
comparable confidential and proprietary information and (B) any Products which
are the subject of this subsection (c) are sold or distributed only by Cirrus
Logic.
3. Technical Disclosure. For the purposes described above, 3DO shall
deliver to Cirrus Logic the 3DO Deliverable Items set forth in Exhibit A,
attached hereto.
4. Development of Magnum. 3DO and Cirrus Logic shall jointly determine the
specifications for the interface between the VGA Logic and the 3DEngine for
Magnum. Thereafter, 3DO shall use reasonable best efforts to modify the design
of the 3DEngine so as to conform to the jointly determined Magnum interface
specifications. Cirrus Logic shall be solely responsible for the fabrication of
units of Magnum, and solely liable for all costs and expenses relating to the
production of Magnum, including, without limitation, the development of all
masks, the production of all test devices, the testing of all prototypes, and
the revision of all masks and designs which may be required as a result of any
testing. 3DO will cooperate with and assist Cirrus Logic with respect to the
process of debugging of the 3DEngine until the first commercial shipment of the
initial production version of Magnum. Any additional engineering services in
excess of those required pursuant to Section 3, above, or this Section 4 shall
be subject to 3DO's reasonable approval prior to 3DO being obligated to perform
such services, and shall be subject to the terms and conditions of Section 5.3,
below.
5. Non-Recurring Engineering Expenses. Cirrus Logic shall pay the NRE
Expenses for engineering services furnished by 3DO in connection with
development and delivery of the 3DO Deliverable Items and
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<PAGE> 4
performance of its obligations under Section 4, above. The payments will be
nonrefundable. The payments shall be made as follows:
5.1. Within fifteen (15) days following the execution of this
Agreement, Cirrus Logic shall provide 3DO with an initial NRE Expenses payment
in advance in the amount of $[CONFIDENTIAL TREATMENT REQUESTED]. The balance of
the NRE Expenses to be provided by Cirrus Logic shall be paid to 3DO in
accordance with the milestones referenced in Exhibit C, attached hereto, as
amended from time to time by mutual agreement of the parties. Payments based on
milestones consisting of acceptance of 3DO Deliverable Items will be subject to
the acceptance procedure set forth in Section 6, below, and shall be made by
Cirrus Logic within fifteen (15) days after the later of (i) Cirrus Logic's
acceptance of the 3DO Deliverable Items associated with such milestones or (ii)
Cirrus Logic's receipt of an invoice with respect thereto, which invoice will
include a summary of such milestones and the cumulative number of person years
(or portion thereof) spent in completing the milestones. NRE Expenses shall be
calculated based on actual engineering services performed hereunder on a person
year and person day basis. Any NRE expenses that, in the aggregate, exceed the
sum of the estimates referenced in Exhibit C shall be subject to Cirrus Logic'
approval, which approval will not be unreasonably withheld. 3DO will have no
obligation to provide engineering services for which the NRE Expenses will not
be paid.
5.2. The parties acknowledge and agree that Exhibit C, attached hereto,
is intended to set forth the reasonable schedule of desired engineering
services, deliverables and related milestones, and estimates of any required 3DO
resources and related NRE Expenses in order to meet its development and delivery
obligations under Section 3 and 4, above. The parties acknowledge and agree
that, because of uncertainties in the development and testing process, the
estimates of 3DO resources and related NRE Expenses are necessarily preliminary,
and that the parties shall use diligent, good faith efforts to reach agreement
with respect to additions and modifications to Exhibit C. Notwithstanding the
immediately preceding sentence, Cirrus Logic shall not be obligated to pay for
the marginal cost of inefficiencies resulting from 3DO's use of engineers who
are not comparable to those generally used on semiconductor development projects
of this kind. In any event, unless otherwise approved by Cirrus Logic, which
approval will not be unreasonably withheld, the aggregate NRE Expenses for 3DO's
development and delivery obligations under Section 3 and 4, above, will not
exceed $[CONFIDENTIAL TREATMENT REQUESTED] ("NRE Cap").
5.3. In the event that Cirrus Logic desires any additional engineering
services from 3DO in connection with any future engineering task or project that
3DO is not obligated to undertake or perform pursuant to the provisions of
Sections 3 or 4, above, such engineering services shall be the subject of a
separate agreement between e parties and shall require the payment of additional
NRE Expenses by Cirrus Logic, the amount of which shall be negotiated in good
faith and mutually agreed upon by the parties, and which amount shall neither by
subject to nor count towards the NRE Cap. In addition, in the event that Cirrus
Logic desires 3DO to develop any applications software that would demonstrate
the performance characteristics of Magnum, the applicable software development
requirements, schedule and related costs would be negotiated by the parties in
good faith and, if mutually agreed upon, would become the subject of a separate
agreement or an amendment to this Agreement. NRE Expenses for software
development during the first year after the Effective Date will be calculated at
the rate of $[CONFIDENTIAL TREATMENT REQUESTED] per person year, pro-rated at a
rate of $[CONFIDENTIAL TREATMENT REQUESTED] per person hour for any partial
person years.
6. Additional Procedure.
6.1. Upon receipt of a 3DO Deliverable Item, Cirrus Logic will have
twenty (20) days from the date or receipt ("Acceptance Period") in which to test
and evaluate the 3DO Deliverable Item and determine whether it materially
confirms to any applicable Magnum Specifications for such 3DO Deliverable Item.
Before the end of the Acceptance Period, Cirrus Logic will provide 3DO with a
written notice of acceptance of the 3DO Deliverable Item or a notice of
rejection that (i) specifies in reasonable detail the material nonconformance(s)
(to the applicable Magnum Specifications) that are the basis for the rejection
and (ii) is accompanied by test suites and test results, if applicable,
evidencing (and allowing 3DO to replicate) such nonconformance(s). If 3DO does
not receive such a notice of rejection during the Acceptance Period, the 3DO
Deliverable Item will be deemed accepted. If 3DO receives a notice of rejection
during the Acceptance Period, 3DO will, during the period of twenty (20) days
from the date or
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<PAGE> 5
receipt of the rejection notice, use reasonable best effort to correct any
material nonconformance(s) specified in the rejection notice and to deliver the
corrected 3DO Deliverable Item to Cirrus Logic. The process set forth in this
Section 6.1 will continue until the 3DO Deliverable Item is accepted.
6.2. The parties acknowledge and agree that the acceptance process set
forth in Section 6.1 may not reveal all bugs or defects, and that in the event
any such bugs or defects are subsequently discovered during the Development
Period, 3DO will use reasonable best efforts to correct any bugs or defects upon
Cirrus Logic's request as part of 3DO's development obligations under Section 4,
above, provided that (i) 3DO's obligations will be limited to bugs or defects
that constitute nonconformance(s) with the Magnum Specifications and (ii) any
such bugs or defects will not affect 3DO rights to any milestone payments or any
other rights based on acceptance.
6.3. All references in this Agreement to acceptance of 3DO Deliverable
Items (and, accordingly, any references in this Agreement to the end of the
Development Period) assume that (i) the development, delivery and acceptance of
the 3DO Deliverable Items are not delayed because of an act or omission of
Cirrus Logic (including its contractors, its suppliers or other parties for
which Cirrus Logic is responsible), and (ii) Cirrus Logic does not unreasonably
withhold or delay its acceptance of the 3DO Deliverable Items. In either such
event, 3DO will be entitled to the rights and benefits triggered by acceptance
of the 3DO Deliverable Items (and, accordingly, any rights and benefits
triggered by the end of the Development Period), including, without limitation,
the payment of NRE Expenses, payment of pre-paid royalties and running of the
six (6) month periods described in Sections 20.1 and 20.4, below, as of the day
acceptance would have occurred if such event had not occurred, notwithstanding
failure to achieve the milestone to which the acceptance relates.
7. Termination of3DO Engineering Services. Cirrus Logic may, upon thirty
(30) days' written notice to 3DO, terminate 3DO's engineering services to be
provided pursuant tot his Agreement at any time during he Development Program.
Upon such termination, 3DO shall have no further obligations to perform any
engineering services hereunder. In the event of such a termination, Cirrus Logic
shall, within fifteen (15) days after Cirrus Logic's receipt of an invoice for
NRE Expenses incurred before the effective date of termination for which 3DO has
not previously been paid, pay the greater of (i) such NRE Expenses, subject to
the terms and conditions of Section 5.2, above, with respect to the NRE Cap, or
(ii) an amount equal to $[CONFIDENTIAL TREATMENT REQUESTED] less the NRE
Expenses previously paid by Cirrus Logic to 3DO hereunder. Promptly upon receipt
of such payment, 3DO shall deliver to Cirrus Logic copies of all 3DO Deliverable
Items set forth in Exhibit A, attached hereto, as and in the form existing on
the effective date of termination (whether completed, partially completed or
uncompleted), for Cirrus Logic's use solely in accordance with and subject to
the terms and conditions of, this Agreement. Termination pursuant to this
Section 7 shall affect only the engineering services to be provided by 3DO and
the related NRE Expenses, and shall not result in termination of this Agreement
or affect the rights and obligations of the parties hereunder, including,
without limitation, 3DO's right to receive the license fees, royalty payments
and any other sums due hereunder.
8. Ownership Interests.
8.1. Except as expressly set forth herein, (i) 3DO retains all right,
title and interest in and to the 3DEngine and 3DO Deliverable Items, any
modifications to the 3DEngine or 3DO Deliverable Items that are developed by or
for 3DO, and any subsequently derived and/or successor technologies that are
developed by o for 3DO or any related intellectual property rights, and (ii)
Cirrus Logic retains all right, title and interest in and to the VGA Logic, any
modifications to the VGA Logic that are developed by or for Cirrus Logic, or any
subsequently derived and/or successor technologies that are developed by or for
Cirrus Logic or any related intellectual property rights.
8.2. All of 3DO Rights with respect to the 3DEngine and/or any related
intellectual property rights that are not specifically granted to Cirrus Logic
are expressly reserved by 3DO. No license or rights with respect to the 3D
Engine and/or any related intellectual property rights shall be implied by or
inferred from this Agreement or the activities of the parties in furtherance of
this Agreement.
8.3. Cirrus Logic shall own any modifications to the 3DEngine or 3DO
Deliverable Items made by or for Cirrus Logic (except those made by 3DO),
subject to 3DO's underlying ownership interests in
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<PAGE> 6
and to the 3DEngine and related intellectual property rights (and provided that,
for purposes of clarification, Cirrus Logic acknowledges it has no rights to use
or to otherwise exploit any modifications that include all or any portion of the
3DEngine, or that use or are subject to any related intellectual property
rights, except as part of Products as expressly authorized by this Agreement).
3DO shall own any implementation or embodiment developed by 3DO based on an
idea, invention or information developed by Cirrus Logic and disclosed or
otherwise provided to 3DO hereunder, provided that either party may use or
otherwise exploit (or sublicense the right to use or otherwise exploit) such
idea, invention or information, whether or not patentable.
9. Scope of Agreement. This Agreement and the rights and obligations of
the parties hereunder are limited to the 3DEngine, as specifically defined in
Section 1.4, above, and the 3DO Deliverable Items set forth in Exhibit A,
attached hereto. Nothing herein shall be construed as granting Cirrus Logic any
rights with respect to, or requiring 3DO to offer to Cirrus Logic, any
modification or addition to the current version of the 3DEngine, or any new
version of the 3DEngine, except for modifications specifically included within
the definition of "3DEngine."
10. License Fee. In partial consideration for 3DO's grant of the various
licensed rights regarding the 3DEngine referenced hereinabove, and in addition
to me NRE Expenses, Cirrus Logic shall pay 3DO the sum of $[CONFIDENTIAL
TREATMENT REQUESTED] as a non-refundable, non-recoupable license fee (the
"License Fee"). The License Fee shall be paid to 3DO in accordance with the
following schedule: (i) $[CONFIDENTIAL TREATMENT REQUESTED] within fifteen (15)
days following the Effective Date, or March 31, 1996, whichever is earlier, (ii)
$[CONFIDENTIAL TREATMENT REQUESTED] no later that March 31, 1996, and (iii)
$[CONFIDENTIAL TREATMENT REQUESTED] within ninety (90) days following the
Effective Date, or June 1, 1996, whichever is earlier.
11. Pre-Paid Royalties. In partial consideration for 3DO's grant of the
various licensed rights regarding the 3DEngine referenced hereinabove, and in
addition to the License Fee and the NRE Expenses, Cirrus Logic shall pay 3DO the
non-refundable sum of $[CONFIDENTIAL TREATMENT REQUESTED] (the "Advance"), which
sum shall be recoupable by Cirrus Logic as an advance payment of the first
royalties otherwise due and payable to 3DO pursuant to Section 12, below, with
respect to Cirrus Logic's exercise of the licensed rights. The Advance shall be
paid to 3DO in accordance with the following schedule: (i) $[CONFIDENTIAL
TREATMENT REQUESTED] within fifteen (15) days following the Effective Date, or
March 31, 1996, whichever is earlier, (ii) $[CONFIDENTIAL TREATMENT REQUESTED]
no later that March 31, 1996, and (iii) $[CONFIDENTIAL TREATMENT REQUESTED] no
later than June 30, 1996, and (iv) $[CONFIDENTIAL TREATMENT REQUESTED] within
fifteen (15) days after the end of the Development Period.
