-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VUghsNrh6uFeIOVt/yaLmR58Vr9hPHcM34P9KVZMRAqQvt72g3w/ttjKYynab0Yq j7sW4DC706InKxosnRxQ4A== 0001017062-98-000615.txt : 19980324 0001017062-98-000615.hdr.sgml : 19980324 ACCESSION NUMBER: 0001017062-98-000615 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 25 FILED AS OF DATE: 19980323 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERPLAY ENTERTAINMENT CORP CENTRAL INDEX KEY: 0001057232 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-48473 FILM NUMBER: 98571200 BUSINESS ADDRESS: STREET 1: 16815 VON KARMAN AVE CITY: IRVINE STATE: CA ZIP: 92606 BUSINESS PHONE: 7145535603 S-1 1 S-1 / INITIAL FILING AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 1998 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- INTERPLAY ENTERTAINMENT CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7372 33-0102707 (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 16815 VON KARMAN AVENUE, IRVINE, CALIFORNIA 92606 (714) 553-6655 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) CHRISTOPHER J. KILPATRICK, PRESIDENT INTERPLAY ENTERTAINMENT CORP. 16815 VON KARMAN AVENUE IRVINE, CALIFORNIA 92606 (714) 553-6655 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: NICK E. YOCCA, ESQ. JEFFREY D. SAPER, ESQ. K.C. SCHAAF, ESQ. PATRICK J. SCHULTHEIS, ESQ. STRADLING YOCCA CARLSON & RAUTH, WILSON SONSINI GOODRICH & ROSATI, A PROFESSIONAL CORPORATION PROFESSIONAL CORPORATION 660 NEWPORT CENTER DRIVE, SUITE 1600 650 PAGE MILL ROAD NEWPORT BEACH, CALIFORNIA 92660 PALO ALTO, CALIFORNIA 94304-1050 (714) 725-4000 (650) 493-9300 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF OF SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE - ------------------------------------------------------------------------------ Common Stock ($.001 par value per share)............................... $71,875,000 $21,203
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Includes shares of Common Stock which may be purchased by the Underwriters to cover over-allotments, if any. (2) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the registration fee. ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED MARCH 23, 1998 PROSPECTUS dated , 1998 Shares [LOGO OF INTERPLAY ENTERTAINMENT CORP.] Common Stock All of the shares of Common Stock offered hereby (the "Offering") are being issued and sold by Interplay Entertainment Corp. ("Interplay" or the "Company"). A stockholder of the Company (the "Selling Stockholder") has granted the Underwriters a 30-day option to purchase up to an additional shares of Common Stock. The Company will not receive any proceeds from the sale of stock by the Selling Stockholder. Prior to the Offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price of the Common Stock offered hereby will be between $ and $ per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. Application has been made for the quotation of the Company's Common Stock on the Nasdaq National Market under the symbol "IPLY," subject to official notice of issuance. SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) - ------------------------------------------------------------------------------- Per Share.............................. $ $ $ - ------------------------------------------------------------------------------- Total(3)............................... $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) The Company and the Selling Stockholder have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting offering expenses payable by the Company estimated at $ . (3) The Selling Stockholder has granted the Underwriters a 30-day option to purchase up to an additional shares of Common Stock solely to cover over-allotments, if any, at the Price to Public less the Underwriting Discount. If all such shares are purchased, the total Price to Public and Underwriting Discount will be $ and $ , respectively, and the Selling Stockholder will receive proceeds of $ . See "Underwriting." The shares of Common Stock are offered by the several Underwriters subject to prior sale, when, as and if delivered to and accepted by the Underwriters and subject to their right to reject orders in whole or in part. It is expected that delivery of the certificates representing shares of the Common Stock will be made at the offices of Piper Jaffray Inc. in Minneapolis, Minnesota on or about , 1998. Piper Jaffray inc. Bear, Stearns & Co. Inc. UBS Securities INTERPLAY PRODUCTIONS [ANIMATED DEPICTIONS OF CHARACTERS AND ARTWORK FROM THE COMPANY'S STAR TREK, REDNECK RAMPAGE, EARTHWORM JIM, CLAY FIGHTER AND VR SPORTS POWERBOAT RACING TITLES] CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 BY GAMERS. [Title names interspersed with animated FOR GAMERS. product artwork and pictures of product packaging] STRATEGY FLAT CAT ACTION M.A.X. MECHANIZED ASSAULT & EXPLORATION TANTRUM CONQUEST OF THE NEW WORLD DESCENT CAESARS PALACE DESCENT II BRIDGE DELUXE II WITH OMAR SHARIF STAR TREK: STARFLEET ACADEMY BATTLE CHESS CARMAGEDDON USCF CHESS REDNECK RAMPAGE BEAT THE HOUSE CLAY FIGHTER 63 1/3 ROLE PLAYING BLACK ISLE STUDIOS FALLOUT STONEKEEP SHINY EARTHWORM JIM MDK ADVENTURE TRIBAL DREAMS OF LIGHT AND DARKNESS -- THE PROPHECY SPORTS VR SPORTS VIRTUAL POOL VIRTUAL POOL 2 VR BASEBALL JIMMY JOHNSON'S VR FOOTBALL [Wording interspersed with animated product artwork and pictures of product packaging] PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and Consolidated Financial Statements and Notes thereto (the "Consolidated Financial Statements") included elsewhere in this Prospectus. Except as otherwise noted, all information in this Prospectus, including financial information, share and per share data, assumes no exercise of the Underwriters' over-allotment option. See "Underwriting." Investors should carefully consider the information set forth under the heading "Risk Factors." THE COMPANY Interplay Entertainment Corp. ("Interplay" or the "Company") is a leading developer, publisher and distributor of interactive entertainment software for both core gamers and the mass market. The Company, which commenced operations in 1983, is most widely known for its titles in the action/arcade, adventure/role-playing game ("RPG"), strategy/puzzle and sports categories, and has published such hit titles as Descent, Fallout, Stonekeep, Battle Chess and Virtual Pool. The Company has produced titles for many of the most popular interactive entertainment software platforms, and currently balances its development efforts by publishing interactive entertainment software for personal computers ("PCs") and current generation video game consoles, such as the PlayStation(R) manufactured by Sony Computer Entertainment ("PlayStation") and Nintendo 64. Interplay was named Publisher of the Year in 1996 by Computer & Net Player magazine. The worldwide market for interactive entertainment software has grown significantly in recent years. According to the International Development Group ("IDG"), a market research firm, the worldwide market for interactive entertainment software generated sales of more than 220 million retail units in 1997 and is projected to generate more than 437 million retail units in 1999, representing a 41% compound annual growth rate. The interactive entertainment software market is composed primarily of software for PCs and current generation video game consoles. The Company seeks to publish interactive entertainment software titles that are, or have the potential to become, franchise titles that can be leveraged across several releases and/or platforms, and has published many such successful franchise titles to date. In addition, the Company secures licenses to use popular intellectual properties, such as Star Trek, Caesars Palace and Major League Baseball, for incorporation into certain of its products. Of the more than 40 titles currently in development by the Company, more than half are sequels to successful titles or incorporate licensed intellectual properties. In addition to developing products through its internal product development group of approximately 290 employees worldwide, the Company seeks to publish titles from leading third party interactive entertainment software developers. Through relationships with such developers, the Company believes that it is able to supplement its internally developed product line with products developed by talented third party developers while reducing its exposure to certain of the financial risks associated with internal product development. The Company believes that one of its core strengths is its developer-friendly management culture, which the Company believes provides it with a competitive advantage in forging strategic relationships with successful third party interactive entertainment software developers. The Company's internal software producers manage external product development efforts to ensure that externally developed titles satisfy the Company's product development standards. The Company also seeks to leverage its investments in existing gameplay technologies into new titles, while internally and externally developing new technologies which can be used in multiple future title releases. The Company has developed a worldwide sales and distribution capability. In North America, Interplay sells and distributes its products primarily through its direct sales force and, to a lesser extent, through third party distribution arrangements. In certain international markets, the Company has established direct sales and distribution capabilities, while in the majority of international markets the Company utilizes third party distribution arrangements. The Company's wholly owned subsidiary, Interplay OEM, Inc., distributes both Company-published and third party-published titles to computer hardware and peripheral device manufacturers for use in bundling arrangements. In addition, the Company sells its games directly through its web site and generates royalty-based revenues from use of its games by providers of on-line gameplay who distribute through popular on-line services, such as America Online. The Company was incorporated in the State of California in 1982, and conducts business under the trade name "Interplay Productions." The Company will be reincorporated in the State of Delaware prior to the effective date of the Offering. The principal executive offices of the Company are located at 16815 Von Karman Avenue, Irvine, California 92606, and its telephone number at that location is (714) 553-6655. 3 THE OFFERING Common Stock offered by the Company.................... shares Common Stock to be outstanding after the Offering................... shares(1) Use of Proceeds............. For repayment of indebtedness and for working capital and other general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol.............. IPLY
SUMMARY CONSOLIDATED FINANCIAL DATA (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
EIGHT MONTHS YEAR ENDED APRIL 30, ENDED DECEMBER 31, ---------------------------- ------------------- 1995 1996 1997 1996 1997 -------- -------- --------- --------- -------- STATEMENTS OF OPERATIONS DATA(2): Net revenues............. $ 79,546 $ 96,952 $ 83,262 $ 50,364 $ 85,961 Gross profit............. 34,055 47,013 20,782 14,639 41,097 Operating income (loss).. 6,047 (417) (34,684) (22,302) (2,786) Net income (loss)........ 4,249 (744) (27,219) (17,469) (5,059) Net income (loss) per share(3): Basic.................... $ 0.40 $ (0.07) $ (2.46) $ (1.58) $ (0.45) Diluted.................. $ 0.35 $ (0.07) $ (2.46) $ (1.58) $ (0.45)
QUARTER ENDED ----------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, 1997 1997 1997 1997 --------- --------- --------- -------- QUARTERLY STATEMENTS OF OPERATIONS DATA: Net revenues...................... $ 22,910 $ 17,002 $ 23,833 $ 54,369 Gross profit...................... 9,402 3,061 9,680 27,575 Operating income (loss)........... (6,524) (12,077) (4,431) 8,950 Net income (loss)................. (5,157) (12,740) (5,481) 7,398
DECEMBER 31, 1997 ------------------------ ACTUAL AS ADJUSTED(4) -------- -------------- BALANCE SHEET DATA: Working capital...................................... $ 13,616 $ Total assets......................................... 77,821 Total long-term debt (including current portion)..... 38,154 Stockholders' equity (deficit)....................... (1,267)
- -------- (1) Based on shares outstanding at December 31, 1997. Includes shares of Common Stock issuable upon the closing of the Offering upon the exercise of Common Stock Warrants by the cancellation of Subordinated Secured Promissory Notes at an exercise price of $ per share (based on an assumed initial public offering price of $ per share). Excludes (i) 1,838,972 shares of Common Stock issuable upon exercise of stock options outstanding at December 31, 1997, which had a weighted average exercise price of $5.31 per share (does not reflect option repricing subsequent to December 31, 1997), (ii) 240,100 shares of Common Stock issuable upon the exercise of certain stock options granted subsequent to December 31, 1997, which had a weighted average exercise price of $8.00 per share, (iii) 1,679,041 shares of Common Stock reserved for issuance under the Company's 1997 Stock Incentive Plan and (iv) 200,000 shares of Common Stock reserved for issuance under the Company's Employee Stock Purchase Plan. See "Management--Employee Benefit Plans--Stock Incentive Plans," "Description of Capital Stock--Common Stock Warrants" and Notes 6 and 13 of Notes to Consolidated Financial Statements. (2) Effective May 1, 1997, the Company changed its fiscal year end from April 30 to December 31. (3) See Note 2 of Notes to Consolidated Financial Statements for an explanation of the number of shares used in computing net income per share. (4) As adjusted to reflect the sale by the Company of shares of Common Stock offered hereby at an assumed initial public offering price of $ per share and the application of the estimated net proceeds therefrom, and the exercise of Common Stock Warrants having an aggregate purchase price of $87,488 by the cancellation of Subordinated Secured Promissory Notes in the aggregate principal amount of $8,661,320. See "Use of Proceeds," "Description of Capital Stock--Common Stock Warrants" and Notes 6 and 13 of Notes to Consolidated Financial Statements. As used in this Prospectus, references to Interplay or the Company refer to Interplay Entertainment Corp., a Delaware corporation, its California predecessor, and its wholly and majority owned subsidiaries. Interplay(TM), Interplay Productions(R), the Interplay logo(R), By Gamers. For Gamers(TM), and certain of the Company's product names and publishing labels referred to herein are trademarks of the Company. This Prospectus also includes trademarks of other companies. 4 RISK FACTORS An investment in the shares of Common Stock offered hereby involves a high degree of risk. In addition to the other information in this Prospectus, the following factors should be considered carefully in evaluating the Company and its business before purchasing shares of Common Stock offered by this Prospectus. This Prospectus contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. The cautionary statements made in this Prospectus should be read as being applicable to all related forward-looking statements wherever they appear in this Prospectus. The Company's actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below, as well as those discussed elsewhere in this Prospectus. FLUCTUATIONS IN OPERATING RESULTS; UNCERTAINTY OF FUTURE RESULTS; SEASONALITY The Company's operating results have fluctuated significantly in the past and will likely fluctuate significantly in the future, both on a quarterly and an annual basis. A number of factors may cause or contribute to such fluctuations, and many of such factors are beyond the Company's control. Such factors include, but are not limited to, demand for the Company's and its competitors' products, the size and rate of growth of the market for interactive entertainment software, changes in computing platforms, the number of new products and product enhancements released by the Company and its competitors during the period, changes in product mix, product returns, the timing of orders placed by distributors and dealers, delays in shipment, the timing of development and marketing expenditures, price competition and the level of the Company's international and OEM, royalty and licensing net revenues. The uncertainties associated with the interactive entertainment software development process, lengthy manufacturing lead times for Nintendo- compatible products, possible production delays, and the approval process for products compatible with the Sony Computer Entertainment, Nintendo and Sega video game consoles, as well as approvals required from other licensors, make it difficult to accurately predict the quarter in which shipments will occur. Because of the limited number of products introduced by the Company in any particular quarter, a delay in the introduction of a product may materially adversely affect the Company's operating results for that quarter. A significant portion of the Company's operating expenses is relatively fixed, and planned expenditures are based primarily on sales forecasts. If net revenues do not meet the Company's expectations in any given quarter, operating results may be materially adversely affected. The interactive entertainment software industry is highly seasonal, with the highest levels of consumer demand occurring during the year-end holiday buying season, followed by demand during the first calendar quarter resulting both from demand for interactive entertainment software for PCs and video game consoles purchased during the holidays and from continuing demand for titles released in the preceding fourth calendar quarter. As a result, net revenues, gross profits and operating income for the Company have historically been highest during the fourth and the following first calendar quarters, and have declined from those levels in the subsequent second and third calendar quarters. The failure or inability of the Company to introduce products on a timely basis to meet such seasonal increases in demand may have a material adverse effect on the Company's business, operating results and financial condition. The Company may over time become increasingly affected by the industry's seasonal patterns. Although the Company seeks to reduce the effect of such seasonal patterns on its business by distributing its product release dates more evenly throughout the year, there can be no assurance that such efforts will be successful. There can be no assurance that the Company will be profitable in any particular period given the uncertainties associated with software development, manufacturing, distribution and the impact of the industry's seasonal patterns on the Company's net revenues. As a result of the foregoing factors and the other factors discussed in "Risk Factors," it is likely that the Company's operating results in one or more future periods will fail to meet or exceed the expectations of securities analysts or investors. In such event, the trading price of the Common Stock would likely be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 5 RECENT LOSSES The Company has experienced significant losses in recent periods, including losses of $5.1 million and $27.2 million, respectively, in the eight months ended December 31, 1997 and in the Company's former fiscal year ended April 30, 1997. The losses resulted primarily from delays in the completion of certain products, which led the Company to release alternative titles developed by third parties which did not achieve broad market acceptance, and the sharp decline in the market for titles for the Macintosh and Sega Saturn platforms, both of which resulted in a high level of product returns and markdowns which reduced net revenues. Operating results for the year ended April 30, 1997, were also negatively affected by the Company's decision to write-off $5.9 million in prepayments to third party developers relating to titles or platform versions of titles which had been cancelled or which were expected to achieve lower unit sales than were originally forecast, an excessive reliance on development projects utilizing new technologies in the face of increasing development costs, slower than expected growth in sales in the Japanese market, and investments in new product lines in the sports and edutainment categories. There can be no assurance that the Company will not experience similar problems in current or future periods or that the Company will be able to generate sufficient net revenues to attain or sustain profitability in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." DEPENDENCE ON NEW PRODUCT INTRODUCTIONS; RISK OF PRODUCT DELAYS AND PRODUCT DEFECTS The Company's products typically have short life cycles, and the Company depends on the timely introduction of successful new products, including enhancements of or sequels to existing products and conversions of previously released products to additional platforms, to generate net revenues to fund operations and to replace declining net revenues from older products. In the Company's former fiscal year ended April 30, 1997, the Company's results of operations were adversely affected by a number of factors, including delays in the completion of certain new products which led the Company to release alternative titles developed by third parties that did not achieve broad market acceptance. If in the future for any reason net revenues from new products were to fail to replace declining net revenues from existing products, the Company's business, operating results and financial condition could be materially adversely affected. The timing and success of new interactive entertainment software product releases remains unpredictable due to the complexity of product development, including the uncertainty associated with new technology. The development cycle of new products is difficult to predict but typically ranges from 12 to 24 months and another six to 12 months for the porting of a product to a different technology platform. In the past, the Company has repeatedly experienced significant delays in the introduction of certain new products, and the Company anticipates that it will experience such delays in the future. Because net revenues associated with the initial shipments of a new product generally constitute a high percentage of the total net revenues associated with a product, any delay in the introduction of, or the presence of a defect in, one or more new products expected in a period could have a material adverse effect on the ultimate success of such products and on the Company's business, operating results and financial condition. The costs of developing and marketing new interactive entertainment software have increased in recent years due to such factors as the increasing complexity and content of interactive entertainment software, increasing sophistication of hardware technology and consumer tastes and increasing costs of obtaining licenses for intellectual properties, and the Company expects this trend to continue. There can be no assurance that new products will be introduced on schedule, if at all, or that, if introduced, they will achieve significant market acceptance or generate significant net revenues. In addition, software products as complex as those offered by the Company may contain undetected errors when first introduced or when new versions are released. There can be no assurance that, despite testing by the Company, errors will not be found in new products or releases after commencement of commercial shipments, resulting in loss of or delay in market acceptance, which could have a material adverse effect on the Company's business, operating results and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." UNCERTAINTY OF MARKET ACCEPTANCE; DEPENDENCE ON HIT TITLES Consumer preferences for interactive entertainment software are continually changing and are extremely difficult to predict. Historically, few interactive entertainment software products have achieved sustained market acceptance. Rather, a limited number of releases have become "hits" and have accounted for a substantial 6 portion of revenues in the industry. Further, publishers with a history of producing hit titles have enjoyed a significant marketing advantage because of their heightened brand recognition and customer loyalty. The Company expects the importance of introducing hit titles to increase in the future. There can be no assurance that new products introduced by the Company will achieve significant market acceptance, that such acceptance, if achieved, will be sustainable for any significant period, or that product life cycles will be sufficient to permit the Company to recover development and other associated costs. Most of the Company's products have a relatively short life cycle and sell for a limited period of time after their initial release, usually less than one year. The Company believes that these trends will continue and that the Company's future revenue will continue to be dependent on the successful production of hit titles on a continuous basis. Because the Company introduces a relatively limited number of new products in a given period, the failure of one or more of such products to achieve market acceptance could have a material adverse effect on the Company's business, operating results and financial condition. Further, if market acceptance is not achieved, the Company could be forced to accept substantial product returns or grant significant markdown allowances to maintain its relationship with retailers and its access to distribution channels. In the event that the Company is forced to accept significant product returns or grant significant markdown allowances, its business, operating results and financial condition could be materially adversely affected. DEPENDENCE ON THIRD PARTY SOFTWARE DEVELOPERS The Company relies on third party interactive entertainment software developers for the development of a significant number of its interactive entertainment software products. As reputable and competent third party developers continue to be in high demand, there can be no assurance that third party software developers that have developed products for the Company in the past will continue to be available to develop products for the Company in the future. Many third party software developers have limited financial resources, which could expose the Company to the risk that such developers may go out of business prior to completing a project. In addition, due to the limited control that the Company exercises over third party software developers, there can be no assurance that such developers will complete products for the Company on a timely basis or within acceptable quality standards, if at all. Increased competition for skilled third party software developers has required the Company to enter into agreements with licensors of intellectual property and developers of games that involve advance payments by the Company of royalties and guaranteed minimum royalty payments, and the Company expects to continue to enter into such arrangements. If the sales volumes of products subject to such arrangements are not sufficient to recover such royalty advances and guarantees, the Company would be required to write-off unrecovered portions of such payments, which could have a material adverse effect on its business, operating results and financial condition. Further, there can be no assurance that third party developers will not demand renegotiation of their agreements with the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Product Development." RAPIDLY CHANGING TECHNOLOGY; PLATFORM RISKS The interactive entertainment software industry is subject to rapid technological change. The introduction of new technologies, including operating systems such as Microsoft Windows 95, technologies that support multi-player games, new media formats such as on-line delivery and digital video disks ("DVDs") and as yet unreleased video game platforms could render the Company's current products or products in development obsolete or unmarketable. The Company must continually anticipate and assess the emergence of, and market acceptance of, new interactive entertainment software platforms well in advance of the time the platform is introduced to consumers. Because product development cycles are difficult to predict, the Company is required to make substantial product development and other investments in a particular platform well in advance of introduction of the platform. If the platforms for which the Company develops software are not released on a timely basis or do not attain significant market penetration, the Company's business, operating results and financial condition could be materially adversely affected. Alternatively, if the Company fails to develop products for a platform that does achieve significant market penetration, then the Company's business, operating results and financial condition could also be materially adversely affected. 7 The emergence of new interactive entertainment software platforms and technologies and the increased popularity of new products and technologies may materially and adversely affect the demand for products based on older technologies. In this regard, the Company's results of operations in its former fiscal year ended April 30, 1997 were adversely affected by a sharp decline in the market for titles for the Macintosh and Sega Saturn platforms, which declines resulted in a high level of product returns and markdown allowances. The broad range of competing and incompatible emerging technologies may lead consumers to postpone buying decisions with respect to products until one or more of such technologies gain widespread acceptance. Such postponement could have a material adverse effect on the Company's business, operating results and financial condition. The Company's success will depend in part on its ability to anticipate technological changes and to adapt its products to emerging game platforms. There can be no assurance that the Company will be able to anticipate future technological changes, to obtain licenses to develop products for those platforms on terms favorable to the Company or to create software for those new platforms, and any failure to do so could have a material adverse effect on the Company's business, operating results and financial condition. INDUSTRY COMPETITION; COMPETITION FOR SHELF SPACE The interactive entertainment software industry is intensely competitive and is characterized by the frequent introduction of new interactive entertainment software platforms and software products. The Company's competitors vary in size from small companies to very large corporations with significantly greater financial, marketing and product development resources than those of the Company. Due to these greater resources, certain of the Company's competitors are able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies, pay higher fees to licensors of desirable motion picture, television, sports and character properties and pay more to third party software developers than the Company. The Company believes that the principal competitive factors in the interactive entertainment software industry include product features, brand name recognition, access to distribution channels, quality, ease of use, price, marketing support and quality of customer service. The Company competes primarily with other publishers of PC and video game console interactive entertainment software. Significant competitors include Electronic Arts, GT Interactive Software Corp., Cendant Corporation, Activision, Inc., Microsoft Corporation, LucasArts Entertainment Company, Midway Games Inc., Acclaim Entertainment Inc., Microprose (Spectrum Holobyte), Virgin Interactive Entertainment, Inc. and Hasbro Inc. In addition, integrated video game console hardware/software companies such as Sony Computer Entertainment, Nintendo and Sega compete directly with the Company in the development of software titles for their respective platforms. Large diversified entertainment companies, such as The Walt Disney Company, many of which own substantial libraries of available content and have substantially greater financial resources than the Company, may decide to compete directly with the Company or to enter into exclusive relationships with competitors of the Company. The Company also believes that the overall growth in the use of the Internet and on-line services by consumers may pose a competitive threat if customers and potential customers spend less of their available home PC time using interactive entertainment software and more on the Internet and on- line services. Retailers of the Company's products typically have a limited amount of shelf space and promotional resources, and there is intense competition among consumer software producers, and in particular interactive entertainment software products, for high quality retail shelf space and promotional support from retailers. To the extent that the number of consumer software products and computer platforms increases, competition for shelf space may intensify and may require the Company to increase its marketing expenditures. Due to increased competition for limited shelf space, retailers and distributors are in an increasingly better position to negotiate favorable terms of sale, including price discounts, price protection, marketing and display fees and product return policies. The Company's products constitute a relatively small percentage of any retailer's sales volume, and there can be no assurance that retailers will continue to purchase the Company's products or to provide the Company's products with adequate levels of shelf space and promotional support, and a prolonged failure in this regard may have a material adverse effect on the Company's business, operating results and financial condition. 8 DEPENDENCE UPON THIRD PARTY LICENSES Many of the Company's products, such as its Star Trek, Major League Baseball and Caesars Palace titles, are based on original ideas or intellectual properties licensed from third parties. There can be no assurance that the Company will be able to obtain new licenses, or renew existing licenses, on commercially reasonable terms, if at all. Should the Company be unable to obtain licenses for the underlying content that it believes offers the greatest consumer appeal, the Company would either have to seek alternative, potentially less appealing licenses, or release the products without the desired underlying content, either of which events could have a material adverse effect on the Company's business, operating results and financial condition. There can be no assurance that acquired properties will enhance the market acceptance of the Company's products based on such properties, that the Company's new product offerings will generate net revenues in excess of their costs of development and marketing or minimum royalty obligations, or that net revenues from new product sales will meet or exceed net revenues from existing product sales. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Products." DEPENDENCE ON DISTRIBUTION CHANNELS; RISK OF CUSTOMER BUSINESS FAILURES; PRODUCT RETURNS The Company currently sells its products directly through its own sales force to mass merchants, warehouse club stores, large computer and software specialty chains and through catalogs in the U.S. and Canada, as well as to certain distributors. Outside North America, the Company generally sells to third party distributors. The Company's sales are made primarily on a purchase order basis, without long-term agreements. The loss of, or significant reduction in sales to, any of the Company's principal retail customers or distributors could materially adversely affect the Company's business, operating results and financial condition. The distribution channels through which consumer software products are sold are characterized by continuous change, including consolidation, financial difficulties of certain distributors and retailers, and the emergence of new distributors and new retailers such as warehouse chains, mass merchants and computer superstores. As more consumers own PCs, the distribution channels for interactive entertainment software have changed and are expected to continue to change. Mass merchants have become the most important distribution channels for retail sales of interactive entertainment software. A number of these mass merchants, includingWal-Mart, have entered into exclusive buying arrangements with other software developers or distributors, which arrangements prevent the Company from selling certain of its products directly to that mass merchant. If the number of mass merchants entering into exclusive buying arrangements with software distributors other than the Company were to increase, the Company's ability to sell to such merchants would be restricted to selling through the exclusive distributor. Because sales to distributors typically have a lower gross margin than sales to retailers, this would have the effect of lowering the Company's gross margin. In addition, this trend could increase the Company's exposure to product returns and expose the Company to greater risks, any of which could have a material adverse impact on the Company's business, operating results and financial condition. In addition, emerging methods of distribution, such as the Internet and on-line services, may become important in the future, and it will be important for the Company to maintain access to these channels of distribution. There can be no assurance that the Company will maintain such access or that the Company's access will allow the Company to maintain its historical levels of sales volume. Distributors and retailers in the computer industry have from time to time experienced significant fluctuations in their businesses, and there have been a number of business failures among these entities. The insolvency or business failure of any significant distributor or retailer of the Company's products could have a material adverse effect on the Company's business, operating results and financial condition. Sales are typically made on unsecured credit, with terms that vary depending upon the customer and the nature of the product. Although the Company has obtained insolvency risk insurance to protect against any bankruptcy, insolvency or liquidation that may occur involving its customers, such insurance contains a significant deductible and a co-payment obligation, and the policy does not cover all instances of non- payment. In addition, while the Company maintains a reserve for uncollectable receivables, the actual reserve may not be sufficient in every circumstance. As a result, a payment default by a significant customer could have a material adverse effect on the Company's business, operating results and financial condition. 9 The Company is exposed to the risk of product returns and markdown allowances with respect to its distributors and retailers. The Company allows distributors and retailers to return defective, shelf-worn and damaged products in accordance with negotiated terms, and also offers a 90-day limited warranty to its end users that its products will be free from manufacturing defects. In addition, the Company provides markdown allowances to its customers to manage its customers' inventory levels in the distribution channel. Although the Company maintains a reserve for returns and markdown allowances, and although the Company's agreements with certain of its customers place certain limits on product returns and markdown allowances, the Company could be forced to accept substantial product returns and provide markdown allowances to maintain its relationships with retailers and its access to distribution channels. Product returns and markdown allowances that exceed the Company's reserves could have a material adverse effect on the Company's business, operating results and financial condition. In this regard, the Company's results of operations for the former fiscal year ended April 30, 1997 were adversely affected by a sharp decline in the market for titles for the Macintosh and Sega Saturn platforms, which resulted in a higher than expected level of product returns and markdown allowances and consequently reduced net revenues. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--General." DEPENDENCE ON LICENSES FROM AND MANUFACTURING BY HARDWARE COMPANIES The Company is required to obtain a license to develop and distribute software for each of the video game console platforms for which the Company develops products, including a separate license for each of North America, Japan and Europe. The Company has obtained licenses to develop software for the PlayStation in North America and Japan and is currently negotiating agreements covering additional territories. In addition, the Company has obtained a license to develop software for the Nintendo 64 in North America and is currently negotiating with Nintendo for licenses covering additional territories. There can be no assurance that the Company will be able to obtain licenses from hardware companies on acceptable terms or that any existing or future licenses will be renewed by the licensors. In addition, each of Sony Computer Entertainment, Nintendo and Sega have the right to approve the technical functionality and content of the Company's products for such platform prior to distribution. Due to the nature of the approval process, the Company must make significant product development expenditures on a particular product prior to the time it seeks such approvals. The inability of the Company to obtain such approvals could have a material adverse effect on the Company's business, operating results and financial condition. Hardware companies such as Sony Computer Entertainment, Nintendo and Sega may impose upon their licensees a restrictive selection and product approval process, such that licensees are restricted in the number of titles that will be approved for distribution on the particular platform. While the Company has prepared its future product release plans taking this competitive approval process into consideration, if the Company has incorrectly predicted the impact of this restrictive approval process, and as a result the Company fails to obtain approvals for all products in the Company's development plans, such failure could have a material adverse effect on the Company's business, operating results and financial condition. The Company depends upon Sony Computer Entertainment and Nintendo for the manufacture of the Company's products that are compatible with their respective video game consoles. As a result, Sony and Nintendo have the ability to raise prices for supplying such products at any time and effectively control the timing of the Company's release of new titles for those platforms. PlayStation products consist of CD- ROMs and are typically delivered by Sony Computer Entertainment within a relatively short lead time. Manufacturers of Nintendo and other video game cartridges typically deliver software to the Company within 45 to 60 days after receipt of a purchase order. If the Company experiences unanticipated delays in the delivery of video game console products from Sony Computer Entertainment or Nintendo, or if actual retailer and consumer demand for its interactive entertainment software differs from that forecast by the Company, its business, operating results and financial condition could be materially adversely affected. FUTURE CAPITAL REQUIREMENTS The Company expects that its capital requirements will increase significantly in the future. The Company failed to generate cash flow from operations in both the eight months ended December 31, 1997 and the former 10 fiscal year ended April 30, 1997. There can be no assurance that the Company will ever generate cash flow from operations. The Company's ability to fund its capital requirements out of available cash, its bank line of credit and cash generated from operations will depend on numerous factors, including the progress of the Company's product development programs, the rate of growth of the Company's business, and the commercial success of the Company's products. The Company will likely be required to seek additional funds through debt or equity financing. The issuance of additional equity securities by the Company could result in substantial dilution to stockholders. If adequate funds are not available on acceptable terms, the Company would be required to delay or scale back its product development and marketing programs, which could have a material adverse effect on the Company's business, operating results and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." DEPENDENCE ON KEY PERSONNEL The Company's success depends to a significant extent on the continued service of its key product design, development, sales, marketing and management personnel, and in particular on the leadership, strategic vision and industry reputation of its founder and Chief Executive Officer, Brian Fargo. The Company's future success will also depend upon the Company's ability to continue to attract, motivate and retain highly qualified employees and contractors, particularly key software design and development personnel. Competition for highly skilled employees is intense, and there can be no assurance that the Company will be successful in attracting and retaining such personnel. Specifically, the Company may experience increased costs in order to attract and retain skilled employees. The Company's failure to retain the services of Brian Fargo or its other key personnel or to attract and retain additional qualified employees could have a material adverse effect on the Company's business, operating results and financial condition. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS International net revenues accounted for 28.7%, 38.4% and 25.4% of the Company's total net revenues in the eight months ended December 31, 1997 and in the former fiscal years ended April 30, 1997 and 1996, respectively. The Company intends to continue to expand its direct and indirect sales, marketing and product localization activities worldwide. Such expansion will require significant management time and attention and financial resources in order to develop improved international sales and support channels. There can be no assurance, however, that the Company will be able to maintain or increase international market demand for its products. International sales and operations are subject to a number of inherent risks, including the impact of possible recessionary environments in economies outside the U.S., the time and financial costs associated with translating and localizing products for foreign markets, longer accounts receivable collection periods and greater difficulty in accounts receivable collection, unexpected changes in regulatory requirements, difficulties and costs of staffing and managing foreign operations, and political and economic instability. For example, the Company has recently experienced difficulties selling products in certain Asian countries as a result of economic instability in such countries, and there can be no assurance that such difficulties will not continue or occur in other countries in the future. There can be no assurance that the foregoing factors will not have a material adverse effect on the Company's future international net revenues and, consequently, on the Company's business, operating results and financial condition. The Company currently does not engage in currency hedging activities. Although exposure to currency fluctuations to date has been insignificant, there can be no assurance that fluctuations in currency exchange rates in the future will not have a material adverse effect on net revenues from international sales and licensing, and thus on the Company's business, operating results and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." MANAGEMENT OF GROWTH The Company has recently undergone a period of rapid growth that has placed a significant strain on the Company's financial, management and other resources. The Company's ability to manage its growth effectively, should it continue, will require it to continue to improve its operational, financial and management information systems and to attract, train, motivate, manage and retain key employees. If the Company's executives are unable 11 to manage growth effectively, the Company's business, operating results and financial condition could be materially adversely affected. PROTECTION OF PROPRIETARY RIGHTS The Company regards its software as proprietary and relies primarily on a combination of copyright, trademark and trade secret laws, employee and third party nondisclosure agreements and other methods to protect its proprietary rights. The Company owns or licenses various copyrights and trademarks. While the Company provides "shrinkwrap" license agreements or limitations on use with its software, the enforceability of such agreements or limitations is uncertain. The Company is aware that unauthorized copying occurs within the computer software industry, and if a significantly greater amount of unauthorized copying of the Company's interactive entertainment software products were to occur, the Company's operating results could be materially adversely affected. While the Company does not copy protect its products, it does not provide source code to third parties unless they have signed nondisclosure agreements with respect thereto. The Company relies on existing copyright laws to prevent unauthorized distribution of its software. Existing copyright laws afford only limited protection. Policing unauthorized use of the Company's products is difficult, and software piracy can be expected to be a persistent problem, especially in certain international markets. Further, the laws of certain countries in which the Company's products are or may be distributed either do not protect the Company's products and intellectual property rights to the same extent as the laws of the U.S. or are weakly enforced. Legal protection of the Company's rights may be ineffective in such countries, and as the Company leverages its software products using emerging technologies, such as the Internet and on- line services, the ability of the Company to protect its intellectual property rights, and to avoid infringing the intellectual property rights of others, becomes more difficult. In addition, the intellectual property laws are less clear with respect to such emerging technologies. There can be no assurance that existing intellectual property laws will provide adequate protection to the Company's products in connection with such emerging technologies. As the number of interactive entertainment software products in the industry increases and the features and content of these products further overlap, software developers may increasingly become subject to infringement claims. Although the Company makes reasonable efforts to ensure that its products do not violate the intellectual property rights of others, there can be no assurance that claims of infringement will not be made. Any such claims, with or without merit, can be time consuming and expensive to defend. From time to time, the Company has received communication from third parties asserting that features or content of certain of its products may infringe upon the intellectual property rights of such parties. There can be no assurance that existing or future infringement claims against the Company will not result in costly litigation or require the Company to license the intellectual property rights of third parties, either of which could have a material adverse effect on the Company's business, operating results and financial condition. See "Business--Intellectual Property and Proprietary Rights." ENTERTAINMENT SOFTWARE RATING SYSTEM; GOVERNMENTAL RESTRICTIONS Legislation is periodically introduced in the U.S., in individual states and in foreign countries to establish a system for providing consumers with information about graphic violence and sexually explicit material contained in interactive entertainment software products. Such a system would include procedures with which interactive entertainment software publishers would be expected to comply by identifying particular products within defined rating categories and communicating such ratings to consumers through appropriate package labeling and through advertising and marketing presentations consistent with each product's rating. In addition, many foreign countries have laws which permit governmental entities to censor the content of certain works, including interactive entertainment software. In certain instances, the Company may be required to modify its products to comply with the requirements of such governmental entities, which could delay the release of those products in such countries. Such delays could have a material adverse effect on the Company's business, operating results and financial condition. While the Company currently voluntarily submits its products to industry-created review boards and publishes their ratings on its game packaging, the Company believes that mandatory government-run interactive entertainment software products rating systems eventually will be 12 adopted in many countries which represent significant markets or potential markets for the Company. Due to the uncertainties inherent in the implementation of such a rating system, confusion in the marketplace may occur, and the Company is unable to predict what effect, if any, such a rating system would have on the Company's business. DEVELOPMENT OF INTERNET/ON-LINE SERVICES OR PRODUCTS The Company seeks to establish an on-line presence by creating and supporting sites on the Internet. The Company's future plans envision conducting and supporting on-line product offerings through these sites or others. The ability of the Company to successfully establish an on-line presence and to offer on-line products will depend on several factors that are outside the Company's control, including the emergence of a robust on-line industry and infrastructure and the development and implementation of technological advancements to the Internet to increase bandwidth and the speed of responsiveness to the point that will allow the Company to conduct and support on-line product offerings. Because global commerce and the exchange of information on the Internet and other similar open, wide area networks are relatively new and evolving, there can be no assurance that a viable commercial marketplace on the Internet will emerge from the developing industry infrastructure, that the appropriate complementary products for providing and carrying Internet traffic and commerce will be developed, that the Company will be able to create or develop a sustainable or profitable on- line presence or that the Company will be able to generate any significant revenue from on-line product offerings in the near future, or at all. If the Internet does not become a viable commercial marketplace, or if such development occurs but is insufficient to meet the Company's needs or if such development is delayed beyond the point when the Company plans to have established an on-line service, the Company's business, operating results and financial condition could be materially adversely affected. YEAR 2000 COMPLIANCE Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, in less than two years, computer systems and software used by many companies may need to be upgraded to comply with such Year 2000 requirements. The Company believes that its products, which are self-contained software programs that run independently of external chronology, will not be significantly affected by Year 2000 problems. The Company is currently in the process of investigating whether its internal accounting systems and other operational systems are Year 2000 compliant. The Company has been informed by the vendor of its internal accounting software that upgrades that will bring such software into Year 2000 compliance will be provided to the Company under its existing software maintenance agreement in the third quarter of 1998. The Company expects to effect the conversion of its internal accounting system to such upgraded software by the end of 1998. There can be no assurance that such upgrades will be provided on a timely basis or will be free of errors. In addition, there can be no assurance that certain of the Company's products or the Company's internal computer systems and networks or those of its key vendors, developers and distributors will not be adversely affected by Year 2000 issues, which could have a material adverse effect on the Company's business, operating results and financial condition. RISKS ASSOCIATED WITH ACQUISITIONS As part of its strategy to enhance distribution and product development capabilities, the Company intends to pursue acquisitions of complementary businesses, products and technologies. Some of these acquisitions could be material in size and scope. While the Company will continue to search for appropriate acquisition opportunities, there can be no assurance that the Company will be successful in identifying suitable acquisition opportunities. If any potential acquisition opportunity is identified, there can be no assurance that the Company will consummate such acquisition, and if such acquisition does occur, there can be no assurance that it will be successful in enhancing the Company's business or will be accretive to the Company's earnings. As the interactive entertainment software industry continues to consolidate, the Company may face increased competition for acquisition opportunities, which may inhibit its ability to complete suitable transactions or increase the cost thereof. Future acquisitions could also divert substantial management time, could result in short term reductions in earnings or special transaction or other charges and may be difficult to integrate with existing operations or assets. 13 The Company may, in the future, issue additional shares of Common Stock in connection with one or more acquisitions, which may dilute its stockholders, including investors in the Offering. Additionally, with respect to future acquisitions, the Company's stockholders may not have an opportunity to review the financial statements of the entity being acquired or to vote on such acquisitions. CONTROL BY DIRECTORS AND OFFICERS The Company's directors and officers and Universal, which currently has two representatives on the Company's Board of Directors, will, in the aggregate, beneficially own approximately % of the Company's outstanding Common Stock following the completion of the Offering, assuming that the Underwriters' over- allotment option is not exercised. These stockholders, if acting together, would be able to control substantially all matters requiring approval by the stockholders of the Company, including the election of directors and the approval of mergers or other business combination transactions. Such concentration of ownership could discourage or prevent a change in control of the Company. See "Principal Stockholders." Certain directors, officers and other affiliates of the Company will receive a material benefit as a result of the Offering. See "Use of Proceeds." SHARES ELIGIBLE FOR FUTURE SALE Sales of Common Stock, including Common Stock issued upon the exercise of outstanding options, in the public market after the Offering could materially adversely affect the market price of the Common Stock. Such sales also might make it more difficult for the Company to sell equity or equity-related securities in the future at a time and price that the Company deems acceptable, or at all. Upon the completion of the Offering, the Company will have shares of Common Stock outstanding. Of these shares, the shares sold in the Offering ( shares if the Underwriters' over-allotment option is exercised in full) will be freely tradable without restriction under the Securities Act of 1933, as amended (the "Securities Act"), unless purchased by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act ("Rule 144"). The remaining shares of Common Stock held by existing stockholders ( shares if the Underwriters' over-allotment option is exercised in full) are "restricted securities," as that term is defined in Rule 144 and were issued and sold by the Company in reliance on exemptions from the registration requirements of the Securities Act. These restricted shares may be sold in the public market only if registered or pursuant to an exemption from registration, such as Rule 144. Holders of an aggregate of shares of Common Stock ( shares if the Underwriters' over-allotment option is exercised in full) and holders of options and warrants to purchase an aggregate of shares of Common Stock have agreed, pursuant to certain lock-up agreements with the Representatives (or pursuant to similar market standoff agreements with the Company), that they will not offer, sell, contract to sell, grant any option to sell or otherwise dispose of, directly or indirectly, any shares of Common Stock owned by them or that could be purchased by them through the exercise of options to purchase Common Stock of the Company for a period of 180 days after the date of this Prospectus without prior written consent of Piper Jaffray Inc. Such lock-up agreements will not apply to the sale of Common Stock by the Selling Stockholder pursuant to the exercise of the Underwriters' over-allotment option. Upon expiration of the lock-up agreements, shares held by existing stockholders ( shares if the Underwriters' over-allotment option is exercised in full) will be eligible for sale subject to the volume and other restrictions of Rule 144, and shares will be eligible for sale without restriction under Rule 144(k). As of the date hereof, shares were subject to outstanding options to purchase Common Stock, of which shares are subject to the lock-up agreements described above. Following completion of the Offering, holders of shares ( shares if the Underwriters' over-allotment option is exercised in full) will be entitled to certain demand and piggyback registration rights upon termination of lock-up agreements. Any exercise of these registration rights could impair the Company's ability to raise capital through the sale of its equity securities and, if such registered shares are sold, could have a material adverse effect on the market price of the Common Stock. See "Description of Capital Stock--Registration Rights" and "Shares Eligible for Future Sale." BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS The Company expects to utilize the net proceeds from the Offering to repay the outstanding portion of its bank line of credit, to repay certain Subordinated Secured Promissory Notes, to repay an accrued bonus owed to 14 an officer and director of the Company and other amounts payable to certain affiliates of the Company, to expand its sales and marketing activities, to fund product development, and for working capital and general corporate purposes. The Company may use a portion of the net proceeds for acquisitions of complementary products, technologies or businesses. However, no commitments or agreements with respect to any acquisition currently exist. The Company currently is not able to estimate precisely the allocation of the proceeds among such uses, and the timing and amount of expenditures will vary depending upon numerous factors. The Company's management will have broad discretion to allocate the net proceeds of the Offering and to determine the timing of expenditures, and there can be no assurance that the net proceeds can or will be invested to yield a significant return. See "Use of Proceeds," "Certain Transactions--Transactions with Fargo and Universal" and "--Other Transactions." ANTI-TAKEOVER EFFECTS; DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS; PREFERRED STOCK The Company's Certificate of Incorporation and Bylaws, as well as Delaware corporate law, contain certain provisions that could have the effect of delaying, deferring or preventing a change in control of the Company and could materially adversely affect the prevailing market price of the Common Stock. Certain of such provisions impose various procedural and other requirements that could make it more difficult for stockholders to effect certain corporate actions. See "Description of Capital Stock." DILUTION The initial public offering price is substantially higher than the net tangible book value per share of Common Stock. Investors purchasing shares of Common Stock in the Offering will incur immediate and substantial net tangible book value dilution of $ per share, assuming an initial public offering price of $ per share. To the extent that options to purchase the Company's Common Stock are exercised, there will be further dilution. In addition, the Company may issue additional shares in connection with compensation of employees, acquisition of complementary products, technologies or businesses or strategic relationships. To the extent that such pool is increased or additional shares are issued, there will be additional dilution. See "Dilution," "Capitalization" and "Description of Capital Stock." 15 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered by the Company hereby are estimated to be approximately $ at an assumed initial public offering price of $ per share and after deducting the estimated underwriting discount and offering expenses. If the Underwriters' over-allotment option is exercised, the Company will not receive any proceeds from the sale of Common Stock by the Selling Stockholder. The Company expects to use approximately $27.5 million of the net proceeds to repay amounts outstanding under the Company's current bank line of credit, which terminates in May 1999 and which bears interest at a rate per annum equal to the London Interbank Offered Rate plus 4.87%. In addition, the Company expects to use approximately $6.1 million of the net proceeds to repay Subordinated Secured Promissory Notes, which bear interest at the rate of 12% per annum and are payable upon the closing of the Offering, and accrued interest thereon. See "Description of Capital Stock--Common Stock Warrants." In addition, the Company expects to use $1.0 million of the net proceeds to pay an accrued bonus awarded to Brian Fargo, the Company's Chief Executive Officer and Chairman of the Board, by the Board of Directors in 1994. The Company expects to use approximately $1.5 million of the net proceeds to pay certain amounts due to Universal Interactive Studios under the terms of an existing distribution agreement. See "Certain Transactions." The Company expects to use the remainder of the net proceeds of the Offering for working capital and general corporate purposes, including increasing the Company's product development and sales and marketing activities. From time to time, the Company reviews possible strategic acquisitions of businesses, products or technologies complementary to those of the Company, and a portion of the net proceeds may also be used for such acquisitions. The Company is not currently a party to any commitments or agreements with respect to any acquisitions. Pending such uses, the Company intends to invest the net proceeds of the Offering in short-term, interest bearing, investment-grade securities. DIVIDEND POLICY The Company anticipates that all future earnings will be retained to finance future growth, and the Company does not anticipate paying any dividends on its Common Stock in the foreseeable future. The Company's bank line of credit agreement currently restricts the Company from paying cash dividends without the prior written consent of the bank. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 16 DILUTION The net tangible book value (deficit) of the Company as of December 31, 1997 was $(3,361,000) or $(0.31) per share. "Net tangible book value (deficit) per share" is determined by dividing the number of shares of Common Stock outstanding into the net tangible book value of the Company (tangible assets less liabilities). After giving effect to the Offering and use of net proceeds described herein, and the exercise of certain Common Stock Warrants by the cancellation of certain Subordinated Secured Promissory Notes, the pro forma net tangible book value of the Company at December 31, 1997 would have been approximately $ or $ per share based on an assumed initial public offering price of $ per share. This represents an immediate increase in the net tangible book value of approximately $ to present stockholders and an immediate dilution of $ per share to new investors purchasing shares of Common Stock at the assumed initial public offering price. The following table sets forth this per share dilution: Initial public offering price per share: $ Net tangible book value (deficit) before the Offering........ $(0.31) Increase resulting from the Offering......................... $ ------ Pro forma net tangible book value per share after the Offer- ing........................................................... $ --- Dilution per share to new investors............................ $ ===
The following table summarizes the difference between existing stockholders and new investors with respect to the number of shares of Common Stock purchased from the Company, the total cash consideration paid and the average price paid per share (before deducting the estimated underwriting discount and offering expenses):
SHARES OF COMMON AVERAGE STOCK PURCHASED TOTAL CONSIDERATION PRICE ------------------- ------------------- PER NUMBER PERCENT AMOUNT PERCENT SHARE ----------- ------- ----------- ------- ------- Existing Stockholders(1)....... 10,951,828 % $15,486,000 % $1.41 New Investors.................. ----------- ----- ----------- ----- Total........................ 100.0% $ 100.0% =========== ===== =========== =====
- -------- (1) Based on shares outstanding at December 31, 1997. Excludes shares of Common Stock issuable upon the closing of the Offering upon the exercise of Common Stock Warrants by the cancellation of Subordinated Secured Promissory Notes at an exercise price of $ per share (based on an assumed initial public offering price of $ per share). Also excludes (i) 1,838,972 shares of Common Stock issuable upon exercise of stock options outstanding at December 31, 1997, which had a weighted average exercise price of $5.31 per share (does not reflect option repricing subsequent to December 31, 1997), (ii) 240,100 shares of Common Stock issuable upon the exercise of certain stock options granted subsequent to December 31, 1997, which had a weighted average exercise price of $8.00 per share, (iii) 1,679,041 shares reserved for issuance pursuant to future option grants under the Company's 1997 Stock Incentive Plan and (iv) 200,000 shares of Common Stock reserved for issuance under the Company's Employee Stock Purchase Plan. See "Management--Employee Benefit Plans-- Stock Incentive Plans," "Description of Capital Stock--Common Stock Warrants" and Notes 6 and 13 of Notes to Consolidated Financial Statements. 17 CAPITALIZATION The following table sets forth the capitalization of the Company as of December 31, 1997, and as adjusted to give effect to (i) the sale of shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $ per share and the application of the net proceeds after deducting the estimated underwriting discount and offering expenses payable by the Company, and (ii) the issuance of shares of Common Stock upon the closing of the Offering upon the exercise of Common Stock Warrants at an exercise price of $ per share by the cancellation of Subordinated Secured Promissory Notes. This table should be read in conjunction with "Use of Proceeds," "Selected Consolidated Financial Information" and the Consolidated Financial Statements included elsewhere in this Prospectus.
DECEMBER 31, 1997 --------------------- ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) Current Portion of Long-Term Debt......................... $ 14,767 $ ======== ==== Accrued Expenses.......................................... $ 22,549 $ ======== ==== Long-Term Debt: Bank line of credit..................................... $ 23,246 $ Notes payable to former employee........................ 101 Other long-term debt.................................... 40 -------- ---- Total long-term debt, net of current portion.......... $ 23,387 $ -------- ---- Stockholders' Equity: Preferred Stock, $.001 par value, 5,000,000 shares authorized; no shares issued and outstanding, actual and as adjusted........................................ -- -- Common Stock, $.001 par value, 50,000,000 shares autho- rized; 10,951,828 and shares issued and outstand- ing, actual and as adjusted(1)......................... $ 11 $ Paid-in capital......................................... 18,408 Accumulated deficit..................................... (19,877) Cumulative translation adjustment....................... 191 -------- ---- Total stockholders' (deficit) equity.................... $ (1,267) $ -------- ---- Total capitalization (including long-term debt): $ 22,120 $ ======== ====
- -------- (1) Based on shares outstanding at December 31, 1997. Includes shares of Common Stock issuable upon the closing of the Offering upon the exercise of Common Stock Warrants by the cancellation of Subordinated Secured Promissory Notes at an exercise price of $ per share (based on an assumed initial public offering price of $ per share). Excludes (i) 1,838,972 shares of Common Stock issuable upon exercise of stock options outstanding at such date, which had a weighted average exercise price of $5.31 per share (does not reflect option repricing subsequent to December 31, 1997), (ii) 240,100 shares of Common Stock issuable upon the exercise of certain stock options granted subsequent to December 31, 1997, which had a weighted average exercise price of $8.00 per share, (iii) 1,679,041 shares reserved for issuance pursuant to future option grants under the Company's 1997 Stock Incentive Plan and (iv) 200,000 shares of Common Stock reserved for issuance under the Company's Employee Stock Purchase Plan. See "Management--Employee Benefit Plans--Stock Incentive Plans" and "Description of Capital Stock--Common Stock Warrants" and Notes 6 and 13 of Notes to Consolidated Financial Statements. 18 SELECTED CONSOLIDATED FINANCIAL DATA (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) The selected consolidated statements of operations data for the former fiscal years ended April 30, 1995, 1996 and 1997 and the eight months ended December 31, 1997, and the selected consolidated balance sheets data as of April 30, 1996 and 1997 and as of December 31, 1997 are derived from the Company's audited consolidated financial statements included elsewhere in this Prospectus. The selected consolidated statements of operations data for the years ended April 30, 1993 and 1994, and the selected consolidated balance sheets data as of April 30, 1993, 1994, and 1995 are derived from the Company's audited consolidated financial statements not included in this Prospectus. The selected consolidated statements of operations data for the eight months ended December 31, 1996 is derived from the Company's unaudited consolidated financial statements. The unaudited pro forma loss per share is derived from the unaudited pro forma data included elsewhere in this Prospectus. The Company's historical results are not necessarily indicative of the results that may be achieved for any other period. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements included elsewhere in this Prospectus.
EIGHT MONTHS ENDED YEAR ENDED APRIL 30, DECEMBER 31, ----------------------------------------- -------------------- 1993 1994 1995 1996 1997 1996 1997 ------- ------- ------- ------- -------- --------- --------- STATEMENTS OF OPERATIONS DATA(1): Net revenues............ $25,355 $52,668 $79,546 $96,952 $ 83,262 $ 50,364 $ 85,961 Cost of goods sold...... 13,374 31,223 45,491 49,939 62,480 35,725 44,864 ------- ------- ------- ------- -------- --------- -------- Gross profit............ 11,981 21,445 34,055 47,013 20,782 14,639 41,097 ------- ------- ------- ------- -------- --------- -------- Operating expenses: Marketing and sales.... 4,421 7,698 14,280 23,285 24,627 15,747 20,603 General and administra- tive.................. 1,589 4,805 5,528 9,025 9,408 8,730 8,989 Product development.... 2,054 3,646 8,200 15,120 21,431 12,464 14,291 ------- ------- ------- ------- -------- --------- -------- Total operating ex- penses................ 8,064 16,149 28,008 47,430 55,466 36,941 43,883 ------- ------- ------- ------- -------- --------- -------- Operating income (loss)................. 3,917 5,296 6,047 (417) (34,684) (22,302) (2,786) Other income (expense).. 112 68 1,046 (807) (1,600) (1,085) (2,273) ------- ------- ------- ------- -------- --------- -------- Income (loss) before in- come taxes............. 4,029 5,364 7,093 (1,224) (36,284) (23,387) (5,059) Provision (benefit) for income taxes........... 1,406 2,161 2,844 (480) (9,065) (5,918) -- ------- ------- ------- ------- -------- --------- -------- Net income (loss)....... $ 2,623 $ 3,203 $ 4,249 $ (744) $(27,219) $ (17,469) $ (5,059) ======= ======= ======= ======= ======== ========= ======== Net income (loss) per share(2): Basic.................. $ 0.32 $ 0.37 $ 0.40 $ (0.07) $ (2.46) $ (1.58) $ (0.45) ======= ======= ======= ======= ======== ========= ======== Diluted................ $ 0.29 $ 0.32 $ 0.35 $ (0.07) $ (2.46) $ (1.58) $ (0.45) ======= ======= ======= ======= ======== ========= ======== Pro forma (unaudited).. $ (1.78) $ (0.17) ======== ======== SELECTED OPERATING DATA: Net revenues by segment: North America.......... $19,436 $41,752 $51,892 $54,702 $ 38,606 $ 27,755 $ 51,833 International.......... 2,919 569 13,829 24,579 32,006 13,935 24,642 OEM, royalty and li- censing............... 3,000 10,347 13,825 17,671 12,650 8,674 9,486 Net revenues by plat- form: Personal computer...... $16,988 $25,281 $44,546 $73,684 $ 53,288 $ 31,729 $ 47,771 Video game console..... 8,367 27,387 35,000 23,268 29,974 18,635 38,190 APRIL 30, ----------------------------------------- 1993 1994 1995 1996 1997 DECEMBER 31, 1997 ------- ------- ------- ------- -------- ----------------- BALANCE SHEETS DATA: Working capital......... $ 5,546 $22,775 $25,227 $18,485 $ 7,890 $13,616 Total assets............ 10,073 35,450 44,226 68,511 69,005 77,821 Total long-term debt (including current por- tion).................. 469 384 262 108 14,970 38,154 Stockholders' equity (deficit).............. 5,953 25,053 30,069 30,195 3,401 (1,267)
- -------- (1) Effective May 1, 1997, the Company changed its fiscal year end from April 30 to December 31. (2) See Note 2 of Notes to Consolidated Financial Statements for an explanation of the number of shares used in computing net income (loss) per share. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company commenced operations in 1983, and operated as an independent development studio until 1988, creating interactive entertainment software games for publishers including Electronic Arts and Activision. In 1988, the Company began publishing software through an affiliate label relationship with Activision, pursuant to which Activision distributed the Company's software in North America. The Company began publishing and distributing its own interactive entertainment software for both PCs and video game consoles in 1992 and has continued to build its publishing and distribution infrastructure since that date. In addition to developing products through its internal product development group, the Company publishes titles developed by third party interactive entertainment software developers. The Company derives net revenues primarily from direct sales of interactive entertainment software for PCs and video game consoles to retailers and mass merchants, from indirect sales to software distributors in North America and internationally, from the distribution by the Company on an affiliate label basis of titles published by third parties, and from direct sales to end-users through the Company's catalogs and the Internet. The Company also derives royalty-based revenues from licensing arrangements, from the sale of products by third party distributors in international markets, and from OEM bundling transactions. The Company recognizes net revenues from the sale of its products upon shipment. Subject to certain limitations, the Company permits customers to obtain exchanges within certain specified periods and provides price protection on certain unsold merchandise. Net revenues from product sales are reflected after deducting an allowance for returns and price protection. With respect to license agreements which provide customers the right to multiple copies in exchange for guaranteed amounts, net revenues are recognized upon delivery of the product master or the first copy. Per copy royalties on sales which exceed the guarantee are recognized as earned. In order to expand the Company's distribution channels and engage in software development in overseas markets, in 1995 the Company established operations in the United Kingdom and in Japan. In July 1997, the Company initiated a licensing strategy in Japan and terminated its operations there. International net revenues accounted for approximately 28.7%, 38.4% and 25.4% of the Company's net revenues during the eight months ended December 31, 1997 and the former fiscal years ended April 30, 1997 and April 30, 1996, respectively. In January 1997, the Company formed a wholly owned subsidiary, Interplay OEM, Inc. ("Interplay OEM"), which had previously operated as a division of the Company. Interplay OEM distributes the Company's interactive entertainment software titles, as well as those of other software publishers, to computer hardware and peripheral device manufacturers for use in bundling arrangements. OEM, royalty and licensing net revenues accounted for 11.0% of the Company's total net revenues for the eight months ended December 31, 1997 in comparison to 15.2% for the former fiscal year ended April 30, 1997. OEM, royalty and licensing net revenues generally are incremental net revenues and do not have significant additional product development or sales and marketing costs, and accordingly have a more significant impact on the Company's operating results. The Company expects that OEM, royalty and licensing net revenues may continue to decline, both in dollars and as a percentage of net revenues, as a larger proportion of OEM, royalty and licensing net revenues are generated from royalty-based licensing transactions as opposed to the shipment of finished goods and as the OEM channel of distribution becomes more competitive. Cost of goods sold related to PC and video game console net revenues represents the manufacturing and related costs of interactive entertainment software products, including costs of media, manuals, duplication, packaging materials, assembly, freight and royalties paid to developers, licensors and hardware manufacturers. Cost of goods sold related to royalty-based net revenues primarily represents third party licensing fees and royalties paid by the Company. Typically, cost of goods sold as a percentage of net revenues for video game console products and affiliate label products are higher than cost of goods sold as a percentage of net revenues for PC based products due to the relatively higher manufacturing and royalty costs associated with these 20 products. Also included in the cost of goods sold is the amortization of prepaid royalty and license fees paid to third party software developers. Prepaid royalties are expensed over a period of six months from initial shipment. The Company evaluates the likelihood of future realization of prepaid royalties quarterly, on a product by product basis, and charges cost of goods sold for any amounts that it deems unlikely to be realized through future product sales. The Company's results of operations for the former fiscal year ended April 30, 1997 were adversely affected by a number of factors, including delays in the completion of certain products, which led the Company to release alternative titles developed by third parties which did not achieve broad market acceptance, and a sharp decline in the market for titles for the Macintosh and Sega Saturn platforms, both of which resulted in a higher than expected level of product returns and markdown allowances. Operating results for the period were also negatively affected by (i) the Company's decision to write-off $5.9 million in prepayments to third party developers relating to titles or platform versions of titles which had been cancelled or which were expected to achieve lower unit sales than were originally forecast, (ii) an excessive reliance on development projects utilizing new technologies in the face of increasing development costs, (iii) slower than expected growth in sales in the Japanese market, and (iv) investments in new product lines in the sports and edutainment categories. The Company has taken a number of steps to address these issues, both strategically and operationally. During the second half of 1997, the Company restructured and reduced its internal development organization into five divisions, each of which is dedicated to the production and development of products for a particular product category. The Company believes that this divisional approach will enable the Company to better manage its internal and external development processes and to obtain greater efficiency and predictability in its product development process. The Company is also in the process of restructuring its product development pipeline such that a significant number of the products under development will be utilizing existing core technologies or other game content in order to reduce the development costs and development time for such products. In addition, in July 1997 the Company closed its Japanese office, and initiated a licensing strategy in Japan in order to avoid the high costs of conducting operations there. The Company also discontinued and absorbed the cost of numerous Macintosh and Sega Saturn development projects, and, due to lower than expected sales growth and intense competition in the edutainment product category, the Company suspended its product development plans for its edutainment product line. Effective May 1, 1997, the Company changed its fiscal year end from April 30 to December 31. Accordingly, the discussion of financial results set forth below compares the eight months ending December 31, 1997 to the comparable 1996 period, and compares the Company's previous fiscal years ended April 30, 1997, 1996 and 1995. The Company's operating results have fluctuated significantly in the past and will likely fluctuate significantly in the future, both on a quarterly and an annual basis. A number of factors may cause or contribute to such fluctuations, and many of such factors are beyond the Company's control. There can be no assurance that the Company will be profitable in any particular period. It is likely that the Company's operating results in one or more future periods will fail to meet or exceed the expectations of securities analysts or investors. See "Risk Factors--Fluctuations in Operating Results; Uncertainty of Future Results; Seasonality." 21 RESULTS OF OPERATIONS The following table sets forth certain consolidated statements of operations data and segment and platform data for the periods indicated expressed as a percentage of net revenues:
EIGHT MONTHS ENDED YEAR ENDED APRIL 30, DECEMBER 31, ----------------------- ------------------ 1995 1996 1997 1996 1997 ------ ------ ------ --------- --------- STATEMENTS OF OPERATIONS DA- TA: Net revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold.......... 57.2 51.5 75.0 70.9 52.2 ------ ------ ------ --------- --------- Gross profit............ 42.8 48.5 25.0 29.1 47.8 Operating expenses: Marketing and sales....... 18.0 24.0 29.6 31.3 24.0 General and administra- tive..................... 6.9 9.3 11.3 17.3 10.5 Product development....... 10.3 15.6 25.7 24.7 16.6 ------ ------ ------ --------- --------- Total operating ex- penses................. 35.2 48.9 66.6 73.3 51.1 ------ ------ ------ --------- --------- Operating income (loss)..... 7.6 (0.4) (41.7) (44.3) (3.3) Other income (expense)...... 1.3 (0.9) (1.9) (2.1) (2.6) ------ ------ ------ --------- --------- Income (loss) before income taxes...................... 8.9 (1.3) (43.6) (46.4) (5.9) Provision (benefit) for in- come taxes................. 3.6 (0.5) (10.9) (11.7) -- ------ ------ ------ --------- --------- Net income (loss)....... 5.3% (0.8)% (32.7)% (34.7)% (5.9)% ====== ====== ====== ========= ========= SELECTED OPERATING DATA: Net revenues by segment: North America............. 65.2% 56.4% 46.4% 55.1% 60.3% International............. 17.4 25.4 38.4 27.7 28.7 OEM, royalty and licens- ing...................... 17.4 18.2 15.2 17.2 11.0 ------ ------ ------ --------- --------- 100.0% 100.0% 100.0% 100.0% 100.0% ====== ====== ====== ========= ========= Net revenues by platform: Personal computer......... 56.0% 76.0% 64.0% 63.0% 55.6% Video game console........ 44.0 24.0 36.0 37.0 44.4 ------ ------ ------ --------- --------- 100.0% 100.0% 100.0% 100.0% 100.0% ====== ====== ====== ========= =========
EIGHT MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE EIGHT MONTHS ENDED DECEMBER 31, 1996 Net Revenues. Net revenues for the eight months ended December 31, 1997 increased 70.7% to $86.0 million from $50.4 million in the comparable 1996 period. North American net revenues increased to $51.8 million from $27.8 million in the 1996 period, and international net revenues increased to $24.6 million from $13.9 million in the 1996 period. The increase in net revenues in the 1997 period was primarily due to increased title releases across multiple platforms, including significant video game console title releases in the calendar fourth quarter of 1997, and a higher than expected level of product returns and markdowns recorded during the 1996 period. OEM, royalty and licensing net revenues decreased to 11.0% of net revenues in the 1997 period from 17.2% in the 1996 period. The Company expects that OEM, royalty and licensing net revenues will continue to decline, both in dollars and as a percentage of net revenues, as a larger proportion of OEM net revenues are generated from royalty-based licensing transactions as opposed to the shipment of finished goods and as the OEM channel of distribution becomes more competitive. 22 Cost of Goods Sold; Gross Margin Cost of goods sold increased 25.6% in the eight months ended December 31, 1997 to $44.9 million, or 52.2% of net revenues, from $35.7 million, or 70.9% of net revenues, in the comparable 1996 period. Gross margin increased to 47.8% in the 1997 period from 29.1% in the 1996 period. The increase in gross margin was primarily due to reductions in sales by the Company on an affiliate label basis of titles published by third parties, reductions in OEM royalty expenses as a percentage of net revenues, and changes in the product mix of externally developed products released during the periods, offset in part by greater manufacturing costs attributable to an increased number of video game console products released during the 1997 period. The 1996 period also included the effects of additional write-offs of prepaid royalties relating to titles or platform versions of titles which had been cancelled or which were expected to achieve lower unit sales than were originally forecast. Operating Expenses Total operating expenses increased 18.8% to $43.9 million, or 51.1% of net revenues, in the eight months ended December 31, 1997 from $36.9 million, or 73.3% of net revenues, for the comparable 1996 period. Marketing and Sales. Marketing and sales expenses primarily include advertising and retail marketing support, sales commissions, marketing and sales personnel, customer support services, fulfillment and other costs. Marketing and sales expenses increased 30.8% to $20.6 million, or 24.0% of net revenues, for the eight months ended December 31, 1997 from $15.7 million, or 31.3% of net revenues, for the comparable 1996 period. The increase in absolute dollars was primarily due to advertising and other marketing costs associated with the increase in products launched during the period. The decrease as a percentage of net revenues was primarily attributable to operating efficiencies gained as a result of an increased net revenues base. The Company expects that marketing and sales expense in future periods will increase both in absolute dollars and as a percentage of net revenues from the levels experienced in the eight months ended December 31, 1997 as the Company increases its marketing and sales operations. General and Administrative. General and administrative expenses primarily include administrative personnel expenses, facilities costs, professional expenses and other overhead charges. General and administrative expenses increased 3.0% to $9.0 million, or 10.5% of net revenues, in the eight months ended December 31, 1997 from $8.7 million, or 17.3% of net revenues, in the comparable 1996 period. The increase in absolute dollars was primarily attributable to increased personnel and operations and facilities costs both in North America and Europe in support of increased net revenues. The decrease as a percentage of net revenues was primarily attributable to operating efficiencies gained as a result of an increased net revenues base. The Company expects that in future periods general and administrative expenses will increase in absolute dollars, but may vary as a percentage of net revenues. Product Development. Product development expenses, which primarily include personnel and support costs, are charged to operations in the period incurred. Product development expenses increased 14.7% to $14.3 million, or 16.6% of net revenues, in the eight months ended December 31, 1997 from $12.5 million, or 24.7% of net revenues, in the comparable 1996 period. The increase in absolute dollars was primarily due to the addition of personnel in the Company's product development group, an increase in the number of products under development and the initiation of European and OEM product development in the 1997 period. The decrease as a percentage of net revenues primarily reflected operating efficiencies gained as a result of increased net revenues. The Company expects that in future periods product development expenses will increase in absolute dollars, but may vary as a percentage of net revenues. Other Income (Expense) Other income (expense) primarily includes interest expense on the Company's bank line of credit and Subordinated Secured Promissory Notes. Interest expense increased to $3.0 million in the eight months ended December 31, 1997 from $1.1 million in the comparable 1996 period. This increase was due to increased borrowings under the Company's line of credit to support increased working capital requirements in the 1997 period and interest on the Subordinated Secured Promissory Notes, which were issued from October 1996 through February 1997 and were outstanding throughout the 1997 period. 23 Provision (Benefit) for Income Taxes The Company recorded no tax provision in the eight months ended December 31, 1997, compared to a tax benefit of $5.9 million in the comparable 1996 period. No tax benefit was recorded in the 1997 period due to the uncertainty of realization in future periods. YEAR ENDED APRIL 30, 1997 COMPARED TO THE YEAR ENDED APRIL 30, 1996 Net Revenues Net revenues in the year ended April 30, 1997 decreased 14.1% to $83.3 million from $97.0 million in the comparable 1996 period. North American net revenues decreased to $38.6 million in the 1997 period from $54.7 million in the 1996 period and international net revenues increased to $32.0 million in the 1997 period from $24.6 million in the 1996 period. OEM, royalty and licensing net revenues accounted for 15.2% of total net revenues for the 1997 period, compared to 18.2% for the 1996 period. The decrease in net revenues for the 1997 period was primarily due to a decreased number of title releases resulting from certain product delays across multiple platforms, lower unit sales of the titles released during the period and a higher than expected level of product returns and markdowns recorded during the period. Cost of Goods Sold; Gross Margin Cost of goods sold increased 25.1% to $62.5 million, or 75.0% of net revenues, in the year ended April 30, 1997 from $49.9 million, or 51.5% of net revenues, in the comparable 1996 period. Gross margin decreased to 25.0% in the 1997 period from 48.5% in the 1996 period. The decrease in gross margin in the 1997 period was primarily due to an increase in royalty expenses attributable to the write-off of $5.9 million in prepaid royalties relating to titles or platform versions of titles which had been cancelled or which were expected to achieve lower unit sales than originally forecast, increased sales of video game console titles and affiliate label products and disproportionate returns and markdowns in the 1997 period, offset in part by increased OEM volumes. Operating Expenses Total operating expenses increased 16.9% to $55.5 million, or 66.6% of net revenues, in the year ended April 30, 1997 from $47.4 million, or 48.9% of net revenues, in the comparable 1996 period. Marketing and Sales. Marketing and sales expenses increased 5.8% to $24.6 million, or 29.6% of net revenues, in the 1997 period from $23.3 million, or 24.0% of net revenues, in the 1996 period. The increase in absolute dollars was primarily due to increased commissions expense on European sales offset in part by lower marketing and advertising expenses due to a decrease in titles released during the period. General and Administrative. General and administrative expenses increased 4.2% to $9.4 million, or 11.3% of net revenues, in the 1997 period from $9.0 million, or 9.3% of net revenues, in the 1996 period. The increase in absolute dollars was primarily attributable to increased personnel and facilities costs in North America, Europe and Japan. Product Development. Product development expenses increased 41.7% to $21.4 million, or 25.7% of net revenues, in the 1997 period from $15.1 million, or 15.6% of net revenues, in the 1996 period. The increase in absolute dollars was primarily attributable to an increase in the number of products under development, the inclusion of a full year of operations of Shiny, an interactive entertainment software developer in which the Company acquired a 91% interest in 1995, localization and development costs in Japan, initiation of European and OEM product development and increased product development personnel and facilities costs. Other Income (Expense) Other expense increased to $1.6 million in the 1997 period from $0.8 million in the 1996 period. The increase was due to interest expense related to borrowings under the Company's bank line of credit to support 24 increased working capital requirements and interest on the Subordinated Secured Promissory Notes which were issued from October 1996 through February 1997. Provision (Benefit) for Income Taxes The Company's income tax benefit in the 1997 period was $9.1 million, compared to an income tax benefit of $0.5 million in the 1996 period. The benefit for income taxes as a percentage of pre-tax income declined from 39.2% to 25.0% due to the recording of a valuation allowance of $2.9 million in the 1997 period. YEAR ENDED APRIL 30, 1996 COMPARED TO THE YEAR ENDED APRIL 30, 1995 Net Revenues Net revenues in the year ended April 30, 1996 increased 21.9% to $97.0 million from $79.5 million in the comparable 1995 period. North American net revenues increased to $54.7 million and international net revenues increased to $24.6 million in the 1996 period from $51.9 million and $13.8 million, respectively, in the 1995 period. OEM, royalty and licensing net revenues were 18.2% of net revenues for the 1996 period, compared to 17.4% for the 1995 period. The increase in net revenues in the 1996 period was primarily due to an increase in the number of title releases across multiple platforms with increased individual title successes, which resulted in increased international net revenues, particularly in Europe, and increased net revenues from retailers and resellers. The increase was also due to increases in OEM, royalty and licensing net revenues. These increases were offset in part by reduced affiliate label sales and increased product returns and markdowns. Cost of Goods Sold; Gross Margin Cost of goods sold increased 9.8% to $49.9 million, or 51.5% of net revenues, in the year ended April 30, 1996 from $45.5 million, or 57.2% of net revenues, in the comparable 1995 period. Gross margin was 48.5% in the 1996 period, as compared to 42.8% in the 1995 period. The increase in gross margin was primarily attributable to the increase in overall product sales, a product mix emphasizing higher margin PC titles and reductions in affiliate label net revenues. Operating Expenses Total operating expenses increased 69.3% to $47.4 million, or 48.9% of net revenues, in the year ended April 30, 1996 from $28.0 million, or 35.2% of net revenues, in the comparable 1995 period. Marketing and Sales. Marketing and sales expenses increased 63.1% to $23.3 million, or 24.0% of net revenues, in the 1996 period from $14.3 million, or 18.0% of net revenues, in the comparable 1995 period. The increase for the 1996 period both in absolute dollars and as a percentage of net revenues was primarily attributable to increased advertising and marketing costs in support of increased product releases, promotional programs, commissions on international sales and personnel and overhead. General and Administrative. General and administrative expenses increased 63.3% to $9.0 million, or 9.3% of net revenues, in the 1996 period from $5.5 million, or 6.9% of net revenues in the 1995 period. The increase in both absolute dollars and as a percentage of net revenues was primarily attributable to increased personnel and operating and facilities costs in North America, Europe and Japan. Product Development. Product development expenses increased 84.4% to $15.1 million, or 15.6% of net revenues, in the 1996 period from $8.2 million, or 10.3% of net revenues, in the 1995 period. The increase in product development expenses in both absolute dollars and as a percentage of net revenues was primarily attributable to an increase in the number and complexity of products in development, the expansion of the Company's internal development capabilities (including the acquisition of Shiny), the initiation of localization and development in Japan and increased facilities costs and overhead requirements. 25 Other Income (Expense) Other expense increased $1.8 million to $0.8 million in the year ended April 30, 1996, compared to other income of $1.0 million in the comparable 1995 period. The increase was primarily due to interest expense in the 1996 period related to borrowings under the Company's bank line of credit to support operations, while the Company earned income on cash balances during the 1995 period. Provision (Benefit) for Income Taxes The Company's income tax benefit in the year ended April 30, 1996 was $0.5 million, compared to an income tax provision of $2.8 million in the comparable 1995 period. 26 QUARTERLY RESULTS OF OPERATIONS The following tables set forth certain unaudited consolidated statements of operations data for each of the eight calendar quarters in the period ended December 31, 1997, as well as the percentage of the Company's net revenues represented by each item. This information was derived from the Company's unaudited consolidated financial statements that include, in the opinion of the Company, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation when read in conjunction with the Consolidated Financial Statements included elsewhere in this Prospectus.