12. Ongoing Royalties.
12.1. Cirrus Logic shall pay royalties to 3DO calculated as a
percentage of the Net Revenues. The applicable royalty rates shall be as
follows:
Months after First
Commercial Shipment Percentage of
(in volume production quantities) Net Revenues
--------------------------------- --------------
1-12 [CONFIDENTIAL
TREATMENT REQUESTED]%
13-24 [CONFIDENTIAL
TREATMENT REQUESTED]%
25 (and beyond) [CONFIDENTIAL
TREATMENT REQUESTED]%
In accordance with the foregoing formula, the parties contemplate, subject to
the provisions of Section 13, below, that the applicable royalty rates for all
Royalty Bearing Products shall decline annually (down to, but not below,
[CONFIDENTIAL TREATMENT REQUESTED] percent ([CONFIDENTIAL TREATMENT
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REQUESTED]%), except as otherwise expressly set forth in Section 12.3, below),
commencing twelve (12) months after first commercial shipment of volume
production quantities of such Royalty Bearing Product. As used herein, the term
"volume production quantities" refers to the shipment to customers by or for
Cirrus Logic of units of a Product that are not prototypes, engineering samples,
or other such units that are not purchased in quantities for commercial resale.
12.2. All royalties due 3DO shall accrue upon recognition by Cirrus
Logic or a Subsidiary of Net Revenues, regardless of the time of collection by
Cirrus Logic or the Subsidiary. Cirrus Logic and its Subsidiaries will recognize
Net Revenue in accordance with United States generally accepted accounting
principles, consistently applied. No costs incurred in the manufacture,
marketing, sale, distribution or exploitation of the Royalty Bearing Products,
other than as expressly set forth herein, shall be deducted from any royalties
payable to 3DO. If any Royalty Bearing Products are sold or otherwise
distributed in an arrangement that is not an arm's-length merchant market
transaction, and the price of the Royalty Bearing Products is less than the
price in an average arm's-length merchant market transaction, the price in such
an average arm's-length merchant market transaction shall be substituted
therefor in determining Net Revenues. For the sale or distribution of Royalty
Bearing Products bundled with other products, the Net Revenues attributable to
such Royalty Bearing Products shall be based upon the ratio of the average list
prices for the applicable Royalty Bearing Product during the immediately
preceding three (3) fiscal month period to the average list prices of the other
products in the bundle during the immediately preceding three (3) fiscal month
period, provided that where there is no list price for a component, the average
list price for such component shall be mutually agreed upon by the parties in
good faith.
12.3. In the event that Cirrus Logic elects to integrate any additional
circuit designs into any successor to Magnum or any other new Product at some
future date, the parties acknowledge and agree that the royalty rates applicable
to any such derivative Product shall be calculated in accordance with the
following formula, rounded to the next higher tenth of a percent (and applied
only to derivative Product which constitute Royalty Bearing Product):
Royalty rate = A X B/C
where, A = the then-current royalty rate (i.e., [CONFIDENTIAL
TREATMENT REQUESTED]% / [CONFIDENTIAL TREATMENT REQUESTED]% / [CONFIDENTIAL
TREATMENT REQUESTED]%), and
B = the total number of 3DO-developed transistors in the new
Product (with the number of 3DO-developed transistors
deemed never to be less than [CONFIDENTIAL TREATMENT
REQUESTED]), and
C = total transistors in the new Product (with the number of
3DO-developed transistors deemed never to be less than
[CONFIDENTIAL TREATMENT REQUESTED])
By way of example, if a new Product has [CONFIDENTIAL TREATMENT
REQUESTED] total transistors, there are [CONFIDENTIAL TREATMENT REQUESTED]
3DO-developed transistors, and the current royalty rate is [CONFIDENTIAL
TREATMENT REQUESTED]%, the equation would be as follows:
A = [CONFIDENTIAL TREATMENT REQUESTED]%
B = [CONFIDENTIAL TREATMENT REQUESTED]
C = [CONFIDENTIAL TREATMENT REQUESTED]
* [CONFIDENTIAL TREATMENT REQUESTED] total transistors - [CONFIDENTIAL TREATMENT
REQUESTED] 3DO-developed transistors = [CONFIDENTIAL TREATMENT REQUESTED]
non-3DO developed transistors, therefore C = [CONFIDENTIAL TREATMENT REQUESTED]
non-3DO developed transistors + [CONFIDENTIAL TREATMENT REQUESTED] 3DO-developed
transistors (the minimum permissible for calculating total transistors) =
[CONFIDENTIAL TREATMENT REQUESTED] total transistors
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Royalty rate = [CONFIDENTIAL TREATMENT REQUESTED] X
([CONFIDENTIAL TREATMENT REQUESTED]/[CONFIDENTIAL TREATMENT REQUESTED])
= [CONFIDENTIAL TREATMENT REQUESTED] = [CONFIDENTIAL TREATMENT REQUESTED]
13. Potential Royalty Reset. The parties acknowledge and agree that,
notwithstanding the referenced royalty rate reductions set forth in Section
12.1, above, the then-current royalty rate (which, for purposes of Section 12.3,
above, is that rate designated by "A" in the formula therein) shall reset to
[CONFIDENTIAL TREATMENT REQUESTED] percent ([CONFIDENTIAL TREATMENT REQUESTED]%)
with respect to, and only with respect to, a Royalty Bearing Product (i) for
which 3DO provides any additional technology or intellectual property rights in
accordance with a new agreement between the parties or an amendment to this
Agreement and/or (ii) developed by Cirrus Logic that involves a modification in
3DEngine architecture, including, without limitation, a modification involving
re-pipelining, performance enhancements, bandwith enhancements, and/or other
material feature additions, but specifically excluding modifications in the
3DEngine (a) to the memory controller or (b) intended only to accommodate
changed or different manufacturing process technology and/or a change in cell
libraries. No reset shall be required for modifications in VGA Logic or other
non-3DEngine components of a Product.
14. Shipment Estimates. Within thirty (30) days after the end of each
fiscal month during the term of the licensed rights commencing with the first
commercial shipment of Royalty Bearing Product, Cirrus Logic shall provide 3DO
with a written estimate of the net number of units of each Royalty Bearing
Product sold and/or otherwise distributed by or for Cirrus Logic and its
Subsidiaries during such fiscal month. 3DO acknowledges that each such estimate
will be based on information reasonably available to Cirrus Logic at the time
and that no special effort will be required in order to generate the estimate.
15. Royalty Reports. Within fifteen (15) days after the end of each fiscal
quarter during the term of the licensed rights commencing with the first
commercial shipment of Royalty Bearing Products, Cirrus Logic shall provide 3DO
with a written royalty report, certified to be accurate by an officer of Cirrus
Logic, specifying: (i) the gross number of units of the Royalty Bearing Products
sold and/or otherwise distributed by or for Cirrus Logic and its Subsidiaries
during such fiscal quarter (itemized on a Product-by-Product basis); (ii) the
applicable average selling prices of the Royalty Bearing Products sold and/or
otherwise distributed by or for Cirrus Logic and its Subsidiaries during such
fiscal quarter (itemized on a Product-by-Product basis); and (iii) the total
royalties determined to be due to 3DO with respect to such fiscal quarter. With
respect to Net Revenues generated in foreign currency, the exchange rate used to
determine royalties shall be the monthly average exchange rate as calculated by
Cirrus Logic using the daily closing exchange rate set forth in the final
edition of The Wall Street Journal (version distributed in Northern California).
16. Royalty Payments. Within thirty (30) days after the end of each fiscal
quarter, Cirrus Logic shall wire-transfer to 3DO's designated bank account the
royalty payment determined to be due from Cirrus Logic with respect to such
fiscal quarter.
17. Audit Rights. Cirrus Logic shall retain at its principal place of
business, for a period of three (3) years after making any royalty report, all
of the files, records and books of accounts prepared in the normal course of
business which contain data reasonably required for the computation and
verification of the information to be provided to 3DO and of the amounts to be
paid by Cirrus Logic with respect to any royalty report required hereunder.
Cirrus Logic shall permit any internationally recognized certified public
accounting firm retained by 3DO (or any other certified public accounting firm
designated by 3DO and approved by Cirrus Logic, which approval will not be
unreasonably withheld) ("CPA"), on reasonable notice, to inspect and/or audit at
any reasonable times (but not more often than once per year) all such files,
records and books of accounts and to take extracts therefrom or make copies
thereof for the purpose of verifying the correctness of the royalty reports and
payments provided by Cirrus Logic hereunder. The CPA shall agree in writing (i)
not to disclose information obtained in connection with the inspection and/or
audit to third parties, (ii) not to disclose customer identities or Product
prices on a customer-by-customer basis, and (iii) to disclose to 3DO only the
total number of Royalty Bearing Products (itemized on a Product-by-Product
basis) sold or otherwise distributed by Cirrus Logic and its Subsidiaries and
the amount of royalties determined to be due with respect thereto, but provided
that nothing shall prevent the CPA or 3DO from using such information in
connection with any legal claim by 3DO arising
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<PAGE> 9
under or related to this Agreement. In the event any such inspection and/or
audit reveals that Cirrus Logic has underpaid 3DO, Cirrus Logic shall promptly
pay 3DO the underpaid amount (together with interest from the date such amount
would have been due, as required by Section 18, below). In the event any such
inspection and/or audit reveals that Cirrus Logic has overpaid 3DO, 3DO shall
promptly grant to Cirrus Logic a credit (usable against future royalty payments
due to Cirrus Logic hereunder) in the amount of the overpayment. In the event of
an underpayment by Cirrus Logic of [CONFIDENTIAL TREATMENT REQUESTED] percent
([CONFIDENTIAL TREATMENT REQUESTED]%) or more with respect to the period which
is the subject of such inspection and/or audit, Cirrus Logic shall promptly
reimburse 3DO for the reasonable fees charged to 3DO by the CPA with respect to
such inspection and/or audit.
18. Late Payments. All sums owed or payable to 3DO hereunder that are not
paid when due shall bear interest at the rate of one and a half percent (1.5%)
per month, or such lower rate as may be the maximum rate permitted under
applicable law, provided that 3DO's right to receive interest (i) shall not
constitute a forbearance or waiver by 3DO and (ii) shall not affect 3DO's other
rights and remedies (whether under this Agreement or otherwise) with respect to
any lateness in payment or failure to pay.
19. Use of Documentation.
19.1. 3DO acknowledges and agrees that Cirrus Logic wishes to provide
to its customers, as an integral part of Cirrus Logic's own technical reference
manuals for customers ("Cirrus Logic Documentation"), certain information and
materials regarding the 3DEngine to assist customers with the use of, and
development of products designed to incorporate, the Products. Accordingly 3DO
will deliver to Cirrus Logic such customer documentation as 3DO has in its
possession which the parties mutually agree is suitable for incorporation into
Cirrus Logic Documentation (as specifically so identified in writing by the
parties, the "3DO User Documentation"). 3DO hereby grants to Cirrus Logic,
subject to the terms and conditions of this Agreement, a non-exclusive,
non-transferable, irrevocable, fully paid, worldwide license, for so long as
Cirrus Logic has the right to sell or otherwise distribute the Products, (i) to
modify the 3DO User Documentation to the extent necessary for incorporation in
the Cirrus Logic Documentation, (ii) to reproduce the original or modified 3DO
User Documentation as part of such Cirrus Logic Documentation, and (iii) to
distribute copies of the Cirrus Logic Documentation incorporating the 3DO User
Documentation.
19.2. Any use or distribution of the 3DO User Documentation shall be
subject to the same terms and conditions as other comparable Cirrus Logic
Documentation.
19.3. Cirrus Logic shall be responsible for and shall own any
modifications to the 3DO User Documentation made by or for Cirrus Logic. At
3DO's request, Cirrus Logic shall provide 3DO with copies of any Cirrus Logic
Documentation that includes original or modified 3DO User Documentation. Cirrus
Logic shall as soon as practicable make any corrections or clarifications
therein reasonably requested by 3DO.
20. 3DO Obligations and Covenants.
20.1. For a period of [CONFIDENTIAL TREATMENT REQUESTED] ([CONFIDENTIAL
TREATMENT REQUESTED]) months after the end of the Development Period (or, if the
Development Period ended because of Cirrus Logic's exercise of its right to
terminate 3DO engineering services pursuant to Section 7, above, until
[CONFIDENTIAL TREATMENT REQUESTED] ([CONFIDENTIAL TREATMENT REQUESTED]) months
after acceptance of the last of the 3DO Deliverable Items set forth in Exhibit A
would have occurred if 3DO had continued to provide engineering services), 3DO
shall not (i) grant (and shall not have granted prior to the Effective Date)
licenses to the existing version of the 3DEngine to more than [CONFIDENTIAL
TREATMENT REQUESTED] ([CONFIDENTIAL TREATMENT REQUESTED]) companies (in addition
to Cirrus Logic) for use in semiconductors designed for Multi-Purpose Computers,
or (ii) itself commence the merchant market sale or other distribution of a
product, for use in a consumer 3D graphics card and/or components thereof
designed for Multi-Purpose Computers, that would be directly competitive with
Cirrus Logic's Magnum, except that the foregoing limitation shall apply only to
licenses for the manufacture, sale or other distribution of semiconductors for
the semiconductor merchant market. As examples of exceptions to the foregoing
limitation, and without limiting the generality of the foregoing, 3DO is
entitled to license the existing version of the 3DEngine (or
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any portion thereof) to any such companies for use in connection with the
development of any multimedia authoring systems or non-linear video editing
systems.
20.2. In addition, 3DO agrees that 3DO shall not, during the term of
this Agreement, license the existing version of the 3DEngine (i) to
[CONFIDENTIAL TREATMENT REQUESTED] for use as an integral part of any 3D
graphics cards and/or components thereof that are designed and intended for use
in Multi-Purpose Computers or (ii) to [CONFIDENTIAL TREATMENT REQUESTED] or
[CONFIDENTIAL TREATMENT REQUESTED]; provided, however, that 3DO may elect to
grant licenses with respect to any of such items to [CONFIDENTIAL TREATMENT
REQUESTED] (subject to the provisions of Section 20.1, above) for use in
connection with the development of 3D graphics cards and/or components thereof
that are intended to provide (and are limited by such licenses to providing)
enhanced performance or functionality to only the Macintosh-compatible portion
of any computer systems.
20.3. For the purposes of Sections 20.1 and 20.2, the term "existing
version of the 3DEngine" means any 3DEngine version prior to the development by
or for 3DO of a version of the 3DEngine designed for a product configuration to
comply with the MPEG2 or DVD standard.
20.4. For a period of [CONFIDENTIAL TREATMENT REQUESTED] ([CONFIDENTIAL
TREATMENT REQUESTED]) months after the end of the Development Period (or, if the
Development Period ended because of Cirrus Logic's exercise of its right to
terminate 3DO engineering services pursuant to Section 7, above, until
[CONFIDENTIAL TREATMENT REQUESTED] ([CONFIDENTIAL TREATMENT REQUESTED]) months
after acceptance of the last of the 3DO Deliverable Items set forth in Exhibit A
would have occurred if 3DO had continued to provide engineering services), 3DO
shall not license to any third party all or a portion of the modifications to
the 3DEngine developed by or for 3DO that are required by the Development
Program and specifically identified in Exhibit B, attached hereto, as being
specific to Cirrus Logic (the "Cirrus Logic-Specific Modifications"), provided
that this Section 20.4 will not prevent 3DO from developing and licensing a
different implementation of any such modifications, whether or not the
modifications provide the same functionality as the Cirrus Logic-Specific
Modifications.
20.5. 3DO agrees that it shall not, directly or indirectly, during the
term of this Agreement, solicit for employment or otherwise engage in recruiting
of any of the Cirrus Logic employees that are members of Cirrus Logic's VSys
division.
20.6. 3DO agrees that, during the term of this Agreement, 3DO shall not
make any separate agreement with any third party that is inconsistent with any
of the provisions of this Agreement.
21. Cirrus Logic Obligations and Covenants.
21.1. While no representations have been made to 3DO that Cirrus Logic
shall achieve any specific results or level of sales of any of the Products,
Cirrus Logic acknowledges and agrees that it shall use reasonable best efforts
to develop Magnum and shall use commercially reasonable efforts to bring to
market and to effectively market each of the Products. In the event that Cirrus
Logic does not undertake first commercial shipment of volume production
quantities of Magnum within [CONFIDENTIAL TREATMENT REQUESTED] ([CONFIDENTIAL
TREATMENT REQUESTED]) months after the end of the Development Period, 3DO shall
be released from the restrictions set forth in Sections 20.1, 20.2 and 20.4,
above, provided that, without limitation of the generality of Section 6.3,
above, in the event additional engineering services are requested by Cirrus
Logic not required by Section 3 or 4, above, as of the Effective Date, any
delays in delivery or acceptance of the 3DO Deliverable Items arising out of
such additional services shall be subtracted from such [CONFIDENTIAL TREATMENT
REQUESTED] ([CONFIDENTIAL TREATMENT REQUESTED]) month period on a day for day
basis. Subject to the foregoing, Cirrus Logic shall have the discretion to
determine when and how to market the Products.
21.2. Cirrus Logic will provide to 3DO, at no charge to 3DO (other than
reimbursement of actual shipping and insurance expenses), (i) five hundred (500)
units of the initial production version of Magnum and (ii) fifteen (15) units of
each subsequent Product (including subsequent production versions of Magnum). In
addition, Cirrus Logic agrees that 3DO shall be entitled to purchase production
units of any and all Products directly from Cirrus Logic at a price that is no
less favorable to 3DO than the price offered by Cirrus Logic to any third party
for similar quantities. In the event demand for the Products necessitates
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allocation, Products will be made available to 3DO in the same quantities as are
made available to other customers purchasing similar quantities. 3DO may not
resell as a stand-alone product such Products to any third party.
21.3. In recognition of the pre-existing relationship between 3DO and
Matsushita Electric Industrial Co., Ltd. ("MEI") regarding 3DO's Opera and M2
technologies, Cirrus Logic agrees that it shall not (i) engage in any
development with or for MEI or any subsidiaries or affiliates of MEI, or any
sublicensees of MEI in their capacity as sublicensees of any Opera or M2
technology ("MEI Group"), or (ii) provide, or enter into an agreement to
provide, to MEI Group, any products or services that involve the 3DEngine or the
3DO Deliverable Items, or any intellectual property rights relating thereto,
unless the written consent of 3DO shall first have been obtained, provided that
this restriction shall not prevent Cirrus Logic from (a) selling to the MEI
Group any standard, off-the-shelf Products, or other products of Cirrus Logic,
that it generally sells in the semiconductor merchant market or (b) using the
MEI Group as a foundry for the fabrication of Products pursuant to Section
2.3(b), above, or other products of Cirrus Logic. Notwithstanding the foregoing
reference to sublicensees of MEI, this Section 21.3 shall not restrict Cirrus
Logic from engaging in development with or for any such sublicensees, or
providing or entering into an agreement to provide, any products or services to
any such licensees, if the development, products and/or services, respectively,
do not relate to the 3DEngine or the 3DO Deliverable Items or any intellectual
property rights relating thereto.
21.4. Cirrus Logic agrees that the VSys division of Cirrus Logic shall
not, directly or indirectly, during the term of this Agreement, solicit for
employment or otherwise engage in recruiting of any 3DO employees.
21.5. Cirrus Logic agrees that it shall be solely responsible for the
development and testing of all software drivers which are required with respect
to any of the Products. Cirrus Logic shall make any such software drivers
(including bug fixes and other modifications) in binary code form only available
to 3DO, at no charge to 3DO, for its subsequent royalty-free use, licensing and
exploitation, subject to the terms and conditions generally applied by Cirrus
Logic to licensees of such drivers, for use only in conjunction with Products
purchased by 3DO from Cirrus Logic.
21.6. Cirrus Logic agrees that it shall be solely responsible for all
product and compatibility testing and product support with respect to each of
the Products. Cirrus Logic further agrees that 3DO shall not be responsible for
providing any engineering support or any other form of technical support to any
of Cirrus Logic's customers or to any end users of any of the Products.
21.7. Cirrus Logic agrees that it shall not make any separate agreement
with any third party that is inconsistent with any of the provisions of this
Agreement.
21.8. Cirrus Logic agrees that it shall not make use of the 3DEngine or
3DO Deliverable Items (or any portion thereof) except in strict compliance with
the provisions of this Agreement or as may be otherwise expressly authorized in
writing by 3DO. Cirrus Logic agrees that it shall not use or exploit any of the
intellectual property rights relating to the 3DEngine, including, without
limitation, the 3DO Deliverable Items and other Confidential Information of 3DO,
in connection with the development, use, manufacture, sale or other distribution
of any product or material other than the Products as expressly authorized
herein.
21.9. Cirrus Logic agrees that it shall not knowingly manufacture,
market, sell and otherwise distribute Products in violation of any and all laws,
regulations and ordinances that are applicable in the countries and territories
within which the Products are to be manufactured, marketed, sold or otherwise
distributed by Cirrus Logic hereunder.
22. 3DO's Limited Representations and Warranties.
22.1. 3DO represents and warrants solely for the benefit of Cirrus
Logic that, as of the Effective Date, 3DO has not received actual notice of a
claim that the 3DEngine infringes a copyright, mask work right or patent, or
misappropriates a trade secret, of any third party.
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22.2. 3DO represents and warrants solely for the benefit of Cirrus
Logic that:
(a) 3DO has the right, power and authority to enter into this
Agreement and to fully perform its obligations hereunder;
(b) 3DO owns the rights with respect to the 3DEngine licensed
to Cirrus Logic, provided that Cirrus Logic acknowledges that the 3DEngine was
developed using (and incorporates technology from) commercially licensed
development tools and that 3DO does not own the technology provided by such
tools (and provided, further, that the representation and warranty set forth in
this subsection (b) shall not constitute or imply any representation or warranty
with respect to noninfringement of third-party intellectual property rights);
and
(c) 3DO has not previously granted to a third party any rights
with respect to the 3DEngine that are inconsistent with the rights granted to
Cirrus Logic hereunder, including, without limitation, any rights which, if such
rights had been granted to a third party subsequent to the Effective Date, would
breach 3DO's obligations under Sections 20.1 or 20.2, above.
22.3. 3DO MAKES, AND CIRRUS LOGIC RECEIVES, NO REPRESENTATIONS,
WARRANTIES OR CONDITIONS (EXPRESSED, IMPLIED, STATUTORY OR OTHERWISE), OTHER
THAN AS EXPRESSLY SET FORTH IN THIS SECTION 22, INCLUDING, WITHOUT LIMITATION,
THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE
AND NONINFRINGEMENT OF THIRD-PARTY RIGHTS, AND THEIR EQUIVALENTS UNDER THE LAWS
OF ANY JURISDICTION.
23. Cirrus Logic's Representations and Warranties.
23.1. Cirrus Logic represents and warrants solely for the benefit of
3DO that, as of the Effective Date, Cirrus Logic has not received actual notice
of a claim that the VGA Logic or the modifications to the 3DEngine contemplated
to be made by or for Cirrus Logic (other than those made by or for 3DO) infringe
any copyright, mask work right or patent, or misappropriate any trade secret, of
any third party.
23.2. Cirrus Logic represents and warrants solely for the benefit of
3DO that:
(a) Cirrus Logic has the right, power and authority to enter
into this Agreement and to fully perform its obligations hereunder; and
(b) Cirrus Logic has not previously granted to a third party
any rights that are inconsistent with the rights granted to 3DO hereunder.
24. 3DO's Indemnity.
24.1. 3DO agrees to indemnify and hold Cirrus Logic harmless from and
against any legal costs and expenses (including reasonable attorneys' fees and
court costs), as well as monetary damages awarded or agreed to be paid as part
of a settlement, incurred by Cirrus Logic based upon, arising out of or in
respect of (i) any third-party claim asserting that 3DO does not have the right
to grant the license granted by 3DO to Cirrus Logic under this Agreement; (ii)
any third-party claim arising as a result of any breach by 3DO of its limited
warranties set forth in Sections 22.1 and 22.2, above; and/or (iii) any
third-party claim asserting that Cirrus Logic's use of the 3DEngine or the other
3DO Deliverable Items in accordance with the licensed rights granted by 3DO to
Cirrus Logic under this Agreement infringes the copyrights or misappropriates
the trade secrets owned by any third party, provided, in any case, that Cirrus
Logic (a) provides 3DO with prompt notice of the claim, (b) allows 3DO to
control the defense and any settlement of the claim, and (c) provides
cooperation as reasonably requested by 3DO. 3DO's obligations under this Section
24.1 (and 3DO's related obligations under Section 24.2, below) will not apply to
any modifications to the 3DEngine or the other 3DO Deliverables made by Cirrus
Logic or a third party.
24.2. If the manufacture, sale or other distribution of a Product by
Cirrus Logic is enjoined based on a claim relating to the 3DEngine or any of the
other 3DO Deliverable Items covered by Section 24.1(iii), above, 3DO shall, at
3DO's option and expense: (i) procure for Cirrus Logic the past
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and future rights granted to Cirrus Logic hereunder with respect to the
allegedly infringing portion of the 3DEngine or other 3DO Deliverable Item; or
(ii) replace or modify the allegedly infringing portion to make such portion
non-infringing, provided that the replacement or modified portion provides
substantially the same functionality as the replaced or original portion, or
(iii) if the past and future rights to continue to manufacture, sell and
otherwise distribute cannot be procured, or the portion cannot be replaced or
modified, at reasonable expense, reimburse Cirrus Logic for the total amount of
unrecouped pre-paid royalties, but not license fees or NRE Expenses, paid
hereunder. In addition, if a claim relating to the 3DEngine or any of the other
3DO Deliverable Items covered by Section 24.1(iii) is made or becomes likely,
3DO may, at its option and expense, undertake any of the actions described in
clauses (i), (ii) and (iii) of this Section 24.2. If, because of a claim
relating to the 3DEngine or any of the other 3DO Deliverable Items covered by
Section 24.1(iii), 3DO replaces or modifies an allegedly infringing portion to
make such portion non-infringing in accordance with this Section 24.2, Cirrus
Logic will receive a credit, against future on-going royalties payable under
Section 12, above, equal to the costs incurred by Cirrus Logic in making any
changes required by the replacement or modification provided pursuant to this
Section 24.2. If, because of a claim relating to the 3DEngine or any of the
other 3DO Deliverable Items covered by Section 24.1(iii), the use in a Product
of a portion of the 3DEngine is enjoined, Cirrus Logic will have the right to
use the other, unaffected portions of the 3DEngine in accordance with, and
subject to the terms and conditions of, this Agreement.
24.3. THIS SECTION 24 (TOGETHER WITH SECTION 22.1, ABOVE) STATES 3DO'S
ENTIRE OBLIGATION AND LIABILITY TO CIRRUS LOGIC WITH RESPECT TO ANY CLAIM
REGARDING ALLEGED INFRINGEMENT OR MISAPPROPRIATION OF THE INTELLECTUAL PROPERTY
RIGHTS OF ANY THIRD PARTY.