QUARTER ENDED ------------------------------------------------------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, 1996 1996 1996 1996 1997 1997 1997 1997 --------- -------- --------- -------- --------- -------- --------- -------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENTS OF OPERATIONS DATA: Net revenues............ $27,260 $17,074 $13,669 $32,038 $22,910 $ 17,002 $23,833 $54,369 Cost of goods sold...... 15,056 10,210 10,459 20,952 13,508 13,941 14,153 26,794 ------- ------- ------- ------- ------- -------- ------- ------- Gross profit............ 12,204 6,864 3,210 11,086 9,402 3,061 9,680 27,575 Operating expenses: Marketing and sales.... 7,925 4,898 4,744 8,052 7,280 5,954 5,851 8,305 General and administra- tive.................. 2,771 3,311 3,016 3,645 3,262 3,264 2,948 4,778 Product development.... 3,274 4,353 4,648 4,851 5,384 5,920 5,312 5,542 ------- ------- ------- ------- ------- -------- ------- ------- Total operating ex- penses................ 13,970 12,562 12,408 16,548 15,926 15,138 14,111 18,625 ------- ------- ------- ------- ------- -------- ------- ------- Operating income (loss)................. (1,766) (5,698) (9,198) (5,462) (6,524) (12,077) (4,431) 8,950 Other income (expense).. (249) (260) (294) (875) (352) (663) (1,050) (1,552) ------- ------- ------- ------- ------- -------- ------- ------- Income (loss) before in- come taxes............. (2,015) (5,958) (9,492) (6,337) (6,876) (12,740) (5,481) 7,398 Provision (benefit) for income taxes........... (786) (2,324) (2,373) (1,584) (1,719) -- -- -- ------- ------- ------- ------- ------- -------- ------- ------- Net income (loss)....... $(1,229) $(3,634) $(7,119) $(4,753) $(5,157) $(12,740) $(5,481) $ 7,398 ======= ======= ======= ======= ======= ======== ======= ======= Net income (loss) per share: Basic.................. $ (0.12) $ (0.34) $ (0.64) $ (0.43) $ (0.46) $ (1.15) $ (0.49) $ 0.67 ======= ======= ======= ======= ======= ======== ======= ======= Diluted................ $ (0.12) $ (0.34) $ (0.64) $ (0.43) $ (0.46) $ (1.15) $ (0.49) $ 0.55 ======= ======= ======= ======= ======= ======== ======= ======= QUARTER ENDED ------------------------------------------------------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, 1996 1996 1996 1996 1997 1997 1997 1997 --------- -------- --------- -------- --------- -------- --------- -------- PERCENTAGE OF NET REVE- NUES: Net revenues............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold...... 55.2 59.8 76.5 65.4 59.0 82.0 59.4 49.3 ------- ------- ------- ------- ------- -------- ------- ------- Gross profit............ 44.8 40.2 23.5 34.6 41.0 18.0 40.6 50.7 Operating expenses: Marketing and sales.... 29.1 28.7 34.7 25.1 31.8 35.0 24.5 15.3 General and administra- tive.................. 10.2 19.4 22.1 11.4 14.2 19.2 12.4 8.8 Product development.... 12.0 25.5 34.0 15.1 23.5 34.8 22.3 10.2 ------- ------- ------- ------- ------- -------- ------- ------- Total operating ex- penses................ 51.3 73.6 90.8 51.6 69.5 89.0 59.2 34.3 ------- ------- ------- ------- ------- -------- ------- ------- Operating income (loss)................. (6.5) (33.4) (67.3) (17.1) (28.5) (71.0) (18.6) 16.5 Other income (expense).. (0.9) (1.5) (2.2) (2.7) (1.5) (3.9) (4.4) (2.9) ------- ------- ------- ------- ------- -------- ------- ------- Income (loss) before in- come taxes............. (7.4) (34.9) (69.5) (19.8) (30.0) (74.9) (23.0) 13.6 Provision (benefit) for income taxes........... (2.9) (13.6) (17.4) (4.9) (7.5) -- -- -- ------- ------- ------- ------- ------- -------- ------- ------- Net income (loss)....... (4.5)% (21.3)% (52.1)% (14.9)% (22.5)% (74.9)% (23.0)% 13.6% ======= ======= ======= ======= ======= ======== ======= =======
Net revenues for the quarter ended December 31, 1997 were $54.4 million. The increase for the quarter reflected the market's seasonality and the Company's successful introduction of a number of new product titles. Net revenues of $13.7 million, $32.0 million and $17.0 million for the quarters ended September 30, 1996, December 31, 1996 and June 30, 1997, respectively, reflected lower net revenues arising from product delays during those periods and the resulting introduction of fewer titles than in other quarters and a higher than expected level of product returns and markdown allowances. 27 Cost of goods sold for the quarters ended September 30, 1996, December 31, 1996, March 31, 1997 and June 30, 1997 included the effects of additional write-offs of prepaid royalties relating to titles or platform versions of titles which had been cancelled or which were expected to achieve lower unit sales than were originally forecast, which, combined with the lower net revenues, resulted in lower gross margin during such periods. Interest expense has increased on a comparative basis over the periods presented, reflecting debt service on the Company's $14.7 million in Subordinated Secured Promissory Notes issued from October 1996 through February 1997 together with increased borrowings on the Company's bank line of credit. The Company's operating results have fluctuated significantly in the past and will likely fluctuate significantly in the future, both on a quarterly and an annual basis. A number of factors may cause or contribute to such fluctuations, and many of such factors are beyond the Company's control. Such factors include, but are not limited to, demand for the Company's and its competitors' products, the size and rate of growth of the market for interactive entertainment software, changes in computing platforms, the number of new products and product enhancements released by the Company and its competitors during the period, changes in product mix, product returns, the timing of orders placed by distributors and dealers, delays in shipment, the timing of development and marketing expenditures, price competition and the level of the Company's international net revenues. The uncertainties associated with the interactive entertainment software development process, lengthy manufacturing lead times for Nintendo-compatible products, possible production delays, and the approval process for products compatible with the Sony Computer Entertainment, Nintendo and Sega video game consoles, as well as approvals required from other licensors, make it difficult to accurately predict the quarter in which shipments will occur. Because of the limited number of products introduced by the Company in any particular quarter, a delay in the introduction of a product may materially adversely affect the Company's operating results for that quarter. A significant portion of the Company's operating expenses is relatively fixed, and planned expenditures are based primarily on sales forecasts. If net revenues do not meet the Company's expectations in any given quarter, operating results may be materially adversely affected. The interactive entertainment software industry is generally highly seasonal, with the highest levels of consumer demand occurring during the year-end holiday buying season, followed by demand during the calendar first quarter resulting both from demand for interactive entertainment software for PC's and video game consoles acquired during the holidays and from continuing demand for titles released in the preceding fourth quarter. As a result, net revenues, gross profits and operating income for the Company have historically been highest during the fourth and the following first calendar quarters, and have declined from these levels in the subsequent second and third calendar quarters. The failure or inability of the Company to introduce products on a timely basis to meet such seasonal increases in demand may have a material adverse effect on the Company's business, operating results and financial condition. The Company may over time become increasingly affected by the industry's seasonal patterns. Although the Company seeks to reduce the effect of such seasonal patterns on its business by distributing its product release dates throughout the year, particularly during the quarters ending June 30 and September 30, there can be no assurance that such efforts will be successful. There can be no assurance that the Company will be profitable in any particular period given the uncertainties associated with software development, manufacturing, distribution and the impact of the industry's seasonal patterns on the Company's net revenues. As a result of the foregoing factors and the other factors discussed in "Risk Factors," it is likely that the Company's operating results in one or more future periods will fail to meet or exceed the expectations of securities analysts or investors. In such event, the trading price of the Common Stock would likely be materially adversely affected. See "Risk Factors--Fluctuations in Operating Results; Uncertainty of Future Results; Seasonality." LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations to date primarily through cash generated from operations, the use of bank lines of credit and equipment leases, and through cash generated by the sale of securities. As of 28 December 31, 1997, the Company's principal sources of liquidity included cash and short term investments of approximately $1.5 million and the Company's bank line of credit bearing interest at the London Interbank Offered Rate plus 4.87%, expiring May 31, 1999. The Company's bank line of credit balance was $23.9 million at February 28, 1998. Under the terms of the bank line of credit, the Company has available borrowings up to $35.0 million through August 30, 1998, $30.0 million through December 30, 1998 and $25.0 million through May 31, 1999, based in part on qualifying receivables and inventory. Within the overall credit limit of $35.0 million is the Company's ability to draw down up to $10.0 million in excess of its borrowing base through August 30, 1998, and up to $5.0 million in excess of its borrowing base through December 30, 1998. The Company is currently in compliance with all terms of its credit agreement. The Company's primary capital needs have historically been to fund working capital requirements necessitated by its sales growth, the development and introduction of products and related technologies and the acquisition or lease of equipment and other assets used in the product development process. The Company's operating activities used cash of $15.3 million during the eight months ended December 31, 1997, used cash of $17.0 million during the year ended April 30, 1997, provided cash of $2.5 million in the year ended April 30, 1996 and used cash of $8.7 million in the year ended April 30, 1995. The cash used by operating activities in the eight months ended December 31, 1997 was primarily attributable to increased trade receivables, particularly in the year-end holiday selling season, together with a net loss of $5.1 million. The increase in cash used by operating activities in the year ended April 30, 1997 was primarily due to a net loss of $27.2 million, offset in part by increased liabilities and accrued expenses. Cash provided by operations in the year ended April 30, 1996 primarily resulted from increases in liabilities, and the use of operating cash in the year ended April 30, 1995 primarily resulted from increased royalty advances and receivables, offset by net income during the period. Cash provided by financing activities was $12.2 million in the eight months ended December 31, 1997, primarily resulting from borrowings under the Company's bank line of credit, $20.7 million in the year ended April 30, 1997, primarily resulting from the issuance of Subordinated Secured Promissory Notes and borrowings under the Company's bank line of credit, and $5.5 million in the year ended April 30, 1996, primarily resulting from borrowings under the Company's bank line of credit. Capital expenditures, primarily for office and computer equipment used in Company operations, were $0.8 million, $3.5 million, $4.6 million and $3.3 million in the eight months ended December 31, 1997 and the years ended April 30, 1997, 1996, and 1995, respectively. The Company does not currently have any material commitments with respect to any capital expenditures. The Company believes that funds available under its bank line of credit, the net proceeds from the Offering and anticipated funds from operations will be sufficient to satisfy the Company's projected working capital, capital expenditure requirements and debt obligations in the normal course of business for at least the next twelve months. See "Use of Proceeds." There can be no assurances, however, that the Company will not be required to raise additional debt or equity financing during such period, nor that if the Company is required to raise additional financing during such period it will be able to do so on commercially reasonable terms. See "Risk Factors--Future Capital Requirements." RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." In addition, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition" and SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SFAS Nos. 130 and 131 and SOP 97-2 are effective for fiscal years beginning after December 15, 1997. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The Company does not believe that adoption of these standards will have a material impact on the Company's results of operations. 29 YEAR 2000 ISSUE Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. This inability to recognize or properly treat the Year 2000 may cause the Company's systems and applications to process critical financial and operational information incorrectly. The Company continues to assess the impact of the Year 2000 issue on its reporting systems and operations. The Company is currently in the process of investigating whether its internal accounting systems and other operational systems are Year 2000 compliant. The Company has been informed by the vendor of its internal accounting software that upgrades that will bring such software into Year 2000 compliance will be provided to the Company under its existing software maintenance agreement in the third quarter of 1998. The Company expects to effect the conversion of its internal accounting system to such upgraded software by the end of 1998. The Company believes that necessary conversions of other operational systems can also be accomplished through vendor upgrades and enhancements as provided under its system maintenance agreements currently in effect. The Company does not anticipate significant costs associated with any necessary conversions. However, there can be no assurance that certain of the Company's internal computer systems or networks or those of its key vendors and distributors will not be adversely affected by such Year 2000 issues, which could have a material adverse effect on the Company's business, operating results or financial condition. See "Risk Factors--Year 2000 Compliance." 30 BUSINESS Interplay is a leading developer, publisher and distributor of interactive entertainment software for both core gamers and the mass market. The Company, which commenced operations in 1983, is most widely known for its titles in the action/arcade, adventure/RPG, strategy/puzzle and sports categories, and has published such hit titles as Descent, Fallout, Stonekeep, Battle Chess and Virtual Pool. The Company has produced titles for many of the most popular interactive entertainment software platforms, and currently balances its development efforts by publishing interactive entertainment software for PCs and current generation video game consoles, such as the PlayStation and Nintendo 64. Interplay was named Publisher of the Year in 1996 by Computer & Net Player magazine. The Company seeks to publish interactive entertainment software titles that are, or have the potential to become, franchise software titles that can be leveraged across several releases and/or platforms, and has published many such successful franchise titles to date. In addition, the Company secures licenses to use popular intellectual properties, such as Star Trek, Caesars Palace and Major League Baseball, for incorporation into certain of its products. Of the more than 40 titles currently in development by the Company, more than half are sequels to successful titles or incorporate licensed intellectual properties. INDUSTRY BACKGROUND The worldwide market for interactive entertainment software has grown significantly in recent years. According to the International Development Group ("IDG"), a market research firm, the worldwide market for interactive entertainment software generated sales of more than 220 million retail units in 1997, and is projected to generate more than 437 million retail units in 1999, representing a 41% compound annual growth rate. The interactive entertainment software market is composed primarily of software for PC platforms and video game consoles. This market growth has been driven by the significant growth in the worldwide installed base of PCs and video game consoles, the emergence of a strong international market for interactive entertainment software, particularly in Western Europe, and the emergence of powerful software distribution channels capable of reaching a broad consumer base. According to IDG, U.S. retail sales of PC interactive entertainment software exceeded 45 million units in the U.S. in 1997 and are projected to grow 27% annually to more than 73 million units in 1999. Also, according to IDG, approximately 43 million units of interactive entertainment software for PlayStation and Nintendo 64 video game consoles were sold in the U.S. in 1997, and these unit sales are expected to grow 56% annually to approximately 106 million in 1999. The international market for PC interactive entertainment software is growing rapidly as well. According to IDG, international sales of interactive entertainment software for PCs were 53 million units in 1997 and are projected to grow 27% annually to 85 million units in 1999. Similarly, the growth in the video game console installed base outside of the U.S. has driven an increase in international sales of interactive entertainment software for video game consoles, with 77 million units sold outside of the U.S. in 1997 and 171 million units projected to be sold in 1999, representing a compound annual growth rate of 48%, according to IDG. The distribution channels for interactive entertainment software have changed significantly in recent years and have become increasingly competitive. During the 1980s, consumer software was typically sold through specialty stores. Today, mass merchants and consumer electronics stores such as Wal-Mart, Best Buy, Price-Costco, Kmart, CompUSA and Target are the most important distribution channels for retail sales of consumer software. Competition for shelf space has intensified due to the fact that these high volume retailers generally only stock a limited number of titles which are expected to sell large numbers of units. This trend has increased the importance of developing well-known brands and publishing labels with a history of successful sales. 31 Today, a limited number of titles capture a majority of the sales in the interactive entertainment software market. According to PC Data, in 1997 the top 100 PC titles released (approximately nine percent of the titles released) generated 67% of the industry's overall revenues. This hit-driven market has led to higher production budgets for titles as well as more complex development and production processes and longer development cycles. Publishers with a history of producing hit titles have enjoyed a significant marketing advantage because of their heightened brand recognition and customer loyalty. The importance of the timely release of hit titles, as well as the increased scope and complexity of the product development and production process, have increased the need for disciplined product development processes that limit cost and schedule overruns. This in turn has increased the importance of leveraging the technologies, characters or storylines of such hit titles into additional interactive entertainment software products in order to spread development costs among multiple products. The Internet and on-line services represent an emerging segment of the interactive entertainment software market. While competing with interactive entertainment software as an alternative use of the home PC, the Internet and on-line services also present a new platform on which publishers and distributors can market, advertise and distribute their products, whether through direct sales from web sites or through sponsoring multi-player on-line tournaments featuring their games. The ability for users to compete on-line provides an additional product feature which may increase demand for interactive entertainment software products. As interactive entertainment software gains more mass market acceptance, it will become increasingly important for publishers of such software (i) to achieve brand name recognition for their products among both core gamers and the mass market by offering innovative products with captivating gameplay across multiple platforms, (ii) to secure relationships with third party interactive entertainment software developers with proven track records of developing hit titles, (iii) to identify and address the technical, creative and marketing risks before committing significant development resources to a title, (iv) to aggressively market and sell these products through traditional and emerging distribution channels and (v) to leverage their existing software technology, and the brand recognition associated with it, by producing sequel and add-on titles. BUSINESS STRATEGY The Company's objective is to enhance its position as a leading developer, publisher and distributor of interactive entertainment software for both core gamers and the mass market. The key elements of the Company's business strategy are as follows: Maximize Franchise and Brand Value. The Company seeks to publish hit titles whose strong consumer appeal and resulting consumer loyalty create franchise titles for the Company. Further, the Company seeks to leverage its franchise titles into recurring sources of revenue by publishing sequels and add-ons and by pursuing merchandising opportunities as they arise. To date, the Company has published many successful franchise titles, including Descent, Virtual Pool, Clay Fighter and Stonekeep, and believes that many of its products slated for release in 1998 may become additional franchise titles. In addition, the Company has developed or is developing products based on popular intellectual properties licensed to the Company, such as Star Trek, Caesars Palace and Major League Baseball. The Company believes that the exposure and name recognition of these properties, combined with well-designed gameplay, may create franchise titles for the Company. The Company currently publishes titles under the Interplay, Shiny, VR Sports and Signature Series labels. To create franchise value within specific product genres, the Company plans to introduce genre-specific labels over time, including its Tantrum, Tribal Dreams, Flat Cat and Black Isle Studios labels. Secure Relationships with Proven Hit Developers. In order to maintain its competitive position in its hit driven industry, the Company devotes significant resources to securing relationships with third party interactive entertainment software developers with proven track records of developing hit titles. The Company believes that its developer-friendly culture, distribution capability and success as a publisher of well-known titles has enabled it to attract and retain proven hit developers. Relationships such as these have led to the release of such franchise titles as the Descent series, Virtual Pool and Redneck Rampage. In furtherance of this strategy, in 1995 the Company acquired a 91% interest in Shiny Entertainment, Inc. ("Shiny"), the developer of the hit Earthworm Jim title. 32 Manage Product Development Process. In order to limit cost and schedule overruns while maintaining a creative and entrepreneurial environment for its development group, the Company has implemented a divisional product development and production process, based on product genres. The Company believes that breaking down the development function into divisions enables it to improve its software design capabilities, to better manage its internal and external development processes and to enhance its software development tools and techniques, thereby allowing for greater efficiency and improved predictability in the software development process. Leverage and Expand Distribution Channels. The Company seeks to leverage and expand its channels of distribution in order to reach a larger number of consumers in the retail, direct, budget and on-line markets, both domestically and internationally. The Company has also established a wholly-owned OEM subsidiary ("Interplay OEM") that distributes the Company's interactive entertainment software titles, as well as those of other software publishers, to computer hardware and peripheral device manufacturers for use in bundling arrangements. In 1995, the Company established a European subsidiary ("Interplay Europe") to focus on distribution to the European markets, both directly and through third-party distributors and joint ventures. The Company also plans to increase its presence in other international markets by licensing its titles to publishers in such markets, by entering into distribution arrangements and by establishing direct distribution capabilities. Finally, the Company seeks to leverage and expand its capabilities to distribute its products over the Internet both through direct on-line marketing and sales efforts and through the use of certain of its games by providers of on-line gameplay who distribute through popular on-line services such as America Online. Develop and Leverage Advanced Technology. The Company seeks to leverage its investments in existing game technologies while internally and externally developing new technologies which can be used in multiple future titles. The Company develops proprietary engines, development tools and related technology which enable it to develop advanced 3D games on a timely and cost-effective basis and with reduced technology risk. For example, the Company is incorporating the advanced proprietary human motion and depth perception technology developed by Shiny into certain of the Company's sports titles. PRODUCTS The Company develops, publishes and distributes interactive entertainment software titles that provide immersive game experiences by combining advanced technology with engaging content, vivid graphics and rich sound. The Company utilizes the experience and judgment of the avid gamers in its product development group to select and produce the products it publishes. This has resulted in the publication of a wide variety of games that have received numerous awards, including the Academy of Interactive Arts & Sciences' Best Title, Computer Game Review's Gold and Platinum Triads and PC Entertainment's Editor's Choice Awards. The Company's strategy is to develop products for those platforms, whether PC or video game console, that have or will have sufficient installed bases for such development to be economically viable. The Company currently publishes products for multiple PC platforms, including Windows 95, and for the current generation of video game consoles, including the PlayStation and Nintendo 64. 33 The interactive entertainment software market can generally be divided into five major categories or product genres: action/arcade, adventure/RPG, strategy/puzzle, sports and simulation. Since 1995, the Company has released 42 titles, and currently has approximately 40 titles in various stages of development. Below are two tables, the first highlighting selected Company releases since 1995 which the Company believes are, or will become, franchise titles, and the second listing selected titles currently scheduled for release during calendar 1998 which are either sequels to franchise titles or which the Company believes present franchise title opportunities. SELECTED RELEASES SINCE 1995
TITLE GENRE PLATFORM DEVELOPER Carmageddon Action/Arcade PC Third party - ------------------------------------------------------------------------------- Clay Fighter 63 1/3 Action/Arcade N64 Interplay - ------------------------------------------------------------------------------- Descent Action/Arcade PC, PlayStation, Mac Third party - ------------------------------------------------------------------------------- Descent II Action/Arcade PC, PlayStation, Mac Third party - ------------------------------------------------------------------------------- MDK Action/Arcade PC, PlayStation Shiny - ------------------------------------------------------------------------------- Redneck Rampage Action/Arcade PC Third party - ------------------------------------------------------------------------------- Star Trek: Starfleet Academy Action/Arcade PC, Mac Interplay - ------------------------------------------------------------------------------- Fallout Adventure/RPG PC, Mac Interplay - ------------------------------------------------------------------------------- Stonekeep Adventure/RPG PC Interplay - ------------------------------------------------------------------------------- Caesars Palace Strategy/Puzzle PC, PlayStation Third party - ------------------------------------------------------------------------------- M.A.X. Strategy/Puzzle PC Interplay - ------------------------------------------------------------------------------- Jimmy Johnson's VR Football '97 Sports PlayStation Third party - ------------------------------------------------------------------------------- Virtual Pool Sports PC, PlayStation, Mac Third party - ------------------------------------------------------------------------------- Virtual Pool 2 Sports PC Third party - ------------------------------------------------------------------------------- VR Baseball '97 Sports PC, PlayStation Interplay SELECTED 1998 ANTICIPATED RELEASES TITLE GENRE PLATFORM DEVELOPER Crime Killer Action/Arcade PlayStation Third party - ------------------------------------------------------------------------------- Descent: Freespace The Great War Action/Arcade PC Third party - ------------------------------------------------------------------------------- Earthworm Jim 3D Action/Arcade PC, PlayStation, N64 Third party - ------------------------------------------------------------------------------- Messiah Action/Arcade PC, PlayStation Shiny - ------------------------------------------------------------------------------- Wild 9 Action/Arcade PlayStation Shiny - ------------------------------------------------------------------------------- Die By the Sword Action/Arcade PC Third party - ------------------------------------------------------------------------------- Redneck Rampage Rides Again Action/Arcade PC Third party - ------------------------------------------------------------------------------- Baldur's Gate Adventure/RPG PC Interplay - ------------------------------------------------------------------------------- Star Trek: Secret of Vulcan Fury Adventure/RPG PC Interplay - ------------------------------------------------------------------------------- Fallout 2 Adventure/RPG PC Interplay - ------------------------------------------------------------------------------- Caesars Palace VIP Series Strategy/Puzzle PC Interplay - ------------------------------------------------------------------------------- M.A.X. 2 Strategy/Puzzle PC Interplay - ------------------------------------------------------------------------------- Jimmy Johnson's VR Football '99 Sports PlayStation Third party - ------------------------------------------------------------------------------- VR Baseball '99 Sports PC, PlayStation Interplay - ------------------------------------------------------------------------------- VR Sports Powerboat Racing Sports PC, PlayStation Third party
34 Although the Company anticipates that it will release the titles listed in the table immediately above in 1998, the timing and success of new interactive entertainment software product releases remains unpredictable due to the complexity of product development, including the uncertainty associated with new technology. The development cycle of new products is difficult to predict but can typically range from 12 to 24 months, and there can be no assurance that such titles will be released in 1998 or at all. There also can be no assurance that, if introduced, such new titles will become franchise titles, achieve market acceptance or generate any significant revenues. A significant delay in the introduction of, or the presence of a defect in, one or more of such titles or other new products, or the failure of one or more of such titles to generate significant net revenues, could have a material adverse effect on the success of such products and on the Company's business, operating results and financial condition. See "Risk Factors--Dependence on New Product Introductions; Risk of Product Delays and Product Defects" and "-- Uncertainty of Market Acceptance; Dependence on Hit Titles." The Company has the right to distribute certain of the titles listed in the above tables only in specified territories. For example, the Company only has the right to distribute Carmageddon in North America. In addition, the Company's right to distribute certain of its sports titles, such as VR Baseball '99, in a given international territory varies depending upon the relevant sports league's approvals obtained by the Company. As part of its strategy to develop franchises, the Company has recently adopted a separate publishing label for each of its five major product categories: Tantrum, for the action/arcade division; Tribal Dreams, for the adventure division; Black Isle Studios, for the RPG division; Flat Cat, for the strategy division, and VR Sports, for the sports division. The Company also releases titles under the Shiny label. The length of time required to attract consumer awareness of each of these product labels will vary based on a number of factors, including the number of commercially successful titles released by the particular development group. Below is a partial summary of the Company's internally and externally developed titles being developed for release in 1998 in the various product categories. TANTRUM--ACTION/ARCADE TITLES The Descent Series. Developed by Parallax and originally published in February 1995, Descent and its sequel have sold more than 1.1 million retail units worldwide. Descent has also earned critical acclaim, winning Best Computer Game of 1995 and Best Title of 1995 from the Academy of Interactive Arts and Sciences and Golden Triad honors from Computer Game Review. Descent: FreeSpace The Great War, which Parallax is currently developing for release in 1998, will be a 3D space simulator featuring large-scale dog-fights and huge capital ships as "landscapes" for the environments, and includes an on-line, multi-player option which allows up to 12 users to join a game. Star Trek: Starfleet Academy. Developed internally by the Company and based on Paramount's original Star Trek television and motion picture series, Star Trek: Starfleet Academy combines real-time 3D action with strategic game play. The game includes full motion video of actors, including three members of the original cast, William Shatner as Captain Kirk, Walter Koenig as Ensign Chekov and George Takei as Lieutenant Sulu. Released in September 1997, the game has sold in excess of 350,000 retail units worldwide. Die By The Sword (under development). Under development for the Company by Treyarch Invention, Die By The Sword includes advanced technology that allows full motion control of the game's characters, which engage in hand-to-hand combat. The proprietary graphics engine includes a four person multi-player mode and allows players to attack and defend themselves in a 360(degrees) environment featuring realistic combat graphics and gameplay. TRIBAL DREAMS--ADVENTURE TITLES Star Trek: Secret of Vulcan Fury (under development). Star Trek: Secret of Vulcan Fury is the third in a series of original Star Trek adventure games developed internally by the Company. The game is expected to combine proprietary motion-capture animation technology with original Star Trek episodes written by one of the original Star Trek television writers. The game will feature the voices of certain members of the original cast, challenging story-based puzzles and the opportunity for players to assume the roles of six Star Trek characters: Captain Kirk, Mr. Spock, Doctor McCoy, Lieutenant Sulu, Ensign Chekov and Chief Engineer Scott. 35 BLACK ISLE STUDIOS--RPG TITLES Stonekeep. The Company internally developed Stonekeep, an RPG that takes place in a subterranean labyrinth and features 3D rendered dungeons and creatures, a rich soundtrack and vivid special effects. Stonekeep has sold in excess of 300,000 retail units worldwide since its release in November 1995. Stonekeep was named Best RPG of 1995 by Computer Player and Editor's Choice for Best RPG by PC Entertainment. The Company is currently developing a sequel to Stonekeep. Fallout 2 (under development). The Company is currently developing Fallout 2 as the sequel to Fallout: A Post Nuclear Role Playing Game, an RPG set in the aftermath of a catastrophic nuclear war, which has sold in excess of 100,000 retail units worldwide since its release in October 1997. The original Fallout won numerous industry awards including the Editor's Choice Award and RPG of the Year 1997 by PC Gamer and the CG Choice Award and RPG of the Year 1997 by Computer Gaming World. Fallout 2 will combine the original Fallout's gameplay with new scenarios and characters. FLAT CAT--STRATEGY/PUZZLE TITLES M.A.X. Mechanized Assault & Exploration ("M.A.X."). Developed internally by the Company, M.A.X., which allows players to lead a modern military unit into various combat scenarios, has sold in excess of 150,000 retail units worldwide since its release in January 1997. M.A.X. includes both real-time and turn- based strategy elements. The Company is currently developing M.A.X. 2, which will include three gameplay modes including real-time gameplay, simultaneous turn-based gameplay and classic turn-based gameplay. The Caesars Palace VIP Series. The Company is internally developing a series of simulated gambling products based on its license to use the Caesars Palace brand. The Company is releasing Caesars Palace VIP Series, which will include individual products for blackjack, craps and video poker, each of which include casino sound effects, official tutorials and authenticated odds. In 1997 the Company released Caesars Palace for the PC and PlayStation. VR SPORTS--SPORTS TITLES VR Baseball. Developed internally by the Company, VR Baseball '97 is licensed by the Major League Baseball Players Association and Major League Baseball Properties, Inc. and delivers real-time, 360(degrees), 3D professional baseball that allows players to view and play from any angle or position. VR Baseball '97 has sold more than 100,000 retail units worldwide since its release in March 1997. The Company is currently developing VR Baseball '99, which will incorporate the advanced proprietary human motion and depth perception technology developed by Shiny. Virtual Pool. Developed by Celeris, Virtual Pool, the Company's first sports title, is a realistic billiards simulation that has sold more than 250,000 retail units worldwide and has won a number of awards, including Best Simulation of 1995 from the Academy of Interactive Arts & Sciences, Best Sports Game of 1995 from PC Gamer magazine and Best VR Game of 1995 from Computer Player magazine. The Company has also published Celeris' Virtual Snooker and Virtual Pool 2 titles. VR Sports Powerboat Racing. Developed by East Point for the PC and PlayStation, VR Sports Powerboat Racing allows the user to race powerboats on up to eight different watertracks against computer opponents or up to eight Internet or networked players. The player's perspective can be either from the driver's seat or from behind the boat, and races can take place during the day or at night. SHINY Shiny development teams have created games in the action/arcade and adventure categories. Shiny titles include the following: MDK. MDK, a futuristic 3D fighting game released in March 1997, was the first title released by Shiny after its acquisition by Interplay in 1995 and has sold in excess of 400,000 retail units worldwide. The game was 36 released by Shiny and Interplay internationally and by Playmates Interactive Entertainment, Inc. in North America. The Company is currently developing a sequel to MDK for which it will have worldwide distribution rights. Messiah (under development). Messiah will be a surrealistic 3D action game centered on the player's ability to invade the bodies of game characters and take possession of their actions. The game includes advanced proprietary human motion and depth perception technology that creates realistic skin texture and movement. Though still under development, the game has received significant market exposure, including an appearance on the cover of Next Generation magazine. PRODUCT DEVELOPMENT The Company develops or acquires its products from a variety of sources, including its five internal development divisions, Shiny, Interplay Europe and publishing relationships with leading independent developers. The Development Process. The Company develops original products both internally, using its in-house development staff, and externally, using third party software developers working under contract with the Company. Producers on the Company's internal staff monitor the work of both inside and third party development teams through design review, progress evaluation, milestone review and quality assurance. In particular, each milestone submission is thoroughly evaluated by the Company's product development staff to ensure compliance with the product's design specifications. The Company enters into consulting or development agreements with third party developers which are generally on a flat-fee, work-for-hire basis or on a royalty basis, whereby advances are paid based on the achievement of milestones. In royalty arrangements, the Company ultimately pays continuation royalties to developers once the Company's advances have been recouped. In addition, in certain cases, the Company will utilize third party developers to port products to new platforms. The Company's products typically have short life cycles, and the Company depends on the timely introduction of successful new products, including enhancements of or sequels to existing products and conversions of previously released products to additional platforms, to generate net revenues to fund operations and to replace declining net revenues from existing products. The development cycle of new products is difficult to predict, and involves a number of risks. See "Risk Factors--Dependence on New Product Introductions; Risk of Product Delays and Product Defects." INTERNAL PRODUCT DEVELOPMENT U.S. Product Development. The Company's U.S. internal product development group presently consists of approximately 250 people. Once a design is selected by the Company, a production team, development schedule and budget are established. The Company's internal development process includes initial design and concept layout, computer graphic design, 2D and 3D artwork, programming, prototype testing, sound engineering and quality control. The development process for an original, internally developed product typically takes from 12 to 24 months, and another six to 12 months for the porting of a product to a different technology platform. The Company utilizes a variety of advanced hardware and software development tools, including animation, sound compression utilities, clay modeling and video compression for the production and development of its interactive entertainment software titles. The Company recently restructured its internal development organization into five divisions, each dedicated to the production and development of products for a particular product category. Within each division, development teams are assigned to a particular project. These teams are generally led by a producer or associate producer and include game designers, software programmers, artists, product managers and sound technicians. The Company believes that this divisional approach promotes the creative and entrepreneurial environment necessary to develop innovative and successful titles. In addition, the Company believes that breaking down the development function into divisions enables it to improve its software design capabilities, to better manage its internal and external development processes and to create and enhance its software development tools and techniques, thereby enabling the Company to obtain greater efficiency and improved predictability in the software development process. 37 Shiny. In 1995, in order to supplement its development capabilities and to obtain innovative software development talent, particularly in the development of software for video game consoles, the Company acquired a 91% interest in Shiny. Prior to the acquisition, David Perry, Shiny's President and founder, produced a number of highly successful interactive entertainment software titles, including CoolSpot, Aladdin, Earthworm Jim and Earthworm Jim II. Shiny recently completed MDK and currently has three original titles under development including Wild 9 and Messiah, which will be distributed worldwide by the Company under the Shiny label. Shiny's development group presently consists of approximately 23 people. International Development. The Company is building international development resources through Interplay Europe, whose software producers manage the efforts of local third party developers in European countries. Historically, the Company's international product development efforts have consisted primarily of the localization of existing Company products. The Company currently has several original products, including Earthworm Jim 3D, VR Sports Powerboat Racing and Crime Killer, under development through Interplay Europe. Interplay Europe's development group presently consists of 15 people. EXTERNAL PRODUCT DEVELOPMENT In order to expand its product offerings to include hit titles created by third party developers, and to leverage its sales and distribution capabilities, the Company enters into publishing arrangements with third party developers, including foreign developers and publishers who wish to utilize the Company's sales and distribution network in North America. The Company's focus in obtaining publishing products is to select titles that combine advanced technologies with creative game design. The publishing agreements usually provide the Company with the exclusive right to distribute a product on a worldwide basis (however, in certain instances the agreement provides for a specified territory). The Company typically funds external development through the payment of advances upon the completion of milestones, which advances are credited against royalties based on sales of the products. Further, the Company's publishing arrangements typically provide the Company with ownership of the trademarks relating to the product as well as exclusive rights to sequels to the product. The Company manages the production of external development projects by appointing a producer from one of its internal product development divisions to oversee the product's development and work with the third party developer to design, develop and test the game. The Company believes this strategy of cultivating relationships with talented third party developers, such as the developers of Descent and TombRaider, provides an excellent source of quality products, and a number of the Company's commercially successful products have been developed under this strategy. However, the Company's reliance on independent software developers for the development of a significant number of its interactive software entertainment products involves a number of risks. See "Risk Factors-- Dependence on Third Party Software Developers." SALES AND DISTRIBUTION The Company's sales and distribution efforts are designed to broaden product distribution and to increase the penetration of the Company's products in domestic and international markets. The Company supplements its direct distribution efforts in North America with third party distributors and affiliate label relationships. Over the past several years, the Company has increased its sales and distribution efforts in international markets through the formation of Interplay Europe and through licensing and third party distribution strategies elsewhere. The Company also distributes its software products through Interplay OEM in bundling transactions with hardware and peripheral companies and through on-line services. North America. In North America, the Company sells its products primarily to mass merchants, warehouse club stores, large computer and software specialty retail chains and through catalogs. A majority of the Company's North American retail sales are to direct accounts, and a lesser percentage are to third party distributors. The Company's principal direct retail accounts include CompUSA, Best Buy, Electronics Boutique, Toys "R" Us, Wal-Mart and Kmart. The Company's principal distributors in North America include GT Interactive, Ingram Micro, Beam Scope and Merisel. The Company also distributes product catalogs and related promotional material to end-users who can order products by direct mail, by using a toll-free number, or by accessing the Company's web site. See "Risk Factors--Dependence on Distribution Channels; Risk of Customer Business Failures; Product Returns." 38 The Company sells to retailers and distributors through its North American sales organization. The Company's North American sales force is largely responsible for generating retail demand for the Company's products by presenting new products to the Company's retail customers in advance of the products' scheduled release dates, by providing technical advice with respect to the Company's products and by working closely with retailers and distributors to sell the Company's products. The Company typically ships its products within a short period of time after acceptance of purchase orders from distributors and other customers. Accordingly, the Company typically does not have a material backlog of unfilled orders, and net sales in any quarter are substantially dependent on orders booked in that quarter. Any significant weakening in customer demand would therefore have a material adverse impact on the Company's operating results and on the Company's ability to maintain profitability. See "Risk Factors--Fluctuations in Operating Results; Uncertainty of Future Results; Seasonality." The Company seeks to extend the life cycle and financial return of many of its products by marketing those products differently along the product's sales life. Although the product life cycle for each title varies based on a number of factors, including the quality of the title, the number and quality of competing titles, and in certain instances seasonality, the Company typically considers a title as "back catalog" six months after its initial release. The Company utilizes marketing programs appropriate for the particular title, which generally include progressive price reductions over time to increase the product's longevity in the retail channel as the Company shifts its advertising support to new releases. The Company introduced its Signature Series product line in 1996 to market its older titles as they reach prices of $15.00 or less. The Company has acquired the right to distribute certain products on an affiliate label basis whereby it distributes products that are produced and published by a third party and are marketed under the third party's name with the package bearing a notation that the product is being distributed by the Company. The Company's focus in obtaining affiliate label products is to select titles that complement the Company's product families. Products that are distributed through the Company's affiliate label program are generally purchased directly from the third party and sold based on a distribution mark- up. These products generally have a lower gross margin than internally and externally developed products. The Company provides terms of sale comparable to competitors in its industry. In addition, the Company provides technical support in North America for its products through its customer support department and a 90-day limited warranty to end-users that its products will be free from manufacturing defects. While to date the Company has not experienced any material warranty claims, there can be no assurance that the Company will not experience material warranty claims in the future. See "Risk Factors--Dependence on Distribution Channels; Risk of Customer Business Failures; Product Returns." International. The Company, through Interplay Europe, employs 20 persons dedicated to sales to the European market. Interplay Europe maintains relationships with distributors and retailers throughout the continent. For example, Interplay Europe has entered into an agreement with Ocean Software Limited and Virgin Interactive Entertainment Limited to pool resources in order to distribute PC and video game console software to independent software retailers in the United Kingdom, and has entered into distribution agreements with Acclaim Entertainment pursuant to which Acclaim Entertainment distributes certain of the Company's titles in selected European countries. Net revenues from such distribution agreements with Acclaim Entertainment represented 7.4%, 14.9% and 7.0% of the Company's net revenues in the eight months ended December 31, 1997 and the Company's former fiscal years ended April 30, 1997 and 1996, respectively. In addition, Interplay Europe manages sales and distribution efforts in Central and Eastern Europe, the Near East, the Middle East, and Africa. The Company seeks to localize its products for the various markets in Europe and intends to release in Europe localized versions of many of its products simultaneously with the commercial release of the English versions in North America. The Company has built a distribution capability in certain of the developed markets in Asia and the Americas utilizing third party distribution arrangements for specified products and platforms. The Company seeks to localize, or have its third party distributors localize, its products to ensure market acceptance in foreign countries. In 1995 the Company established operations in Japan in order to expand its Japanese sales. In July 1997, the Company initiated a licensing strategy in Japan and terminated its operations there. For example, the 39 Company recently licensed a number of its titles to Sony Computer Entertainment to publish in Japan on the PlayStation. The Company has recently entered into an agreement with Electronic Arts Pty. Ltd. pursuant to which Electronic Arts has the exclusive right to market and distribute the Company's PC products in Australia and New Zealand, and an agreement with Roadshow Entertainment Pty. Ltd., pursuant to which Roadshow Entertainment Pty. Ltd. has the exclusive right to market and distribute the Company's video game console products in those countries. OEM. Interplay OEM employs 20 people focused on the distribution of interactive entertainment software in bundling transactions to hardware and peripheral companies. Under these arrangements, one or more software titles, which are typically limited feature versions of the retail version of a game, are bundled with hardware or peripheral devices and are sold by the OEM so that the purchaser of the hardware device obtains the software on a discounted basis as part of the hardware purchase. In addition, Interplay OEM has established a development capability in order to create modified versions of titles which support its customers' technologies. Although it is customary for OEM customers to pay the Company a lower per unit price on sales through OEM bundling arrangements, such arrangements typically involve a high unit volume commitment to the Company. OEM net revenues generally are incremental net revenues and do not have significant additional product development or sales and marketing costs, and accordingly have a more significant impact on the Company's operating results. There can be no assurance, however, that OEM sales will continue to generate consistent profits for the Company, and a decrease in OEM sales or margins could have a material adverse effect on the Company's business, operating results and financial condition. In addition to distributing the Company's titles, Interplay OEM serves as the exclusive OEM distributor for a number of interactive entertainment software publishers, including LucasArts Entertainment Company, Microprose (Spectrum Holobyte) and Sales Curve Interactive Ltd. Interplay OEM's hardware customers include many of the industry's largest computer and peripheral manufacturers including IBM, Hewlett-Packard, Compaq, Apple Computer, NEC, Diamond Multimedia, Packard Bell, Creative Labs and Rockwell. The Company currently devotes seven employees to modifying existing Company products into suitable OEM products. On-Line Services. The Company has entered into an agreement with Games On- Line, Inc., doing business as Engage Games Online ("Engage"), an Internet/on- line games and entertainment company, pursuant to which Engage modifies the Company's games to enable them to be offered as multi-player games on on-line services, such as America Online, and through a number of Internet access providers. Engage performs certain services which include modifying the Company's games, managing the on-line game site and chat areas and organizing activities and tournaments to promote the games. Engage pays the Company royalty fees based upon the revenue generated by the Company's games through subscriber fees, player use fees, advertising revenue, bounty fees and transaction fees. See "Certain Transactions--Engage Transactions." The distribution channels through which the Company's products are sold are characterized by continuous change, including consolidation, financial difficulties of certain distributors and retailers, and the emergence of new distributors and new retailers such as warehouse chains, mass merchants and computer superstores. See "Risk Factors--Dependence on Distribution Channels; Risk of Customer Business Failures; Product Returns." MARKETING The Company's marketing department is organized into five product groups, mirroring the Company's five product development groups, to promote a focused marketing strategy and brand image for each product group. In addition, the marketing department has three functional groups (public relations, creative services and direct sales) that support the five product groups. The Company's marketing department develops and implements marketing programs and campaigns for each of the Company's titles and product groups. The Company's marketing activities in preparation for a product launch include print advertising, game reviews in consumer and trade publications, retail in- store promotions, attendance at trade shows and public relations. The Company sends direct and electronic mail promotional materials to its large database of gamers. The Company has also selectively used radio advertisements in connection with the introduction of certain of its products. The Company budgets a portion of each product's sales for cooperative advertising and market development funds with retailers. Every title and 40 brand is launched with a multi-tiered marketing campaign that is developed on an individual basis to promote product awareness and customer pre-orders. The Company anticipates that over time, as the market for its products matures and competition becomes more intense, it will become necessary to devote more resources to marketing its products and the marketing costs for its products will increase accordingly. The Company uses on-line marketing primarily through the maintenance of several web sites. These sites provide news and information of interest to its customers through free demonstration versions, contests, games, tournaments and promotions. Also, to generate interest in new product introductions, the Company provides free demonstration versions of upcoming titles both through magazine cover mounts and through game samples that consumers can download from the Company's web site. COMPETITION The interactive entertainment software industry is intensely competitive and is characterized by the frequent introduction of new hardware systems and software products. The Company's competitors vary in size from small companies to very large corporations with significantly greater financial, marketing and product development resources than those of the Company. Due to these greater resources, certain of the Company's competitors are able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies, pay higher fees to licensors of desirable motion picture, television, sports and character properties and pay more to third party software developers than the Company. The Company believes that the principal competitive factors in the interactive entertainment software industry include product features, brand name recognition, access to distribution channels, quality, ease of use, price, marketing support and quality of customer service. The Company competes primarily with other publishers of PC and video game console interactive entertainment software. Significant competitors include Electronic Arts, GT Interactive Software Corp., Cendant Corporation, Activision, Inc., Microsoft Corporation, LucasArts Entertainment Company, Midway Games Inc., Acclaim Entertainment Inc., Microprose (Spectrum Holobyte), Virgin Interactive Entertainment, Inc. and Hasbro Inc. In addition, integrated video game console hardware/software companies such as Sony Computer Entertainment, Nintendo and Sega compete directly with the Company in the development of software titles for their respective platforms. Large diversified entertainment companies, such as The Walt Disney Company, many of which own substantial libraries of available content and have substantially greater financial resources than the Company, may decide to compete directly with the Company or to enter into exclusive relationships with competitors of the Company. The Company also believes that the overall growth in the use of the Internet and on-line services by consumers may pose a competitive threat if customers and potential customers spend less of their available home PC time using interactive entertainment software and more on the Internet and on- line services. Retailers of the Company's products typically have a limited amount of shelf space and promotional resources, and there is intense competition among consumer software producers, and in particular interactive entertainment software products, for high quality retail shelf space and promotional support from retailers. To the extent that the number of consumer software products and computer platforms increases, competition for shelf space may intensify and may require the Company to increase its marketing expenditures. Due to increased competition for limited shelf space, retailers and distributors are in an increasingly better position to negotiate favorable terms of sale, including price discounts, price protection, marketing and display fees and product return policies. The Company's products constitute a relatively small percentage of any retailer's sales volume, and there can be no assurance that retailers will continue to purchase the Company's products or to provide the Company's products with adequate levels of shelf space and promotional support, and a prolonged failure in this regard may have a material adverse effect on the Company's business, operating results and financial condition. See "Risk Factors--Industry Competition; Competition for Shelf Space." MANUFACTURING The Company's PC-based products consist primarily of CD-ROMs, user manuals and packaging. Substantially all of the Company's CD-ROM duplication is performed by unaffiliated third parties. Printing of 41 the user manual and packaging, manufacturing of related materials and assembly of completed packages are performed to the Company's specifications by unaffiliated third parties. To date, the Company has not experienced any material difficulties or delays in the manufacture and assembly of its CD-ROM- based products, and has not experienced significant returns due to manufacturing defects. Sony Computer Entertainment and Nintendo manufacture the Company's products that are compatible with their respective video game consoles, as well as the manuals and packaging for such products, and ship finished products to the Company for distribution. PlayStation products consist of CD-ROMs and are typically delivered by Sony Computer Entertainment within a relatively short lead time. Manufacturers of Nintendo and other video game cartridges typically deliver software to the Company within 45 to 60 days after receipt of a purchase order. If the Company experiences unanticipated delays in the delivery of manufactured software products, its net sales and operating results could be materially adversely affected. Furthermore, the long manufacturing cycle associated with video game cartridges requires that the Company forecast retailer and consumer demands for its manufactured titles further in advance of shipment than for PC-based products or PlayStation CD- ROMs. See "Risk Factors--Dependence on Licenses from and Manufacturing by Hardware Companies." INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS The Company holds copyrights on its products, product literature and advertising and other materials, and holds trademark rights in the Company's name, the Interplay logo, its "By Gamers. For Gamers.(TM)" slogan and the names of certain of the titles published by the Company. The Company does not currently hold any patents. The Company has licensed certain products to third parties for distribution in particular geographic markets or for particular platforms, and receives royalties on such licenses. The Company also outsources some of its product development to third party developers, contractually retaining all intellectual property rights related to such projects. The Company also licenses certain products developed by third parties and pays royalties on such products. See "--Product Development." The Company regards its software as proprietary and relies primarily on a combination of copyright, trademark and trade secret laws, employee and third party nondisclosure agreements and other methods to protect its proprietary rights. The Company owns or licenses various copyrights and trademarks. While the Company provides "shrinkwrap" license agreements or limitations on use with its software, the enforceability of such agreements or limitations is uncertain. The Company is aware that unauthorized copying occurs within the computer software industry, and if a significantly greater amount of unauthorized copying of the Company's interactive entertainment software products were to occur, the Company's operating results could be materially adversely affected. While the Company does not copy protect its products, it does not provide source code to third parties, unless they have signed nondisclosure agreements with respect thereto. The Company relies on existing copyright laws to prevent unauthorized distribution of its software. Existing copyright laws afford only limited protection. Policing unauthorized use of the Company's products is difficult, and software piracy can be expected to be a persistent problem, especially in certain international markets. Further, the laws of certain countries in which the Company's products are or may be distributed either do not protect the Company's products and intellectual property rights to the same extent as the laws of the U.S. or are weakly enforced. Legal protection of the Company's rights may be ineffective in such countries, and as the Company leverages its software products using emerging technologies, such as the Internet and on- line services, the ability of the Company to protect its intellectual property rights, and to avoid infringing the intellectual property rights of others, becomes more difficult. In addition, the intellectual property laws are less clear with respect to such emerging technologies. There can be no assurance that existing intellectual property laws will provide adequate protection to the Company's products in connection with such emerging technologies. As the number of software products in the interactive entertainment software industry increases and the features and content of these products further overlap, interactive entertainment software developers may increasingly become subject to infringement claims. Although the Company makes reasonable efforts to ensure that its products do not violate the intellectual property rights of others, there can be no assurance that claims of infringement will not be made. Any such claims, with or without merit, can be time consuming and expensive to 42 defend. From time to time, the Company has received communication from third parties asserting that features or content of certain of its products may infringe upon the intellectual property rights of such parties. There can be no assurance that existing or future infringement claims against the Company will not result in costly litigation or require the Company to license the intellectual property rights of third parties, either of which could have a material adverse effect on the Company's business, operating results and financial condition. See "Risk Factors--Protection of Proprietary Rights." EMPLOYEES As of December 31, 1997, the Company had 496 full time employees, including 295 in product development, 121 in sales and marketing and 78 in finance, general and administrative. This includes 24 full time employees of Shiny, 17 full time employees of Interplay OEM and 50 full time employees of Interplay Europe. The Company also retains independent contractors to provide certain services, primarily in connection with its product development activities. The Company and its full time employees are not subject to any collective bargaining agreements and the Company believes that its relations with its employees are good. From time to time the Company has retained actors and/or "voice over" talent to perform in certain of the Company's products, and the Company expects to continue this practice in the future. These performers are typically members of the Screen Actors Guild ("SAG") or other performers' guilds, which guilds have established collective bargaining agreements governing their members' participation in interactive media projects. The Company or an affiliated entity may be required to become subject to the jurisdiction of SAG's collective bargaining agreement, or some other applicable performers guild, with respect to the Company's development projects in the future in order to engage the services of performers in the development of the Company's products. FACILITIES The Company's headquarters are located in Irvine, California, where the Company leases approximately 101,325 square feet of office space. This lease expires in June 2006 and provides the Company with one five year option to extend the term of the lease and expansion rights, on an "as available basis," to approximately double the size of the office space. Interplay Europe leases approximately 10,000 square feet of space in Buckinghamshire, England. This lease expires, at Interplay Europe's option, either in November 2000 or in November 2005. Shiny leases approximately 4,100 square feet of space in Laguna Beach, California, which lease expires in October 1998, and provides Shiny with an option to extend the term for an additional five years. The Company believes that its facilities are adequate for its current needs and that suitable additional or substitute space will be available in the future to accommodate expansion of the Company's operations. LEGAL PROCEEDINGS On July 24, 1997, S3 Incorporated ("S3") filed a complaint against the Company in the California Superior Court for the County of Santa Clara. The lawsuit claims, among other things, that the Company breached its obligations under a license agreement with S3, a computer chip manufacturer. Under the license agreement the Company was to provide one or more software programs for S3 to sell in bundled units with its chipsets. The license agreement also provides for S3 to pay a guaranteed sum to the Company. On September 24, 1997, the Company filed a cross-complaint against S3 claiming, among other things, that S3 breached the license agreement by failing to make the guaranteed payments. Both parties are seeking in excess of $1,000,000 in the lawsuit. The Company believes it has meritorious claims against S3, and intends to vigorously pursue such claims. However, litigation is costly and time- consuming, and there can be no assurance that the Company will ultimately prevail in its lawsuit. From time to time, the Company may be involved in litigation relating to claims arising out of its operations in the normal course of business. As of the date of this Prospectus, the Company is not a party to any legal proceedings, the final outcome of which, in management's opinion, individually or in aggregate, would have a material adverse effect on the Company's business, operating results or financial condition. 43 MANAGEMENT DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT EMPLOYEES The following table sets forth certain information regarding the Company's directors and executive officers and certain significant employees, and their ages as of March 31, 1998:
NAME AGE POSITION WITH THE COMPANY ---- --- ------------------------- Brian Fargo............. 35 Chairman of the Board of Directors and Chief Executive Officer Christopher J. Kilpa- trick.................. 41 President and Director Richard S.F. Lehrberg... 50 Executive Vice President and Director James C. Wilson......... 48 Chief Financial Officer Steven "Chuck" Camps.... 38 Chief Operating Officer and Assistant Secretary Phillip G. Adam......... 44 Vice President of Business Development Kim Motika.............. 37 Vice President of Sales Patricia J. Wright...... 37 Vice President of Development Keven F. Baxter......... 38 Vice President of Corporate Affairs and General Counsel Peter A. Bilotta........ 43 President of Interplay Productions Limited Jill S. Goldworn........ 34 President of Interplay OEM, Inc. David Perry............. 30 President of Shiny Entertainment, Inc. David R. Dukes(1)(2).... 53 Director Charles S. Paul(2)...... 48 Director Mark Pinkerton(1)....... 37 Director Paul A. Rioux(1)(2)..... 52 Director
- -------- (1) Member of the Audit Committee of the Board of Directors. (2) Member of the Compensation Committee of the Board of Directors. Brian Fargo, founder of the Company, has served as Chairman of the Board of Directors and Chief Executive Officer of the Company since June 1995. Prior to June 1995, Mr. Fargo served as President of the Company. Mr. Fargo also currently serves as a member of the Board of Directors of the Interactive Digital Software Association. Christopher J. Kilpatrick has served as President of the Company since June 1995, and served as Vice President and General Counsel of the Company from May 1994 to May 1995. From June 1990 to September 1997 Mr. Kilpatrick was a shareholder of Stradling Yocca Carlson & Rauth, counsel to the Company. Mr. Kilpatrick currently serves as a director of several privately-held companies, including Masimo Corporation, a manufacturer of medical devices. Richard S.F. Lehrberg joined the Company as Vice President in November 1991 and has served as Executive Vice President of the Company since October 1994. Mr. Lehrberg served as a director of the Company since April 1989. Prior to joining the Company, from December 1988 to November 1991, Mr. Lehrberg served as President of Lehrberg Associates, an international licensing company. From August 1982 to November 1988, Mr. Lehrberg was employed by Activision, Inc., an interactive entertainment software publisher, in various positions, including Vice President and General Manager of the Entertainment Division. James C. Wilson joined the Company in August 1997 and has served as Chief Financial Officer of the Company since October 1997. Prior to joining the Company, from January 1996 to August 1997, Mr. Wilson served as Chief Financial Officer, Treasurer and Vice President of Administration of Cloud 9 Interactive Inc., a publisher and developer of educational and entertainment multi-media products. Between October 1993 and December 1995, Mr. Wilson served as Vice President--Finance and Chief Financial Officer of Applause Enterprises Inc., a worldwide distributor of gifts and toys. Between February 1992 and October 1993, Mr. Wilson served as a Finance Executive for Sega of America, a video game system manufacturer. Steven "Chuck" Camps joined the Company in February 1993 and has served as Chief Operating Officer of the Company since June 1995 and as Assistant Secretary since October 1994. Mr. Camps served as Chief Financial Officer of the Company from February 1993 through October 1997. Mr. Camps served as a consultant 44 to the Company from October 1992 to February 1993. Prior to consulting for the Company, Mr. Camps served as Chief Financial Officer of Pratt Industries (USA), Inc., a manufacturing and finance company. Prior to July 1987, Mr. Camps served as a Manager at Arthur Andersen & Co., a worldwide accounting firm. Phillip G. Adam joined the Company as Vice President of Sales and Marketing in December 1990 and has served as Vice President of Business Development of the Company since October 1994. Prior to joining the Company, from January 1984 to December 1990, Mr. Adam served as President of Spectrum Holobyte, an interactive entertainment software publisher, where he was a co-founder. From May 1990 to May 1996, Mr. Adam served as the Chairman or a member of the Board of Directors of the Software Publishers Association and, during part of such period, as President of the Software Publishers Association. From March 1997 to March 1998 Mr. Adam served as the Chairman of the Public Policy Committee of the Interactive Digital Software Association. Kim Motika joined the Company as National Sales Manager in November 1991, and was promoted to Vice President of Sales of the Company in October 1994. Prior to joining the Company, from May 1989 to October 1991, Ms. Motika served as a Sales Manager for Ashton-Tate, a software publisher, and served as Western Regional Vice President of Ingram Micro, a worldwide distributor of information technology products, from 1983 to 1988. Patricia J. Wright joined the Company as Vice President of Marketing of the Company in October 1995 and has served as Vice President of Development since June 1997. Prior to joining the Company, from April 1993 to October 1995, Ms. Wright served as Vice President of Marketing for Activision, Inc. and as Director of Marketing for the Barbie Products division of Mattel, Inc., a toy manufacturer, from January 1990 to April 1993. Keven F. Baxter joined the Company as Corporate Counsel in June 1995, was promoted to General Counsel in June 1996 and has served as Vice President of Corporate Affairs of the Company since October 1997. Prior to joining the Company, from 1988 to 1994, Mr. Baxter practiced corporate law in the Business and Technology Group of the law firm Brobeck, Phleger & Harrison. Peter A. Bilotta has served as President of Interplay Europe since August 1994. Prior to joining the Company, from January 1992 to July 1994, Mr. Bilotta served as Managing Director--Distributed Territories of Acclaim Entertainment Ltd., an entertainment software publisher. Mr. Bilotta also served as Managing Director and Chief Executive Officer of Arena Entertainment Inc., an interactive entertainment software publisher, from March 1991 to December 1991. Mr. Bilotta serves as a director of Interactive Media, Ltd., a privately-held interactive entertainment software developer, and Bizarre Love Triangle, a privately-held interactive entertainment software distributor. Jill S. Goldworn has served as President of Interplay OEM, Inc., the Company's OEM subsidiary, since December 1996. Prior to that, Ms. Goldworn served as Vice President, OEM and Merchandising of the Company since June 1995. Prior to that, Ms. Goldworn served as Director of the OEM division of the Company from September 1992 to June 1995. Prior to joining the Company, from November 1991 to August 1992, Ms. Goldworn served as Director of Contract Sales of PC Globe, Inc., a publisher of desktop geography software. David Perry has served as President of Shiny Entertainment, Inc. since October 1993. Mr. Perry founded Shiny, developer of Earthworm Jim, in October 1993. Prior to founding Shiny, from January 1991 to September 1993, Mr. Perry served as a consulting engineer for Virgin Interactive Entertainment Inc., an interactive entertainment software publisher. David R. Dukes was elected to serve as a director of the Company in March 1998. Since September 1989, Mr. Dukes has been employed by Ingram Micro in various executive capacities, including Acting President of Ingram Micro Asia-Pacific since May 1997, Chief Executive Officer of Ingram Alliance since January 1994, President of Ingram Micro from September 1989 to December 1991 and Chief Operating Officer of Ingram Micro from September 1989 to December 1993. Mr. Dukes currently serves as Vice Chairman of the Board of Directors of Ingram Micro. 45 Charles S. Paul has served as a director of the Company since October 1994. Mr. Paul served as a member of the Compensation Committee from October 1994 to December 1995. Since March 1995, Mr. Paul has been employed by Sega GameWorks, a location-based entertainment company, and has served as the Chairman and Chief Executive Officer of Sega GameWorks L.L.C., a location-based entertainment software company, since March 1996. Mr. Paul previously served as Executive Vice President of Universal from December 1986 to March 1995. Mr. Paul is a director of National Golf Properties, Inc. and Entertainment Properties Trust, both real estate investment trusts. Mark Pinkerton has served as a director of the Company since March 1998. Mr. Pinkerton has served as a Senior Manager of Corporate Development and Strategic Planning for Universal since July 1996. From February 1995 to June 1996, Mr. Pinkerton was an independent consultant. Mr. Pinkerton was a Vice President in the Mergers and Acquisitions Department of the Investment Banking Division of Lehman Brothers Inc., an investment banking and stock brokerage firm, from August 1991 to January 1995. Paul A. Rioux has served as a director of the Company since July 1996. Mr. Rioux has served as President of Universal Studios New Media, Inc., a subsidiary of Universal, since April 1996. Previously, from November 1989 to April 1996, Mr. Rioux served as Executive Vice President of Sega of America. All members of the Board of Directors hold office until the next annual meeting of stockholders or until their successors are elected and qualified. The Bylaws do not permit removal of directors except for cause, unless approved by a two-thirds vote of the Company's stockholders. Officers serve at the discretion of the Board of Directors. Messrs. Pinkerton and Rioux were appointed as directors by Universal pursuant to its rights under the Shareholders' Agreement. See "Certain Transactions--Transactions With Fargo and Universal." BOARD COMMITTEES The Company has two standing committees of the Board of Directors: an Audit Committee and a Compensation Committee. The Audit Committee reviews the functions of the Company's management and independent auditors pertaining to the Company's financial statements and performs such other related duties and functions as are deemed appropriate by the Audit Committee and the Board of Directors. The Compensation Committee determines officer and director compensation and administers the Company's benefit plans. DIRECTOR COMPENSATION The Company's directors currently do not receive cash or equity compensation for attendance at Board of Directors or committee meetings. However, in the future, non-employee directors may receive compensation for attendance and may be reimbursed for certain expenses in connection with attendance at board and committee meetings. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The Compensation Committee currently consists of Messrs. Dukes, Paul and Rioux. No member of the Compensation Committee or executive officer of the Company has a relationship that would constitute an interlocking relationship with executive officers and directors of another entity. During 1997, decisions regarding executive compensation were made by the Compensation Committee of the Board of Directors, which then consisted of Messrs. Fargo, Kilpatrick and Rioux. Messrs. Fargo and Kilpatrick are directors, officers and employees of the Company. Mr. Rioux is an officer of Universal Studios New Media, Inc., a subsidiary of Universal, which has entered into various transactions with the Company. See "Certain Transactions--Transactions with Fargo and Universal." 46 EXECUTIVE COMPENSATION The following table sets forth certain information concerning compensation earned during the twelve months ended December 31, 1997 by the Company's Chief Executive Officer, each of the two other most highly compensated executive officers of the Company whose total salary and bonus during such year exceeded $100,000 (collectively, the "Named Executive Officers") and a selected executive officer. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION AWARDS ----------------------- --------------------- SECURITIES NAME AND PRINCIPAL POSITION SALARY BONUS OTHER(1) UNDERLYING OPTIONS(#) - --------------------------- -------- ----- -------- --------------------- Brian Fargo....................... $237,500 $ -- $ -- -- Chief Executive Officer Christopher J. Kilpatrick......... 200,000 -- 4,750 20,000 President Richard S.F. Lehrberg............. 200,000 -- 4,792 -- Executive Vice President James C. Wilson................... (2) (2) (2) 50,000 Chief Financial Officer
- -------- (1) Consists of matching payments made under the Company's 401(k) plan. See "Employee Benefit Plans--401(k) Plan." (2) Mr. Wilson joined the Company in August 1997 at an annual base salary of $135,000. Although not a Named Executive Officer for the year ended December 31, 1997, the Company anticipates that he will so qualify in future years. OPTION MATTERS Option Grants. The following table sets forth certain information concerning stock options granted to the Named Executive Officers and a selected executive officer during the twelve months ended December 31, 1997. STOCK OPTION GRANTS DURING TWELVE MONTHS ENDED DECEMBER 31, 1997
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF NUMBER OF PERCENT OF TOTAL STOCK PRICE SECURITIES OPTIONS APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OPTION TERM ($)(4) OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------- NAME GRANTED FISCAL YEAR(1) ($/SH)(2) DATE(3) 5% 10% - ---- ---------- ---------------- --------- ---------- ---------- ---------- Christopher J. Kilpatrick(5).......... 20,000 5.7% $8.00 07/17/07 $100,623 $254,999 James C. Wilson......... 50,000 14.5 8.00 07/17/07 251,558 637,497
- -------- (1) Represents options granted pursuant to the Company's 1997 Plan. All options were granted at an exercise price equal to the fair market value of the Common Stock on the date of grant. All such options vest at the rate of 20% per year on each anniversary of the grant date. (2) Subsequent to December 31, 1997, the Compensation Committee repriced all options granted at an exercise price of greater than $8.00 which were held by current employees of the Company or its wholly owned subsidiaries, including the options listed above, to an exercise price of $8.00. 47 (3) Options granted pursuant to the 1997 Plan expire 10 years from the date of grant. (4) Represents amounts that may be realized upon exercise of the options immediately prior to expiration of their terms assuming appreciation of 5% and 10% over the option term. The 5% and 10% numbers are calculated based on rules required by the Securities and Exchange Commission (the " Commission") and do not reflect the Company's estimate of future stock price growth. The actual value realized may be greater or less than the potential realizable value set forth. (5) Pursuant to the terms of his employment contract, Mr. Kilpatrick's options will be fully vested as of the closing of the Offering. See "Management-- Employment Agreements." Recent Option Grants. In February 1998, the Company granted options to purchase an aggregate of 240,100 shares of Common Stock to certain officers and other employees of the Company, including Brian Fargo (150,000 shares) and Christopher J. Kilpatrick (20,000 shares). Such options have an exercise price of $8.00 per share and vest over a period of five years from the date of grant. Option Exercises and Year-End Option Values. Shown below is information relating to the exercise of stock options during the twelve months ended December 31, 1997 for each of the Named Executive Officers and a selected executive officer, and the year-end value of unexercised options. AGGREGATE OPTION EXERCISES AND 1997 YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED IN-THE- UNEXERCISED OPTIONS MONEY OPTIONS AT AT YEAR-END YEAR-END(1) SHARES ACQUIRED (EXERCISABLE/ (EXERCISABLE/ NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE) UNEXERCISABLE) - ---- --------------- -------------- -------------------- ------------------- Brian Fargo............. -- -- 0/ 0 $ Richard S.F. Lehrberg... -- -- 572,874/ 0 Christopher J. Kilpa- trick.................. -- -- 251,528/ 0 James C. Wilson......... -- -- 0/ 50,000
- -------- (1) Represents an amount equal to the difference between the assumed initial public offering price of $ per share and the option exercise price, multiplied by the number of unexercised in-the-money options. EMPLOYEE BENEFIT PLANS Stock Incentive Plans. The Company has granted options under three stock option plans. The Interplay Productions Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan--1991 (the "1991 Plan") was adopted by the Board of Directors and stockholders of the Company in March 1992, the Interplay Productions 1994 Incentive Stock Option and Nonqualified Stock Option Plan (the "1994 Plan") was adopted by the Board of Directors and stockholders of the Company in March 1994 and the Interplay Productions 1997 Stock Incentive Plan (the "1997 Plan" and, together with the 1991 Plan and the 1994 Plan, the "Plans") was adopted by the Board of Directors and stockholders of the Company in January 1997. The Plans have been amended from time to time. The 1991 Plan and the 1994 Plan were terminated by the Board of Directors in March 1998. The Company believes that its equity compensation program is an important element of the overall compensation package which it can offer to attract and retain employees and that it represents a competitive advantage over certain competitors. The Company anticipates that it will be necessary in the future to grant options to attract key personnel, to retain its existing employees and, where appropriate, as part of strategic acquisition opportunities. See "Risk Factors--Dilution." The Plans are administered by the Board of Directors, unless the Board of Directors delegates such authority to a committee composed of members of the Board of Directors (hereinafter referred to collectively as the 48 "Board"). Subject to certain limitations set forth in the Plans, the Board has the authority (i) to select the persons to whom rights under the Plans (the "Awards") will be granted, (ii) to determine whether an Award will be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code (an "ISO"), an option that does not qualify as an ISO (a "Nonqualified Stock Option," and together with ISOs, the "Options"), a right to purchase restricted stock (a "Right to Purchase") under either the 1991 Plan or the 1997 Plan, or a combination of the foregoing, and (iii) to specify the type of consideration to be paid to the Company upon the exercise of an Award. All employees, directors, consultants, advisors or other independent contractors of the Company or of any present or future parent or subsidiary corporation of the Company are eligible to participate in the Plans. Any eligible person may be granted a Nonqualified Stock Option or a Right to Purchase under either the 1991 Plan or the 1997 Plan, but only employees may be granted ISOs under the Plans. An aggregate of 898,425, 639,984 and 2,219,891 shares of the Company's Common Stock are authorized pursuant to the 1991 Plan, 1994 Plan and the 1997 Plan, respectively, of which, 302,198, 638,784, and 540,850 shares, respectively, were subject to currently outstanding Options. Effective February 23, 1998, the 1991 Plan and 1994 Plan were terminated for purposes of future grants. An aggregate of 1,679,041 shares of Common Stock remain available for grant under the 1997 Plan. No shares of the Company's Common Stock have been issued pursuant to Rights to Purchase under any of the Plans. In addition, 572,874 shares are subject to non-statutory options granted outside the Company's stock option plans. To the extent any outstanding Award expires or terminates prior to exercise in full or if shares issued upon exercise of an Award are repurchased by the Company, the unexercised portion of such Award or the repurchased shares are returned to the pool of shares reserved under the 1997 Plan and will thereafter be available for grant or offer under the 1997 Plan. The exercise price per share of an ISO under the 1997 Plan must equal at least the fair market value of a share of the Company's Common Stock on the date of grant. However, the exercise price per share of any ISO granted to a person who at the time of grant owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company must be at least 110% of the fair market value of a share of the Company's Common Stock on the date of grant. The exercise price per share of Nonqualified Stock Options granted under the 1997 Plan must be at least 85% of the fair market value of a share of the Company's Common Stock on the date of grant. In no event shall any person receive options or Rights to Purchase under the 1997 Plan in any one calendar year pursuant to which the aggregate number of shares of Common Stock that may be acquired thereunder exceeds 500,000 shares. Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan (the "Purchase Plan"), covering an aggregate of 200,000 shares of Common Stock, was adopted by the Board of Directors and approved by the Company's stockholders in March 1998. The Purchase Plan, which is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"), will be implemented by twelve-month offerings with purchases occurring at six-month intervals commencing on the date of this Prospectus. The Purchase Plan will be administered by the Board of Directors. The Purchase Plan permits eligible employees to purchase Common Stock through payroll deductions, which may not exceed 15% of an employee's compensation. The price of stock purchased under the Purchase Plan will be 85% of the lower of the fair market value of the Common Stock at the beginning of the offering period or on the applicable purchase date. 401(k) Plan. The Company maintains a defined contribution retirement plan with a cash or deferred arrangement as described in Section 401(k) of the Code (the "401(k) Plan"). The 401(k) Plan is intended to be qualified under Section 401(a) of the Code. All employees of the Company are eligible to participate in the 401(k) Plan on the first day of the plan year or the first day of the seventh month of the plan year, whichever first occurs, following completion of one year of service with the Company. The 401(k) Plan provides that each participant may make elective contributions up to 15% of his or her compensation, subject to statutory limits. The Company also provides a 50% matching contribution, up to six percent of an employee's compensation, subject to statutory limits. Under the terms of the 401(k) Plan, allocation of the matching contribution is integrated with Social Security, in accordance with applicable non-discrimination rules under the Code. 49 EMPLOYMENT AGREEMENTS The Company has entered into an employment agreement with Brian Fargo for a term of five years commencing March 1994, pursuant to which he currently serves as Chairman of the Board of Directors and Chief Executive Officer of the Company. The employment agreement provides for a base salary of $250,000 per year, with such annual raises as may be approved by the Board of Directors. In the event that Mr. Fargo is terminated without cause or resigns for good reason as set forth in the agreement, the Company is required to pay Mr. Fargo 150% of his base salary and 75% of his imputed annual bonuses for the remainder of the term of the agreement, which payments are contingent upon Mr. Fargo's non-competition with the Company, as defined in the agreement. Mr. Fargo is also entitled to participate in certain incentive compensation and other employee benefit plans established by the Company from time to time. The Company has entered into an employment agreement with Christopher J. Kilpatrick for a term of five years commencing May 1994, pursuant to which he currently serves as President of the Company. The employment agreement provides for a base salary of $157,200 per year, with annual raises of not less than ten percent per year. In the event Mr. Kilpatrick is terminated without cause or resigns for good reason as defined in the agreement, the Company is required to pay Mr. Kilpatrick 150% of his base salary and 75% of his imputed annual bonuses for the remainder of the term of the agreement, which payments are contingent upon Mr. Kilpatrick's non-competition with the Company, as set forth in the agreement. In addition, in the event Mr. Kilpatrick is terminated without cause or resigns for good reason as defined in the agreement, all stock options held by Mr. Kilpatrick will vest to the extent they would have vested through the end of the term of the agreement. In June 1995, following a change in control of the Company as defined in the agreement, all of the stock options then held by Mr. Kilpatrick automatically vested. Upon the closing of the Offering, the options granted Mr. Kilpatrick in 1997 will automatically vest. Mr. Kilpatrick is also entitled to participate in certain incentive compensation and other employee benefit plans established by the Company from time to time. The Company has entered into an employment agreement with Richard S.F. Lehrberg for a term of five years commencing March 1994, pursuant to which he currently serves as Executive Vice President of the Company. The employment agreement provides for a base salary of $200,000 per year, with annual raises as approved by the Board of Directors. Mr. Lehrberg is also entitled to an annual bonus based on objective criteria. In 1994 and 1995, Mr. Lehrberg agreed to defer the receipt of bonuses in the amounts of $120,000 and $34,000, respectively, payable under the agreement, and such accrued bonuses will be paid following the closing of the Offering. In the event Mr. Lehrberg is terminated without cause or resigns for good reason as set forth in the agreement, the Company is required to pay Mr. Lehrberg 150% of his base salary and 75% of his imputed annual bonuses for the remainder of the term of the agreement, which payments are contingent upon Mr. Lehrberg's non-competition with the Company, as defined in the agreement. Mr. Lehrberg is also entitled to participate in certain incentive compensation and other employee plans established by the Company from time to time. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Bylaws provide that the Company will indemnify its directors and officers and may indemnify its employees and other agents to the fullest extent permitted by the General Corporation Law of the State of Delaware (the "DGCL"). The Company believes that indemnification under its Bylaws covers at least negligence and gross negligence by indemnified parties, and permits the Company to advance litigation expenses in the case of stockholder derivative actions or other actions, against an undertaking by the indemnified party to repay such advances if it is ultimately determined that the indemnified party is not entitled to indemnification. Prior to the closing of the Offering, the Company expects to have in place liability insurance for its officers and directors. In addition, the Company's Certificate of Incorporation provides that, pursuant to the DGCL, its directors shall not be liable for monetary damages for breach of the directors' fiduciary duty to the Company and its stockholders. This provision in the Certificate of Incorporation does not eliminate the directors' fiduciary duty, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under the DGCL. In addition, each director will continue to be subject to liability for breach 50 of the director's duty of loyalty to the Company, for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for actions leading to improper personal benefit to the director and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under the DGCL. The provision also does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. The Company has entered into separate indemnification agreements with its directors and certain of its officers. These agreements require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from actions not taken in good faith or in a manner the indemnitee believed to be opposed to the best interests of the Company), and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. The Company believes that its Certificate of Incorporation and Bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. 51 PRINCIPAL STOCKHOLDERS The following sets forth certain information concerning the beneficial ownership of the Company's outstanding Common Stock as of December 31, 1997 for (i) each person (or group of affiliated persons) who is known by the Company to own beneficially five percent or more of the Company's Common Stock, (ii) each director of the Company, (iii) each of the Named Executive Officers, and (iv) all directors and executive officers of the Company as a group.