25. Cirrus Logic's Indemnity.
25.1. Cirrus Logic agrees to indemnify and hold harmless 3DO from and
against any legal costs and expenses (including reasonable attorneys' fees and
court costs), as well as monetary damages awarded or agreed to be paid as part
of a settlement, incurred by 3DO based upon, arising out of or in respect of:
(i) any third-party claim asserting that the rights granted by Cirrus Logic to
3DO hereunder are invalid or unenforceable; (ii) any third-party claim arising
as a result of any breach by Cirrus Logic of its limited warranties set forth in
Sections 23.1 and 23.2, above; (iii) any third-party claim asserting that 3DO's
use of any modifications and/or additions to the 3DEngine made by or for Cirrus
Logic (other than by 3DO) in accordance with this Agreement infringes the
copyrights, mask work rights, trade secrets and/or trademark rights owned by any
third party; (iv) any third-party claim asserting that any modifications and/or
additions to the 3DEngine made by or for Cirrus Logic (other than by 3DO), or
that a Product (other than the 3DEngine component thereof in the form provided
by 3DO to Cirrus Logic), infringes the copyrights, mask work rights, trade
secrets and/or trademark rights owned by any third party; and/or (v) any
third-party claim with respect to the development, manufacture, marketing,
sales, distribution and/or use of any of the Products by Cirrus Logic or any of
its affiliates or subsidiaries, such as a product liability claim or a claim for
breach of any warranty or support obligations (but expressly excluding (A) any
third-party claim for infringement of intellectual property rights other than as
set forth in the foregoing clauses (ii), (iii) and (iv) and (B) any third-party
claim to the extent that the 3DEngine, or a 3DO Deliverable Item, provided by
3DO to Cirrus Logic is the basis for the claim), provided, in any case, that 3DO
(a) provides Cirrus Logic with prompt notice of the claim, (b) allows Cirrus
Logic to control the defense and any settlement of the claim, and (c) provides
cooperation as reasonably requested by Cirrus Logic. Cirrus Logic's obligations
under this Section 25.1 will not apply to any claim for which 3DO is obligated
to indemnify Cirrus Logic pursuant to Section 24.1, above.
25.2. THIS SECTION 25 (TOGETHER WITH SECTION 23.1, ABOVE) STATES CIRRUS
LOGIC'S ENTIRE OBLIGATION AND LIABILITY TO 3DO WITH RESPECT TO ANY CLAIM
REGARDING ALLEGED INFRINGEMENT OR MISAPPROPRIATION OF THE INTELLECTUAL PROPERTY
RIGHTS OF ANY THIRD PARTY.
26. Third-Party Claims. In addition to the parties' respective obligations
under Sections 24 and 25, above, in the event that any third party claims that
either party's use of the 3DEngine (or any portion or derivative thereof ) or
any related intellectual property rights of either party infringes any patent,
mask work right, copyright or other intellectual property right of such third
party, or in the event that either party
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undertakes a review of third-party patents or other intellectual property rights
relating to any versions of any of the Products, then, upon request by the other
party, each party shall reasonably cooperate and consult with the other party,
in a manner consistent with such party's confidentiality obligations and
preservation of attorney-client, work product and other privileges, regarding
the other party's review of such claim and/or efforts to resolve such matter.
27. Term; Termination.
27.1. This Agreement, and the licensed rights granted by 3DO to Cirrus
Logic pursuant to this Agreement, shall commence on the Effective Date and,
unless earlier terminated as provided in this Section 27, shall continue in full
force and effect until the later of (i) seven (7) years after the Effective Date
or (ii) one (1) year after the last commercial sale, in production quantities,
of a Product.
27.2. If either party defaults in its performance of any material
provision of this Agreement (other than with respect to any payment obligation),
then the non-defaulting party may elect to terminate this Agreement if the
defaulting party fails to cure its default within forty-five (45) days of
receipt of written notice referencing such default, provided that if the default
is not subject to correction within such period but the defaulting party
submits, within such period, a detailed and specific plan for correction of the
default and such plan is accepted by the non-defaulting party, the defaulting
party will have the additional time for correction set forth in the accepted
plan. If the default is not corrected in accordance with the schedule set forth
in the accepted plan, the non-defaulting party may elect, upon notice to the
defaulting party, to terminate this Agreement.
27.3. In the event Cirrus Logic defaults in the timely performance of
any of its payment obligations under this Agreement, 3DO may elect to terminate
this Agreement if Cirrus Logic fails to cure such default within fifteen (15)
days after receipt of notice that the required payment is due and, after such
fifteen (15) day period, 3DO notifies Cirrus Logic that it intends to terminate
this Agreement and Cirrus Logic fails to cure such default with ten (10) days
after receipt of such subsequent notice.
27.4. This Agreement shall terminate automatically and without notice
upon: (i) the institution by or against Cirrus Logic of insolvency, receivership
or bankruptcy proceedings or any other proceedings for the settlement of Cirrus
Logic's debts, provided that termination shall not be effective in the event of
an involuntary proceeding against Cirrus Logic if such proceeding is dismissed
within one hundred twenty (120) days after the filing thereof, (ii) Cirrus
Logic's making a general assignment for the benefit of its creditors, (iii)
Cirrus Logic's dissolution or (iv) Cirrus Logic's cessation of business for a
period of ninety (90) days or more.
27.5. Upon the expiration of this Agreement as set forth in Section
27.1 above (or upon mutual agreement of the parties to terminate this
Agreement), all rights and licenses granted to Cirrus Logic hereunder will
terminate, and each party will be released from all obligations and liabilities
to the other occurring or arising after the date of such termination, except
that Sections 1, 5.1 (only to the extent of engineering services already
performed by 3DO), 7 (only the obligation of Cirrus Logic to make the payment
described therein), 8, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19 (except for any
obligations of 3DO to deliver further documentation to Cirrus Logic), 21.3, 21.5
(except for any obligations of Cirrus Logic to make available further drivers to
3DO), 21.6, 21.8, 24, 25, 27, 28.5 (but only for so long as Cirrus Logic has the
right to Source Code in accordance with Section 28.6(d)), 28.6, 29 and 31 shall
survive.
27.6. Upon termination of this Agreement for any reason (except for
expiration as set forth in Section 27.1, above, or termination upon mutual
agreement of the parties), (i) all rights and licenses granted to Cirrus Logic
hereunder will terminate, and each party will be released from all obligations
and liabilities to the other occurring or arising after the date of such
termination, except that Sections 1, 5.1 (only to the extent of engineering
services already performed by 3DO), 7 (only the obligation of Cirrus Logic to
make the payment described therein), 8, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19
(except for any obligations of 3DO to deliver further documentation to Cirrus
Logic), 21.3, 21.5 (except for any obligations of Cirrus Logic to make available
further drivers to 3DO), 21.6, 21.8, 24, 25, 27, 28.5 (but only for so long as
Cirrus Logic has the right to Source Code in accordance with Section 28.6(d)),
28.6, 29 and 31 shall survive, and (ii) Section 2 shall survive for so long as
this Agreement would otherwise continue in effect in accordance with Section
27.1.
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28. Source Code Matters.
28.1. If, during the Development Period, one or more of the conditions
described in clause (a) or (b) of this Section 28.1 occurs, then, upon Cirrus
Logic's written request, 3DO will promptly deliver to Cirrus Logic the "C" level
source code and related documentation and commentary for the 3DEngine ("Source
Code") described in Section 28.2, below. Such conditions are as follows:
(a) Cirrus Logic rejects a 3DO Deliverable Item in accordance
with the procedures set forth in Section 6, above, due to a material failure of
the 3DO Deliverable Item to conform to the applicable Magnum Specifications and
3DO does not substantially cure the material failure within sixty (60) days
after Cirrus Logic's notice of the material failure and of its intent to
exercise its rights under this Section 28.1; or
(b) 3DO materially fails to deliver the 3DO Deliverable Items
that are specifically identified in Exhibit A, attached hereto, as "critical
path items" on or before the applicable delivery dates set forth in such Exhibit
A and 3DO does not substantially cure the material failure within sixty (60)
days after Cirrus Logic's notice of the material failure and of its intent to
exercise its rights under this Section 28.1.
28.3. If, in accordance with Section 28.1, Cirrus Logic has the right
to Source Code, 3DO will promptly deliver to Cirrus Logic the Source Code for
the rejected 3DO Deliverable Item (or portion thereof) that is the basis for
such Cirrus Logic right to Source Code. 3DO will have no obligation to provide
any Source Code other than as reasonably necessary for Cirrus Logic to cure a
material failure of 3DO to correct nonconformances with the Magnum
Specifications.
28.4. The remedies set forth in Sections 28.1 and 28.2, above, shall be
in addition to, and not in lieu of, any remedies for breach of this Agreement,
provided, however, that Cirrus Logic must allow, with respect to any other
remedies, the applicable cure periods set forth in Section 27, above, to the
extent applicable.
28.5. Upon execution hereof, the parties agree to enter into an escrow
agreement in the form attached hereto as Exhibit D (the "Escrow Agreement") for
an escrow of the "Deposit Materials" (as defined in the Escrow Agreement) during
the Development Period. The escrow agent shall be SourceFile ("Escrow Agent").
The cost to open such escrow shall be paid by Cirrus Logic. The annual
maintenance fees shall be paid by Cirrus Logic. 3DO will deposit promptly with
the Escrow Agent the Deposit Materials as soon as practicable after the
Effective Date and all revisions to all such Deposit Materials at such times as
they are made, but no more often than every ninety (90) days. Prior to each such
deposit, 3DO will, in the presence of a Cirrus Logic representative, at Cirrus
Logic's request, compile any Source Code portions of the Deposit Materials,
without revealing the Source Code to the Cirrus Logic representative, and, upon
Cirrus Logic's request, permit the Cirrus Logic representative to accompany the
delivery of such Source Code to a representative of the Escrow Agent. Release
conditions for the Deposit Materials are as follows: One or more of the
conditions described in clause (a) or (b) of Section 28.1, above, occurs during
the Development Period, and 3DO fails to promptly deliver the Source Code as
required in Sections 28.1 and 28.2, above. The Escrow Agreement and 3DO's
obligations under this Section 28 will terminate upon termination of the
Development Period.
28.6. Upon delivery of the Source Code to Cirrus Logic pursuant to this
Section 28, Cirrus Logic is hereby granted a license to (i) use such Source Code
solely to correct nonconformances of the 3DO Deliverable Items with the Magnum
Specifications, (ii) compile the Source Code, as so modified, into modified
object code, and (iii) use the modified object code in accordance with, and
subject to, the terms and conditions set forth for the 3DEngine under Section 2,
above.
28.7. The Source Code shall constitute Confidential Information of 3DO
and shall be subject to all of the obligations of Section 29, below. Without
limitation of the generality of Section 29, Cirrus Logic will comply with the
following additional requirements:
(a) Cirrus Logic will allow use of or access to the Source
Code only by employees of Cirrus Logic who have a need to use the Source Code
for exercise of Cirrus Logic's rights
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with respect to the Source Code set forth in this Section 28. Cirrus Logic will
not allow use of or access to the Source Code by any other persons, and will
maintain and use the Source Code only in secure locked facilities to which
access is limited to such employees. For Source Code that is usable or stored on
any computer equipment (whether a multi-user system, network, stand-alone
computer or otherwise), the equipment must have password-based access control,
with each user having a unique user identification and associated password.
Cirrus Logic will use, and will allow use of and access to, the Source Code only
at its Fremont, California, facilities.
(b) Cirrus Logic will not make any copies of the Source Code
except as necessary for exercise by Cirrus Logic of the rights set forth in this
Section 28. All copies will be marked with a restrictive legend identifying the
Source Code as confidential and proprietary to 3DO and prohibiting any
unauthorized use or reproduction.
(c) Cirrus Logic will maintain a record of (i) all personnel
who use or have access to the Source Code, (ii) the number of copies, if any, of
the Source Code, and (iii) the computer equipment and storage media on which the
Source Code is used or stored.
(d) Upon correction of the material nonconformance(s) that
triggered Cirrus Logic's right to any Source Code, Cirrus Logic will immediately
return the Source Code (together with all copies thereof) to 3DO.
29. Confidentiality.
29.1 For purposes of this Agreement, "Confidential Information" of a
party means information or materials disclosed or otherwise provided by such
party ("Disclosing Party") to the other party ("Receiving Party") that are
marked or otherwise identified as confidential or proprietary. "Confidential
Information" does not include that which (i) is already in the Receiving Party's
possession at the time of disclosure to the Receiving Party, (ii) is or becomes
part of public knowledge other than as a result of any action or inaction of the
Receiving Party, (iii) is obtained by the Receiving Party from an unrelated
third party without a duty of confidentiality, or (iv) is independently
developed by the Receiving Party. Without limitation of the generality of, and
notwithstanding the exclusions described in, the foregoing, (a) "Confidential
Information" of 3DO includes the 3DEngine and 3DO Deliverable Items, including
any portion thereof, modifications and derivatives thereof, and information or
materials derived therefrom (except for the 3DO User Documentation identified in
writing by 3DO in accordance with Section 19.1, above), and (b) "Confidential
Information" of Cirrus Logic includes the materials relating to the VGA Logic
delivered by Cirrus Logic to 3DO, including any portion thereof, modifications
and derivatives thereof, and information or materials derived therefrom.
29.2 The Receiving Party shall not use Confidential Information of the
Disclosing Party for any purpose other than in furtherance of this Agreement and
the activities described herein. The Receiving Party shall not disclose
Confidential Information of the Disclosing Party to any third parties except as
otherwise permitted hereunder. The Receiving Party may disclose Confidential
Information of the Disclosing Party only to those employees (or consultants,
subject to compliance with Section 2.3(a), above) who have a need to know such
Confidential Information and who are bound to retain the confidentiality thereof
under provisions (including, without limitation, provisions relating to nonuse
and nondisclosure) no less strict than those required by the Receiving Party for
its own comparable Confidential Information. The Receiving Party shall maintain
Confidential Information of the Disclosing Party with at least the same degree
of care it uses to protect its own proprietary information of a similar nature
or sensitivity, but no less than reasonable care under the circumstances. Any
copies of the Disclosing Party's Confidential Information shall be identified as
belonging to the Disclosing Party and prominently marked "Confidential."
29.3 This Agreement will not prevent the Receiving Party from
disclosing Confidential Information of the Disclosing Party to the extent
required by a judicial order or other legal obligation, provided that, in such
event, the Receiving Party shall promptly notify the Disclosing Party to allow
intervention (and shall cooperate with the Disclosing Party) to contest or
minimize the scope of the disclosure (including application for a protective
order). Each party shall advise the other party in writing of
16
<PAGE> 17
any misappropriation or misuse of Confidential Information of the other party of
which the notifying party becomes aware.
29.4 Each party (as Receiving Party) acknowledges that the Disclosing
Party considers its Confidential Information to contain trade secrets of the
Disclosing Party and that any unauthorized use or disclosure of such information
would cause the Disclosing Party irreparable harm for which its remedies at law
would be inadequate. Accordingly, each party (as Receiving Party) acknowledges
and agrees that the Disclosing Party shall be entitled, in addition to any other
remedies available to it at law or in equity, to the issuance of injunctive
relief, without bond, enjoining any breach or threatened breach of the Receiving
Party's obligations hereunder with respect to the Confidential Information of
the Disclosing Party, and such further relief as any court of competent
jurisdiction may deem just and proper.
29.5 Upon (i) the expiration of this Agreement pursuant to Section
27.1, above, or termination of this Agreement by mutual agreement of the
parties, or (ii) termination of Cirrus Logic's rights under Section 2, above, in
accordance with Section 27.6, above, each party (as Receiving Party) shall
immediately return to the Disclosing Party all Confidential Information of the
Disclosing Party embodied in tangible (including electronic) form, or, at the
option of the Disclosing Party, certify in writing to the Disclosing Party that
all such Confidential Information has been destroyed.
29.6 Each party agrees that the terms and conditions of this Agreement
shall be treated as Confidential Information of the other party; provided that
each party may disclose the terms and conditions of this Agreement: (i) as
required by judicial order or other legal obligation, provided that, in such
event, the party subject to such obligation shall promptly notify the other
party to allow intervention (and shall cooperate with the other party) to
contest or minimize the scope of the disclosure (including application for a
protective order); (ii) as required by the applicable securities laws,
including, without limitation, requirements to file a copy of this Agreement
(redacted to the extent reasonably permitted by applicable law) or to disclose
information regarding the provisions hereof or performance hereunder; (iii) in
confidence, to legal counsel; (iv) in confidence, to accountants, banks, and
financing sources and their advisors; and (v) in confidence, in connection with
the enforcement of this Agreement or any rights hereunder; and (vi) in
confidence (on a counsel-only basis), to outside counsel for a third party which
plans to acquire all or substantially all the equity or assets of, or to merge
with, such party, in connection with a "due diligence" investigation for such a
transaction.
29.7 3DO acknowledges that Cirrus Logic, in providing technical support
to customers and prospective customers of the Products, will need to disclose
information with respect to the 3DEngine and VGA Logic of the type customarily
included with respect to other products in the Cirrus Logic Documentation.
Notwithstanding the requirements of this Section 29, Cirrus Logic may disclose
such information, such as programming model information, in providing technical
support to customers and prospective customers of the Products.
29.8 Cirrus Logic shall not disassemble, decompile or otherwise reverse
engineer the pixel-accurate "C" simulator and other 3DO materials in object code
form.
30. Announcement. Following the execution of this Agreement, each of the
parties shall be entitled to issue one or more press releases regarding the
existence of their relationship as described in this Agreement. Each party shall
have the right to approve the press releases of the other party, provided such
approval shall not be unreasonably withheld. The parties have previously agreed
in writing on the outline of a press release, and each party agrees that it will
promptly approve a press release of the other party consistent with such
outline. The review and approval of the initial press releases shall be
completed promptly so that each party may issue its initial press release within
ten (10) working days after the Effective Date. In addition, each of the parties
acknowledges and agrees, respectively, that it shall cause appropriate
executive(s) responsible for the parties' relationship to attend and participate
at its expense in any scheduled press conferences or Product introduction
events.
31. Miscellaneous Provisions.
31.1 All notices required hereunder shall be in writing and shall be
sent by U.S. mail (first class) or nationally-recognized courier service (e.g.,
DHL, Federal Express), with all postage or delivery charges
17
<PAGE> 18
prepaid, or may be sent via facsimile or telex, subject to confirmation via U.S.
mail or nationally-recognized courier service, and shall be addressed to the
parties at their addresses set forth below or to such other address(es) as may
be furnished by written notice in the manner set forth herein. Notices shall be
deemed to have been served when delivered or, if delivery is not performed as a
result of the addressee's fault, when tendered.
Notices to 3DO: Notices to Cirrus Logic:
The 3DO Company Cirrus Logic, Inc.
600 Galveston Drive 3100 West Warren Drive
Redwood City, CA 94063 Fremont, CA 94538
Att'n: General Counsel Att'n: Corporate Counsel
31.2 This Agreement shall not be construed as creating an agency,
partnership or any other form of legal association between the parties other
than as expressly set forth herein. Neither party shall have any right or
authority to assume or create any obligation of any kind or to make any
representation or warranty on behalf of the other party, whether express or
implied, or to bind the other party in any respect whatsoever.;
31.3 Cirrus Logic shall not be entitled to assign, sublicense, transfer
or otherwise convey this Agreement or any of its rights hereunder to any third
party, nor delegate any of its obligations hereunder to any third party, unless
the written consent of 3DO shall first have been obtained, provided that no such
consent shall be required for an assignment of this Agreement, together with all
of Cirrus Logic's rights and obligations hereunder, to a successor corporation
of Cirrus Logic as part of a merger, consolidation or sale of all or
substantially all of Cirrus Logic's business and assets. Until the end of the
Development Period, 3DO shall not be entitled to assign, transfer or otherwise
convey this Agreement or any of its rights hereunder to any third party, nor
delegate any of its obligations hereunder to any third party, unless the written
consent of Cirrus Logic shall first have been obtained, provided that no such
consent shall be required for an assignment of this Agreement, together with all
of 3DO's rights and obligations hereunder, to a successor corporation of 3DO as
part of a merger, consolidation or sale of all or substantially all of 3DO's
business and assets. After the end of the Development Period, 3DO shall have the
right to assign, transfer or otherwise convey this Agreement or any of its
rights hereunder to any third party and delegate its obligations hereunder to
such third party. Any attempted or purported assignment, sublicense, transfer,
conveyance or delegation without such prior consent (where required hereunder)
having been obtained shall be void and a breach of this Agreement. Subject to
the foregoing, this Agreement shall bind and inure to the benefit of the parties
and their respective successors and permitted assigns.;
31.4 Except for the obligation to pay money, neither party shall be
liable to the other party for any failure or delay in performance caused by any
acts of God or other natural disasters or by other reasons beyond such party's
reasonable control.
31.5 This Agreement shall be governed by and construed in accordance
with the laws of the State of California, U.S.A., without reference to conflicts
of law principles except to the extent that United States federal law preempts
California law, in which case United States federal law (including, without
limitation, copyright, patent and federal trademark law) shall apply, without
reference to conflicts of law principles.
31.6 If either party commences any action or proceeding against the
other party to enforce this Agreement or any of its rights hereunder, the
prevailing party in such action or proceeding shall be entitled to recover from
the other party the reasonable attorneys' fees and all related costs and
expenses incurred by such prevailing party in connection with such action or
proceeding and in connection with enforcing any judgment or order thereby
obtained.
31.7 Neither party shall be liable to the other party for any
incidental, consequential, special or punitive damages arising out of or
relating to this Agreement, whether liability is based on breach of contract,
breach of warranty (express, implied or otherwise) or otherwise, and whether
asserted in contract, tort (including negligence and strict product liability)
or otherwise, and irrespective of whether the parties have advised or been
advised of the possibility of any such damages, except that the foregoing
18
<PAGE> 19
limitation shall not apply to the respective indemnification obligations of the
parties under Sections 24 and 25, above.
31.8 Unless expressly set forth herein to the contrary, either party's
election of any remedies provided for in this Agreement shall not be exclusive
of any other remedies available hereunder or otherwise at law or in equity, and
all such remedies shall be deemed to be cumulative. The use of the term
"non-refundable" with respect to certain fees to be paid by Cirrus Logic to 3DO
hereunder shall not preclude Cirrus Logic from obtaining any damages due Cirrus
Logic for a breach by 3DO of this Agreement.
31.9 No failure or delay by either party in exercising any right,
power, or remedy under this Agreement shall operate as a waiver of any such
right, power, or remedy. No waiver of any provision of this Agreement shall be
effective unless in writing and signed by the party against whom such waiver is
sought to be enforced.
31.10 No amendment to or modification of this Agreement shall be
binding unless in writing and signed by a duly authorized representative of each
of the parties.
31.11 In the event that any provision of this Agreement (or any portion
hereof) is determined by a court of competent jurisdiction to be illegal,
invalid or otherwise unenforceable, such provision (or part thereof) shall be
enforced to the extent possible consistent with the stated intention of the
parties, or, if incapable of such enforcement, shall be deemed to be deleted
from this Agreement, while the remainder of this Agreement shall continue in
full force and remain in effect according to its stated terms and conditions.
31.12 No provisions of this Agreement, whether expressed or implied,
are intended or shall be construed to confer upon or give to any person or
entity other than the specific parties hereto any rights, remedies or other
benefits under or by reason of this Agreement unless expressly provided
otherwise herein.
31.13 All amounts due under this Agreement are quoted and are to be
paid in United States Dollars.
31.14 Cirrus Logic will have no implied obligations resulting from the
covenants of 3DO set forth in Sections 20.1, 20.2 and 20.4, above, provided that
this provision will not affect any obligations of Cirrus Logic expressly set
forth in this Agreement.
31.15 The section headings used in this Agreement are intended
primarily for reference and shall not by themselves determine the construction
or interpretation of this Agreement or any portion hereof.
31.16 This Agreement, including all Exhibits hereto, constitutes the
entire agreement and understanding of the parties with respect to the subject
matter hereof, and supersedes all prior and contemporaneous correspondence,
negotiations, agreements and understandings between the parties, both oral and
written, regarding such subject matter.
31.17 This Agreement shall be fairly interpreted in accordance with its
terms and without any strict construction in favor of or against either of the
parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
CIRRUS LOGIC, INC. THE 3DO COMPANY
By: By:
--------------------------------- ---------------------------------
19
<PAGE> 20
Name: Name:
--------------------------------- ---------------------------------
Title: Title:
--------------------------------- ---------------------------------
20
<PAGE> 21
Exhibit A
3DO DELIVERABLE ITEMS
1. Gate count estimate of [CONFIDENTIAL INFORMATION REQUESTED] in IBM's 5L
process. Soft copy in Microsoft Excel 4.0 for the Macintosh format.
2. Stand alone [CONFIDENTIAL INFORMATION REQUESTED] verification suite.
3. [CONFIDENTIAL INFORMATION REQUESTED] and memory control unit
[CONFIDENTIAL INFORMATION REQUESTED] RTL source code.
4. Synopsys scripts used to translate [CONFIDENTIAL INFORMATION REQUESTED]
and memory control unit [CONFIDENTIAL INFORMATION REQUESTED] RTL source
into Cirrus's 5S2 process and library.
5. The prelayout [CONFIDENTIAL INFORMATION REQUESTED] timing database for
the [CONFIDENTIAL INFORMATION REQUESTED] and memory control unit.
6. List and specification of the macrocells used in the [CONFIDENTIAL
INFORMATION REQUESTED] and memory control unit.
7. I/O cell specification for the memory controller interface to
[CONFIDENTIAL INFORMATION REQUESTED] and documentation on board level
clocking strategy used in BDA.
8. Board level [CONFIDENTIAL INFORMATION REQUESTED] timing files for the
BDA chip to what extent they exist.
9. Pixel accurate C-simulator executable in Sun and SGI binary format.
Source code will be provided for the vertex and destination
[CONFIDENTIAL TREATMENT REQUESTED] modules. Object code with interface
descriptions will be provided for the rest of the modules in the
simulator.
10. Delivery of the Command List Toolkit specification which describes the
program interface model of the [CONFIDENTIAL INFORMATION REQUESTED] and
Memory Controller.
11. [CONFIDENTIAL INFORMATION REQUESTED] and Memory Controller internal
implementation specification.
12. As is C source code for the Framework pipeline.
13. Floorplan of the [CONFIDENTIAL INFORMATION REQUESTED] and memory
controller as implemented in BDA 2.0.
14. Two days of training on both the design and simulation environments.
15. All necessary 3DO developed tools necessary to run the [CONFIDENTIAL
INFORMATION REQUESTED] simulation environment. Tools include the PLI
interfaces for [CONFIDENTIAL INFORMATION REQUESTED], and miscellaneous
scripts.
16. Forth bringup diagnostics for the [CONFIDENTIAL INFORMATION REQUESTED]
and memory controller to what extent they exist.
17. Documentation on production test procedure (BIST and scan) used in BDA
2.0.
18. Public Domain bug tracking "GNATs" source code and executable for Sun
workstation.