PERCENTAGE OF OUTSTANDING SHARES OWNED ------------------------------- SHARES BENEFICIALLY BEFORE AFTER NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1)(2) OFFERING OFFERING(3) - ------------------------------------ ------------ ------------- -------------- Universal Studios, Inc.(4)..... 5,408,216 44.2% % Mark Pinkerton(5) Paul A. Rioux(5) 100 Universal City Plaza Universal City, CA 91608 Brian Fargo(6)................. 4,922,897 40.2 16815 Von Karman Avenue Irvine, CA 92606 Christopher J. Kilpatrick(7)... 251,628 2.1 Richard S. F. Lehrberg(8)...... 574,557 4.7 James C. Wilson................ -- -- -- Charles S. Paul................ -- -- -- David R. Dukes................. -- -- -- All Directors and Executive Officers as a Group (7 persons)(9)................ 11,157,298 91.1% %
- -------- (1) Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Shares of Common Stock subject to options currently exercisable, or exercisable within 60 days of May 1, 1998, are deemed outstanding for computing the percentage of the person holding such options but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. (2) Excludes shares which will be issued to such persons upon the closing of the Offering pursuant to the conversion of Subordinated Secured Promissory Notes and Common Stock Warrants held by such persons at an exercise price of $ per share (based on an assumed initial public offering price of $ per share), as follows: Brian Fargo ( shares), Christopher J. Kilpatrick ( shares) and Richard S.F. Lehrberg ( shares). See "Description of Capital Stock--Common Stock Warrants." (3) The percentages indicated reflect the issuance of shares upon the closing of the Offering pursuant to the exercise of Common Stock Warrants by the cancellation of Subordinated Secured Promissory Notes at an exercise price based on an assumed initial public offering price of $ per share. See "Description of Capital Stock--Common Stock Warrants." (4) Universal has granted the Underwriters' 30-day option to purchase up to shares to cover over-allotments, if any. If such option is exercised in full, following the completion of the Offering Universal will beneficially own shares, or %, of the Company's Common Stock. (5) Messrs. Pinkerton and Rioux, who are employees of Universal or its subsidiaries and have been appointed as directors by Universal, disclaim beneficial ownership of the shares held by Universal. (6) Does not include 5,408,216 shares held by Universal, as to which Mr. Fargo may be deemed to have beneficial ownership due to certain contractual rights held by Mr. Fargo, as such rights terminate upon the closing of the Offering. See "Certain Transactions--Transactions with Fargo and Universal." (7) Includes 251,528 shares subject to options exercisable within 60 days of May 1, 1998. (8) Includes 572,874 shares subject to options exercisable within 60 days of May 1, 1998. (9) Includes 824,402 shares subject to options exercisable within 60 days of May 1, 1998. 52 CERTAIN TRANSACTIONS TRANSACTIONS WITH FARGO In April 1991, Brian Fargo, the Chief Executive Officer and Chairman of the Board of Directors of the Company, loaned $536,375 to the Company, evidenced by a promissory note due April 30, 1996, which note was subsequently converted into a demand note. The note provides that interest accrues at a rate of nine percent per year with accrued interest paid on a semi-annual basis. As of December 31, 1997, the loan balance was $16,107. Prior to moving to its current business location in August 1996, the Company occupied premises owned by Mr. Fargo consisting of approximately 22,792 square feet located at 17922 Fitch Avenue, Irvine, California, pursuant to a Lease Agreement, dated October 1, 1992, between the Company and Mr. Fargo. The Company entered into a restated Lease Agreement with Mr. Fargo in October 1996. When the Company relocated to its present location in August 1996, Interplay subleased such premises to Engage pursuant to a Sublease Agreement dated October 1, 1996, and the Company concurrently executed an agreement with Engage pursuant to which the Company subleased 5,000 square feet of specialized audio facilities from Engage until December 1997. In December 1997, Engage entered into a direct lease with the owner of such property and all leases and subleases involving the Company were terminated. TRANSACTIONS WITH FARGO AND UNIVERSAL The Company, Mr. Fargo and Universal entered into a Stock Purchase Agreement, dated January 25, 1994, for the purchase of Common Stock. On March 30, 1994, pursuant to the Stock Purchase Agreement, Universal purchased 1,824,897 shares of Common Stock from the Company and 1,216,598 shares of Common Stock from Mr. Fargo. Pursuant to an Option Agreement, dated March 30, 1994, Universal purchased additional shares of Common Stock from Mr. Fargo on April 25, 1995 and on April 26, 1996, such that Universal became a 35% owner of the Company as of April 25, 1995 and a 45% owner of the Company as of April 26, 1996. In order to acquire sufficient shares of Common Stock for sale to Universal on each of the three sale dates, Mr. Fargo acquired such number of shares as was required for sale to Universal from existing shareholders of the Company in simultaneous transactions. Pursuant to the Stock Purchase Agreement, the Company, Mr. Fargo and Universal entered into a Shareholders' Agreement dated March 30, 1994, as amended October 8, 1996, which contains certain restrictions on transfer of shares, rights of first refusal, voting provisions, registration rights and certain restrictions on corporate actions. Only the mutual rights of first refusal as between Universal and Mr. Fargo and the registration rights of Universal and Mr. Fargo will survive the closing of the Offering. See "Description of Capital Stock--Registration Rights." For his services in connection with such transaction, Mr. Fargo was awarded a bonus of $1.0 million by the Board of Directors in 1994. Mr. Fargo agreed to defer the payment of such bonus to a future date, and such bonus will be repaid following the closing of the Offering. See "Use of Proceeds." The Company has entered into three Merchandising License Agreements with MCA/Universal Merchandising Inc., a subsidiary of Universal. Pursuant to an agreement dated May 23, 1994, the Company has the exclusive right to use the theme and characters of the Waterworld motion picture in software products for specified platforms until July 31, 1998. Pursuant to an agreement dated May 23, 1994, the Company has the non-exclusive right to use the theme and characters of the Casper motion picture in software products for specified platforms for a period of three years following the release of such motion picture. Pursuant to an agreement dated April 16, 1996, the Company has the exclusive right to the theme and characters of the Flipper motion picture for an interactive story book product on specified platforms until June 1, 2001. Each of the agreements provide for the Company to pay specified advances against royalties and for specified royalty guarantees. In addition, pursuant to a letter agreement dated September 27, 1996, with Universal Interactive Studios, a subsidiary of Universal ("UIS"), the Company has the exclusive distribution rights in North America for PlayStation versions of Disruptor (the "Disruptor Agreement"), plus the exclusive rights to manufacture, publish and distribute Disruptor on any video game platform outside of North America. Currently, approximately $1.9 million is due UIS pursuant to the Disruptor Agreement, of which $1.5 million will be paid to UIS upon the closing of the Offering. On August 16, 1995, the Company and UIS entered into an exclusive distribution 53 agreement pursuant to which UIS agreed to distribute the Company's interactive software products in Europe through UIS's affiliate, MCA Home Video, Inc., which in turn distributes through Cinema International Corporation ("CIC"). The distribution agreement was subsequently terminated, and the Company and UIS/CIC are currently negotiating a final accounting reconciliation to determine the amounts owed to the Company. In December 1996 UIS, on behalf of CIC, paid $300,000 to the Company as an interim payment pending the resolution of the final accounting reconciliation. The Company issued a promissory note to UIS dated December 20, 1996 in the principal amount of $300,000 (the "Advance Note") evidencing the interim payment made to the Company. The Advance Note is guaranteed by Interplay Europe, does not bear interest and was payable on March 31, 1997. In March 1998, the Company entered into an agreement with UIS whereby the Company agreed to pay to UIS all net amounts owed to UIS under the Disruptor Agreement and the Company and UIS agreed to work together to determine the final amount, if any, due to Interplay to resolve such accounting dispute and to pay any amounts found to be owing to the other party in connection therewith. ENGAGE TRANSACTIONS In June 1995, the Company formed a subsidiary to divest Engage, which formerly operated as a division of the Company. Pursuant to a Stock Purchase Agreement dated June 30, 1995, the Company sold 10,000,000 shares of common stock of Engage to Mr. Fargo for $237,000. In connection with such sale, the Company and Mr. Fargo entered into an Option Agreement dated June 30, 1995, granting the Company an option to repurchase all of such shares at an aggregate exercise price of $337,000 at any time prior to June 30, 2005 (the "Termination Date"). In conjunction with a financing agreement between Engage and Mr. Fargo, the Option Agreement was amended in March 1998 to reduce the shares subject to such option to 19% of the shares held by Mr. Fargo and to reduce the exercise price to $250,000. In the event the Company elects not to exercise its option to repurchase the shares, upon certain events Universal has an option to purchase the shares at the same exercise price. If Universal exercises its option to purchase the shares, the Company has an option to purchase such shares from Universal at the $250,000 exercise price until the Termination Date. Prior to March 1996, the Company loaned Engage approximately $1.8 million to fund the operations of Engage, which debt was evidenced by a convertible demand promissory note dated March 29, 1996, bearing interest at the prime rate plus two percent per annum. A portion of the principal amount was repaid to the Company in a number of installments during 1996 and 1997. In connection with a secured debt financing in August 1997, the remaining outstanding principal of approximately $1.0 million was converted into a secured convertible promissory note due in August 1998, bearing interest at a rate of eight percent per annum. As part of the August 1997 transaction, the Company loaned an additional $100,000 to Engage. In March 1996, the Company entered into an agreement with Engage which, among other things, provides that the Company will provide certain administrative services to Engage, and grants Engage the exclusive right to use certain of the Company's products in Internet-based on-line services. Engage currently owes the Company approximately $300,000 in connection with such agreement. FINANCING TRANSACTIONS In October 1996, the Company issued an aggregate of $2,400,000 in Subordinated Secured Promissory Notes and Common Stock Warrants to Brian Fargo ($2,000,000), Richard S.F. Lehrberg ($300,000) and Christopher J. Kilpatrick ($100,000). The Secured Subordinated Promissory Notes bear interest at a rate of 12% per annum. Messrs. Fargo, Lehrberg and Kilpatrick elected to receive shares of Common Stock in lieu of the May 1997 interest payment due under the Secured Subordinated Promissory Notes. In February 1998, the Company offered to amend the terms of such Notes and Warrants to permit the exercise of the Warrants or the repayment of the Notes upon the closing of this Offering whether or not this Offering constitutes a Qualified Event (as defined in the Notes and Warrants). Messrs. Fargo, Lehrberg and Kilpatrick have elected to exercise such Warrants for an aggregate of shares of Common Stock by canceling such Notes effective upon the closing of the Offering at an exercise price of $ per share (based upon an assumed initial public offering price of $ per share). See "Description of Capital Stock--Common Stock Warrants." 54 OTHER TRANSACTIONS In March 1998, the Company entered into Indemnification Agreements with all of its directors and executive officers providing for indemnification rights in certain circumstances. See "Management--Limitation of Liability and Indemnification Matters." Mark Pinkerton and Paul A. Rioux, directors of the Company, are employees of Universal or its subsidiaries, with which the Company has several contractual relationships. David R. Dukes, director of the Company, is an officer and director of Ingram Micro, a customer of the Company. See "Business--Sales and Distribution." Until September 1997, Christopher J. Kilpatrick, an officer and director of the Company, was a shareholder of Stradling Yocca Carlson & Rauth, counsel to the Company. The Company has entered into Employment Agreements with certain executive officers. See "Management--Employment Agreements." 55 DESCRIPTION OF CAPITAL STOCK Upon the completion of the Offering, the authorized capital stock of the Company will consist of 50,000,000 shares of Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001 par value. COMMON STOCK As of December 31, 1997, there were 10,951,828 shares of Common Stock issued and outstanding and held by 17 stockholders of record and 1,838,972 shares of Common Stock reserved for issuance upon the exercise of stock options outstanding under the Company's 1991 Plan, 1994 Plan, 1997 Plan and non- statutory stock options granted outside the Company's plans. Subsequent to December 31, 1997, the Company granted options to purchase an additional 240,100 shares of Common Stock, such that as of March 7, 1998, there were 2,054,706 shares of Common Stock reserved for issuance upon exercise of stock options. The outstanding shares of Common Stock are fully paid and nonassessable. The Company's Certificate of Incorporation provides that holders of Common Stock are entitled to one vote for each share on all matters submitted to a vote of stockholders, provided that, with respect to the election of directors, stockholders shall be entitled to cumulate their votes whereby each stockholder will have a number of votes equal to the number of shares held multiplied by the number of directors to be elected. In addition, with respect to the election of directors, certain preferential voting rights will exist until the closing of the Offering. See "Certain Transactions-- Transactions with Fargo and Universal." The Certificate of Incorporation of the Company provides that the authorized number of directors shall be fixed at seven. Subject to the preference in dividend rights of any series of Preferred Stock which the Company may issue in the future, the holders of Common Stock are entitled to receive such cash dividends, if any, as may be declared by the Board of Directors out of legally available funds. Upon liquidation, dissolution or winding up of the Company, after payment of all debts and liabilities and after payment of the liquidation preferences of any shares of Preferred Stock then outstanding, the holders of the Common Stock will be entitled to all assets that are legally available for distribution. Other than the rights described above, the holders of Common Stock have no preemptive subscription, redemption, sinking fund or conversion rights and have equal rights and preferences. The rights and preferences of holders of Common Stock will be subject to the rights of any series of Preferred Stock which the Company may issue in the future. PREFERRED STOCK The Board of Directors has the authority, without further action by the stockholders, to issue up to 5,000,000 shares of Preferred Stock, $.001 par value, in one or more series and to fix the rights, preferences and privileges thereof, including voting rights, terms of redemption, redemption prices, liquidation preference and number of shares constituting any series or the designation of such series. The rights of the holders of the Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company, thereby delaying, deferring or preventing a change in control of the Company. Furthermore, such Preferred Stock may have other rights, including economic rights senior to the Common Stock, and, as a result, the issuance thereof could have a material adverse effect on the market value of the Common Stock. The Company has no present plans to issue shares of Preferred Stock. COMMON STOCK WARRANTS In connection with its subordinated debt financing in October 1996 through February 1997, the Company issued and sold certain Common Stock Warrants (the "Warrants") to purchasers of its Subordinated Secured Promissory Notes (the "Notes"), at a price equal to one percent of the purchaser's total investment in the Notes and Warrants. The Company sold an aggregate of $14,803,000 of such Notes and Warrants. The Warrants entitle the Warrant holder to purchase, by surrender of such holder's Note, up to that number of shares of Common Stock equal to the quotient determined by dividing the purchaser's aggregate investment in the Notes and Warrants by the Exercise Price (as defined below), rounded to the nearest whole number of shares. The 56 "Exercise Price" per share of Common Stock under the Warrants is the product of 0.70 multiplied by either of the following amounts, as applicable: (i) in the event of a Qualified IPO (as defined in the Warrants), the initial public offering price of Common Stock; or (ii) in the event of a Sales Transaction (as defined in the Warrants), the fair market value per share of the Company's Common Stock as established in such Sales Transaction or, if no such price is established, as determined in good faith by the Board of Directors. In February 1998, the Company offered to amend the terms of each holder's Note and Warrant to permit such holder to exercise its Warrant upon the closing of the Offering whether or not the Offering constitutes a Qualified IPO, and offered each holder the option to either exercise its Warrant effective upon the closing of the Offering or to have its Note repaid following the closing of the Offering. Holders of an aggregate amount of $8,748,808 of the Notes and Warrants elected to exercise their Warrants, and shares of Common Stock will be issued to such holders upon the closing of the Offering at an exercise price of $ per share (based on an assumed initial public offering price of $ ). Holders of $5,993,650 in principal amount of the Notes elected to have their Notes repaid out of the proceeds of the Offering. See "Use of Proceeds." REGISTRATION RIGHTS The Shareholders' Agreement provides each of Universal and Brian Fargo with certain registration rights with respect to their respective shares of the Common Stock of the Company. Pursuant to the terms of the Shareholders' Agreement, each of Universal and Mr. Fargo have four demand registrations, whereby such party may require the Company to register not less than 1,000,000 shares of the Common Stock owned by such party, subject to certain conditions and restrictions contained therein. Each of Universal and Mr. Fargo also have unlimited piggyback registrations whereby they are entitled to be notified of and participate in registrations of the Company's Common Stock initiated by the Company or a third party, subject to certain conditions and restrictions. The Company has also agreed to indemnify and hold harmless the stockholders who are a party to the Shareholders' Agreement and the officers and directors of Universal from any loss, claim or damage arising from such registrations unless, and to the extent that, such loss, claim or damage arises out of or is based upon an untrue statement, alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished by or on behalf of such party for use in the preparation of the documents related to the registration. The Company and the holders of the Warrants have entered into an Investors Rights Agreement, as amended ("Investors Rights Agreement") which provides such holders with certain registration rights with respect to the shares of Common Stock issuable upon exercise of the Warrants. Pursuant to the terms of the Investors Rights Agreement, the Warrant holders have one demand registration, whereby the holders of a majority of the shares of Common Stock issuable upon exercise of the Warrants may require the Company to register the shares of Common Stock owned by such parties, subject to certain conditions and restrictions. In addition, the Investors Rights Agreement provides the Warrant holders certain piggyback registration and S-3 registration rights, subject to certain conditions and restrictions. The Company has also agreed to indemnify and hold harmless the stockholders who are a party to the Investors Rights Agreement from any loss, claim or damage arising from such registrations unless, and to the extent that, such loss, claim or damage arises out of or is based upon an untrue statement, alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished by or on behalf of such party for use in the preparation of the documents related to the registration. DELAWARE ANTI-TAKEOVER LAW The Company is subject to the provisions of Section 203 of the Delaware General Corporation Law (the "DGCL"). Section 203 provides, with certain exceptions, that a Delaware corporation may not engage in certain business combinations with a person or affiliate or associate of such person who is an "interested stockholder" for a period of three years from the date such person became an interested stockholder, unless: (i) the transaction resulting in the acquiring person's becoming an interested stockholder, or the business combination, is approved by the board of directors of the corporation before the person becomes an interested stockholder, (ii) the interested stockholder acquires 85% or more of the outstanding voting stock of the corporation in the same 57 transaction that makes it an interested stockholder, excluding (a) shares held by directors who are also officers, or (b) shares held in certain employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or (iii) on or after the date the person becomes an interested stockholder, the business combination is approved by the corporation's board of directors and by the holders of at least two-thirds of the corporation's outstanding voting stock, at an annual or special meeting (excluding shares held by the interested stockholder). Except as otherwise specified in Section 203, an "interested stockholder" is defined as: (a) any person that is the owner of 15% or more of the outstanding voting stock of the corporation, (b) any person that is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is the interested stockholder, or (c) the affiliates and associates of any such person. By restricting the ability of the Company to engage in business combinations with an interested person, the application of Section 203 to the Company may provide a barrier to hostile or unwanted takeovers. A "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to such interested stockholder. For purposes of Section 203, an "interested" stockholder is a person who, together with affiliates and associates, owns (or within three years prior, did own) 15% or more of the corporation's voting stock. CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS The Company's Certificate of Incorporation also provides that stockholder action can be taken only at an annual or special meeting of stockholders and may not be taken by written consent. The Bylaws provide that special meetings of stockholders can be called only by the Board of Directors. Stockholders are not permitted to call a special meeting or to require that the Board of Directors call a special meeting of stockholders. Moreover, the business permitted to be conducted at any special meeting of stockholders is limited to the business set forth in the notice for the meeting. The Bylaws set forth an advance notice procedure with regard to the nomination, other than by or at the direction of the Board of Directors, of candidates for election as directors and with regard to business to be brought before an annual meeting of stockholders of the Company. The Bylaws do not permit removal of directors except for cause, unless approved by a two-thirds vote of the Company's stockholders. See "Management--Directors, Executive Officers and Certain Significant Employees." The Company's Certificate of Incorporation limits the liability of directors to the Company and its stockholders to the fullest extent permitted by the DGCL. Specifically, under the DGCL, a director will not be personally liable for monetary damages for breach of the director's fiduciary duty as a director, except liability (i) for a breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions by a director not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) for liability arising under Section 174 of the DGCL (relating to the declaration of dividends and purchase or redemption of shares in violation of the DGCL), or (iv) for any transaction from which the director derived an improper personal benefit. The inclusion of this provision in the Company's Certificate of Incorporation may have the effect of reducing the likelihood of derivative litigation against Directors and may discourage or deter stockholders or management from bringing a lawsuit against directors for breach of their duty of care. This limitation on monetary liability does not alter the duties of Directors, affect the availability of equitable relief, or affect the availability of monetary relief predicated on claims based on federal law, including the federal securities laws. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is ChaseMellon Shareholder Services. 58 SHARES ELIGIBLE FOR FUTURE SALE Prior to the Offering, there has been no public market for the Common Stock. Future sales of substantial amounts of Common Stock in the public market could adversely affect prevailing market prices and adversely affect the Company's ability to raise additional capital in the capital markets at a time and price favorable to the Company. Upon completion of the Offering, the Company will have shares of Common Stock outstanding, assuming no exercise of outstanding options. Of these shares, the shares sold in the Offering ( shares assuming the Underwriters' over-allotment option is exercised in full) will be freely transferable without restriction or further registration under the Securities Act, unless they are purchased by "affiliates" of the Company as that term is used under the Securities Act. The remaining shares held by existing stockholders ( shares assuming the Underwriters' over-allotment option is exercised in full) will be "restricted securities" as defined in Rule 144 ("Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144, which is summarized below. Sales of Restricted Shares in the public market, or the availability of such shares for sale, could adversely affect the market price of the Common Stock. All officers, directors, certain stockholders and certain option holders have agreed with the Underwriters that they will not sell any Common Stock owned by them for a period of 180 days after the effective date of the Offering without the prior written consent of Piper Jaffray Inc. (the "180-Day Lock-Up"). An aggregate of shares of Common Stock ( shares assuming the Underwriters' over-allotment option is exercised in full) are subject to the 180-Day Lock-Up. Upon the expiration of the 180-Day Lock-Up (or earlier upon the consent of Piper Jaffray Inc.), Restricted Shares ( Restricted Shares assuming the Underwriters' over-allotment option is exercised in full) will become eligible for sale subject to the volume and other restrictions of Rule 144, and Restricted Shares will be eligible for sale without restriction under Rule 144(k). In general, under Rule 144, beginning 90 days after the effective date of the Offering, any person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least one year is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of one percent of the then outstanding shares of the Company's Common Stock (approximately shares immediately after the Offering, or shares if the Underwriters' over-allotment option is exercised in full) or the average weekly trading volume during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to certain requirements as to the manner of sale, notice and availability of current public information about the Company. In addition, Restricted Shares which have been beneficially owned for at least two years and which are held by non-affiliates may, under Rule 144(k) be sold free of any restrictions under Rule 144. The Company intends to file a registration statement on Form S-8 under the Act to register shares of Common Stock reserved for issuance under its Plans, thus permitting the resale by non-affiliates of shares issued under the plan in the public market without restriction under the Securities Act. Such registration statement will become effective immediately upon filing, which is expected on or shortly after the closing of the Offering. As of the closing of the Offering, options or rights to purchase 2,054,706 shares of Common Stock will be outstanding under the Company's Plans, of which 1,845,578 shares are subject to the 180-Day Lock-Up or are subject to equivalent market standoff agreements with the Company. 59 UNDERWRITING The Company and the Selling Stockholder have entered into a Purchase Agreement (the "Purchase Agreement") with the underwriter's listed in the table below (the "Underwriters"), for whom Piper Jaffray Inc., Bear, Stearns & Co. Inc., and UBS Securities LLC are acting as representatives (the "Representatives"). Subject to the terms and conditions contained in the Purchase Agreement, the Company has agreed to sell to the Underwriters, and each of the Underwriters has severally agreed to purchase from the Company, the aggregate number of shares of Common Stock set forth opposite their respective names below:
NAME OF UNDERWRITER NUMBER OF SHARES ------------------- ---------------- Piper Jaffray Inc. ......................................... Bear, Stearns & Co. Inc. ................................... UBS Securities LLC.......................................... ---- Total..................................................... ====
Subject to the terms and conditions of the Purchase Agreement, the Underwriters have agreed to purchase all of the Common Stock being sold pursuant to the Purchase Agreement, if any is purchased (excluding Common Stock covered by the over-allotment option granted by the Selling Stockholder to the Underwriters). In the event of a default by any Underwriter, the Purchase Agreement provides that, in certain circumstances, purchase commitments of nondefaulting Underwriters may be increased or the Purchase Agreement may be terminated. The Underwriters propose initially to offer the shares to the public at the public offering price set forth on the cover page of this Prospectus. The Underwriters may allow a selling concession not in excess of $ per share to certain dealers. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to other dealers. After the Offering, the public offering price and other selling terms may be changed by the Underwriters. The Selling Stockholder has granted the Underwriters an option, exercisable by the Representatives within 30 days after the date of the Purchase Agreement, to purchase up to an additional shares of Common Stock at the same price per share to be paid by the Underwriters for the shares offered hereby. The Underwriters may exercise such option solely for the purpose of covering over-allotments incurred in the sale of shares of Common Stock offered hereby. To the extent such option to purchase is exercised, each Underwriter will become committed to purchase such additional shares of Common Stock in the same proportion as set forth in the above table. The Company and its directors, officers and certain stockholders (holding in the aggregate shares of Common Stock upon completion of the Offering, or shares if the Underwriters' over-allotment option is exercised in full) have agreed to deliver to the Representatives prior to the date of this Prospectus lock-up agreements under which they agree not to, directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of Common Stock or any securities exchangeable or exercisable for or convertible into its Common Stock, whether now owned or hereafter acquired or with respect to which the Company and any such director, officer or stockholder has or hereafter acquires the power of disposition, or participate in any registration statement under the Securities Act with respect to any of the foregoing or enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock for a period of 180 days after the date of this Prospectus, without the prior written consent of Piper Jaffray Inc. on behalf of the Underwriters. Such lock-up agreements shall not apply to the sale of Common Stock by the Selling Stockholder pursuant to the exercise of the Underwriters' over-allotment option. Piper Jaffray Inc. may, at its sole discretion and at any time without notice, release all or any portion of the shares subject to such lock-up agreements. See "Shares Eligible for Future Sale." 60 In the Purchase Agreement, the Company, the Selling Stockholder and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the Underwriters may be required to make in respect thereof. The Company has agreed to reimburse the Underwriters for their reasonable out of pocket expenses incurred in connection with the Offering. The Representatives have informed the Company and the Selling Stockholder that they do not intend to confirm sales to accounts over which they exercise discretionary authority without the prior written approval of the customer. Prior to the Offering there has been no public market for the Common Stock. The initial public offering price was determined by negotiation between the Company, the Selling Stockholder and the Representatives. Among the factors considered in determining such public offering price were the nature of the Company's business, its history and present state of development, recent financial operating information, prospects and management abilities, the general conditions of the securities markets at the time of the Offering and other factors deemed relevant. During and after the Offering, the Underwriters may purchase and sell Common Stock in the open market. These transactions may include overallotment, stabilizing transactions and purchases to cover syndicate short positions created in connection with the Offering. The Underwriters also may impose a penalty bid, whereby selling concessions allowed to syndicate members or other broker-dealers in respect of the Common Stock sold in the Offering for their account may be reclaimed by the syndicate if such securities are repurchased by the syndicate in stabilizing or covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the Common Stock, which may be higher than the price that might otherwise prevail in the open market. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise, and these activities, if commenced, may be discontinued at any time. 61 LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California. An investment partnership in which certain shareholders of Stradling Yocca Carlson & Rauth are partners holds an aggregate of $100,000 of the Company's Subordinated Secured Promissory Notes and Common Stock Warrants, which will be converted into shares of Common Stock upon the closing of the Offering at an exercise price of $ per share (based on an assumed initial public offering price of $ per share), and holds 523 shares of the Company's Common Stock. Certain legal matters in connection with the Offering will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. EXPERTS The Consolidated Financial Statements and schedule of the Company as of April 30, 1996 and 1997, and as of December 31, 1997, and for each of the three years in the period ended April 30, 1997 and the eight months ended December 31, 1997 included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S-1 under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement and to the exhibits and schedules filed therewith. A copy of the Registration Statement may be inspected without charge at the public reference facilities of the Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at 7 World Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part of the Registration Statement may be obtained at the prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and its public reference facilities in New York, New York and Chicago, Illinois, upon the payment of the fees prescribed by the Commission. The Registration Statement is also available through the Commission's website on the world wide web at http://www.sec.gov. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified by such reference. 62 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants................................... F-2 Consolidated Balance Sheets................................................ F-3 Consolidated Statements of Operations...................................... F-4 Consolidated Statements of Stockholders' Equity (Deficit).................. F-5 Consolidated Statements of Cash Flows...................................... F-6 Notes to Consolidated Financial Statements................................. F-7
F-1 To Interplay Entertainment Corp.: After the completion of the reincorporation and merger discussed in Note 13, we expect to be in a position to render the following audit report and the report on schedule included elsewhere in this Registration Statement. Arthur Andersen LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Interplay Entertainment Corp.: We have audited the accompanying consolidated balance sheets of INTERPLAY ENTERTAINMENT CORP. (a Delaware corporation) and subsidiaries as of April 30, 1996 and 1997 and December 31, 1997, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended April 30, 1997 and the eight months ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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. The Subordinated Secured Promissory Notes mature on November 30, 1998 and give the holders the option, 30 days thereafter, to notify the Company in writing that the Notes are due and payable. In addition, the Company's line of credit matures in May 1999. For further discussion about the terms of these borrowings and management's plan in connection with their repayment, see Notes 6 and 13. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Interplay Entertainment Corp. and subsidiaries as of April 30, 1996 and 1997 and December 31, 1997, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended April 30, 1997 and the eight months ended December 31, 1997 in conformity with generally accepted accounting principles. Orange County, California March 20, 1998 F-2 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
APRIL 30, ---------------- DECEMBER 31, 1996 1997 1997 ------- -------- ------------ ASSETS ------ Current Assets: Cash and cash equivalents..................... $ 4,923 $ 5,410 $ 1,536 Trade receivables, net of allowances of $9,100, $14,894, and $14,461, respectively... 22,983 22,346 34,684 Inventories................................... 5,896 7,404 6,338 Prepaid licenses and royalties................ 14,483 10,914 12,628 Income taxes receivable....................... 1,425 1,601 1,427 Deferred income taxes......................... 323 7,889 7,792 Other......................................... 6,053 2,354 4,218 ------- -------- -------- Total current assets.......................... 56,086 57,918 68,623 ------- -------- -------- Property and Equipment, net..................... 7,838 8,117 7,026 ------- -------- -------- Other Assets.................................... 4,587 2,970 2,172 ------- -------- -------- $68,511 $ 69,005 $ 77,821 ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ---------------------------------------------- Current Liabilities: Accounts payable.............................. $16,945 $ 16,975 $ 17,121 Accrued expenses.............................. 15,549 21,100 22,549 Short term borrowings......................... 5,050 10,950 -- Current portion of long-term debt............. 57 123 14,767 Income taxes payable.......................... -- 880 570 ------- -------- -------- Total current liabilities................... 37,601 50,028 55,007 ------- -------- -------- Long-Term Debt, net of current portion.......... 51 14,847 23,387 ------- -------- -------- Deferred Income Taxes........................... 366 403 434 ------- -------- -------- Minority Interest............................... 298 326 260 ------- -------- -------- Commitments and Contingencies Stockholders' Equity (Deficit): Preferred stock, no par value-- Authorized--5,000,000 shares Issued and outstanding--none................. -- -- -- Common stock, $.001 par value-- Authorized 50,000,000 shares Issued and outstanding--10,829,781, 11,114,060, and 10,951,828 shares, respectively................................. 11 11 11 Paid-in capital............................... 17,783 18,020 18,408 Retained earnings (accumulated deficit)....... 12,401 (14,818) (19,877) Cumulative translation adjustment............. -- 188 191 ------- -------- -------- Total stockholders' equity (deficit)........ 30,195 3,401 (1,267) ------- -------- -------- $68,511 $ 69,005 $ 77,821 ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-3 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
EIGHT MONTHS ENDED YEARS ENDED APRIL 30, DECEMBER 31, ---------------------------------- ----------------------- 1995 1996 1997 1996 1997 ---------- ---------- ---------- ----------- ---------- (UNAUDITED) Net revenues............ $ 79,546 $ 96,952 $ 83,262 $ 50,364 $ 85,961 Cost of goods sold...... 45,491 49,939 62,480 35,725 44,864 ---------- ---------- ---------- ---------- ---------- Gross profit.......... 34,055 47,013 20,782 14,639 41,097 ---------- ---------- ---------- ---------- ---------- Operating expenses: Marketing and sales... 14,280 23,285 24,627 15,747 20,603 General and administrative....... 5,528 9,025 9,408 8,730 8,989 Product development... 8,200 15,120 21,431 12,464 14,291 ---------- ---------- ---------- ---------- ---------- Total operating expenses........... 28,008 47,430 55,466 36,941 43,883 ---------- ---------- ---------- ---------- ---------- Operating income (loss)............. 6,047 (417) (34,684) (22,302) (2,786) ---------- ---------- ---------- ---------- ---------- Other income (expense): Interest income....... 244 102 190 48 92 Interest expense...... (38) (531) (1,907) (1,088) (3,009) Other................. 840 (378) 117 (45) 644 ---------- ---------- ---------- ---------- ---------- Total other income (expense).......... 1,046 (807) (1,600) (1,085) (2,273) ---------- ---------- ---------- ---------- ---------- Income (loss) before provision (benefit) for income taxes..... 7,093 (1,224) (36,284) (23,387) (5,059) Provision (benefit) for income taxes........... 2,844 (480) (9,065) (5,918) -- ---------- ---------- ---------- ---------- ---------- Net income (loss)... $ 4,249 $ (744) $ (27,219) $ (17,469) $ (5,059) ========== ========== ========== ========== ========== Pro forma net income (unaudited): Historical loss before benefit for income taxes................ $ (36,284) $ (5,059) Less interest ex- pense................ 1,616 2,379 Benefit for income taxes................ 9,065 -- ---------- ---------- Pro forma net loss.... $ (25,603) $ (2,680) ========== ========== Net income (loss) per share: Basic................. $ 0.40 $ (0.07) $ (2.46) $ (1.58) $ (0.45) ========== ========== ========== ========== ========== Diluted............... $ 0.35 $ (0.07) $ (2.46) $ (1.58) $ (0.45) ========== ========== ========== ========== ========== Pro forma (unau- dited)............... $ (1.78) $ (0.17) ========== ========== Weighted average number of common shares outstanding: Basic................. 10,568,042 10,661,944 11,085,632 11,066,487 11,123,327 ========== ========== ========== ========== ========== Diluted............... 12,045,687 10,661,944 11,085,632 11,066,487 11,123,327 ========== ========== ========== ========== ========== Pro forma (unau- dited)............... 14,368,776 15,772,694 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-4 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK RETAINED CUMULATIVE ------------------ PAID-IN EARNINGS TRANSLATION SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT TOTAL ---------- ------ ------- --------- ----------- ------- Balance, April 30, 1994................... 10,565,136 $11 $16,146 $ 8,896 $-- $25,053 Exercise of stock options............... 176,763 -- 54 -- -- 54 Tax benefit from exercise of stock options............... -- -- 620 -- -- 620 Compensation of stock options granted....... -- -- 93 -- -- 93 Net income............. -- -- -- 4,249 -- 4,249 ---------- --- ------- -------- ---- ------- Balance, April 30, 1995................... 10,741,899 11 16,913 13,145 -- 30,069 Exercise of stock options............... 177,104 -- 140 -- -- 140 Repurchase of common stock................. (89,222) -- -- -- -- -- Tax benefit from exercise of stock options............... -- -- 424 -- -- 424 Compensation for stock options granted....... -- -- 306 -- -- 306 Net loss............... -- -- -- (744) -- (744) ---------- --- ------- -------- ---- ------- Balance, April 30, 1996................... 10,829,781 11 17,783 12,401 -- 30,195 Exercise of stock options............... 313,403 -- 58 -- -- 58 Repurchase of common stock................. (29,124) -- (275) -- -- (275) Proceeds from warrants.............. -- -- 148 -- -- 148 Compensation for stock options granted....... -- -- 306 -- -- 306 Net loss............... -- -- -- (27,219) -- (27,219) Translation adjustment............ -- -- -- -- 188 188 ---------- --- ------- -------- ---- ------- Balance, April 30, 1997................... 11,114,060 11 18,020 (14,818) 188 3,401 Issuance of common stock................. 16,362 -- 184 -- -- 184 Repurchase of common stock................. (178,594) -- -- -- -- -- Compensation for stock options granted....... -- -- 204 -- -- 204 Net loss............... -- -- -- (5,059) -- (5,059) Translation adjustment............ -- -- -- -- 3 3 ---------- --- ------- -------- ---- ------- Balance, December 31, 1997................... 10,951,828 $11 $18,408 $(19,877) $191 $(1,267) ========== === ======= ======== ==== =======
The accompanying notes are an integral part of these consolidated financial statements. F-5 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
EIGHT MONTHS ENDED YEARS ENDED APRIL 30, DECEMBER 31, -------------------------- -------------------- 1995 1996 1997 1996 1997 ------- ------- -------- ----------- -------- (UNAUDITED) Cash flows from operating activities: Net income (loss)........... $ 4,249 $ (744) $(27,219) $(17,469) $ (5,059) Adjustments to reconcile net income (loss) to the cash provided by (used in) operating activities--..... Depreciation and amortization............... 756 1,985 3,172 1,817 2,138 Gain on sale of property and equipment.............. -- (21) -- -- -- Noncash expense for stock options.................... 93 306 306 204 204 Noncash interest expense.... -- -- -- -- 184 Write-off of non-current assets..................... -- 388 250 -- -- Deferred income taxes....... 1,360 (335) (6,649) -- 128 Minority interest in earnings (loss) of subsidiary................. -- 25 28 (4) (66) Changes in assets and liabilities: Trade receivables.......... (7,824) (3,229) 3,926 (1,823) (12,338) Inventories................ (1,343) (2,193) (1,508) (824) 1,066 Income taxes receivable.... -- (1,403) (176) -- 174 Other current assets....... (1,364) (2,232) 5,732 2,713 (1,864) Other assets............... (1,098) (467) 5,610 -- 543 Prepaid licenses and royalties................. (6,897) (5,966) (4,102) (3,922) (1,714) Accounts payable........... (328) 7,589 (1,999) (272) 146 Accrued expenses........... 4,027 9,223 5,618 7,047 (1,449) Income taxes payable....... (347) (467) -- (5,919) (310) ------- ------- -------- -------- -------- Net cash provided by (used in) operating activities............... (8,716) 2,459 (17,011) (18,452) (15,319) ------- ------- -------- -------- -------- Cash flows from investing activities: Purchase of property and equipment.................. (3,323) (4,585) (3,451) (1,981) (792) Proceeds from sales of property and equipment..... -- 14 -- -- -- Acquisition of subsidiary, net of cash acquired of $119....................... -- (3,196) -- -- -- Proceeds from sale of investment in affiliate.... -- 200 -- -- -- Proceeds from sale of marketable securities...... 15,012 69 -- -- -- ------- ------- -------- -------- -------- Net cash provided by (used in) investing activities............... 11,689 (7,498) (3,451) (1,981) (792) ------- ------- -------- -------- -------- Cash flows from financing activities: Net borrowings on line of credit..................... -- 5,050 5,900 5,392 12,296 Issuances of Subordinated Secured Promissory Notes and Warrants............... -- -- 14,803 13,230 -- Repayments on notes pay- able....................... (122) (117) (75) (34) (62) Proceeds from exercise of stock options.............. 54 140 58 57 -- Tax benefit from stock op- tion exercise.............. 620 424 -- -- -- Other financing activities.. -- (11) -- -- -- ------- ------- -------- -------- -------- Net cash provided by financing activities..... 552 5,486 20,686 18,645 12,234 ------- ------- -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents................. -- (58) 263 -- 3 ------- ------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents... 3,525 389 487 (1,788) (3,874) Cash and cash equivalents, beginning of year........... 1,009 4,534 4,923 4,923 5,410 ------- ------- -------- -------- -------- Cash and cash equivalents, end of year................. $ 4,534 $ 4,923 $ 5,410 $ 3,135 $ 1,536 ======= ======= ======== ======== ======== Supplemental cash flow information: Cash paid during the year for: Interest.................... $ 22 $ 480 $ 1,638 $ 822 $ 2,936 ======= ======= ======== ======== ======== Income taxes................ $ 1,318 $ 526 $ -- $ -- $ -- ======= ======= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-6 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. LINE OF BUSINESS Interplay Entertainment Corp., a Delaware corporation, and its subsidiaries (collectively with Interplay Productions, a California corporation, the "Company"), develop, publish, and distribute interactive entertainment software. In addition, the Company distributes certain titles to hardware or peripheral device manufacturers for use in bundling arrangements. The Company's software is developed for use on various interactive entertainment software platforms, including personal computers and current generation video game consoles, such as the PlayStation and Nintendo 64. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The accompanying consolidated financial statements include the accounts of Interplay Entertainment Corp. and its wholly-owned subsidiaries, Interplay Productions, Ltd. (U.K.), Interplay OEM, Inc., Interplay Entertainment Pty Ltd (Australia), Interplay Co. Ltd. (Japan) and its 91 percent-owned subsidiary Shiny Entertainment, Inc. All significant intercompany accounts and transactions have been eliminated. Change of Fiscal Year End Effective May 1, 1997, the Company changed its fiscal year end from April 30 to December 31. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make 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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Inventories Inventories consist of CD-ROMs, video game console cartridges (cartridges), manuals, packaging materials, supplies and packaged software ready for shipment and are valued at the lower of cost (first-in, first-out) or market. Prepaid Licenses and Royalties Prepaid licenses and royalties consist of payments for intellectual property rights, payments to celebrities and sports leagues and certain other outside production costs. Also included in prepaid licenses and royalties are payments made to independent software developers under development agreements. Prepaid royalties are expensed as cost of goods sold over a period of six months from the initial shipment of product. Management evaluates the future realization of prepaid royalties quarterly and charges to cost of goods sold any amounts that management deems unlikely to be fully realized through future product sales. Such costs are classified as current and noncurrent assets based upon estimated net product sales. Property and Equipment Property and equipment are stated at cost. Depreciation of computers, equipment and furniture and fixtures is provided using the straight-line method over a five year period. Leasehold improvements are amortized on a straight line basis over the lesser of the estimated useful life or the remaining lease term. F-7 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Other Non-current Assets Other non-current assets consist primarily of goodwill which the Company is amortizing on a straight-line basis over seven years (see Note 3). Accumulated amortization as of April 30, 1995, 1996 and 1997 and December 31, 1997 was $0, $327, $710 and $965, respectively. Long-lived Assets As prescribed by Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of," the Company assesses the recoverability of its long-lived assets (including goodwill) by determining whether the asset balance can be recovered over the remaining depreciation or amortization period through projected undiscounted future cash flows. Cash flow projections, although subject to a degree of uncertainty, are based on trends of historical performance and management's estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions. Fair Value of Financial Instruments The carrying value of cash and cash equivalents, accounts receivable, accounts payable and notes payable approximates the fair value. In addition, the carrying value of all borrowings approximate fair value based on interest rates currently available to the Company. Revenue Recognition Revenues are recorded when products are shipped to customers. For those agreements that provide the customers the right to multiple copies in exchange for guaranteed amounts, revenue is recognized at the delivery of the product master or the first copy. Per copy royalties on sales that exceed the guarantee are recognized as earned. The Company is generally not contractually obligated to accept returns, except for defective product. However, the Company permits customers to return or exchange product and may provide price protection on products unsold by a customer. Revenue is recorded net of an allowance for estimated returns, markdowns, price concessions, and warranty costs. Such reserves are based upon management's evaluation of historical experience, current industry trends and estimated costs. The amount of reserves ultimately required could differ materially in the near term from the amounts included in the accompanying consolidated financial statements. Product Development Product development expenses are charged to operations in the period incurred and consist primarily of payroll and payroll related costs. Income Taxes The Company accounts for income taxes using the liability method as prescribed by the SFAS No. 109, "Accounting for Income Taxes." The statement requires an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes are provided for temporary differences in the recognition of certain income and expense items for financial reporting and tax purposes given the provisions of the enacted tax laws. Foreign Currency Translation The Company follows the principles of SFAS No. 52, "Foreign Currency Translation," using the local currency of its operating subsidiaries as the functional currency. Accordingly, all assets and liabilities outside the United States are translated into U.S. dollars at the rate of exchange in effect at the balance sheet date. Income and expense items are translated at the weighted average exchange rate prevailing during the period. F-8 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net Income (Loss) Per Share The Company accounts for net income per share in accordance with SFAS No. 128 "Earnings Per Share" and SFAS No. 129, "Disclosure of Information about Capital Structure." Basic net income (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding. Diluted net income (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding plus the effect of any dilutive stock options and common stock warrants issued in connection with Subordinated Secured Promissory Notes. For the year ended April 30, 1995, 1,478,000 dilutive stock options were included in the diluted net income per share calculation. For years ended April 30, 1996 and 1997 and the eight months ended December 31, 1997, all options and warrants to purchase common stock were excluded from the diluted loss per share calculation as the effect of such inclusion would be antidilutive (see Note 10). Pro Forma Data (unaudited) Pro forma net income represents the reduction of interest expense assuming (i) the conversion or repayment of the Subordinated Secured Promissory Notes (Notes) as of the beginning of the period, and (ii) the application of proceeds of the Offering to repay the outstanding borrowings on the line of credit. Pro forma net income per share was computed by dividing pro forma net income by the pro forma weighted average shares outstanding. Pro forma weighted average shares includes an estimated number of shares of common stock from the exercise of common stock warrants, and an estimated number of shares of common stock issued in the Offering sufficient to repay the outstanding borrowings on the line of credit and the Notes that are not expected to convert to common stock. Stock-Based Compensation As permitted under generally accepted accounting principles, the Company accounts for employee stock options in accordance with the Accounting Principles Board Opinion No. 25 and makes the necessary pro forma disclosures mandated by SFAS No. 123 (see Note 10). Pending Accounting Pronouncements In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." In addition, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 97-2, "Software Revenue Recognition" and SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SFAS No. 130, SFAS No. 131 and SOP 97-2 are effective for fiscal years beginning after December 15, 1997 and SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The Company does not believe that adoption of these standards will have a material impact on the Company's results of operations. F-9 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 3. ACQUISITION Effective June 24, 1995, the Company acquired a 91 percent interest in Shiny Entertainment, Inc. (Shiny) for $3.6 million in cash and stock. The acquisition was accounted for using the purchase method. The allocation of purchase price is summarized as follows: Cash and cash equivalents............................................ $ 119 Receivables.......................................................... 107 Other current assets................................................. 6 Property and equipment............................................... 417 Goodwill............................................................. 3,057 Accounts payable and accrued expenses................................ (82) ------ Total purchase price............................................... $3,624 ======
The purchase agreement requires the Company to pay the former owner of Shiny additional cash payments of up to $5,325 upon the delivery and acceptance of five future Shiny interactive entertainment software titles, as defined. Future payments, if any, will be expensed in the six-month period following the initial shipment of such products. As of December 31, 1997, the Company had not been required to make any additional payments. 4. DETAIL OF SELECTED BALANCE SHEET ACCOUNTS Inventories Inventories consist of the following:
APRIL 30, ------------- DECEMBER 31, 1996 1997 1997 ------ ------ ------------- Packaged software.............................. $4,211 $5,309 $4,171 CD-ROMs, cartridges, manuals, packaging and supplies...................................... 1,685 2,095 2,167 ------ ------ ------ $5,896 $7,404 $6,338 ====== ====== ======
Other Current Assets Other current assets consist of the following:
APRIL 30, ------------- DECEMBER 31, 1996 1997 1997 ------ ------ ------------- Prepaid expenses................................ $2,960 $ 977 $1,640 Royalties receivables........................... 1,331 581 1,644 Deposits........................................ 553 560 162 Other receivables............................... 236 236 772 Stockholder receivable.......................... 973 -- -- ------ ------ ------ $6,053 $2,354 $4,218 ====== ====== ======
F-10 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Property and Equipment Property and equipment consists of the following:
APRIL 30, ---------------- DECEMBER 31, 1996 1997 1997 ------- ------- ------------- Computers and equipment.................... $ 9,179 $11,325 $12,383 Furniture and fixtures..................... 336 702 474 Leasehold improvements..................... 1,249 1,514 1,125 ------- ------- ------- 10,764 13,541 13,982 Less -- accumulated depreciation and amor- tization.................................. (2,926) (5,424) (6,956) ------- ------- ------- $ 7,838 $ 8,117 $ 7,026 ======= ======= =======
Accrued Expenses Accrued expenses consist of the following:
APRIL 30, --------------- DECEMBER 31, 1996 1997 1997 ------- ------- ------------ Royalties payable.............................. $ 5,463 $ 8,178 $ 6,901 Accrued payroll................................ 2,621 2,261 2,707 Payable to distributor......................... 2,806 1,715 4,240 Accrued bundle and affiliate................... 2,115 4,149 2,923 Deferred income................................ -- 2,464 3,442 Other.......................................... 2,544 2,333 2,336 ------- ------- ------- $15,549 $21,100 $22,549 ======= ======= =======
5. SHORT-TERM BORROWINGS In May 1993, the Company entered into a trade finance agreement with a bank, bearing interest at prime (8.25 percent at April 30, 1996) plus one-half percent. Amounts outstanding under this agreement were $5,050 at April 30, 1996. This agreement expired in October 1996. In April 1996, the Company entered into a line of credit agreement with the same bank, bearing interest at prime plus one-half percent. No amounts were outstanding under this line of credit at April 30, 1996, and the line of credit expired in June 1996. In October 1996, the Company entered into a trade finance agreement with two banks, bearing interest at prime (8.5 percent at April 30, 1997) plus one-half percent. Amounts outstanding under this agreement were $10,950 at April 30, 1997. In June 1997, the Company retired this trade finance agreement and entered into a Loan and Security Agreement with a financial institution (see Note 6). F-11 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 6. LONG-TERM DEBT Long-term debt consists of the following:
APRIL 30, -------------- DECEMBER 31, 1996 1997 1997 ----- ------- ------------ Subordinated Secured Promissory Notes......... $ -- $14,655 $ 14,655 Loan Agreement................................ -- -- 23,246 Other......................................... 108 315 253 ----- ------- -------- 108 14,970 38,154 Less--current portion......................... (57) (123) (14,767) ----- ------- -------- $ 51 $14,847 $ 23,387 ===== ======= ========
Subordinated Secured Promissory Notes From October 1996 through February 1997, the Company issued $14,803 in Subordinated Secured Promissory Notes (Notes) and Warrants to purchase common stock (Warrants). Employees, officers, and directors of the Company hold $2.6 million of the total Notes outstanding. Of the total proceeds received, $14,655 represents the principal amount of the Notes and $148 represents the purchase price of the Warrants. The amount paid for the Warrants approximates management's estimate of the fair market value of the Warrants at the date of issuance and is included in paid-in capital in the accompanying consolidated balance sheets. The Notes bear interest at a rate of 12.0 percent per year. Interest is payable quarterly, with the first payment due May 1, 1997. The principal amount and all accrued but unpaid interest will be payable upon the consummation of a qualified initial public offering (IPO), as defined or the sale of substantially all of the Company's assets or a merger where the Company is not the surviving entity (Sales Transaction). If neither of these events occur prior to November 30, 1998, the Note holders may elect to extend the Notes one additional year or may notify the Company in writing of their desire to full payment in cash. Interest expense related to the notes was $856 for the year ended April 30, 1997 and $1,172 for the eight months ended December 31, 1997. Each Warrant holder has the right to purchase from the Company the number of shares of common stock equal to the investor's aggregate investment (including Notes and Warrants) divided by the product of .70 multiplied by (a) the IPO price per share or (b) in the event of a Sales Transaction, the fair market value per share as determined in the Sales Transaction. The term of the Warrants commenced on the date of issuance and expire upon the redemption of the Notes, as described above (see Note 13). Effective May 1, 1997, certain Note holders elected to receive shares of common stock of the Company in lieu of cash at the scheduled interest payment date. The Company issued 16,362 shares in connection with this election. Loan Agreement In June 1997, the Company entered into a Loan and Security Agreement (Loan Agreement) with a financial institution which was amended in February 1998. Borrowings under the Loan Agreement bear interest at LIBOR (5.72 percent at December 31, 1997) plus 4.87 percent. The agreement provides for a line of credit and letters of credit to be issued, based in part on qualified receivables and inventory. Combined borrowings under this Loan Agreement may be up to a maximum of $35.0 million through August 30, 1998; $30.0 million from August 31 to December 30, 1998; and $25.0 million thereafter. Within the total credit limits, the Company may borrow up to $10.0 million in excess of its borrowing base through August 1998 and up to $5.0 million in excess of its borrowing F-12 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) base thereafter through December 30, 1998. The line of credit is secured by cash, accounts receivable and inventory and expires in May 1999. 7. INCOME TAXES The provision (benefit) for income taxes is comprised of the following:
YEARS ENDED, APRIL EIGHT 30, MONTHS ENDED --------------------- DECEMBER 31, 1995 1996 1997 1997 ------ ----- ------- ------------ Current: Federal................................ $ 915 $(275) $(1,689) $(179) State.................................. 125 10 -- -- Foreign................................ -- 456 153 51 ------ ----- ------- ----- 1,040 191 (1,536) (128) Deferred: Federal................................ 1,591 (653) (7,303) 128 State.................................. 213 (18) (226) -- ------ ----- ------- ----- 1,804 (671) (7,529) 128 ------ ----- ------- ----- $2,844 $(480) $(9,065) $ -- ====== ===== ======= =====
The Company's available net operating loss (NOL) carryforward for federal tax reporting purposes approximates $17.3 million and may be subject to certain limitations as defined under Section 382 of the Internal Revenue Code. The federal NOL carryforwards expire through the year 2012. The Company's NOL's for state tax reporting purposes approximate $13.0 million and expire through the year 2002. A reconciliation of the statutory federal income tax rate and the effective tax rate as a percentage of pretax income is as follows:
YEARS ENDED, EIGHT APRIL 30, MONTHS ENDED -------------------- DECEMBER 31, 1995 1996 1997 1997 ---- ----- ----- ------------ Statutory income tax rate............... 34.0 % (34.0)% (34.0)% (34.0)% State and local income taxes, net of federal income tax benefit............. 6.6 (3.0) (3.0) (3.0) Valuation allowance..................... -- -- 8.0 39.7 Other................................... (0.5) (2.2) 4.0 (2.7) ---- ----- ----- ----- Effective income tax rate............... 40.1 % (39.2)% (25.0)% -- % ==== ===== ===== =====
F-13 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) The components of the Company's net deferred income tax asset (liability) are as follows:
APRIL 30, ---------------- DECEMBER 31, 1996 1997 1997 ------- ------- ------------ Current deferred tax asset (liability): Prepaid royalties......................... $(4,681) $(3,060) $(2,760) Nondeductible reserves.................... 3,655 5,532 5,603 Accrued expenses.......................... 675 769 1,015 Foreign loss and credit carryforward...... 568 207 1,008 Federal and state net operating losses.... -- 6,264 6,668 Research and development credit carryforward............................. -- 831 831 Other..................................... 106 241 330 ------- ------- ------- 323 10,784 12,695 Valuation allowance....................... -- (2,895) (4,903) ------- ------- ------- $ 323 $ 7,889 $ 7,792 ======= ======= ======= Non-current deferred tax asset (liability): Depreciation expense...................... $ (591) $ (585) $ (625) Nondeductible reserves.................... 155 127 191 Other..................................... 70 55 -- ------- ------- ------- $ (366) $ (403) $ (434) ======= ======= =======
8. COMMITMENTS AND CONTINGENCIES Leases The Company leases office space in Irvine, California for its corporate offices. The lease expires in June 2006 with one five-year option to extend the term of the lease. The Company has also entered into various computer equipment operating leases. Future minimum lease payments under noncancelable operating leases are as follows: Year ending December 31: 1998............................................................... $ 2,036 1999............................................................... 1,710 2000............................................................... 1,414 2001............................................................... 1,522 2002............................................................... 1,669 Thereafter......................................................... 6,133 ------- $14,484 =======
Total rent expense was $362, $697 and $2,089 for the years ended April 30, 1995, 1996 and 1997, respectively, and $1,292 for the eight months ended December 31, 1997. F-14 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Pending Internal Revenue Service Examination The Internal Revenue Service (the IRS) is currently examining the Company's consolidated federal income tax returns for the years ended April 30, 1994, 1995 and 1996. The consolidated federal income tax return for the year ended April 30, 1997 remains open. The IRS has preliminarily challenged the timing of certain tax deductions taken by the Company. The Company is currently contesting such challenges. However, if the IRS is successful in its position, the effect on the consolidated financial statements would be to reduce amounts currently shown as deferred income taxes and net operating loss carryforwards and the recording of interest expense of approximately $700. In conjunction with this matter, the Company has recorded certain reserves and, in the opinion of management, settlement of this matter will not have a material adverse effect on the consolidated financial position or operating results of the Company. Litigation In July 1997, S3 Incorporated (S3), an original equipment manufacturer (OEM) customer, filed a complaint against the Company claiming, among other things, that the Company breached its obligations to S3 under a license agreement. In September 1997, the Company filed a cross-complaint against S3 claiming, among other things, that S3 breached the license agreement by failing to make guaranteed payments. Both parties are seeking in excess of $1 million in the lawsuit. The Company is also involved in other litigation arising from the normal course of business. Management believes that the final outcome of all legal matters will not have a material adverse effect on the Company's financial position or results of operations. Employment Agreements The Company has entered into employment agreements with three of its officers providing for, among other things, salary, bonuses and the right to participate in certain incentive compensation and other employee benefit plans established by the Company. Under these agreements, upon termination without cause or resignation for good reason, as defined, the employees are entitled to 150 percent of their annual salary and 75 percent of the imputed bonus, as defined. These agreements expire in 1999. 9. COMMON STOCK During 1994, the Company issued 1,824,897 shares of common stock for cash to a corporate stockholder. In addition, the corporate stockholder purchased 1,216,598 shares of common stock for cash from the founder of the Company (the Founder). In connection with this transaction, the corporate stockholder was granted options to purchase additional shares from the Founder, which were exercisable in 1995 and 1996. The corporate stockholder exercised these options and purchased 1,150,123 and 1,216,598 shares from the Founder during 1996 and 1995, respectively. 10. EMPLOYEE BENEFIT PLANS Stock Option Plans The Company has three stock option plans. Under the Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan--1991 (1991 Plan), the Company may grant options to its employees to purchase up to 2,250,000 shares of common stock. Under the Incentive Stock Option and Nonqualified Stock Option Plan--1994 (1994 Plan), the Company may grant options to its employees to purchase up to 808,300 shares of common stock. Under the 1997 Stock Incentive Plan, adopted in 1997, the Company may grant options to its employees, consultants and directors to purchase up to 700,000 shares of common stock (See Note 13). F-15 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Options under all three plans generally vest over five years. Holders of options under the 1991 Plan and the 1994 Plan shall be deemed 100 percent vested in the event of a merger in which the Company is not the surviving entity, a sale of substantially all of the assets of the Company, or a sale of all shares of common stock of the Company. The Company has treated the difference, if any, between the exercise price and the estimated fair market value, as determined by the board of directors on the date of grant, as compensation expense for financial reporting purposes. Compensation expense for the vested portion aggregated $306 for each of the years ended April 30, 1996 and 1997 and $204 for the eight months ended December 31, 1997. The following is a summary of options granted pursuant to the Company's stock option plans:
APRIL 30, 1996 APRIL 30, 1997 DECEMBER 31, 1997 ------------------- ------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE --------- -------- --------- -------- --------- -------- Options outstanding at beginning of year...... 1,665,479 $1.69 1,824,025 $ 3.16 1,629,022 $ 4.58 Granted................. 418,050 8.79 135,800 14.08 261,250 11.25 Exercised............... (177,104) 0.79 (313,403) 0.18 -- -- Cancelled............... (82,400) 7.16 (17,400) 8.50 (51,300) 12.52 --------- ----- --------- ------ --------- ------ Options outstanding at end of year............ 1,824,025 $3.16 1,629,022 $ 4.58 1,838,972 $ 5.31 ========= ===== ========= ====== ========= ====== Options exercisable..... 1,434,775 1,217,902 1,324,132 ========= ========= =========
The following outlines the significant assumptions used to calculate the fair value information presented utilizing the Black Scholes Single Option approach with ratable amortization:
APRIL 30, ---------------- DECEMBER 31, 1996 1997 1997 ----- ----- ------------ Risk free rate......................... 6.1% 6.1% 6.1% Expected life.......................... 7.12years 7.13years 8.02years Expected volatility.................... -- -- -- Expected dividends..................... -- -- -- Weighted-average grant-date fair value of options granted.................... $2.34 $3.68 $3.61
A detail of the options outstanding and exercisable as of December 31, 1997 is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------- ----------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE RANGE OF NUMBER CONTRACT EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING LIFE PRICE OUTSTANDING PRICE --------------- ----------- --------- -------- ----------- -------- $ 0.15-$ 0.47 572,874 4.24years $ 0.15 572,874 $ 0.15 2.00- 4.44 378,698 5.75years 2.66 378,698 2.66 4.50- 8.50 446,350 7.26years 7.91 278,360 7.84 13.20- 14.62 441,050 8.49years 11.65 94,200 11.62 ------------- --------- ---- ------ --------- ------ $ 0.15-$14.62 1,838,972 6.30years $ 5.31 1,324,132 $ 3.30 ============= ========= ==== ====== ========= ======
F-16 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) The following table shows pro forma net loss as if the fair value based accounting method prescribed by SFAS No. 123 had been used to account for stock based compensation cost:
YEARS ENDED APRIL 30, ---------------------- EIGHT MONTHS ENDED 1996 1997 DECEMBER 31, 1997 ---------- ----------- ------------------ Net loss as reported............ $ (744) $ (27,219) $(5,059) Pro forma compensation expense.. (121) (348) (276) --------- ----------- ------- Pro forma net loss.............. $ (865) $ (27,567) $(5,335) ========= =========== ======= Basic and diluted net loss as reported....................... $ (0.07) $ (2.46) $ (0.45) Basic and diluted pro forma net loss........................... $ (0.08) $ (2.49) $ (0.48)
Profit Sharing 401(k) Plan The Company sponsors a 401(k) plan (the Plan) for full-time employees over 18 years of age. Eligible employees may participate in the Plan in each year in which the employee has greater than 1,000 hours of service with the Company. The Company matches 50 percent of the participant's contributions up to the first six percent of the participant's salary deferral. The profit sharing contribution amount is at the sole discretion of the Company's board of directors. Participants vest at a rate of 20 percent per year after the first year of service for profit sharing contributions and 20 percent per year after the first three years of service for matching contributions. Participants become 100 percent vested upon death, permanent disability or termination of the Plan. Benefit expense for the years ended April 30, 1995, 1996 and 1997 was $53, $160, and $229, respectively, and $178 for the eight months ended December 31, 1997. 11. RELATED PARTIES In the fiscal years ended April 30, 1996 and 1997, the Company made advances to a business controlled by the Chairman and CEO of the Company. Such advances are currently fully reserved. Through December 1997, the Company rented office space from a stockholder of the Company. Rent expense paid to the stockholder was $236, $248 and $191 for the years ended April 30, 1995, 1996 and 1997, respectively and $160 for the eight months ended December 31, 1997. 12. SIGNIFICANT CUSTOMERS For the year ended April 30, 1997 one customer accounted for approximately 15 percent of net revenues. No single customer accounted for ten percent or more of net revenues in the years ended April 30, 1995 and 1996 and the eight months ended December 31, 1997. 13. SUBSEQUENT EVENTS Reincorporation On March 2, 1998, the Board of Directors of Interplay Productions approved a reincorporation plan. Under the reincorporation plan Interplay Productions formed a new subsidiary in Delaware into which Interplay Productions will be merged. The new Delaware Corporation has 50,000,000 Shares of Common Stock and 5,000,000 Shares of Preferred Stock authorized for issuance. F-17 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Initial Public Offering On March 2, 1998, the Company's Board of Directors authorized management to pursue an initial public offering of the Company's common stock (IPO). The Company plans to file an S-1 Registration Statement with the Securities and Exchange Commission to sell common stock to the public. The proceeds of the offering will be used, in part, to repay debt. Subordinated Secured Promissory Notes As discussed in Note 6, the Note holders may elect to convert their Notes to common stock upon the closing of a qualified IPO, as defined. In accordance with the terms of the Notes, the Company has requested that each holder elect to either convert the outstanding principal amount to common stock upon the closing of the IPO or receive full payment in cash from the proceeds of the IPO. In the event this IPO is completed, the holders of approximately $8.7 million of Notes and Warrants have elected to exercise their Warrants by cancellation of their Notes to common stock and the balance of approximately $6.1 million have requested payment in cash. If the Company does not complete the IPO prior to November 30, 1998, the holders have the option, 30 days thereafter, to notify the Company in writing, that they declare the Notes due and payable or may unilaterally elect to extend the Notes one year. Management's current projections indicate that there will be sufficient cash flow from operations to fund that obligation should the Note holders elect cash payment. However, if the Company is not able to achieve the operating plan and therefore cash flows from operations are insufficient to repay the Notes, management would be prepared to implement certain cost-cutting measures. Such measures would include deferrals of advertising expenditures, capital additions and product development projects. Stock Options Effective February 9, 1998, the Company repriced substantially all outstanding options with exercise prices greater than $8 per share and subsequently reissued these options with exercise prices equal to $8 per share. The effect of this has not been reflected in the information in Note 10. Effective February 23, 1998, the number of shares authorized under the 1991 Plan and the 1994 Plan were reduced to 898,425 and 639,984, respectively, and such plans were terminated for purposes of future grants. The aggregate reduction of 1,519,891 shares were contributed to the 1997 Plan resulting in 2,219,891 authorized shares under the 1997 Plan, of which 1,679,041 remain available for grant. Also, on February 23, 1998, the Company granted 240,100 stock options with an exercise price equal to the estimated fair market value of $8 per share. A schedule of the options outstanding as of February 28, 1998 giving effect for the repricing discussed above is as follows (unaudited):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------- -------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE RANGE OF NUMBER CONTRACT EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING LIFE PRICE OUTSTANDING PRICE --------------- ----------- ---------- -------- ----------- -------- $0.15-$ 0.47 676,659 4.16 years $0.20 676,659 $0.20 2.00- 4.44 274,913 6.00 years 3.48 274,913 3.48 4.50- 6.66 81,500 6.38 years 5.33 61,500 5.61 7.00- 11.25 1,023,134 8.39 years 8.16 321,760 8.21 ------------ --------- ---------- ----- --------- ----- $0.15-$11.25 2,056,206 6.60 years $4.80 1,334,832 $3.06 ============ ========= ========== ===== ========= =====
F-18 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 13. OPERATIONS BY GEOGRAPHICAL AREA The Company operates in one industry segment. Information about the Company's operations in the United States and foreign areas for the fiscal years ended April 30, 1996 and 1997 and for the eight months ended December 31, 1997 is presented below (operations in foreign areas during fiscal year 1995 were insignificant):
APRIL 30, APRIL 30, DECEMBER 31, 1996 1997 1997 --------- --------- ------------ Net revenues: United States........................... $79,176 $ 54,469 $64,454 United Kingdom.......................... 17,774 27,867 21,434 Other................................... 2 926 73 ------- -------- ------- Consolidated net revenues............. $96,952 $ 83,262 $85,961 ======= ======== ======= Loss from operations: United States........................... $(2,291) $(30,764) $ (538) United Kingdom.......................... 1,853 (3,871) (1,830) Other................................... 21 (49) (418) ------- -------- ------- Consolidated loss from operations..... $ (417) $(34,684) $(2,786) ======= ======== ======= Identifiable assets: United States........................... $57,550 $ 53,722 $65,535 United Kingdom.......................... 10,234 13,836 12,033 Other................................... 727 1,447 253 ------- -------- ------- Consolidated identifiable assets...... $68,511 $ 69,005 $77,821 ======= ======== =======
Net revenues for the years ended April 30, 1995, 1996 and 1997 and the eight months ended December 31, 1997 were made to geographic regions as follows:
APRIL 30, 1995 APRIL 30, 1996 APRIL 30, 1997 DECEMBER 31, 1997 --------------- --------------- --------------- ------------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ------- ------- ------- ------- ------- ------- --------- --------- North America........... $51,892 65.2% $54,702 56.4% $38,606 46.4% $ 51,833 60.3% Europe.................. 12,911 16.2 17,683 18.3 26,752 32.1 19,941 23.2 Rest of world........... 918 1.2 6,896 7.1 5,254 6.3 4,701 5.5 OEM, royalty and licensing.............. 13,825 17.4 17,671 18.2 12,650 15.2 9,486 11.0 ------- ----- ------- ----- ------- ----- --------- ------- $79,546 100.0% $96,952 100.0% $83,262 100.0% $ 85,961 100.0% ======= ===== ======= ===== ======= ===== ========= =======
F-19 FUTURE RELEASES BALDUR'S GATE CAESARS PALACE VIP SONS CRIME KILLER DESCENT: [ANIMATED DEPICTIONS OF CHARACTERS AND FREESPACE THE ARTWORK FROM CERTAIN OF THE LISTED FUTURE GREAT WAR RELEASES ARE ARRANGED VERTICALLY TO THE LEFT OF THE RIGHT COLUMN] EARTHWORM JIM 3D FALLOUT 2 M.A.X. 2 MECHANIZED ASSAULT + EXPLORATION MESSIAH REDNECK RAMPAGE RIDES AGAIN STARTREK: SECRET OF VULCAN FURY VR BASEBALL '99 VR FOOTBALL '99 WITH JIMMY JOHNSON WILD 9 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR- MATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CON- NECTION WITH THE OFFER MADE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH IN- FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE ANY OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SO- LICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUB- SEQUENT TO THE DATE OF THE PROSPECTUS. ---------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Summary Consolidated Financial Data...................................... 4 Risk Factors............................................................. 5 Use of Proceeds.......................................................... 16 Dividend Policy.......................................................... 16 Dilution................................................................. 17 Capitalization........................................................... 18 Selected Consolidated Financial Data..................................... 19 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 20 Business................................................................. 31 Management............................................................... 44 Principal Stockholders................................................... 52 Certain Transactions..................................................... 53 Description of Capital Stock............................................. 56 Shares Eligible for Future Sale.......................................... 59 Underwriting............................................................. 60 Legal Matters............................................................ 62 Experts.................................................................. 62 Available Information.................................................... 62 Index to Consolidated Financial Statements............................... F-1
---------------- UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Shares [LOGO OF INTERPLAY ENTERTAINMENT CORP] Common Stock ---------------- PROSPECTUS ---------------- Piper Jaffray Inc. Bear, Stearns & Co. Inc. UBS Securities , 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth all costs and expenses, other than underwriting discounts and commissions, payable by the Company in connection with the sale of the Common Stock being registered hereunder. All of the amounts shown are estimates except for the SEC registration fee and the NASD filing fee.
TO BE PAID BY THE COMPANY ------------- SEC registration fee........................................... $21,203 NASD filing fee................................................ * Nasdaq National Market application fee......................... * Printing expenses.............................................. * Legal fees and expenses........................................ * Accounting fees and expenses................................... * Blue sky fees and expenses..................................... * Transfer agent and registrar fees.............................. * Directors and officers insurance premiums...................... * Miscellaneous.................................................. * ------- Total........................................................ $ * =======
- -------- * To be filed by amendment ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS (a) As permitted by the Delaware General Corporation Law ("DGCL"), the Certificate of Incorporation of the Company (Exhibit 3.1 hereto) eliminates the liability of directors to the Company or its stockholders for monetary damages for breach of fiduciary duty as a directors, except to the extent otherwise required by the DGCL. (b) The Certificate of Incorporation provides that the Company will indemnify each person who was or is made a party to any proceeding by reason of the fact that such person is or was a director or officer of the Company against all expense, liability and loss reasonably incurred or suffered by such person in connection therewith to the fullest extent authorized by the DGCL. The Company's Bylaws (Exhibit 3.2 hereto) provide for a similar indemnity to directors and officers of the Company to the fullest extent authorized by the DGCL. (c) The Certificate of Incorporation also gives the Company the ability to enter into indemnification agreements with each of its directors and officers. The Company has entered into indemnification agreements with certain of its directors and officers (Exhibit 10.11 hereto), which provide for the indemnification of such persons against any and all expenses, judgments, fines, penalties and amounts paid in settlement, to the fullest extent permitted by law. (d) The Purchase Agreement to be entered into among the Company and the Underwriters (the form of which is filed as Exhibit 1.1 to this Registration Statement) requires the Underwriters to indemnify the Company and its officers and directors for certain liabilities, including certain liabilities under the Securities Act. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES The following is a summary of transactions by the Company during the last three years preceding the date hereof involving sales of the Company's securities that were not registered under the Securities Act: From January 10, 1995 to February 23, 1998, the Company issued an aggregate of 1,192,200 nonqualified stock options to purchase Common Stock pursuant to the Company's Incentive Stock Option and Nonqualified Stock Option Plan--1994 (the "1994 Plan") and pursuant to the Company's 1997 Stock Incentive Plan (the II-1 "1997 Plan") to officers, directors and employees of the Company as described in the Prospectus, at a weighted average exercise price of $9.56. Such options were issued but not sold, in the view of the Company, and, therefore, registration thereof was not required. During the same period, the Company issued an aggregate of 313,403 shares of its Common Stock to one officer and one employee upon the exercise of options issued under the Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan--1991 (the "1991 Plan") with purchase prices ranging from $0.153 to $0.472 per share for an aggregate consideration of $57,241.21. During the period referred to above, no options issued pursuant to the 1994 Plan and 1997 Plan were exercised. From October 10, 1996 to February 21, 1997, the Company issued Subordinated Secured Promissory Notes (the "Notes") and Warrants to purchase Common Stock, in the aggregate amount of $14,803,000 to 51 accredited investors, as defined under the Act, in a private offering. Subsequent to the closing of the private offering, the Company exchanged the original Notes bearing interest at the prime rate plus five percent (5%), but not less than ten percent (10%), per annum for Notes of equivalent principal value, but bearing interest at the rate of twelve percent (12%) per annum. Between May 7, 1997 and June 4, 1997, the Company issued 16,362 shares of Common Stock to Note holders who elected to convert the accrued interest on their Notes in the aggregate amount of $184,072.50 into such shares. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
EXHIBIT NO. DESCRIPTION ------- ----------- 1.1 Form of Purchase Agreement among the Company and the Underwriters.** 2.1 Agreement and Plan of Reorganization and Merger, dated , 1998, between the Company and Interplay Productions.** 3.1 Certificate of Incorporation of the Company.** 3.2 Bylaws of the Company.** 4.1 Specimen form of stock certificate for Common Stock.** 4.2 Shareholders' Agreement among MCA Inc., the Company, and Brian Fargo, dated March 30, 1994, as amended. 4.3 Investors' Rights Agreement dated October 10, 1996, as amended, among the Company and holders of its Subordinated Secured Promissory Notes and Warrants to purchase Common Stock. 5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation.** 10.1 Amended and Restated 1997 Stock Incentive Plan (the "1997 Plan").** 10.2 Form of Stock Option Agreement pertaining to the 1997 Plan. 10.3 Form of Restricted Stock Purchase Agreement pertaining to the 1997 Plan. 10.4 Incentive Stock Option and Nonqualified Stock Option Plan--1994, as amended (the "1994 Plan"). 10.5 Form of Nonqualified Stock Option Agreement pertaining to the 1994 Plan. 10.6 Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan--1991, as amended (the "1991 Plan"). 10.7 Form of Incentive Stock Option Agreement pertaining to the 1991 Plan. 10.8 Form of Nonqualified Stock Option Agreement pertaining to the 1991 Plan. 10.9 Intentionally omitted. 10.10 Employee Stock Purchase Plan. 10.11 Form of Indemnification Agreement for Officers and Directors of the Company.
II-2
EXHIBIT NO. DESCRIPTION ------- ----------- 10.12 Form of Subordinated Secured Promissory Note between the Company and note holders. 10.13 Form of Warrant to Purchase Common Stock between the Company and warrant holders. 10.14 Von Karman Corporate Center Office Building Lease between the Company and Aetna Life Insurance Company of Illinois ("Aetna"), dated September 8, 1995, together with amendments thereto. 10.15 Loan and Security Agreement among Greyrock Business Credit, a Division of NationsCredit Commercial Corporation ("Greyrock"), the Company, and Interplay OEM, Inc. ("Interplay OEM"), dated June 16, 1997, as amended, with Schedules. 10.16 Intentionally omitted. 10.17 Intentionally omitted. 10.18 Letter of Credit Agreement among Greyrock, the Company and Interplay OEM, dated September 10, 1997. 10.19 Letter of Credit Agreement among Greyrock, the Company and Interplay OEM, dated September 24, 1997. 10.20 Master Equipment Lease between Brentwood Credit Corporation and the Company, dated March 28, 1996, with Schedules. 10.21 Intentionally omitted. 10.22 Master Equipment Lease Agreement between General Electric Capital Computer Leasing Corporation ("GECC") and the Company, dated December 14, 1994, as amended, with Schedules. 10.23 Confidential License Agreement for Nintendo 64 Video Game System, between the Company and Nintendo of America, Inc., dated October 7, 1997. (Portions omitted pursuant to Rule 406.) 10.24 PlayStation License Agreement, between Sony Computer Entertainment of America and the Company, dated February 16, 1995. (Portions omitted pursuant to Rule 406.) 10.25 Master Merchandising License Agreement between Paramount Pictures Corporation and the Company, dated as of June 16, 1992. (Portions omitted pursuant to Rule 406). 10.26 Employment Agreement between the Company and Brian Fargo, dated March 28, 1994, as amended.** 10.27 Employment Agreement between the Company and Christopher J. Kilpatrick, dated May 1, 1994, as amended.** 10.28 Employment Agreement between the Company and Richard S.F. Lehrberg, dated March 28, 1994, as amended.** 11.1 Statement regarding computation of pro forma net income per share.** 12.1 Statements regarding computation of ratios.** 15.1 Letter regarding unaudited interim financial information.** 21.1 Subsidiaries of the Company.** 23.1 Consent of Stradling Yocca Carlson & Rauth, a Professional Corporation (to be contained in the opinion to be filed as Exhibit 5.1 hereto).** 23.2 Consent of Arthur Andersen LLP. 24.1 Power of Attorney (contained on the signature page of this Registration Statement). 27.1 Financial Data Schedule.