19. Public domain revision control software "CVS" source code and
executable for Sun workstation.
20. Source code and tutorial for demo [CONFIDENTIAL INFORMATION REQUESTED]
software for Nubus based BDA 2.0 development system. Demo software
includes: Mercury demo, and [CONFIDENTIAL INFORMATION REQUESTED]
benchmark code.
21. [CONFIDENTIAL INFORMATION REQUESTED] models of the [CONFIDENTIAL
INFORMATION REQUESTED] used in the verification environment.
21
<PAGE> 22
Exhibit B
DESCRIPTION OF 3D ENGINE
AND
SPECIFICATIONS FOR MAGNUM
Product Functional Requirements
The product must support the Full Laguna (5462) functional capabilities with the
following 3D Features supported.
Magnum will be optimized to accelerate Microsoft's Direct3D APL
(1) VGA Compatible [CONFIDENTIAL TREATMENT REQUESTED] with support for 3D
Modes
- 8-bit in 332 RGB (may not be required if video style scheme is
used)
- 16-Bit in 555 RGB
A R4 R3 R2 R1 R0 G4 G3 G2 G1 G0 B4 B3 B2 B1 B0
SSB
15 0
- 16-Bit in 565 RGB
R4 R3 R2 R1 R0 G5 G4 G3 G2 G1 G0 B4 B3 B2 B1 B0
15 0
- 32-Bit in 8888 RGBA
- CGL support:
RGBA5551 (16 bits)
RGB332 (8 bits)
Texturemap formats supported
- D3D, CGL, OpenGL support:
RGBA8888 (32 bits)
RGBA4444 (16 bits) (D3D specific)
RGBA5551 (16 bits)
RGB332 (8 bits)
I8 (8 bits)
- Video support:
YUV422
(2) Hardware Double Buffering
(3) Hardware Z-Buffer
- 2 bits exponent/14 bits mantissa
(4) Hardware support for [CONFIDENTIAL INFORMATION REQUESTED]
(5) Hardware [CONFIDENTIAL TREATMENT REQUESTED] Processor
- Standard [CONFIDENTIAL TREATMENT REQUESTED] - [CONFIDENTIAL
INFORMATION REQUESTED]
22
<PAGE> 23
- [CONFIDENTIAL INFORMATION REQUESTED] - [CONFIDENTIAL
INFORMATION REQUESTED]
- [CONFIDENTIAL INFORMATION REQUESTED] - [CONFIDENTIAL
INFORMATION REQUESTED]
(6) Perspective Correct Hardware Texturing with support for the Following
Texture Modes Supported
- [CONFIDENTIAL INFORMATION REQUESTED]
- [CONFIDENTIAL INFORMATION REQUESTED]
- [CONFIDENTIAL INFORMATION REQUESTED]
- [CONFIDENTIAL INFORMATION REQUESTED]
- [CONFIDENTIAL INFORMATION REQUESTED]
- [CONFIDENTIAL INFORMATION REQUESTED]
(7) [CONFIDENTIAL INFORMATION REQUESTED]
(8) Support for [CONFIDENTIAL INFORMATION REQUESTED] - this requires for the
ability to [CONFIDENTIAL INFORMATION REQUESTED] to support the use of
[CONFIDENTIAL INFORMATION REQUESTED]
23
<PAGE> 24
Exhibit C
MILESTONES AND RELATED NRE CHARGES
<TABLE>
<CAPTION>
% of Project
Milestone Target Date Payment Due Complete
--------- ----------- ----------- ------------
<S> <C> <C> <C>
1. Final Design Review. 3/15/96 $[CONFIDENTIAL 10%
INFORMATION
REQUESTED]
2. Initial Database [CONFIDENTIAL $[CONFIDENTIAL 30%
Integration. INFORMATION INFORMATION
REQUESTED] REQUESTED]
3. Functionally [CONFIDENTIAL $[CONFIDENTIAL 30%
complete netlist to Cirrus. INFORMATION INFORMATION
REQUESTED] REQUESTED]
4. Functional
simulation and post timing layout complete [CONFIDENTIAL $[CONFIDENTIAL 30%
INFORMATION INFORMATION
REQUESTED] REQUESTED]
----------- ------------
$[CONFIDENTIAL 100%
INFORMATION
REQUESTED]
</TABLE>
Note 1: Software demo and software drivers are not included as part of this
Agreement.
Note 2: Included target dates are not committed dates, only estimates, and
are subject to change.
Note 3: The advance NRE Expenses payment of $[CONFIDENTIAL INFORMATION
REQUESTED] (set forth in Section 5.1 of the Agreement) will be
offset against and will accordingly reduce the payment of NRE
Expenses specified hereinabove with respect to Milestones 1 and 2,
as incurred.
24
<PAGE> 25
Exhibit D
ESCROW AGREEMENT
[to be attached]
25
<PAGE> 1
EXHIBIT 10.45
ADDENDUM
This Addendum is entered into and rendered effective as of the 24th day of
April, 1996, by and between Matsushita Electric Industrial Co., Ltd. ("MEI") and
The 3DO Company ("3DO"), for the purpose of supplementing the Technology
Licensing Agreement which the parties executed on December 7, 1995 (the "M2
License Agreement"). In consideration of the mutual representations, warranties
and covenants contained in the M2 License Agreement and in this Addendum, and
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Unless defined herein, capitalized words and phrases used in this
Addendum shall have the definitions and meanings set forth in the M2 License
Agreement.
2. As requested by MEI, 3DO shall develop an M2 System Design for MEI's
initial CD-ROM based M2 Hardware Product [CONFIDENTIAL TREATMENT REQUESTED] (the
"[CONFIDENTIAL TREATMENT REQUESTED] System Design"). 3DO shall develop the
[CONFIDENTIAL TREATMENT REQUESTED] System Design in compliance with the
specification and related performance characteristics referenced in Exhibit A,
attached hereto, and in accordance with the development milestone schedule set
forth in Exhibit B, attached hereto. The deliverable items relating to the
[CONFIDENTIAL TREATMENT REQUESTED] System Design, to be developed and delivered
by 3DO to MEI in furtherance of this Addendum, are listed in Exhibit C, attached
hereto. The parties acknowledge and agree that (i) the terms and conditions of
the M2 License Agreement shall govern the development, licensing, support,
exploitation, and intellectual property rights with respect to the [CONFIDENTIAL
TREATMENT REQUESTED] System Design, (ii) the [CONFIDENTIAL TREATMENT REQUESTED]
System Design is one of the M2 System Designs and shall be included within the
definition of the Licensed Technology under the M2 License Agreement, (iii)
semiconductor device(s) listed among the deliverable items set forth in Exhibit
C, attached hereto, shall be included within the definition of the Chipsets
under the M2 License Agreement, (iv) the twelve (12) month period referenced in
Section 4.1(b) of the M2 License Agreement shall be extended and remain in
effect until June 30, 1997, and (v) "December 31, 1997" referred to in Sections
4.3(a) and 4.3(b) shall be changed to "June 30, 1998."
3. MEI acknowledges that 3DO's development of the [CONFIDENTIAL TREATMENT
REQUESTED] System Design and the resulting performance characteristics of the
[CONFIDENTIAL TREATMENT REQUESTED] System Design are [CONFIDENTIAL TREATMENT
REQUESTED]. 3DO shall be responsible for [CONFIDENTIAL TREATMENT REQUESTED].
4. At MEI's request, 3DO shall permit a mutually agreed number of MEI's
engineers to be located at 3DO's facilities in Redwood City, California during
the design and development of the [CONFIDENTIAL TREATMENT REQUESTED]
1
<PAGE> 2
System Design. Any and all costs associated with the participation of MEI's
engineers in the design and/or development of the [CONFIDENTIAL TREATMENT
REQUESTED] System Design shall be exclusively borne by MEI, including, without
limitation, salaries, health benefits (if any), transportation charges, lodging
and meals, any required engineering equipment and related software, and
telephone, facsimile and other such communications charges. Notwithstanding the
involvement of MEI's engineers in the development of the [CONFIDENTIAL TREATMENT
REQUESTED] System Design, 3DO agrees that it shall be solely responsible for any
third-party charges relating to the development and production of any prototypes
ordered by 3DO relating to the [CONFIDENTIAL TREATMENT REQUESTED] System Design.
5. Until March 31, 1997, 3DO shall provide MEI, and third-party developers
(to be designated by MEI provided such third-party developers are based in North
American, Switzerland, Norway or the European Community countries), with
technical support from Redwood City, California in the English language,
regarding the development tools for the original [CONFIDENTIAL TREATMENT
REQUESTED] M2 System Design for MEI's initial CD-ROM based M2 Hardware Product,
as well as for the [CONFIDENTIAL TREATMENT REQUESTED] System Design
(collectively, "Developer Technical Support" or "DTS"), including, without
limitation, daily support (as and when required) and Q&A via telephone and/or
other communications services. 3DO will assign one or more of its engineers to
provide technical support to third-party developers designated by MEI, upon
request by MEI and subject to the parties' mutual agreement regarding such
technical support. 3DO shall provide MEI, upon request, with a written summary
setting forth the technical questions asked by any such third party developers
and the answers provided by 3DO. In addition, 3DO shall provide MEI with a
summary of Studio 3DO's technical questions related to a Studio 3DO title, and
indicate 3DO's responses regarding such referenced questions, unless, 3DO
determines, in its discretion, that disclosure of such technical questions
and/or responses would involve the disclosure of any trade secret information.
3DO agrees that it shall use reasonable best efforts to answer MEI's technical
questions and/or any such third-party technical questions within two (2)
business days of receipt. If 3DO cannot answer such technical questions within
two (2) business days of receipt, 3DO will provide MEI or such third-party with
a plan for answering the question, if possible. Upon request from MEI prior to
March 31, 1997, 3DO will provide to MEI a summary of the "bugs" in the
[CONFIDENTIAL TREATMENT REQUESTED] CD-ROM based M2 System Design and in the
[CONFIDENTIAL TREATMENT REQUESTED] System Design. In addition, 3DO will provide,
at MEI's request, up to ten (10) one-day training seminars at 3DO's facilities
in Redwood City, California regarding MEI's initial CD-ROM based M2 Hardware
Product. Such seminars shall take place no earlier than July 29, 1996, and no
later than March 31, 1997. With respect to each such training seminar, MEI shall
inform 3DO, at least four (4) weeks in advance of the date of the seminar, of
the number of proposed trainees and the companies employing each of such
trainees, and, as soon as MEI is advised by such companies, of the names of the
individual trainees. 3DO and MEI shall each be responsible for one-half (1/2) of
the costs of providing food and drinks for the trainees. 3DO also agrees that it
will undertake to provide up to five (5) additional training seminars
2
<PAGE> 3
at other locations outside Redwood City, California, subject to the mutual
agreement of the parties regarding any such proposed locations and related
dates. In such event, MEI acknowledges and agrees that it shall be solely
responsible for all costs and expenses incurred by 3DO's employees in providing
any such training seminars outside Redwood City, California, including, without
limitation, transportation charges, lodging and meals, and any required
equipment charges (but specifically excluding the salaries of any such employees
of 3DO). 3DO will provide to MEI, at MEI's request, any available sample source
code which 3DO elects to develop to provide technical support to MEI and
third-party developers, and at 3DO's sole discretion any other sample source
code.
6. On or before May 17, 1996, 3DO shall deliver to MEI the source code and
object code for the single processor version of the software development tool
familiarly known to the parties as "Mercury." A description of the deliverable
items comprising such version of the Mercury software development tool are set
forth in Exhibit D, attached hereto (collectively, the "[CONFIDENTIAL TREATMENT
REQUESTED] Mercury Deliverables"). The [CONFIDENTIAL TREATMENT REQUESTED]
Mercury Deliverables are hereby included within the definition of the Licensed
Technology under the M2 License Agreement and, accordingly, are hereby
incorporated in Section 4.3 of Exhibit A and Section 6 of Exhibit B of the M2
License Agreement.
7. The deliverable items referenced in Section 4.3 of Exhibit A and
Section 6 of Exhibit B of the M2 License Agreement as the "Graphic framework
library (including BSDF)", the "3D pipeline library", the "[CONFIDENTIAL
TREATMENT REQUESTED]", and the four Framework-related converters identified as
the "[CONFIDENTIAL TREATMENT REQUESTED]", the "[CONFIDENTIAL TREATMENT
REQUESTED]", the "[CONFIDENTIAL TREATMENT REQUESTED]", and the "[CONFIDENTIAL
TREATMENT REQUESTED]" (collectively, the "Framework Deliverables") are hereby
deleted from such Sections of said Exhibits of the M2 License Agreement, and
instead are included within the definition of the Supplemental Technology and,
accordingly, are incorporated in Section 6 of Exhibit A and Section 11 of
Exhibit B of the M2 License Agreement. The Framework Deliverables shall be
provided to MEI on an "AS IS" BASIS, WITHOUT ANY WARRANTIES OF ANY KIND, and 3DO
shall have no obligation to fix any "bugs", or to otherwise improve the
performance, or to provide any support to MEI or to any third party regarding
the Framework Deliverables. If 3DO, at its sole discretion, elects to develop a
[CONFIDENTIAL TREATMENT REQUESTED] System Design version of the aforementioned
[CONFIDENTIAL TREATMENT REQUESTED] System Design Framework Deliverables, 3DO
shall provide MEI with such [CONFIDENTIAL TREATMENT REQUESTED] System Design
version of the Framework Deliverables on an "AS IS" BASIS, WITHOUT ANY
WARRANTIES OF ANY KIND, and 3DO shall have no obligation to fix any "bugs", or
to otherwise improve the performance, or to provide any support to MEI or to any
third party regarding the [CONFIDENTIAL TREATMENT REQUESTED] System Design
version of the Framework Deliverables.
3
<PAGE> 4
8. MEI shall waive 3DO's responsibility for upgrading to [CONFIDENTIAL
TREATMENT REQUESTED] Authoring Systems and further upgrading any of the one
hundred seventy three (173) M2 Authoring Systems which MEI purchased from 3DO
and MEI shall be solely responsible for the costs and expenses associated with
such upgrades of such M2 Authoring Systems. Promptly following MEI's completion
of the upgrade of any such M2 Authoring System, MEI agrees that it shall return
to 3DO, in a reasonable manner, each of the [CONFIDENTIAL TREATMENT REQUESTED]
printed circuit boards that were part of the [CONFIDENTIAL TREATMENT REQUESTED]
M2 Authoring Systems previously shipped to MEI (with all components still
attached and intact and in the same condition in which such printed circuit
boards were shipped to MEI by 3DO, normal wear and tear excepted). This return
by MEI shall be at no charge to 3DO, except that 3DO shall pay for the freight
charges of such return.
9. MEI shall pay to 3DO the following monetary sums in addition to the
license fees specified in the M2 License Agreement:
(a) For the [CONFIDENTIAL TREATMENT REQUESTED] System Design: US
$[CONFIDENTIAL TREATMENT REQUESTED] (as non-recurring engineering expenses) (the
"Aggregate Design Fee") in four (4) installment payments, in accordance with the
following payment schedule: (i) US $[CONFIDENTIAL TREATMENT REQUESTED] by
December 31, 1996, (ii) US $[CONFIDENTIAL TREATMENT REQUESTED] by March 31,
1997, (iii) US $[CONFIDENTIAL TREATMENT REQUESTED] by May 15, 1997, and (iv) US
$[CONFIDENTIAL TREATMENT REQUESTED] by October 15, 1997; provided, however,
notwithstanding such referenced payment schedule, MEI shall not be required to
make any such payments to 3DO unless and until 3DO completes the development of,
and delivers to MEI, the required deliverable items identified in Exhibit C,
specifically excluding, however, any [CONFIDENTIAL TREATMENT REQUESTED] related
deliverables included in Exhibit C. 3DO acknowledges and agrees that MEI shall
not be required to pay 3DO any additional financial or other compensation in
consideration for 3DO's provision of engineering services with respect to 3DO's
design and development of the [CONFIDENTIAL TREATMENT REQUESTED] System Design
unless MEI desires (and the parties mutually agree) that any material change(s)
should be made regarding the specification and/or performance characteristics of
the [CONFIDENTIAL TREATMENT REQUESTED] System Design, as set forth in Exhibit A,
attached hereto.
(b) For Developer Technical Support: US $[CONFIDENTIAL TREATMENT
REQUESTED] in two (2) installment payments, in accordance with the following
payment schedule: (i) US $[CONFIDENTIAL TREATMENT REQUESTED] by September 30,
1996, and (ii) US $[CONFIDENTIAL TREATMENT REQUESTED] by March 31, 1997.
(c) For the [CONFIDENTIAL TREATMENT REQUESTED] Mercury Deliverables: No
separate license fee or other charge is due from MEI, since, following the
parties' execution of this Addendum, the [CONFIDENTIAL TREATMENT REQUESTED]
Mercury Deliverables are to be included within the definition of the Licensed
Technology and covered by the licensing fees required under the M2 License
Agreement.
4
<PAGE> 5
10. 3DO shall provide MEI, in such manner and to the extent required
pursuant to Section 4.3 of the M2 License Agreement, with technical support and
other reasonable assistance regarding MEI's completion of the product design of
its [CONFIDENTIAL TREATMENT REQUESTED] M2 Hardware Product based on the
[CONFIDENTIAL TREATMENT REQUESTED] System Design, at no additional charge (other
than as expressly set forth in the M2 License Agreement or as may be otherwise
mutually agreed upon by the parties in writing).
11. In the event 3DO fails to meet the milestones set forth in Section I of
Exhibit B by the delivery dates set forth in Section I of Exhibit B, MEI may, at
its option, cancel this Addendum without paying 3DO the Aggregate Design Fee, as
defined in Section 9 above. In addition, in the event 3DO fails to deliver the
milestone described in Section III of Exhibit B (the "Section III Milestone")
this Addendum will be modified or canceled as follows:
(a) MEI shall have no liability to pay the Aggregate Design Fee until
3DO meets the Section III Milestone. After December 31, 1996, MEI may reduce the
Aggregate Design Fee by [CONFIDENTIAL TREATMENT REQUESTED] percent
([CONFIDENTIAL TREATMENT REQUESTED]%) per month until the Section III Milestone
is delivered to MEI. In addition, any percentage reduction attributable to the
delay in meeting the Section III Milestone shall be applied pro-rata to each of
the Aggregate Design Fee payments. For example, if 3DO fails to provide the
Section III Milestone until some date in February, 1997, MEI may reduce the
Aggregate Design Fee by [CONFIDENTIAL TREATMENT REQUESTED] percent
([CONFIDENTIAL TREATMENT REQUESTED]%) or by an aggregate of $[CONFIDENTIAL
TREATMENT REQUESTED]. To implement this reduction, the first $[CONFIDENTIAL
TREATMENT REQUESTED] payment by MEI shall be due and payable immediately upon
the delivery of the Section III Milestone, but shall be reduced by
$[CONFIDENTIAL TREATMENT REQUESTED], for a payment of $[CONFIDENTIAL TREATMENT
REQUESTED]. The second and third payments of $[CONFIDENTIAL TREATMENT REQUESTED]
shall be due and payable on March 31, 1997 and May 15, 1997, respectively, and
the final payment due and payable on October 15, 1997 shall be reduced to
$[CONFIDENTIAL TREATMENT REQUESTED].
(b) In the event 3DO fails to deliver the Section III Milestone by June
30, 1997, (i) MEI shall have [CONFIDENTIAL TREATMENT REQUESTED] of the Aggregate
Design Fee, and (ii) this Addendum shall be automatically canceled.
In the event this Addendum is canceled for any reason pursuant to this Section
11, the provisions of Section 7 of this Addendum shall survive such
cancellation. In addition, MEI shall return all 3DO Confidential Information
delivered to MEI pursuant to this Addendum, provided however that the
[CONFIDENTIAL TREATMENT REQUESTED] Mercury Deliverables listed in Exhibit D
shall not be returned and shall be considered Licensed Technology pursuant to
the term of the M2 License Agreement.
12. Both of the parties acknowledge that commercial units of the desired
[CONFIDENTIAL TREATMENT REQUESTED] M2 Hardware Product may be launched by MEI
only following MEI's completion of production engineering regarding the
[CONFIDENTIAL TREATMENT REQUESTED] System Design.
5
<PAGE> 6
Accordingly, in the event that MEI experiences any unexpected problem, that is
reasonably within 3DO's control, with respect to 3DO's technical disclosure
regarding the deliverable items listed in Exhibit C attached hereto, for the
[CONFIDENTIAL TREATMENT REQUESTED] System Design, or with respect to 3DO's
physical transfer to MEI of any such deliverable items, or with respect to the
engineering support provided by 3DO pursuant to Section 4 of the M2 License
Agreement, 3DO shall use diligent, good faith efforts to eliminate or otherwise
correct any such problem that the parties confirm exists, without any additional
charge to MEI.
13. Notwithstanding any provisions of Section 25 of the M2 License
Agreement to the contrary, 3DO acknowledges and agrees that it shall not make
any announcement or disclosure to the public of any information regarding the
[CONFIDENTIAL TREATMENT REQUESTED] System Design and/or MEI's M2 Hardware
Product(s) based on the [CONFIDENTIAL TREATMENT REQUESTED] System Design, unless
the written consent of MEI shall first have been obtained; provided, however,
such confidentiality obligations shall not apply with respect to any information
which (i) becomes generally known or becomes part of the public domain through
no default hereunder on the part of 3DO; (ii) is lawfully received by 3DO from a
third party who provided such information without breach of any separate
confidentiality obligation and without restriction on subsequent disclosure;
(iii) is disclosed by or for MEI to any third party without restriction on
disclosure; or (iv) is of a non-technical nature and more than five (5) years
have elapsed since the Effective Date of this Addendum.
14. Except as expressly modified in accordance with the provisions of this
Addendum, all other terms and conditions set forth in the M2 License Agreement
shall remain in full force and effect and continue to bind the parties.
In witness whereof, the duly-authorized representatives of each of the parties
hereto have executed this Addendum as of the Effective Date first set forth
above.
THE 3DO COMPANY MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
By: By:
-------------------------------- ------------------------------------
Hugh Martin Hiroyuki Tachibana
President Director
Interactive Media Division
6
<PAGE> 7
Exhibit A
SPECIFICATIONS AND RELATED PERFORMANCE CHARACTERISTICS
When running the benchmark program familiarly known to the parties as the
5/15/96 version of "BigCircle" (as it will be modified by 3DO to work in
conjunction with the [CONFIDENTIAL TREATMENT REQUESTED] System Design), using
the "command line",set forth below, the [CONFIDENTIAL TREATMENT REQUESTED]
System Design shall be capable of rendering [CONFIDENTIAL TREATMENT REQUESTED]
per second in the scene, as reported by the "BigCircle" program. MEI
acknowledges and agrees that 3DO provided a copy of the 5/15/96 version of
"BigCircle" to MEI on May 15, 1996 and May 16, 1996.
Command line to be issued to "BigCircle":
bigcircle [CONFIDENTIAL TREATMENT REQUESTED]
7
<PAGE> 8
Exhibit B
DEVELOPMENT MILESTONE SCHEDULE
SECTION I
<TABLE>
<CAPTION>
Milestone Description Delivery Date
--------------------- -------------
<S> <C>
A. Logic schematics for the [CONFIDENTIAL TREATMENT REQUESTED] [CONFIDENTIAL
development system TREATMENT
REQUESTED]
B. Preliminary [CONFIDENTIAL TREATMENT REQUESTED] [CONFIDENTIAL
development card (not final configuration) TREATMENT
REQUESTED]
C. Preliminary "alpha" operating system with basic functionality [CONFIDENTIAL
TREATMENT
REQUESTED]
D. Demonstration of a prototype [CONFIDENTIAL TREATMENT REQUESTED] [CONFIDENTIAL
System Design meeting the specifications and performance TREATMENT
characteristics set forth in Exhibit A REQUESTED]
SECTION II
Milestone Description Delivery Date
--------------------- -------------
A. Release version of [CONFIDENTIAL TREATMENT [CONFIDENTIAL
REQUESTED] development card TREATMENT
REQUESTED]
B. Preliminary feature-complete "beta" operating system with [CONFIDENTIAL
basic functionality TREATMENT
REQUESTED]
SECTION III
Milestone Description Delivery Date
--------------------- -------------
A. All deliverable items identified in Exhibit C ([CONFIDENTIAL [CONFIDENTIAL
TREATMENT REQUESTED]) TREATMENT
REQUESTED]
B. Demonstration of a prototype [CONFIDENTIAL TREATMENT [CONFIDENTIAL
REQUESTED] System Design meeting TREATMENT REQUESTED]
the specifications and performance characteristics set forth in
Exhibit A
</TABLE>
8
<PAGE> 9
9
<PAGE> 10
Exhibit C
[CONFIDENTIAL TREATMENT REQUESTED] SYSTEM DESIGN
DELIVERABLES
[Please See Attached]
10
<PAGE> 11
Exhibit C-1
I. TECHNICAL DISCLOSURE INFORMATION AND MATERIALS
1.0 Semiconductor Disclosure Materials
For each new [CONFIDENTIAL TREATMENT REQUESTED] System Design semiconductor
device (if any), 3DO shall disclose to MEI the types of information identified
in Section 1 of Exhibit A to the M2 License Agreement.
2.0 System Disclosure Materials
For each System technology deliverable, the following information will be
transferred to MEI:
- System schematics with component library in [CONFIDENTIAL TREATMENT
REQUESTED] form
- PCB artwork with parts library to the extent that they exist
- Mechanical drawings to the extent they exist
- Manufacturing documentation to the extent it exists
- ROM and PAL source and object code where applicable
- Diagnostics source code to the extent it exists
The System technologies that will be transferred are:
2.1 [CONFIDENTIAL TREATMENT REQUESTED] System-changes for
[CONFIDENTIAL TREATMENT REQUESTED] only
2.2 [CONFIDENTIAL TREATMENT REQUESTED]
2.3 [CONFIDENTIAL TREATMENT REQUESTED] Development System
3.0 For each software system deliverable, the following information will be
transferred to MEI:
- Interface description
- Source code
- Object code
3.1 System ROMs
The following System ROM technology will be transferred in both encrypted
and un-encrypted versions:
Boot code
[CONFIDENTIAL TREATMENT REQUESTED]
ROM-OS
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED] with [CONFIDENTIAL TREATMENT
REQUESTED] application
[CONFIDENTIAL TREATMENT REQUESTED] application
[CONFIDENTIAL TREATMENT REQUESTED] application
[CONFIDENTIAL TREATMENT REQUESTED] application [CONFIDENTIAL
TREATMENT REQUESTED]
Storage manager application
No-Disc application
System menu application
3.2 System Software
The following System Software technology will be transferred:
[CONFIDENTIAL TREATMENT REQUESTED] for removable media
Kernel including [CONFIDENTIAL TREATMENT REQUESTED] architecture
User-level exception handing
11
<PAGE> 12
[CONFIDENTIAL TREATMENT REQUESTED] (includes [CONFIDENTIAL
TREATMENT REQUESTED] technology)
I/O System with support for [CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED] system
Shell
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED] as needed for supported devices
MemDebug
LumberJack
Drivers
[CONFIDENTIAL TREATMENT REQUESTED] driver
[CONFIDENTIAL TREATMENT REQUESTED] driver
Timer driver
[CONFIDENTIAL TREATMENT REQUESTED] driver
[CONFIDENTIAL TREATMENT REQUESTED] driver
Microslot driver
StorageCard driver
Proxy driver
HostFS driver
HostConsole driver
HostCD driver
[CONFIDENTIAL TREATMENT REQUESTED] driver (including [CONFIDENTIAL
TREATMENT REQUESTED])
Serial port driver
Folios
Audio Folio
Beep Folio
FSUtilities Folio
Icon Folio
IFF Folio
Script Folio
International folio
JString folio
Compression folio
Requestor folio
Font folio
Graphics
Display Manager (including [CONFIDENTIAL TREATMENT REQUESTED]
interface)
3.3 Development System Tools
The following Development System Tools technology will be transferred.