- -------- ** To be filed by amendment. II-3 (b) Financial Statement Schedules NUMBER Schedule II--Valuation and Qualifying Accounts All other schedules are omitted because they are not required under the related instructions, are inapplicable, or the information is included in the Consolidated Financial Statements or the Notes thereto. ITEM 17. UNDERTAKINGS The Company hereby undertakes to provide to the Representatives at the closing specified in the Purchase Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The Company hereby undertakes that: (1) For purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Act, each post- effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF IRVINE, STATE OF CALIFORNIA, ON THE 20TH DAY OF MARCH, 1998. INTERPLAY ENTERTAINMENT CORP. /s/ Brian Fargo By: _________________________________ BRIAN FARGO CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY We, the undersigned directors and officers of Interplay Entertainment Corp., do hereby constitute and appoint Brian Fargo and Christopher J. Kilpatrick, or either of them, our true and lawful attorneys and agents, to sign for us or any of us in our names and in the capacities indicated below, any and all amendments (including post-effective amendments) to this Registration Statement, or any related registration statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto and other documents required in connection therewith, and to do any and all acts and things in our names and in the capacities indicated below, which said attorneys and agents, or either of them, may deem necessary or advisable to enable said corporation to comply with the Securities Act of 1933, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission, in connection with this Registration Statement; and we do hereby ratify and confirm all that the said attorneys and agents, or either of them, shall do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE --------- ----- ---- /s/ Brian Fargo Chairman of the March 20, 1998 - ------------------------------------- Board of Directors BRIAN FARGO and Chief Executive Officer (Principal Executive Officer) /s/ Christopher J. Kilpatrick President and March 20, 1998 - ------------------------------------- Director CHRISTOPHER J. KILPATRICK /s/ James C. Wilson Chief Financial March 20, 1998 - ------------------------------------- Officer (Principal JAMES C. WILSON Financial and Accounting Officer) II-5 SIGNATURE TITLE DATE /s/ Richard S.F. Lehrberg Executive Vice March 20, 1998 - ------------------------------------- President and RICHARD S.F. LEHRBERG Director /s/ Mark Pinkerton Director March 20, 1998 - ------------------------------------- MARK PINKERTON /s/ Charles S. Paul Director March 20, 1998 - ------------------------------------- CHARLES S. PAUL /s/ Paul A. Rioux Director March 20, 1998 - ------------------------------------- PAUL A. RIOUX /s/ David R. Dukes Director March 20, 1998 - ------------------------------------- DAVID R. DUKES II-6 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Interplay Entertainment Corp: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of Interplay Entertainment Corp. included in this registration statement and have issued our report thereon dated March 20, 1998. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule included on page S-2 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Our report on the consolidated financial statements includes an explanatory paragraph that states that the Subordinated Secured Promissory Notes ("Notes") mature on November 30, 1998 and that the holders have the option to notify the Company in writing that they declare the Notes due and payable. In addition, the Company's line of credit matures in May 1999. Terms of these borrowings and management's plans in connection with repayment are, 30 days thereafter, discussed further in Notes 6 and 13 to the consolidated financial statements. Arthur Andersen LLP Orange County, California March 20, 1998 S-1 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (AMOUNTS IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD ----------- ---------- ---------- ---------- --------- Year Ended April 30, 1995 Allowance for doubtful accounts and returns............................ $ 1,448 $10,878 $ (7,294) $ 5,032 ======= ======= ======== ======= Year Ended April 30, 1996 Allowance for doubtful accounts and returns............................ $ 5,032 $26,882 $(22,814) $ 9,100 ======= ======= ======== ======= Year Ended April 30, 1997 Allowance for doubtful accounts and returns............................ $ 9,100 $34,424 $(28,630) $14,894 ======= ======= ======== ======= Eight Months Ended December 31, 1997 Allowance for doubtful accounts and returns............................ $14,894 $21,915 $(22,348) $14,461 ======= ======= ======== =======
S-2 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION PAGE ------- ----------- ------------ 1.1 Form of Purchase Agreement among the Company and the Underwriters.** 2.1 Agreement and Plan of Reorganization and Merger, dated , 1998, between the Company and Interplay Productions.** 3.1 Certificate of Incorporation of the Company.** 3.2 Bylaws of the Company.** 4.1 Specimen form of stock certificate for Common Stock.** 4.2 Shareholders' Agreement among MCA Inc., the Company, and Brian Fargo, dated March 30, 1994, as amended. 4.3 Investors' Rights Agreement dated October 10, 1996, as amended, among the Company and holders of its Subordinated Secured Promissory Notes and Warrants to purchase Common Stock. 5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation.** 10.1 Amended and Restated 1997 Stock Incentive Plan (the "1997 Plan").** 10.2 Form of Stock Option Agreement pertaining to the 1997 Plan. 10.3 Form of Restricted Stock Purchase Agreement pertaining to the 1997 Plan. 10.4 Incentive Stock Option and Nonqualified Stock Option Plan--1994, as amended (the "1994 Plan"). 10.5 Form of Nonqualified Stock Option Agreement pertaining to the 1994 Plan. 10.6 Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan--1991, as amended (the "1991 Plan"). 10.7 Form of Incentive Stock Option Agreement pertaining to the 1991 Plan. 10.8 Form of Nonqualified Stock Option Agreement pertaining to the 1991 Plan. 10.9 Intentionally omitted. 10.10 Employee Stock Purchase Plan. 10.11 Form of Indemnification Agreement for Officers and Directors of the Company. 10.12 Form of Subordinated Secured Promissory Note between the Company and note holders. 10.13 Form of Warrant to Purchase Common Stock between the Company and warrant holders. 10.14 Von Karman Corporate Center Office Building Lease between the Company and Aetna Life Insurance Company of Illinois ("Aetna"), dated September 8, 1995, together with amendments thereto. 10.15 Loan and Security Agreement among Greyrock Business Credit, a Division of NationsCredit Commercial Corporation ("Greyrock"), the Company, and Interplay OEM, Inc. ("Interplay OEM"), dated June 16, 1997, as amended, with Schedules. 10.16 Intentionally Omitted
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION PAGE ------- ----------- ------------ 10.17 Intentionally omitted. 10.18 Letter of Credit Agreement among Greyrock, the Company and Interplay OEM, dated September 10, 1997. 10.19 Letter of Credit Agreement among Greyrock, the Company and Interplay OEM, dated September 24, 1997. 10.20 Master Equipment Lease between Brentwood Credit Corporation and the Company, dated March 28, 1996, with Schedules. 10.21 Intentionally omitted. 10.22 Master Equipment Lease Agreement between General Electric Capital Computer Leasing Corporation ("GECC") and the Company, dated December 14, 1994, as amended, with Schedules. 10.23 Confidential License Agreement for Nintendo 64 Video Game System, between the Company and Nintendo of America, Inc., dated October 7, 1997. (Portions omitted pursuant to Rule 406.) 10.24 PlayStation License Agreement, between Sony Computer Entertainment of America and the Company, dated February 16, 1995. (Portions omitted pursuant to Rule 406.) 10.25 Master Merchandising License Agreement between Paramount Pictures Corporation and the Company, dated as of June 16, 1992. (Portions omitted pursuant to Rule 406). 10.26 Employment Agreement between the Company and Brian Fargo, dated March 28, 1994, as amended.** 10.27 Employment Agreement between the Company and Christopher J. Kilpatrick, dated May 1, 1994, as amended.** 10.28 Employment Agreement between the Company and Richard S.F. Lehrberg, dated March 28, 1994, as amended.** 11.1 Statement regarding computation of pro forma net income per share.** 12.1 Statements regarding computation of ratios.** 15.1 Letter regarding unaudited interim financial information.** 21.1 Subsidiaries of the Company.** 23.1 Consent of Stradling Yocca Carlson & Rauth, a Professional Corporation (to be contained in the opinion to be filed as Exhibit 5.1 hereto).** 23.2 Consent of Arthur Andersen LLP 24.1 Power of Attorney (contained on the signature page of this Registration Statement). 27.1 Financial Data Schedule.
- -------- ** To be filed by amendment. (b) Financial Statement Schedules EX-4.2 2 SHAREHOLDERS AGREEMENT - MCA, THE CO. & BRIAN FARG EXHIBIT 4.2 - -------------------------------------------------------------------------------- ----------------------- SHAREHOLDERS' AGREEMENT ----------------------- Dated as of March 30, 1994 - -------------------------------------------------------------------------------- TABLE OF CONTENTS -----------------
Page ---- ARTICLE I CERTAIN DEFINITIONS...................................... 1 ARTICLE II TRANSFER OF SHARES....................................... 4 Section 2.1. Transfer to Related Parties........... 4 Section 2.2. Transfers to Others................... 5 Section 2.3. MCA Right of First Refusal............ 5 Section 2.4. Individual Shareholder Right of First Refusal.................... 9 Section 2.5. Legend on Certificates................ 10 Section 2.6. No Other Transfers; Termination of Restrictions..................... 10 ARTICLE III REGISTRATION OF COMMON STOCK............................. 10 Section 3.1. Piggyback Registration Rights......... 10 Section 3.2. Demand Registration Rights............ 12 Section 3.3. Provision of Information.............. 16 Section 3.4. New Certificates...................... 16 Section 3.5. Indemnification....................... 17 Section 3.6. Standby............................... 20 Section 3.7. Assignment............................ 20 ARTICLE IV CORPORATE GOVERNANCE..................................... 20 Section 4.1. Representation on the Board and Committees...................... 20 Section 4.2. Voting................................ 22 Section 4.3. Corporate Actions..................... 22
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Page ---- ARTICLE V CERTIFICATE OF INCORPORATION............................. 24 Section 5.1. Certificate of Incorporation.......... 24 ARTICLE VI MISCELLANEOUS............................................ 24 Section 6.1. Survival of Agreement; Term........... 24 Section 6.2. Directors' and Officers' Insurance and Indemnification................. 24 Section 6.3. Notices............................... 25 Section 6.4. Further Assurances.................... 26 Section 6.5. Binding Effect........................ 26 Section 6.6. Complete Agreement.................... 26 Section 6.7. Counterparts.......................... 26 Section 6.8. Headings.............................. 26 Section 6.9. Conflict with Bylaws.................. 26 Section 6.10. Governing Law......................... 26 Section 6.11. Injunctive Relief..................... 27
-ii- SHAREHOLDERS' AGREEMENT ----------------------- This Shareholders' Agreement, dated March 30, 1994, is by and among INTERPLAY PRODUCTIONS, INC., a California corporation (the "Company"), MCA INC., a Delaware corporation ("MCA"), and Brian Fargo (the "Individual Shareholder" and with MCA, the "Shareholders"). WITNESSETH: WHEREAS, the Company, MCA and the Individual Shareholder have entered into a Stock Purchase Agreement, dated January 25, 1994, pursuant to which, among other things, MCA is purchasing from the Company and the Individual Shareholder an aggregate of 3,041,495 shares of Common Stock, no par value, of the Company; WHEREAS, pursuant to and as a condition to the closing of the Stock Purchase Agreement, the Company, MCA and the Individual Shareholder have agreed to enter into this Shareholders' Agreement; and WHEREAS, the Company, MCA and the Individual Shareholder desire to enter into this Shareholders' Agreement to provide certain rights and obligations among them; NOW, THEREFORE, in consideration of the premises and the mutual agreements, covenants and provisions contained herein, and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I CERTAIN DEFINITIONS As used in this Shareholders' Agreement, the terms defined below shall have the respective meanings hereinafter specified. Whenever used in this Shareholders' Agreement, any noun or pronoun shall be deemed to include both the singular and plural and to cover all genders. Unless otherwise specified, (a) the terms "hereof," "herein" and similar terms refer to this Shareholders' Agreement as a whole and (b) references herein to Sections refer to Sections of this Shareholders' Agreement. "Board" shall have the meaning specified in Section 4.1. "Common Stock" shall mean the Common Stock of the Company, no par value. "Company" shall mean Interplay Productions, Inc., a California corporation. "Control" (including the terms "controlling," "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a corporation partnership or other entity (including without limitation, the power to direct the voting of any securities held by such corporation, partnership or other entity), whether through the ownership of the voting securities of such corporation, partnership or other entity, by contract, or otherwise, unless the context indicates otherwise; provided, however, that the ownership of fifty -------- ------- percent (50%) or more of the voting securities of such corporation, partnership or other entity shall in any event be deemed to constitute control. "Employee Options" shall have the meaning specified in Section 4.3(a) of the Stock Purchase Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Incentive Plan" shall have the meaning specified in Section 4.4(ii). "Individual Shareholder" shall have the meaning specified in the preamble to this Shareholders' Agreement, and shall include his Permitted Transferees. "MCA" shall mean MCA, INC., a Delaware corporation. "MCA Designees" shall have the meaning specified in Section 4.2. "MCA Options" shall mean the options for the purchase of shares of Common Stock granted pursuant to the Option Agreement. "MCA Shareholders" shall mean MCA and its Permitted Transferees. -2- "Option Agreement" shall mean the Option Agreement, dated the date hereof, by and among MCA, the Company and the Shareholders listed therein. "Permitted Transferees" shall mean individuals or entities to whom or to which shares of Common Stock are transferred in accordance with Section 2.1 hereof. "Person" shall have the meaning specified in Section 2.1(b). "Proposal" shall have the meaning specified in Section 2.3. "Public Offering" shall mean the completion of a sale by the Company of shares of Common Stock pursuant to an effective registration statement under the Securities Act. "Purchaser" shall have the meaning specified in Section 2.3. "Purchaser Information" shall have the meaning specified in Section 2.3. "Registration Statement" shall have the meaning specified in Section 3.1. "Restricted Securities" shall have the meaning specified in Section 3.1. "SEC" shall mean the Securities and Exchange Commission. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations thereunder. "Shareholders" shall mean MCA and the Individual Shareholder, and, subject to the transfer restrictions set forth herein, transferees which acquire Common Stock in accordance with this Shareholders' Agreement, from time to time, and are required by this Shareholders' Agreement to agree to be bound, and agree to be bound, by the terms and conditions hereof (as amended). The term "Shareholder" shall mean any one of the Shareholders and, in the case of a Shareholder who is a natural person, the term "Shareholder" shall also include such Shareholder's legal representatives, executors or administrators when the context so requires. -3- "Stock Purchase Agreement" shall mean the stock purchase agreement, dated January 25, 1994, by and among the Company, MCA and the Individual Shareholder. "Third Party" shall have the meaning set forth in Section 2.3(b) hereof. "Third-Party Investment" shall have the meaning set forth in Section 2.3(b) hereof. "Third-Party Shares" shall have the meaning set forth in Section 2.3(b) hereof. ARTICLE II TRANSFER OF SHARES Section 2.1. Transfer to Related Parties. (a) The Individual --------------------------- Shareholder may transfer shares of Common Stock to a spouse or child of the Individual Shareholder, to a trust for the benefit of a spouse or child of such Individual Shareholder or as required by court order, and, upon the death of an Individual Shareholder, such Individual Shareholder's executors, administrators or legal representatives may transfer shares of the Common Stock to the Individual Shareholder's heirs or legatees without complying with the restrictions of Section 2.3 of this Shareholders' Agreement, so long as the transferee agrees in writing to be bound by the terms and conditions of this Shareholders' Agreement, as amended from time to time. (b) The MCA Shareholders may transfer shares of Common Stock to any corporation, partnership or other person or entity (collectively, a "Person"), provided (i) the transferee agrees in writing to be bound by the terms and - -------- conditions of this Shareholders' Agreement, as amended from time to time, and (ii) one of the following conditions has been met: (x) MCA owns, directly or indirectly, 100% of the outstanding capital stock of the transferee; (y) MCA owns, directly or indirectly, 50% or more of the outstanding capital stock of the transferee and MCA has given the Company 150 days prior notice of any such transfer; or (z) the transfer is made to a transferee controlled by MCA in connection with a corporate reorganization of MCA involving more than $1 billion in assets of MCA. The provisions of this Section 2.1(b) shall apply for a maximum period of two years from and after the date hereof and shall cease to restrict transfers by MCA of any of the shares of Common Stock after the earlier of the second anniversary of the date hereof or the date the Company is first subject to the periodic reporting requirements under the Exchange Act; provided, -------- however, - ------- -4- that nothing in this Section 2.1(b) shall affect the voting restrictions and the rights of first refusal set forth in this Agreement. The MCA Shareholders hereby agree that, before MCA divests itself of control over any transferee hereunder, the MCA Shareholders shall first transfer all of the shares of Common Stock beneficially owned by such transferee to another corporation, partnership or other entity pursuant to the first sentence of this Section 2.1(b). Section 2.2. Transfers to Others. (a) Following the earlier of the ------------------- date the Company is first subject to the periodic reporting requirements under the Exchange Act or two (2) years from the date hereof, in addition to transfers permitted by Section 2.1, the Individual Shareholder may transfer shares of Common Stock to any entity or individual, upon complying with the restrictions of Section 2.3 of this Shareholders' Agreement, so long as such transfer is accompanied by an opinion of counsel, satisfactory to the Company and MCA, that such transfer may be effected without registration under the Securities Act and so long as such transferee agrees in writing to be bound by the terms and conditions of this Shareholders' Agreement, as amended from time to time. (b) Following the earlier of the date the Company is first subject to the periodic reporting requirements under the Exchange Act or two (2) years from the date hereof, in addition to transfers permitted by Section 2.1, any MCA Shareholder may transfer shares of Common Stock upon complying with the restrictions set forth in Section 2.4 of this Shareholders' Agreement (i) pursuant to a Registration Statement as contemplated by Article III or (ii) pursuant to an opinion of counsel, satisfactory to the Company and MCA, that such transfer may be effected without registration under the Securities Act, so long as such transferee in the case of the foregoing clause (ii) agrees in writing to be bound by the terms and conditions of this Shareholders' Agreement, as amended from time to time. Section 2.3. MCA Right of First Refusal. (a) For as long as the MCA -------------------------- Shareholders own 10% of the then outstanding Common Stock and except for the transfer of shares of Common Stock (i) from the Individual Shareholder in connection with the exercise of, and in accordance with the terms of, the MCA Option, (ii) by the Individual Shareholder pursuant to Section 2.1, or (iii) pursuant to subsection (b) of this Section 2.3, the Individual Shareholder may not sell, give or transfer any shares of Common Stock to any other person or entity unless (a) the Individual Shareholder shall have received a written offer (the "Proposal") from a bona fide proposed purchaser of such shares (the "Purchaser"), which Proposal shall remain open and -5- available for acceptance for at least thirty (30) days and provide for the sale of a designated number of shares to the Purchaser (subject only to the rights of MCA under this Section 2.3) at a sales price consisting solely of cash at closing, and containing the written agreement of the Purchaser to be bound by the terms and conditions of this Shareholders' Agreement, as amended from time to time, and (b) the Individual Shareholder shall have first offered such shares of Common Stock to MCA in writing at the price and on the terms specified in the Proposal. Each Proposal shall include the following information ("Purchaser Information"): the name of the Purchaser; the identity of each holder of 10% or more of the equity or voting power of the Purchaser; a description of any agreement or understanding, written or oral, with any Shareholder, the Company, or any affiliate of the Company; and any other information reasonably requested by MCA. From and after the second anniversary of the date hereof, if MCA shall not have exercised each of the MCA Options, MCA shall not be permitted to exercise its right of first refusal under this Section 2.3 unless the price per share at which the Individual Shareholder proposes to sell Common Stock shall be less than $9 per share (adjusted to give effect to any stock splits, reverse stock splits, reclassifications or other similar events occurring after the date hereof), in which case MCA's rights of first refusal under this Section 2.3 shall continue to apply to such proposed sale. Subject to the first sentence of this Section 2.3, the right of first refusal granted to MCA hereunder shall not be transferable or assignable by MCA and may be retained by MCA notwithstanding the transfer of Common Stock by MCA hereunder. The offer to MCA shall be open for a period of fifteen (15) calendar days from the date thereof. No exercise of a right of first refusal pursuant to this section shall be effective unless such exercise shall be for the entire number of shares to be sold, given or transferred. Unless MCA elects to accept such offer as provided herein, the Individual Shareholder may sell all (but not less than all) of such shares of Common Stock to the Purchaser in accordance with the terms of the Proposal, provided that such sale is made within one hundred twenty (120) days of the date of the Proposal. If such sale is not consummated within such 120-day period, the restrictions provided for herein shall again become effective, and no sale, transfer, or assignment of such Common Stock may be made thereafter without again offering the same to MCA in accordance with this Shareholders' Agreement. -6- The Individual Shareholder may pledge or otherwise encumber his Common Stock to secure indebtedness of the Individual Shareholder owing to a bank or other financial institution approved in writing by MCA, which approval shall not be unreasonably withheld; provided, however, that any transferee pursuant to -------- ------- this paragraph shall acquire only a security interest in the Common Stock and the Individual Shareholder shall retain all voting rights to such Stock while pledged or encumbered, and title to such Common Stock shall not pass to such transferee until he or it has first offered such Common Stock to MCA at fair market value. For purposes of this section, fair market value is to be determined by an appraiser selected by MCA and approved by the Individual Shareholder. Any appraiser selected hereto shall be a nationally recognized investment banking firm. The fees of any such appraiser are to be borne by the Individual Shareholder. Notwithstanding the foregoing, MCA shall not have any right of first refusal with respect to (i) shares of Common Stock sold by the Individual Shareholder pursuant to Rule 144 under the Securities Act which are sold within the volume limitations set forth in Rule 144(e) or pursuant to Rule 144(k) (provided that any such transferee shall not be bound by the terms of this Shareholders' Agreement) or (ii) shares of Common Stock sold pursuant to the provisions of subsection (b) of this Section 2.3. (b) Notwithstanding the provisions of subsection (a) of this Section 2.3, for a period ending on the earlier of (x) the second anniversary of the date hereof and (y) the date of the Company's initial Public Offering, MCA shall not have a right of first refusal in respect of a single investment in shares of Common Stock of the Company by one or more third parties (the "Third Party Investment"), which is not, prior to such investment, affiliated with the Company or the Individual Shareholder (the "Third Party"), so long as the Third- Party Investment meets each of the following conditions: (i) the aggregate number of shares of Common Stock to be purchased by the Third Party (the "Third-Party Shares") does not exceed fifteen (15%) percent of the fully diluted outstanding shares of Common Stock of the Company (the term "fully diluted" being used herein to mean after giving effect to (A) the exercise of all then outstanding options, warrants or other then-existing rights to purchase Common Stock, whether or not immediately exercisable, (B) the issuance of shares of Common Stock to MCA and (C) consummation of the Third-Party Investment); -7- (ii) the price per share paid by the Third-Party for each of the Third-Party Shares is not less than $8.22 in cash per share; and (iii) the Third-Party is not one of the parties listed on Annex A hereto. The Individual Shareholder, the Company and MCA further covenant and agree that (i) shares of Common Stock transferred to the Third Party in respect of the first $14 million of the net proceeds to be paid in connection with the Third Party Investment may be sold to the Third Party by the Individual Shareholder and that the proceeds of any such sale may be retained by the Individual Shareholder; (ii) shares of Common Stock transferred to the Third Party in respect of the next $2 million of the net proceeds to be paid in connection with the Third Party Investment shall be issued and sold by the Company and that the proceeds of any such sale shall be retained by the Company; and (iii) shares of Common Stock to be issued or transferred, as the case may be, to the Third Party in respect of any amount in excess of $16 million to be paid in connection with the Third Party Investment shall be issued or transferred and sold by the Company and the Individual Shareholder, respectively, in equal proportions and that the one half of the proceeds of any such sale shall be retained by each of the Company and the Individual Shareholder. In connection with the Third-Party Investment, the Company shall be permitted to grant to the Third-Party Investor (i) not more than one (1) seat on the Company's Board of Directors; (ii) piggy-back registration rights which shall be pari passu with those granted to MCA; and (iii) not more than one (1) demand registration right, which shall not be exercisable prior to the second anniversary of the date of this Agreement. In the event of any issuance and sale of shares of Common Stock by the Company pursuant to a Third-Party Investment, the Company and the Individual Shareholder agree that, simultaneously with the consummation of any Third-Party Investment, the Company shall issue to MCA, in exchange for the payment by MCA of the aggregate par value, if any, of the Common Stock to be issued to MCA pursuant to this paragraph, such number of shares of Common Stock so that MCA's percentage ownership of the fully diluted outstanding Common Stock following the consummation of the Third-Party Investment is identical to its percentage ownership of the fully diluted outstanding Common Stock immediately prior to such consummation. -8- Section 2.4. Individual Shareholder Right of First Refusal. For so --------------------------------------------- long as the Individual Shareholder owns 10% or more of the then outstanding Common Stock and except for the transfer of shares of Common Stock by MCA pursuant to Section 2.1, MCA may not sell, give or transfer any shares of Common Stock to any other person or entity unless (a) MCA shall have received a Proposal from a Purchaser, which Proposal shall remain open and available for acceptance for at least thirty (30) days and provide for the sale of a designated number of shares to the Purchaser (subject only to the rights of the Individual Shareholder under this Section 2.4) at a sales price consisting solely of cash at closing, and containing the written agreement of the Purchaser to be bound by the terms and conditions of this Shareholders' Agreement, as amended from time to time, and (b) MCA shall have first offered such shares of Common Stock to the Individual Shareholder in writing at the price and on the terms specified in the Proposal. Each Proposal shall include the Purchaser Information and any other information reasonably requested by the Individual Shareholder. For purposes of this paragraph, "MCA" shall be deemed to include the MCA Shareholders. The offer to the Individual Shareholder shall be open for a period of fifteen (15) calendar days from the date thereof. No exercise of a right of first refusal pursuant to this section shall be effective unless such exercise shall be for the entire number of shares to be sold, given or transferred. Unless the Individual Shareholder elects to accept such offer as provided herein, MCA may sell all (but not less than all) of such shares of Common Stock to the Purchaser in accordance with the terms of the Proposal, provided that such sale is made within one hundred twenty (120) days of the date of the Proposal. If such sale is not consummated within such 120-day period, the restrictions provided for herein shall again become effective, and no sale, transfer, or assignment of such Common Stock may be made thereafter without again offering the same to the Individual Shareholder in accordance with this Shareholders' Agreement. MCA may pledge or otherwise encumber its Common Stock to secure indebtedness of MCA or any of its affiliates; provided, however, that any -------- ------- transferee pursuant to this paragraph shall acquire only a security interest in the Common Stock and MCA shall retain all voting rights to such Stock while pledged or encumbered, and title to such Common Stock shall not pass to such transferee until he or it has first offered such Common Stock to the Individual Shareholder at fair market value. For purposes of this section, fair market value is to be determined -9- by an appraiser selected by the Individual Shareholder and approved by MCA. Any appraiser selected hereto shall be a nationally recognized investment banking firm. The fees of any such appraiser are to be borne by MCA. If MCA proposes to sell all or substantially all of its Common Stock in a transaction which would give rise to the Individual Shareholder's right of first refusal under this Section 2.4, then the Individual Shareholder shall have the right to assign his right of first refusal hereunder to the Company. Section 2.5. Legend on Certificates. Each outstanding certificate ---------------------- representing shares of Common Stock beneficially owned by any Shareholder shall bear an endorsement reading substantially as follows: The transfer, sale, gift, pledge or encumbrance of the securities represented by this certificate and the voting rights related thereto (including the grant of an irrevocable proxy) are subject to the provisions of an agreement dated March 28, 1994, among the Interplay Productions, Inc. (the "Company"), MCA Inc. and the Individual Shareholder (as defined therein), a copy of which is on file at the principal executive office of the Company. Section 2.6. No Other Transfers; Termination of Restrictions. Except ----------------------------------------------- as permitted by this Article II, none of the Shareholders shall transfer any shares of Common Stock, and any purported transfer not permitted by this Article II shall be void. The provisions of this Article II with respect to shares of Common Stock shall apply equally to any rights or options to purchase Common Stock or securities convertible into or exchangeable for Common Stock. ARTICLE III REGISTRATION OF COMMON STOCK Section 3.1. Piggyback Registration Rights. If at any time while the ----------------------------- Common Stock (shares of Common Stock and any securities issued as a dividend thereon, or in exchange therefor, hereinafter in this Article III referred to as "Restricted Securities") is outstanding, the Company proposes to file a registration statement under the Securities Act (other than on Forms S-4 or S-8 under the Securities Act or their equivalent), with respect to any shares of Common Stock (a "Registration Statement"), it will give written notice, specifying the form and manner of, and all other relevant facts involved in, such -10- proposed registration (including without limitation, the identity of the managing underwriter and the estimated price (net to the seller of any underwriting commissions and discounts) at which the Restricted Securities are expected to be sold), to each of the Shareholders that hold Restricted Securities at least thirty (30) days prior to the date of filing of the proposed Registration Statement. Upon written request by any Shareholder within fifteen (15) days after receipt of such notice, the Company will include in the securities transaction to be registered by such Registration Statement all of the Restricted Securities of the Company that such Shareholder desires to sell, subject to the following: (a) The Company will pay the expense of such registration, except that each holder of Restricted Securities that are included in such registration shall pay all underwriting discounts and commissions applicable to his or its Restricted Securities and all legal fees and expenses of his or its counsel, if any; and (b) If such Registration Statement is for a prospective underwritten offering, the holder agrees to sell his or its Restricted Securities, if the Company so requests, on the same basis as the other Restricted Securities being sold under such Registration Statement, including executing a customary underwriting agreement and providing customary representations and warranties thereunder. The Company may withdraw any Registration Statement before it becomes effective or postpone the offering of Restricted Securities contemplated by such Registration Statement without any obligation to the holder of any Restricted Securities. If such Registration Statement involves an underwritten offering by the Company and the managing underwriter advises the Company in writing that, in its opinion, the number of shares of Common Stock proposed to be included in such Registration Statement exceeds the number which can be sold in such offering without materially and adversely affecting the successful marketing thereof, the Company will include in such Registration Statement to the extent of the number of shares of Common Stock which the Company is so advised can be sold in such offering without such material adverse effect (i) first, the shares of Common Stock proposed by the Company to be sold for its own account; (ii) second, the shares of Common Stock proposed to be registered by other shareholders of the Company pursuant to a written demand registration right; and (iii) third, other shares of Common Stock requested to be included in such Registration Statement pro rata among all Shareholders and -11- other Persons with piggyback registration rights both requesting and entitled to such registration on the basis of the number of such securities requested to be included by such Shareholders. Section 3.2. Demand Registration Rights. (a) At any time after the -------------------------- second anniversary of the date hereof, the MCA Shareholders or the Individual Shareholder may demand, by giving the notice set forth below, that the Company file a registration statement under the Securities Act with respect to at least 1,000,000 shares of the Common Stock beneficially owned by the MCA Shareholders or the Individual Shareholder; provided, however, that (x) the MCA Shareholders -------- ------- shall initially be entitled to two (2) demand registrations pursuant to this Section 3.2 and shall be entitled to one (1) additional demand registration for each exercise by MCA of the MCA Options under the Option Agreement and (y) the Individual Shareholder shall be entitled to a total of four (4) demand registrations pursuant to this Section 3.2; and provided, further, that the MCA -------- ------- Shareholders nor the Individual Shareholder shall be entitled to more than one (1) demand registration per calendar year. The notice shall: (i) be given in writing by an MCA Shareholder or the Individual Shareholder; (ii) set forth the number of shares of Common Stock subject to registration; (iii) be accompanied by an opinion of counsel to such MCA Shareholder or the Individual Shareholder that the sale of the number of shares of Common Stock proposed, and on the terms and to the prospective purchasers proposed, must be registered under the Securities Act; and (iv) request that the Company effect the registration of the sale of such shares. The MCA Shareholders or the Individual Shareholder desiring to sell the shares of Common Stock described in the notice may not offer such shares until the registration of the sale of such shares has been effected (unless such registration is withdrawn or abandoned), and the consummation of any sale pursuant thereto shall be subject to prior compliance by such MCA Shareholders or the Individual Shareholder with Sections 2.4 and 2.3 hereof, respectively (unless the provisions of either Section 2.4 or Section 2.3 are no longer in effect). For purposes of this Section 3.2, if the sale of Common Stock hereunder is underwritten, the MCA Shareholders or the Individual Shareholder shall satisfy their respective obligations under -12- Section 2.4 or Section 2.3 by: (i) delivering a letter from the managing underwriter or underwriters of the proposed sale, specifying, in good faith, a reasonable estimation of the offering price; (ii) offering all of the shares included in the proposed sale to the MCA Shareholders or the Individual Shareholder pursuant to either Section 2.4 or Section 2.3, in writing at the price specified in the underwriter's letter; and (iii) complying with Section 2.4 or Section 2.3 in all other respects (other than with respect to the provision of the Purchaser Information). Upon receipt of a notice from any MCA Shareholders or the Individual Shareholder demanding registration of the sale of such MCA Shareholders' or the Individual Shareholder's shares of Common Stock, the Company shall, subject to the provisions set forth below, use its best efforts to cause a registration statement covering the sale of such MCA Shareholders' or the Individual Shareholder's shares of Common Stock to become effective as soon as possible. The Company's registration of the sale of MCA Shareholders' or the Individual Shareholder's shares of Common Stock shall be subject to the terms and conditions set forth in Subclauses (a) and (b) of Section 3.1 (provided, that -------- the word "registration" shall be substituted for the words "Registration Statement" in Subclause (b)). If the MCA Shareholders or the Individual Shareholder shall have given written notice of the exercise of a demand right pursuant to this Section 3.2 and such exercise shall thereafter be withdrawn without any shares of Common Stock having been registered under the Securities Act, the MCA Shareholder or the Individual Shareholder having delivered such notice shall pay the expense of such registration. If the Company has given written notice, pursuant to Section 3.1 hereof, to holders of Restricted Securities of its intention to file a Registration Statement, and has not withdrawn such notice, no demand registration notice shall be given under this Section 3.2 until sixty (60) days after the effective date of a Registration Statement prepared pursuant to Section 3.1. The MCA Shareholders' or the Individual Shareholder's demand registrations pursuant to this Section 3.2 shall be assignable to not more than two (2) transferees each of the Common Stock held by any MCA Shareholder or the Individual Shareholder. Any MCA Shareholder's or the Individual Shareholder's right to demand registration of any shares of Common Stock pursuant to this Section 3.2 shall terminate on the date that such MCA Shareholder or the Individual Shareholder shall be free to -13- transfer such shares without restrictions as to volume pursuant to Rule 144(k) under the Securities Act. (b) If and whenever the Company is required by the provisions of this Section 3.2 to use its best efforts to effect the registration of the sale of any of its securities under the Securities Act, the Company shall, as expeditiously as possible: (i) prepare and file with the SEC a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective; (ii) cooperate with the MCA Shareholders or the Individual Shareholder, as the case may be, and cooperate with any underwriter who shall sell such shares in connection with its review of the Company; (iii) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for sixty (60) days from the date of its effectiveness and to comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such registration statement for such period; (iv) furnish to the MCA Shareholders or the Individual Shareholder, as the case may be, such number of copies of the prospectus forming a part of such registration statement (including each preliminary prospectus), in conformity with the requirements of the Securities Act, and such other documents as such MCA Shareholders or the Individual Shareholder may reasonably request in order to facilitate the disposition of such securities; (v) use its best efforts to register or qualify the securities covered by such registration statement under the "blue sky" laws of such jurisdictions as the MCA Shareholders or the Individual Shareholder, as the case may be, shall reasonably request, and do any and all other acts and things which may be necessary or advisable to enable the MCA Shareholders or the individual -14- shareholder, as the case may be, or any underwriter offering such securities for the MCA Shareholders or the Individual Shareholder, as the case may be, to consummate the disposition thereof, during the period provided in subclause (iii) above, in such jurisdictions; provided, however, that in no event shall the -------- ------- Company be obligated to qualify to do business in any jurisdiction where it is not then qualified or to take any action which would subject it to the service of process in suits other than those arising out of the offer or sale of the securities covered by such registration statement in any jurisdictions where it is not then subject; (vi) (A) notify the MCA Shareholders or the Individual Shareholder, as the case may be, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus forming a part of such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and (B) at the request of the MCA Shareholders or the Individual Shareholder, prepare and furnish to such of the MCA Shareholders or the Individual Shareholder a reasonable number of copies of any supplement to or any amendment of such prospectus that may be necessary to that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and (vii) enter into an underwriting agreement in the form then currently in use by major underwriters, and consistent with the provisions of this Section 3.2, with the underwriters of the securities covered by such registration statement. In the case of any registration statement filed pursuant to a demand delivered under this Section 3.2, the Company shall be permitted to include in such registration statement a -15- number of shares of common stock which can be sold within the limitations set forth in the next sentence of this paragraph. If such registration statement involves an underwritten offering and the managing underwriter advises the MCA Shareholders or the Individual Shareholder, as the case may be, in writing that, in its opinion, the number of shares of Common Stock proposed to be included in such registration statement exceeds the number which can be sold in such offering without materially and adversely affecting the successful marketing thereof, the Company will include in such registration statement to the extent of the number of shares of Common Stock which the MCA Shareholders or the Individual Shareholder are so advised can be sold in such offering without such material adverse effect (i) first, the shares of Common Stock proposed to be sold by the MCA Shareholders or the Individual Shareholder, as the case may be, and (ii) second, such other shares of Common Stock requested to be included in such registration statement by the Company which, in the opinion of the managing underwriter, would not have the material adverse effect referred to above. Anything in this Section 3.2 to the contrary notwithstanding, the Company may defer the filing of any registration statement required under Section 3.2, or delay the effectiveness of any such registration statement, for a maximum of ninety (90) days from the date on which such registration would otherwise have been filed or become effective, and if the Company shall have filed a Registration Statement to offer shares of Common Stock, as described in Section 3.1 hereof, for a maximum of sixty (60) days after such Registration Statement shall have been declared effective. Section 3.3. Provision of Information. As a condition to the Company's ------------------------ obligations under Section 3.1 or Section 3.2 to cause shares to be included in a Registration Statement, or to be registered, respectively, the holder of any Restricted Securities which are to be included therein shall provide such information and execute such documents (including any reasonable and customary agreement or undertaking relating to expenses, indemnification or other matters contemplated by this Shareholders' Agreement) as may be required by the Company in connection therewith. Section 2.4. New Certificates. As expeditiously as possible after the ---------------- effectiveness of any Registration Statement or registration provided for in Sections 3.1 or Section 3.2, respectively, the Company will deliver in exchange for any certificates evidencing Restricted Securities so registered, new stock certificates not bearing the legend set forth in Section 2.5 of this Shareholders' Agreement. In the event that any such securities remain unsold when such Registration Statement -16- or registration ceases to be effective, the stock certificates not bearing such legend evidencing such unsold securities shall be delivered to the Company in exchange for certificates bearing such legend. Section 3.5. Indemnification. In connection with any registration of --------------- securities pursuant to this Shareholders' Agreement, to the extent permitted by law, the Company shall indemnify the MCA Shareholders and the Individual Shareholder and the MCA Shareholders and the Individual Shareholder shall indemnify the Company in the manner provided in this Section 3.5: (a) The Company shall indemnify and hold harmless each MCA Shareholder and the Individual Shareholder, each officer and each director, if any, of such MCA Shareholder, the underwriter, if any, for the sale or distribution of such MCA Shareholder's or the Individual Shareholder's securities, and each person, if any, who controls such MCA Shareholder or underwriter, against all losses, claims, damages or liabilities, joint or several, to which such MCA Shareholders, the Individual Shareholder or any such officer, director, underwriter or controlling person may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or omissions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement, prospectus or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and, subject to Section 3.5(c), the Company shall reimburse each MCA Shareholder, the Individual Shareholder, and any such officer, director, underwriter or controlling person, for any legal or other expenses reasonably incurred by such MCA Shareholder, the Individual Shareholder, and any such officer, director, underwriter or controlling person, in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company shall not be -------- ------- required to indemnify and hold harmless or reimburse the MCA Shareholders, the Individual Shareholder, or any such officer, director, underwriter or controlling person, as the case may be, to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission in any document made in reliance upon and in conformity with -17- written information furnished to the Company by or on behalf of such MCA Shareholders, the Individual Shareholder, or any such officer, director, underwriter or controlling person for use in the preparation of such documents. (b) Each MCA Shareholder and the Individual Shareholder shall indemnify and hold harmless the Company, each of its directors and officers, and each person, if any, who controls the Company, against all losses, claims, damages or liabilities to which the Company or any such director or officer or controlling person may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or omissions in respect thereof) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in any registration statement, prospectus or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, in each case, to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by and on behalf of such MCA Shareholder or the Individual Shareholder, as the case may be, for use in the preparation thereof; and, subject to Section 3.5(c), such MCA Shareholder or the Individual Shareholder, as the case may be, shall reimburse the Company for any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending against any such loss, claim, damage, liability or action. (c) Within thirty (30) days after receipt by an indemnified party, under (a) or (b) above, of notice of the commencement of any action or proceeding, the indemnified party shall promptly notify the indemnifying party, in writing, that such notice has been received. The failure to so notify the indemnifying party shall not relieve the indemnifying party from any liability hereunder with respect to the action or proceeding, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action or proceeding is brought against an indemnified party, the indemnifying party shall be entitled to participate in and, unless in such indemnified party's reasonable judgment a -18- conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim or proceeding, to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election to so assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof, other than reasonable costs of investigation. No indemnifying party shall be liable for any settlement of any action or proceeding effected without its written consent. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or proceeding. (d) If the indemnification provided for in this Section shall for any reason be held by a court to be unavailable to an indemnified party under subparagraph (a) or (b) hereof in respect of any loss, claim, damage or liability, or any action or proceeding in respect thereof, then, in lieu of the amount paid or payable under subparagraph (a) or (b) hereof, the indemnified party and the indemnifying party under subparagraph (a) or (b) hereof shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating the same), (i) in such proportion as is appropriate to reflect the relative fault of the Company, the MCA Shareholders and the Individual Shareholder with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action or proceeding in respect thereof, as well as any other relevant equitable considerations, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as shall be appropriate to reflect the relative benefits received by the Company, the MCA Shareholders and the Individual Shareholder from the offering of the securities hereunder. No individual or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any individual or entity who was not guilty of such fraudulent misrepresentation. -19- (e) The indemnification and contribution required by this Section shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. Section 3.6. Standby. Each holder of any Restricted Securities agrees ------- that, with respect to any registration statement under the Securities Act that the Company may file, if requested by the managing underwriter of the sale to be registered or, if such sale is not underwritten, the Company, such holder will not sell any securities of the Company (whether or not such securities are Restricted Securities, and however acquired), other than securities, if any, of such holder included in such registration statement and securities sold to a Permitted Transferee, for a period of at least five (5) days before, and up to one hundred and twenty (120) days after, the date such registration statement is declared effective. Section 3.7. Assignment. The registration rights contained in this ---------- Shareholders' Agreement shall be transferable by the holder of any Restricted Securities to any person or entity that acquires such Restricted Securities from such holder (excluding any person or entity that acquires such Restricted Securities in a transaction with respect to which a registration statement under the Securities Act is effective at the time), provided that (a) the transfer of such Restricted Securities is conducted in accordance with this Shareholders' Agreement, and (b) such person or entity agrees, in writing, to be bound by the terms and conditions of this Shareholders' Agreement, as amended from time to time. Pursuant to Section 3.2 of this Shareholders' Agreement, the MCA Shareholders' and the Individual Shareholder's rights to demand registration of the Common Stock shall be assignable to not more than two (2) transferees of each of the MCA Shareholders and the Individual Shareholder of the Common Stock held by any MCA Shareholders or the Individual Shareholder. ARTICLE IV CORPORATE GOVERNANCE Section 4.1. Representation on the Board and Committees. (a) The Board ------------------------------------------ of Directors of the Company (the "Board") shall consist of nine (9) members. Upon consummation of the transactions contemplated by the Stock Purchase Agreement, the Board shall consist of: five (5) designees of the Individual Shareholder; two (2) designees of MCA; and one (1) designee of the Third Party, if any, with one vacancy on the Board to be -20- filled as provided in the following sentence. Upon exercise by MCA of its option to purchase the First Period Shares (as defined in the Option Agreement) under the Option Agreement, MCA shall have the right to fill the vacancy referred to in the immediately preceding sentence with a designee of its choice so that, immediately following the election of such designee, the Board shall consist of: five (5) designees of the Individual Shareholder; three (3) designees of MCA; and one (1) designee of the Third Party, if any. Upon exercise by MCA of its option to purchase the Second Period Shares (as defined in the Option Agreement) under the Option Agreement, one of the Individual Shareholder's designees shall resign from the Board so that, immediately following such resignation, the Board shall consist of: four (4) designees of the Individual Shareholder; three (3) designees of MCA; and one (1) designee of the Third Party, if any, with one vacancy on the Board which shall remain unfilled. Following the exercise by MCA of its option to purchase the Second Period Shares, upon request of the Individual Shareholder, MCA agrees to vote the shares of Common Stock then owned by it to amend the Company's Bylaws to reduce the size of the Board to eight (8) members. In the event that a resolution relating to a matter brought before the Board for a vote of the Board results in an equal number of directors voting in favor of and against such resolution, the Shareholders agree that the Individual Shareholder, as Chairman of the Board, shall cast the deciding vote in favor of or against such resolution, as the case may be, and that such vote shall be deemed to have definitively resolved the matter with respect to which the Board was otherwise at an impasse. The provisions of this Section 4.1(a) are subject to the limitations set forth in the last sentence of Section 4.1(c). (b) From and after the date hereof, the Board shall establish a Compensation Committee which shall consist of 3 members, one of whom shall be designated by the MCA Shareholders. The consent of the MCA Shareholders' designee on the Compensation Committee shall be required (i) to grant options under the Incentive Plan (as defined below) to any employee of the Company whose salary exceeds $100,000 per year and (ii) to establish any bonus plan of the Company. (c) The Shareholders agree to take all necessary action to provide the MCA Shareholders and the Individual Shareholder with representation on the Board and all committees thereof as set forth in this Section 4.1 and to cause their nominees to vote as required in 4.1; provided that the representation of -------- the MCA Shareholders on the Board and each such committee shall be no fewer than one member. Such necessary action shall include, but not be limited to, an increase in the size of the Board or any such committee or the removal of incumbent directors or -21- incumbent members of any such committee. The provisions of this Section 4.1 and of Section 4.2 shall terminate upon the date of the Company's initial Public Offering. Section 4.2. Voting. In the event that the MCA Shareholders and the ------ holders of shares of Common Stock sold pursuant to any Third-Party Investment together beneficially own, in the aggregate, shares of Common Stock in excess of the shares of Common Stock beneficially owned, in the aggregate, by the Individual Shareholder, then the MCA Shareholders shall only vote such number of shares of Common Stock as, when added to the number of Third-Party Shares, is equal to the number of shares of Common Stock beneficially owned, in the aggregate, by the Individual Shareholders. In the event that a resolution relating to a matter brought to a vote of the Shareholders results in an equal number of votes in favor of and against such resolution, the Shareholders agree that the Individual Shareholder, as Chairman of the Board, shall cast the deciding vote in favor of or against the resolution, as the case may be, and that such deciding vote shall be deemed to have definitely resolved the matter with respect to which the Shareholders were otherwise at an impasse. The voting restrictions set forth in this Section 4.2 will terminate upon the consummation of a Public Offering. To the extent required to enforce the provisions of this Agreement, MCA and the Individual Shareholder hereby grant to the Secretary of the Company an irrevocable proxy to vote the shares of Common Stock held by them as such shares are required to be voted under Section 4.1 hereof and under this Section 4.2. Section 4.3. Corporate Actions. Without the prior written consent of ----------------- MCA, the Company will not: (i) amend or otherwise change its charter or by-laws; (ii) issue, sell or agree to or authorize for issuance or sale, shares of any class of its equity securities, other than (A) pursuant to the consummation of the Third Party Investment, if any, (B) pursuant to and in accordance with the terms of Employee Options outstanding on the date hereof, (C) pursuant to options issued to employees of the Company after the date hereof covering a number of shares of Common Stock no greater than and having an average exercise price no less than the number of shares of Common Stock covered by and average exercise price of Employee Options outstanding on the date hereof that expire unexercised, (D) pursuant to options issued to employees of the Company after the date hereof under an -22- option plan approved by MCA authorizing the grant of options in respect of not more than an aggregate of 5% of the outstanding shares of Common Stock (the "Incentive Plan") or (E) pursuant to a Public Offering; (iii) issue, sell or agree to or authorize for issuance or sale any securities convertible or exchangeable into, or options with respect to, or warrants to purchase or rights to subscribe to, any shares of capital stock of the Company, other than options referred to in clauses (C) and (D) of the foregoing subparagraph (i); (iv) effect any reorganization or reclassification of the capital stock of the Company; (v) other than pursuant to the agreements between the Company and employees of the Company listed on schedule 4.4 hereto, declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property) with respect to its capital stock; (vi) redeem, purchase or otherwise acquire or agree to redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock (other than pursuant to non-cash exercise of options pursuant to options granted pursuant to plans in effect on the date hereof or pursuant to the Buy/Sell Agreements listed on the schedule of exceptions to the Stock Purchase Agreement); (vii) enter into any extraordinary corporate transaction such as a merger or sale of all or substantially all of its assets; (viii) make any capital expenditure, acquisition or divestiture above $2,500,000; (ix) incur any debt in excess of an aggregate of $17,000,000, including currently available credit lines, whether or not the Company shall have borrowed funds pursuant to such credit lines; or (x) institute any material change in the overall composition of senior management of the Company; provided, however, that the hiring of, or -------- ------- the termination of employment of any single individual by the Company (other than the termination of employment of the Individual Shareholder) shall not require the consent of MCA pursuant to this clause (x). -23- The provisions of this Section 4.4 shall terminate upon the earlier of (i) such time as the MCA Shareholders beneficially own in the aggregate less than fifteen percent (15%) of the outstanding shares of Common Stock or (ii) the date of consummation of the Company's initial Public Offering. If as of the second anniversary of the date hereof, MCA has not exercised both of the MCA Options, MCA's consent to the actions specified in this Section 4.3 shall not be unreasonably withheld. ARTICLE V CERTIFICATE OF INCORPORATION Section 5.1. Certificate of Incorporation. The Shareholders agree ---------------------------- that, as of the date of this Shareholders' Agreement, the Certificate of Incorporation of the Company shall be as attached hereto as Exhibit A. ARTICLE VI MISCELLANEOUS Section 6.1. Survival of Agreement; Term. This Shareholders' Agreement --------------------------- shall not be terminated or amended, nor any provision hereof waived, except by an instrument in writing signed by the Company, MCA and the Individual Shareholder; provided that, without the consent of any party affected no such -------- amendment, waiver or termination shall further restrict the transferability of any Common Stock held by such party, impose any obligation on such party, diminish the benefits of such party hereunder or restrict the rights of such party as set forth herein; and provided further that this Shareholders' -------- ------- Agreement shall automatically terminate on the tenth anniversary of the date of this Shareholders' Agreement. Notwithstanding the foregoing, any provision of this Shareholders' Agreement which specifically provides for termination of such provision on an earlier date shall terminate on such other date. Section 5.2. Directors' and Officers' Insurance and Indemnification. ------------------------------------------------------ To the extent commercially available, the Board shall consider maintaining directors' and officers' insurance, and each director of the Company shall be covered under such insurance. The Company at all times shall indemnify, defend and hold harmless the directors and officers of the Company against all losses, claims, damages or liabilities to the full extent permitted under California Law or the Company's -24- Articles of Incorporation or Bylaws in effect at the date hereof (to the extent consistent with applicable law). Section 6.3. Notices. All notices to be given by any party hereunder ------- shall be in writing and shall be deemed to have been duly given if mailed, by first class or registered mail, three (3) business days after deposit in the United States Mail, or if telexed or telecopied, sent by telegram, or delivered, when confirmation is received, to the relevant party at its address set forth on the stock ledger of the Company in the case of any Shareholder (excluding the MCA Shareholders) or, in the case of the Company, to it at: Interplay Productions, Inc. 17922 Fifth Avenue Irvine, CA 92714 Attention: Chuck Camps Telecopy: (714) 252-2820 with a copy to: Stradling, Yocca, Carlson & Rauth 660 Newport Center Drive Newport Beach, CA 92660 Attention: Christopher J. Kilpatrick Telecopy: (714) 725-4100 or, in the case of the MCA Shareholders, to them at: MCA INC. 100 Universal City Plaza Universal City, CA 91608 Attention: Charles S. Paul Telecopy: (818) 777-7180 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019-6188 Attention: Pamela S. Seymon Telecopy: (212) 371-1658 The parties may change their respective addresses for purposes of notice hereunder by giving notice of such change to all other parties in the manner provided in this Section. -25- Section 6.4. Further Assurances. Each shareholder agrees to take, or ------------------ cause to be taken, all such further and other commercially reasonable actions as shall be necessary to make effective the provisions of this Agreement. The Individual Shareholder further covenants and agrees to use his reasonable best efforts to assist in the marketing and consummation of any Public Offering. Section 6.5. Binding Effect. This Shareholders' Agreement supersedes -------------- all prior negotiations, statements and agreements of the parties hereto with respect to the subject matter of this Shareholders' Agreement, and shall be binding upon and inure to the benefit of the respective permitted successors and assigns of the parties hereto. Section 6.6. Complete Agreement. This Shareholders' Agreement ------------------ represents the entire agreement among the Shareholders and the Company with respect to the matters set forth herein, and the parties hereto acknowledge that there have been no representations, warranties, covenants or agreements made by any party hereto other than those contained in this Shareholders' Agreement, the Stock Purchase Agreement and the Option Agreement. Section 6.7. Counterparts. This Shareholders' Agreement may be ------------ executed in counterparts, each of which shall be signed by the Company and one or more Shareholders, and all of which are deemed to be one and the same agreement binding upon the Company and each of the Shareholders. Section 6.8. Headings. The headings of the various sections of this -------- Shareholders' Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Shareholders' Agreement. Section 6.9. Conflict with Bylaws. If and to the extent that any -------------------- provision of this Shareholders' Agreement conflicts with or is inconsistent with any provision of the Bylaws of the Company, such provision of this Shareholders' Agreement shall be controlling and, to the extent practicable, the conflicting or inconsistent provision of the Bylaws shall be construed in a manner consistent with such provision of this Shareholders' Agreement. Section 6.10. Governing Law. This Shareholders' Agreement shall be ------------- governed by and construes in accordance with the laws of the State of California, without regard to its conflicts of law doctrine. By execution and delivery of this -26- Shareholders' Agreement, each of the Shareholders accept, generally and unconditionally, the nonexclusive jurisdiction of the state or federal courts in California, and irrevocably consent to the service of process of any such court in any action or proceeding concerning this Shareholders' Agreement by the mailing of copies of such service by registered or certified mail, postage prepaid, to his or its notice address specified in Section 6.3 hereof, such service to become effective ten (10) days after deposit in the United States mail. Section 6.11. Injunctive Relief. Each Shareholder recognizes that in ----------------- the event a Shareholder fails to observe the terms and conditions of this Shareholders' Agreement any remedy at law may prove to be inadequate relief to the Company, MCA and the other Shareholders; therefore, each Shareholder agrees that the Company, MCA and the other Shareholders shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. -27- IN WITNESS WHEREOF, the parties have duly executed this Shareholders' Agreement as of the date first above written. INTERPLAY PRODUCTIONS, INC. By: /s/ Brian Fargo ------------------------------ Brian Fargo President MCA INC. By:______________________________ Charles S. Paul Executive Vice President /s/ Brian Fargo --------------------------------- Brian Fargo -28- IN WITNESS WHEREOF, the parties have duly executed this Shareholders' Agreement as of the date first above written. INTERPLAY PRODUCTIONS, INC. By: ------------------------------ Brian Fargo President MCA INC. By: /s/ Charles S. Paul ------------------------------ Charles S. Paul Executive Vice President _________________________________ Brian Fargo -28- INTERPLAY PRODUCTIONS 16815 VON KARMAN IRVINE, CALIFORNIA 92606 October 8, 1996 MCA INC. 100 Universal City Plaza Universal City, California 91608 Attn: Robert Biniaz RE: Amendment to the Shareholders' Agreement Ladies and Gentlemen: As you know, Interplay Productions, a California corporation (the "Company") is contemplating the formation of a new wholly-owned subsidiary (the "Subsidiary") for the purpose of conducting its OEM operations. In connection with such formation, the Company may require certain waivers from and consents of MCA INC. ("MCA") pursuant to that certain Shareholders' Agreement dated March 30, 1994, by and among the Company, MCA and Brian Fargo (the "Shareholders' Agreement"). In connection with obtaining such consent from MCA, the Company has agreed to amend the Shareholders' Agreement to include certain restrictions on actions that may be taken in connection with the Subsidiary. This Letter Agreement will evidence such amendments. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Shareholders' Agreement. Section 4.3 of the Shareholders' Agreement may preclude the Company from forming the Subsidiary and transferring certain assets into such entity. The parties hereby agree that, if the activities of the OEM division are spun off to the Subsidiary, on and after the date on which assets are transferred to the Subsidiary, existing Section 4.3 shall become subsection (a), and a new Section 4.3(b) shall be added which shall read as set forth on Attachment 1 hereto (with "Subsidiary" defined as such Subsidiary). MCA INC. October 8, 1996 Page 2 If the above conforms with your understanding of our agreement with respect to these issues, please sign this Letter Agreement where indicated below and return the enclosed copy of this letter to my attention at the Company at your earliest convenience. Very truly yours, INTERPLAY PRODUCTIONS By: /s/ Brian Fargo --------------------- Brian Fargo /s/ Brian Fargo ------------------------ Brian Fargo AGREED AND ACKNOWLEDGED: MCA INC. By: /s/ Sanford R. Climan -------------------------- Sanford R. Climan Name/Title: Executive Vice President ------------------------- cc: Ruth R. Fisher, Esq. Munger, Tolles & Olson ATTACHMENT 1 (b) Without the prior written consent of MCA, the Subsidiary will not: (i) amend or otherwise change its charter or bylaws; (ii) issue, sell or agree to or authorize for issuance or sale, shares of any class of its equity securities, other than (A) pursuant to options issued to employees of the Subsidiary after the date hereof under an option plan approved by MCA authorizing the grant of options in respect of not more than an aggregate of 5% of the outstanding shares of Subsidiary common stock or (B) pursuant to a Public Offering; (iii) issue, sell or agree to or authorize for issuance or sale any securities convertible or exchangeable into, or options with respect to, or warrants to purchase or rights to subscribe to, any shares of capital stock of the Subsidiary, other than options referred to in clause (A) of the foregoing subparagraph (ii); (iv) effect any reorganization or reclassification of the capital stock of the Subsidiary; (v) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property) with respect to its capital stock unless, at the time of the record date and of the payment date related thereto, the Subsidiary is wholly-owned by the Company; (vi) redeem, purchase or otherwise acquire or agree to redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock (other than pursuant to non-cash exercise of options pursuant to options granted pursuant to plans approved by MCA); (vii) enter into any extraordinary corporate transaction such as a merger or sale of all or substantially all of its assets; (viii) make any capital expenditure, acquisition or divestiture above $2,500,000; or (ix) incur any debt in excess of an aggregate (together with the Company) of $17,000,000, including currently available credit lines, whether or not the Company or Subsidiary shall have borrowed funds pursuant to such credit line. In addition to the foregoing, MCA shall be entitled to have access to and to make copies of such books and records of the Subsidiary related to the Subsidiary's business, operations and affairs, as MCA shall request from time to time, provided MCA shall not be entitled to access or copies in excess of that access and information required to be provided to a director of the Subsidiary under applicable law. The provisions of this Section 4.3(b) shall terminate upon the earlier of (i) such time as the MCA Shareholders beneficially own in the aggregate less than fifteen percent (15%) of the outstanding shares of Common Stock or (ii) the date of consummation of the Company's initial Public Offering. EX-4.3 3 INVESTOR'S RIGHTS AGREEMENT - 10/10/96 EXHIBIT 4.3 INVESTORS' RIGHTS AGREEMENT THIS INVESTORS' RIGHTS AGREEMENT (the "Agreement") is made as of October 10,, 1996, by and among Interplay Productions, a California corporation (the "Company"), and the Purchasers listed on Exhibit 1 attached hereto (individually --------- a "Holder" and collectively the "Holders"). R E C I T A L : - - - - - - - In connection with the Company's issuance of subordinated secured promissory notes (the "Promissory Notes") and warrants to purchase shares of Common Stock of the Company (the "Warrants") to the Holders pursuant to those certain Subscription Agreements executed by the Holders (the "Subscription Agreements"), the Company and the Holders have agreed to enter into this Agreement. The Promissory Notes and the Warrants shall be collectively referred to herein as the "Securities." A G R E E M E N T : - - - - - - - - - NOW THEREFORE, in consideration of the mutual agreements, covenants and conditions and releases contained herein, the Company and the Holders hereby agree as follows: 1. REGISTRATION RIGHTS ------------------- The Company hereby grants to the Holders the registration rights set forth in this Section 1, with respect to the Registrable Securities (as hereinafter defined) owned by the Holders. The Company and the Holders agree that the registration rights provided herein set forth the sole and entire agreement on the subject matter between the Company and the Holders. 1.1 Definitions. As used in this Section 1: ----------- (a) The term "Qualified Public Offering" shall mean the closing by the Company of a public offering raising gross proceeds of at least $15,000,000 and at an offering price per share greater than or equal to $10.00, subject to adjustment for stock splits, stock dividends and other corporate events. (b) The terms "register," "registered," and "registration" refer to a registration effected by filing with the Securities and Exchange Commission (the "SEC") a registration statement (the "Registration Statement") in compliance with the Securities Act of 1933, as amended (the "1933 Act") and the declaration or ordering by the SEC of the effectiveness of such Registration Statement. (c) The term "Registrable Securities" means (i) Common Stock issued upon exercise of the Warrants held by the Holders pursuant to the Subscription Agreements; and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange or in replacement of, such Registrable Securities (as defined herein). In the event of any recapitalization by the Company, whether by stock split, reverse stock split, stock dividend or the like, the number of shares of Registrable Securities used throughout this Agreement for various purposes shall be proportionately increased or decreased. 1.2 Demand Registration. ------------------- (a) At any time after six (6) months after the closing of a Qualified Public Offering, or such longer period of time as may be required by the managing underwriter of the Company's Qualified Public Offering (provided that such restrictions are placed on other substantial shareholders of the Company and are not longer than twelve (12) months), the Holders (the "Initiating Holders") of at least fifty percent (50%) of the outstanding Registrable Securities may demand, by giving written notice thereof, that the Company file a Registration Statement (other than a registration on Form S-3 or any related form of Registration Statement, such a request being provided for under Section 1.10 hereof) (a "Demand Registration"). Promptly after the receipt of such notice, the Company shall: (i) give written notice of the proposed registration to all other Holders; and (ii) use its best efforts to effect such registration as soon as practicable as may be so demanded and as will permit or facilitate the sale and distribution of all or such portion of the Initiating Holders' Registrable Securities as are specified in such demand, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such demand as are specified in a written demand received by the Company within sixty (60) days after such written notice is given, provided that the Company shall not be obligated to take any action to effect any such registration, pursuant to this Section 1.2: (A) Within one hundred eighty (180) days immediately following the effective date of any Registration Statement pertaining to an underwritten public offering of securities of the Company for its own account (other than a registration on Form S-4 relating solely to an SEC Rule 145 transaction or a registration relating solely to employee benefit plans); (B) After the Company has effected an aggregate of one (1) such registration pursuant to this Section 1.2 and the sales of any shares of Common Stock under such registration has closed; or (C) If the Company shall furnish to the Holders a certificate signed by the Chief Executive Officer, President or Chief Financial Officer of the Company, stating that in the judgment of the board of directors of the Company it would be materially adverse to the Company for such Registration Statement to be filed at the date filing would be required, in which case the Company shall have an additional period of not more than one hundred twenty (120) days within which to file such Registration Statement. (b) If the Initiating Holders intend to distribute the Registrable Securities covered by their demand by means of an underwriting, they shall so advise the Company as part of the demand made pursuant to this Section 1.2, and the Company shall include such information in the written notice referred to in Section 1.2(a)(i). The Company shall, together with the Holders (if they are proposing to distribute their securities through such underwriting), enter into an -2- underwriting agreement in customary form with the underwriter or underwriters selected by the Initiating Holders and reasonably satisfactory to the Company. 1.3 Company Registration. -------------------- (a) If at any time or from time to time the Company shall determine to register any of its securities, either for its own account or the account of security holders (other than a registration relating solely to employee benefit plans, a registration on Form S-4 relating solely to an SEC Rule 145 transaction or a registration pursuant to Section 1.2 hereof), the Company shall: (i) promptly give to the Holders written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within twenty (20) days after receipt of such written notice from the Company, by the Holders, except as set forth in Section 1.4 below. (b) If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.3(a)(i). In such event, the right of the Holders to registration pursuant to this Section 1.3 shall be conditioned upon the Holder's participation in such underwriting and the inclusion of the Holder's Registrable Securities in the underwriting to the extent provided herein. If the Holders are proposing to distribute their securities through such underwriting, the Holders shall, together with the Company and the other parties distributing their securities through such underwriting, enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. 1.4 Underwriter's Cutback. Notwithstanding any other provision of --------------------- Sections 1.2 and 1.3, if the underwriter shall advise the Company in writing that marketing factors (including, without limitation, an adverse effect on the per share offering price) require a limitation of the number of shares to be underwritten, then the Company shall so advise the Holders, and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated as follows: (a) In the event of an offering governed by Section 1.2, the Company will include in the Registration Statement to the extent of the number of shares of Common Stock which the Company is advised can be sold in such offering without such material adverse effect; (i) first, the Registrable Securities proposed to be registered by a Holder pursuant to a demand right under Section 1.2 hereof; (ii) second, the shares of Common Stock proposed to be sold by the Company for its own account; and (iii) third, Registerable Securities and other equity securities requested to be included in such Registration Statement by any Holder and all other shareholders of the Company with piggyback registration rights applicable in such offering who request such registration. (b) In the event of an offering governed by Section 1.3 hereof, the Company will include in the Registration Statement to the extent of the number of shares of Common Stock which the Company is advised can be sold in such offering without such material adverse -3- effect (i) first, the shares of Common Stock proposed to be sold by the Company (including, for this purpose, employees of the Company) for its own account; (ii) second, the Registrable Securities proposed to be registered by a Holder pursuant to a demand right under Section 1.2 hereof, if any; and (iii) third, Registerable Securities and other equity securities requested to be included in such Registration Statement by any Holder and all other shareholders of the Company with piggyback registration rights applicable in such offering who request such registration. (c) In the event of an offering initiated pursuant to a demand right granted by that certain Shareholders' Agreement dated March 30, 1994 by and among the Company, MCA INC. and Brian Fargo (jointly, with MCA INC. and their respective permitted transferees, the "Shareholders"), the Company will include in the Registration Statement to the extent of the number of shares of Common Stock which the Company is advised can be sold in such offering without such material adverse effect (i) first, the shares of Common Stock proposed to be sold by the Shareholders; (ii) second, the shares of Common Stock proposed to be registered by the Company; and (iii) third, Registerable Securities and other equity securities requested to be included in such Registration Statement by any Holder and all other shareholders of the Company with piggyback registration rights applicable in such offering who requests such registration. (d) For purposes of Section 1.4(a) and Section 1.4(b), shares requested to be registered by similarly situated shareholders of the Company shall be allocated among such shareholders, to the extent necessary, pro-rata on the basis of number of Registrable Securities or other equity securities requested to be included by such similarly situated shareholders. (e) For purposes of any underwriter cutback, all Registrable Securities held by any Holder as a partnership shall also include any Registrable Securities held by the partners, retired partners, or affiliated entities of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons, and the Holder and other persons shall be deemed to be a single "selling Holder," and any reduction with respect to such "selling Holder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling Holder," as defined in this sentence. No Registrable Securities or shares other than Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. (f) If any Holder disapproves of the terms of the underwriting, it may elect to withdraw therefrom by written notice to the Company and the underwriter. The Registrable Securities so withdrawn shall also be withdrawn from registration. (g) If the underwriter has not limited the number of Registrable Securities to be underwritten, the Company may include securities for its own account (or for the account of other shareholders) in such registration if the underwriter so agrees and if the number of Registrable Securities that would otherwise have been included in such registration and underwriting will not thereby be limited. 1.5 Expenses of Registration. All expenses incurred in connection ------------------------ with the registration effected pursuant to Section 1.2 and all registrations effected pursuant to Sections 1.3 and 1.10, including without limitation all registration, filing, and qualification fees (including blue -4- sky fees and expenses), printing expenses, escrow fees, fees and disbursements of counsel for the Company and of one special counsel for the Holders, not to exceed $15,000 for any such registration, and expenses of any special audits incidental to or required by such registration, shall be borne by the Company; provided, however, that the Company shall not be required to pay stock transfer taxes or underwriters' discounts or commissions relating to Registrable Securities. Notwithstanding anything to the contrary above, the Company shall not be required to pay for any expenses of any registration proceeding under Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders, unless the Holders agree to forfeit the right of the Holders to a demand registration pursuant to Section 1.2. In the absence of such an agreement to forfeit, the Holders requesting such registration shall bear all such expenses. Notwithstanding the preceding sentence, however, if at the time of the withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request, of which the Company had knowledge at the time of the request, then the Holders shall not be required to pay any of said expenses and shall retain their rights pursuant to Section 1.2. 1.6 Obligations of the Company. Whenever required under this Section -------------------------- 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a Registration Statement with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such Registration Statement effective for a period of up to one hundred twenty (120) days or until the distribution contemplated in the Registration Statement has been completed; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended to a total of not more than two-hundred seventy (270) days, if necessary, to keep the Registration Statement effective until all such Registrable Securities are sold, provided that Rule 415, or any successor rule under the 1933 Act, permits an offering on a continuous or delayed basis, and provided further that applicable rules under the 1933 Act governing the obligation to file a post- effective amendment permit, in lieu of filing a post-effective amendment which (A) includes any prospectus required by Section 10(a)(3) of the 1933 Act or (B) reflects facts or events representing a material or fundamental change in the information set forth in the Registration Statement, the incorporation by reference of information required to be included in (A) and (B) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Act, as amended (the "1934 Act"), in the Registration Statement. (b) Prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the 1933 Act with respect to the disposition of all securities covered by such Registration Statement; (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the 1933 Act, and such -5- other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them; (d) Use its commercially reasonable best efforts to register and qualify the securities covered by such Registration Statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. If the Holders are participating in such underwriting, they shall also enter into and perform their obligations under such an agreement; and (f) Notify the Holders of Registrable Securities covered by such Registration Statement at any time when a prospectus relating thereto is required to be delivered under the 1933 Act of the happening of any event as a result of which the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed. (h) Provide a transfer agent and registrar for all Registrable Securities registered hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. 1.7 Indemnification. --------------- (a) The Company will, and does hereby undertake to, indemnify and hold harmless the Holders of Registrable Securities, each of the Holders' officers, directors and partners, and each person controlling the Holders, together with the respective agents of such persons, with respect to any registration, qualification, or compliance effected pursuant to this Section 1, and each underwriter, if any, and each person who controls any underwriter, of the Registrable Securities held by or issuable to the Holders, against all claims, losses, damages, and liabilities (or actions in respect thereto) to which they may become subject under the 1933 Act or the 1934 arising out of or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular, or other similar document (including any related Registration Statement, notification, or the like) incident to any such registration, qualification, or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) any violation or alleged violation by the Company of any federal, state or common law rule or regulation applicable to the Company in connection with any such registration, qualification, or compliance, and will reimburse, as incurred, the Holders, each such underwriter, and each such director, officer, partner, agent and controlling person, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action; provided that the -6- Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense, arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by an instrument duly executed by the Holders or underwriter and stated to be specifically for use therein. (b) The Holders will, if Registrable Securities held by or issuable to the Holders are included in such registration, qualification, or compliance, severally and not jointly, indemnify the Company, each of its directors, each officer, and each person controlling the Company, each underwriter, if any, and, each person who controls any underwriter, together with the respective agents of such persons, of the Company's securities covered by such a Registration Statement, against all claims, losses, damages, and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such Registration Statement, prospectus, offering circular, or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse, as incurred, the Company and each such underwriter, for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) was made in such Registration Statement, prospectus, offering circular, or other document, in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by the Holders and stated to be specifically for use therein; provided, however, that the liability of each Holder hereunder shall be limited to the net proceeds received by such Holder from the sale of securities under such Registration Statement. In no event will any Holder be required to enter into any agreement or undertaking in connection with any registration under this Section 1 providing for any indemnification or contribution obligations on the part of such Holder greater than such Holder's obligations under this Section 1.7. (c) Each party entitled to indemnification under this Section 1.7 (the "Indemnified Party") shall give notice to the party required to provide such indemnification (the "Indemnifying Party") of any claim as to which indemnification may be sought promptly after such Indemnified Party has actual knowledge thereof, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be subject to approval by the Indemnified Party (whose approval shall not be unreasonably withheld) and the Indemnified Party may participate in such defense with its separate counsel at the Indemnifying Party's expense if representation of such Indemnified Party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding; and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1, except to the extent that such failure to give notice shall materially adversely affect the Indemnifying Party in the defense of any such claim or any such litigation. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff therein, to such Indemnified Party, of a release from all liability in respect to such claim or litigation. (d) If the indemnification provided for in this Section 1.7 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, -7- liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. (f) The obligations of the Company and Holders under this Section 1.7 shall survive the completion of any offering of Registrable Securities in a Registration Statement under this Section 1, and otherwise. 1.8 Information by the Holders. If the Holders of Registrable -------------------------- Securities include Registrable Securities in any registration, the Holders shall furnish to the Company such information regarding the Holders and the distribution proposed by the Holders, as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification, or compliance referred to in this Section 1. 1.9 Transfer of Registration Rights. Subject to such other ------------------------------- restrictions as may exist under any agreement between any Holder and the Company, the rights of the Holders contained in Sections 1.2, 1.3 and 1.10 hereof, to cause the Company to register the Registrable Securities, may be assigned or otherwise conveyed to a transferee or assignee of Registrable Securities, who shall be considered a "Holder" for purposes of this Section 1; provided that such transferee or assignee, (a) receives such securities as a partner in connection with partnership distributions of the Holder, or (b) acquires 100% of the Registrable Securities held by the Holder; provided further, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee be restricted under the 1933 Act and that the Company is given written notice by the Holder at the time of or within a reasonable time after said transfer stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being assigned. 1.10 Form S-3. In the case the Company shall be eligible to register -------- securities on Form S-3 and shall receive from any Holder or Holders of at least fifty percent (50%) of the Outstanding Registrable Securities a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders at any time on or after twelve (12) months following the consummation of a Qualified Public Offering, the Company will: -8- (a) promptly give written notice or the proposed registration, and any related qualification or compliance, to all other Holders; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.10: (i) if Form S-3 is not available for such offering by the Holders; (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $2,000,000; (iii) if the Company shall furnish to Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 registration to be effected as such time, in which event the Company shall have the right to defer the filing of the Form S-3 Registration Statement for a period of not more than 120 days after receipt of the request of the Holder or Holders under this Section 1.10; (iv) if the Company has, within the twelve (12) month period preceding the date of such request, already effected three (3) registrations on Form S-3 for the Holders pursuant to this Section 1.10; or (v) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a Registration Statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 1.10 shall not be counted as demands for registration pursuant to Section 1.2. 1.11 Delay of Registration. The Holders shall not have any right to --------------------- obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.12 Limitations on Subsequent Registration Rights. From and after --------------------------------------------- the date of this Agreement, the Company shall not, without the prior written consent of a majority of the Holders, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder to include any securities in any registration filed under Section 1.2 or 1.3 hereof unless (i) under the terms of such agreement with any person other than an institutional or venture capital investor, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not diminish the amount of Registrable Securities which are included in such registration, and (ii) under the terms of such agreement with an institutional or venture capital investor, such holder or prospective holder may include such securities in any such registration only on a pari passu basis with the Holders ---- ----- of Registrable Securities. Any agreement for such registration rights will include the equivalent of Section 1.14 as a term. -9- 1.13 Rule 144 Reporting. With a view to making available to the ------------------ Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the 1933 Act, at all times commencing ninety (90) days after the effective date of the first registration filed by the Company for an offering of its securities to the general public; (b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the 1933 Act and 1934 Act; and (c) So long as the Holders own any Registrable Securities, furnish to any Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 of the 1933 Act, and of the 1934 Act (at any time after it has become subject to such reporting requirements); and such other reports and documents as any Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration. 1.14 "Market Stand-Off" Agreement. The Holders hereby agree that --------------------------- during the 180-day period following the effective date of a Registration Statement of the Company filed under the 1933 Act, it shall not, to the extent requested by the Company and any underwriter, sell or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any Common Stock of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that all officers and directors of the Company enter into similar agreements. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of the Holders until the end of such period. 1.15 Amendment of Registration Rights. Any provision of this Section -------------------------------- 1 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holders of not less than a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this Section shall be binding upon the Holders, each future holder of Registrable Securities and the Company. 1.16 Termination of Registration Rights. The Holders shall not be ---------------------------------- entitled to exercise any right provided for in Sections 1.2, 1.3 and 1.10 after the earlier of (i) five (5) years following the consummation of a Qualified Public Offering, or (ii) for an individual Holder, the date that such Holder shall be free to transfer such shares without restriction as to volume pursuant to Rule 144(k) under the 1933 Act. -10- 2. COMPANY COVENANTS ----------------- The Company hereby covenants and agrees as follows: 2.1 Basic Financial Information. --------------------------- (a) So long as the Holder or any subsidiary, affiliate or partner of the Holder holds at least Ninety-Nine Thousand Dollars ($99,000) principal amount of Promissory Notes, the Company hereby covenants and agrees to furnish the following reports: (i) As soon as practicable after the end of each fiscal year, and in any event within 110 days thereafter, audited consolidated balance sheets of the Company and its subsidiaries, if any, as at the end of such fiscal year, and audited consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such fiscal year, prepared in accordance with generally accepted accounting principles and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and accompanied by a report and opinion thereon, by independent public accountants of national reputation selected by the Company's board of directors. (ii) As soon as practicable after the end of each of the first three (3) fiscal quarters of the fiscal year, but in any event within forty-five (45) days after the end of each such fiscal quarter, the Company's unaudited consolidated balance sheet as of the end of such quarter, and its unaudited consolidated statements of income and cash flows for such quarter, all in reasonable detail and prepared in accordance with generally accepted accounting principles and certified by the principal financial or accounting officer of the Company. (b) The rights granted pursuant to this Section 2.1 may not be assigned or otherwise conveyed by the Holders or by any subsequent transferee of any such rights without the written consent of the Company, which consent shall not be unreasonably withheld; provided that the Company may refuse such written consent if the proposed transferee is a competitor of the Company; and provided further, that no such written consent shall be required if the transfer is in connection with the transfer of the Securities to any partner or retired partner of any Holder or to any such partner's estate. 2.2 Reservation of Common Stock. The Company will at all times --------------------------- reserve and keep available solely for issuance and delivery upon exercise of the Warrants, the number of shares of Common Stock issuable upon such exercise. 2.3 Expiration of Covenants. The covenants set forth in this Section ----------------------- 2 (other than those set forth in Section 2.1(a)) shall expire and be of no further force or effect upon the consummation of a Qualified Public Offering. 3. MISCELLANEOUS ------------- 3.1 Governing Law. This Agreement shall be governed in all respects ------------- by the law of the State of California, without giving effect to its principles regarding conflicts of law. -11- 3.2 Entire Agreement; Amendment. This Agreement constitutes the full --------------------------- and entire understanding and agreement between the parties with respect to the subject matter hereof. Except as otherwise provided in Section 1.15 above, this Agreement may be amended, waived, discharged or terminated only by written consent of the Company and the Holders of at least a majority of the then outstanding Registrable Securities. 