[CONFIDENTIAL TREATMENT REQUESTED] (no source code)
Compiler (C/C++)
Assembler
Ppcas (subject to FSF license terms)
Link3DO/Dump3DO
Comm3DO for Mac to dev card communications
Debugger (no source code)
System interface header files
Libraries
Graphics
Command List Toolkit
2D graphics library
Data Streaming
Data Streaming library w/ branching
12
<PAGE> 13
[CONFIDENTIAL TREATMENT REQUESTED] support
[CONFIDENTIAL TREATMENT REQUESTED] interface
Data subscriber
[CONFIDENTIAL TREATMENT REQUESTED] subscriber
[CONFIDENTIAL TREATMENT REQUESTED] decoder
[CONFIDENTIAL TREATMENT REQUESTED] subscriber
Audio subscriber
Music library
I/O library
Font library
[CONFIDENTIAL TREATMENT REQUESTED]
CreateM2Make
[CONFIDENTIAL TREATMENT REQUESTED]
User Startup 3DO
Graphics tools
Texture and UTF tools
Texture Library
Data Streaming tools
Audio tools
Sound Hack (no source code)
SquashSound
AIFF sample set
PatchMaker
Video Tools
[CONFIDENTIAL TREATMENT REQUESTED]
Font Builder
KFontViewer
[CONFIDENTIAL TREATMENT REQUESTED]
3.4 Build Tools and Utilities
The following Build Tools and Utilities technology will be transferred:
ROM build tools
OS build tools
CD relocation tool: Laytool
[CONFIDENTIAL TREATMENT REQUESTED] utilities
Online help tool(s)
3.5 Engineering tools
The following Engineering tools technology will be transferred.
[CONFIDENTIAL TREATMENT REQUESTED] ("as is")
3.6 Hardware Diagnostics
The following Hardware Diagnostics technology will be transferred as
available.
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
ROM
ControlPad
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
Serial Interface
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
13
<PAGE> 14
3.7 [CONFIDENTIAL TREATMENT REQUESTED] Mercury Deliverables
Mercury Engine for:
Geometry Primitives: [CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
Mercury Tools:
[CONFIDENTIAL TREATMENT REQUESTED]
GComp w/POD support (converts ASCII SDF to BinarySDF w/POD data.
[CONFIDENTIAL TREATMENT REQUESTED]
POD Data Documentation.
[CONFIDENTIAL TREATMENT REQUESTED]
4.0 Documentation
The following Documentation will be transferred.
4.1 Developer documentation in electronic form (English version)
4.2 One set Developer documentation hard copy (English version)
5.0 Others
5.1 [CONFIDENTIAL TREATMENT REQUESTED]
14
<PAGE> 15
Exhibit C-2
II. 3DO DELIVERABLES
1.0 ASIC'S
For each new [CONFIDENTIAL TREATMENT REQUESTED] System Design semiconductor
device (if any), 3DO shall deliver to MEI each such semiconductor device.
2.0 Systems
2.1 [CONFIDENTIAL TREATMENT REQUESTED] System design changes
2.2 [CONFIDENTIAL TREATMENT REQUESTED] System [CONFIDENTIAL
TREATMENT REQUESTED]
2.3 [CONFIDENTIAL TREATMENT REQUESTED] Mac NuBus Development System
(including one sample of the [CONFIDENTIAL TREATMENT REQUESTED]
development card and one sample of the final version of the
[CONFIDENTIAL TREATMENT REQUESTED] development card)
3.0 System ROM Technology
Boot code
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED] application
[CONFIDENTIAL TREATMENT REQUESTED] application
[CONFIDENTIAL TREATMENT REQUESTED] application
[CONFIDENTIAL TREATMENT REQUESTED] application, [CONFIDENTIAL TREATMENT
REQUESTED]
Storage manager application
No-Disc application
System menu application
4.0 System Software
[CONFIDENTIAL TREATMENT REQUESTED] for removable media
Kernel including [CONFIDENTIAL TREATMENT REQUESTED] architecture
User-level exception handing, [CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED] driver (includes [ECONFIDENTIAL
TREATMENT REQUESTED] technology)
I/O System with support for [CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED] system
Shell
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED] as needed for supported devices
MemDebug
LumberJack
Drivers
[CONFIDENTIAL TREATMENT REQUESTED] driver
[CONFIDENTIAL TREATMENT REQUESTED] driver
Timer driver
[CONFIDENTIAL TREATMENT REQUESTED] driver
[CONFIDENTIAL TREATMENT REQUESTED] driver
Microslot driver
StorageCard driver
Proxy driver
HostFS driver
15
<PAGE> 16
HostConsole driver
HostCD driver
[CONFIDENTIAL TREATMENT REQUESTED] driver
[CONFIDENTIAL TREATMENT REQUESTED] driver (including [CONFIDENTIAL
TREATMENT REQUESTED])
Serial port driver
Folios
Audio Folio
Beep Folio
FSUtilities Folio
Icon Folio
IFF Folio
Script Folio
International folio
JString folio
Compression folio
Requestor folio
Font folio
Graphics
Display Manager (including [CONFIDENTIAL TREATMENT REQUESTED]
Interface)
5.0 Development System Tools
[CONFIDENTIAL TREATMENT REQUESTED] (no source code)
Compiler (C/C++)
Assembler
Ppcas (subject to FSF license terms)
Link3DO/Dump3DO
Comm3DO for Mac to dev card communications
Debugger (no source code)
System Interface header files
Libraries
Graphics
Command List Toolkit
2D graphics library
Data Streaming
Data Streaming library w/ branching
[CONFIDENTIAL TREATMENT REQUESTED] support
[CONFIDENTIAL TREATMENT REQUESTED] interface
Data subscriber
[CONFIDENTIAL TREATMENT REQUESTED] subscriber
[CONFIDENTIAL TREATMENT REQUESTED] decoder
[CONFIDENTIAL TREATMENT REQUESTED] subscriber
Audio subscriber
Music library
I/O library
Font library
[CONFIDENTIAL TREATMENT REQUESTED]
CreateM2Make
[CONFIDENTIAL TREATMENT REQUESTED]
User Startup 3DO
Graphics tools
Texture and UTF tools
Texture Library
Data Streaming tools
Audio tools
Sound Hack (no source code)
SquashSound
16
<PAGE> 17
AIFF sample set
PatchMaker
Video Tools
[CONFIDENTIAL TREATMENT REQUESTED]
Font Builder
KFontViewer
[CONFIDENTIAL TREATMENT REQUESTED]
5.1 [CONFIDENTIAL TREATMENT REQUESTED] Mercury Software
Mercury Engine for:
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
Mercury Tools:
[CONFIDENTIAL TREATMENT REQUESTED]
GComp w/POD support (converts ASCII SDF to BinarySDF w/POD data.
[CONFIDENTIAL TREATMENT REQUESTED]
POD Data Documentation.
[CONFIDENTIAL TREATMENT REQUESTED]
6.0 Build Tools and Utilities
ROM build tools
OS build tools
CD relocation tool: Laytool
[CONFIDENTIAL TREATMENT REQUESTED] utilities
Online help tool(s)
7.0 Engineering tools
[CONFIDENTIAL TREATMENT REQUESTED]
8.0 Hardware Diagnostics (as available)
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
ControlPad
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
Serial Interface
[CONFIDENTIAL TREATMENT REQUESTED]
[CONFIDENTIAL TREATMENT REQUESTED]
17
<PAGE> 18
9.0 Developer Documentation (English version)
10.0 Others
10.1 [CONFIDENTIAL TREATMENT REQUESTED]
18
<PAGE> 19
Exhibit D
[CONFIDENTIAL TREATMENT REQUESTED] MERCURY DELIVERABLES
I. Mercury Engine for:
A. [CONFIDENTIAL TREATMENT REQUESTED]
1. [CONFIDENTIAL TREATMENT REQUESTED]
a. [CONFIDENTIAL TREATMENT REQUESTED]
b. [CONFIDENTIAL TREATMENT REQUESTED]
c. [CONFIDENTIAL TREATMENT REQUESTED]
2. [CONFIDENTIAL TREATMENT REQUESTED]
a. [CONFIDENTIAL TREATMENT REQUESTED]
b. [CONFIDENTIAL TREATMENT REQUESTED]
c. [CONFIDENTIAL TREATMENT REQUESTED]
B. [CONFIDENTIAL TREATMENT REQUESTED]
1. [CONFIDENTIAL TREATMENT REQUESTED]
2. [CONFIDENTIAL TREATMENT REQUESTED]
3. [CONFIDENTIAL TREATMENT REQUESTED]
4. [CONFIDENTIAL TREATMENT REQUESTED]
5. [CONFIDENTIAL TREATMENT REQUESTED]
6. [CONFIDENTIAL TREATMENT REQUESTED]
II. Mercury Tools:
A. [CONFIDENTIAL TREATMENT REQUESTED]
B. GComp w/POD support (converts ASCII SDF to BinarySDF w/POD
data.
C. [CONFIDENTIAL TREATMENT REQUESTED]
D. POD Data Documentation.
E. [CONFIDENTIAL TREATMENT REQUESTED]
19
<PAGE> 1
Exhibit 11.01
THE 3DO COMPANY
COMPUTATION OF NET LOSS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the years ended March 31,
-----------------------------------
1996 1995 1994
--------- ---------- --------
<S> <C> <C> <C>
Net loss $ (34,668) $ (46,262) $(51,431)
========= ========== ========
Weighted average number of shares outstanding:
Common stock (1)(2) 25,456 22,697 19,747
========= ========== ========
Net loss per common share $ (1.36) $ (2.04) $ (2.60)
========= ========== ========
</TABLE>
(1) This schedule should be read in conjunction with Note A - Net Loss Per
Share in the Notes to Consolidated Financial Statements.
(2) The computation for the net loss per share for the years ended March 31,
1996 and 1995, includes 90,090 shares and 490,090 shares, respectively, of
common stock to be issued under the stock incentive program, described in
Note J in the Notes to Consolidated Financial Statements.
<PAGE> 1
Exhibit 21.01
THE 3DO COMPANY
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Legal name of subsidiary Jurisdiction of Incorporation
------------------------ -----------------------------
<S> <C>
The 3DO Company California
Studio 3DO K.K. Japan
3DO Europe Ltd. United Kingdom
</TABLE>
All subsidiaries of the Registrant are wholly owned and conduct business
under their legal names.
<PAGE> 1
Exhibit 23.01
THE 3DO COMPANY
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
The 3DO Company:
We consent to incorporation by reference in the registration statements
(Nos. 33-71620, 33-80872, 33-84250, and 33-84248) on Form S-8 of The 3DO
Company of our report dated May 9, 1996, except as to Note S which is as
of May 30, 1996 relating to the consolidated balance sheets of The 3DO
Company and subsidiaries as of March 31, 1996 and 1995, and their related
consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended March 31,
1996, which report appears in the March 31, 1996, annual report on Form
10-K of The 3DO Company.
San Jose, California
June 27, 1996
<PAGE> 1
Exhibit 24.01
THE 3DO COMPANY
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James Alan Cook and Paul J. Milley, and
each of them acting individually, as such person's lawful attorneys-in-fact for
him, each with full power of substitution, for such person, in any and all
capacities, to sign any and all amendments to The 3DO Company's Report on Form
10-K for the fiscal year ending March 31, 1996, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or their substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------------------- -------------------------------------------- --------------
<S> <C> <C>
/S/ WILLIAM M. HAWKINS, III Chairman of the Board of Directors and Chief June 28 , 1996
- ----------------------------------- Executive Officer (Principal Executive
William M. Hawkins, III Officer)
/S/ PAUL J. MILLEY Chief Financial Officer (Principal Financial June 28 , 1996
- ----------------------------------- Officer and Principal Accounting Officer)
Paul J. Milley
/S/ DAVID H. HOROWITZ Director June 28 , 1996
- -----------------------------------
David H. Horowitz
/S/ VINOD KHOSLA Director June 28 , 1996
- -----------------------------------
Vinod Khosla
/S/ HUGH C. MARTIN, JR. President and Director June 28 , 1996
- -----------------------------------
Hugh C. Martin, Jr.
/S/ CHARLES S. PAUL Director June 28 , 1996
- -----------------------------------
Charles S. Paul
/S/ ROBERT W. PITTMAN Director June 28 , 1996
- -----------------------------------
Robert W. Pittman
</TABLE>
<TABLE> <S> <C>
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