3.3 Notices. All notices and other communications required or ------- permitted hereunder shall be in writing and shall be delivered personally, mailed by first class mail, postage prepaid, or delivered by Federal Express overnight delivery, at the respective addresses of the parties as set forth in the Subscription Agreement, or at such other address as the parties shall have furnished to the other parties in writing. Notices that are mailed shall be deemed received three (3) days after deposit in the United States mail or one (1) day after deposit with Federal Express for overnight delivery. 3.4 Counterparts; Facsimile. This Agreement may be executed in any ----------------------- number of counterparts and may be delivered by telecopy or facsimile, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 3.5 Severability. In case any provision of this Agreement shall be ------------ invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be any way affected or impaired thereby. 3.6 Titles and Subtitles. The titles of the sections of this -------------------- Agreement are for convenience of reference only and are not to be considered in construing this Agreement. -12- IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: /s/ Brian Fargo ----------------------------------------------- Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: __________________________________________________ By:_______________________________________________ Name:_____________________________________________ Title:____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: __________________________________________________ __________________________________________________ __________________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: ABS Employees' Venture Fund Limited Partnership -------------------------------------------------- By: /s/ Beverly L. Wright ----------------------------------------------- Name: Beverly L. Wright --------------------------------------------- Title: Treasurer, Alex. Brown Investments, Inc. -------------------------------------------- General Partner of the Partnership ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 375 West Padonia Road -------------------------------------------------- Timonium, MD 21093 -------------------------------------------------- Attn: Stephanie Beran -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 14 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: __________________________________________________ By: /s/ Peter A. Bilotta ----------------------------------------------- Name: Peter A. Bilotta --------------------------------------------- Title:____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: "Clearview" -------------------------------------------------- 70, Waggon Road, Hadley Wood, -------------------------------------------------- Heartfordshire, England, EN4, OPP -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: The Binder 1989 Trust By: Theodore R. Binder, Trustee -------------------------------------------------- By: /s/ Sandra L. Binder Trustee ----------------------------------------------- Name: The Binder 1989 Trust Theodore R. Binder and --------------------------------------------- Sandra L. Binder Title: Trustees -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 1905 Yacht Colinia -------------------------------------------------- Newport Beach, CA 92660 -------------------------------------------------- __________________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Bowen Trust -------------------------------------------------- By: /s/ Jerry L. Bowen ----------------------------------------------- Name: Jerry L. Bowen --------------------------------------------- Title: Trustee -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 5432 Catowba -------------------------------------------------- Irvine, CA 92715 -------------------------------------------------- __________________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Richard & Ellen Brown Living Trust Dated 1989 -------------------------------------------------- By: /s/ Richard Brown ----------------------------------------------- Name: Richard Brown --------------------------------------------- Title: Trustee -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 18765 Austin Way -------------------------------------------------- __________________________________________________ Monte Sereno, CA 95030 -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Steven Camps & Kathy Foley Camps -------------------------------------------------- By: /s/ Steven Camps ----------------------------------------------- Name: Kathy Foley Camps --------------------------------------------- Title:____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: Steven Camps -------------------------------------------------- 6942 Lawnhaven -------------------------------------------------- Huntington Beach, CA 92648 -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: /s/ Christopher J. Kilpatrick ----------------------------------------------- Christopher J. Kilpatrick, President NAME OF HOLDER: Froley, Revy Investment co., Inc. Account: State Street Bank as Trustee for Pension Reserves Investment Management Board -------------------------------------------------- By: /s/ Andrea O'Connell ----------------------------------------------- Name: Andrea O'Connell --------------------------------------------- Title: Managing Director -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: State Street Bank & Trust Co. -------------------------------------------------- Master Trust Division -------------------------------------------------- P. O. Box 1713 -------------------------------------------------- Boston, MA 02105 [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Delaware Charter Guarantee & Trust Co. TTEE FBO C/F James Banks MD -------------------------------------------------- By: /s/ James Banks ----------------------------------------------- Name: James Banks --------------------------------------------- Title: Beneficial Owner -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: Delaware Charter Guarantee & Trust -------------------------------------------------- P. O. Box 8963 -------------------------------------------------- Wilmington, DE 19899-8963 -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Delaware Charter Guarantee & Trust Company TTEE FBO SHINICHI HAMASHIGE -------------------------------------------------- By: /s/ SHINICHI HAMASHIGE ----------------------------------------------- Name: SHINICHI HAMASHIGE --------------------------------------------- Title: Beneficial Owner -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: Delaware Charter Guarantee & Trust Co. -------------------------------------------------- P. O. Box 8963 -------------------------------------------------- Wilmington, DE 19899-8963 -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: DELAWARE CHARTER GUARANTEE & TRUST COMPANY TTEE FBO DR. MARC LEITNER -------------------------------------------------- By: /s/ Dr. Marc Leitner ----------------------------------------------- Name: DR MARC LEITNER --------------------------------------------- Title: BENEFICIAL OWNER -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: DELAWARE CHARTER GUARANTEE & TRUST CO. -------------------------------------------------- P.O. BOX 8963 -------------------------------------------------- WILMINGTON, DE 19899 - 8963 -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: DELAWARE CHARTER GUARANTEE & TRUST COMPANY TTEE FBO MARC LEITNER -------------------------------------------------- By: /s/ Marc Leitner ----------------------------------------------- Name: MARC LEITNER --------------------------------------------- Title: BENEFICIAL OWNER -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: DELAWARE CHARTER GUARANTEE & TRUST CO. -------------------------------------------------- P.O. BOX 8963 -------------------------------------------------- WILMINGTON, DE 19899 - 8963 -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: DELAWARE CHARTER GUARANTEE & TRUST CO. TTEE WILLIAM E. TROMMALD ISDRP -------------------------------------------------- By: /s/ William E. Trommald ----------------------------------------------- Name: WILLIAM E. TROMMALD --------------------------------------------- Title: BENEFICIAL OWNER -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: DELAWARE CHARTER GUARANTEE & TRUST -------------------------------------------------- P.O. BOX 8963 -------------------------------------------------- WILMINGTON, DE 19899 -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: __________________________________________________ By: /s/ Orrin Devinsky ----------------------------------------------- Name: ORRIN DEVINSKY --------------------------------------------- Title:____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 97 WESTVIEW RD -------------------------------------------------- SHORT HILLS NJ 07078 -------------------------------------------------- __________________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: DIAGNOSTIC IMAGING MEDICAL GROUP OF SM PROFIT SHARING PLAN FBO BEAHM -------------------------------------------------- By: /s/ Brent Beahm ----------------------------------------------- Name: DR BRENT BEAHM --------------------------------------------- Title: BENEFICIAL OWNER -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 105 APPY WAY -------------------------------------------------- ARROYO GRANDE, CA 93420 -------------------------------------------------- __________________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: /s/ Craig J. Duchossois -------------------------------------------------- By:_______________________________________________ Name: CRAIG J. DUCHOSSOIS --------------------------------------------- Title:____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: VIRGINIA J. PILLMAN -------------------------------------------------- 845 LARCH AVE -------------------------------------------------- ELMHURST, IL 60128 -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: KIMBERLY T. DUCHOSSOIS -------------------------------------------------- By: /s/ Kimberly T. Duchossois ----------------------------------------------- Name: KIMBERLY T. DUCHOSSOIS --------------------------------------------- Title:____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: VIRGINIA J. PILLMAN -------------------------------------------------- 845 LARCH AVENUE -------------------------------------------------- ELMHURST, IL 60126 -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: __________________________________________________ By: /s/ Craig J. Duchossois AS AGENT FOR ----------------------------------------------- Name: R. BRUCE DUCHOSSOIS -------------------------------------------- Title:____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: VIRGINIA J. PILLMAN -------------------------------------------------- 845 LARCH AVE -------------------------------------------------- ELMHURST, IL 60126 -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: /s/ Chris Kilpatrick ----------------------------------------------- Chris Kilpatrick, President NAME OF HOLDER: __________________________________________________ By: /s/ Brian Fargo ----------------------------------------------- Name: Brian Fargo --------------------------------------------- Title: N/A -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 426 Harbor Island Drive -------------------------------------------------- Newport Beach, CA 92660 -------------------------------------------------- __________________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: __________________________________________________ By: /s/ Rick Frey ----------------------------------------------- Name: RICK FREY --------------------------------------------- Title:____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 1919 16th Ave. -------------------------------------------------- Oakland, CA 94606 -------------------------------------------------- __________________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By:___________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Frey Living Trust 3/20/96 ---------------------------------------------- By: /s/ Philip Frey Jr ------------------------------------------- Name: Philip Frey Jr ----------------------------------------- Title: Trustee ---------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 48 Braeburn Ln ---------------------------------------------- Newport Beach CA, 92660 ---------------------------------------------- ______________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: /s/ Christopher J. Kilpatrick ___________________________________________ Christopher J. Kilpatrick, President Froley, Revy Investment Co., Inc. NAME OF HOLDER: Account: Bank Of Bermuda, Ltd. Hamilton, Bermuda As Trustee For WAFRA Discretionary Portfolio ---------------------------------------------- By: /s/ Andrea O'Connell ------------------------------------------- Name: Andrea O'Connell ----------------------------------------- Title: Managing Director ---------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: Bank of Bermuda, Ltd. ---------------------------------------------- 6 Front St. P. O. Box HM 1020 ---------------------------------------------- Hamilton, JMDX, Bermuda ---------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By:___________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: The Gluck Family Trust ---------------------------------------------- By: /s/ Dr. Louis Gluck ------------------------------------------- Name: Dr. Louis Gluck ----------------------------------------- Title: Trustee ---------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 6578-B Luz Del Sol ---------------------------------------------- Laguna Hills, CA 92653 ---------------------------------------------- ______________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By:___________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Shinichi Hamashige ---------------------------------------------- By: /s/ Shinichi Hamashige ------------------------------------------- Name: Shinichi Hamashige ----------------------------------------- Title:________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 18772 Via Verona ---------------------------------------------- Irvine, CA 92715 ---------------------------------------------- ______________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: /s/ Christopher J. Kilpatrick ------------------------------------------- Christopher J. Kilpatrick, President Froley, Revy Investment Co., Inc. NAME OF HOLDER: Account: The Northern Trust Company as Trustee for Nalco Chemical Company Retirement Trust ---------------------------------------------- By: /s/ Andrea O'Connell ------------------------------------------- Name: Andrea O'Connell ----------------------------------------- Title: Managing Director ---------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: The Northern Trust Company ---------------------------------------------- P. O. Box 92923 ---------------------------------------------- Chicago, IL 60675 ---------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By:___________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Michael L. Hughes ---------------------------------------------- By:___________________________________________ Name: Michael L. Hughes ----------------------------------------- Title: Individual ---------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 30901 Rivera Place ---------------------------------------------- Laguna Niguel CA 92677 ---------------------------------------------- ______________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By:____________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: James M. Peebles Living Trust Dated 1/3/91 ----------------------------------------------- By: /s/ James M. Peebles -------------------------------------------- Name: James M. Peebles ------------------------------------------- Title: Trustee ------------------------------------------ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 15 Havenwood ------------------------------------------------ Irvine CA 92614 ------------------------------------------------ ________________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By:__________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: ______________________________________________ By: /s/ Chris KilPatrick ------------------------------------------- Name: Chris KilPatrick ----------------------------------------- Title: Christopher J. KilPatrick & ---------------------------------------- Linda Kilpatrick JTWROS ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 9 Wickland ---------------------------------------------- Irvine, California, CA 92720 ---------------------------------------------- ______________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By:___________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: _____________________________________________ By: /s/ Robert Klein MD. ------------------------------------------- Name: Robert Klein MD. ----------------------------------------- Title:________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 3840 North 40th Ave. ---------------------------------------------- Hollywood, Fl. 33021 ---------------------------------------------- ______________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By:___________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Robert H. Klein and Lorrie J. Klein, Trustees of the Klein Revocable Trust Dated 2/7/91 ---------------------------------------------- By: /s/ Robert Klein Lorrie Klein ------------------------------------------- Name: Robert Klein Lorrie Klein ----------------------------------------- Title: Trustees ---------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: Robert and Lorrie Klein ---------------------------------------------- 30272 LA Fleur ---------------------------------------------- Laguna Niguel, CA 92677 ---------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: ___________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: ______________________________ By: /s/ Michael Kulas --------------------------- Name: Mike Kulas ------------------------- Title:________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: /s/ Mike Kulas ------------------------------ 303 Tomaras Ave. ------------------------------ Savoy IL 61874 ------------------------------ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: LANDAU FAMILY TRUST -------------------------------------------------- By: /s/ Boris Landau ----------------------------------------------- Name: Boris Landau --------------------------------------------- Title: CoTrustee -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 30762 La Mer -------------------------------------------------- Laguna Niguel -------------------------------------------------- CA 92677 -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Richard Lehrberg -------------------------------------------------- By: /s/ Catherine Lehrberg ----------------------------------------------- Name: Richard & Catherine Lehrberg JTWROS --------------------------------------------- Title: EXEC V.P. -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 1085 University Ave -------------------------------------------------- Palo Alto CA 94301 -------------------------------------------------- __________________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: LOUSEN LIVING TRUST -------------------------------------------------- By: /s/ Thomas P. Lousen ----------------------------------------------- /s/ Patricia A. Lousen ----------------------------------------------- Name: Thomas P. Lousen --------------------------------------------- Patricia A. Lousen --------------------------------------------- Title: Trust Managers -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 10885 San Marcos Rd. -------------------------------------------------- Atascadero, Ca 93422 -------------------------------------------------- __________________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Neil T. Lynch ------------------------------------------------- By:______________________________________________ Name: Neil T. Lynch -------------------------------------------- Title:___________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 638 Lindero Cyn Rd, -------------------------------------------------- #346 Agoura, Ca, 91301 -------------------------------------------------- __________________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Mitchell Partners, L.P. -------------------------------------------------- By: /s/ James E. Mitchell ----------------------------------------------- Name: James E. Mitchell --------------------------------------------- Title: General Partner -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: P.O. Box 5119 -------------------------------------------------- Irvine, Ca. 92616 -------------------------------------------------- __________________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Dr. M. Douglas Cunningham & Dr. Louis Gluck Co-TTEES of Ocics Profit Shar Pln 12/31/88 FBO Jack Sills MD. -------------------------------------------------- By: /s/ Jack Sills ----------------------------------------------- Name: Jack Sills --------------------------------------------- Title: Beneficial Owner -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 1581 Loma Verde Ln -------------------------------------------------- Santa Ana, Ca 92705 -------------------------------------------------- __________________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Dr. M. Douglas Cunningham & Dr. Louis Gluck Co- ttees of Ocics Profit Shar Plns 12/31/88 FBO Federal Waffarn M.D -------------------------------------------------- By: /s/ Ferzal Waffarn ----------------------------------------------- Name: Ferzal Waffarn M.D --------------------------------------------- Title: Beneficial Owner -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 10511 Grove Oak Drive -------------------------------------------------- Santa Ana. Ca 92705 -------------------------------------------------- __________________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: Christopher J. Kilpatrick ----------------------------------------------- Christopher J. Kilpatrick, President Forley, Revy Investment Co., Inc. NAME OF HOLDER: Account: Wells Fargo Bank as Agent for Oregon Equity Fund -------------------------------------------------- By: /s/ Andrea O'Connell ----------------------------------------------- Name: Andrea O'Connell --------------------------------------------- Title: Managing Director -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: Wells Fargo Bank, N.A. -------------------------------------------------- Master Trust Division -------------------------------------------------- 26610 West Agoura Rd. -------------------------------------------------- Calabasas, Ca 91302 [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Richard L. Duchossois as Trustee of the Richard L. Duchossois Revocable Trust U/A/D/ 1/18/80 -------------------------------------------------- By: /s/ Richard L. Duchossois ----------------------------------------------- Name: Richard L. Duchossois --------------------------------------------- Title: Trustee -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: Virginia J. Pillman -------------------------------------------------- 845 Larch Avenue -------------------------------------------------- Elmhurst, IL 60126 -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Barry Rodgers & Phyllis Rodgers JTTEN -------------------------------------------------- By: /s/ Barry Rodgers ---------------------------------------------- /s/ Phyllis Rodgers ---------------------------------------------- Name: Barry Rodgers --------------------------------------------- Phyllis Rodgers --------------------------------------------- Title:____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 10213 Overhill DR. -------------------------------------------------- Santa Ana, Ca 92709 -------------------------------------------------- __________________________________________________ [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: DR. JACK SILLS & DALE C. SILLS JTWROS -------------------------------------------------- By: /s/ Jack Sills, Dale Sills ----------------------------------------------- Name: DR. JACK SILLS DALE SILLS --------------------------------------------- Title: -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 1581 LOMA VERDE LN -------------------------------------------------- SANTA ANA, CA. 92705 -------------------------------------------------- -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: FRANK J. SINATRA & CAROL J. SINATRA -------------------------------------------------- By: /s/ Frank J. Sinatra ----------------------------------------------- Name: FRANK J. SINATRA & CAROL J. SINATRA --------------------------------------------- Title: -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 13621 RUSHMORE LANE -------------------------------------------------- SANTA ANA, CA 92705 -------------------------------------------------- -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Smith Family Trust -------------------------------------------------- By: /s/ Charles L. Smith ----------------------------------------------- Name: Charles L. Smith --------------------------------------------- Title: Trustee -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Stephen J. Lendino Revocable Trust Vad 3/30/93 -------------------------------------------------- By: /s/ Stephen Lendino ----------------------------------------------- Name: Steve J. Lendino (SL) --------------------------------------------- Title: Trustee -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 43 Mirador -------------------------------------------------- Irvine, CA -------------------------------------------------- 92612 -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Stradling, Yocca Carlson & Rauth Investment Partnership of 1982 -------------------------------------------------- By: /s/ K. C. Schaaf ----------------------------------------------- Name: K. C. Schaaf --------------------------------------------- Title: Partner -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Richard I. Tanaka -------------------------------------------------- By: /s/ Edith A. Tanaka ----------------------------------------------- Name: RICHARD I. & EDITH A. TANAKA --------------------------------------------- Title: -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 10321 SHADYRIDGE DRIVE -------------------------------------------------- SANTA ANA, CA 92705 -------------------------------------------------- -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Matthew A. Toschlog -------------------------------------------------- By: /s/ Matthew Toschlog ----------------------------------------------- Name: --------------------------------------------- Title: -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 803 Sycamore -------------------------------------------------- Ann Arbor, MI 48104 -------------------------------------------------- -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: FEIZEL WAFFARN & DOROTHY WAFFARN TR UA 03-12-90 WAFFARN FAMILY TRUST -------------------------------------------------- By: /s/ Feizal Waffarn ----------------------------------------------- Name: FEIZEL WAFFARN MD --------------------------------------------- Title: TRUSTEE -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 10511 GROVE OAK DRIVE -------------------------------------------------- SANTA ANA, CA 92705 -------------------------------------------------- -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Walter & Edwin Scloss Associates LP -------------------------------------------------- By: /s/ Walter J. Schloss ----------------------------------------------- Name: Walter J. Schloss, Gen'l Partner --------------------------------------------- Title: Portfolio Manager -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: Walter & Edwin Schloss Associates LP 52 Vanderbilt Avenue 8th Floor New York NY 10017-3808 -------------------------------------------------- Please note that all interest payments are t -------------------------------------------------- Walter & Edwin Schloss Associates LP c/o Chase Manhattan Bank -------------------------------------------------- P.O.Box 1768 Attn: Marge Murray Grand Central Station New York NY 10163 [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: WECHSLER & CO., INC -------------------------------------------------- By: /s/ Norman J. Wechsler ----------------------------------------------- Name: NORMAN J. WECHSLER --------------------------------------------- Title: CHAIRMAN -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 105 SOUTH BEDFORD ROAD -------------------------------------------------- MT. KISCO, NY 10549 -------------------------------------------------- -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties as of the date first above written. INTERPLAY PRODUCTIONS By: _______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: WILLIAM G. EDWARDS TTEE FOR THE WILLIAM G. EDWARDS PENSION PLAN TR DTD 12-28-87 -------------------------------------------------- By: /s/ William G. Edwards ----------------------------------------------- Name: WILLIAM G. EDWARDS --------------------------------------------- Title: TRUSTEE -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 8990 GARFIELD ST., STE. #6 -------------------------------------------------- RIVERSIDE, CA 92503-3922 -------------------------------------------------- -------------------------------------------------- [SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT] 13 EXHIBIT 1 Purchasers ---------- EXHIBIT 1 LIST OF PURCHASERS ABS Employees' Venture Fund Limited Partnership (Alex. Brown Investments, Inc., General Partner) Belton Ventures, Ltd., a British Virgin Islands Corporation Bilotta, Peter Alan Binder 1989 Trust,Theodore R. Binder & Sandra L. Binder, Trustees Bowen Trust dated 1/27/93, Jerry L. Bowen, Trustee Brown Living Trust dated 2/21/89, Richard W. & Ellen Murphy Brown, Trustees Camps, Steven "Chuck" & Kathy Foley CATAMARAN & CO. as nominee for Pension Reserves Investment Management Board Delaware Charter Guarantee & Trust Co., Trustee for the benefit of James Banks, Delaware Charter Guarantee & Trust Co., Trustee, for the benefit of Shinichi Hamashige Delaware Charter Guarantee & Trust Co., Trustee, for the benefit of Marc Leitner Delaware Charter Guarantee & Trust Co., Trustee William E. Trommald Self-Employed for the benefit of William E. Trommald Integrated Self-Directed Retirement Plan dated 1/27/97 Devinsky, Orrin Diagnostic Imaging Medical Group of Santa Maria Profit Sharing Plan, for the benefit of Brent Beahm Duchossois, Craig J. Duchossois, Kimberly T. Duchossois, R. Bruce Fargo, Brian Frey, Rick Frey Living Trust dated 3/20/96, Philip Frey, Jr., Trustee GERLACH & CO. as nominee for Convertible Securities Fund, WAFRA Portfolio Gluck Family Trust, Louis Gluck, M.D., Trustee Hamashige, Shinichi HOW&CO as nominee for Nalco Chemical Company Retirement Trust Hughes, Michael L. James M. Peebles Living Trust dated 1/31/91, James M. Peebles, Trustee Kilpatrick, Christopher & Linda Klein, Robert M., M.D. Klein Revocable Trust dated 2/7/91, Robert H. & Lorrie J. Klein, Trustees Korompis, Piter Kulas, Michael J. Landau Family Trust dated 11/29/90, Boris & Nataliya Landau, Trustees Lehrberg, Richard & Catherine Lousen Living Trust dated 10/26/94, Thomas P. & Patricia A. Lousen, Co-Trustees Lynch, Neil T. Mitchell Partners, L.P. OCICS Profit Sharing Plan, Dr. M. Louis Gluck & Dr. M. Douglas Cunningham, Co-Trustees for the benefit of Jack Sills, M.D. 2. OCICS Profit Sharing Plan, Dr. M. Louis Gluck & Dr. M. Douglas Cunningham, Co-Trustees for the benefit of Feizal Waffarn, M.D. OREFUND as nominee for Oregon Equity Fund Richard L. Duchossois Revocable Trust dated 1/18/90, Richard L. Duchossois, Trustee Rodgers, Barry & Phyllis Sfreddo, R.L. Sills, Dr. Jack and Dale C. Sinatra, Frank J. & Carol J. Smith Family Trust dated 10/2/92, Charles L. Smith & Janet Smith, Trustees Stephen J. Lendino Revocable Trust dated 3/30/93, Stephen J. Lendino, Trustee Stradling, Yocca, Carlson & Rauth Investment Partnership of 1982 Tanaka, Richard I. & Edith A. Toschlog, Matt Waffarn Family Trust dated 3/12/90, Feizal & Dorothy Waffarn, Trustees Walter & Edwin Schloss Associates, L.P. Wechsler & Co., Inc. William G. Edwards Pension Plan Trust dated 12/28/87, William G. Edwards, Trustee 3. AMENDMENT TO INVESTORS' RIGHTS AGREEMENT This Amendment is made this 19th day of June, 1997, to that certain Investors' Rights Agreement dated October 10, 1996 (the "Rights Agreement"), by and among Interplay Productions, a California corporation (the "Company"), and certain Purchasers listed on Exhibit 1 attached thereto (individually a "Holder" --------- and collectively the "Holders"). RECITALS -------- WHEREAS, pursuant to the Rights Agreement, the Company granted to the Holders certain registration and other rights; and WHEREAS, the Company and the Holders desire to extend the rights under the Rights Agreement to include shares of the Company's Common Stock issued upon the May 1, 1997 conversion of the interest due to certain Holders under the Promissory Notes and any additional shares of Common Stock and equity issued upon future conversions of interest under the Promissory Notes that may be approved by the Company's Board of Directors; NOW, THEREFORE, the parties agree to amend the Rights Agreement as follows: 1. Section 1.1.1(c) of the Rights Agreement is hereby amended to read as follows: "(c) The term 'Registrable Securities' means (i) Common Stock issued upon exercise of the Warrants held by the Holders pursuant to the Subscription Agreements; (ii) 16,362 shares of the Company's Common Stock issued upon the May 1, 1997 conversion of the interest due to certain Holders under the Promissory Notes and any additional shares of Common Stock or equity issued upon future conversions of interest under the Promissory Notes that may be approved by the Company's Board of Directors; and (iii) any Common Stock of the Company issued as (or issuable upon conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange or in replacement of, such Registrable Securities (as defined herein). In the event of any recapitalization by the Company, whether by stock split, reverse stock split, stock dividend or the like, the number of shares of Registrable Securities used throughout this Agreement for various purposes shall be proportionately increased or decreased." 2. The terms not defined herein shall have the meaning ascribed to them in the Rights Agreement. 1 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement as of the date as of the date first above written. INTERPLAY PRODUCTIONS. a California corporation By:__________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: __________________________________________ By:_______________________________________ Name:_____________________________________ Title:____________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT __________________________________________ __________________________________________ __________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS. a California corporation By:__________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: ABS Employees' Venture Fund L.P. ------------------------------------------ By: /s/ Beverly L. Wright -------------------------------------- Name: Beverly L. Wright ------------------------------------ Title: Treasurer, Alex Brown Investments, ----------------------------------- Inc., General Partner ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT /s/ Stephanie M. Beran ------------------------------------------ 1 South Street ------------------------------------------ Baltimore, MD 21202 ------------------------------------------ fax: 410-453-5897 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:__________________________________________ Christopher J. Kilpatrick, President NAME OF HOLDER: __________________________________________ By: /s/ James Banks ------------------------------------------ Name: Jim Banks ------------------------------------------ Title: BENEFICIARY of trust ------------------------------------------ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT 4645 Caritina Dr ------------------------------------------ Tarzana Calif ------------------------------------------ 91356 ------------------------------------------ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investor's Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS a California corporation By:__________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Belton Ventures, Ltd, ------------------------------------------ By: /s/ Tisno Onggara ------------------------------------- Name: Tisno Onggara for Belton Ventures ------------------------------------ Title:____________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT Tisno Onggara. ------------------------------------------ 1999 Ave of the Stars, # 2590, ------------------------------------------ LA, CA 90067 ------------------------------------------ ------------------------------------------ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS a California corporation By:__________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: ------------------------------------------ By: /s/ Peter A Bilotta --------------------------------------- Name: Peter A Bilotta ------------------------------------ Title:____________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT "CLEARVIEW" 70 WAGGON ROAD ------------------------------------------ HADLEY WOOD, HERTS, EN40PP ------------------------------------------ ENGLAND ------------------------------------------ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: The Binder 1989 Trust -------------------------------------------------- /s/ Theodore R. Binder By: /s/ Sandra L. Binder ----------------------------------------------- THEODORE R. BINDER Name: SANDRA L. BINDER ----------------------------------------------- Title: TRUSTEES -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 1905 YACHT COLINIA -------------------------------------------------- NEWPORT BEACH, CA 92660 -------------------------------------------------- __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: BOWEN TRUST -------------------------------------------------- By: /s/ Jerry Bowen ----------------------------------------------- Name: JERRY BOWEN --------------------------------------------- Title: TRUSTEE -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 5432 Catowba -------------------------------------------------- Irvine, CA 92612 -------------------------------------------------- __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Richard and Ellen Brown Trust Dated -------------------------------------------------- By: /s/ Richard Brown ----------------------------------------------- Name: RICHARD BROWN --------------------------------------------- Title: Trustee -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: __________________________________________________ __________________________________________________ __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: CATAMARAN & CO. -------------------------------------------------- By: /s/ K. Andrea O'Connell ----------------------------------------------- Name: K. Andrea O'Connell --------------------------------------------- Title: Managing Director, -------------------------------------------- Froley, Revy Investment Co., Inc. ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: __________________________________________________ __________________________________________________ __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: /s/ Orrin Devinsky -------------------------------------------------- By: ----------------------------------------------- NAME: Orrin Devinsky --------------------------------------------- Title: ____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: __________________________________________________ __________________________________________________ __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: -------------------------------------------------- By: /s/ Craig J. Duchossois ----------------------------------------------- Name: CRAIG J. DUCHOSSOIS --------------------------------------------- Title: ____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 845 LARCH AVE -------------------------------------------------- ELMHURST IL 60126 -------------------------------------------------- __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Kimberly T. Duchossois -------------------------------------------------- By: /s/ Kimberly T. Duchossois ----------------------------------------------- Name: KIMBERLY T. DUCHOSSOIS --------------------------------------------- Title: ____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 845 LARCH AVE. -------------------------------------------------- ELMHURST, IL. 60126 -------------------------------------------------- __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: RICHARD L. DUCHOSSOIS -------------------------------------------------- By: /s/ Richard L. Duchossois ----------------------------------------------- Name: Richard L. Duchossois --------------------------------------------- REVOCABLE TRUST U/A/D1/18/80 Title: Trustee -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 845 Larch Avenue -------------------------------------------------- Elmhurst, IL 60126 -------------------------------------------------- __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:/s/ Christopher J. Kilpatrick, ------------------------------------------ Christopher J. Kilpatrick, President NAME OF HOLDER: William G. Edwards -------------------------------------------------- By: _______________________________________________ Name: William G. Edwards --------------------------------------------- Title: [ILLEGIBLE] -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: __________________________________________________ __________________________________________________ __________________________________________________ 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:___________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: __________________________________________________ By: /s/ Brian Fargo ----------------------------------------------- Name: Brian Fargo --------------------------------------------- Title:____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 16815 Von Karman Ave -------------------------------------------------- Irvine CA 92606 -------------------------------------------------- __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: __________________________________________________ By: /s/ Rick Chan Frey ----------------------------------------------- Name: Rick Chan Frey --------------------------------------------- Title:____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: __________________________________________________ __________________________________________________ __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: GERLACH & CO. -------------------------------------------------- By: /s/ K. Andrea O'Connell ----------------------------------------------- Name: K. Andrea O'Connell --------------------------------------------- Title: Managing Director, -------------------------------------------- Froley, Revy Investment Co., Inc. ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: __________________________________________________ __________________________________________________ __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By: /s/ Christopher J. Kilpatrick ----------------------------------------------- Christopher J. Kilpatrick, President NAME OF HOLDER: Shinichi Hamashige -------------------------------------------------- By: /s/ Shinichi Hamashige ----------------------------------------------- DELAWARE CHARTER GUARANTEE & TRUST CO. Name: TRUSTEE FBO SHINICHI HAMASHIGE --------------------------------------------- Title: BENEFICIAL OWNER -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 18772 VIA VERONA -------------------------------------------------- IRVINE, CA 92715 -------------------------------------------------- __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: HOW & CO. -------------------------------------------------- By: /s/ K. Andrea O'Connell ----------------------------------------------- Name: K. Andrea O'Connell --------------------------------------------- Title: Managing Director, -------------------------------------------- Froley, Revy Investment Co., Inc. ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: __________________________________________________ __________________________________________________ __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By: /s/ Christopher J. Kilpatrick ----------------------------------------------- Christopher J. Kilpatrick, President NAME OF HOLDER: EBM Family Trust -------------------------------------------------- By: /s/ Brad Hughes ----------------------------------------------- Name: BRAD HUGHES --------------------------------------------- Title: TRUSTEE -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: EBM Family Trust 1995 Temple Hills Road -------------------------------------------------- LAGUNA BEACH CA 92651 -------------------------------------------------- __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: __________________________________________________ By: /s/ Chris Kilpatrick ----------------------------------------------- Name: Chris Kilpatrick --------------------------------------------- Title:____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 9 Wickland -------------------------------------------------- Irvine CA 92720 -------------------------------------------------- __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Robert Klein, MD -------------------------------------------------- By: ______________________________________________ Name:_____________________________________________ Title:____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: __________________________________________________ __________________________________________________ __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Robert Klein L. Klein -------------------------------------------------- By: /s/ Robert Klein ----------------------------------------------- Name:_____________________________________________ Title:____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 30272 LA Fleur -------------------------------------------------- LAGUNA NIGUEL, CA 92677 -------------------------------------------------- __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Piter Korompis -------------------------------------------------- By: /s/ Piter Korompis ----------------------------------------------- Name:_____________________________________________ Title:____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: __________________________________________________ __________________________________________________ __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By: /s/ Christopher J. Kilpatrick ----------------------------------------------- Christopher J. Kilpatrick, President NAME OF HOLDER: Boris Landau -------------------------------------------------- By: LANDAU FAMILY TRUST DATED 11/29/90 ----------------------------------------------- Name: BORIS LANDAU --------------------------------------------- Title: CO - TRUSTEE -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 30762 LA MER -------------------------------------------------- LAGUNA NIGUEL, CA 92677 -------------------------------------------------- __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investor's Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Richard Lehrberg -------------------------------------------------- By: /s/ Catherine Lehrberg ----------------------------------------------- Name:/s/ Dick & Cathie Lehrberg --------------------------------------------- Title: ____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 1085 University -------------------------------------------------- Palo Alto CA 94301 -------------------------------------------------- __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investor's Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Steven Lendino -------------------------------------------------- By: /s/ Steve Lenoino ----------------------------------------------- Name: Trustee of the Stephen J. Lendino Revocable trust --------------------------------------------- Title: ____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: __________________________________________________ __________________________________________________ __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investor's Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: __________________________________________________ By: /s/ Thomas P. Lousen Patricia J. Lousen ----------------------------------------------- Name:/s/ THOMAS P LOUSEN PATRICIA A. LOUSEN --------------------------------------------- Title: CO-TRUSTEES -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: __________________________________________________ __________________________________________________ __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investor's Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: /s/ Mitchell Partners L.P. -------------------------------------------------- By: /s/ James E Mitchell ----------------------------------------------- Name: /s/ James E. Mitchell --------------------------------------------- Title: General Partner -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 611 Anto Blvd, Ste 1110 -------------------------------------------------- Costa Mesa, CA 92626 -------------------------------------------------- __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investor's Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: /s/ James M. Pebbles Trust 1/3/91 -------------------------------------------------- By: /s/ James M. Peebbles ----------------------------------------------- Name: /s/ James M. Peebles --------------------------------------------- Title: Trustee -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: James M. Peebles -------------------------------------------------- 15 Havenwood -------------------------------------------------- Irvine CA 92614 -------------------------------------------------- 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investor's Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: /s/ Barry Rodgers -------------------------------------------------- By: /s/ Phyllis Rodgers ----------------------------------------------- Name: /s/ Barry & Phyllis Rodgers --------------------------------------------- Title: ____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 10213 OverHill Drive -------------------------------------------------- Santa Ana CA 92705 -------------------------------------------------- __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investor's Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a california corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: __________________________________________________ By: /s/ R. L. Sfreddo ----------------------------------------------- Name: R. L. Sfreddo --------------------------------------------- Title: Note Holder -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 429 Orange Blossom -------------------------------------------------- Irvine CA 92620 -------------------------------------------------- __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investor's Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Walter & Edwin Schloss Associates LP -------------------------------------------------- By: /s/ Walter J. Schloos ----------------------------------------------- Name: /s/ Walter J. Schloos --------------------------------------------- Title: General Partner -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 52 Vanderbilt Avenue 8th Floor -------------------------------------------------- New York NY 10017-3803 -------------------------------------------------- 3803 __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investor's Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Chris Kilpatrick, President NAME OF HOLDER: __________________________________________________ By: /s/ Jack Sills ----------------------------------------------- Name:/s/ Jack Sills --------------------------------------------- Title: ____________________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: __________________________________________________ __________________________________________________ __________________________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investor's Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_______________________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Smith Family Trust -------------------------------------------------- By: /s/ C L. Smith ----------------------------------------------- Name:/s/ Charles L. Smith --------------------------------------------- Title: Trustee -------------------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 18683 Santa Isadora -------------------------------------------------- Fountain Valley CA 92708 -------------------------------------------------- c/o Jean Smith -------------------------------------------------- 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS a California corporation By:____________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: STRADLING YOCCA CARLSON & RAUTH INVESTMENT PARTNERSHIP OF 1982 --------------------------------------- By: /s/ K.C. Schaaf ------------------------------------ Name: K.C. SCHAAF ---------------------------------- Title: PARTNER --------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 660 Newport Center Drive --------------------------------------- Suite 1600 --------------------------------------- Newport Beach, CA 92660 --------------------------------------- 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:___________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: Richard I. Tanaka Edith A. Tanaka -------------------------------------- By:___________________________________ Name:_________________________________ Title:________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: ______________________________________ ______________________________________ ______________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:_____________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: William Trommald ---------------------------------------- By: /s/ William Trommald -------------------------------------- Name: W. E. Trommald ----------------------------------- Title:__________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 8055 Rosina St. ---------------------------------------- Long Beach, CA ---------------------------------------- 90808 ---------------------------------------- 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS a California corporation By:____________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: /s/ Dorothy Waffarn /s/ Feizal Waffarn --------------------------------------- By:____________________________________ Name: FEIZAL + DOROTHY WAFFARN ---------------------------------- Title: TRUSTEES WAFFARN FAMILY TRUST --------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: FEIZAL WAFFARN --------------------------------------- 10511 Groveoak Drive --------------------------------------- Santa Ana, CA. 92705 --------------------------------------- 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:____________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: /s/ Feizal Waffarn --------------------------------------- By:____________________________________ Name: FEIZAL WAFFARN ---------------------------------- Title:_________________________________ ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: 10511 Groveoak Drive --------------------------------------- SANTA ANA, CA 92705 --------------------------------------- _______________________________________ 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Amendment to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS, a California corporation By:____________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: WEKS, INC. --------------------------------------- By: /s/ Norman J. Wechsler ------------------------------------ Name: NORMAN J. WECHSLER ---------------------------------- Title: PRESIDENT --------------------------------- ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: WEKS, INC. --------------------------------------- 105 South Bedford Road Suite 310 --------------------------------------- Mt. Kisco, New York 10549 --------------------------------------- 2 3. Except as otherwise expressly provided herein, all of the terms and provisions of the Rights Agreement shall remain in full force and effect. 4. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, this parties have executed this Amendement to Investors' Rights Agreement to be effective as of the date as of the date first above written. INTERPLAY PRODUCTIONS a California corporation By:____________________________________ Brian Fargo, Chairman and Chief Executive Officer NAME OF HOLDER: WEST COAST & CO. OREFUND --------------------------------------- By: /s/ K. Andrea O'Connell ------------------------------------ Name: K. Andrea O'Connell ---------------------------------- Title: Managing Director, --------------------------------- Froley, Revy Investment Co., Inc. ADDRESS TO WHICH NOTICES AND OTHER COMMUNICATIONS ARE TO BE SENT: _______________________________________ _______________________________________ _______________________________________ 2 EXHIBIT 1 LIST OF PURCHASERS ABS Employees' Venture Fund Limited Partnership (Alex. Brown Investments, Inc., General Partner) Bilotta, Peter Alan Binder 1989 Trust, Theodore R. Binder & Sandra L. Binder, Trustees Bowen Trust dated 1/27/93, Jerry L. Bowen, Trustee Brown Living Trust dated 2/21/89, Richard W. & Ellen Murphy Brown, Trustees Camps, Steven "Chuck" & Kathy Foley CATAMARAN & CO. as nominee for Pension Reserves Investment Management Board Delaware Charter Guarantee & Trust Co., Trustee, for the benefit of James Banks, M.D. Delaware Charter Guarantee & Trust Co., Trustee, for the benefit of Shinichi Hamashige Delaware Charter Guarantee & Trust Co., Trustee, for the benefit of Marc Leitner Delaware Charter Guarantee & Trust Co., Trustee William E. Trommald Self-Employed for the benefit of William E. Trommald Integrated Self-Directed Retirement Plan dated 1/27/97 Devinsky, Orrin Diagnostic Imaging Medical Group of Santa Maria Profit Sharing Plan, for the benefit of Brent Beahm Duchossois, Craig J. Duchossois, Kimberly T. Duchossois, R. Bruce Fargo, Brian Frey, Rick Frey Living Trust dated 3/20/96, Philip Frey, Jr., Trustee GERLACH & CO. as nominee for Convertible Securities Fund, WAFRA Portfolio Gluck Family Trust, Louis Gluck, M.D., Trustee Hamashige, Shinichi HOW&CO as nominee for Nalco Chemical Company Retirement Trust Hughes, Michael L. James M. Peebles Living Trust dated 1/31/91, James M. Peebles, Trustee Kilpatrick, Christopher & Linda Klein, Robert M., M.D. Klein Revocable Trust dated 2/7/91, Robert H. & Lorrie J. Klein, Trustees Korompis, Piter Kulas, Michael J. Landau Family Trust dated 11/29/90, Boris & Nataliya Landau, Trustees Lehrberg, Richard & Catherine Lousen Living Trust dated 10/26/94, Thomas P. & Patricia A. Lousen, Co-Trustees Lynch, Neil T. Mitchell Partners, L.P. OCICS Profit Sharing Plan, Dr. M. Louis Gluck & Dr. M. Douglas Cunningham, Co-Trustees for the benefit of Jack Sills, M.D. OCICS Profit Sharing Plan, Dr. M. Louis Gluck & Dr. M. Douglas Cunningham, Co-Trustees for the benefit of Feizal Waffarn, M.D. Richard L. Duchossois Revocable Trust dated 1/18/90, Richard L. Duchossois, Trustee Rodgers, Barry & Phyllis Sfreddo, R.L. Sills, Dr. Jack and Dale C. Sinatra, Frank J. & Carol J. Smith Family Trust dated 10/2/92, Charles L. Smith & Janet Smith, Trustees Stephen J. Lendino Revocable Trust dated 3/30/93, Stephen J. Lendino, Trustee Stradling, Yocca, Carlson & Rauth Investment Partnership of 1982 2 Tanaka, Richard I. & Edith A. Tek, Budiardjo Toschlog, Matt Waffarn Family Trust dated 3/12/90, Feizal & Dorothy Waffarn, Trustees Walter & Edwin Schloss Associates, L.P. Wechsler & Co., Inc. WESTCOAST & CO. as nominee for Oregon Equity Fund William G. Edwards Pension Plan Trust dated 12/28/87, William G. Edwards, Trustee 3 EX-10.2 4 FORM OF STOCK OPTION AGREEMENT TO THE 1997 PLAN EXHIBIT 10.2 ISO/NQSO-_______ INTERPLAY PRODUCTIONS STOCK OPTION AGREEMENT ---------------------- TYPE OF OPTION (CHECK ONE): [_] INCENTIVE [_] NONQUALIFIED This Stock Option Agreement (the "Agreement") is entered into as of ________________, 19__, by and between Interplay Productions, a California corporation (the "Company") and __________________ (the "Optionee") pursuant to the Company's 1997 Stock Incentive Plan (the "Plan"). 1. GRANT OF OPTION. The Company hereby grants to Optionee an option (the --------------- "Option") to purchase all or any portion of a total of _________________ (___________) shares of the Common Stock of the Company (the "Shares") at a purchase price of _________ ($____________) per share (the "Exercise Price"), subject to the terms and conditions set forth herein and the provisions of the Plan. If the box marked "Incentive" above is checked, then this Option is intended to qualify as an "incentive stock option" as defined in Section 422 of the Internal Revenue Code of l986, as amended (the "Code"). If this Option fails in whole or in part to qualify as an incentive stock option, or if the box marked "Nonqualified" is checked, then this Option shall to that extent constitute a nonqualified stock option. 2. VESTING OF OPTION. The right to exercise this Option shall vest in ----------------- installments, in the amounts and on the dates set forth below, provided that Optionee remains in the "Continuous Service" (as defined in Section 3 below) of the Company as of the date of vesting: (i) One-fifth, or 20%, of the number of Shares subject to this Option (rounded to the nearest whole number) shall vest on the first anniversary of the Vesting Start Date (as defined below); (ii) an additional one-fifth, or 20%, of the number of Shares subject to this Option (rounded to the nearest whole number) shall vest annually thereafter for three (3) successive years, commencing on the date that is one year after the first anniversary of the Vesting Start Date and continuing on the same date of each annual period thereafter; and (iii) the remaining Shares subject to this Option shall vest on the fifth anniversary of the Vesting Start Date. The "Vesting Start Date" shall be ____________________. No additional shares shall vest after the date of termination of Optionee's Continuous Service, but this Option shall continue to be exercisable in accordance with Section 3 hereof with respect to that number of shares that have vested as of the date of termination of Optionee's Continuous Service. 3. TERM OF OPTION. Optionee's right to exercise this Option shall -------------- terminate upon the first to occur of the following: (a) the expiration of ten (10) years from the date of this Agreement; (b) the expiration of three (3) months from the date of termination of Optionee's Continuous Service if such termination occurs for any reason other than permanent disability, death or voluntary resignation; provided, however, that if Optionee dies during such three-month period the provisions of Section 3(e) below shall apply; (c) the expiration of one (1) month from the date of termination of Optionee's Continuous Service if such termination occurs due to voluntary resignation; provided, however, that if Optionee dies during such one-month period the provisions of Section 3(e) below shall apply; (d) the expiration of one (1) year from the date of termination of Optionee's Continuous Service if such termination is due to permanent disability of the Optionee (as defined in Section 22(e)(3) of the Code); (e) the expiration of one (1) year from the date of termination of Optionee's Continuous Service if such termination is due to Optionee's death or if death occurs during either the three-month or one-month period following termination of Optionee's Continuous Service pursuant to Section 3(b) or 3(c) above, as the case may be; or (f) upon the consummation of a "Change in Control" (as defined in Section 2.4 of the Plan), unless otherwise provided pursuant to Section 11 below. As used herein, the term "Continuous Service" means (i) employment by either the Company or any parent or subsidiary corporation of the Company, or by a corporation or a parent or subsidiary of a corporation issuing or assuming a stock option in a transaction to which Section 424(a) of the Code applies, which is uninterrupted except for vacations, illness (except for permanent disability, as defined in Section 22(e)(3) of the Code), or leaves of absence which are approved in writing by the Company or any of such other employer corporations, if applicable, (ii) service as a member of the Board of Directors of the Company until Optionee resigns, is removed from office, or Optionee's term of office expires and he or she is not reelected, or (iii) so long as Optionee is engaged as a consultant or service provider to the Company or other corporation referred to in clause (i) above. 4. EXERCISE OF OPTION. On or after the vesting of any portion of this ------------------ Option in accordance with Sections 2 or 11 hereof, and until termination of the right to exercise this Option in accordance with Section 3 above, the portion of this Option which has vested may be exercised in whole or in part by the Optionee (or, after his or her death, by the person designated in Section 5 below) upon delivery of the following to the Company at its principal executive offices: (a) a written notice of exercise which identifies this Agreement and states the number of Shares then being purchased (but no fractional Shares may be purchased); 2 (b) a check or cash in the amount of the Exercise Price (or payment of the Exercise Price in such other form of lawful consideration as the Administrator may approve from time to time under the provisions of Section 5.3 of the Plan); (c) a check or cash in the amount reasonably requested by the Company to satisfy the Company's withholding obligations under federal, state or other applicable tax laws with respect to the taxable income, if any, recognized by the Optionee in connection with the exercise of this Option (unless the Company and Optionee shall have made other arrangements for deductions or withholding from Optionee's wages, bonus or other compensation payable to Optionee, or by the withholding of Shares issuable upon exercise of this Option or the delivery of Shares owned by the Optionee in accordance with Section 10.1 of the Plan, provided such arrangements satisfy the requirements of applicable tax laws); and (d) a letter, if requested by the Company, in such form and substance as the Company may require, setting forth the investment intent of the Optionee, or person designated in Section 5 below, as the case may be. 5. DEATH OF OPTIONEE; NO ASSIGNMENT. The rights of the Optionee under -------------------------------- this Agreement may not be assigned or transferred except by will or by the laws of descent and distribution, and may be exercised during the lifetime of the Optionee only by such Optionee. Any attempt to sell, pledge, assign, hypothecate, transfer or dispose of this Option in contravention of this Agreement or the Plan shall be void and shall have no effect. If the Optionee's Continuous Service terminates as a result of his or her death, and provided Optionee's rights hereunder shall have vested pursuant to Section 2 hereof, Optionee's legal representative, his or her legatee, or the person who acquired the right to exercise this Option by reason of the death of the Optionee (individually, a "Successor") shall succeed to the Optionee's rights and obligations under this Agreement. After the death of the Optionee, only a Successor may exercise this Option. 6. REPRESENTATIONS AND WARRANTIES OF OPTIONEE. ------------------------------------------ (a) Optionee represents and warrants that this Option is being acquired by Optionee for Optionee's personal account, for investment purposes only, and not with a view to the distribution, resale or other disposition thereof. (b) Optionee acknowledges that the Company may issue Shares upon the exercise of the Option without registering such Shares under the Securities Act of l933, as amended (the "Securities Act"), on the basis of certain exemptions from such registration requirement. Accordingly, Optionee agrees that his or her exercise of the Option may be expressly conditioned upon his or her delivery to the Company of an investment certificate including such representations and undertakings as the Company may reasonably require in order to assure the availability of such exemptions, including a representation that Optionee is acquiring the Shares for investment and not with a present intention of selling or otherwise disposing thereof and an agreement by Optionee that the certificates evidencing the Shares may bear a legend indicating such non- registration under the Securities Act and the resulting restrictions on transfer. Optionee acknowledges that, because Shares received upon exercise of an Option may be unregistered, Optionee may be required to hold the Shares indefinitely unless they are subsequently registered for resale under the Securities Act or an exemption from such registration is available. 3 (c) Optionee acknowledges receipt of a copy of the Plan and understands that all rights and obligations connected with this Option are set forth in this Agreement and in the Plan. 7. RIGHT OF FIRST REFUSAL. ---------------------- (a) The Shares acquired pursuant to the exercise of this Option may be sold by the Optionee only in compliance with the provisions of this Section 7, and subject in all cases to compliance with the provisions of Section 6(b) hereof. Prior to any intended sale, Optionee shall first give written notice (the "Offer Notice") to the Company specifying (i) his or her bona fide intention to sell or otherwise transfer such Shares, (ii) the name and address of the proposed purchaser(s), (iii) the number of Shares the Optionee proposes to sell (the "Offered Shares"), (iv) the price for which he or she proposes to sell the Offered Shares, and (v) all other material terms and conditions of the proposed sale. (b) Within 30 days after receipt of the Offer Notice, the Company or its nominee(s) may elect to purchase all or any portion of the Offered Shares at the price and on the terms and conditions set forth in the Offer Notice by delivery of written notice (the "Acceptance Notice") to the Optionee specifying the number of Offered Shares that the Company or its nominees elect to purchase. Within 15 days after delivery of the Acceptance Notice to the Optionee, the Company and/or its nominee(s) shall deliver to the Optionee payment of the amount of the purchase price of the Offered Shares to be purchased pursuant to this Section 7, against delivery by the Optionee of a certificate or certificates representing the Offered Shares to be purchased, duly endorsed for transfer to the Company or such nominee(s), as the case may be. Payment shall be made on the same terms as set forth in the Offer Notice or, at the election of the Company or its nominees(s), by check or wire transfer of funds. If the Company and/or its nominee(s) do not elect to purchase all of the Offered Shares, the Optionee shall be entitled to sell the balance of the Offered Shares to the purchaser(s) named in the Offer Notice at the price specified in the Offer Notice or at a higher price and on the terms and conditions set forth in the Offer Notice; provided, however, that such sale or other transfer must be consummated within 60 days from the date of the Offer Notice and any proposed sale after such 60-day period may be made only by again complying with the procedures set forth in this Section 7. (c) The Optionee may transfer all or any portion of the Shares to a trust established for the sole benefit of the Optionee and/or his or her spouse or children without such transfer being subject to the right of first refusal set forth in this Section 7, provided that the Shares so transferred shall remain subject to the terms and conditions of this Agreement and no further transfer of such Shares may be made without complying with the provisions of this Section 7. (d) Any Successor of Optionee pursuant to Section 5 hereof, and any transferee of the Shares pursuant to this Section 7, shall hold the Shares subject to the terms and conditions of this Agreement and no further transfer of the Shares may be made without complying with the provisions of this Section 7. (e) The provisions of this Section 7 shall not apply to a sale of the Shares to the Company pursuant to Section 8 below. 4 (f) The rights provided the Company and its nominee(s) under this Section 7 shall terminate upon the closing of the initial public offering of shares of the Company's Common Stock pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act. 8. COMPANY'S REPURCHASE RIGHT. -------------------------- (a) The Company shall have the right (but not the obligation) to repurchase (the "Repurchase Right") any or all of the Shares acquired pursuant to the exercise of this Option in the event that the Optionee's Continuous Service (as defined in Section 3 above) should terminate for any reason whatsoever, including without limitation Optionee's death, disability, voluntary resignation or termination by the Company with or without cause. Upon exercise of the Repurchase Right, the Optionee shall be obligated to sell his or her Shares to the Company, as provided in this Section 8. The Repurchase Right may be exercised by the Company at any time during the period commencing on the date of termination of Optionee's Continuous Service and ending ninety (90) days after the last to occur of the following: (i) the termination of Optionee's Continuous Service; (ii) the expiration of Optionee's right to exercise this Option pursuant to Section 3 hereof; or (iii) in the event of Optionee's death, receipt by the Company of notice of the identity and address of Optionee's Successor (as defined in Section 5 hereof). (b) The purchase price for Shares repurchased hereunder (the "Repurchase Price") shall be the Fair Market Value per share of Common Stock (determined in accordance with Section 2.11 of the Plan) as of the date of termination of Optionee's Continuous Service or the original Exercise Price paid by the Optionee for those Shares the Company is repurchasing, whichever is greater. (c) Written notice of exercise of the Repurchase Right, stating the number of Shares to be repurchased and the Repurchase Price per Share, shall be given by the Company to the Optionee or his or her Successor, as the case may be, during the period specified in Section 8(a) above. (d) The Repurchase Price shall be payable, at the option of the Company, by cash, check or by cancellation of all or a portion of any outstanding indebtedness of Optionee to the Company, or by any combination thereof. The Repurchase Price shall be paid without interest within thirty (30) days after delivery of the notice of exercise of the Repurchase Right, against delivery by the Optionee or his or her Successor of a certificate or certificates representing the Shares to be repurchased, duly endorsed for transfer to the Company. In no event shall such thirty (30) day period extend beyond the period specified in Section 8(a) hereof. (e) The rights provided the Company under this Section 8 shall terminate upon the closing of the initial public offering of shares of the Company's Common Stock pursuant to a 5 registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act. 9. RESTRICTIVE LEGENDS. ------------------- (a) Optionee hereby acknowledges that federal securities laws and the securities laws of the state in which he or she resides may require the placement of certain restrictive legends upon the Shares issued upon exercise of this Option, and Optionee hereby consents to the placing of any such legends upon certificates evidencing the Shares as the Company, or its counsel, may deem necessary or advisable. (b) In addition, all stock certificates evidencing the Shares shall be imprinted with a legend substantially as follows: "THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, REPURCHASE RIGHTS AND A RIGHT OF FIRST REFUSAL IN FAVOR OF THE CORPORATION AND/OR ITS NOMINEE(S), AS SET FORTH IN A STOCK OPTION AGREEMENT DATED _____________, 19__. TRANSFER OF THESE SHARES MAY BE MADE ONLY IN COMPLIANCE WITH THE PROVISIONS OF SAID AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF SAID CORPORATION. SUCH TRANSFER RESTRICTIONS, REPURCHASE RIGHTS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES." 10. ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the event that the --------------------------------------------- outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of a recapitalization, stock split, reverse stock split, combination of shares, reclassification, stock dividend or other change in the capital structure of the Company, then appropriate adjustment shall be made by the Administrator to the number of Shares subject to the unexercised portion of this Option and to the Exercise Price per share, in order to preserve, as nearly as practical, but not to increase, the benefits of the Optionee under this Option, in accordance with the provisions of Section 4.2 of the Plan. 11. CHANGE IN CONTROL. In the event of a Change in Control of the Company ----------------- (as defined in Section 2.4 of the Plan), the Plan and the Option shall terminate, unless provision is made in writing in connection with such transaction for the continuance of the Plan and for the assumption of the Option theretofore granted, or the substitution for such Option of a new option of comparable value covering shares of a successor corporation, with appropriate adjustments as to the number and kind of shares and Exercise Price, in which event the Plan and such Option, or the new option substituted therefor, shall continue in the manner and under the terms so provided. If such provision is not made in such transaction for the continuance of the Plan and the assumption of such Option or the substitution for such Option of a new option covering shares of the successor corporation, then the Administrator shall cause written notice of the proposed transaction to be given to the Optionee not less than fifteen (15) days prior to the anticipated effective date of the 6 proposed transaction and on or before the effective date of the proposed transaction, such person shall have the right to exercise the vested portion of the Option. 12. NO EMPLOYMENT CONTRACT CREATED. Neither the granting of this Option ------------------------------ nor the exercise hereof shall be construed as granting to the Optionee any right with respect to continuance of employment by the Company or any of its subsidiaries. The right of the Company or any of its subsidiaries to terminate at will the Optionee's employment at any time (whether by dismissal, discharge or otherwise), with or without cause, is specifically reserved. 13. RIGHTS AS SHAREHOLDER. The Optionee (or transferee of this option by --------------------- will or by the laws of descent and distribution) shall have no rights as a shareholder with respect to any Shares covered by this Option until the date of the issuance of a stock certificate or certificates to him or her for such Shares, notwithstanding the exercise of this Option. 14. "MARKET STAND-OFF" AGREEMENT. Optionee agrees that, if requested by ---------------------------- the Company or the managing underwriter of any proposed public offering of the Company's securities, Optionee will not sell or otherwise transfer or dispose of any Shares held by Optionee without the prior written consent of the Company or such underwriter, as the case may be, during such period of time, not to exceed 180 days following the effective date of the registration statement filed by the Company with respect to such offering, as the Company or the underwriter may specify. 15. INTERPRETATION. This Option is granted pursuant to the terms of the -------------- Plan, and shall in all respects be interpreted in accordance therewith. The Administrator shall interpret and construe this Option and the Plan, and any action, decision, interpretation or determination made in good faith by the Administrator shall be final and binding on the Company and the Optionee. As used in this Agreement, the term "Administrator" shall refer to the committee of the Board of Directors of the Company appointed to administer the Plan, and if no such committee has been appointed, the term Administrator shall mean the Board of Directors. 16. NOTICES. Any notice, demand or request required or permitted to be ------- given under this Agreement shall be in writing and shall be deemed given when delivered personally or three (3) days after being deposited in the United States mail, as certified or registered mail, with postage prepaid, and addressed, if to the Company, at its principal place of business, Attention: the Chief Financial Officer, and if to the Optionee, at his or her most recent address as shown in the employment or stock records of the Company. 17. ANNUAL AND OTHER PERIODIC REPORTS. During the term of this Agreement, --------------------------------- the Company will furnish to the Optionee copies of all annual and other periodic financial and informational reports that the Company distributes generally to its shareholders. 18. GOVERNING LAW. The validity, construction, interpretation, and effect ------------- of this Option shall be governed by and determined in accordance with the laws of the State of California. 19. SEVERABILITY. Should any provision or portion of this Agreement be ------------ held to be unenforceable or invalid for any reason, the remaining provisions and portions of this Agreement shall be unaffected by such holding. 7 20. COUNTERPARTS. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original and all of which together shall be deemed one instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. INTERPLAY PRODUCTIONS "OPTIONEE" By:________________________ ______________________________ (Signature) Name:______________________ Title:_____________________ ______________________________ (Type or print name) 8 CONSENT OF SPOUSE ----------------- I acknowledge that I have read the foregoing Stock Option Agreement (the "Agreement") and that I know its contents. I am aware that by its provisions, my spouse agrees, among other things, to a right of first refusal, to the granting of rights to purchase and to the imposition of certain restrictions on the transfer of the shares of INTERPLAY PRODUCTIONS, a California corporation, which my spouse acquires upon exercise of such option (the "Shares") including my community interest therein (if any), which rights and restrictions may survive my spouse's death. I hereby consent to such rights and restrictions. I further agree that in the event of a dissolution of the marriage between me and my spouse, in connection with which I secure or am awarded the Shares or any interest therein through property settlement agreement or otherwise, I shall receive and hold said Shares subject to all the provisions and restrictions contained in the foregoing Agreement, including any option of the Company to purchase such Shares or interest from me. I also acknowledge that I have been advised to obtain independent counsel to represent my interests with respect to the Agreement but that I have declined to do so and I hereby expressly waive my right to such independent counsel. Date:__________,1997 ________________________________________ (Signature of Spouse of Optionee) ________________________________________ (Type or print name) 9 EX-10.3 5 FORM OF RESTRICTED STOCK PURCHASE AGREEMENT - 1997 PLAN EXHIBIT 10.3 RSP-______ INTERPLAY PRODUCTIONS RESTRICTED STOCK PURCHASE AGREEMENT ----------------------------------- UNDER 1997 STOCK INCENTIVE PLAN ------------------------------- This Restricted Stock Purchase Agreement is entered into as of _______________, 19___, by and between INTERPLAY PRODUCTIONS, a California corporation (the "Company"), and _______________________________________________ (the "Purchaser") pursuant to the Company's 1997 Stock Incentive Plan (the "Plan"). R E C I T A L S: A. Purchaser is employed by or is a member of the Board of Directors of the Company or became a service provider to the Company ("employment status"), and in such capacity is key to the future success of the Company. B. The Company desires to issue and the Purchaser desires to purchase Common Stock of the Company on the terms and conditions hereinafter set forth. AGREEMENT 1. PURCHASE AND SALE OF SHARES. The Purchaser hereby agrees to purchase --------------------------- from the Company, and the Company hereby agrees to sell to the Purchaser, _________ shares of its Common Stock (the "Shares") for a purchase price of $_________ per share or $___________ in the aggregate. The Purchaser's rights to acquire the Shares hereunder are nontransferable other than by will or the laws of descent and distribution. The Shares shall be duly issued and a certificate or certificates for the Shares are concurrently herewith being issued in the name of Purchaser. Purchaser shall thereupon be a shareholder with respect to all of the Shares represented by such certificate(s) and shall have all of the rights of a shareholder with respect to all of the Shares, including the right to vote the Shares and to receive all dividends and other distributions paid with respect to the Shares. The purchase price is payable as follows: (a) By delivery of cash or check; or (b) By delivery of a promissory note payable to the Company, bearing interest from the date hereof and substantially in the form attached as Exhibit A; or (c) By the surrender of shares of Common Stock owned by the Offeree that have been held by the Offeree for at least six (6) months, which surrendered shares shall be valued at Fair Market Value (as defined in Section 2.11 of the Plan) as of the date of such exercise; or (d) By the cancellation of indebtedness of the Company to the Offeree; or (e) By the waiver of compensation due or accrued to the Offeree for services rendered; or 1 (f) By any combination of the foregoing methods of payment or any other consideration or method of payment as shall be permitted by applicable corporate law. In the event payment of any portion or all of the purchase price is to be made by delivery of a promissory note, Purchaser shall deliver to the Company a pledge of the Shares or other securities or assets which may be listed in the Pledge Agreement dated the date hereof and substantially in the form attached as Exhibit B. If the note is to be unsecured by the Shares or other collateral, the Pledge Agreement shall so indicate. 2. STOCK RIGHTS AND BUY-BACK. The Shares acquired by the Purchaser ------------------------- pursuant to this Agreement shall be subject to the following restrictions and repurchase rights. (a) The Shares acquired hereunder shall vest and become "Vested Shares" in accordance with the following vesting schedule: (i) Except as may otherwise be provided in this Agreement, prior to the first anniversary of ________________, 19___ (the "Vesting Start Date"), none of the Shares shall be vested; and (ii) Following the expiration of such one-year period, the Shares shall vest on a cumulative basis at the rate of Twenty Percent (20%) of the aggregate number of Shares covered hereby per year on each successive anniversary of the Vesting Start Date until the number of Shares acquired hereunder shall thereby have become Vested Shares. Shares which have not yet become vested are herein called "Unvested Shares." In the event Purchaser's Continuous Service terminates for any reason whatsoever, including without limitation, Purchaser's death, disability, voluntary resignation or termination by the Company with or without cause (the "Termination Date"), all vesting shall cease unless otherwise determined by the Board of Directors. Continuous Service shall be defined as (i) employment by either the Company or any parent or subsidiary corporation of the Company which is uninterrupted except for vacations, illness (except for permanent disability, as defined in Section 22(e)(3) of the Code), or leaves of absence which are approved in writing by the Company or any of such other employer corporations, if applicable, (ii) service as a member of the Board of Directors of the Company until Purchaser resigns, is removed from office, or Purchaser's term of office expires and he or she is not reelected, or (iii) so long as Purchaser is engaged as a consultant or service provider to the Company or other corporation referred to in clause (i) above. (b) The Company shall have the right (but not the obligation) to repurchase (the "Repurchase Right") any or all of the Shares acquired pursuant to this Agreement in the event that the Purchaser's Continuous Service (as defined in Section 2(a) above) terminates. Upon exercise of the Repurchase Right, the Purchaser shall be obligated to sell his or her Shares to the Company, as provided in this Section 2. In the event the Company does not fully exercise its repurchase rights hereunder, following any Termination Date, the Company shall nevertheless continue to have a Right of First Refusal to repurchase any Shares, during the period and as set forth in Section 3 below. (c) For ninety (90) days after the Termination Date or other event described in this Section 2, the Company may exercise its repurchase rights hereunder by giving Purchaser and/or any other person obligated to sell written notice of the number of Shares which the 2 Company desires to purchase. The repurchase price, determined pursuant to Section 2(e) below, shall be payable, at the option of the Company, by check or by cancellation of all or a portion of any outstanding indebtedness of Purchaser to the Company, or by any combination thereof. (d) In aid of the repurchase provisions set forth herein, Purchaser shall, immediately upon receipt of the certificate or certificates representing the Shares, deposit the certificate or certificates, together with a stock power or other instrument of transfer appropriately endorsed in blank, with the Company as escrow holder of the certificate(s). In the event that the repurchase rights are not exercised by the Company following any Termination Date, the Company shall cause the certificate or certificates to be delivered into the possession of Purchaser. (e) Upon termination of Purchaser's Continuous Service, the Company may repurchase any Vested or Unvested Shares at the price that is the greater of the Fair Market Value per Share (determined in accordance with Section 2.11 of the Plan) as of the date of termination of Purchaser's Continuous Service or the original Purchase Price. (f) The rights provided the Company under this Section 2 shall terminate upon the closing of the initial public offering of shares of the Company's Common Stock pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act. (g) If the Purchaser: (i) files a voluntary petition under any bankruptcy or insolvency law or a petition for the appointment of a receiver or makes an assignment for the benefit of creditors; (ii) is subjected involuntarily to such a petition or assignment or to an attachment or other legal or equitable interest with respect to the Shares and such involuntary petition or assignment or attachment is not discharged within sixty (60) days after its date; or (iii) is required to transfer the Shares by operation of law or by order or decree of any court, then the Company shall have the option to exercise the Repurchase Right, exercisable at any time during the period of 60 days after receiving notice thereof, to purchase all of the Vested and Unvested Shares owned by the Purchaser upon the terms set forth in this Section 2, whether or not the employment status of the Purchaser has terminated. (h) The Company may assign its rights to repurchase and its rights of first refusal under this Section 2 and Section 3 below. 3. RIGHT OF FIRST REFUSAL. The Shares acquired pursuant to this Agreement ---------------------- may be sold by the Purchaser only in compliance with the provisions of this Section 3, and subject in all cases to compliance with the provisions of Section 7 hereof. (a) Prior to any intended sale, Purchaser shall first give written notice (the "Offer Notice") to the Company specifying (i) his or her bona fide intention to sell or otherwise transfer such Shares, (ii) the name and address of the proposed purchaser(s), (iii) the number of Shares the Purchaser proposes to sell (the "Offered Shares"), (iv) the price for which he or she proposes to sell the Offered Shares, and (v) all other material terms and conditions of the proposed sale. (b) Within 30 days after receipt of the Offer Notice, the Company or its nominee(s) may elect to purchase all or any portion of the Offered Shares at the price and on the terms and conditions set forth in the Offer Notice by delivery of written notice (the "Acceptance 3 Notice") to the Purchaser specifying the number of Offered Shares that the Company or its nominees elect to purchase. Within 15 days after delivery of the Acceptance Notice to the Purchaser, the Company and/or its nominee(s) shall deliver to the Purchaser by check or wire transfer the amount of the purchase price of the Offered Shares to be purchased pursuant to this Section 3, against delivery by the Purchaser of a certificate or certificates representing the Offered Shares to be purchased, duly endorsed for transfer to the Company or such nominee(s), as the case may be. If the Company and/or its nominee(s) do not elect to purchase all of the Offered Shares, the Purchaser shall be entitled to sell the balance of the Offered Shares to the purchaser(s) named in the Offer Notice at the price specified in the Offer Notice or at a higher price and on the terms and conditions set forth in the Offer Notice, provided, however, that such sale or other transfer must be consummated within 60 days from the date of the Offer Notice and any proposed sale after such 60-day period may be made only by again complying with the procedures set forth in this Section 3. (c) The Purchaser may transfer all or any portion of the Shares to a trust established for the sole benefit of the Purchaser and/or his or her spouse or children without such transfer being subject to the right of first refusal set forth in this Section 3, provided that the Shares so transferred shall remain subject to the terms and conditions of this Agreement and no further transfer of such Shares may be made without complying with the provisions of this Section 3. (d) Any successor of Purchaser and any transferee of the Shares pursuant to this Section 3, shall hold the Shares subject to the terms and conditions of this Agreement and no further transfer of the Shares may be made without complying with the provisions of this Section 3. (e) The rights provided the Company and its nominee(s) under this Section 3 shall terminate upon the consummation of a Public Offering as defined in Section 2(f) above. All Shares of the Purchaser acquired under this Agreement shall continue to be subject to all of the applicable restrictions under Section 2 above prior to or following any Public Offering. 4. CHANGE IN CONTROL. In the event of a Change in Control of the Company ----------------- (as defined in Section 2.4 of the Plan), the Plan and Right to Purchase (as defined in Section 2.24 of the Plan) shall terminate, unless provision is made in writing in connection with such transaction for the continuance of the Plan and for the assumption of the Right to Purchase theretofore granted, or the substitution for such Right to Purchase of a new right to purchase of comparable value covering shares of a successor corporation, with appropriate adjustments as to the number and kind of shares and Exercise Price, in which event the Plan and such Right to Purchase, or the new right to purchase substituted therefor, shall continue in the manner and under the terms so provided. If such provision is not made in such transaction for the continuance of the Plan and the assumption of such Right to Purchase or the substitution for such Right to Purchase of a new right to purchase covering shares of the successor corporation, then the Administrator shall cause written notice of the proposed transaction to be given to the Purchaser not less than fifteen (15) days prior to the anticipated effective date of the proposed transaction and on or before the effective date of the proposed transaction, such person shall have the right to accept the Right to Purchase. 5. RECAPITALIZATION. In the event that, as the result of a stock split or ---------------- stock dividend or combination of shares or any other change, or exchange for other securities, by reclassification, or recapitalization of the Shares, Purchaser shall be entitled to new or additional or different shares of stock or securities, the certificate or certificates for, or other evidences of, such new or additional or different shares or securities shall be imprinted with the legend provided in Section 6, and shall be deposited with the Company as escrow holder under the terms and conditions provided 4 in Section 2(d) herein, together with a stock power or other instrument or transfer appropriately endorsed. In such event, any and all new, substituted or additional securities or other property (other than cash) to which the Purchaser is entitled by reason of his ownership of the Shares shall be immediately subject to the Repurchase Right and Right of First Refusal and be included in the word "Shares" for all purposes of the Repurchase Right and Right of First Refusal with the same force and effect as the Shares subject to the Repurchase Right and the Right of First Refusal under the terms of Sections 2 and 3. While the total Vested and Unvested Share repurchase price shall remain the same after each such event, the per share price shall be appropriately adjusted. Shares acquired as provided in this Section 5 shall be deemed to have been acquired at the time of acquisition of the Shares on which such Shares were distributed. 6. RESTRICTIVE LEGENDS. All certificates representing the Shares subject ------------------- to the provisions of this Agreement shall, in addition to any legend required to be placed thereon by federal or state securities laws, have endorsed thereon the following legend: "ANY DISPOSITION OF ANY INTEREST IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS, AND THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A REPURCHASE RIGHT AND A RIGHT OF FIRST REFUSAL CONTAINED IN A CERTAIN AGREEMENT BETWEEN THE RECORD HOLDER AND THE CORPORATION, A COPY OF WHICH WILL BE MAILED TO ANY HOLDER OF THIS CERTIFICATE WITHOUT CHARGE WITHIN 5 DAYS OF RECEIPT BY THE CORPORATION OF A WRITTEN REQUEST THEREFOR." 7. INVESTMENT REPRESENTATIONS. The Purchaser acknowledges that he is -------------------------- aware that the Shares to be issued to him by the Company pursuant to this Agreement have not been registered under the Securities Act of 1933, as amended. In this connection, the Purchaser warrants and represents to the Company as follows: (a) The Purchaser is purchasing the Shares solely for the Purchaser's own account for investment and not with a view to or for sale or distribution of the Shares or any portion thereof and not with any present intention of selling, offering to sell or otherwise disposing of or distributing the Shares or any portion thereof. The Purchaser also represents that the entire legal and beneficial interest of the Shares the Purchaser is purchasing is being purchased for, and will be held for the account of, the Purchaser only and neither in whole nor in part for any other person. (b) The Purchaser has heretofore discussed the Company and its plans, operations and financial condition with its officers and that the Purchaser has heretofore received all such information as the Purchaser deems necessary and appropriate to enable the Purchaser to evaluate the financial risk inherent in making an investment in the Shares of the Company and the Purchaser further represents and warrants that the Purchaser has received satisfactory and complete information concerning the business and financial condition of the Company in response to all inquiries in respect thereof. (c) The Purchaser realizes that the purchase of the Shares will be a highly speculative investment and that the Purchaser is able, without impairing the Purchaser's financial 5 condition, to hold the Shares for an indefinite period of time and to suffer a complete loss on the investment. (d) The Company hereby discloses to the Purchaser and the Purchaser hereby acknowledges that: (i) the sale of Shares which he is purchasing has not been registered under the Securities Act of 1933, as amended (the "Act"), and such shares must be held indefinitely unless a transfer of them is subsequently registered under the Act or an exemption from such registration is available; (ii) the share certificate representing the Shares will be stamped with the legends restricting transfer specified in this Agreement between the Company and the Purchaser; and (iii) the Company will make a notation in its records of the aforementioned restrictions on transfer and legends. (e) The Purchaser understands that the Shares are restricted securities within the meaning of Rule 144 promulgated under the Act; that the exemption from registration under Rule 144 will not be available in any event for at least two years from the date of sale of the Shares to the Purchaser, and even then will not be available unless (i) a public trading market then exists for the Shares of the Company, (ii) adequate current public information concerning the Company is then available to the public, (iii) the Purchaser has been the beneficial owner and the Purchaser has paid the full purchase price for the Shares at least two years prior to the sale, and (iv) other terms and conditions of Rule 144 are complied with; and that any sale of the Shares may be made by it only in limited amounts in accordance with such terms and conditions, as amended from time to time. (f) Without in any way limiting any of the other provisions of this Agreement or its representations set forth above, the Purchaser further agrees that the Purchaser shall in no event make any disposition of all or any portion of the Shares which the Purchaser is purchasing unless and until; (i) there is then in effect a Registration Statement under the Act covering such proposed disposition and such disposition is made in accordance with said Registration Statement; or (ii) (A) the Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, (B) the Purchaser shall have furnished the Company with an opinion of counsel to the effect that such disposition will not require registration of such shares under the Act, and (C) such opinion of counsel shall have been concurred in by counsel for the Company and the Company shall have advised the Purchaser of such concurrence. 8. UNPERMITTED TRANSFERS. The Company shall not be required (a) to --------------------- transfer on its books any Shares of the Company which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares shall have 6 been so transferred. In the event of a sale of Shares by the Purchaser pursuant to Section 3, the Purchaser shall furnish to the Company proof that such sale was made in compliance with the provisions of Section 3 as to price and general terms of such sale. 9. "MARKET STAND-OFF" AGREEMENT. Purchaser agrees that, if requested by ---------------------------- the Company or the managing underwriter of any proposed Public Offering of the Company's securities, Purchaser will not sell or otherwise transfer or dispose of any Shares held by Purchaser without the prior written consent of the Company or such underwriter, as the case may be, during such period of time, not to exceed 180 days following the effective date of the registration statement filed by the Company with respect to such Public Offering, as the Company or the underwriter may specify. 10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement ---------------- between the parties pertaining to its subject matter and supersedes all contemporaneous written or oral agreements and understandings of the parties, either express or implied. The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. 11. NO EMPLOYMENT CONTRACT CREATED. Nothing in this Agreement shall ------------------------------ affect in any manner whatsoever the right or power of the Company, or a parent or subsidiary of the Company, to terminate the Purchaser's employment, for any reason, with or without cause. 12. NOTICES. Any notice required or permitted hereunder shall be given in ------- writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by certified mail with postage and fees prepaid, addressed to the other party at the address hereinafter shown below his or its signature or at such other address as such party may designate by ten days' advance written notice to the other party. 13. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of ---------------------- the successors and assigns of the Company and be binding upon the Purchaser and his heirs, executors, administrators, successors and assigns. 14. GOVERNING LAW. This Agreement shall be governed by and interpreted ------------- under the laws of the State of California. 15. COUNTERPARTS. This Agreement may be executed simultaneously in any ------------ number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 16. FINANCIAL INFORMATION. The Company will furnish to the Purchaser --------------------- copies of all annual and other periodic financial and informational reports that the Company distributes generally to its shareholders for so long as the Purchaser holds securities acquired pursuant to this Agreement. 17. RECEIPT OF PLAN. The Purchaser acknowledges that the Purchaser has --------------- been furnished with a copy of the Interplay Productions 1997 Stock Incentive Plan. 7 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. INTERPLAY PRODUCTIONS PURCHASER By: ____________________________ _____________________________________ Its: ___________________________ Address: ____________________________ ____________________________ ____________________________ 8 CONSENT OF SPOUSE ----------------- I acknowledge that I have read the foregoing Agreement and that I know its contents. I am aware that by its provisions, my spouse agrees, among other things, to a right of first refusal, to the granting of rights to purchase and to the imposition of certain restrictions on the transfer of the shares of INTERPLAY PRODUCTIONS, a California corporation (the "Company"), including my community interest therein (if any), which rights and restrictions may survive my spouse's death. I hereby consent to such rights and restrictions and approve of the provisions of the Agreement. I further agree that in the event of a dissolution of the marriage between myself and my spouse, in connection with which I secure or am awarded shares of the common stock of the Company, or any interest therein through property settlement agreement or otherwise, I shall receive and hold said shares subject to all the provisions and restrictions contained in the foregoing Agreement, including any option of a shareholder or the Company to purchase such shares or interest from me. I also acknowledge that I have been advised to obtain independent counsel to represent my interests with respect to this Agreement but that I have declined to do so and I hereby expressly waive my right to such independent counsel. Date: ______________, 19___ ______________________________ Spouse of ____________________ 9 EXHIBIT A --------- TO RESTRICTED STOCK PURCHASE AGREEMENT -------------------------------------- RSP- ____ PROMISSORY NOTE (_____ YEAR, _____%* Interest) _________________, 19__ Irvine, California For value received, the undersigned promises to pay to INTERPLAY PRODUCTIONS (the "Company"), the sum of ____________________________________ Dollars ($_____) in full by or before the ________ anniversary date of the date hereof, together with interest thereon as hereinafter provided. The undersigned shall have the right to prepay said principal amount at any time in whole or in part without penalty. Simple annual interest at the rate of ____________ percent (_____%) per annum on unpaid principal shall be paid annually on each anniversary of the date hereof and upon each prepayment of principal, if any. The entire outstanding principal and interest shall be due and payable if any one or more of the following events shall have occurred: (a) The making by the undersigned of any assignment for the benefit of creditors or the filing by or against the undersigned of any petition in bankruptcy if such proceeding not be discharged within ninety (90) days of any such making or filing. (b) The occurrence of any termination of employment status as set forth in the Restricted Stock Purchase Agreement of even date herewith between the undersigned and the Company. If any installment of principal and/or interest is not paid when due, the holder hereof may, at its option, declare the entire amount of this note immediately due and payable. All payments hereon shall be credited first to accrued but unpaid interest, and the balance, if any, shall be credited to principal. If legal action is instituted for the collection of this note, the undersigned promises to pay such sum as the Court may adjudge reasonable as attorneys' fees. This note is given pursuant to that certain Restricted Stock Purchase Agreement of even date herewith, between the Company and the undersigned and is subject to all of the terms, rights and remedies set forth therein. A-1 This note is secured by a Pledge Agreement of even date herewith between the Company and the undersigned. _______________________________________ _____________________________ * A fixed rate of interest is to be determined from time to time by action of the Board of Directors in accordance with prevailing rates and the Internal Revenue Service prescribed interest rules. A-2 EXHIBIT B --------- TO RESTRICTED COMMON STOCK PURCHASE AGREEMENT --------------------------------------------- RSP-_____ PLEDGE AGREEMENT THIS PLEDGE AGREEMENT ("Agreement') is executed as of this _____ day of ____________, 19__, between INTERPLAY PRODUCTIONS, a California corporation (the "Company"), and __________________________________________ ("Purchaser"). W I T N E S S E T H: - - - - - - - - - - For the considerations and undertakings set forth herein, the parties do hereby agree as follows: 1. To secure payment to the Company of a promissory note ("Note") in the face amount of _______________________ Dollars ($__________), and extensions or renewals thereof, which was executed concurrently with the execution of this Pledge Agreement pursuant to a Restricted Stock Purchase Agreement of even date herewith between the Company and Purchaser, Purchaser hereby assigns and grants to the Company a security interest in ___________________ (______) shares ("Shares") of the Common Stock of the Company acquired under the Restricted Stock Purchase Agreement, together with securities or other collateral (if any) other than such Shares, all described as follows: Issuer Certificate No. of Shares Registered Owner ------ ----------- ------------- ---------------- Purchaser does hereby deposit with the Company, as pledge holder, such certificates, together with duly executed stock transfer powers. 2. Subject to any obligations of Purchaser under the Restricted Stock Purchase Agreement, the Company agrees that within a reasonable time after all or any portion of the Note is paid by Purchaser, the Company shall release and deliver to Purchaser the number of Shares held hereunder for which such payment was received. The Company, in its discretion, may release portions of the Shares upon periodic principal payments or deposit of other or additional security under the Note. All Shares released and delivered to Purchaser shall be free and clear of the restrictions of this Pledge Agreement. 3. Unless and until Purchaser defaults in his performance under the terms of the Note, the terms of this Pledge Agreement and/or the terms of the Restricted Stock Purchase Agreement, the Shares held by the Company at any time under this Pledge Agreement shall remain registered in the name of Purchaser on the records of the Company, and Purchaser may vote the Shares on all B-1 corporate questions (if the same shall be entitled to voting rights) and shall be entitled to receive all dividends and other amounts accruing as a result of his ownership of the Shares. 4. In the event the Purchaser defaults in the performance of any of the terms of the Note, this Pledge Agreement or the Restricted Stock Purchase Agreement, the Company may exercise any and all rights which it may have under the California Uniform Commercial Code or any other applicable statute, case, ruling regulation or law; subject, however, to all permits, orders, consents, rules and regulations of the California Commissioner of Corporations and the Securities and Exchange Commission and the Federal Reserve Board relating hereto, to which Purchaser agrees to be bound. 5. If during the term of this Pledge Agreement the Company should become a party to any merger, consolidation or other reorganization, this Pledge Agreement shall be adjusted so as to apply to the securities to which a holder of the Shares subject to this Pledge Agreement would have been entitled upon such merger, consolidation or reorganization; and, if during the term of this Pledge Agreement the Company shall be dissolved or its existence otherwise terminated, then that portion of the assets and consideration to which a holder of the Shares subject to this Pledge Agreement would have been entitled in such transaction shall be the subject matter of this Pledge Agreement for the remainder of its term. This Section 5 shall in no way limit the right of the Company to repurchase shares under the Restricted Stock Purchase Agreement. 6. This Pledge Agreement shall inure to the benefit of and be binding upon the heirs, executors and administrators of the parties hereto. 7. The rights, powers and remedies given to the Company by this Agreement shall be in addition to all rights, powers and remedies given to the Company under the Restricted Stock Purchase Agreement or any statute or rule of law. Any forbearance or failure or delay by the Company in exercising any right, power or remedy hereunder shall not be deemed to be a waiver of such right, power or remedy, nor shall any single or partial exercise of any right, power or remedy preclude the further exercise thereof. 8. The Board of Directors may demand and receive payment or additional security if for any reason the collateral hereunder is insufficient to meet minimum requirements established under federal or state securities or banking regulations or as may be necessary to bring the Note and the security into compliance with any such law or regulations. Any failure of Purchaser to meet any such demand shall be deemed a default under this Pledge Agreement and under the note secured hereby. B-2 IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. PURCHASER __________________________________ (Signature) __________________________________ __________________________________ INTERPLAY PRODUCTIONS By: ______________________________ Its: _____________________________ B-3 EX-10.4 6 INCENTIVE STOCK OPTION & NONQUALIFIED STOCK OPTION EXHIBIT 10.4 INTERPLAY PRODUCTIONS INCENTIVE STOCK OPTION AND NONQUALIFIED STOCK --------------------------------------------- OPTION PLAN-1994 ---------------- 1. Purposes of the Plan. -------------------- The purposes of this Incentive Stock Option and Nonqualified Stock Option Plan-1994 (the "Plan") of Interplay Productions, a California corporation (the "Company"), are (a) to insure the retention of the services of existing executive personnel, employees and non-employee directors of the Company or its affiliates; (b) to attract and retain competent new executive personnel and employees; (c) to provide incentive to all such personnel, employees and non- employee directors to devote their utmost effort and skill to the advancement and betterment of the Company, by permitting them to participate in the ownership of the Company and thereby in the success and increased value of the Company; and (d) to allow consultants, business associates and others with important business relationships with the Company the opportunity to participate in the ownership of the Company and thereby have an interest in the success and increased value of the Company. 2. Shares Subject to the Plan. -------------------------- The shares of stock subject to the incentive options having the terms and conditions set forth in Section 6 below (hereinafter "incentive options") and/or nonqualified options having the terms and conditions set forth in Section 7 below (hereinafter "nonqualified options") and other provisions of the Plan shall be shares of the Company's authorized but unissued or reacquired common stock (herein sometimes referred to as the "Common Stock"). The total number of shares of the Common Stock of the Company which may be issued under the Plan shall not exceed, in the aggregate, 608,300. The limitations established by the preceding sentence shall be subject to adjustment as provided in Section 8 below. In the event that any outstanding incentive option or nonqualified option granted under the Plan can no longer under any circumstances be exercised, or in the event that any shares purchased pursuant to the Plan are reacquired by the Company, for any reason, the shares of Common Stock allocable to the unexercised portion of such incentive option or nonqualified option, or the shares reacquired, as the case may be, may again be subject to grant or issuance under the Plan. 3. Eligibility. ----------- (a) Incentive Options. Officers and other employees of the Company or ----------------- its parent or of any subsidiary corporation (including directors if they are also employees of the Company or a subsidiary), as may be determined by the Board or the Committee, who qualify for incentive stock options under the applicable provisions of the Internal Revenue Code, will be eligible for selection to receive incentive options under the Plan. An employee who has been granted an incentive option may, if otherwise eligible, be granted an additional incentive option or options and/or receive nonqualified options if the Board or Committee shall so determine. (b) Nonqualified Options. Officers and other employees of the Company -------------------- or of any subsidiary corporation, any member of the Board of Directors of the Company, whether or not he or she is employed by the Company, or consultants, business associates or others with important business relationships with the Company, will be eligible to receive nonqualified options under the Plan. An individual who has been granted a nonqualified option may, if otherwise eligible, be granted an incentive option (if otherwise eligible) or an additional nonqualified option or options if the Board or Committee shall so determine. (c) Directors. Notwithstanding any provision hereof to the contrary, --------- in the event shares of the Company's Common Stock are registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), no director of the Company shall be eligible to receive any option under the Plan, unless (A) if granted by action of the Board of Directors, all of the directors are at the date of such action "disinterested persons", or (B) if granted by action of the Committee, all members of the Committee are at the date of such action "disinterested persons". For the purposes hereof, a "disinterested person" shall mean a person so defined in Rule 16b-3 promulgated pursuant to the Exchange Act as the same may be in effect from time to time, or any successor rule or provision thereto. (d) General Limitation. Notwithstanding any provision hereof to the ------------------ contrary, no participant under the Plan shall be eligible to receive during any calendar year an incentive option or nonqualified option in excess of the limitations set forth in Sections 6(j), 7(a)(vi), and 7(b)(v) below. 4. Administration of the Plan. -------------------------- (a) This Plan shall be administered by the Board of Directors of the Company (the "Board") or by a committee (the "Committee") consisting of two (2) or more directors, who shall be appointed by, and serve at the pleasure of, the Board. No person serving as a member of the Board or the Committee shall act on any matter relating solely to such person's own interests under the Plan or any option thereunder. For purposes of the Plan, the term "Administrator" shall mean the Board, or if the Board delegates responsibility for any matter to the Committee, the Committee. The Administrator may from time to time, in its discretion, determine which persons shall be granted incentive options or nonqualified options under the Plan, the terms thereof, and the number of shares for which an incentive option or options or nonqualified option or options shall be granted. (b) The Administrator shall have full and final authority to determine the persons to whom, and the time or times at which, incentive options or nonqualified options shall be granted, the number of shares to be represented by each incentive option or nonqualified option and the consideration to be received by the Company upon the exercise thereof; to interpret the Plan; to amend and rescind rules and regulations relating to the Plan; to determine the form and content of the incentive options or nonqualified options to be issued under the Plan; to determine the identity or capacity of any persons who may be entitled to exercise a participant's rights under any incentive option or nonqualified option agreement under the Plan; to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any incentive option or nonqualified option agreement in the manner and to the extent the Board or Committee deems desirable to carry the Plan, incentive option or nonqualified option agreement into effect; to accelerate the exercise date of any incentive option or nonqualified option; to provide for an option to the Company to repurchase any shares issued upon exercise of an option upon termination of employment; and to make all other determinations necessary or advisable for 2 the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan. Any action, decision, interpretation or determination by the Administrator with respect to the application or administration of the Plan shall be final and binding on all participants and prospective participants. 5. Option Price. ------------ (a) Incentive Options. The exercise price of the shares of Common ----------------- Stock covered by each incentive option granted under the Plan shall not be less than the fair market value of such shares on the date the incentive option is granted; provided, however, that the exercise price shall not be less than 110% of the fair market value if the person to whom such incentive option is granted owns 10% or more of the total outstanding stock of the Company. (b) Nonqualified Options. The exercise price of the shares of Common -------------------- Stock covered by each nonqualified option granted under the Plan shall be set at such price as the Administrator shall determine in its discretion. (c) Fair Market Value. For purposes of this Section 5, fair market ----------------- value shall, if the Common Stock is not listed or admitted to trading on a stock exchange, be the average of the closing bid price and asked price of the Common Stock in the over-the-counter market on the date the incentive option or nonqualified option is granted, or, if the Common Stock is then listed or admitted to trading on any stock exchange or the NASDAQ National Market System in the over-the-counter market, the closing sale price on such day on the principal stock exchange on which the Common Stock is then listed or admitted to trading, or, if no sale takes place on such day on such national market system or principal exchange, then the closing sale price of the Common Stock on such national market system or exchange on the next preceding day on which a sale occurred. During such times as there is not a market price available, the fair market value of the Company's Common Stock shall be determined by the Administrator, which shall consider, among other facts which it considers to be relevant, the book value of such stock, the earnings of the Company, and the prices at which shares of Common Stock have been sold in recent transactions, if any. The exercise price or the purchase price, as the case may be, shall be subject to adjustment as provided in Section 8 below. 6. Terms and Conditions of Incentive Options. ----------------------------------------- Each incentive option granted pursuant to this Plan shall be evidenced by a written Incentive Option Agreement which shall specify that the options subject thereto are incentive options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The granting of an incentive option shall take place only when a written Incentive Option Agreement shall have been duly executed and delivered by or on behalf of the Company to the optionee to whom such incentive option shall be granted. Neither anything contained in the Plan nor in any resolution adopted or to be adopted by the Administrator shall constitute the granting of any incentive option. The Incentive Option Agreement shall be in such form as the Administrator shall, from time to time, recommend, but shall comply with and be subject to the following terms and conditions: (a) Medium and Time of Payment. The option price upon the exercise of -------------------------- the incentive option shall be payable (i) in United States dollars payable in cash, certified check, or 3 bank draft; (ii) subject to any legal restrictions on the acquisition or purchase of its shares by the Company, by the delivery of shares of Common Stock which shall be deemed to have a value to the Company equal to the aggregate fair market value of such shares determined at the date of such exercise in accordance with the provisions of Section 5 above; (iii) by the issuance of a promissory note in a form acceptable to the Administrator, (iv) by cancellation of indebtedness of the Company to optionee, (v) by waiver of compensation due or accrued to optionee for services rendered, (vi) provided that a public market for the Company's stock exists, through a "same day sale" commitment from the optionee and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD" Dealer) whereby the optionee irrevocably elects to ------------ exercise his Option and to sell a portion of the Shares so purchased to pay for the exercise price and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company, (vii) provided that a public market for the Company's stock exists, through a "margin" commitment from the optionee and a NASD Dealer whereby the optionee irrevocably elects to exercise his Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company, or (viii) any combination of (i), (ii), (iii), (iv), (v), (vi), or (vii) above. If payment, in whole or in part, is permitted to be made by delivery of a promissory note, the Administrator may require the shares so purchased to be pledged with the Company to secure the note. The pledge shall be in such form and contain such terms as the Administrator deems appropriate. (b) Grant of Incentive Option. Any incentive option shall be granted ------------------------- within ten years from the date of the adoption of this Plan or the date this Plan is approved by the shareholders of the Company, whichever is earlier. (c) Number of Shares. The incentive option shall state the total ---------------- number of shares to which it pertains. (d) Incentive Option Price. The incentive option price shall be not ---------------------- less than the fair market value of the shares of Common Stock on the date of the granting of the option. (e) Term of Incentive Option. Each incentive option granted under the ------------------------ Plan shall expire within a period of not more than ten (10) years from the date the incentive option is granted; provided, however, that the incentive option shall expire within a period of not more than five (5) years if granted to a person who is the beneficial owner of 10% or more of the outstanding stock of the Company. (f) Date of Exercise. The Administrator may, in its discretion, ---------------- provide that an incentive option may be exercised immediately or that it may not be exercised in whole or in part for any specified period or periods of time or subject to the completion of specified projects or fulfillment of specified duties or responsibilities, or fulfillment of specified financial or other objectives. Except as may be so provided, any incentive option may be exercised in whole at any time or in part from time to time during its term. (g) Termination of Employment Except Death or Disability. In the ---------------------------------------------------- event that an optionee who is an employee of the Company shall cease to be employed by the Company or a parent or any subsidiary corporation of the Company or a corporation or a parent or subsidiary 4 corporation of a corporation issuing and assuming an incentive option in a transaction to which Section 425(a) of the Code, as amended, applies, for any reason other than his or her death or disability, (i) all incentive options granted to any such optionee pursuant to this Plan which are not exercisable at the date of such cessation shall terminate immediately and become void and of no effect, and (ii) all incentive options granted to any such optionee pursuant to this Plan which are exercisable at the date of such cessation may be exercised at any time within three (3) months of the date of such cessation, but in any event no later than the date of expiration of the incentive option period, and if not so exercised within such time shall become void and of no effect at the end of such time. (h) Death or Disability of Optionee. If the optionee shall cease to ------------------------------- be employed by the Company due to his or her death or disability (within the meaning of Section 22(e)(3) of the Code) and shall not have fully exercised his or her incentive options granted pursuant to the Plan, (i) all of such incentive options that had not become exercisable by the date of such cessation shall automatically terminate and be void and of no effect, and (ii) all of such incentive options which had become exercisable prior to such cessation of employment may be exercised at any time within one (1) year after the optionee's cessation of employment as a result of such death or disability but in any event no later than the date of expiration of the incentive option period, by such optionee, or in the event of death, by the executors or administrators of the optionee's estate or by any person or persons who shall have acquired the incentive option directly from the optionee by bequest or inheritance. (i) Rights as a Shareholder. An optionee or a transferee of an ----------------------- incentive option shall have no rights as a shareholder with respect to any shares of Common Stock covered by his or her incentive option until the date of the issuance of a share certificate to him or her for such shares. No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date such share certificate is issued. (j) Nonassignability of Rights. No incentive option shall be -------------------------- assignable or transferable by the person receiving same except by will or the laws of descent and distribution. During the life of such person, the incentive option shall be exercisable only by him or her. (k) Limitation. Notwithstanding any other provisions of the Plan, to ---------- the extent that the aggregate fair market value (determined in accordance with the provisions of Section 5 above as of the time the incentive option is granted) of the shares of Common Stock with respect to which incentive stock options are exercisable for the first time by the optionee during any calendar year (under all such plans of the Company and its parent and subsidiary corporations) exceeds $100,000, such options representing such excess shall be Nonqualified Options. (l) Other Provisions. Any Incentive Option Agreement may contain such ---------------- other terms, provisions and conditions as may be determined by the Administrator, which are not inconsistent with the provisions of Section 422 of the Code, including, without limitation, provisions requiring restrictions to be placed on the transferability of shares acquired on the exercise of stock options under the plan and provisions granting the Company the option of the Company to repurchase any shares issued upon the exercise of an option upon termination of employment. Incentive options granted to different persons, or to the same person at different times, may be subject to terms, conditions and restrictions which differ from each other. 5 7. Terms and Conditions of Nonqualified Options. -------------------------------------------- Each nonqualified option granted pursuant to this Plan shall be evidenced by a written Nonqualified Option Agreement which shall specify that the options subject thereto are nonqualified options. The granting of a nonqualified option shall take place only when this written Nonqualified Option Agreement shall have been duly executed and delivered by or on behalf of the Company to the optionee to whom such nonqualified option shall be granted. Neither anything contained in the Plan nor in any resolution adopted or to be adopted by the Administrator shall constitute the granting of any nonqualified option. The Nonqualified Option Agreement shall be in such form as the Administrator shall, from time to time, recommend, but shall comply with and be subject to the following terms and conditions: (a) Medium and Time of Payment. The nonqualified option price shall -------------------------- be payable (i) in United States dollars payable in cash, certified check, or bank draft; (ii) subject to any legal restrictions on the acquisition or purchase of its shares by the Company, by the delivery of shares of Common Stock which shall be deemed to have a value to the Company equal to the aggregate fair market value of such shares determined at the date of such exercise in accordance with the provisions of Section 5 above; (iii) or by the issuance of a promissory note in a form acceptable to the Administrator; (iv) by cancellation of indebtedness of the Company to optionee, (v) by waiver of compensation due or accrued to optionee for services rendered, (vi) provided that a public market for the Company's stock exists, through a "same day sale" commitment from the optionee and an NASD Dealer whereby the optionee irrevocably elects to exercise his Option and to sell a portion of the Shares so purchased to pay for the exercise price and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company, (vii) provided that a public market for the Company's stock exists, through a "margin" commitment from the optionee and a NASD Dealer whereby the optionee irrevocably elects to exercise his Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company, or (viii) any combination of (i), (ii), (iii), (iv), (v), (vi), or (vii) above. If payment, in whole or in part, is permitted to be made by delivery of a promissory note, the Administrator may require the shares so purchased to be pledged with the Company to secure the note. The pledge shall be in such form and contain such terms as the Administrator deems appropriate. (b) Number of Shares. The nonqualified option shall state the total ---------------- number of shares to which it pertains. (c) Term of Nonqualified Option. Each nonqualified option granted --------------------------- under the Plan shall expire within a period of not more than ten (10) years from the date the nonqualified option is granted. (d) Date of Exercise. The Administrator may, in its discretion, ---------------- provide that a nonqualified option may be exercised immediately or that it may not be exercised in whole or in part for any specified period or periods of time or subject to the completion of specified projects or fulfillment of specified duties or responsibilities or the fulfillment of specified financial or other objectives. Except as may be so provided, any nonqualified option may be exercised in whole at any time or in part from time to time during its term. 6 (e) Termination of Employment Except Death or Disability. In the ---------------------------------------------------- event that an optionee who is an employee of the Company shall cease to be employed by the Company or any of its subsidiaries for any reason other than his or her death or disability, or, in the event that an optionee who is a director but not an employee of the Company shall cease to be a director of the Company for any reason other than his or her death or disability, (i) all nonqualified options granted to any such optionee pursuant to this Plan which are not exercisable at the date of such cessation shall terminate immediately and become void and of no effect, and (ii) all nonqualified options granted to any such optionee pursuant to this Plan which are exercisable at the date of such cessation may be exercised at any time within three (3) months of the date of such cessation, but in any event no later than the date of expiration of the nonqualified option period, and if not so exercised within such time shall become void and of no effect at the end of such time. (f) Death or Disability of Optionee. If the optionee shall cease to ------------------------------- be employed by the Company (or, in the case of a non-employee director, shall cease to be a director of the Company) due to his or her death or permanent disability and shall not have fully exercised his or her nonqualified options granted pursuant to the Plan prior to such cessation, (A) all nonqualified options of such optionee outstanding under this Plan which were not exercisable at the date of such cessation shall terminate immediately and become void and of no effect, and (B) all of such options which were exercisable at the date of cessation may be exercised at any time within one (l) year after the date of cessation, but in any event no later than the date of expiration of the nonqualified option period, by such optionee, or in the event of death, by the executors or administrators of the optionee's estate or by any person or persons who shall have acquired the nonqualified option directly from the optionee by bequest or inheritance. (g) Rights as a Shareholder. A nonqualified optionee shall have no ----------------------- rights as a shareholder with respect to any shares of Common Stock covered by his or her nonqualified option until the date of the issuance of a share certificate to such optionee for such shares. No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date such share certificate is issued. (h) Nonassignability of Rights. No nonqualified option shall be -------------------------- assignable or transferable by the person receiving same except by will or the laws of descent and distribution. During the life of such person, the nonqualified option shall be exercisable only by him or her. (i) Other Provisions. Any Nonqualified Option Agreement may contain ---------------- such other terms, provisions and conditions as may be determined by the Administrator. Nonqualified options granted or offers to purchase restricted shares made to different persons, or to the same person at different times, may be subject to terms, conditions and restrictions which differ from each other. 8. Changes in Capital Structure. ---------------------------- In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of merger, consolidation or reorganization in which the Company is the surviving corporation (other than a merger, consolidation or reorganization in which, although the Company is the surviving corporation, there is a change in 7 the ownership of more than fifty percent (50%) of the Company's outstanding capital stock) or of a recapitalization, stock split, combination of shares, reclassification, reincorporation, stock dividend (in excess of 2%), or other change in the corporate structure of the Company, appropriate adjustments shall be made by the Board of Directors in the aggregate number and kind of shares subject to this Plan, and the number and kind of shares and the price per share subject to outstanding incentive options and nonqualified options in order to preserve, but not to increase, the benefits to persons then holding incentive options and/or nonqualified options. In the event that the Company at any time proposes to sell substantially all of its assets, merge into, consolidate with or to enter into any other reorganization (including the sale of substantially all of its assets) in which the Company is not the surviving corporation, or if the Company is the surviving corporation and there is a charge the ownership of more than fifty percent (50%) of the Company's outstanding capital stock as a result of such transaction, the Plan and all unexercised incentive options or nonqualified options granted hereunder shall terminate, unless provision is made in writing in connection with such transaction for the continuance of the Plan and for the assumption of incentive options and nonqualified options theretofore granted, or the substitution for such incentive options and nonqualified options of new options covering shares of a successor corporation, with appropriate adjustments as to number and kind of shares and prices, in which event the Plan and the incentive options and nonqualified options theretofore granted or the new incentive options and nonqualified options substituted therefor, shall continue in the manner and under the terms so provided. If such provision is not made in such transaction for the continuance of the Plan and the assumption of incentive options and nonqualified options theretofore granted or the substitution for such incentive options and nonqualified options of new incentive options and nonqualified options covering the shares of a successor corporation, then the Administrator shall cause written notice of the proposed transaction to be given to the persons holding incentive options or nonqualified options not less than thirty (30) days prior to the anticipated effective date of the proposed transaction, and all incentive options and nonqualified options shall be accelerated and, concurrent with the effective date of the proposed transaction, such persons shall have the right to exercise incentive options and nonqualified options in respect to any or all shares then subject thereto. The Administrator shall have the right, with respect to any specific incentive option and nonqualified option granted under the Plan, to provide that all incentive options or nonqualified options shall be accelerated in any event upon the effective date of the proposed transaction. 9. Amendment and Termination of the Plan. ------------------------------------- The Board of Directors of the Company may from time to time alter, amend, suspend or terminate the Plan in such respects as the Board of Directors may deem advisable; provided, however, that no such alteration, amendment, suspension or termination shall be made which shall substantially affect or impair the rights of any person under any incentive option or nonqualified option theretofore granted to him without his consent. Without limiting the generality of the foregoing, to the extent permitted by applicable law, the Board of Directors of the Company may alter or amend the Plan to comply with requirements under the Internal Revenue Code relating to restricted stock options, incentive options, qualified options or other options which give the optionee more favorable tax treatment than that applicable to options granted under this Plan as of the date of its adoption. Upon any such alteration or amendment, to the extent permitted by applicable law, any outstanding option granted hereunder shall be 8 subject to the more favorable tax treatment afforded to an optionee pursuant to such terms and conditions as the Administrator may determine. Unless the Plan shall theretofore have been terminated, the Plan shall be effective as of April 1, 1994, and shall terminate on April 1, 2004. 10. Application of Funds. -------------------- The proceeds received by the Company from the sale of Common Stock pursuant to incentive options and nonqualified options, except as otherwise provided herein, will be used for general corporate purposes. 11. No Obligation to Exercise Option or Right of Purchase. ----------------------------------------------------- The granting of an incentive option or nonqualified option shall impose no obligation upon the optionee to exercise such an incentive option or nonqualified option. 12. Continuance of Employment. ------------------------- The Plan or the granting of any incentive option or nonqualified option thereunder shall not impose any obligation on the Company to continue the employment of any optionee. 9 CERTIFICATE OF SECRETARY ------------------------ The undersigned Secretary of Interplay Productions, a California corporation (the "Company"), hereby certifies that the following resolutions amending the Incentive Stock Option and Nonqualified Stock Option Plan-1994 (the "1994 Plan"), were duly adopted by the Board of Directors on September 9, 1996: AMENDMENT OF 1994 PLAN - ---------------------- Section 3(b) of the 1994 Plan is hereby amended and restated in its entirety as follows: "(b) Nonqualified Options. Officers and other employees of the -------------------- Company or of any subsidiary corporation, any member of the Board of Directors of the Company, whether or not he or she is employed by the Company, or consultants, business associates or others with important business relationships with the Company, including any trust, IRA account or estate planning device (an "Estate Planning Device") for the benefit of the foregoing, will be eligible to receive nonqualified options under the Plan. An individual, or Estate Planning Device, who or that has been granted a nonqualified option may, if otherwise eligible, be granted an incentive option (if otherwise eligible) or an additional nonqualified option or options if the Board or Committee shall so determine." Section 7(h) of the 1994 Plan is hereby amended and restated in its entirety as follows: "(h) Nonassignability of Rights. No nonqualified option shall be -------------------------- assignable or transferable by the person receiving same without the prior written consent of the Company except by will or the laws of descent and distribution." Section 7(j) shall be added to the 1994 Plan to read in full as follows: "(j) Applicability to Estate Planning Devices. With respect to ---------------------------------------- subsections (e) and (f) above, in the event of a termination of employment of a person who is the beneficial owner of nonqualified options held by an Estate Planning Device, the exercisability provisions of subsections (e) and (f) above shall be applicable to such Estate Planning Device." IN WITNESS WHEREOF, I have subscribed my name and affixed the seal of the Corporation effective this 14th day of February, 1997. /s/ Lisa Ann Latham --------------------------------- LISA ANN LATHAM, Secretary CERTIFICATE OF ASSISTANT SECRETARY ---------------------------------- The undersigned Assistant Secretary of Interplay Productions, a California corporation (the "Company"), hereby certifies that the following resolutions amending the Incentive Stock Option and Nonqualified Stock Option Plan-1994 (the "1994 Plan"), were duly adopted by the Board of Directors and ratified by the Shareholders effective June 3, 1996: AMENDMENT OF 1994 PLAN - ---------------------- Section 2 of the 1994 Plan is hereby amended and restated in its entirety as follows: "2. Shares Subject to the Plan. -------------------------- The shares of stock subject to the incentive options having the terms and conditions set forth in Section 6 below (hereinafter "incentive options") and/or nonqualified options having the terms and conditions set forth in Section 7 below (hereinafter "nonqualified options") and other provisions of the Plan shall be shares of the Company=s authorized but unissued or reacquired common stock (herein sometimes referred to as the "Common Stock"). The total number of shares of the Common Stock of the Company which may be issued under the Plan shall not exceed, in the aggregate, eight hundred eight thousand three hundred (808,300). The limitations established by the preceding sentence shall be subject to adjustment as provided in Section 8 below. In the event that any outstanding incentive option or nonqualified option granted under the Plan can no longer under any circumstances be exercised, or in the event that any shares purchased pursuant to the Plan are reacquired by the Company, for any reason, the shares of Common Stock allocable to the unexercised portion of such incentive option or nonqualified option, or the shares reacquired, as the case may be, may again be subject to grant or issuance under the Plan." IN WITNESS WHEREOF, I have subscribed my name and affixed the seal of the Corporation effective this 3rd day of June, 1996. /s/ Lisa Ann Latham ------------------------------------ LISA ANN LATHAM, Assistant Secretary EX-10.5 7 FORM OF NONQUALIFIED STOCK OPTION AGREEMENT - 1994 PLAN EXHIBIT 10.5 NQSO-XXX NONQUALIFIED COMMON STOCK OPTION AGREEMENT ------------------------------------------ THIS NONQUALIFIED COMMON STOCK OPTION AGREEMENT (the "Agreement"), made this [DATE], between INTERPLAY PRODUCTIONS, a California corporation (hereinafter referred to as the "Company"), and [NAME], an employee of the Company, its parent or one or more of its subsidiaries, or a director or advisor of the Company (hereinafter referred to as the "Optionee"), is made with reference to the following fact: R E C I T A L - - - - - - - The Company desires, by affording the Optionee an opportunity to purchase shares of Common Stock in the Company (hereinafter called "Shares"), as hereinafter provided, to carry out the purpose of the "Incentive Stock Option and Nonqualified Stock Option Plan-1994" (the "Plan"). NOW, THEREFORE, IN CONSIDERATION of the mutual covenants hereinafter set forth, and for good and valuable consideration, the parties hereto have agreed, and do hereby agree, as follows: 1. Grant of Option. --------------- The Company hereby irrevocably grants to the Optionee the right and option (hereinafter called the "Option") to purchase all or any part of an aggregate of [OPTION NO.] Shares (such number being subject to adjustment as provided in Section 7 hereof) on the terms and conditions herein set forth. The Option granted herein is a "nonqualified option" within the meaning of the Plan. 2. Purchase Price. -------------- The purchase price of the Shares covered by the Option shall be [EXERCISE PRICE] per share. 3. Term of Option. -------------- The term of the Option shall commence on the date hereof and all rights to purchase shares hereunder shall cease at 11:59 p.m. on April 1, 2006, subject to earlier termination as provided herein. Except as may otherwise be provided in this Agreement, options granted hereunder may be cumulative and exercised as follows: During the Period: Optionee May Purchase: ----------------- --------------------- Before DATES 0% of the Shares On and after DATES, but before DATES 20% of the Shares On and after DATES, but before DATES 40% of the Shares On and after DATES, but before DATES 60% of the Shares On and after DATES, but before DATES 80% of the Shares On and after DATES 100% of the Shares The purchase price of the Shares as to which the Option shall be exercised shall be paid in full at the time of exercise (i) in cash, or by certified check or by bank draft; (ii) subject to any legal restrictions on the acquisition or purchase of its shares by the Company and with the prior written consent and approval of the Company, by the delivery of shares of Common Stock of the Company which shall be deemed to have a value to the Company equal to the aggregate fair market value of such shares determined in accordance with Section 5 of the Plan; or (iii) any combination of (i) or (ii) above. Except as provided in Section 5 hereof, the Option may not be exercised at any time unless (i) if the Optionee is an employee of the Company, the Optionee shall have been continuously, from the date hereof to the date of the exercise of the Option, an employee of the Company, its parent, if any, or of one or more of its subsidiaries or a corporation or a parent or subsidiary of a corporation issuing or assuming an option to which Section 425(a) of the Internal Revenue Code of 1986, as amended, applies (collectively the "Affiliates"); or (ii) if the Optionee is a director of the Company, the Optionee shall have been continuously, from the date hereof to the date of the exercise of the Option, a director of the Company, or its Affiliates. The holder of the Option shall not have any of the rights of a shareholder with respect to the shares covered by the Option as to any shares of Common Stock not actually issued and delivered to Optionee. Notwithstanding the foregoing, Optionee shall have no right to exercise this Option to purchase Shares that have become exercisable herein until such time as the Company takes such action as it deems necessary in good faith to comply with the securities laws of the state of residence of Optionee. 4. Nontransferability. ------------------ The Option shall not be transferable other than by will or the laws of descent and distribution, and the Option may be exercised, during the lifetime of the Optionee, only by Optionee. More particularly (but without limiting the generality of the foregoing), the Option may not be assigned, transferred (except as provided in Section 5 hereof), pledged or hypothecated in any way, shall not be assignable by operation of law and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof, and the levy of any execution, attachment or similar process upon the Option, shall be null and void and without effect. 5. Termination of Employment or Status as a Director or Advisor. ------------------------------------------------------------ 2 In the event that the Optionee is an employee of the Company and the Optionee shall cease to be employed by the Company, or its Affiliates, or in the event the Optionee is a director or advisor of the Company and ceases to be a director or advisor of the Company or its Affiliates, for any reason whatsoever, other than by reason of death or disability, this Option shall terminate immediately; provided, however, that the Optionee shall have the right to exercise this Option at any time within three (3) months after such cessation of employment or status as a director or advisor, but in no event later than the date of expiration of the option period, but the number of Shares purchasable upon such exercise of the Option shall not in any case exceed the number which would have been purchasable if the Optionee had exercised the Option on the date of such cessation. If the Optionee shall become disabled (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended) and shall not have fully exercised his options granted pursuant to the Plan, all of such options, whether or not otherwise exercisable, may be exercised at any time within one (1) year after the Optionee's cessation of employment or status as a director or advisor as a result of such disability but in any event no later than the date of expiration of the option period, by the Optionee. If the Optionee shall die while an employee, director or advisor of the Company, or its Affiliates, Optionee's estate, personal representative or beneficiary shall have the right to exercise all of the shares subject to this Option, whether or not they would otherwise have been purchasable if the Optionee's death had not occurred, at any time within one (1) year from the date of Optionee's death, but in no event later than the date of expiration of the option period. 6. Other Expirations. ----------------- In addition to any other event causing an expiration or termination of this Option, this Option shall expire and all rights to purchase Shares shall cease (to the extent not theretofore terminated or expired as herein provided) upon the effective date of the dissolution or liquidation of the Company or upon a merger, consolidation, acquisition of property or shares, separation or reorganization of the Company with one or more entities, corporate or otherwise, as a result of which the Company is not the surviving entity, or if the Company is the surviving entity and the ownership of the outstanding capital stock of the Company following the transaction changes by 50% or more as a result of such transaction, or of a sale of substantially all of the property or shares of the Company to another entity, corporate or otherwise; provided, however, that the Company may, in its discretion, and immediately prior to any such transaction, cause a new option to be substituted for this Option or cause this Option to be assumed by an employer entity or a parent or subsidiary of such entity; and such new option shall apply to all shares issued in addition to or substitution, replacement or modification of the shares theretofore covered by such option; provided that, (1) the excess of the aggregate fair market value of the shares subject to the option immediately after the substitution or assumption over the aggregate option price of such shares shall not be more than the excess of the aggregate fair market value of all shares subject to the option immediately before such substitution or assumption over the aggregate option price of such shares; and (2) the new option or the assumption of the existing option shall not give the Optionee additional benefits which he did not have under the old option or prior to such assumption; and (3) an appropriate adjustment of the original option price shall be made among original shares subject to the option and any additional shares or shares issued in substitution, replacement or modification thereof. 3 If no provision is made for the continuance of the Plan and the assumption of this Option, or the substitution of this Option of new options as hereinabove provided, then the Company shall cause written notice to be given to the Optionee of the proposed transaction not less than thirty (30) days prior to the anticipated effective date thereof, and this Option, if not already exercisable, shall thereupon become immediately exercisable and the Optionee shall have the right to exercise this Option at any time prior to the effective date of the termination of the option plan or the proposed transaction. 7. Adjustments. ----------- The number and class of shares subject to this Option, and the purchase price per share (but not the total purchase price), and the minimum number of shares as to which this Option may be exercised at any one time, shall all be proportionately adjusted in the event of any change or increase or decrease in the number of issued shares of Common Stock in the Company, without receipt of consideration by the Company, which result from a split-up or consolidation of shares, payment of a share dividend (in excess of two percent (2%)), a recapitalization, combination of shares or other like capital adjustment, so that, upon exercise of this Option, the Optionee shall receive the number and class of shares Optionee would have received had Optionee been the holder of the number of shares of Common Stock in the Company, for which this Option is being exercised, on the date of such change or increase or decrease in the number of issued shares of Common Stock in the Company. Subject to any required action by its shareholders, if the Company shall be a surviving entity in any reorganization, merger or consolidation, this Option shall be proportionately adjusted so as to apply to the securities to which the holder of the number of shares of Common Stock in the Company subject to this Option would have been entitled. Adjustments under this paragraph shall be made by the Board of Directors whose determination with respect thereto shall be final and conclusive. No fractional share shall be issued under this Option or upon any such adjustment. No adjustments shall be made for issuances of any securities if any consideration is received by the Company. 8. Repurchase of Shares. -------------------- The Optionee agrees to sign the form of Buy-Sell Agreement attached hereto. Optionee shall have no right to any shares subject to this Option unless such Buy-Sell Agreement is signed and agreed to by the Optionee. 9. Notice. ------ All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered or mailed, by United States certified or registered mail, prepaid, to the parties or their assignees at the addresses set forth opposite their signatures below (or such other address as shall be given in writing by either party to the other). 10. Method of Exercising Option. --------------------------- Subject to the terms and conditions of this Nonqualified Common Stock Option Agreement, this Option may be exercised by written notice to the Company, at its principal office in the State of California, which presently is located at 17922 Fitch Avenue, Irvine, California 92714. Such notice shall state the election to exercise the Option and the number of shares in respect of which it is being exercised and shall be signed by the person or persons so exercising the Option. Such notice shall be accompanied by (i) payment in cash, certified check, bank draft or certificates for shares of the 4 Common Stock of the Company equal to, in the aggregate, the full purchase price of such shares, and (ii) payment in cash, certified check or bank draft of any payroll withholding taxes resulting from the exercise, as determined by the Company. The Company shall deliver a certificate or certificates representing the shares subject to such exercise as soon as practicable after the notice shall be received. The certificate or certificates for the shares as to which the Option shall have been so exercised shall be registered in the name of the person or persons so exercising the Option and shall be delivered as provided above to or upon the written order of the person or persons exercising the Option. In the event the Option shall be exercised by any person or persons other than the Optionee in accordance with the terms hereof, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and nonassessable. The holder of this Option shall not be entitled to the privileges of share ownership as to any shares of Common Stock not actually issued and delivered to Optionee. The Optionee hereby certifies that all shares of Common Stock in the Company purchased or to be purchased by Optionee pursuant to the exercise of this Option are being or are to be acquired by Optionee for investment and not with a view to the distribution thereof. In addition, the person exercising the Option shall execute and deliver to the Company with the notice provided for above an investment letter in the form attached hereto as Exhibit A. 11. No Agreement to Employ. ---------------------- Nothing in this Agreement shall be construed to constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company to employ or retain Optionee for any specific period of time. 12. General. ------- The Company shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Nonqualified Common Stock Option Agreement, shall pay all original issue and transfer taxes with respect to the issue and transfer of shares pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection therewith, and will from time to time use its best efforts to comply with all laws and regulations, which, in the opinion of counsel for the Company, shall be applicable thereto. 5 IN WITNESS WHEREOF, the Company has caused this Nonqualified Common Stock Option Agreement to be duly executed by its officers thereunto duly authorized, and the Optionee has hereunto set his hand, all as of the day and year first above written. INTERPLAY PRODUCTIONS 16815 Von Karman Avenue Irvine, CA 92606 By: ___________________________________________ Christopher J. Kilpatrick, President "Company" _____________________ _____________________ _______________________________________________ NAME "Optionee" 6 EXHIBIT A TO NONQUALIFIED OPTION AGREEMENT Interplay Productions 17922 Fitch Avenue Irvine, California 92714 Gentlemen: 1. (a) In connection with the acquisition of [NO. SHARES] shares of the common stock of Interplay Productions, a California corporation (the "Company"), by the undersigned, the undersigned represents that the shares which the undersigned is acquiring are being acquired for investment and not with a view to the sale or distribution of any part thereof, and that the undersigned has no present intent of selling or otherwise distributing the same. You have advised the undersigned that the shares have not been registered under the Securities Act of 1933, as amended (the "Act"), as the offering of the shares is to be effected pursuant to an exemption from the registration provisions of such Act, and, in this connection, you are relying in part on the representations of the undersigned set forth herein. Without in any way limiting the representations set forth above, the undersigned further agrees in no event to make any dispositions of all or any part of said shares unless and until (i) the undersigned shall have notified you of the proposed disposition; (ii) the undersigned shall have furnished you with an opinion of counsel to the effect that such disposition will not require registration of such shares under the Act, and (iii) such opinion of counsel shall have been concurred in by the Company's counsel and the Company shall have advised you of such concurrence. (b) The undersigned acknowledges receipt of all information as the undersigned deems necessary and appropriate to enable the undersigned to evaluate the financial risk inherent in acquiring said shares and acknowledges receipt of satisfactory and complete information covering the business and financial condition of the Company, including the opportunity to obtain information regarding the Company's financial status, in response to all inquiries in respect thereof. 2. (a) The undersigned represents that he is an investor of sufficient sophistication to evaluate the risks and merits involved in the acquisition of the shares and to make an informed investment decision based on the undersigned's personal knowledge of the business and affairs of the Company, based upon such additional information as he may have requested and received from the Company, and the independent inquiries and investigations undertaken by the undersigned. The undersigned certifies that his financial situation is such that he is able to bear the economic risk of the investment in the securities. (b) The undersigned understands and agrees that the certificate evidencing said shares will bear the following legends, in addition to any other legends called for under the Plan: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT OF 1933, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER. 3. (a) The undersigned recognizes that said shares are unregistered and must by held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available, and further recognizes that the Company is under no obligation to register said shares or to comply with any exemption from such registration. (b) The undersigned understands that Rule 144 under the Act does not presently apply and may never apply to the Company's securities because the Company does not now, and may never, file reports required by the Securities Exchange Act of 1934, as amended ("Exchange Act"), and has not made, and may never make, publicly available the information required by Rule 15c2-11 of the Exchange Act. Furthermore, if Rule 144 were available, the undersigned understands that sales of securities made in reliance thereof could be made only in certain limited amounts, after certain holding periods and only when there was available specified current public information, all in accordance with the terms and conditions of said Rule. The undersigned understands that, in the case of securities to which said Rule is not applicable, compliance with some other exemption under the Act will be required. DATED: ____________________ NAME A-2 EX-10.6 8 INCENTIVE STOCK OPTION, NONQUALIFIED - 1991 PLAN EXHIBIT 10.6 INTERPLAY PRODUCTIONS INCENTIVE STOCK OPTION, NONQUALIFIED STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN - 1991 ------------------------------------------------ INTERPLAY PRODUCTIONS INCENTIVE STOCK OPTION, NONQUALIFIED STOCK ------------------------------------------ OPTION AND RESTRICTED STOCK PURCHASE PLAN - 1991 ------------------------------------------------ 1. Purpose of the Plan. ------------------- The purposes of this Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan-1991 (the "Plan") of Interplay Productions, a California corporation (the "Company"), are (a) to ensure the retention of the services of existing executive personnel, key employees and non-employee directors of the Company or its affiliates; (b) to attract and retain competent new executive personnel and key employees; (c) to provide incentive to all such personnel, employees and non-employee directors, consultants and advisors to devote their utmost effort and skill to the advancement and betterment of the Company, by permitting them to participate in the ownership of the Company and thereby in the success and increased value of the Company; and (d) to allow consultants, business associates and others with important business relationships with the Company the opportunity to participate in the ownership of the Company and thereby have an interest in the success and increased value of the Company. 2. Shares Subject to the Plan. -------------------------- The shares of stock subject to the incentive options having the terms and conditions set forth in Section 6 below (hereinafter "incentive options") and/or nonqualified options or rights to purchase restricted shares having the terms and conditions set forth in Section 7 below (hereinafter "nonqualified options" and "rights of purchase") and other provisions of the Plan shall be shares of the Company's authorized but unissued or reacquired common stock (hereinafter sometimes referred to as the "Common Stock"). The total number of shares of the Common Stock of the Company which may be issued under the Plan shall not exceed, in the aggregate, 250,000. The limitations established by the preceding sentence shall be subject to adjustment as provided in Section 8 below. In the event that any outstanding incentive option, nonqualified option or right of purchase granted under the Plan can no longer under any circumstances be exercised, or in the event that any shares purchased pursuant to the Plan are reacquired by the Company, for any reason, the shares of Common Stock allocable to the unexercised portion of such incentive option, nonqualified option or such right of purchase, or the shares reacquired, as the case may be, may again be subject to grant or issuance under the Plan. 3. Eligibility. ----------- (a) Incentive Options. Officers and other key employees of the ----------------- Company or its parent or of any subsidiary corporation (including directors if they are also employees of the Company or a subsidiary), as may be determined by the Board or the Committee, who qualify for incentive stock options under the applicable provisions of the Internal Revenue Code, will be eligible for selection to receive incentive options under the Plan. An employee who has been granted an incentive option may, if otherwise eligible, be granted an additional incentive option or options and/or receive nonqualified options or rights of purchase if the Board or Committee shall so determine. (b) Nonqualified Options and Rights of Purchase. Officers and other ------------------------------------------- key employees of the Company or of any subsidiary corporation, any member of the Board of Directors of the Company, whether or not he or she is employed by the Company, or consultants, business associates or others with important business relationships with the Company, will be eligible to receive nonqualified options or rights of purchase under the Plan. An individual who has been granted a nonqualified option or right of purchase may, if otherwise eligible, be granted an incentive option (if otherwise eligible) or an additional nonqualified option or options or rights of purchase if the Board of Committee shall so determine. 4. Administration of the Plan. -------------------------- (a) This Plan shall be administered by the Board of Directors of the Company (the "Board") or by a committee (the "Committee" consisting of two (2) or more persons, all of whom shall be directors of the Company, who shall be appointed by, and serve at the pleasure of, the Board of Directors. No person serving as a member of the Board or the Committee shall act on any matter relating solely to such person's own interests under the Plan or any option thereunder. For purposes of the Plan, the term "Administrator" shall mean the Board, or if the Board delegates responsibility for any matter to the Committee, the Committee. The Administrator may from time to time, in its discretion, determine which persons shall be granted incentive options, nonqualified options or rights of purchase under the Plan, the terms thereof, and the number of shares for which an incentive option or options or nonqualified option or options or a right or rights of purchase shall be granted. (b) The Administrator shall have full and final authority to determine the persons to whom, and the time or -2- times at which, incentive options, nonqualified options and rights of purchase shall be granted, the number of shares to be represented by each incentive option, nonqualified option and right of purchase and the consideration to be received by the Company upon the exercise thereof; to interpret the Plan; to amend and rescind rules and regulations relating to the Plan; to determine the form and content of the incentive options or nonqualified options to be issued and terms and conditions of rights of purchase to be offered under the Plan; to determine the identity or capacity of any persons who may be entitled to exercise a participant's rights under any incentive option, nonqualified option or right of purchase under the Plan; to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any incentive option, nonqualified option or right of purchase in the manner and to the extent the board or Committee deems desirable to carry the Plan, incentive option, nonqualified option or right of purchase into effect; to accelerate the exercise date of any incentive option, nonqualified option or release and/or waive any repurchase rights of the Company contained in any right of purchase; to provide for an option to the Company to repurchase any shares issued upon exercise of an option upon termination of employment; and to make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan. Any action, decision, interpretation or determination by the Administrator with respect to the application or administration of the Plan shall be final and binding on all participants and prospective participants 5. Option Price and Purchase Price of Shares. ----------------------------------------- (a) Incentive Options. The exercise price of the shares of Common ----------------- Stock covered by each incentive option granted under the Plan shall not be less than the fair market value of such shares on the date the incentive option; provided, however, that the exercise price shall not be less than 110% of the fair market value if the person to whom such incentive option is granted owns 10% or more of the total combined voting power of all classes of stock or the Company. (b) Nonqualified Options and Rights of Purchase. The exercise price ------------------------------------------- of the shares of Common Stock covered by each nonqualified option granted and the purchase price of shares for which rights or purchase are offered under the Plan shall not be less than 85% of the fair market value of such shares on the date the nonqualified option is granted or right of purchase is offered. -3- (c) Fair Market Value. For purposes of this Section 5, fair market ----------------- value shall, if the Common Stock is not listed or admitted to trading on a stock exchange, be the average of the closing bid price and asked price of the Common Stock in the over-the-counter market on the date the incentive option or nonqualified option is granted or right of purchase is offered, or, if the Common Stock is then listed or admitted to trading on any stock exchange or the NASDAQ National Market System in the over-the-counter market, the closing sale price on such day on the principal stock exchange on which the Common Stock is then listed or admitted to trading, or, if no sale takes place on such day on such national market system or principal exchange, then the closing sale price of the Common Stock on such national market system or exchange on the next preceding day on which a sale occurred. During such times as there is not a market price available, the fair market value of the Company's Common Stock shall be determined by the Administrator, which shall consider, among other facts, which it considers to be relevant, the book value of such stock and the earnings of the Company and the prices at which shares of Common Stock have been sold in recent transactions, if any. The exercise price or the purchase price, as the case may be, shall be subject to adjustment as provided in Section 8 below. 6. Terms and Conditions of Incentive Options. ----------------------------------------- Each incentive option granted pursuant to this Plan shall be evidenced by a written Incentive Option Agreement which shall specify that the options subject thereto are incentive options within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended. The Incentive Option Agreement shall be in such form as the Administrator shall, from time to time, recommend, but shall comply with and be subject to the following terms and conditions: (a) Medium and Time of Payment. The option price upon the exercise of -------------------------- the incentive option shall be payable (i) in United States dollars payable in cash, certified check, or bank draft; (ii) subject to any legal restrictions on the acquisition or purchase of its shares by the Company, by the delivery of shares of Common Stock which shall be deemed to have a value to the Company equal to the aggregate fair market value of such shares determined at the date of such exercise in accordance with the provisions of Section 5 above; (iii) by the issuance of a promissory note in a form acceptable to the Administrator, or (iv) any combination of (i), (ii) or (iii) above. If payment, in whole or in part, is permitted to be made by delivery of a promissory note, the Administrator may require the shares so purchased to be pledged with the Company to secure the note. The pledge shall be in such form and contain such terms as the Administrator deems appropriate. -4- (b) Grant of Incentive Option. Any incentive option shall be granted ------------------------- within ten years from the date of the adoption of this Plan or the date this Plan is approved by the shareholders of the Company, whichever is earlier. (c) Number of Shares. The incentive option shall state the total ---------------- number of shares to which it pertains. (d) Incentive Option Price. The incentive option price shall not be ---------------------- less than the fair market value of the shares of Common Stock on the date of the granting of the option. (e) Term of Incentive Option. Each incentive option granted under the ------------------------ Plan shall expire within a period of not more than ten (10) years from the date the incentive option is granted; provided, however, that the incentive option shall expire within a period of not more than five (5) years if granted to a person who is the beneficial owner of 10% or more of the outstanding stock of the Company. (f) Date of Exercise. The Administrator may, in its discretion, ---------------- provided that an incentive option may be exercised immediately or that it may not be exercised in whole or in part for any specified period or periods of time. Furthermore, the Administrator may, in its discretion, condition the exercise or vesting periods of the Incentive Options on the performance and/or operating results, or such other performance goals, of the Company, with such terms, provisions and conditions to be set forth in the individual Incentive Option Agreements. Except as may be so provided, any incentive option may be exercised in whole at any time or in part from time to time during its term. (g) Termination of Employment Except Death or Disability. In the ---------------------------------------------------- event that any optionee who is an employee of the Company shall cease to be employed by the Company or a parent or any subsidiary corporation of the Company or a corporation or a parent or subsidiary corporation issuing and assuming an incentive option in a transaction to which Section 425(a) of the Internal Revenue Code of 1986, as amended, applies, for any reason other than his death or disability, (i) all incentive options granted to any such optionee pursuant to this Plan which are not exercisable at the date of such cessation shall terminate immediately and become void and of no effect, and (ii) all incentive options granted to any such optionee pursuant to this Plan which are exercisable at the date of such cessation may be exercised at any time within three (3) months of the date of such cessation, but in any event no later than the date of expiration of the incentive option period, and if not so exercised within such time shall be void and of no effect at the end of such time. -5- (h) Death or Disability of Optionee. If the optionee shall cease to ------------------------------- be employed by the Company due to his or her death or disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended) and shall not have fully exercised his or her incentive options granted pursuant to the Plan, (i) all of such incentive options that had not become exercisable by the date of such cessation shall automatically terminate and be void and of no effect, and (ii) all such incentive options which had become exercisable prior to such cessation of employment may be exercised at any time within one (1) year after the optionee's cessation of employment as a result of such death or disability but in any event no later than the date of expiration of the incentive option period, by such optionee, or in the event of death, by the executors or administrators of the optionee's estate or by any person or persons who have acquired the incentive option directly from the optionee by bequest or inheritance. (i) Rights as a Shareholder. An optionee or a transferee of an ----------------------- incentive option shall have no rights as a shareholder with respect to any shares of Common Stock covered by his or her incentive option until the date of the issuance of a share certificate to him or her for such shares. No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date such share certificate is issued. (j) Nonassignability of Rights. No incentive option shall be -------------------------- assignable or transferable by the person receiving same except by will or the laws of descent and distribution. During the life of such person, the incentive option shall be exercisable only by him. (k) Limitation. Notwithstanding any other provisions of the Plan, the ---------- aggregate fair market value (determined in accordance with the provisions of Section 5 above as of the time the incentive option is granted) of the shares of Common Stock with respect to which incentive stock options are exercisable for the first time by the optionee during any calendar year (under all such plans of the Company and its parent and subsidiary corporations) shall not exceed $100,000. (l) Other Provisions. Any Incentive Option Agreement may contain such ---------------- other items, provisions and conditions as may be determined by the Administrator, which are not inconsistent with the provisions of Section 422A of the Internal Revenue Code of 1986, as amended, including, without limitation, provisions requiring restrictions to be placed on the transferability of shares acquired on exercise of stock options under the Plan and provisions granting to -6- the Company a right to repurchase any shares issued upon the exercise of an option upon termination of employment. Incentive options granted to different persons, or to the same person at different times, may be subject to terms, conditions and restrictions which differ from each other. 7. Terms and Conditions of Nonqualified Options and Rights of Purchase. ------------------------------------------------------------------- (a) Terms and Conditions Applicable to Nonqualified Options. Each ------------------------------------------------------- nonqualified option granted pursuant to this Plan shall be evidenced by a written Nonqualified Option Agreement which shall specify that the options subject thereto are nonqualified options. The Nonqualified Option Agreement shall be in such form as the Administrator shall, from time to time, recommend, but shall comply with and be subject to the following terms and conditions: (i) Medium and Time of Payment. The nonqualified option price -------------------------- shall be payable (A) in United States dollars payable in cash, certified check, or bank draft; (B) subject to any legal restrictions on the acquisition or purchase of its shares by the Company, by the delivery of shares of Common Stock which shall be deemed to have a value to the Company equal to the aggregate fair market value of such shares determined at the date of such exercise in accordance with the provisions of Section 5 above; (C) or by the issuance of promissory note in a form acceptable to the Administrator; or (D) any combination of (A), (B), or (C) above. If payment, in whole or in part, is permitted to be made by delivery of a promissory note, the Administrator may require that the shares so purchased be held in pledge with the Company to secure payment of the note. The pledge shall be in such form and shall contain such terms as the Administrator deems appropriate. (ii) Number of Shares. The nonqualified option shall state the ---------------- total number of shares to which it pertains. (iii) Term of Nonqualified Option. Each nonqualified option --------------------------- granted under the Plan shall expire within a period of not more than ten (10) years from the date the nonqualified option is granted. (iv) Date of Exercise. The Administrator may, in its discretion, ---------------- provide that a nonqualified option may be exercised immediately or that it may not be exercised in whole or in part for any specified period or periods of time. Furthermore, the Administrator -7- may, in its discretion, condition the exercise or vesting periods of the Nonqualified Options on the performance and/or operating results, or such other performance goals, of the Company, with such terms, provisions and conditions to be set forth in the individual Nonqualified Option Agreements. Except as may be so provided, any nonqualified option may be exercised in whole at any time or in part from time to time during its term. (v) Termination of Employment Except Death or Disability. In the ---------------------------------------------------- event that an optionee who is an employee of the Company shall cease to be employed by the Company or any of its subsidiaries for any reason other than his or her death or disability, or, in the event that an optionee who is a director but not an employee of the Company shall cease to be a director of the Company for any reason other than his or her death or disability, (A) all nonqualified options granted to any such optionee pursuant to this Plan which are not exercisable at the date of such cessation shall terminate immediately and become void and of no effect, and (B) all nonqualified options granted to any such optionee pursuant to this Plan which are exercisable at the date of such cessation may be exercised at any time within three (3) months of the date of such cessation, but in any event no later than the date of expiration of the nonqualified option period, and if not so exercised within such time shall become void and of no effect at the time of such time. (vi) Death or Disability of Optionee. If the optionee shall cease ------------------------------- to be employed by the Company (or, in the case of a non-employee director, shall cease to be a director of the Company) due to his or her death or permanent disability and shall not have fully exercised his or her nonqualified options granted pursuant to the Plan prior to such cessation, (A) all nonqualified options of such optionee outstanding under this Plan which were not exercisable at the date of such cessation shall terminate immediately and become void and of no effect, and (B) all of such options which are exercisable at the date of cessation may be exercised at any time within one (1) year after the date of cessation, but in any event no later than the date of expiration of the nonqualified option period, by such optionee, or in the event of death, by the executors or administrators of the optionee's estate or by any person or persons who shall have acquired the nonqualified option directly from the optionee by bequest or inheritance. -8- (b) Terms and Conditions Applicable to Rights of Purchase Under the --------------------------------------------------------------- Plan. After the Administrator shall have determined to offer to a person ---- eligible to participate (hereinafter "offeree") the right to purchase shares under the Plan, it shall cause to be delivered to the offeree a written notice thereof, together with a Stock Purchase Agreement which shall constitute the Company's offer of the right of purchase and shall contain the terms and conditions of purchase, including, without limitation, the number of shares which the offeree shall be entitled to purchase, the purchase price per share, any other terms, conditions or restrictions relating thereto, and the number of days or period the offeree shall have to accept such offer. The execution and delivery of the Stock Purchase Agreement by the offeree to the Company within said number of days or period shall constitute acceptance of the offer of said Stock Purchase Agreement shall, thereupon, become a binding obligation of the Company and the offeree. Each Stock Purchase Agreement shall be in such form as the Administrator shall, from time to time, recommend, but shall comply with and be subject to the following terms and conditions: (i) Method of Payment. The purchase price of the shares shall be ----------------- paid to the Company, (A) in cash; (B) by check or bank draft; (C) by a promissory note, with or without interest, payable to the Company; or (D) any combination of (A), (B) or (C) above, as the Administrator, shall in its discretion determine. The terms, manner and timing of such payment and the form and content of any promissory note, shall be included or made a part of the Stock Purchase Agreement. If payment, in whole or in part, is made by a promissory note, the shares so purchased with such note shall be held in pledge with the Company to secure payment of the note. The pledge shall be in such form and shall contain such terms as the Administrator may deem appropriate. (ii) Number of Shares. The Stock Purchase Agreement shall state ---------------- the total number of shares which the offeree shall be entitled to purchase and whether or not the offeree may purchase less than all of the shares offered. (iii) Term of Offer. The Stock Purchase Agreement shall specify ------------- the number of days or other period the offeree shall have to accept the offer, not to exceed thirty (30) days from the date of such offer. If not accepted by the offeree within such number of days or other period, the offer shall automatically terminate upon expiration thereof, and the offer shall thereupon be null and void and without further effect, except -9- that the Administrator may extend such number of days or other period available for acceptance, not to exceed an additional thirty (30) days. Acceptance of the offer shall occur when the offeree has executed and redelivered to the Company one or more counterparts of the Stock Purchase Agreement in the form delivered to him by the Company and, to be effective, such acceptance must be without condition or reservation of any kind whatsoever. (iv) Escrow of Dividends. If payment for shares is made by a ------------------- promissory note, all cash dividends paid with respect to the shares so purchased shall be held in escrow by the Company for the account of the purchaser without interest until such time as the shares are fully paid. Upon full payment of the promissory note, all of such escrowed dividends shall be paid to the purchaser without interest. (c) Terms and Conditions Applicable Equally to Nonqualified Options --------------------------------------------------------------- Granted and to Rights of Purchase Offered Under the Plan. -------------------------------------------------------- (i) Rights as a Shareholder. An optionee or an offeree or a ----------------------- transferee of a nonqualified option or right of purchase shall have no rights as a shareholder with respect to any shares of Common Stock covered by his or her nonqualified option or right of purchase until the date of the issuance of a share certificate to him or her for such shares. No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date such share certificate is issued. (ii) Nonassignability of Rights. No nonqualified option or right -------------------------- of purchase shall be assignable or transferable by the person receiving same except by will or the laws of descent and distribution. During the life of such person, the nonqualified option or right of purchase shall be exercisable only by him or her. (iii) Other Provisions. Any Nonqualified Option Agreement or any ---------------- Stock Purchase Agreement may contain such other terms, provisions and conditions as may be determined by the Administrator, and, without limiting the generality of the foregoing, the Board of Directors or the Committee, as the case may be, shall have discretion to offer to a person a choice between having nonqualified options granted or having a right of purchase offered to him, or to grant both nonqualified options and a right of purchase or to condition a grant -10- of nonqualified options upon a purchase of shares under a right of purchase under the Plan. Nonqualified options granted or offers made to different persons, or to the same person at different times, may be subject to terms, conditions and restrictions which differ from each other. 8. Changes in Capital Structure. ---------------------------- In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number of kind of shares of other securities of the Company by reason of merger, consolidation or reorganization in which the Company is the surviving corporation (other than a merger, consolidation or reorganization in which, although the Company is a surviving corporation, there is a change in the ownership of more than 50% of the Company's outstanding common stock) or of a recapitalization, stock split, combination of shares, reclassification, reincorporation, stock dividend (in excess of 2%), or other change in the corporate structure of the Company, appropriate adjustments shall be made by the Board of Directors in the aggregate number and kind of shares subject to this Plan, and the number and kind of shares and the price per share subject to outstanding incentive options, nonqualified options and rights of purchase in order to preserve, but not to increase, the benefits to persons then holding incentive options, nonqualified options and/or rights of purchase. In the event that the Company at any time proposes to merge into, consolidate with or to enter into any other merger, consolidation or reorganization (including the sale of substantially all of its assets) in which the Company is not the surviving corporation, or if the Company is the surviving corporation and the ownership of more than 50% of the outstanding capital stock of the Company changes as a result of such transaction, the Plan and all unexercised incentive options, nonqualified options and rights of purchase granted hereunder shall terminate, unless provision is made in writing in connection with such transaction for the continuance of the Plan and for the assumption of incentive options, nonqualified options and rights of purchase theretofore granted, or the substitution for such incentive options, nonqualified options and rights of purchase of new options and rights of purchase covering the shares of a successor corporation, with appropriate adjustments as to number and kind of shares and prices, in which event the Plan and the incentive options, nonqualified options and rights of purchase theretofore granted or the new incentive options, nonqualified options and rights of purchase substituted therefor, shall continue in the manner and under the terms so provided. If such provision is not made in such transaction for the continuation of the Plan and the assumption of incentive -11- options, nonqualified options and rights of purchase theretofore granted or the substitution for such incentive options, nonqualified options and rights of purchase of new incentive options, nonqualified options and rights of purchase covering the shares of a successor corporation, then the Administrator shall cause written notice of the proposed transaction to be given to the persons holding incentive options, nonqualified options or rights of purchase not less than thirty (30) days prior to the anticipated effective date of the proposed transaction, and all incentive options, nonqualified options and rights of purchase shall be accelerated and, concurrent with the effectiveness of the proposed transaction, such person shall have the right to exercise incentive options, nonqualified options and accept rights of purchase in respect of any or all shares then subject thereto; provided, however, that the failure to give such notice shall not invalidate or necessitate a delay in the consummation of the transaction. 9. Amendment and Termination of the Plan. ------------------------------------- The Board of Directors of the Company may from time to time alter, amend, suspend or terminate the Plan in such respects as the Board of Directors may deem advisable; provided, however, that no such alteration, amendment, suspension or termination shall be made which shall substantially affect or impair the rights of any person under any incentive option, nonqualified option or right of purchase theretofore granted to him without his consent. Without limiting the generality of the foregoing, to the extent permitted by applicable law, the Board of Directors of the Company may alter or amend the Plan to comply with requirements under the Internal Revenue Code relating to restricted stock options, incentive options, qualified options or other options which give the optionee more favorable tax treatment than applicable to options granted under this Plan as of the date of its adoption. Upon any such alteration or amendment, to the extent permitted by applicable law, any outstanding option granted hereunder shall be subject to the more favorable tax treatment afforded to an optionee pursuant to such terms and conditions as the Administrator may determine. Unless the Plan shall theretofore have been terminated, the Plan shall be effective on March 30, 1992, and shall terminate on March 30, 2002. 10. Application of Funds. -------------------- The proceeds received by the Company from the sale of Common Stock pursuant to incentive options, nonqualified options and rights of purchase, except as otherwise provided herein, will be used for general corporate purposes. -12- 11. No Obligation to Exercise Option or Right of Purchase. ----------------------------------------------------- The granting of an incentive option, nonqualified option or the offer of a right of purchase shall impose no obligation upon the optionee to exercise such an incentive option, nonqualified option or the offeree to accept such right of purchase. 12. Continuance of Employment. ------------------------- The Plan or the granting of any incentive option, nonqualified option or right of purchase thereunder shall not impose any obligation on the Company to continue the employment of any optionee or offeree. 13. Financial Disclosure. -------------------- Upon the granting of any incentive option, nonqualified option or right of purchase under this Plan, the optionee or offeree shall be entitled to receive such financial information as may from time to time be disclosed to the stockholders of the Company. Such financial information shall be in the form deemed appropriate by the Board of Directors for distribution to the stockholders. -13- CERTIFICATE OF SECRETARY ------------------------ The undersigned Secretary of Interplay Productions, a California corporation (the "Company"), hereby certifies that the following resolutions amending the Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan-1991 (the "1991 Plan"), were duly adopted by the Board of Directors on September 9, 1996: AMENDMENT OF 1991 PLAN - ---------------------- Section 3(b) of the 1991 Plan is hereby amended and restated in its entirety as follows: "(b) Nonqualified Options and Rights of Purchase. Officers and other ------------------------------------------- employees of the Company or of any subsidiary corporation, any member of the Board of Directors of the Company, whether or not he or she is employed by the Company, or consultants, business associates or others with important business relationships with the Company, including any trust, IRA account or estate planning device (an "Estate Planning Device") for the benefit of the foregoing, will be eligible to receive nonqualified options or rights of purchase under the Plan. An individual, or Estate Planning Device, who or that has been granted a nonqualified option or right of purchase may, if otherwise eligible, be granted an incentive option (if otherwise eligible) or an additional nonqualified option or options or rights of purchase if the Board or Committee shall so determine." Section 7(a)(vii) shall be added to the 1991 Plan to read in full as follows: "(vii) Applicability to Estate Planning Devices. With respect to ---------------------------------------- subsections (v) and (vi) above, in the event of a termination of employment of a person who is the beneficial owner of nonqualified options held by an Estate Planning Device, the exercisability provisions of subsections (v) and (vi) above shall be applicable to such Estate Planning Device." Section 7(c)(ii) of the 1991 Plan is hereby amended and restated in its entirety as follows: "(ii) Nonassignability of Rights. No nonqualified option or right of -------------------------- purchase shall be assignable or transferable by the person receiving same without the prior written consent of the Company except by will or the laws of descent and distribution." IN WITNESS WHEREOF, I have subscribed my name and affixed the seal of the Corporation effective this 14th day of February, 1997. /s/ Lisa Ann Latham ------------------------------- LISA ANN LATHAM, Secretary EX-10.7 9 FORM OF INCENTIVE STOCK OPTION AGREEMENT - 1991 PLAN EXHIBIT 10.7 ISO-____ INCENTIVE COMMON STOCK OPTION AGREEMENT --------------------------------------- THIS INCENTIVE COMMON STOCK OPTION AGREEMENT (the "Agreement"), made this _____ day of _______________, between INTERPLAY PRODUCTIONS, a California corporation (hereinafter referred to as the "Company"), and ___________________________, an employee of the Company, its parent or one or more of its subsidiaries (the "Optionee"), is made with reference to the following facts: R E C I T A L S - - - - - - - - A. Optionee is employed with the Company and is a valued and key employee of the Company. B. The Company desires, by affording the Optionee an opportunity to purchase shares of Common Stock of the Company (hereinafter called "Shares"), as hereinafter provided, to carry out the purpose of the "Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan - 1991" (the "Plan"). NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, and for good and valuable consideration, the parties hereto have agreed, and do hereby agree, as follows: 1. Grant of Option. --------------- The Company hereby irrevocably grants to the Optionee the right and option (hereinafter called the "Option") to purchase all or any part of an aggregate of ______ Shares (such number being subject to adjustment as provided herein) on the terms and conditions herein set forth. The Option granted herein is an "incentive option" within the meaning of the Plan and Section 422A of the Internal Revenue Code of 1986, as amended. 2. Purchase Price. -------------- The purchase price of the Shares covered by the Option shall be $_____ per share, representing one hundred percent (100%) of the fair market value of the shares as determined pursuant to Section 5 of the Plan as of the date hereof. 3. Term of Option. -------------- The term of the Option shall commence on the date hereof and all rights to purchase shares hereunder shall cease at 11:59 P.M. on the day before the ________ (___th) anniversary of the date hereof, subject to earlier termination as provided herein. Except as may otherwise be provided in this Agreement, options granted hereunder may be cumulative and exercised as follows: [To be determined on an option by option basis.] During the Period: Optionee May Purchase: ----------------- --------------------- On or before __________, 19_ __% of the Shares After _______, 19__, but before __________, 19_ __% of the Shares After ______, 19__, but before , 19_ __% of the Shares After ______, 19__, but before , 19_ __% of the Shares After ______, 19__, but before __________, 19_ __% of the Shares The purchase price of the Shares as to which the Option shall be exercised shall be paid in full at the time of exercise (i) in cash or by certified check or by bank draft; (ii) subject to any legal restrictions on the acquisition or purchase of such shares by the Company and with the prior written consent and approval of the Company, by the delivery of shares of Common Stock of the Company which shall be deemed to have a value to the Company equal to the aggregate fair market value of such shares determined in accordance with Section 5 of the Plan; or with such consent and approval, any combination of (i) or (ii) above. Except as provided in Paragraph 5 hereof, the Option may not be exercised at any time unless the Optionee shall have been continuously, from the date hereof to the date of the exercise of the Option, an employee of the Company, its parent, if any, or of one or more of its subsidiaries or a corporation or a parent or subsidiary of a corporation issuing or assuming an option to which Section 425(a) of the Internal Revenue Code of 1986, as amended, applies (collectively, the "Affiliates"). The holder of the Option shall not have any of the rights of a shareholder with respect to the shares covered by the Option as to any shares of Common Stock not actually issued and delivered to Optionee. 4. Nontransferability. ------------------ The Option shall not be transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised, during the lifetime of the Optionee, only by Optionee. More particularly (but without limiting the generality of the foregoing), the Option may not be assigned, transferred (except as provided in Paragraph 6 hereof), pledged or hypothecated in any way, shall not be assignable by operation of law and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof, and the levy of any execution, attachment or similar process upon the Option, shall be null and void and without effect. 5. Termination of Employment. ------------------------- In the event that the Optionee shall cease to be employed by the Company, or a parent or subsidiary of the Company, or a corporation or a parent or subsidiary of a corporation issuing or assuming an option to which Section 425(a) of the Internal Revenue Code of 1986, as amended, applies, for any reason whatsoever, this Option shall terminate immediately; provided, however, that 2 the Optionee shall have the right to exercise this Option at any time within three (3) months after such cessation, but in no event later than the date of expiration of the option period, if such cessation is for any reason other than death or disability of the Optionee, or at any time within one (1) year after such cessation if such cessation is due to the Optionee's death or disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code of l986, as amended but in no event later than the date of expiration of the option period); but the number of Shares purchasable in any such event upon such exercise of the Option shall not in any case exceed the number which would have been purchasable if the Optionee had exercised the Option on the date of such cessation. 6. Other Expirations. ----------------- In addition to any other event causing an expiration or termination of this Option, this Option shall expire and all rights to purchase Shares shall cease (to the extent not theretofore terminated or expired as herein provided) upon the effective date of the dissolution or liquidation of the Company or upon a merger, consolidation, acquisition of property or shares, separation or reorganization of the Company with one or more entities, corporate or otherwise, as a result of which the Company is not the surviving entity, or as a result of which the Company is the surviving entity, but the ownership of more than 50% of the outstanding shares of capital stock of the Company following the transaction changes as a result of such transaction, or of a sale of substantially all of the property or shares of the Company to another entity, corporate or otherwise; provided, however, that the Company may, in its discretion, and immediately prior to any such transaction, cause a new option to be substituted for this Option or cause this Option to be assumed by an employer entity or a parent or subsidiary of such entity; and such new option shall apply to all shares issued in addition to or substitution, replacement or modification of the shares theretofore covered by such option; provided that, (1) the excess of the aggregate fair market value of the shares subject to the option immediately after the substitution or assumption over the aggregate option price of such shares shall not be more than the excess of the aggregate fair market value of all shares subject to the option immediately before such substitution or assumption over the aggregate option price of such shares; and (2) the new option or the assumption of the existing option shall not give the Optionee additional benefits which he did not have under the old option or prior to such assumption; and (3) an appropriate adjustment of the original option price shall be made among original shares subject to the option and any additional shares or shares issued in substitution, replacement or modification thereof. If no provision is made for the continuance of the option plan and the assumption of this Option, or the substitution for this Option of new options as hereinabove provided, then the Company shall cause written notice to be given to the Optionee of the proposed transaction not less than thirty (30) days prior to the anticipated effective date thereof, and this Option, if not already exercisable, shall thereupon become immediately exercisable and the Optionee shall have the right to exercise this Option effectively concurrently with and only on the happening of the consummation of the proposed transaction. Notwithstanding anything to the contrary, the failure of the Company to give thirty (30) days' written notice of the proposed transaction to the Optionee shall not affect the validity of nor shall it necessitate a delay in consummation of the proposed transaction. 3 7. Adjustments. ----------- The number and class of shares subject to this Option, and the purchase price per share (but not the total purchase price), and the minimum number of shares as to which this Option may be exercised at any one time, shall all be proportionately adjusted in the event of any change or increase or decrease in the number of issued shares of Common Stock in the Company, without receipt of consideration by the Company, which result from a split-up or consolidation of shares, payment of a share dividend (in excess of two percent (2%)), a recapitalization, combination of shares or other like capital adjustment, so that, upon exercise of this Option, the Optionee shall receive the number and class of shares Optionee would have received had Optionee been the holder of the number of shares of Common Stock in the Company, for which this Option is being exercised, on the date of such change or increase or decrease in the number of issued shares of Common Stock in the Company. Subject to any required action by its shareholders, if the Company shall be a surviving entity in any reorganization, merger or consolidation (other than in a merger, consolidation or reorganization which is subject to Paragraph 6 above), this Option shall be proportionately adjusted so as to apply to the securities to which the holder of the number of shares of Common Stock in the Company subject to this Option would have been entitled. Adjustments under this paragraph shall be made by the Board of Directors whose determination with respect thereto shall be final and conclusive. No fractional share shall be issued under this Option or upon any such adjustment. No adjustments shall be made for issuances of any securities if any consideration is received by the Company. 8. Repurchase of Shares. -------------------- The Optionee agrees to sign the form of Buy-Sell Agreement attached hereto. Optionee shall have no right to any shares subject to this Option unless such Buy-Sell Agreement is signed and agreed to by the Optionee. 9. Notice. ------ All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered or mailed, by United States certified or registered mail, prepaid, to the parties or their assignees at the addresses set forth opposite their signatures below (or such other address as shall be given in writing by either party to the other). 10. Method of Exercising Option. --------------------------- Subject to the terms and conditions of this Option Agreement, this Option may be exercised by written notice to the Company, at its principal office in the State of California, which presently is located at 3710 S. Susan, Suite 100, Santa Ana, California 92704. Such notice shall state the election to exercise the Option and the number of shares in respect of which it is being exercised and shall be signed by the person or persons so exercising the Option. Such notice shall be accompanied by payment in cash, certified check, bank draft or (subject to the limitations and with the prior approval required under Paragraph 3 above) certificates for shares of the Common Stock of the Company equal to at the time of exercise, in the aggregate, the full purchase price of such shares, and the Company shall deliver a certificate or certificates representing the shares subject to such exercise as soon as practicable after the notice shall be received. The certificate or certificates for the shares as to which the Option shall have been so exercised shall be registered in the name of the person or persons so exercising the Option and shall be delivered as provided above to or upon the written order of the person or persons exercising the Option. In the event the Option shall be exercised by any person or 4 persons other than the Optionee in accordance with the terms hereof, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and nonassessable. The holder of this Option shall not be entitled to the privileges of share ownership as to any shares of Common Stock not actually issued and delivered to Optionee. The Optionee hereby certifies that all shares of Common Stock in the Company purchased or to be purchased by Optionee pursuant to the exercise of this Option are being or are to be acquired by Optionee for investment and not with a view to the distribution thereof. In addition, as a condition to the effectiveness of any exercise of this Option and the Company's obligation to issue a stock certificate pursuant hereto, the person exercising the Option shall execute and deliver to the Company with the notice provided for above an investment letter in the form attached hereto as Exhibit A. 11. No Agreement to Employ. ---------------------- Nothing in this Agreement shall be construed to constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company to employ or retain Optionee for any specific period of time. 12. General. ------- The Company shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Option Agreement, shall pay all original issue and transfer taxes with respect to the issue and transfer of shares pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection therewith, and will from time to time use its best efforts to comply with all laws and regulations, which, in the opinion of counsel for the Company, shall be applicable thereto. This Agreement contains the entire agreement of the parties hereto, and supersedes all prior agreements written or oral, with respect to the subject matter hereof. This Agreement may only be amended or altered by a written instrument signed by the parties hereto. 5 IN WITNESS WHEREOF, the Company has caused this Option Agreement to be duly executed by its officers thereunto duly authorized, and the Optionee has hereunto set his hand, all as of the day and year first above written. INTERPLAY PRODUCTIONS 17922 Fitch Avenue Irvine, California 92714 By: ________________________________ ____________________________________________ "Company" ___________________ ___________________ ________________________________ "Optionee" 6 EXHIBIT A TO INCENTIVE COMMON STOCK OPTION AGREEMENT Interplay Productions 17922 Fitch Avenue Irvine, California 92714 Gentlemen: 1. (a) In connection with the acquisition of _________ shares of the common stock of INTERPLAY PRODUCTIONS, a California corporation (the "Company"), by the undersigned, the undersigned represents that the shares which the undersigned is acquiring are being acquired for investment and not with a view to the sale or distribution of any part thereof, and that the undersigned has no present intent of selling or otherwise distributing the same. You have advised the undersigned that the shares have not been registered under the Securities Act of 1933, as amended (the "Act"), as the offering of the shares is to be effected pursuant to an exemption from the registration provisions of such Act, and, in this connection, you are relying in part on the representations of the undersigned set forth herein. Without in any way limiting the representations set forth above, the undersigned further agrees in no event to make any dispositions of all or any part of said shares unless and until (i) the undersigned shall have notified you of the proposed disposition; (ii) the undersigned shall have furnished you with an opinion of counsel to the effect that such disposition will not require registration of such shares under the Act, and (iii) such opinion of counsel shall have been concurred in by the Company's counsel and the Company shall have advised you of such concurrence. (b) The undersigned acknowledges receipt of all information as the undersigned deems necessary and appropriate to enable the undersigned to evaluate the financial risk inherent in acquiring said shares and acknowledges receipt of satisfactory and complete information covering the business and financial condition of the Company, including the opportunity to obtain information regarding the Company's financial status, in response to all inquiries in respect thereof. 2. (a) The undersigned represents that he is an investor of sufficient sophistication to evaluate the merits and risks involved in acquiring the shares and to make an informed investment decision based on the undersigned's personal knowledge of the business and affairs of the Company, based upon such additional information as he may have requested and received from the Company, and the independent inquiries and investigations undertaken by the undersigned. The undersigned certifies that his financial situation is such that he is able to bear the economic risk of the investment in the securities. (b) The undersigned understands and agrees that the certificate evidencing said shares will bear the following legends, in addition to any other legends called for under the Plan: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF, EXCEPT AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER. 3. (a) The undersigned recognizes that said shares are unregistered and must by held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available, and further recognizes that you are under no obligation to register said shares or to comply with any exemption from such registration. (b) The undersigned understands that Rule 144 under the Act does not presently apply and may never apply to the Company's securities because the Company does not now, and may never, file reports required by the Securities Exchange Act of 1934, as amended ("Exchange Act"), and has not made, and may never make, publicly available the information required by Rule 15c2-11 of the Exchange Act. Furthermore, if Rule 144 were available, the undersigned understands that sales of securities made in reliance thereof could be made only in certain limited amounts, after certain holding periods and only when there was available specified current public information, all in accordance with the terms and conditions of said Rule. The undersigned understands that, in the case of securities to which said Rule is not applicable, compliance with some other exemption under the Act will be required. DATED: _________________, 19__ _____________________________________ EX-10.8 10 FORM OF NONQUALIFIED STOCK OPTION AGREEMENT - 1991 PLAN EXHIBIT 10.8 NONQUALIFIED COMMON STOCK OPTION AGREEMENT ------------------------------------------ THIS NONQUALIFIED COMMON STOCK OPTION AGREEMENT (the "Agreement"), made this ______ day of ________________, 19___, between INTERPLAY PRODUCTIONS, a California corporation (hereinafter referred to as the "Company"), and ______________ ________________________, an employee of the Company, its parent or one or more of its subsidiaries, or a director or advisor of the Company (hereinafter referred to as the "Optionee"), is made with reference to the following fact: R E C I T A L - - - - - - - The Company desires, by affording the Optionee an opportunity to purchase shares of Common Stock in the Company (hereinafter called "Shares"), as hereinafter provided, to carry out the purpose of the "Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan-1991" (the "Plan"). NOW, THEREFORE, IN CONSIDERATION of the mutual covenants hereinafter set forth, and for good and valuable consideration, the parties hereto have agreed, and do hereby agree, as follows: 1. Grant of Option. --------------- The Company hereby irrevocably grants to the Optionee the right and option (hereinafter called the "Option") to purchase all or any part of an aggregate of __________ Shares (such number being subject to adjustment as provided in Section 7 hereof) on the terms and conditions herein set forth. The Option granted herein is a "nonqualified option" within the meaning of the Plan. 2. Purchase Price. -------------- The purchase price of the Shares covered by the Option shall be $______ per share. 3. Term of Option. -------------- The term of the Option shall commence on the date hereof and all rights to purchase shares hereunder shall cease at 11:59 p.m. on the day before the tenth (10th) anniversary of the date hereof, subject to earlier termination as provided herein. Except as may otherwise be provided in this Agreement, options granted hereunder may be cumulative and exercised as follows: [To be determined on an option by option basis.] During the Period: Optionee May Purchase: ----------------- --------------------- On or before ____________, 19__ __% of the Shares After __________, 19__, but before _________, 19__ __% of the Shares After ____________, 19__, but before _________, 19__ __% of the Shares After ____________, 19__, but before _________, 19 __% of the Shares After ____________, 19__, but before _________, 19 __% of the Shares After ____________, 19__, but before _________, 19__ 100% of the Shares The purchase price of the Shares as to which the Option shall be exercised shall be paid in full at the time of exercise (i) in cash, or by certified check or by bank draft; (ii) subject to any legal restrictions on the acquisition or purchase of its shares by the Company and with the prior written consent and approval of the Company, by the delivery of shares of Common Stock of the Company which shall be deemed to have a value to the Company equal to the aggregate fair market value of such shares determined in accordance with Section 5 of the Plan; or (iii) any combination of (i) or (ii) above. Except as provided in Section 5 hereof, the Option may not be exercised at any time unless (i) if the Optionee is an employee of the Company, the Optionee shall have been continuously, from the date hereof to the date of the exercise of the Option, an employee of the Company, its parent, if any, or of one or more of its subsidiaries or a corporation or a parent or subsidiary of a corporation issuing or assuming an option to which Section 425(a) of the Internal Revenue Code of 1986, as amended, applies (collectively the "Affiliates"); or (ii) if the Optionee is a director of the Company, the Optionee shall have been continuously, from the date hereof to the date of the exercise of the Option, a director of the Company, or its Affiliates. The holder of the Option shall not have any of the rights of a shareholder with respect to the shares covered by the Option as to any shares of Common Stock not actually issued and delivered to Optionee. -2- 4. Nontransferability. ------------------ The Option shall not be transferable other than by will or the laws of descent and distribution, and the Option may be exercised, during the lifetime of the Optionee, only by Optionee. More particularly (but without limiting the generality of the foregoing), the Option may not be assigned, transferred (except as provided in Section 5 hereof), pledged or hypothecated in any way, shall not be assignable by operation of law and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof, and the levy of any execution, attachment or similar process upon the Option, shall be null and void and without effect. 5. Termination of Employment or Status as a Director or Advisor. ------------------------------------------------------------ In the event that the Optionee is an employee of the Company and the Optionee shall cease to be employed by the Company, or its Affiliates, or in the event the Optionee is a director or advisor of the Company and ceases to be a director or advisor of the Company or its Affiliates, for any reason whatsoever, other than by reason of death or disability, this Option shall terminate immediately; provided, however, that the Optionee shall have the right to exercise this Option at any time within three (3) months after such cessation of employment or status as a director or advisor, but in no event later than the date of expiration of the option period, but the number of Shares purchasable upon such exercise of the Option shall not in any case exceed the number which would have been purchasable if the Optionee had exercised the Option on the date of such cessation. If the Optionee shall become disabled (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended) and shall not have fully exercised his options granted pursuant to the Plan, all of such options, whether or not otherwise exercisable, may be exercised at any time within one (1) year after the Optionee's cessation of employment or status as a director or advisor as a result of such disability but in any event no later than the date of expiration of the option period, by the Optionee. If the Optionee shall die while an employee, director or advisor of the Company, or its Affiliates, Optionee's estate, personal representative or beneficiary shall have the right to exercise all of the shares subject to this Option, whether or not they would otherwise have been purchasable if the Optionee's death had not occurred, at any time within one (1) year from the date of Optionee's death, but in no event later than the date of expiration of the option period. -3- 6. Other Expirations. ----------------- In addition to any other event causing an expiration or termination of this Option, this Option shall expire and all rights to purchase Shares shall cease (to the extent not theretofore terminated or expired as herein provided) upon the effective date of the dissolution or liquidation of the Company or upon a merger, consolidation, acquisition of property or shares, separation or reorganization of the Company with one or more entities, corporate or otherwise, as a result of which the Company is not the surviving entity, or if the Company is the surviving entity and the ownership of the outstanding capital stock of the Company following the transaction changes by 80% or more as a result of such transaction, or of a sale of substantially all of the property or shares of the Company to another entity, corporate or otherwise; provided, however, that the Company may, in its discretion, and immediately prior to any such transaction, cause a new option to be substituted for this Option or cause this Option to be assumed by an employer entity or a parent or subsidiary of such entity; and such new option shall apply to all shares issued in addition to or substitution, replacement or modification of the shares theretofore covered by such option; provided that, (1) the excess of the aggregate fair market value of the shares subject to the option immediately after the substitution or assumption over the aggregate option price of such shares shall not be more than the excess of the aggregate fair market value of all shares subject to the option immediately before such substitution or assumption over the aggregate option price of such shares; and (2) the new option or the assumption of the existing option shall not give the Optionee additional benefits which he did not have under the old option or prior to such assumption; and (3) an appropriate adjustment of the original option price shall be made among original shares subject to the option and any additional shares or shares issued in substitution, replacement or modification thereof. If no provision is made for the continuance of the Plan and the assumption of this Option, or the substitution of this Option of new options as hereinabove provided, then the Company shall cause written notice to be given to the Optionee of the proposed transaction not less than thirty (30) days prior to the anticipated effective date thereof, and this Option, if not already exercisable, shall thereupon become immediately exercisable and the Optionee shall have the right to exercise this Option at any time prior to the effective date of the termination of the option plan or the proposed transaction. -4- 7. Adjustments. ----------- The number and class of shares subject to this Option, and the purchase price per share (but not the total purchase price), and the minimum number of shares as to which this Option may be exercised at any one time, shall all be proportionately adjusted in the event of any change or increase or decrease in the number of issued shares of Common Stock in the Company, without receipt of consideration by the Company, which result from a split-up or consolidation of shares, payment of a share dividend (in excess of two percent (2%)), a recapitalization, combination of shares or other like capital adjustment, so that, upon exercise of this Option, the Optionee shall receive the number and class of shares Optionee would have received had Optionee been the holder of the number of shares of Common Stock in the Company, for which this Option is being exercised, on the date of such change or increase or decrease in the number of issued shares of Common Stock in the Company. Subject to any required action by its shareholders, if the Company shall be a surviving entity in any reorganization, merger or consolidation, this Option shall be proportionately adjusted so as to apply to the securities to which the holder of the number of shares of Common Stock in the Company subject to this Option would have been entitled. Adjustments under this paragraph shall be made by the Board of Directors whose determination with respect thereto shall be final and conclusive. No fractional share shall be issued under this Option or upon any such adjustment. No adjustments shall be made for issuances of any securities if any consideration is received by the Company. 8. Repurchase of Shares. -------------------- The Optionee agrees to sign the form of Buy-Sell Agreement attached hereto. Optionee shall have no right to any shares subject to this Option unless such Buy-Sell Agreement is signed and agreed to by the Optionee. 9. Notice. ------ All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered or mailed, by United States certified or registered mail, prepaid, to the parties or their assignees at the addresses set forth opposite their signatures below (or such other address as shall be given in writing by either party to the other). 10. Method of Exercising Option. --------------------------- Subject to the terms and conditions of this Nonqualified Common Stock Option Agreement, this Option may be exercised by written notice to the Company, at its principal -5- office in the State of California, which presently is located at 3710 S. Susan, Suite 100, Santa Ana, California 92704. Such notice shall state the election to exercise the Option and the number of shares in respect of which it is being exercised and shall be signed by the person or persons so exercising the Option. Such notice shall be accompanied by (i) payment in cash, certified check, bank draft or certificates for shares of the Common Stock of the Company equal to, in the aggregate, the full purchase price of such shares, and (ii) payment in cash, certified check or bank draft of any payroll withholding taxes resulting from the exercise, as determined by the Company. The Company shall deliver a certificate or certificates representing the shares subject to such exercise as soon as practicable after the notice shall be received. The certificate or certificates for the shares as to which the Option shall have been so exercised shall be registered in the name of the person or persons so exercising the Option and shall be delivered as provided above to or upon the written order of the person or persons exercising the Option. In the event the Option shall be exercised by any person or persons other than the Optionee in accordance with the terms hereof, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise the Option. All shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and nonassessable. The holder of this Option shall not be entitled to the privileges of share ownership as to any shares of Common Stock not actually issued and delivered to Optionee. The Optionee hereby certifies that all shares of Common Stock in the Company purchased or to be purchased by Optionee pursuant to the exercise of this Option are being or are to be acquired by Optionee for investment and not with a view to the distribution thereof. In addition, the person exercising the Option shall execute and deliver to the Company with the notice provided for above an investment letter in the form attached hereto as Exhibit A. 11. No Agreement to Employ. ---------------------- Nothing in this Agreement shall be construed to constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company to employ or retain Optionee for any specific period of time. 12. General. ------- The Company shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Nonqualified Common Stock Option Agreement, shall pay all original issue and transfer taxes with respect to the issue and transfer of shares pursuant hereto and all other fees and -6- expenses necessarily incurred by the Company in connection therewith, and will from time to time use its best efforts to comply with all laws and regulations, which, in the opinion of counsel for the Company, shall be applicable thereto. IN WITNESS WHEREOF, the Company has caused this Nonqualified Common Stock Option Agreement to be duly executed by its officers thereunto duly authorized, and the Optionee has hereunto set his hand, all as of the day and year first above written. INTERPLAY PRODUCTIONS 17922 Fitch Avenue Irvine, CA 92714 By: ____________________________________ "Company" _____________________ _____________________ ____________________________________ "Optionee" -7- EXHIBIT A --------- TO NONQUALIFIED OPTION AGREEMENT -------------------------------- Interplay Productions 17922 Fitch Avenue Irvine, California 92714 Gentlemen: 1. (a) In connection with the acquisition of _________ shares of the common stock of Interplay Productions, a California corporation (the "Company"), by the undersigned, the undersigned represents that the shares which the undersigned is acquiring are being acquired for investment and not with a view to the sale or distribution of any part thereof, and that the undersigned has no present intent of selling or otherwise distributing the same. You have advised the undersigned that the shares have not been registered under the Securities Act of 1933, as amended (the "Act"), as the offering of the shares is to be effected pursuant to an exemption from the registration provisions of such Act, and, in this connection, you are relying in part on the representations of the undersigned set forth herein. Without in any way limiting the representations set forth above, the undersigned further agrees in no event to make any dispositions of all or any part of said shares unless and until (i) the undersigned shall have notified you of the proposed disposition; (ii) the undersigned shall have furnished you with an opinion of counsel to the effect that such disposition will not require registration of such shares under the Act, and (iii) such opinion of counsel shall have been concurred in by the Company's counsel and the Company shall have advised you of such concurrence. (b) The undersigned acknowledges receipt of all information as the undersigned deems necessary and appropriate to enable the undersigned to evaluate the financial risk inherent in acquiring said shares and acknowledges receipt of satisfactory and complete information covering the business and financial condition of the Company, including the opportunity to obtain information regarding the Company's financial status, in response to all inquiries in respect thereof. A-1 2. (a) The undersigned represents that he is an investor of sufficient sophistication to evaluate the risks and merits involved in the acquisition of the shares and to make an informed investment decision based on the undersigned's personal knowledge of the business and affairs of the Company, based upon such additional information as he may have requested and received from the Company, and the independent inquiries and investigations undertaken by the undersigned. The undersigned certifies that his financial situation is such that he is able to bear the economic risk of the investment in the securities. (b) The undersigned understands and agrees that the certificate evidencing said shares will bear the following legends, in addition to any other legends called for under the Plan: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT OF 1933, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER. 3. (a) The undersigned recognizes that said shares are unregistered and must by held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available, and further recognizes that you are under no obligation to register said shares or to comply with any exemption from such registration. (b) The undersigned understands that Rule 144 under the Act does not presently apply and may never apply to the Company's securities because the Company does not now, and may never, file reports required by the Securities Exchange Act of 1934, as amended ("Exchange Act"), and has not made, and may never make, publicly available the information required by Rule 15c2-11 of the Exchange Act. Furthermore, if Rule 144 were available, the undersigned understands that sales of securities made in reliance thereof could be made only in certain limited amounts, after certain holding periods and only when there was available specified current public information, all in accordance with the terms and conditions of said Rule. The undersigned understands that, in the case of securities to which said Rule is not applicable, compliance with some other exemption under the Act will be required. DATED: ____________ A-2 EX-10.10 11 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.10 INTERPLAY PRODUCTIONS EMPLOYEE STOCK PURCHASE PLAN This EMPLOYEE STOCK PURCHASE PLAN (the "Plan") is hereby established by INTERPLAY PRODUCTIONS, a Delaware corporation (the "Company"), effective __________ __, 1998 (the "Effective Date"). ARTICLE I PURPOSE OF THE PLAN ------------------- 1.1 PURPOSE. The Company has determined that it is in the best interests ------- to provide an incentive to attract and retain employees and to increase employee morale by providing a program through which employees of the Company, and of such of the Company's subsidiaries as the Company's Board of Directors (the "Board") may from time to time designate (each a "Designated Subsidiary", and collectively, "Designated Subsidiaries"), may acquire a proprietary interest in the Company through the purchase of shares of the common stock of the Company ("Company Stock"). The Plan is hereby established by the Company to permit employees to subscribe for and purchase directly from the Company shares of the Company Stock at a discount from the market price, and to pay the purchase price in installments by payroll deductions. The Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). The provisions of the Plan are to be construed in a matter consistent with the requirements of Section 423 of the Code. The Plan is not intended to be an employee benefit plan under the Employee Retirement Income Security Act of 1974, and therefore is not required to comply with that Act. ARTICLE II DEFINITIONS ----------- 2.1 COMPENSATION. "Compensation" means the amount indicated on the Form ------------ W-2, including any elective deferrals with respect to a plan of the Company qualified under either Section 125 or Section 401(a) of the Code, issued to an employee by the Company. 2.2 EMPLOYEE. "Employee" means each person currently employed by the -------- Company or any of its Designated Subsidiaries, any portion of whose income is subject to withholding of income tax or for whom Social Security retirement contributions are made by the Company or any Designated Subsidiary. 2.3 EFFECTIVE DATE. "Effective Date" means the effective date of the -------------- Company's first Registration Statement filed with the Securities and Exchange Commission registering Company Stock. 2.4 5% OWNER. "5% Owner" means an Employee who, immediately after the -------- grant of any rights under the Plan, would own Company Stock or hold outstanding options to purchase Company Stock possessing 5% or more of the total combined voting power of all classes of stock of the Company. For purposes of this Section, the ownership attribution rules of Code Section 425(d) shall apply. 2.5 GRANT DATE. "Grant Date" means the first day of each Offering Period ---------- (January 1 and July 1) under the Plan. In the first Plan Year only, the initial Grant Date shall be the Effective Date. 2.6 PARTICIPANT. "Participant" means an Employee who has satisfied the ----------- eligibility requirements of Section 3.1 and has become a participant in the Plan in accordance with Section 3.2. 2.7 PLAN YEAR. "Plan Year" means the twelve consecutive month period --------- ending on December 31. 2.8 OFFERING PERIOD. "Offering Period" means the six-month periods from --------------- January 1 through June 30 and July 1 through December 31 of each Plan Year. However, the first Offering Period shall commence on the Effective Date and end June 30, 1996 regardless of whether such initial Offering Period is more or less than six months. 2.9 PURCHASE DATE. "Purchase Date" means the last day of each Offering ------------- Period (June 30 or December 31). ARTICLE III ELIGIBILITY AND PARTICIPATION ----------------------------- 3.1 ELIGIBILITY. Each Employee of the Company, or any Designated ----------- Subsidiary, who, on the Grant Date, is customarily engaged on a regularly- scheduled basis of more than twenty (20) hours per week for more than five (5) months per calendar year and who has been employed for at least ninety (90) days (or, for the initial Offering Period only, each Employee who is customarily engaged on a regularly-scheduled basis of more than twenty (20) hours per week for more than five (5) months per calendar year, even though such employee has not been employed for at least ninety (90) days prior to _________ __, 1998) in the rendition of personal services to the Company, or any Designated Subsidiary, may become a Participant in the Plan on the Grant Date coincident with or next following his satisfaction of such requirements of employment with the Company or any Designated Subsidiary. 3.2 PARTICIPATION. An Employee who has satisfied the eligibility ------------- requirements of Section 3.1 may become a Participant in the Plan upon his completion and delivery to the Human Resources Department of the Company of a stock purchase agreement provided by the Company (the "Stock Purchase Agreement") authorizing payroll deductions. Payroll deductions for a Participant shall commence on the Grant Date coincident with or next following the filing of the Participant's Stock Purchase Agreement and shall remain in effect until revoked by the Participant by the filing of a notice of withdrawal from the Plan under Article VIII or by the filing of a new Stock Purchase Agreement providing for a change in the Participant's payroll deduction rate under Section 5.2. 3.3 SPECIAL RULES. Under no circumstances shall: ------------- (a) A 5% Owner be granted a right to purchase Company Stock under the Plan; -2- (b) A Participant be entitled to purchase Company Stock under the Plan which, when aggregated with all other employee stock purchase plans of the Company, exceed an amount equal to the Aggregate Maximum. "Aggregate Maximum" means an amount equal to [$25,000] worth of Company Stock (determined using the fair market value of such Company Stock at each applicable Grant Date) during each Plan Year; or (c) The number of shares of Company Stock purchasable by a Participant on any Purchase Date exceed [1,000] shares, subject to periodic adjustments under Section 10.4. ARTICLE IV OFFERING PERIODS ---------------- 4.1 OFFERING PERIODS. The initial grant of the right to purchase Company ---------------- Stock under the Plan shall occur on the Effective Date and terminate on June 30, 1998. Thereafter, the Plan shall provide for Offering Periods commencing on each Grant Date and terminating on the next following Purchase Date. ARTICLE V PAYROLL DEDUCTIONS ------------------ 5.1 PARTICIPANT ELECTION. Upon the Stock Purchase Agreement, each -------------------- Participant shall designate the amount of payroll deductions to be made from his or her paycheck to purchase Company Stock under the Plan. The amount of payroll deductions shall be designated in whole percentages of Compensation, not to exceed 15%. The amount so designated upon the Stock Purchase Agreement shall be effective as of the next Grant Date and shall continue until terminated or altered in accordance with Section 5.2 below. 5.2 CHANGES IN ELECTION. A Participant may not increase the rate of ------------------- payroll deductions for an Offering Period after he or she has completed and delivered a Stock Purchase Agreement for such Offering Period. A Participant may decrease the rate of payroll deductions during any Offering Period by completing and delivering to the Human Resources Department of the Company a new Stock Purchase Agreement setting forth the desired change, provided that such decrease may be made only once during an Offering Period. A Participant may also terminate payroll deductions and have accumulated deductions for the Offering Period applied to the purchase of Company Stock as of the next Purchase Date by completing and delivering to the Human Resources Department a new Stock Purchase Agreement setting forth the desired change. A Participant may terminate participation in the Plan at any time prior to the close of an Offering Period as provided in Article VIII, in which case, the entire balance of the Participant's Account shall be returned as provided in Article VIII. Any change under this Section shall become effective on the next payroll period (to the extent practical under the Company's payroll practices) following the delivery of the new Stock Purchase Agreement. 5.3 PARTICIPANT ACCOUNTS. The Company shall establish and maintain a -------------------- separate account ("Account") for each Participant. The amount of each Participant's payroll deductions shall be credited to his Account. No interest will be paid or allowed on amounts credited to a Participant's Account. All payroll deductions received by the Company under the Plan are general corporate assets of the -3- Company and may be used by the Company for any corporate purpose. The Company is not obligated to segregate such payroll deductions. ARTICLE VI GRANT OF PURCHASE RIGHTS ------------------------ 6.1 RIGHT TO PURCHASE SHARES. On each Grant Date, each Participant shall ------------------------ be granted a right to purchase at the price determined under Section 6.2 that number of shares and partial shares of Company Stock that can be purchased or issued by the Company based upon that price with the amounts held in his Account, subject to the limit set forth in Section 3.3(c). In the event that there are amounts held in a Participant's Account that are not used to purchase Company Stock, such amounts shall remain in the Participant's Account and shall be eligible to purchase Company Stock in any subsequent Offering Period. 6.2 PURCHASE PRICE. The purchase price for any Offering Period shall be -------------- the lesser of: (a) [85%] of the Fair Market Value of Company Stock on the Grant Date; or (b) [85%] of the Fair Market Value of Company Stock on the Purchase Date. 6.3 FAIR MARKET VALUE. "Fair Market Value" means for the initial Grant ----------------- Date (which is the Effective Date), the price per share at which the Common Stock is to be sold in the initial public offering of the Common Stock. For any subsequent date thereafter, "Fair Market Value" shall mean the value of one share of Company Stock, determined as follows: (a) If the Company Stock is then listed or admitted to trading on the Nasdaq National Market System or a stock exchange which reports closing sale prices, the Fair Market Value shall be the closing sale price on the date of valuation on the Nasdaq National Market System or principal stock exchange on which the Company Stock is then listed or admitted to trading, or, if no closing sale price is quoted or no sale takes place on such day, then the Fair Market Value shall be the closing sale price of the Company Stock on the Nasdaq National Market System or such exchange on the next preceding day on which a sale occurred. (b) If the Company Stock is not then listed or admitted to trading on the Nasdaq National Market System or a stock exchange which reports closing sale prices, the Fair Market Value shall be the average of the closing bid and asked prices of the Company Stock in the over-the-counter market on the date of valuation. (c) If neither (a) nor (b) is applicable as of the date of valuation, then the Fair Market Value shall be determined by the Administrator in good faith using any reasonable method of valuation, which determination shall be conclusive and binding on all interested parties. -4- ARTICLE VII PURCHASE OF STOCK ----------------- 7.1 PURCHASE OF COMPANY STOCK. Absent an election by the Participant to ------------------------- terminate and have his or her Account returned, on each Purchase Date, the Plan shall purchase on behalf of each Participant the maximum number of whole shares of Company Stock at the purchase price determined under Section 6.2 above as can be purchased with the amounts held in each Participant's Account. In the event that there are amounts held in a Participant's Account that are not used to purchase Company Stock, all such amounts shall be held in the Participant's Account and carried forward to the next Offering Period. 7.2 DELIVERY OF COMPANY STOCK. ------------------------- (a) Company Stock acquired under the Plan may either be issued directly to Participants or may be issued to a contract administrator ("Administrator") engaged by the Company to administer the Plan under Article IX. If the Company Stock is issued in the name of the Administrator, all Company Stock so issued ("Plan Held Stock") shall be held in the name of the Administrator for the benefit of the Plan. The Administrator shall maintain accounts for the benefit of the Participants which shall reflect each Participant interest in the Plan Held Stock. Such accounts shall reflect the number of whole and partial shares of Company Stock that are being held by the Administrator for the benefit of each Participant. (b) Any Participant may elect to have the Company Stock purchased under the Plan from his or her Account be issued directly to the Participant. Any election under this paragraph shall be on the forms provided by the Company and shall be issued in accordance with paragraph (c) below. (c) In the event that Company Stock under the Plan is issued directly to a Participant, the Company will deliver to each Participant a stock certificate or certificates issued in his name for the number of shares of Company Stock purchased as soon as practicable after the Purchase Date. Where Company Stock is issued under this paragraph, only full shares of stock will be issued to a Participant. The time of issuance and delivery of shares may be postponed for such period as may be necessary to comply with the registration requirements under the Securities Act of 1933, as amended, the listing requirements of any securities exchange on which the Company Stock may then be listed, or the requirements under other laws or regulations applicable to the issuance or sale of such shares. ARTICLE VIII WITHDRAWAL ---------- 8.1 IN SERVICE WITHDRAWALS. At any time prior to the Purchase Date of an ---------------------- Offering Period, any Participant may withdraw the amounts held in his Account by executing and delivering to the Human Resources Department for the Company written notice of withdrawal on the form provided by the Company. In such a case, the entire balance of the Participant's Account shall be paid to the Participant, without interest, as soon as is practicable. Upon such notification, the Participant shall cease to participate in the Plan for the remainder of the Offering Period in which the notice is given. Any Employee who has withdrawn under this Section shall be excluded from participation in the Plan -5- for the remainder of the Offering Period, but may then be reinstated as a participant for a subsequent Offering Period by executing and delivering a new Stock Purchase Agreement to the Committee. 8.2 TERMINATION OF EMPLOYMENT. ------------------------- (a) In the event that a Participant's employment with the Company terminates for any reason, the Participant shall cease to participate in the Plan on the date of termination. As soon as is practical following the date of termination, the entire balance of the Participant's Account shall be paid to the Participant or his beneficiary, without interest. (b) A Participant may file a written designation of a beneficiary who is to receive any shares of Company Stock purchased under the Plan or any cash from the Participant's Account in the event of his or her death subsequent to a Purchase Date, but prior to delivery of such shares and cash. In addition, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participant's Account under the Plan in the event of his death prior to a Purchase Date under paragraph (a) above. (c) Any beneficiary designation under paragraph (b) above may be changed by the Participant at any time by written notice. In the event of the death of a Participant, the Committee may rely upon the most recent beneficiary designation it has on file as being the appropriate beneficiary. In the event of the death of a Participant and no valid beneficiary designation exists or the beneficiary has predeceased the Participant, the Committee shall deliver any cash or shares of Company Stock to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed to the knowledge of the Committee, the Committee, in its sole discretion, may deliver such shares of Company Stock or cash to the spouse or any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Committee, then to such other person as the Committee may designate. ARTICLE IX PLAN ADMINISTRATION ------------------- 9.1 PLAN ADMINISTRATION. ------------------- (a) Authority to control and manage the operation and administration of the Plan shall be vested in the Board or a committee ("Committee") thereof. The Board or Committee shall have all powers necessary to supervise the administration of the Plan and control its operations. (b) In addition to any powers and authority conferred on the Board or Committee elsewhere in the Plan or by law, the Board or the Committee shall have the following powers and authority: (i) To designate agents to carry out responsibilities relating to the Plan; (ii) To administer, interpret, construe and apply this Plan and to answer all questions which may arise or which may be raised under this Plan by a Participant, his beneficiary or any other person whatsoever; -6- (iii) To establish rules and procedures from time to time for the conduct of its business and for the administration and effectuation of its responsibilities under the Plan; and (iv) To perform or cause to be performed such further acts as it may deem to be necessary, appropriate, or convenient for the operation of the Plan. (c) Any action taken in good faith by the Board or Committee in the exercise of authority conferred upon it by this Plan shall be conclusive and binding upon a Participant and his beneficiaries. All discretionary powers conferred upon the Board shall be absolute. 9.2 LIMITATION ON LIABILITY. No Employee of the Company nor member of the ----------------------- Board or Committee shall be subject to any liability with respect to his duties under the Plan unless the person acts fraudulently or in bad faith. To the extent permitted by law, the Company shall indemnify each member of the Board or Committee, and any other Employee of the Company with duties under the Plan who was or is a party, or is threatened to be made a party, to any threatened, pending or completed proceeding, whether civil, criminal, administrative, or investigative, by reason of the person's conduct in the performance of his duties under the Plan. ARTICLE X COMPANY STOCK ------------- 10.1 LIMITATIONS ON PURCHASE OF SHARES. The maximum number of shares of --------------------------------- Company Stock that shall be made available for sale under the Plan shall be _________ shares, subject to adjustment under Section 10.4 below. The shares of Company Stock to be sold to Participants under the Plan will be issued by the Company. If the total number of shares of Company Stock that would otherwise be issuable pursuant to rights granted pursuant to Section 6.1 of the Plan at the Purchase Date exceeds the number of shares then available under the Plan, the Company shall make a pro rata allocation of the shares remaining available in as uniform and equitable manner as is practicable. In such event, the Company shall give written notice of such reduction of the number of shares to each participant affected thereby and any unused payroll deductions shall be returned to such participant if necessary. 10.2 VOTING COMPANY STOCK. The Participant will have no interest or voting -------------------- right in shares to be purchased under Section 6.1 of the Plan until such shares have been purchased. 10.3 REGISTRATION OF COMPANY STOCK. Shares to be delivered to a ----------------------------- Participant under the Plan will be registered in the name of the Participant unless designated otherwise by the Participant. 10.4 CHANGES IN CAPITALIZATION OF THE COMPANY. Subject to any required ---------------------------------------- action by the stockholders of the Company, the number of shares of Company Stock covered by each right under the Plan which has not yet been exercised and the number of shares of Company Stock which have been authorized for issuance under the Plan but have not yet been placed under rights or which have been returned to the Plan upon the cancellation of a right, as well as the Purchase Price per share of Company Stock covered by each right under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Company Stock resulting from a stock split, stock dividend, spin-off, reorganization, recapitalization, merger, consolidation, exchange of shares or the like. Such adjustment shall be made by the Board of Directors -7- for the Company, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Company Stock subject to any right granted hereunder. 10.5 MERGER OF COMPANY. In the event that the Company at any time proposes ----------------- to merge into, consolidate with or enter into any other reorganization pursuant to which the Company is not the surviving entity (including the sale of substantially all of its assets or a "reverse" merger in which the Company is the surviving entity), the Plan shall terminate, unless provision is made in writing in connection with such transaction for the continuance of the Plan and for the assumption of rights theretofore granted, or the substitution for such rights of new rights covering the shares of a successor corporation, with appropriate adjustments as to number and kind of shares and prices, in which event the Plan and the rights theretofore granted or the new rights substituted therefor, shall continue in the manner and under the terms so provided. If such provision is not made in such transaction for the continuance of the Plan and the assumption of rights theretofore granted or the substitution for such rights of new rights covering the shares of a successor corporation, then the Board of Directors or its committee shall cause written notice of the proposed transaction to be given to the persons holding rights not less than 10 days prior to the anticipated effective date of the proposed transaction, and, concurrent with the effective date of the proposed transaction, such rights shall be exercised automatically in accordance with Section 7.1 as if such effective date were a Purchase Date of the applicable Offering Period unless a Participant withdraws from the Plan as provided in Section 8.1. ARTICLE XI MISCELLANEOUS MATTERS --------------------- 11.1 AMENDMENT AND TERMINATION. The Plan shall terminate on December 31, ------------------------- ____. Since future conditions affecting the Company cannot be anticipated or foreseen, the Company reserves the right to amend, modify, or terminate the Plan at any time. Upon termination of the Plan, all benefits shall become payable immediately. Notwithstanding the foregoing, no such amendment or termination shall affect rights previously granted, nor may an amendment make any change in any right previously granted which adversely affects the rights of any Participant. In addition, no amendment may be made without prior approval of the stockholders of the Company if such amendment would: (a) Increase the number of shares of Company Stock that may be issued under the Plan; (b) Materially modify the requirements as to eligibility for participation in the Plan; or (c) Materially increase the benefits which accrue to Participants under the Plan. 11.2 STOCKHOLDER APPROVAL. Continuance of the Plan and the effectiveness -------------------- of any right granted hereunder shall be subject to approval by the stockholders of the Company, within twelve months before or after the date the Plan is adopted by the Board. -8- 11.3 BENEFITS NOT ALIENABLE. Benefits under the Plan may not be assigned ---------------------- or alienated, whether voluntarily or involuntarily. Any attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Article VIII. 11.4 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a voluntary --------------------------------- undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any Employee or to be consideration for, or an inducement to, or a condition of, the employment of any Employee. Nothing contained in the Plan shall be deemed to give the right to any Employee to be retained in the employ of the Company or to interfere with the right of the Company to discharge any Employee at any time. 11.5 GOVERNING LAW. To the extent not preempted by federal law, all legal ------------- questions pertaining to the Plan shall be determined in accordance with the laws of the State of Delaware. 11.6 NON-BUSINESS DAYS. When any act under the Plan is required to be ----------------- performed on a day that falls on a Saturday, Sunday or legal holiday, that act shall be performed on the next succeeding day which is not a Saturday, Sunday or legal holiday. Notwithstanding the above, Fair Market Value shall be determined in accordance with Section 6.3. 11.7 COMPLIANCE WITH SECURITIES LAWS. Notwithstanding any provision of ------------------------------- the Plan, the Committee shall administer the Plan in such a way to ensure that the Plan at all times complies with any requirements of Federal Securities Laws. For example, affiliates may be required to make irrevocable elections in accordance with the rules set forth under Section 16b-3 of the Securities Exchange Act of 1934. -9- EX-10.11 12 FORM OF INDEMNIFICATION AGREEMENT FOR OFFICERS/DIRECTOR EXHIBIT 10.11 INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT ("Agreement") is made on ________, 199_, among INTERPLAY ENTERTAINMENT CORP., a Delaware corporation (the "Company"), INTERPLAY PRODUCTIONS, a California corporation ("Interplay California") and ________________ ("Indemnitee"), an officer and/or member of the Board of Directors of the Company. WHEREAS, the Company desires the benefits of having Indemnitee serve as an officer and/or director of the Company secure in the knowledge that expenses, liability and losses incurred by him in his good faith service to the Company will be borne by the Company or its successors and assigns in accordance with applicable law; and WHEREAS, the Company desires that Indemnitee resist and defend against what Indemnitee may consider to be unjustified investigations, claims, actions, suits and proceedings which have arisen or may arise in the future as a result of Indemnitee's service to the Company notwithstanding that conditions in the insurance markets may make directors' and officers' liability insurance coverage unavailable or available only at premium levels which the Company may deem inappropriate to pay; and WHEREAS, the parties believe it appropriate to memorialize and reaffirm the Company's indemnification obligations to Indemnitee and, in addition, set forth the indemnification agreements contained herein; NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties agree as follows: 1. INDEMNIFICATION. (a) Indemnitee shall be indemnified and held harmless by the Company to the fullest extent permitted by the Company's Certificate of Incorporation, Bylaws and applicable law, as the same exists from time to time, in connection with any present or future threatened, pending or completed investigation, claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (collectively, "Indemnifiable Litigation"), (i) to which Indemnitee is or was a party or is threatened to be made a party by reason of any action or inaction in Indemnitee's capacity as a director or officer of the Company, or (ii) with respect to which Indemnitee is otherwise involved by reason of the fact that Indemnitee is or was serving as a director, officer, employee or agent of the Company, or of any subsidiary or division, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all reasonable expenses, liability and loss (including, without limitation, attorneys' fees, judgments, fines, and amounts paid or to be paid in any settlement approved in advance by the Company, such approval not to be unreasonably withheld) (collectively, "Indemnifiable Expenses") actually incurred or suffered by Indemnitee in connection with such Indemnifiable Litigation, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo ---- contendere or its equivalent, shall not, of itself, create a presumption that - ---------- Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, had no reasonable cause to that Indemnitee's conduct was unlawful. Notwithstanding the foregoing, Indemnitee shall have no right to indemnification for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities and Exchange Act of 1934, as amended. (b) Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation and By-laws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes shall be, ipso facto, within the purview of Indemnitee's ---- ----- rights and the Company's obligations under this Agreement. In the event of any change after the date of this Agreement in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder. 2. INTERIM EXPENSES. The Company agrees to pay Indemnifiable Expenses incurred by Indemnitee in connection with any Indemnifiable Litigation in advance of the final disposition thereof, provided that the Company has received an undertaking by or on behalf of Indemnitee, substantially in the form attached hereto as Exhibit A, to repay the amount so advanced to the extent that it is --------- ultimately determined that Indemnitee is not entitled to be indemnified by the Company under this Agreement or otherwise. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company. 3. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Indemnifiable Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee in accordance with this Agreement for such portion of Indemnifiable Expenses to which Indemnitee is entitled. 4. PROCEDURE FOR MAKING DEMAND. Indemnitee shall, as a condition precedent to his right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the President of the Company at the address set forth in Section 12 hereof (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. Any payment made to Indemnitee pursuant to this Agreement shall be made no later than forty-five (45) days after receipt of the written request of Indemnitee. 5. FAILURE TO INDEMNIFY. (a) If a claim made by Indemnitee under this Agreement, or any statute, or under any provision of the Company's Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within forty-five (45) days after a written request for payment thereof has been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 13 of this Agreement, if successful in whole or in part, Indemnitee shall be reimbursed by the Company for all costs and expenses (including, without limitation, attorneys' fees) of bringing such action. (b) It shall be a defense to such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standard of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim reimbursements of Indemnifiable Expenses pursuant to Section 2 hereof unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its board of directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its board of directors, any committee or subgroup of the board of directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. 6. NOTICE TO INSURERS. If, at the time of the receipt of a notice of a claim pursuant to Section 4 hereof, the Company has director and/or officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable actions to cause such insurers to pay, on behalf of the indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. 7. RETENTION OF COUNSEL. In the event that the Company shall be obligated to pay Indemnifiable Expenses as a result of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by that Indemnitee with respect to that same proceeding, provided that (i) Indemnitee shall have the right to employ his or her counsel in any such proceeding at Indemnitee's expense, and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not have employed counsel to assume defense of such proceeding within a reasonable period, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 8. SUCCESSORS. This Agreement establishes contract rights which shall be binding upon, and shall inure to the benefit of, the successors, assigns, heirs and legal representatives of the parties hereto. 9. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company may be required in the future to undertake to the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee, and, in that event, the Indemnitee's rights and the Company's obligations hereunder shall be subject to that determination. 10. CONTRACT RIGHTS NOT EXCLUSIVE. The indemnification provided by this Agreement shall not be deemed exclusive of any right to which Indemnitee may be entitled under the Company's Certificate of Incorporation or By-laws, any agreement, any vote of stockholders or disinterested directors, the Delaware General Corporation Law, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such position. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she is not serving in such capacity or in any capacity with the Company at the time of any action or other covered proceeding. 11. INDEMNIFICATION OBLIGATION. The parties hereto acknowledge that it is their intent that Interplay California will, immediately prior to the consummation of the initial public offering of the Company's common stock, be merged with and into the Company (the "Merger"). Prior to the effective date of the Merger, Interplay California hereby agrees to be jointly and severally liable for all of the Company's obligations hereunder. 12. INDEMNITEE'S OBLIGATIONS. The Indemnitee shall promptly advise the Company in writing of the institution of any investigation, claim, action, suit or proceeding which is or may be subject to this Agreement and keep the Company generally informed of, and consult with the Company with respect to, the status of any such investigation, claim, action, suit or proceeding. Notices to the Company shall be directed to Interplay Entertainment Corp., 16815 Von Karman Avenue, Irvine, California 92606, Attn: President (or other such address as the Company shall designate in writing to Indemnitee). Notice shall be deemed received, if properly addressed, (i) three days after the date postmarked if sent by certified or registered mail, or (ii) upon receipt if sent by messenger with signed receipt, or (iii) one business day after the day sent, if sent via a nationally recognized overnight delivery carrier. 13. ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be reimbursed by the Company for all court costs and expenses, including, without limitation, reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, a court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement, or to enforce or interpret any terms of this Agreement, Indemnitee shall be reimbursed by the Company for all court costs and expenses, including, without limitation, reasonable attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. 14. SEVERABILITY. Should any provision of this Agreement, or any clause hereof, be held to be invalid, illegal or unenforceable, in whole or in part, the remaining provisions and clauses of this Agreement shall remain fully enforceable and binding on the parties. 15. MODIFICATION AND WAIVER. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether of not similar) nor shall such waiver constitute a continuing waiver. 16. CHOICE OF LAW. The validity, interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Delaware. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above. INTERPLAY ENTERTAINMENT CORP., a Delaware corporation By: ________________________ Its: ________________________ INTERPLAY PRODUCTIONS, a California corporation By: ________________________ Its: ________________________ INDEMNITEE: _______________________________ (Signature) _______________________________ (Print Name) EXHIBIT A UNDERTAKING AGREEMENT This UNDERTAKING AGREEMENT is made on _______________, 19__, between INTERPLAY ENTERTAINMENT CORP., a Delaware corporation (the "Company") and __________________, a member of the board of directors or an officer of the Company ("Indemnitee"). WHEREAS, Indemnitee may become involved in investigations, claims, actions, suits or proceedings which have arisen or may arise in the future as a result of Indemnitee's service to the Company; and WHEREAS, Indemnitee desires that the Company pay any and all expenses (including, but not limited to, attorneys' fees and court costs) actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in defending or investigating any such suits or claims and that such payment be made in advance of the final disposition of such investigations, claims, actions, suits or proceedings to the extent that Indemnitee has not been previously reimbursed by insurance; and WHEREAS, the Company is willing to make such payments but, in accordance with Section 145 of the General Corporation Law of the State of Delaware, the Company may make such payments only if it receives an undertaking to repay from Indemnitee; and WHEREAS, Indemnitee is willing to give such an undertaking; NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties agree as follows: 1. In regard to any payments made by the Company to Indemnitee pursuant to the terms of the Indemnification Agreement dated __________, 19__, between the Company and Indemnitee, Indemnitee hereby undertakes and agrees to repay to the Company any and all amounts so paid promptly and in any event within thirty (30) days after the disposition, including any appeals, of any litigation or threatened litigation on account of which payments were made, but only to the extent that Indemnitee is ultimately found not entitled to be indemnified by the Company under the Company's Certificate of Incorporation or Bylaws and Section 145 of the General Corporation Law of the State of Delaware, or other applicable law. 2. This Agreement shall not affect in any manner rights which Indemnitee may have against the Company, any insurer or any other person to seek indemnification for or reimbursement of any expenses referred to herein or any judgment which may be rendered in any litigation or proceeding. IN WITNESS WHEREOF, the parties have caused this Undertaking Agreement to be executed on the date first above written. INTERPLAY ENTERTAINMENT CORP. By: _________________________ INDEMNITEE: _______________________________ (Signature) _______________________________ (Print Name) EX-10.12 13 FORM OF SUBORDINATED SECURED PROMISSORY NOTE EXHIBIT 10.12 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED; THEY HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER. INTERPLAY PRODUCTIONS SUBORDINATED SECURED PROMISSORY NOTE ------------------------------------ Certificate No. ___ October 10, 1996 Irvine, California FOR VALUE RECEIVED, INTERPLAY PRODUCTIONS, a California corporation (the "Company"), hereby promises to pay to _____________ (hereinafter referred to as the "Holder"), or registered assigns, upon the earliest to occur of (i) the consummation of an initial public offering of the Common Stock of the Company, which is effected pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission under the Securities Act of 1933, as amended, at a public offering price of at least $10.00 per share, as presently constituted (and subject to adjustment for stock splits, combinations and other corporate events), and with gross proceeds to the Company of not less than $15,000,000 (a "Qualified IPO"), (ii) the sale or conveyance of all or substantially all of the Company's assets or the merger or consolidation with any other corporation where the Company is not the surviving entity (except for a merger or consolidation effected for the sole purpose of reincorporating in a different state), or if the Company is the surviving entity, the ownership of the voting capital stock following such transaction changes by 50% or more (a "Sales Transaction"), or (iii) November 30, 1998, subject to extension at the option of the Holder for an additional one (1) year period, the principal sum of ___________________________________ Dollars ($_________) and to pay interest from the date hereof until March 13, 1997 on the whole amount of said principal at a floating rate of not less than ten percent (10%) nor more than twelve percent (12%) per annum, with such rate within such range for a particular month determined by adding five percent (5%) to the rate prevailing on the 25th day of the preceding month as established by the Federal Reserve Bank of San Francisco on advances to member banks. Beginning on March 13, 1997 and continuing thereafter the Company shall pay interest on such whole amount of said principal at a fixed rate of twelve percent (12%) per annum. For the purposes of this Note, a Qualified IPO and a Sales Transaction shall be referred to collectively as a "Qualified Event." Interest shall be payable in cash quarterly commencing on May 1, 1997 and shall be payable on the first day of each fiscal quarter thereafter (February 1, May 1, August 1 and November 1) until the outstanding principal amount has been fully redeemed. All accrued and unpaid interest shall be paid in cash upon the redemption or other payment of principal outstanding hereunder. Principal and interest shall be payable in lawful money of the United States of America by check at the principal office of Holder or at such other place Holder may designate from time to time in writing to the Company. Interest shall be computed on the basis of a 365-day year. This Note is secured by a security interest created under that certain Security Agreement of even date herewith among the Company, Holder and certain other parties (the "Security Agreement"), and Holder is entitled to all of the benefits and security of the Collateral as set forth in the Security Agreement. This Note may not be prepaid without the consent of the Holder. 1. The Subscription Agreement. This Note is issued pursuant to, and is -------------------------- entitled to the benefits and subject to the conditions of, that certain Subscription Agreement among the Company and Holder, as the same may be amended from time to time (the "Subscription Agreement"), and Holder, and its successors and assigns, by its acceptance hereof, agrees to be bound by the provisions of said Subscription Agreement. 2. Default. If any of the following expressly identified events ------- (hereafter called "Events of Default") shall occur: (a) If the Company shall default in the payment of any principal due under this Note when the same shall become due and payable at maturity or upon a Qualified Event and shall not cure such default within thirty (30) days of such default; or (b) The Company shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in effect; or an involuntarily case shall be commenced against the Company and the petition shall not be controverted within thirty (30) days, or shall not be dismissed within one hundred eighty (180) days after commencement of the case; or a custodian shall be appointed for, or shall take charge of, all or substantially all of the property of the Company, or the Company shall commence any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company, or there shall be commenced against the Company any such proceeding, or the Company shall be adjudicated insolvent or bankrupt; then, and in each and every such case, Holder may by notice in writing to the Company declare all amounts under this Note to be forthwith due and payable and thereupon the balance shall become so due and payable, without presentation, protest or further demand or notice of any kind, all of which are hereby expressly waived. Notwithstanding the foregoing, if the Company shall default in the payment of any installment(s) of interest due under this Note when the same shall be due and payable, and shall not cure such default within thirty (30) days of such default, then Holder shall have the right as its sole remedy at equity and law to bring an action to collect the interest payment then due plus any interest accrued thereon, without any right to accelerate the principal amount due hereunder. 3. Subordination. ------------- (a) General. The Company, for itself, its successors and assigns, ------- covenants and agrees, and Holder and successor holder of this Note by his or its acceptance hereof likewise covenants and agrees, that the payment of the principal amount of and interest on 2 this Note and all other amounts arising under or in connection with the Subscription Agreement shall be subordinated in right of payment and otherwise, to the extent and in the manner hereinafter set forth, to the prior payment in full of all Senior Debt (as hereinafter defined) at any time outstanding. The provisions of this Section 3 shall constitute a continuing representation to all persons who, in reliance upon such provisions, become the holders of or continue to hold Senior Debt, and such provisions are made for the benefit of the holders of Senior Debt, and such holders are hereby made obligees hereunder the same as if their names were written herein as such, and they or any of them may proceed to enforce such provisions against the Company or against the holder of any Note or any other person entitled to amounts hereunder without the necessity of joining the Company as a party. (b) Prior Payment of Senior Debt Upon Insolvency, Etc. In the event ------------------------------------------------- of any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings relative to the Company or to its property, or in the event of any proceedings for voluntary liquidation, dissolution or other winding up of the Company or any assignment for the benefit of creditors of the Company or any distribution or marshalling of its assets or any compromise with creditors of the Company, whether or not involving insolvency or bankruptcy, then and in any such event all Senior Debt shall be paid in full before any payment or distribution of any character, whether in cash, securities or other property, shall be made on account of this Note or any other amounts arising under or in connection with the Subscription Agreement. (c) No Payment on Note for Benefit of All Holders of Senior Debt. No ------------------------------------------------------------ direct or indirect payment shall be made by or on behalf of the Company of principal of, interest on, or other amounts arising under or in connection with this Note or the Subscription Agreement if, at the time of such payment: (i) there exists a default in the payment of all or any portion of principal of or interest on any Senior Debt or a default under any agreements or documents entered into in regard to Senior Debt; and (ii) such default shall not have been cured or waived, or the benefits of this sentence waived, by or on behalf of the holders of such Senior Debt. (d) In Furtherance of Subordination. Holder and each successor holder ------------------------------- of this Note agrees as follows: (i) Upon any distribution of all or any of the assets of the Company to creditors of the Company in the event of any insolvency or bankruptcy proceedings or any receivership, liquidation, reorganization, or other similar proceedings relative to the Company or to its property, or in the event of any proceeding for voluntary liquidation, dissolution or other winding up of the Company, or any assignment for the benefit of creditors of the Company or any distribution or marshalling of its assets or any compromise with creditors of the Company, whether or not involving insolvency or bankruptcy, any payment or distribution of any kind (whether in cash, property or securities) which otherwise would be payable or deliverable upon or with respect to this 3 Note or the Subscription Agreement shall be paid or delivered directly to the holders of Senior Debt for application (in case of cash) to or as collateral (in the case of non-cash property or securities) for the payment or prepayment of the Senior Debt until the Senior Debt shall have been paid in full. (ii) If any proceeding referred to in subsection (i) above is commenced by or against the Company, the Holder of this Note and other persons entitled to amounts under or in connection with the Subscription Agreement shall duly and promptly take such action as such trustee(s) or representative(s) may request to collect and receive any and all payments or distributions which may be payable or deliverable upon or with respect to this Note or other amounts owing under or in connection with the Subscription Agreement. (iii) All payments or distributions upon or with respect to this Note and other amounts owing under or in connection with the Subscription Agreement which are received by the holders of this Note or persons entitled to other amounts under or in connection with the Subscription Agreement contrary to the subordination provisions of the Subscription Agreement shall be received in trust for the benefit of the holders of the Senior Debt entitled thereto, shall be segregated from other funds and property held by the holders of this Note and other persons entitled to amounts under or in connection with the Subscription Agreement and shall be forthwith paid over to the holders of the Senior Debt entitled thereto in the same form as so received (with any necessary endorsement) to be applied (in the case of cash) to or held as collateral (in the case of non-cash property or securities) for the payment or prepayment of the Senior Debt in accordance with the terms of any agreements governing the Senior Debt. (iv) The trustee(s) or representative(s) of the holders of a majority of the aggregate principal amount of all Senior Debt are hereby authorized to demand specific performance of the subordination provisions set forth in Section 3 of this Note, whether or not the Company shall have complied with any of the provisions hereof applicable to it, at any time, and the holders of this Note or any other persons entitled to amounts under or in connection with the Subscription Agreement hereby irrevocably waive any defense based on the adequate remedy at law which might be asserted as a bar to such remedy of specific performance, it being understood that such waiver by the holders of this Note and such other persons of any defense based on the adequacy of a remedy at law shall not be deemed to be a waiver by them of any other defense available to them at law or in equity with respect to such remedy of specific performance or otherwise. (v) The holders of this Note and other persons entitled to amounts under or in connection with the Subscription Agreement hereby acknowledge and confirm, and agree not to contest, that the Senior Debt, and any guarantees thereof by any subsidiary of the Company, constitutes the legal, valid, binding and enforceable obligations of the Company and such subsidiaries, are not subject to claims of fraudulent transfer or conveyance, equitable subordination or any similar defense or limitation, and are secured or are to be secured by security interests in various assets of the Company and such 4 subsidiaries, which security interests in favor of the holders of the Senior Debt (or collateral agents acting on their behalf) are legal, valid, enforceable and perfected to the extent contemplated by any related agreements. (vi) The subordination provisions of this Note shall continue in effect and be reinstated if at any time payment or performance of the Senior Debt is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any holder of the Senior Debt, whether as avoidable preference, fraudulent conveyance or otherwise, all as if such payment or performance had not been made. (e) Scope of Section. The provisions of this Section 3 are intended ---------------- solely for the purpose of defining the relative rights of the holders of this Note, on the one hand, and the holders of Senior Debt, on the other hand. Nothing contained in this Section 3 or elsewhere in the Subscription Agreement or this Note is intended to or shall impair, as between the Company, its creditors, other than the holders of Senior Debt, and the holders of this Note, the obligation of the Company, which is unconditional and absolute, to pay to the holders of this Note the principal of and interest on this Note as and when the same shall become due and payable in accordance with the terms hereof, or to affect the relative rights of the holders of this Note and creditors of the Company other than the holders of the Senior Debt. (f) Certain Definitions. The term "Senior Debt" shall mean (i) all ------------------- indebtedness, obligations and liabilities whether now existing or arising or created from time to time hereafter (including interest as provided in the agreement governing such Senior Debt accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company, whether or not a claim for post-filing interest is allowed in such proceeding), whether short-term or long-term, whether secured or unsecured, and whether or not contingent (including all indebtedness evidenced by notes, bonds, debentures or other securities sold by the Company for money) ("Indebtedness") under or in respect of any contracts, agreements, instruments or any other arrangement of any kind or character with any bank, insurance company, pension fund, savings and loan, equipment lessor or other financial or institutional lender, or (ii) guarantees by the Company of Indebtedness for borrowed money of any bank, insurance company, pension fund, savings and loan institution, equipment lessors or other financial or institutional lender, unless in any such case, by the terms of the instrument creating, governing or evidencing such Indebtedness, it is provided that such Indebtedness is not senior or superior in right of payment to this Note. (g) Proof of Subordination; Further Assurances. Holder and any ------------------------------------------ successor or assign of the Holder agrees that it will execute and deliver any agreements and other documents evidencing the subordination of this Note to Senior Debt that may be requested by the Company or the holders of Senior Debt. 4. Transfer. This Note shall not be transferable or assignable except to -------- an Affiliate (as defined herein) of Holder without the prior written consent of the Company. In addition, this Note may only be assigned in its entirety and may not be assigned separately from that certain Warrant to purchase shares of Common Stock of the Company of even date herewith issued to Holder. For purposes of this Note, "Affiliate" shall mean any wholly-owned subsidiary 5 or parent of, or any corporation, entity or other person which is, within the meaning of the Securities Act of 1933, as amended, controlling, controlled by or under common control with, Holder. Subject to the restrictions and limitations set forth above, upon surrender of this Note for transfer or exchange, a new Note or new Notes of the same tenor, dated the date to which interest has been paid on the surrendered Note and in an aggregate principal amount equal to the unpaid principal amount of the Note so surrendered, will be issued to and registered in the name of the transferee or transferees. The Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payments and for all other purposes. 5. Note Register. This Note is transferable only upon the books of ------------- the Company which it shall cause to be maintained for such purpose. The Company may treat the registered holder of this Note as he, she or it appears on the Company's books at any time as the Holder for all purposes. 6. Loss, Etc., of Note. Upon receipt of evidence satisfactory to the ------------------- Company of the loss, theft, destruction or mutilation of this Note, and of indemnity reasonably satisfactory to the Company if lost, stolen or destroyed, and upon surrender and cancellation of this Note if mutilated, and upon reimbursement of the Company's reasonable incidental expenses, the Company shall execute and deliver to Holder a new Note of like date, tenor and denomination. 7. Governing Law. This Note shall be governed by and construed in ------------- accordance with the laws of the State of California. 8. Notices. All notices and other communications required or ------- permitted hereunder shall be in writing and shall be delivered personally, mailed by first class mail, postage prepaid, or delivered by Federal Express overnight delivery, at the respective addresses of the parties as set forth in the Subscription Agreement, or at such other address as the parties shall have furnished to the other parties in writing. Notices that are mailed shall be deemed received three (3) days after deposit in the United States mail or one (1) day after deposit with Federal Express for overnight delivery. The Company hereby waives presentment, demand, notice of nonpayment, protest and all other demands and notices in connection with the delivery, acceptance, performance or enforcement of this Note. INTERPLAY PRODUCTIONS By _______________________________________________ Christopher J. Kilpatrick, President 6 EX-10.13 14 FORM OF WARRANT TO PURCHASE COMMON STOCK EXHIBIT 10.13 FORM OF WARRANT CERTIFICATE THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED; THEY HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER. INTERPLAY PRODUCTIONS WARRANT CERTIFICATE ------------------- Warrant Certificate No. ____ October __, 1996 THIS WARRANT CERTIFICATE (the "Warrant Certificate"), certifies that, for value received, ______________ ("Holder") is entitled, subject to the terms and conditions set forth below, to subscribe for and purchase from Interplay Productions, a California corporation (the "Company") that number of shares of fully paid and non-assessable shares of Common Stock of the Company equal to the quotient determined by dividing the Base Amount (as defined below) by the Exercise Price (as defined below), rounded to the nearest whole number of shares (the "Warrants). 1. EXERCISE PRICE. The "Base Amount" applicable to this Warrant Certificate shall be $__________. The "Exercise Price" per share of Common Stock covered by the Warrant shall be the product of .70 multiplied by either of the following amounts, as applicable: (i) in the event of an initial public offering by the Company of the Company's Common Stock at an offering price of at least $10.00 per share (subject to adjustment for stock splits, stock dividends and other corporate events), with aggregate gross proceeds to the Company of at least $15,000,000 (a "Qualified IPO"), the initial public offering price of Common Stock; or (ii) in the event of a sale or conveyance of all or substantially all of the Company's assets or the merger or consolidation with any other corporation where the Company is not the surviving entity (except a merger or consolidation effected for the sole purpose of reincorporating in a different state) or, if the Company is the surviving entity, the ownership of the voting capital stock of the Company following such transaction changes by 50% or more (a "Sales Transaction"), the fair market value per share of the Company's Common Stock as established in such Sales Transaction or, if not so established, as determined in good faith by the Board of Directors. For the purposes of this Warrant Certificate, a Qualified IPO and a Sales Transaction shall be referred to collectively as a "Qualified Event." 2. TERM OF WARRANT. This Warrant may not be exercised unless and until the closing of a Qualified Event. The Holder of the Warrant shall not have any of the rights of a shareholder with respect to the shares covered by the Warrant as to any shares of Common Stock not actually issued and delivered to it. Unless exercised in conjunction with the closing of a Qualified Event, this Warrant shall terminate, and all rights to purchase shares of Common Stock hereunder shall cease, immediately following (i) the closing of a Qualified Event or (ii) upon repayment of that certain Subordinated Secured Promissory Note issued by the Company to Holder in connection with that certain Subscription Agreement between the Company and the Holder, whichever is earlier. 3. TRANSFERABILITY. The Warrant shall not be transferable or assignable except to an Affiliate (as defined herein) of Holder without the prior written consent of the Company. In addition, this Warrant may only be assigned in its entirety and may not be assigned separately from that certain Subordinated Secured Promissory Note of even date herewith issued to Holder. Holder may transfer or assign the shares of Common Stock issuable upon exercise of the Warrant; provided, however, that (i) a registration statement with respect thereto has become effective under the Securities Act of 1933, as amended (the "Securities Act"); or (ii) in the opinion of counsel to Holder such registration is not necessary; or (iii) such transfer complies with the provisions of Rule 144 under the Securities Act. The legend imprinted on the certificates pursuant to Paragraph 8 shall be removed, and the Company shall issue a new certificate without such legend to Holder of such security if such security is registered under the Securities Act or, in the opinion of counsel to Holder, such legend is no longer required under the Securities Act or the conditions for a permissible sale or transfer under Rule 144(k) under the Securities Act have been complied with. For purposes of this Warrant Certificate, "Affiliate" shall mean any wholly-owned subsidiary or parent of, or any corporation, entity or other person which is, within the meaning of the Securities Act, controlling, controlled by or under common control with, Holder. 4. ADJUSTMENTS FOR CONSOLIDATIONS, ETC. If the Company shall reorganize or consolidate or merge with or into any other corporation in a transaction which does not constitute a Sales Transaction, then each share of Common Stock shall be convertible into the consideration to which the shares of Common Stock subject to this Warrant Certificate would have been entitled to receive upon the effectiveness of such reorganization, merger or consolidation. Adjustments under this paragraph shall be made by the Board of Directors in its reasonable, good faith judgment, whose determination with respect thereto shall be final and conclusive. No fractional shares shall be issued under this Warrant Certificate or upon any such adjustment. 5. METHOD OF EXERCISING WARRANT. The Company shall provide written notice (a "Notice of Qualified Event") to Holder of a Qualified Event prior to the consummation of such Qualified Event. Such Notice of Qualified Event shall include, in each case if available, the range of the proposed initial public offering price in the case of a Qualified IPO or, in the case of a Sales Transaction, the price established as the fair market value of the shares of the Company's Common Stock in such Sales Transaction, if so established, or, if not established, the fair market value determined by the Company's Board of Directors. Holder expressly acknowledges that the information provided in the Notice of Qualified Event represents the Company's best estimate of same and shall be subject to change or adjustment, as appropriate. Holder shall within ten (10) days of the date stated in the Notice of Qualified Event, make an irrevocable election by delivery of written notice to the Company (an "Election Notice") to either (i) exercise the Warrant for all or a portion of the shares of Common Stock issuable hereunder, or (ii) to forego Holder's right to exercise this Warrant as to all shares issuable hereunder; provided, however, that in the event a Qualified Event is not consummated within one hundred twenty (120) days from the date of such Election Notice the Holder's election thereunder shall become revocable in its discretion. If the Warrant is being exercised for only a portion of the shares issuable hereunder, then the Election Notice must also state the number of shares for which the Warrant is being exercised. If the Holder delivers an Election Notice stating its election to exercise this Warrant, but fails to specify the 2 number of shares it is electing to purchase, it shall be conclusively presumed that the Holder has irrevocably elected to purchase all of the shares issuable under this Warrant. The Holder shall pay the purchase price of the exercise of this Warrant by offsetting existing indebtedness owed by the Company to Holder against the purchase price therefor and then, to the extent existing indebtedness is insufficient to pay the full purchase price, by delivery in cash, check or bank draft, payable to the Company, an amount equal to the balance of the purchase price. Holder must deliver to the Company the Election Notice together with the original Warrant, the original Subordinated Secured Promissory Note for cancellation, the signed warrant subscription agreement in the form attached hereto as Annex I and cash, a check or bank draft payable to the Company for any portion of the purchase price not covered by the cancellation of indebtedness within the ten (10) day period for the election to be valid. In the event Holder fails to validly make its election as required hereunder, then the Holder shall be conclusively presumed to have irrevocably elected to forego its right to exercise this Warrant. 6. REGISTRATION RIGHTS. The Holder hereunder has been made a party to that certain Investors' Rights Agreement dated of even date herewith (the "Investors' Rights Agreement"). The shares of Common Stock issuable upon exercise of the Warrant are included as "Registrable Securities" under the Investors' Rights Agreement (as that term is defined in the Investors' Rights Agreement) with all registration rights pertaining to such Registrable Securities. 7. GENERAL. The Company shall at all times during the term of the Warrant reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Warrant Certificate, shall pay all original issue and transfer taxes with respect to the issue and transfer of shares pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection therewith, and will from time to time use its best efforts to comply with all laws and regulations, which, in the opinion of counsel for the Company, shall be applicable thereto. 8. LEGENDS. It is understood that the certificates evidencing the Common Stock purchased upon exercise of this Warrant may bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED; THEY HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER." 9. NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be delivered personally, mailed by first class mail, postage prepaid, or delivered by Federal Express overnight delivery, at the respective addresses of the parties as set forth in that certain Subscription Agreement between the parties, or at such other address as the parties shall have furnished to each other in writing. Notices that are mailed shall be deemed received three (3) days after deposit in the United States mail or one (1) day after deposit with Federal Express for overnight delivery. 3 IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed by its officers thereunto duly authorized, all as of the day and year first above written. INTERPLAY PRODUCTIONS By: _______________________________ Its: _______________________________ 4 ANNEX I TO WARRANT CERTIFICATE SUBSCRIPTION AGREEMENT The undersigned holder of the Warrant Certificate to which this Subscription Agreement is attached as Annex I hereby irrevocably subscribes for ___________ shares of Common Stock which the undersigned is entitled to purchase pursuant to the terms of such Warrant Certificate. Payment of the purchase price for the Warrant is being made concurrently herewith. I hereby certify that all of the shares of Common Stock, no par value, of INTERPLAY PRODUCTIONS, purchased by the undersigned pursuant to the exercise on this date of the Warrant granted to the undersigned by the Warrant Certificate are being acquired by the undersigned for investment and not with a view to the distribution thereof. Date:_____________________ ________________________________________ Signature ________________________________________ Type or Print Name ________________________________________ Street Address ________________________________________ City State Zip Code EX-10.14 15 VON KARMAN CORPORATE CENTER OFFICE BLDG. LEASE EXHIBIT 10.14 VON KARMAN CORPORATE CENTER --------------------------- OFFICE BUILDING LEASE --------------------- BETWEEN AETNA LIFE INSURANCE COMPANY OF ILLINOIS (LANDLORD) AND INTERPLAY PRODUCTIONS (TENANT) TABLE OF CONTENTS -----------------
PAGE ---- 1. BASIC LEASE TERMS....................................................... 1 2. PREMISES AND COMMON AREAS; EXPANSION SPACE; TEMPORARY SPACE......................................................... 2 3. TERM; EXTENSION OPTIONS................................................. 5 4. POSSESSION.............................................................. 9 5. RENT.................................................................... 9 6. OPERATING EXPENSES...................................................... 10 7. SECURITY DEPOSIT........................................................ 12 8. USE..................................................................... 12 9. NOTICES................................................................. 15 10. BROKERS................................................................. 15 11. SURRENDER; HOLDING OVER................................................. 15 12. TAXES ON TENANT'S PROPERTY.............................................. 16 13. ALTERATIONS............................................................. 16 14. REPAIRS................................................................. 18 15. LIENS................................................................... 19 16. ENTRY BY LANDLORD....................................................... 19 17. UTILITIES AND SERVICES.................................................. 19 18. ASSUMPTION OF RISK AND INDEMNIFICATION.................................. 20 19. INSURANCE............................................................... 21 20. DAMAGE OR DESTRUCTION................................................... 23 21. EMINENT DOMAIN.......................................................... 24 22. DEFAULTS AND REMEDIES................................................... 25 23. LANDLORD'S DEFAULT...................................................... 28 24. ASSIGNMENT AND SUBLETTING............................................... 28 25. SUBORDINATION........................................................... 30 26. ESTOPPEL CERTIFICATES................................................... 31 27. BUILDING PLANNING....................................................... 28 28. RULES AND REGULATIONS................................................... 31 29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS....... 32 30. DEFINITION OF LANDLORD.................................................. 32 31. WAIVER.................................................................. 32 32. PARKING................................................................. 32 33. FORCE MAJEURE........................................................... 34 34. SIGNS................................................................... 34 35. LIMITATION ON LIABILITY................................................. 34 36. FINANCIAL STATEMENTS.................................................... 34 37. QUIET ENJOYMENT......................................................... 35 38. MISCELLANEOUS........................................................... 35 39. EXECUTION OF LEASE...................................................... 36
EXHIBITS - -------- EXHIBIT "A-I" (SITE PLAN) - ------------- EXHIBIT "A-II" (OUTLINE OF FLOOR PLAN OF PREMISES) - -------------- EXHIBIT "B" (RENTABLE SQUARE FEET AND USABLE SQUARE FEET) - ----------- EXHIBIT "C" (WORK LETTER AGREEMENT) - ----------- EXHIBIT "D" (NOTICE OF LEASE TERM DATES AND TENANT'S PERCENTAGE) - ----------- EXHIBIT "E" (DEFINITION OF OPERATING EXPENSES) - ----------- EXHIBIT "F" (STANDARDS FOR UTILITIES AND SERVICES) - ----------- EXHIBIT "G" (ESTOPPEL CERTIFICATE) - ----------- EXHIBIT "H" (RULES AND REGULATIONS) - ----------- EXHIBIT "I" (TEMPORARY SPACE) - ----------- EXHIBIT "J" (INITIAL ADDITIONAL PARKING) - ----------- i VON KARMAN CORPORATE CENTER OFFICE BUILDING LEASE This VON KARMAN CORPORATE CENTER OFFICE BUILDING LEASE ("Lease") is entered into as of the 8th day of September, 1995 by and between AETNA LIFE INSURANCE COMPANY OF ILLINOIS, an Illinois corporation ("Landlord"), and INTERPLAY PRODUCTIONS, a California corporation ("Tenant"). 1. BASIC LEASE TERMS. For purposes of this Lease, the following terms have the following definitions and meanings: (a) Landlord: AETNA LIFE INSURANCE COMPANY OF ILLINOIS, an Illinois corporation. (b) Landlord's Address For Notices: Koll Management Services 4350 Von Karman Avenue, Suite 100 Newport Beach, California 92660 Attention: Von Karman Corporate Center Manager or such other place as Landlord may from time to time designate by notice to Tenant. (c) Tenant: INTERPLAY PRODUCTIONS, a California corporation. (d) Tenant's Address For Notices: Prior to the Commencement Date: Interplay Productions 17922 Fitch Avenue Irvine, California 92714 Attention: Mr. Troy Worrell After the Commencement Date: To the Premises, Attention: Mr. Troy Worrell (e) Development: The parcel(s) of real property commonly known as VON KARMAN CORPORATE CENTER located in the City of Irvine (the "City"), County of Orange (the "County"), State of California (the "State"), as shown on the site plan attached hereto as Exhibit "A-I". ------------- (f) Buildings: The two (2) story office buildings located within the Development with the street addresses of 16815 Von Karman Avenue and 16795 Von Karman Avenue in Irvine, California. As used in this Lease, the term "Buildings" shall include: (i) said buildings; (ii) any other buildings in the Development in which Tenant leases space under or pursuant to this Lease; and (iii) the building located at 2121 Alton (i.e., the building in ---- which the Temporary Space described in Subparagraph 2(f) is located). (g) Premises: All of the building located at 16815 Von Karman Avenue in Irvine, California and the second floor of the building located at 16795 Von Karman Avenue in Irvine, California. The Premises contain approximately 77,869 Rentable Square Feet and 71,945 Usable Square Feet (subject to adjustment as provided in Exhibit "B" and Exhibit "D"). ----------- ----------- (h) Tenant's Percentage: Tenant's percentage of the Development on a Rentable Square Foot basis, which initially is 17.1367%, subject to adjustment as provided in Exhibit "B" and Exhibit "D" and in Subparagraphs 2(e), 2(f) and ----------- ----------- 3(b). (i) Term: Five Years and two (2) months (subject to extension in accordance with Subparagraph 3(b) or Subparagraph 3(c)). -1- (j) Estimated Commencement Date: To be determined by Landlord and Tenant in good faith within ten (10) business days after execution of this Lease. (k) Commencement Date: The date on which the Term of this Lease will commence as determined in accordance with the provisions of Exhibit "C" and as ---------- stated on Exhibit "D". ----------- (l) Initial Monthly Base Rent: $77,869.00, subject to adjustment as provided in Subparagraph 1(m) below and as otherwise provided in this Lease. (m) Adjustment to Monthly Base Rent: Monthly Base Rent will be adjusted in accordance with the following:
MONTHLY LEASE MONTHS MONTHLY BASE RENT RATE PER RSF 1-2 $0 $0 3-30 $ 77,869.00 $1.00 31-end of the Term $101,229.70 $1.30
(n) Operating Expense Base Year: As used in this Lease, the term "Base Year" shall mean the 1996 calendar year. (o) Security Deposit: None. (p) Tenant Improvements: All tenant improvements installed or to be installed by Landlord within the Premises to prepare the Premises for occupancy pursuant to the terms of the Work Letter Agreement attached hereto as Exhibit "C". ----------- (q) Tenant Improvement Allowance: $18.75 per Usable Square Foot of the Premises, to be applied as provided in the Work Letter Agreement attached hereto as Exhibit "C". ----------- (r) Permitted Use: General office uses, the assembly and manufacture of computer software, and research and development activities for computer software, and no other uses without the express written consent of Landlord, which consent Landlord may withhold in its sole and absolute discretion. (s) Parking: 311 unreserved parking spaces, subject to the terms and conditions of Paragraph 32 below and the Rules and Regulations regarding parking contained in Exhibit "H". ----------- (t) Broker(s): Cushman & Wakefield; Lee & Associates. (u) Guarantor(s): None. (v) Interest Rate: shall mean the greater of ten percent (10%) per annum or two percent (2%) in excess of the prime lending or reference rate of Wells Fargo Bank N.A. or any successor bank in effect on the twenty-fifth (25th) day of the calendar month immediately prior to the event giving rise to the Interest Rate imposition; provided, however, the Interest Rate will in no event exceed the maximum interest rate permitted to be charged by applicable law. (w) Exhibits: "A" through "J," inclusive, which Exhibits are attached to this Lease and incorporated herein by this reference. As provided in Paragraph 3 below, a completed version of Exhibit "D" will be delivered to Tenant after ----------- Landlord delivers possession of the Premises to Tenant. This Paragraph 1 represents a summary of the basic terms and definitions of this Lease. In the event of any inconsistency between the terms contained in this Paragraph 1 and any specific provision of this Lease, the terms of the more specific provision shall prevail. -2- 2. PREMISES AND COMMON AREAS; EXPANSION RIGHTS; TEMPORARY SPACE. (a) Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises as improved or to be improved with the Tenant Improvements described in the Work Letter Agreement, a copy of which is attached hereto as Exhibit "C". ----------- (b) Mutual Covenants. Landlord and Tenant agree that the letting and hiring of the Premises is upon and subject to the terms, covenants and conditions contained in this Lease and each party covenants as a material part of the consideration for this Lease to keep and perform their respective obligations under this Lease. (c) Tenant's Use of Common Areas. During the Term of this Lease, Tenant shall have the nonexclusive right to use in common with Landlord and all persons, firms and corporations conducting business in the Development and their respective customers, guests, licensees, invitees, subtenants, employees and agents (collectively, "Development Occupants"), subject to the terms of this Lease, the Rules and Regulations referenced in Paragraph 32 below and all covenants, conditions and restrictions now or hereafter affecting the Development, the following common areas of the Buildings and/or the Development (collectively, the "Common Areas"): (i) The Buildings' common entrances, hallways, lobbies, public restrooms on multi-tenant floors, elevators, stairways and accessways, loading docks, ramps, drives and platforms and any passageways and serviceways thereto, and the common pipes, conduits, wires and appurtenant equipment within the Buildings which serve the Premises (collectively, "Building Common Areas"); and (ii) The parking facilities of the Development which serve the Buildings (subject to the provisions of Exhibit "H"), loading and unloading ----------- areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, plaza areas, fountains and similar areas and facilities situated within the Development and appurtenant to the Buildings which are not reserved for the exclusive use of any Development Occupants (collectively, "Development Common Areas"). (d) Landlord's Reservation of Rights. Provided Tenant's use of and access to the Premises and parking to be provided to Tenant under this Lease is not interfered with in an unreasonable manner, Landlord reserves for itself and for all other owner(s) and operator(s) of the Development Common Areas and the balance of the Development, the right from time to time to: (i) install, use, maintain, repair, replace and relocate pipes, ducts, conduits, wires and appurtenant meters and equipment above the ceiling surfaces, below the floor surfaces, within the walls and in the central core areas of the Buildings; (ii) make changes to the design and layout of the Development, including, without limitation, changes to buildings, driveways, entrances, loading and unloading areas, direction of traffic, landscaped areas and walkways, and, subject to the parking provisions contained in Paragraph 32 and Exhibit "H", parking spaces and parking ----------- areas; and (iii) use or close temporarily the Building Common Areas, the Development Common Areas and/or other portions of the Development while engaged in making improvements, repairs or alterations to the Buildings, the Development, or any portion thereof. (e) Tenant's Expansion Rights. The rights described in this Subparagraph 2(e) are personal to Tenant and may only be exercised by and for the benefit of Tenant and may not be assigned or otherwise transferred to, or exercised directly or indirectly by or for the benefit of any person or entity other than Tenant. Within fifteen (15) days after the end of each calendar quarter during the Term of this Lease (i.e., between January 1 and January 15, March 1 and March 15, July 1 and July 15, and October 1 and October 15 of each calendar year during the Term of this Lease), Landlord shall notify Tenant (and, unless otherwise directed by Tenant, Tenant's Broker, as hereinafter defined) of any space which is available for lease from Landlord in the buildings located at 16845 Von Karman Avenue (Building 3), 16795 Von Karman Avenue (Building 5) or 16775 Von Karman Avenue (Building 6). Additionally, in the event that Landlord receives a proposal from any existing tenant of the Development or any other person or entity to lease available space in the Development or if Landlord intends to deliver to any existing tenant of the Development or any other person or entity a proposal to lease such available space to such tenant, person or entity (and in the case of a proposal to or from an existing tenant of the Development, Landlord is not obligated to first offer such space, or lease such space, to such tenant, or negotiate to lease such space to such tenant, pursuant to a lease existing as of the date of this Lease), then Landlord shall notify Tenant (and, unless otherwise -3- directed by Tenant, Tenant's Broker, as hereinafter defined) that such space is available for lease from Landlord. Landlord's notices to Tenant described in the preceding two sentences are hereinafter referred to as the "Expansion Space Notices" and the space available for lease from Landlord described in said Expansion Space Notices is hereinafter referred to as "Expansion Space." Expansion Space Notices shall be delivered to Tenant and shall also be delivered to Lee & Associates ("Tenant's Broker") in accordance with Paragraph 9 of this Lease and the notice to Tenant's Broker shall be addressed as follows: Lee & Associates 3991 MacArthur Boulevard, Suite 100 Newport Beach, California 92660 Attention: Richard Silva and Lauralee Blanchard Within five (5) business days after Landlord gives any Expansion Space Notice to Tenant, Tenant shall notify Landlord in writing whether it accepts the Expansion Space described therein or declines to accept such Expansion Space, and Tenant's failure to timely respond in writing or an ambiguous response by Tenant shall constitute Tenant's election to decline such Expansion Space. If Tenant elects (or is deemed to have elected) to decline any Expansion Space, then Landlord may lease the applicable Expansion Space to any person or entity on any terms. If Tenant timely agrees to accept the Expansion Space, then provided Tenant is not then in default under this Lease and shall not have exercised its Termination Option (described in Subparagraph 3(b)(iii) below), the Expansion Space shall immediately become part of the Premises and shall be subject to all of the terms and conditions set forth in this Lease except that: (i) Tenant shall not be obligated to pay Monthly Base Rent for any Expansion Space for which Landlord is obligated to provide an Expansion Space Improvement Allowance until the earlier of Tenant's occupancy of the applicable Expansion Space, or the date of the Monday after the date on which the applicable tenant improvements are substantially completed, as such Monday date is accelerated by Tenant Delays, as defined in Exhibit "C", (or if the ----------- date of substantial completion is a Saturday or Sunday, then the date of the second Monday after such date, as such second Monday date is accelerated by Tenant Delays); (ii) Tenant shall pay Monthly Base Rent for any Expansion Space at the same rates as applicable to the remainder of the Premises from time to time; (iii) Tenant's Percentage shall be increased to reflect the addition of the applicable Expansion Space to the Premises; and (iv) Landlord shall not be obligated to provide a tenant improvement allowance for any Expansion Space except as hereinafter provided. If Tenant leases any Expansion Space prior to the second anniversary of the Commencement Date and Tenant shall not have exercised Tenant's First Year Extension Option as of the date Tenant leases such Expansion Space, then Landlord shall provide Tenant with a tenant improvement allowance for the applicable Expansion Space (an "Expansion Space Improvement Allowance") in an amount per usable square foot of the applicable Expansion Space equal to: (x) $18.75 if the Expansion Space is leased to Tenant during the first six months of the Term; (y) $13.67 if the applicable Expansion Space is leased to Tenant during the second six months of the Term; and (z) $5.00 if the applicable Expansion Space is leased to Tenant during the second year of the Term. Landlord shall not be obligated to provide any tenant improvement allowance for Expansion Space leased by Tenant after the second anniversary of the Commencement Date unless Tenant shall have exercised its First Year Extension Option as of the date the applicable Expansion Space is leased by Tenant. If Tenant leases Expansion Space after Tenant shall have exercised Tenant's First Year Extension Option, then Landlord shall provide a tenant improvement allowance for the applicable Expansion Space equal to: (a) the number of usable square feet in the applicable Expansion Space multiplied by (b) the portion of the sum of $18.75 remaining unamortized as of the date which is ninety (90) days after the applicable Expansion Space is leased by Tenant (calculated by amortizing the sum of $18.75 on a straight line basis over the term of this Lease, as extended). If Tenant leases any Expansion Space and Landlord is obligated under this Subparagraph 2(e) to provide an Expansion Space Improvement Allowance for the applicable Expansion Space, then Landlord and Tenant shall promptly enter into a Work Letter Agreement in substantially the form attached hereto as Exhibit "C" for the improvements to be constructed by Landlord in ----------- the applicable Expansion Space. (f) Temporary Space. Upon Tenant's execution of this Lease, Landlord shall allow Tenant to occupy the premises outlined on Exhibit "I" on the second ----------- floor of the building located at 2121 Alton Avenue (the "Temporary Space") until the Commencement Date. All of the terms and conditions of this Lease (including, without limitation, terms relating to insurance, indemnification and after-hours utility charges) shall apply to Tenant's occupancy of the Temporary Space except that (i) Tenant shall not be obligated to pay any Monthly Base Rent for -4- or in connection with Tenant's occupancy of the Temporary Space; (ii) during Tenant's occupancy of any portion of the Temporary Space, Tenant shall pay on an estimated basis (subject to reconciliation after the Commencement Date) on the first date of each calendar month, without deduction or offset, Tenant's Temporary Space Percentage (hereinafter defined) of all Operating Taxes and Real Property Taxes and Assessments (as defined in Exhibit "E" for the Development, and without deduction of any ----------- expenses or taxes incurred in a "Base Year") from time to time within ten (10) business days after being billed by Landlord therefor; (iii) Landlord shall not be obligated to provide any allowance for or make any improvements to the Temporary Space; and (iv) Tenant shall not make any improvements to the Temporary Space. As used herein, the term "Tenant's Temporary Space Percentage" shall mean a fraction, the numerator of which is the number of Rentable Square Feet in the Temporary Space and the denominator of which is the number of Rentable Square Feet in the Development. Tenant shall accept the Temporary Space in it current "AS-IS" condition and without any representations or warranty, express or implied, with respect to the Temporary Space or the condition thereof. Upon notice from Landlord that the Tenant Improvements for the Premises are substantially complete, Tenant shall promptly comply with the second sentence of Subparagraph 11(a) of this Lease with respect to the Temporary Space and shall promptly move out of the Temporary Space and into the Premises. (g) Relocation Requests. Upon written notice by Tenant identifying premises within the Development which Tenant desires to lease (the "Relocation Premises") but which are occupied by another tenant (the "Relocation Tenant"): (A) Landlord shall request the applicable Relocation Tenant to relocate to other premises in the Development that are available to be leased to the Relocation Tenant (the "Relocation Space"); provided, however, that in no event shall Landlord be obligated to make any such request if: (i) leasing the applicable Relocation Space would make any premises adjacent to the Relocation Space more difficult to lease, as determined by Landlord in its sole and absolute discretion; or (ii) Tenant is in default under this Lease; and (B) upon Landlord's receipt from the Relocation Tenant of a written description of the terms of the relocation acceptable to Landlord and Tenant, Landlord and Tenant shall negotiate in good faith the terms of Tenant's leasing of the Relocation Premises. In no event shall Landlord be obligated to exercise any rights it may have under the Relocation Tenant's lease or otherwise to relocate any Relocation Tenant. If the Relocation Tenant agrees to relocate to Relocation Space, then Landlord and Tenant shall negotiate the relocation with the Relocation Tenant and Tenant shall pay all sums (including, without limitation, fees, charges, moving costs and tenant improvement costs) required by the Relocation Tenant to be paid by Landlord or Tenant in connection with the relocation, as well as any and all costs incurred by Landlord in engaging in such negotiations or in connection with the relocation, and such sums and costs shall not be considered by Landlord and Tenant in negotiating the terms of Tenant's leasing of the Relocation Premises, nor shall such sums and costs be credited against or reduce the rent and other sums payable by Tenant in connection with its leasing any Relocation Premises. Notwithstanding anything to the contrary in this Subparagraph 2(g), in no event shall Landlord be obligated to agree to the relocation unless all of the terms and conditions of the relocation and Tenant's leasing of the Relocation Premises are acceptable to Landlord in its sole and absolute discretion and in no event shall Landlord be obligated to lease any Relocation Premises to Tenant unless the Relocation Tenant has actually vacated the applicable Relocation Premises and has no further rights thereto, and is asserting no claims for possession thereof. 3. TERM; EXTENSION OPTIONS. (a) Initial Term. The term of this Lease ("Term") will be for the period designated in Subparagraph 1(i), commencing on the Commencement Date. Landlord's Notice of Lease Term Dates and Tenant's Percentage ("Notice"), in the form of Exhibit "D" attached hereto, will set forth (among other ----------- things) the Commencement Date, the date upon which the Term of this Lease shall end, the Rentable Square Feet within the Premises, and Tenant's Percentage and will be delivered to Tenant after Landlord delivers possession of the Premises to Tenant. The Notice will be binding upon Tenant unless Tenant objects to the Notice in writing within five (5) days of Tenant's receipt of the Notice. (b) First Year Extension Option. Tenant shall have the option (the "First Year Extension Option") to extend the term of this Lease for a period of five (5) years provided that Tenant is not in default under any of the terms or provisions of this Lease as of the date of Tenant's exercise of said First Year Extension Option and as of the date of the beginning of the extension of the Term pursuant thereto. Tenant may exercise its First Year Extension Option only by giving -5- written notice to Landlord on or before the first anniversary of the Commencement Date specifying that Tenant is exercising its First Year Extension Option (the "First Year Extension Option Notice"). All of the terms of this Lease shall apply to the extension of the Term pursuant to Tenant's exercise of its First Year Extension Option except that: (i) the Monthly Base Rent payable during the first half of such extension shall be $105,123.15, and the Monthly Base Rent payable during the second half of such extension shall be $116,803.50; (ii) if Tenant notifies Landlord in writing prior to the last day of the forty-sixth month after the Commencement Date (the "Additional Space Demand Notice") that Tenant requires a specific amount of additional space in the Development (the "Requested Additional Space"), and within four (4) months after receipt of Tenant's Additional Space Demand Notice (the "Requested Additional Space Search Period"), Landlord does not deliver to Tenant a description (the "Landlord's Additional Space Description"), of space in the Development that is 95% to 110% as large as the Requested Additional Space described in Tenant's Additional Space Demand Notice and that is scheduled to be available for leasing within such four (4) month period, then: (A) as of the end of said four (4) month period, the first sentence of Subparagraph 2(e) above (Tenant's Expansion Rights) shall apply not only to space available to lease from Landlord in Buildings 3, 5 and 6 of the Development as described in Subparagraph 2(e) above, but also to space available to lease from Landlord in the other buildings in the Development; and (B) Tenant shall have a personal, non-assignable right to terminate this Lease (the "Termination Option") as of the end of the 62nd month after the Commencement Date (the "Termination Date") by giving at least twelve (12) months prior written notice (the "Termination Notice") to Landlord and concurrently paying to Landlord, in immediately available funds, a sum equal to: (a) $303,689.10 (representing a termination fee equal to three months of Monthly Base Rent); plus (b) the portions of the ---- Tenant Improvement Allowance, any Rent Credit or Additional Allowance and Cat Walk Costs (defined in Subparagraph 3(b)(iv) below), and all Expansion Space Improvement Allowances remaining unamortized as of the Termination Date (calculated by amortizing the Tenant Improvement Allowance on a straight line basis over the term of this Lease, as extended, and by amortizing any Additional Allowance, Rent Credit or Cat Walk Costs over the period commencing on the date when the first disbursement of the Additional Allowance or Catwalk Costs is made or the date on which such Rent Credit is first credited against Base Rent, as applicable, and ending on the date on which the terms of this Lease, as extended, will expire, and by amortizing each Expansion Space Improvement Allowance on a straight line basis over the period commencing on the date on which the applicable Expansion Space is leased by Tenant and ending on the date on which the term of this Lease, as extended, will expire); plus (c) the unamortized portion of the brokerage commissions payable by Landlord in connection with this Lease, including, without limitation, commissions payable in connection with the extension of the Term and any expansion of the Premises (calculated by amortizing all such commissions on a straight line basis over the term of this Lease, as extended, but with respect to commissions payable in connection with any Expansion Space, calculated by amortizing such commissions on a straight line basis over the period commencing on the date on which the applicable Expansion Space is leased by Tenant and ending on the date on which the term of this Lease, as extended, will expire); plus ---- (d) interest on the sums described in clauses (b) and (c) from the beginning of the applicable amortization period used to calculate such sums to the date such sums are paid to Landlord, at the rate of eleven percent (11%) per annum, compounded annually. The Termination Option shall be personal to Tenant and may only be exercised by and for the benefit of Tenant and may not be assigned or otherwise transferred to, or exercised directly or indirectly by or for the benefit of, any person or entity other than Tenant; (iii) if Landlord delivers a Requested Additional Space Description to Tenant within the Requested Additional Space Search Period, then Landlord and Tenant shall promptly enter into a Work Letter Agreement substantially in the form of Exhibit "C" hereto, with a tenant improvement allowance for ----------- the applicable Requested Additional Space equal to: (a) the number of usable square feet in the applicable Requested Additional Space multiplied by (b) the portion of the sum of $18.75 remaining unamortized as of the date which is ninety (90) days after the applicable Requested Additional Space is leased by Tenant (calculated by amortizing the sum of $18.75 on a straight line basis over the term of this Lease, as extended) (the "Requested Additional Space Allowance"), and the Requested Additional Space described therein shall become part of the Premises and shall be subject to all of the terms of this Lease upon substantial completion of the tenant improvements therefor, if any, and actual vacation of the -6- Requested Additional Space by any tenant in occupancy thereof. Upon request by Landlord, Tenant shall confirm the date of substantial completion of the tenant improvements for the Requested Additional Space in writing. The date asserted by Landlord as such date of substantial completion shall be binding upon Tenant unless Tenant objects thereto in writing within five (5) days. (iv) if Tenant exercises its First Year Extension Option, and Tenant expressly elects in its First Year Extension Option Notice to cause Landlord to construct the "cat walk," then Landlord shall design and construct a so-called "cat walk" from the second floor of the building located at 16815 Von Karman Avenue (Building 4) to the second floor of the building located at 16795 Von Karman Avenue (Building 5) (the "Cat Walk"); provided, however, that Landlord shall not be obligated to construct the Cat Walk unless permitted by applicable laws, statutes and ordinances then in effect and provided, further, that Landlord shall not be obligated to expend more than $250,000 in connection with the Cat Walk (including, without limitation, the design, engineering and construction of the Cat Walk and any improvements required as a result of the Cat Walk and costs of satisfying any conditions to any governmental authorities relating to the Cat Walk, permits and approvals for the Cat Walk and such improvements, and legal fees and costs incurred in connection with the Cat Walk and such costs are hereinafter collectively referred to in this Lease as the "Cat Walk Costs"). If Landlord concludes in good faith that it is not possible to construct a first-class Cat Walk for less than $250,000, or if Landlord does not in good faith desire to comply with any particular conditions of governmental authorities related to the Cat Walk because they may adversely affect Landlord, the Development or other tenants in the Development, then Landlord shall not be obligated to construct the Cat Walk. Within ninety (90) days after receipt of a First Year Extension Notice in which Tenant elects to cause Landlord to construct the Cat Walk, Landlord shall use good faith efforts to determine in good faith whether it is possible to construct a first-class Cat Walk for less than $250,000, whether applicable law permits construction of the Cat Walk and whether conditions or other improvements that would be imposed by governmental authorities on the construction of the Cat Walk are acceptable to Landlord and notify Tenant of its determinations (the "Landlord Determination Notice"). If Landlord constructs the Cat Walk, then Tenant shall fully cooperate with Landlord, at Tenant's expense, in connection with the design and construction of the Cat Walk and any interference with Tenant's use or enjoyment of the Premises which results from Landlord's construction of the Cat Walk shall not constitute an actual or constructive eviction, or entitle Tenant to any damages or abatement of rent or any other sums payable under this Lease. Landlord shall use commercially reasonable efforts to minimize interference with Tenant's use and enjoyment of the Premises during construction of the Cat Walk to the extent practicable given the nature and scope of the work. If Tenant elects in its First Year Extension Option Notice to cause Landlord to construct the "Cat Walk" and Landlord determines that it is not possible to construct a Cat Walk for less than $250,000, or if the Cat Walk is not constructed for any other reason, then by written notice to Landlord given within thirty (30) days after receipt of the Landlord Determination Notice: (i) Tenant may elect to cause Landlord to provide an additional tenant improvement allowance in the amount of $250,000 (the "Additional Allowance") for use by Tenant in constructing additional improvements to the Premises subject to Article 13 hereof (and Landlord shall disburse such Additional Allowance in accordance with reasonable construction loan disbursement procedures); or (ii) Tenant may elect to cause Landlord to provide a credit against Monthly Base Rent in the amount of $250,000 (the "Rent Credit"); or (iii) if Landlord determines the Cat Walk cannot be completed for less than $250,000, but that applicable law permits the Cat Walk to be constructed and if Landlord has no reasonable basis for objecting to any governmental conditions relating to the Cat Walk, then Tenant may elect to cause Landlord to construct the Cat Walk provided Tenant pays to Landlord, within thirty (30) days after written demand from Landlord from time to time, the amount of Landlord's good faith estimate, or adjusted good faith estimate, as applicable, of the difference between $250,000 and the Cat Walk Costs (with any overpayments to be returned by Landlord upon completion of construction), and Landlord may adjust its estimate in good faith from time to time by written notice to Tenant. If Tenant does not elect to cause Landlord to construct the Cat Walk in the First Year Extension Notice, then Tenant may elect in its First Year Extension Notice to cause Landlord to provide Tenant with either the Additional Allowance on the terms provided above or the Rent Credit. (c) Additional Extension Option(R). Whether or not Tenant shall have exercised its First Extension Option, Tenant shall have an additional option (the "Additional Extension Option") to extend the term of this Lease for a period of five (5) years (the "Extension Term") provided that Tenant is not in default under any of the terms or provisions of this Lease as of the date of Tenant's -7- exercise of the Additional Extension Option and as of the date of the beginning of the Extension Term. Tenant may exercise its Additional Extension Option only by giving written notice to Landlord at least twelve (12) calendar months prior to the expiration of the then-current Term specifying that Tenant is exercising its Additional Extension Option (an "Additional Extension Notice") and specifying the length of the extension. All of the terms of this Lease shall apply to the Extension Term except that (i) Tenant shall have no further right to extend the term of this Lease; (ii) the Monthly Base Rent for the Extension Term shall be ninety- five percent (95%) of the Fair Market Rental Rate (hereinafter defined) for the Premises; and (iii) Landlord shall not be obligated to provide an additional improvement allowance for any additional tenant improvements to the Premises. The "Fair Market Rental Rate" shall be the annual rental rate per Rentable Square Foot then being charged in new leases (or executed letters of intent for new leases), for space to be delivered on or about the beginning of the Extension Term, which is non-sublease, non-equity space in Comparable Buildings (hereinafter defined), similarly improved, taking into consideration annual rental rates per Rentable Square Foot, the number of Rentable Square Feet leased, the length of the Extension Term and that no additional improvement allowance will be provided. As used herein, the term "Comparable Buildings" shall mean the Buildings and office buildings of similar age, size and quality in the Orange County airport area. Upon Landlord's receipt of Tenant's Additional Extension Notice, Landlord and Tenant shall negotiate the Fair Market Rental Rate. If Landlord and Tenant have not agreed upon the Fair Market Rental Rate within thirty (30) days after Landlord's receipt of Tenant's Additional Extension Notice, then the Fair Market Rental Rate shall be determined as follows: (i) Landlord and Tenant shall each appoint an independent real estate broker who shall not have been previously used by either party and who shall have been continuously active over the preceding five (5) year period in the leasing of first class office space in the Orange County office market. Each such broker shall be appointed within fifteen (15) days after said thirty (30) day period. (ii) The two brokers so appointed shall within fifteen (15) days after the appointment of the last appointed broker agree upon and appoint a third broker who shall have the same qualifications required for the initial two brokers. (iii) Within thirty (30) days after the selection of the third broker, a majority of the brokers selected shall determine the Fair Market Rental Rate. If a majority of the brokers are unable to determine the Fair Market Rental Rate within the stipulated period of time, the three brokers' determinations of the Fair Market Rental Rate shall be added together and the total divided by three (3). The resulting quotient shall be the Fair Market Rental Rate; however, if the low determination or the high determination or both is/are more than five percent (5%) lower or higher than the middle determination, the low determination or the high determination or both, as applicable, shall be disregarded. If only one determination is disregarded, the remaining two (2) determinations shall be added together and their total divided by two (2), and the resulting quotient shall be the Fair Market Rental Rate. The determination of the Fair Market Rental Rate hereunder shall be binding on Landlord and Tenant. (iv) Each party will pay the costs and charges of its broker and fifty percent (50%) of the costs and charges of the third broker. (v) If either Landlord or Tenant fails to appoint a broker within the time period in Subparagraph 3(c)(i) above, then the broker appointed by one of them shall reach a decision, notify Landlord and Tenant thereof, and such broker's decision shall be binding upon Landlord and Tenant. (vi) If the two brokers fail to agree upon and appoint a third broker, then both brokers shall be dismissed and the matter shall be submitted to arbitration under the commercial arbitration provisions of the American Arbitration Association. -8- (vii) If the Fair Market Rental Rate for the Extension Term is not established prior to the end of the initial Term of this Lease for any reason, Tenant shall continue to pay the Base Monthly Rent payable under this Lease, but when the Fair Market Rental Rate for the Extension Term shall have been determined under this Subparagraph 3(c), Tenant shall immediately pay to Landlord any underpayments of Basic Rent for the Extension Term, or if Tenant has overpaid Basic Rent for the Extension Term, Landlord shall refund the amount of any overpayments to Tenant within thirty (30) days after such determination. 4. POSSESSION. (a) Delivery of Possession. Landlord agrees to deliver possession of the Premises to Tenant in accordance with the terms of the Work Letter Agreement attached hereto as Exhibit "C", provided, however, that if ----------- Landlord is unable to deliver possession of the Premises to Tenant on the Commencement Date, this Lease will not be void or voidable and Landlord will not be liable to Tenant for any loss or damage resulting therefrom, but the Commencement Date and the Expiration Date will be extended by the number of days Landlord is late in delivering the Premises to Tenant, and rent will not commence to accrue under this Lease until Landlord delivers the Premises to Tenant; provided, however, that if the Commencement Date and delivery of the Premises do not occur by the date which is three (3) calendar months after the Estimated Commencement Date, as extended by delays in the completion of the Tenant Improvements caused by Tenant Delays (as defined in Exhibit "C") and Force Majeure delays (as defined in ----------- Paragraph 33) (such date, as so extended, being hereinafter referred to as the "Mandatory Commencement Date"), then Tenant may as its sole and exclusive remedy, terminate this Lease by written notice to Landlord given within ten (10) days after said Mandatory Commencement Date. Notwithstanding the foregoing, Landlord will not be obligated to deliver possession of the Premises to Tenant (but Tenant will be liable for rent if Landlord can otherwise deliver the Premises to Tenant) until Landlord has received from Tenant all of the following: (i) a copy of this Lease fully executed by Tenant; (ii) the first installment of Monthly Base Rent; (iii) executed copies of policies of insurance or certificates thereof as required under Paragraph 19 of this Lease; (iv) copies of all governmental permits and authorizations, if any, required in connection with Tenant's operation of its business within the Premises; and (v) if Tenant is a corporation or partnership, such evidence of due formation, valid existence and authority as Landlord may reasonably require, which may include, without limitation, a certificate of good standing, certificate of secretary, articles of incorporation, statement of partnership, or other similar documentation. (b) Condition of Premises. Prior to the Commencement Date and in accordance with the Work Letter Agreement attached hereto as Exhibit "C", Landlord and ----------- Tenant (and/or their respective representatives, who shall be designated in writing and shall be paid by the party for whom the applicable representative is acting) will jointly conduct a walk-through inspection of the Premises and will jointly prepare a punch-list ("Punch-List") of items required to be installed by Landlord under the Work Letter Agreement which require finishing or correction. The Punch-List will not include any items of damage to the Premises caused by Tenant's move-in or early entry, if permitted, which damage will be corrected or repaired by Landlord, at Tenant's expense or, at Landlord's election, by Tenant, at Tenant's expense. Other than the items specified in the Punch-List, by taking possession of the Premises, Tenant will be deemed to have accepted the Premises in its condition on the date of delivery of possession and to have acknowledged that the Tenant Improvements have been installed as required by the Work Letter Agreement and that there are no additional items needing work or repair. Landlord will cause all items in the Punch-List to be repaired or corrected within thirty (30) days following the preparation of the Punch-List or as soon as practicable after the preparation of the Punch-List. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty, express or implied, with respect to the Premises, the Buildings, the Development or any portions thereof or with respect to the suitability of same for the conduct of Tenant's business and Tenant further acknowledges that Landlord will have no obligation to construct or complete any additional buildings or improvements within the Development. 5. RENT. (a) Monthly Base Rent. Subject to the second proviso in Subparagraph 11(a) of the Work Letter Agreement attached hereto as Exhibit "C", Tenant shall pay ----------- Landlord the Monthly Base Rent for the Premises (subject to adjustment as hereinafter provided) in advance on the first day of each calendar month during the Term without prior notice or demand. Notwithstanding the foregoing, -9- Tenant shall pay the Monthly Base Rent for the first month of the Term directly to Landlord concurrently with Tenant's execution and delivery of this Lease to Landlord. If the Term of this Lease commences or ends on a day other than the first day of a calendar month, then the rent for such period will be prorated in the proportion that the number of days this Lease is in effect during such period bears to the number of days in such month. All rent must be paid to Landlord, without any deduction or offset, in lawful money of the United States of America, at the address designated by Landlord on Tenant's monthly rent statement or to such other person or at such other place as Landlord may from time to time designate in writing. Monthly Base Rent will be adjusted during the Term of this Lease as provided in Subparagraph l(m) and Subparagraphs 3(b) and 3(c). (b) Additional Rent. All amounts and charges to be paid by Tenant hereunder, including, without limitation, payments for Operating Expenses, insurance, repairs and reserved parking (if any), will be considered additional rent for purposes of this Lease, and the word "rent" as used in this Lease will include all such additional rent unless the context specifically or clearly implies that only Monthly Base Rent is intended. (c) Late Payments. Late payments of Monthly Base Rent and/or any item of additional rent will be subject to interest and a late charge as provided in Subparagraph 22(g) below. 6. OPERATING EXPENSES. (a) Operating Expenses. Tenant shall pay to Landlord Tenant's Percentage of the Operating Expenses (as defined in Exhibit "E") for the Development for the ----------- first and second months of the Term (without deduction for any "base year" Operating Expenses), such payments to be made on an estimated basis within ten (10) business days after billing of such estimate by Landlord as additional rent, without deduction or offset, subject to reconciliation in March, 1997 with actual Operating Expenses for said first and second months. Additionally, commencing on the first anniversary of the Commencement Date, Tenant shall pay to Landlord as additional rent in accordance with the terms of this Paragraph 6, in an amount equal to Tenant's Percentage of the amount by which the Operating Expenses (as defined in Exhibit "E" attached hereto) for each calendar year after the ----------- Base Year or portions thereof included in the Term of this Lease, exceeds the Operating Expenses for the Base Year ; provided, however, that notwithstanding anything to the contrary in this Section 6, for purposes of calculating the additional rent payable by Tenant under this Section 6, the actual annual percentage increase in Operating Expenses which are controllable by Landlord shall not exceed: (a) ten percent (10%), plus (b) ---- the sum of the amounts by which the maximum percentage increase in controllable Operating Expenses permitted under this sentence for each previous calendar year after the Base Year exceeded the actual percentage increase in controllable Operating Expenses from the preceding year. (The sum described in clause (b) will be zero for 1997.) For example: (i) if controllable Operating Expenses for the Base Year (1996) are $10.00, and the controllable Operating Expenses for 1997 are $12.00, then controllable Operating Expenses for 1997 shall be limited to $11.00 (i.e., 110% of - - $10.00); (ii) if controllable Operating Expenses for the Base Year are $10.00, controllable Operating Expenses for 1997 are $12.00, and controllable Operating Expenses for 1998 are $13.20, then controllable Operating Expenses for 1998 shall be $13.20 (i.e., 110% of $12.00); and - - (iii) if controllable Operating Expenses for the Base Year are $10.00, controllable Operating Expenses for 1997 are $10.50 and the controllable Operating Expenses for 1998 are $13.00, then the maximum percentage increase in controllable Operating Expenses for 1998 shall be 15% (10% plus ---- 5% [with the 5% representing the amount by which the 10% maximum percentage increase for 1997 exceeds the actual percentage increase for 1997]) and the controllable Operating Expenses for 1998 shall be limited to $12.075 (i.e., - - 115% of $10.50). As used herein, the term "controllable Operating Expenses" shall not include Real Property Taxes and Assessments (as defined in Exhibit "E") or utilities, but the foregoing exclusions shall not be ----------- construed to limit the types of Operating Expenses that are not controllable by Landlord. (b) Estimate Statement. Landlord will use good faith efforts to deliver to Tenant on or about March 1, 1996 and, thereafter, on or about March 1 of each later Comparison Year during the Term of this Lease, a statement ("Estimate Statement") wherein Landlord will estimate both the Operating Expenses for the then-current Comparison Year and Tenant's Percentage of the excess of the Operating Expenses for the then-current Comparison Year over the Operating Expenses for the Base Year. If Landlord is unable to provide such a statement by March 1 of any year, then Landlord shall use good faith efforts to deliver such a statement to Tenant as soon as -10- possible thereafter. Commencing on the first anniversary of the Commencement Date, Tenant shall pay Landlord, as "Additional Rent," one- twelfth (1/12th) of Tenant's Percentage of Landlord's estimate of the amount by which Landlord's estimate of Operating Expenses for the applicable Comparison Year will exceed the Operating Expenses for the Base Year. Such payments shall begin with the next installment of rent due, until such time as Landlord issues a revised Estimate Statement or the Estimate Statement for the succeeding Comparison Year, except that concurrently with the next regular monthly rent payment due following the receipt of each such Estimate Statement, Tenant agrees to pay Landlord an amount equal to one monthly installment of Tenant's Percentage of Landlord's estimate of such excess (less any applicable Operating Expenses already paid) multiplied by the number of months from the beginning of the then-current Comparison Year, to the month of such rent payment next due, all months inclusive. If at any time during the Term of this Lease, but not more often than quarterly, Landlord reasonably determines that Tenant's Percentage of increases in Operating Expenses payable for the then-current Comparison Year will be greater than the amount set forth in the then- current Estimate Statement, Landlord may issue a revised Estimate Statement and Tenant agrees to pay Landlord, within ten (10) days of receipt of the revised Estimate Statement, the difference between the amount owed by Tenant under such revised Estimate Statement and the amount owed by Tenant under the original Estimate Statement for the portion of the then current Comparison Year which has expired. Thereafter, Tenant shall pay Tenant's Percentage of increases in Operating Expenses based on such revised Estimate Statement until Tenant receives the next Comparison Year Estimate Statement or a new revised Estimate Statement for the current Comparison Year. If Operating Expenses for any Comparison Year is less than Operating Expenses for the Base Year, Tenant will not be entitled to a credit against any rent, additional rent or Tenant's Percentage of Operating Expenses payable hereunder. (c) Actual Statement. Landlord will also use good faith efforts to deliver to Tenant by March 1, 1997 and by March 1 of each Comparison Year during the Term of this Lease after the Base Year, a statement ("Actual Statement") which states the actual Operating Expenses for the preceding Comparison Year. If Landlord is unable to provide such a statement by March 1 of any year, then Landlord shall use good faith efforts to deliver such a statement to Tenant as soon as possible thereafter. If the Actual Statement reveals that Tenant's Percentage of the actual increases in Operating Expenses is more than the total Additional Rent paid by Tenant for Operating Expenses on account of the preceding Comparison Year (with Operating Expenses for the Base Year and any partial Comparison Year being prorated to calculate Tenant's percentage of increases in Operating Expenses payable for any partial Comparison Year), then Tenant shall pay Landlord the difference in a lump sum within thirty (30) days after receipt of the Actual Statement. If the Actual Statement reveals that Tenant's Percentage of increases in actual Operating Expenses is less than the Additional Rent paid by Tenant for increases in Operating Expenses on account of the preceding Comparison Year, Landlord shall credit any overpayment toward the next monthly installment(s) of Tenant's Percentage of increases in Operating Expenses due under this Lease, or if the Term has expired, Landlord shall pay such overpayment to Tenant within thirty (30) days after Landlord's determination. (d) Miscellaneous. Any delay or failure by Landlord in delivering any Estimate Statement or Actual Statement pursuant to this Paragraph 6 will not constitute a waiver of its right to require an increase in rent nor will it relieve Tenant of its obligations pursuant to this Paragraph 6, except that Tenant will not be obligated to make any payments based on such Estimate Statement or Actual Statement until ten (10) days after receipt of such Estimate Statement or Actual Statement. Even though the Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Percentage of the actual increases in Operating Expenses for the Comparison Year in which this Lease terminates (with Operating Expenses for the Base Year and any partial Comparison Year being prorated to calculate Tenant's percentage of increases in Operating Expenses payable for any partial Comparison Year), Tenant agrees to promptly pay any increase due over the estimated expense increases paid and, conversely, any overpayments shall be promptly be rebated by Landlord to Tenant. Prior to the expiration or sooner termination of the Lease Term and Landlord's acceptance of Tenant's surrender of the Premises, Landlord will have the right to estimate the actual increases in Operating Expenses for the then- current Comparison Year and to collect any estimated underpayment from Tenant prior to Tenant's surrender of the Premises. (e) Audits. At reasonable times and upon at least seventy-two (72) hours' prior written notice to Landlord describing the Operating Expense years which Tenant desires to audit, Tenant and Tenant's accountants and representatives may inspect books and records in Landlord's -11- possession which relate to the Operating Expenses for the years specified in Tenant's notice at the location in Orange County where such books and records are kept and in the presence of a Landlord representative. All such inspections shall be conducted at Tenant's sole cost and expense. Tenant shall keep the results of such inspections confidential, except that Tenant may disclose the results: (i) to its attorneys and consultants provided they agree in writing to keep the results of such inspections confidential; and (ii) to the extent required by law or court order. Landlord shall not be obligated to retain books and records for Operating Expenses for any particular calendar year for more than two (2) years after the end of the applicable calendar year. 7. SECURITY DEPOSIT. None. 8. USE. (a) Tenant's Use of the Premises. The Premises may be used for the use or uses set forth in Subparagraph 1(r) only, and Tenant will not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord, which consent Landlord may withhold in its sole and absolute discretion. Nothing in this Lease will be deemed to give Tenant any exclusive right to such use in the Building or the Development. (b) Compliance. At Tenant's sole cost and expense, Tenant agrees to procure, maintain and hold available for Landlord's inspection, all governmental licenses and permits required for the proper and lawful conduct of Tenant's business from the Premises, if any. Tenant agrees not to use, alter or occupy the Premises or allow the Premises to be used, altered or occupied in violation of, and Tenant, at its sole cost and expense, agrees to use and occupy the Premises and cause the Premises to be used and occupied in compliance with: (i) any and all laws, statutes, zoning restrictions, ordinances, rules, regulations, orders and rulings now or hereafter in force and any requirements of any insurer, insurance authority or duly constituted public authority having jurisdiction over the Premises, the Buildings or the Development now or hereafter in force, (ii) the requirements of the Board of Fire Underwriters and any other similar body (iii) the Certificates of Occupancy issued for the Buildings, and (iv) any recorded covenants, conditions and restrictions and similar regulatory agreements, if any, which affect the use, occupation or alteration of the Premises, the Buildings and/or the Development; provided, however, that in no event shall Tenant be required to make or remove any improvements or alterations to the Premises that are required by law to be made or removed in order to use the Premises for office purposes, nor shall Tenant be required to remove any Hazardous Materials (as defined in Subparagraph 8(c) below) if neither the presence or release of the Hazardous Materials was caused by Tenant or any of Tenant's Parties (as defined in Subparagraph 18(b) below). Tenant agrees to comply with the Rules and Regulations referenced in Paragraph 28 below. Tenant agrees not to do or permit anything to be done in or about the Premises which will obstruct or interfere with the rights of other tenants or occupants of the Development, or injure or unreasonably annoy them, or use or allow the Premises to be used for any unlawful or unreasonably objectionable purpose. Tenant agrees not to cause, maintain or permit any nuisance or waste in or about the Premises or elsewhere within the Development. Tenant agrees not to place a load upon the Premises exceeding the average pounds of live load per square foot of floor area specified for the Building by Landlord's architect, with the partitions to be considered a part of the live load. Landlord reserves the right to reasonably prescribe the weight and positions of safes, files and heavy equipment which Tenant desires to place in the Premises so as to distribute properly the weight thereof. Tenant agrees to install, maintain and use Tenant's business machines and mechanical equipment which may cause vibration or noise that may be transmitted to the structure of the Buildings or to any other space in the Building in a manner so as to eliminate or minimize such vibration or noise. Tenant will be responsible for all structural engineering required to determine structural load, as well as the expense thereof. Notwithstanding anything contained in this Lease to the contrary, all transferable development rights related in any way to the Development are and will remain vested in Landlord, and Tenant hereby waives any rights thereto. (c) Hazardous Materials. (i) As used in this Lease, the term "Hazardous Materials" shall mean and include any substance or material which has been determined by any state, federal or local governmental authority to be capable of posing a risk of injury to health, safety or property, including all of those materials and substances designated as hazardous or toxic by the City of Irvine, the County of Orange, the U.S. Environmental Protection Agency, the Consumer Product Safety -12- Commission, the Food and Drug Administration, the California Water Resources Control Board, the Regional Water Quality Control Board, the California Air Resources Board, CAL/OSHA Standards Board, Division of Occupational Safety and Health, the California Department of Food and Agriculture, the California Department of Health Services, and any federal agencies that have overlapping jurisdiction with such California agencies, or any other governmental agency now or hereafter authorized to regulate materials and substances in the environment. Without limiting the generality of the foregoing, the term "Hazardous Material" shall include all of those materials and substances defined as "hazardous materials" or "hazardous waste" in Sections 66680 through 66685 of Title 22 of the California Administrative Code, Division 4, Chapter 30, as the same shall be amended from time to time, petroleum, petroleum-related substances and the by-products, fractions, constituents and sub-constituents of petroleum or petroleum-related substances, asbestos, asbestos containing materials, and any other materials requiring remediation now or in the future under federal, state or local statutes, ordinances, regulations or policies. (ii) Except for ordinary and general office supplies and cleaners typically used in the ordinary course of business within office buildings, such as copier toner, liquid paper, glue, ink and common household cleaning materials (some or all of which may constitute "Hazardous Materials" as defined in this Lease), Tenant agrees not to cause or knowingly permit any Hazardous Materials to be brought upon, stored, used, handled, generated, released or disposed of on, in, under or about the Premises, the Buildings, the Common Areas or any other portion of the Development by Tenant, its agents, employees, subtenants, assignees, contractors or invitees (collectively, "Tenant's Parties"), without the prior written consent of Landlord, which consent Landlord may withhold in its sole and absolute discretion. Tenant hereby agrees that respect to any such permitted Hazardous Materials, Tenant shall comply with all applicable federal, state and local laws, rules, regulations, policies, permits, and authorities relating to the storage, use, disposal or cleanup of Hazardous Materials ("Hazardous Materials Requirements"), including, but not limited to, the obtaining of proper permits and with good business practices, and that it will not dispose of any Hazardous Materials in, on or about the Premises, or the Buildings or the Development under any circumstances. (iii) In the event of any release of Hazardous Materials caused or knowingly permitted by Tenant or any of Tenant's Parties, Landlord shall have the right, but not the obligation, to cause Tenant to immediately take all steps Landlord deems necessary or appropriate to remediate such release and prevent any similar future release to the satisfaction of Landlord and Landlord's mortgagee(s). (iv) Tenant shall promptly indemnify, protect, defend and hold harmless Landlord and its partners, officers, directors, employees, agents, successors and assigns (collectively, the "Indemnified Parties") from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including, without limitation, clean-up, removal, remediation and restoration work and costs, sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees and court costs) which arise or result from the release, use, storage, transportation or disposal of Hazardous Materials on, in or about the Premises, Buildings or Development by the Tenant or its agents, employees, subtenants and assignees and Tenant's indemnity and defense obligations shall cover and include acts of Tenant Parties. Notwithstanding anything to the contrary in this Subparagraph 8(c)(iv), . Tenant shall immediately notify Landlord of any inquiry, test, investigation or enforcement proceeding by or against Tenant, Landlord or the Development concerning a Hazardous Material in, on or about the Premises, Buildings or Development of which Tenant has knowledge or notice. Tenant acknowledges that Landlord, as the owner of the Development, shall have the right, at its election, in its own name or as Tenant's agent, to negotiate, defend, approve and appeal, at Tenant's expense, any action taken or order issued by governmental authority with regard to the presence or release of a Hazardous Material that is caused or knowingly permitted by Tenant or any of Tenant's Parties. (v) Landlord shall indemnify, protect, defend (with counsel reasonably acceptable to Tenant) and hold harmless Tenant and its partners, officers, directors, employees, agents, successors and assigns (collectively, "Indemnitees") from and against (a) any and all judgments and reasonable defense costs in connection with any lawsuit or administrative enforcement action brought against Tenant by a governmental agency or authority or a private party (other than a Tenant Affiliate, hereinafter defined) seeking remediation or contribution toward the cost of remediation of any Hazardous Materials placed in or at the Leased Premises by any person or -13- entity (other than Tenant or a Tenant Affiliate) prior to the date Tenant first occupies the Premises, and (b) any other claims, losses, liabilities and expenses (collectively "Claims") sustained by Tenant attributable to any Hazardous Materials placed on, under, at, in or about the Premises, Buildings or Development by Landlord or its officers, directors, employees or agents; provided, however, the foregoing indemnification shall not apply to any Claims, judgments or costs attributable to Hazardous Materials where Tenant has contributed to or exacerbated the condition or quantity of such Hazardous Materials or any damage or injury resulting therefrom. Tenant shall give written notice to Landlord in reasonable detail of the occurrence of any event or the existence of any claim or condition that could constitute the basis for any Indemnitee seeking indemnification by Landlord promptly upon Tenant becoming aware of same. Upon receiving such notice, Landlord shall promptly indemnify, protect, defend (with counsel reasonably acceptable to Tenant) and hold harmless all Indemnitees to the extent required under this Subparagraph 8(c)(v). As used in this Subparagraph 8(c)(v), the term "Tenant Affiliate" shall mean and include any affiliate, agent, employee, contractor, licensee or invitee of Tenant or of an affiliate of Tenant. As used in the preceding sentence, the term "affiliate" shall mean any person or entity which, either directly or indirectly, owns or controls, is owned or controlled by, or is under common ownership or control with, Tenant. (vi) Upon the expiration or sooner termination of this Lease, Tenant agrees to remove from the Premises, the Buildings and the Development, at its sole cost and expense, any and all Hazardous Materials, including any equipment or systems containing Hazardous Materials, which are installed, brought upon, stored, used, generated or released upon, in or under the Premises, the Buildings and/or the Development or any portion thereof by Tenant or any of Tenant's Parties. (vii) Notwithstanding any other right of entry granted to Landlord under this Lease, Landlord shall have the right to enter the Premises or to have consultants enter the Premises throughout the term of this Lease for the purpose of: (1) determining whether the Premises are in conformity with Hazardous Materials Requirements and other federal, state and local statutes, regulations, ordinances, and policies; (2) conducting an environmental audit or investigation of the Premises for purposes of sale, transfer, conveyance or financing; (3) determining whether Tenant has complied with this Paragraph; (4) determining the corrective measures, if any, required of Tenant to ensure the safe use, storage and disposal of Hazardous Materials; or (5) removing Hazardous Materials (except to the extent used, stored or disposed of by Tenant or any of Tenant's Parties in compliance with "Hazardous Materials Requirements"). Tenant agrees to provide access and reasonable assistance for such inspections. Such inspections may include, but are not limited to, entering the Premises or adjacent property with drill rigs or other machinery for the purpose of obtaining laboratory samples. Landlord shall not be limited in the number of such inspections during the Term of this Lease. To the extent such inspections disclose the presence of Hazardous Materials used, stored or disposed of by Tenant or any of Tenant's Parties, and provided Landlord shall not have approved the presence in question, Tenant shall reimburse Landlord for the cost of such inspections within ten (10) days of receipt of a written statement thereof. If such consultants determine that the Premises are contaminated with Hazardous Materials used, stored or disposed of by Tenant or any of Tenant's Parties, Tenant shall, in a timely manner, at its expense, remove such Hazardous Materials or otherwise comply with the recommendations of such consultants to the reasonable satisfaction of Landlord and any applicable governmental agencies. The right granted to Landlord herein to inspect the Premises shall not create a duty on Landlord's part to inspect the Premises, or liability of Landlord for Tenant's use, transportation, storage or disposal of Hazardous Materials, it being understood that Tenant shall be solely responsible for all liability in connection with Tenant's use, transportation, storage and disposal of Hazardous Materials. (viii) Landlord hereby discloses to Tenant that the Premises, the Building and the Development are or may be in an area in which contamination of soils or groundwater by Hazardous Materials may exist. If Tenant desires more definite information regarding the existence or possible existence of contamination by Hazardous Materials of soils or groundwater of or beneath the Premises, the Building, the Development, or other real property in the general area of the Development, then Tenant shall investigate such matters. (ix) The provisions of this Subparagraph 8(c) will survive the expiration or any earlier termination of this Lease. -14- 9. NOTICES. Any notice required or permitted to be given hereunder must be in writing and may be given by personal delivery (including delivery by overnight courier or an express mailing service) or by mail, if sent by registered or certified mail. Notices to Tenant shall be sufficient if delivered to Tenant at the Premises and notices to Landlord shall be sufficient if delivered to Landlord at the address designated in Subparagraph 1(b). Either party may specify a different address for notice purposes by written notice to the other, except that the Landlord may in any event use the Premises as Tenant's address for notice purposes. 10. BROKERS. The parties acknowledge that the broker(s) who negotiated this Lease are described in Subparagraph 1(t). Each party represents and warrants to the other, that, to its knowledge, no other broker, agent or finder (a) negotiated or was instrumental in negotiating or consummating this Lease on its behalf, and (b) is or might be entitled to a commission or compensation in connection with this Lease. Landlord and Tenant each agree to promptly indemnify, protect, defend and hold harmless the other from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including attorneys' fees and court costs) resulting from any breach by the indemnifying party of the foregoing representation, including, without limitation, any claims that may be asserted by any broker, agent or finder undisclosed by the indemnifying party. The foregoing mutual indemnity shall survive the expiration or earlier termination of this Lease. Landlord shall pay brokerage commissions to Cushman & Wakefield in connection with this Lease in accordance with the existing, separate written agreement between Landlord and Cushman & Wakefield for payment of leasing commissions, and if Tenant extends the Term of this Lease pursuant to Subparagraph 3(b) or 3(c), then such brokerage commissions shall include brokerage commissions payable by Landlord to Cushman & Wakefield for such extension pursuant to said written agreement. 11. SURRENDER; HOLDING OVER. (a) Surrender. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not constitute a merger, and shall, at the option of Landlord, operate as an assignment to Landlord of any or all subleases or subtenancies. Upon the expiration or earlier termination of this Lease, Tenant agrees to peaceably surrender the Premises to Landlord broom clean and in the same condition as delivered to Tenant except for ordinary wear and tear, casualty damage (if this Lease is terminated as a result thereof pursuant to Paragraph 20), condemnation, the Tenant Improvements, all Alterations not required to be removed pursuant to or as provided in Paragraph 13 and all maintenance, repairs and replacements which are the responsibility of Landlord under this Lease, and with all of Tenant's personal property and Alterations (as defined in Paragraph 13) removed from the Premises to the extent required under Paragraph 13 and all damage caused by such removal repaired as required by Paragraph 13. Prior to the date Tenant is to actually surrender the Premises to Landlord, Tenant agrees to give Landlord reasonable prior notice of the exact date Tenant will surrender the Premises so that Landlord and Tenant can schedule a walk-through of the Premises to review the condition of the Premises and identify the Alterations and personal property which Tenant is to remove and any repairs Tenant is to make upon surrender of the Premises. The delivery of keys to any employee of Landlord or to Landlord's agent or any employee thereof alone will not be sufficient to constitute a termination of this Lease or a surrender of the Premises. (b) Holding Over. Tenant will not be permitted to hold over possession of the Premises after the expiration or earlier termination of the Term without the express written consent of Landlord, which consent Landlord may withhold in its sole discretion. If Tenant holds over after the expiration or earlier termination of the Term, Landlord may, at its option, treat Tenant as a tenant at sufferance only, and such continued occupancy by Tenant shall be subject to all of the terms, covenants and conditions of this Lease, so far as applicable, except that Tenant shall not be entitled to exercise any options or rights to expand, extend or negotiate and the Monthly Base Rent for any such holdover period shall be equal to (i) for the first two months of the holdover, one hundred twenty-five percent (125%) of the Monthly Base Rent in effect under this Lease immediately prior to such holdover, and (ii) thereafter, one hundred and fifty percent (150%) of the monthly Base Rent in effect under this Lease immediately prior to the holdover. Acceptance by Landlord of rent after such expiration or earlier termination will not result in a renewal of this Lease. The foregoing provisions of this Paragraph 11 are in addition to and do not affect Landlord's right of re-entry or any rights of Landlord under this Lease or as otherwise provided by law. If Tenant fails to surrender the Premises upon the expiration of this Lease in accordance with the terms of this Paragraph 11 despite demand to do so by Landlord, Tenant agrees to promptly indemnify, protect, defend and hold Landlord harmless from all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs -15- (including attorneys' fees and costs), including, without limitation, costs and expenses incurred by Landlord in returning the Premises to the condition in which Tenant was to surrender it and claims made by any succeeding tenant founded on or resulting from Tenant's failure to surrender the Premises. The provisions of this Subparagraph 11(b) will survive the expiration or earlier termination of this Lease. 12. TAXES ON TENANT'S PROPERTY. Tenant agrees to pay before delinquency, all taxes and assessments (real and personal) levied against any personal property or trade fixtures placed by Tenant in or about the Premises (including any increase in the assessed value of the Premises based upon the value of any such personal property or trade fixtures). If any such taxes or assessments are levied against Landlord or Landlord's property, Landlord may, after written notice to Tenant (and under proper protest if requested by Tenant) pay such taxes and assessments, in which event Tenant agrees to reimburse Landlord all amounts paid by Landlord within ten (10) business days after demand by Landlord; provided, however, Tenant, at its sole cost and expense, will have the right, with Landlord's cooperation, to bring suit in any court of competent jurisdiction to recover the amount of any such taxes and assessments so paid under protest. 13. ALTERATIONS. Subject to Tenant's compliance with all of the provisions of this Paragraph 13, Tenant may, at Tenant's sole cost and expense, replace the existing security system serving the Premises concurrently with Landlord's construction of the Tenant Improvements; however, such new security system (the "New Security System") and the installation thereof may not interfere with Landlord's construction of the Tenant Improvements or with Landlord's exercise of its rights under Paragraph 16 of this Lease, and Tenant shall at all times provide Landlord such sufficient access to the Premises as may be necessary for Landlord to construct the Tenant Improvements and exercise its rights under Paragraph 16 of this Lease. Prior to the expiration of this Lease and upon any earlier termination of this Lease, Tenant shall, at Tenant's sole cost and expense, remove the New Security System and replace it with a security system of the same type and quality as the security system which currently serves the Premises. After installation of the initial Tenant Improvements for the Premises pursuant to Exhibit "C", Tenant may, at its sole cost and expense, make other ----------- alterations, additions, improvements and decorations to the Premises subject to the terms and conditions of this Paragraph 13. The New Security System and all other alterations, additions, improvements and decorations to the Premises are hereinafter collectively referred to as the "Alterations". (a) Prohibited Alterations. Tenant may not make any Alterations which: (i) affect any area outside the Premises; (ii) affect the Building's structure, equipment, services or systems, or the proper functioning thereof, or Landlord's access thereto; (iii) affect the outside appearance, character or use of the Buildings or the Building Common Areas; (iv) in the reasonable opinion of Landlord, lessen the value of the Buildings; or (v) will violate or require a change in any occupancy certificate applicable to the Premises. (b) Landlord's Approval. Before proceeding with any Alterations which are not prohibited in Subparagraph 13(a) above, Tenant must first obtain Landlord's written approval of the plans, specifications and working drawings for such Alterations, which approval Landlord will not unreasonably withhold or delay; provided, however, Landlord's prior approval will not be required for any such Alterations which are not prohibited by Subparagraph 13(a) above and which: (A) consist of installation of business or trade fixtures, or (B) cost less than Ten Thousand Dollars ($10,000) in any one year period provided that Tenant delivers to Landlord notice and a copy of any final plans, specifications and working drawings therefor at least ten (10) days prior to commencement of the work. Alterations which do not require Landlord's consent shall nevertheless be subject to all of the other requirements and conditions of this Paragraph 13, including, without limitation, the condition that Tenant conform to Landlord's rules, regulations and insurance requirements which govern contractors. Landlord's approval of plans, specifications and/or working drawings for Alterations will not create any responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with applicable permits, laws, rules and regulations of governmental agencies or authorities. (c) Contractors. Alterations may be made or installed only by contractors and subcontractors which have been approved by Landlord, which approval Landlord will not unreasonably withhold or delay; provided, however, Landlord reserves the right to require that Landlord's contractor for the Building be given an equal opportunity to bid for any Alteration work. Before proceeding with any Alterations, Tenant agrees to provide Landlord with ten (10) days' prior written notice and Tenant's contractors must obtain, on behalf of Tenant and at Tenant's sole cost and expense: (i) all necessary governmental permits and approvals for the commencement and completion of -16- such Alterations; and (ii) if requested by Landlord, a completion and lien indemnity bond, or other surety, reasonably satisfactory to Landlord for such Alterations. Throughout the performance of any Alterations, Tenant agrees to obtain, or cause its contractors to obtain, workers compensation insurance and general liability insurance in compliance with the provisions of Paragraph 19 of this Lease. (d) Manner of Performance. All Alterations must be performed: (i) in accordance with the approved plans, specifications and working drawings; (ii) in a lien-free and first-class and workmanlike manner; (iii) in compliance with all applicable permits, laws, statutes, ordinances, rules, regulations, orders and rulings now or hereafter in effect and imposed by any governmental agencies and authorities which assert jurisdiction; (iv) in such a manner so as not to interfere with the occupancy of any other tenant in the Buildings, nor impose any additional expense upon nor delay Landlord in the operation of any multi-tenant Building nor unreasonably delay Landlord in the maintenance of the Building; and (v) at such times, in such manner, and subject to such rules and regulations as Landlord may from time to time reasonably designate. (e) Ownership. The Tenant Improvements, including, without limitation, all affixed sinks, dishwashers, microwave ovens and other fixtures, and all Alterations (but not the New Security System nor any personal property or trade fixtures of Tenant) will become the property of Landlord and (except for the New Security System and such personal property and trade fixtures) will remain upon and be surrendered with the Premises at the end of the Term of this Lease; provided, however, Landlord shall, by written notice delivered to Tenant prior to or within three (3) business days after Landlord's approval of the final working drawings for any Alterations, identify those Alterations which Landlord will require Tenant to remove at the end of the Term of this Lease (except that the New Security System shall, in any event, be removed as provided in Subparagraph 13(a) above) and if Landlord does not deliver such a notice to Tenant, then Tenant shall not be obligated to remove the applicable Alteration at the end of the Term. Landlord may also require Tenant to remove Alterations which Landlord did not have the opportunity to approve as provided in this Paragraph 13. If Landlord requires Tenant to remove any Alterations pursuant to this Subparagraph 13(e), then Tenant, at its sole cost, shall remove the identified Alterations on or before the expiration or sooner termination of this Lease and repair any damage to the Premises caused by such removal (or, at Landlord's option, Tenant agrees to pay to Landlord all of Landlord's costs of such removal and repair). (f) Plan Review. Tenant agrees to pay Landlord, as additional rent, the reasonable costs of professional services and costs for general conditions of Landlord's third party consultants if utilized by Landlord (but not Landlord's "in-house" personnel) for review of all plans, specifications and working drawings for any Alterations, within ten (10) business days after Tenant's receipt of invoices either from Landlord or such consultants. In addition, Tenant agrees to pay Landlord, within ten (10) business days after completion of any Alterations, a fee to cover Landlord's costs of supervising and administering the installation of such Alterations, in the amount of eight percent (8%) of the cost of such Alterations, but in no event less than Two Hundred Fifty Dollars ($250.00). (g) Personal Property. All articles of personal property owned by Tenant or installed by Tenant at its expense in the Premises (including, without limitation, Tenant's business and trade fixtures, furniture, movable partitions and equipment [such as telephones, copy machines, computer terminals, refrigerators and facsimile machines]) will be and remain the property of Tenant, and must be removed by Tenant from the Premises, at Tenant's sole cost and expense, on or before the expiration or sooner termination of this Lease. Tenant agrees to repair any damage caused by such removal at its cost on or before the expiration or sooner termination of this Lease. (h) Removal of Alterations. If Tenant fails to remove by the expiration or sooner termination of this Lease all of its personal property, the New Security System or any Alterations identified by Landlord pursuant to Subparagraph 13(e) above for removal, Landlord may, at its option, treat such failure as a hold-over pursuant to Subparagraph 11(b) above, and/or Landlord may (without liability to Tenant for loss thereof) treat such personal property and/or Alterations as abandoned and, at Tenant's sole cost and in addition to Landlord's other rights and remedies under this Lease, at law or in equity: (a) remove and store such items; and/or (b) upon ten (10) days' prior notice to Tenant, sell, discard or otherwise dispose of all or any such items at private or public sale for such price as Landlord may obtain or by other commercially reasonable means. Tenant shall be liable for all costs of disposition of Tenant's abandoned property and Landlord shall have no liability to Tenant with respect to any such abandoned property. Landlord agrees to -17- apply the proceeds of any sale of any such property to any amounts due to Landlord under this Lease from Tenant (including, without limitation, Landlord's attorneys' fees and other costs incurred in the removal, storage and/or sale of such items), with any remainder to be paid to Tenant. 14. REPAIRS. (a) Landlord's Obligations. Landlord agrees to reasonably repair and maintain the portions of the Buildings and the portions of the Premises not required to be maintained and repaired by Tenant (including, without limitation, floors [excluding floor coverings except to the extent of janitorial services to be provided to the Premises], foundations, exterior structural walls [excluding the wall coverings], ceilings [excluding ceiling coverings, but including Building standard lighting fixtures], roofs, driveways and parking lots and the plumbing, heating, ventilating, air conditioning, elevator and electrical systems installed or furnished by Landlord) in good condition and repair, and shall replace such items as Landlord determines in good faith can no longer be repaired and are resulting in a material adverse effect on Tenant's use of the Premises, except that Landlord shall be under no obligation to perform maintenance, repairs or replacements that are: (i) for, or attributable to, items installed in Tenant's Premises which are above standard interior improvements (such as, for example, custom lighting, special HVAC and/or electrical panels or systems, kitchen or restroom facilities and appliances constructed or installed within Tenant's Premises) or (ii) caused in part or in whole by the act, neglect or omission of any duty by Tenant, its agents, employees or invitees, and Tenant will pay to Landlord, as additional rent, the reasonable cost of all maintenance, repairs and replacements described by the preceding clauses (i) and (ii). Landlord will not be liable for any failure to make any such repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Landlord by Tenant. Except as provided in Paragraph 20, Tenant will not be entitled to any abatement of rent and, in any event, Landlord will not have any liability by reason of any injury to or interference with Tenant's business (as opposed to property damage or personal injury) arising from the making of any repairs, alterations or improvements in or to any portion of the Buildings or the Premises or in or to fixtures, appurtenances and equipment therein. Tenant waives the right to make repairs at Landlord's expense under any law, statute, ordinance, rule, regulation, order or ruling (including, without limitation, to the extent the Premises are located in California, the provisions of California Civil Code Sections 1941 and 1942 and any successor statutes or laws of a similar nature). (b) Tenant's Obligations. Tenant shall keep, maintain and preserve the non- structural, interior and accessible portions of the Premises in first class condition and repair and, when and if needed, at Tenant's sole cost and expense, Tenant shall make all repairs to the non-structural, interior and accessible portions of the Premises; however, in no event shall Tenant be required to make or remove any improvements or alterations to be made or removed in order to use the Premises for office purposes, nor shall Tenant be obligated to remove any Hazardous Materials (defined in Subparagraph 8(c) above) the presence and release of which was not caused by Tenant or any of Tenant's Parties (as defined in Subparagraph 8(c) above). Any repairs required to be made by Tenant which involve or affect any Building utility systems or other Building system or any structural portions of the Building shall, at Landlord's option, be performed by such contractor or contractors as Tenant may choose from an approved list to be submitted by Landlord and Tenant agrees to pay all costs and expenses incurred in such maintenance and repair within seven (7) days after billing by Landlord or such contractor or contractors. All maintenance and other repairs may be performed by a contractor selected and hired by Tenant and reasonably approved by Landlord. Tenant agrees to cause any mechanics' liens or other liens arising as a result of work performed by Tenant or at Tenant's direction to be eliminated as provided in Paragraph 15 below. Except as provided in Subparagraph 14(a) above, and except for Landlord's construction of the Tenant Improvements, Landlord has no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof. (c) Tenant's Failure to Repair. If Tenant refuses or neglects to repair and maintain the Premises properly as required hereunder to the reasonable satisfaction of Landlord, or fails to promptly commence and diligently pursue any such repair or maintenance, Landlord, at any time following ten (10) days from the date on which Landlord makes a written demand on Tenant to effect such repair or maintenance, may enter upon the Premises and make such repairs and/or maintenance, and upon completion thereof, Tenant agrees to pay to Landlord as additional rent, Landlord's costs for making such repairs or performing such maintenance plus an amount not to -18- exceed ten percent (10%) of such costs for overhead, within ten (10) days of receipt from Landlord of a written itemized bill therefor. Any amounts not reimbursed by Tenant within such ten (10) day period will bear interest at the Interest Rate until paid by Tenant. 15. LIENS. Tenant agrees not to permit any mechanic's, materialmen's or other liens to be filed against all or any part of the Development, the Buildings or the Premises, nor against Tenant's leasehold interest in the Premises, by reason of or in connection with any repairs, alterations, improvements or other work contracted for or undertaken by Tenant or any other act or omission of Tenant or Tenant's agents, employees, contractors, licensees or invitees. At Landlord's request, Tenant agrees to provide Landlord with enforceable, conditional and final lien releases (or other evidence reasonably requested by Landlord to demonstrate protection from liens) from all persons furnishing labor and/or materials to or for the benefit of Tenant. Landlord will have the right at all reasonable times to post on the Premises and record any notices of non-responsibility which it deems necessary for protection from such liens. If any such liens are filed, Tenant will, at its sole cost, promptly cause such liens to be released of record or bonded so that it no longer affects title to the Development, the Buildings or the Premises. If Tenant fails to cause any such liens to be so released or bonded within ten (10) days after filing thereof, such failure will be deemed a material breach by Tenant under this Lease without the benefit of any additional notice or cure period described in Paragraph 22 below, and Landlord may, without waiving its rights and remedies based on such breach, and without releasing Tenant from any of its obligations, cause such liens to be released by any means it shall deem proper, including payment in satisfaction of the claims giving rise to such liens. Tenant agrees to pay to Landlord within ten (10) days after receipt of invoice from Landlord, any sum paid by Landlord to remove such liens, together with interest at the Interest Rate from the date of such payment by Landlord. 16. ENTRY BY LANDLORD. Subject to giving Tenant at least one (1) business days' prior written notice except in an emergency, Landlord and its employees and agents will at all times have the right to enter the Premises to inspect the same, to supply janitorial service and any other service to be provided by Landlord to Tenant hereunder, to show the Premises to prospective purchasers, tenants or lenders, to post notices of nonresponsibility, to install reasonable "for sale" or "for lease" signs, and/or to repair the Premises as permitted or required by this Lease. In exercising such entry rights, Landlord will endeavor to minimize, as reasonably practicable, the interference with Tenant's business, and will provide Tenant with reasonable advance notice of any such entry (except in emergency situations). Landlord may, in order to carry out such purposes, erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed. Landlord will at all times have and retain a key with which to unlock all doors in the Premises, excluding Tenant's vaults and safes. Landlord will have the right to use any and all means which Landlord may reasonably deem proper to open said doors in an emergency in order to obtain entry to the Premises. Any entry to the Premises obtained by Landlord by any of said means, or otherwise, will not be construed or deemed to be a forcible or unlawful entry into the Premises, or an eviction of Tenant from the Premises. Landlord will not be liable to Tenant for any damages or losses for any entry by Landlord in an emergency, or for any damages or losses to Tenant's business for any entry by Landlord. Landlord shall not be liable for any other damages or losses for any entry by Landlord unless caused by the gross negligence or willful misconduct of Landlord. 17. UTILITIES AND SERVICES. Throughout the Term of the Lease so long as the Premises are occupied, Landlord agrees to furnish or cause to be furnished to the Premises the utilities and services described in the Standards for Utilities and Services attached hereto as Exhibit "F", subject to the conditions and in ----------- accordance with the standards set forth therein. Landlord may require Tenant from time to time to provide Landlord with a list of Tenant's employees and/or agents which are authorized by Tenant to subscribe on behalf of Tenant for any additional services which may be provided by Landlord. Any such additional services will be provided to Tenant at Tenant's cost. Landlord will not be liable to Tenant for any failure to furnish any of the foregoing utilities and services if such failure is caused by all or any of the following: (i) accident, breakage or repairs; (ii) strikes, lockouts or other labor disturbance or labor dispute of any character; (iii) governmental regulation, moratorium or other governmental action or inaction; (iv) inability despite the exercise of reasonable diligence to obtain electricity, water or fuel; or (v) any other cause beyond Landlord's reasonable control. In addition, in the event of any stoppage or interruption of services or utilities, Tenant shall not be entitled to any abatement or reduction of rent (except as expressly provided in Subparagraphs 20(f) or 21(b), if such failure results from a damage or taking described therein, and except that in the case of interruption caused by the negligence or willful misconduct of Landlord which continues for ten (10) business days after written notice to Landlord of the interruption, rent shall abate to the extent that, and for so long as, Tenant cannot use the Premises for the purposes permitted hereunder), no eviction of Tenant will -19- result from such failure and Tenant will not be relieved from the performance of any covenant or agreement in this Lease because of such failure. In the event of any failure, stoppage or interruption thereof, Landlord agrees to diligently attempt to resume service promptly. If Tenant requires or utilizes more water or electrical power than is considered reasonable or normal by Landlord, Landlord may at its option require Tenant to pay, as additional rent, the cost, as fairly determined by Landlord, incurred by such extraordinary usage and/or Landlord may install separate meter(s) for the Premises, at Tenant's sole expense, and Tenant agrees thereafter to pay all charges of the utility providing service and Landlord will make an appropriate adjustment to Tenant's Operating Expenses calculation to account for the fact Tenant is directly paying such metered charges, provided Tenant will remain obligated to pay its proportionate share of Operating Expenses subject to such adjustment. 18. ASSUMPTION OF RISK AND INDEMNIFICATION. (a) Tenant's Assumption of Risk and Waiver. Tenant, as a material part of the consideration to Landlord, hereby agrees that neither Landlord nor any Indemnified Landlord Party (defined in Subparagraph 18(b) below) will be liable to Tenant for, and Tenant expressly assumes the risk of and waives any and all claims it may have against Landlord or any Landlord Indemnified Parties with respect to: (i) any and all damage to property or injury to persons in, upon or about the Premises, the Buildings or the Development resulting from any act or omission of Landlord or of any Indemnified Landlord Party, except for any active negligence or willful misconduct of any Indemnified Landlord Party; (ii) any such damage caused by other tenants or persons in or about the Building or the Development, or caused by quasi-public work; (iii) any damage to personal property that Tenant entrusts to any person or entity, (iv) any loss of or damage to property by theft or otherwise, or (v) any injury or damage to persons or property resulting from any casualty, explosion, falling plaster or other masonry or glass, steam, gas, electricity, water or rain which may leak from any part of the Buildings or any other portion of the Development or from the pipes, appliances or plumbing works therein or from the roof, street or subsurface or from any other place, or resulting from dampness. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Lease, neither Landlord nor any Landlord Indemnified Parties will be liable for consequential damages arising out of any loss of the use of the Premises or any equipment or facilities therein by Tenant or any Tenant Parties or for interference with light or other incorporeal hereditaments. Tenant agrees to give prompt notice to Landlord in case of fire or accidents in the Premises or the Buildings, or of defects therein or in the fixtures or equipment. (b) Indemnification. Tenant will be liable for, and agrees to promptly indemnify, protect, defend and hold harmless Landlord and Landlord's partners, officers, directors, employees, agents, successors and assigns (collectively, "Indemnified Landlord Parties"), from and against, any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs, including attorneys' fees and court costs (collectively, "Indemnified Claims"), arising or resulting from (i) any act or omission of Tenant or any of Tenant's agents, employees, contractors, subtenants, assignees, licensees or invitees (collectively, "Tenant Parties") which directly or indirectly relate to or affect Landlord or the Development in any way; (ii) the use of the Premises and Development Common Areas and conduct of Tenant's business by Tenant or any Tenant Parties, or any other activity, work or thing done, knowingly permitted by Tenant or any Tenant Parties, in or about the Premises, the Buildings or elsewhere within the Development; and/or (iii) any default by Tenant of any obligations on Tenant's part to be performed under the terms of this Lease. In case any action or proceeding is brought against Landlord or any Landlord Indemnified Parties by reason of any such Indemnified Claims, Tenant, upon notice from Landlord, agrees to defend the same at Tenant's expense by counsel approved in writing by Landlord, which approval Landlord will not unreasonably withhold. Landlord shall defend and indemnify Tenant from and against any and all claims, losses, liabilities, causes of action, damages, costs and expenses (including, without limitation, reasonable attorneys' fees) arising from the active negligence or willful misconduct by Landlord or Landlord's agents or employees or from any breach of this Lease by Landlord which continues after notice and the expiration of all applicable cure periods. (c) Survival; No Release of Insurers. The parties' obligations under Subparagraph 18(b) above will survive the expiration or earlier termination of this Lease. The covenants, agreements and indemnification obligations in Subparagraphs 18(a) and 18(b) above are not intended to and will not relieve any insurance carrier of its obligations under policies required to be carried by Landlord or Tenant pursuant to the provisions of this Lease. -20- 19. INSURANCE. (a) Tenant's Insurance. On or before the earlier to occur of (i) the Commencement Date, or (ii) the date Tenant commences any work of any type in the Premises pursuant to this Lease (which may be prior to the Commencement Date), and continuing throughout the entire Term hereof and any other period of occupancy, Tenant agrees to keep in full force and effect, at its sole cost and expense, the following insurance: (i) "All Risks" property insurance including at least the following perils: fire and extended coverage, smoke damage, vandalism, malicious mischief, sprinkler leakage (including earthquake sprinkler leakage). This insurance policy must be upon all property owned by Tenant, for which Tenant is legally liable, or which is installed at Tenant's expense, and which is located in the Building including, without limitation, any Tenant Improvements which satisfy the foregoing qualification and any Alterations, and all furniture, fittings, installations, fixtures and any other personal property of Tenant, in an amount not less than the full replacement cost thereof. If there is a dispute as to full replacement cost, the decision of Landlord or any mortgagee of Landlord will be presumptive. (ii) One (1) year insurance coverage for business interruption and loss of income and extra expense insuring the same perils described in Subparagraph 19(a)(i) above, in such amounts as will reimburse Tenant for any direct or indirect loss of earnings attributable to any such perils including prevention of access to the Premises, the parking areas or the Buildings as a result of any such perils. (iii) Commercial General Liability Insurance or Comprehensive General Liability Insurance (on an occurrence form) insuring bodily injury, personal injury and property damage including the following divisions and extensions of coverage: Premises and Operations; Owners and Contractors protective; blanket contractual liability (including coverage for Tenant's indemnity obligations under this Lease); products and completed operations; liquor liability (if Tenant serves alcohol on the Premises); and fire and water damage legal liability in an amount sufficient to cover the replacement value of the Premises, including Tenant Improvements, that are rented under the terms of this Lease. Such insurance must have the following minimum limits of liability: bodily injury, personal injury and property damage - $1,000,000 each occurrence, provided that if liability coverage is provided by a Commercial General Liability policy the general aggregate limit shall apply separately and in total to this location only (per location general aggregate), and provided further, such minimum limits of liability may be adjusted no more frequently than annually to reflect increases in coverages as recommended by Landlord's insurance carrier as being prudent and commercially reasonable for tenants of buildings comparable to the Building and tenants whose use of their leased premises is comparable to Tenant's use of the Premises, rounded to the nearest five hundred thousand dollars. (iv) Comprehensive Automobile Liability insuring bodily injury and property damage arising from all owned, non-owned and hired vehicles, if any, with minimum limits of liability of $1,000,000 per accident. (v) Worker's Compensation as required by the laws of the State of California with the following minimum limits of liability: Coverage A- statutory benefits; Coverage B - $1,000,000 per accident and disease. (vi) Any other form or forms of insurance as Tenant or Landlord or any mortgagees of Landlord may reasonably require from time to time in form, in amounts, and for insurance risks against which, a prudent tenant would protect itself, but only to the extent coverage for such risks and amounts are available in the insurance market at commercially acceptable rates. Landlord makes no representation that the limits of liability required to be carried by Tenant under the terms of this Lease are adequate to protect Tenant's interests and Tenant should obtain such additional insurance or increased liability limits as Tenant deems appropriate. (b) Supplemental Tenant Insurance Requirements. (i) All policies must be in a form reasonably satisfactory to Landlord and issued by an insurer admitted to do business in the State of California. -21- (ii) All policies must be issued by insurers with a policyholder rating of "A" and a financial rating of "X" in the most recent version of Best's Key Rating Guide. (iii) All policies must contain a requirement to notify Landlord (and Landlord's property manager and any mortgagees or ground lessors of Landlord who are named as additional insureds, if any) in writing not less than thirty (30) days prior to any material change, reduction in coverage, cancellation or other termination thereof. Tenant agrees to deliver to Landlord, as soon as practicable after placing the required insurance, but in any event within the time frame specified in Subparagraph 19(a) above, certificate(s) of insurance and/or if required by Landlord, certified copies of each policy evidencing the existence of such insurance and Tenant's compliance with the provisions of this Paragraph 19. Tenant agrees to cause replacement policies or certificates to be delivered to Landlord not less than thirty (30) days prior to the expiration of any such policy or policies. If any such initial or replacement policies or certificates are not furnished within the time(s) specified herein, Tenant will be deemed to be in material default under this Lease without the benefit of any additional notice or cure period provided in Subparagraph 22(a)(iii) below, and Landlord will have the right, but not the obligation, to procure such insurance as Landlord deems necessary to protect Landlord's interests at Tenant's expense. If Landlord obtains any insurance that is the responsibility of Tenant under this Paragraph 19, Landlord agrees to deliver to Tenant a written statement setting forth the cost of any such insurance and showing in reasonable detail the manner in which it has been computed and Tenant agrees to promptly reimburse Landlord for such costs as additional rent. (iv) General Liability and Automobile Liability policies under Subparagraphs 19(a)(iii) and (iv) must name Landlord and Landlord's property manager (and at Landlord's request, Landlord's mortgagees and ground lessors of which Tenant has been informed in writing) as additional insureds and must also contain a provision that the insurance afforded by such policy is primary insurance and any insurance carried by Landlord and Landlord's property manager or Landlord's mortgagees or ground lessors, if any, will be excess over and non-contributing with Tenant's insurance. (c) Tenant's Use. Tenant will not keep, use, sell or offer for sale in or upon the Premises any article which may be prohibited by any insurance policy periodically in force covering the Buildings or the Development Common Areas. If Tenant's occupancy or business in, or on, the Premises, whether or not Landlord has consented to the same, results in any increase in premiums for the insurance periodically carried by Landlord with respect to the Buildings or the Development Common Areas or results in the need for Landlord to maintain special or additional insurance, Tenant agrees to pay Landlord the cost of any such increase in premiums or special or additional coverage as additional rent within ten (10) days after being billed therefor by Landlord. In determining whether increased premiums are a result of Tenant's use of the Premises, a schedule issued by the organization computing the insurance rate on the Buildings, the Development Common Areas or the Tenant Improvements showing the various components of such rate, will be conclusive evidence of the several items and charges which make up such rate. Tenant agrees to promptly comply with all reasonable requirements of the insurance authority or any present or future insurer relating to the Premises. (d) Cancellation of Landlord's Policies. If any of Landlord's insurance policies are cancelled or cancellation is threatened or the coverage materially reduced or threatened to be materially reduced in any way because of the use of the Premises or any part thereof by Tenant or any assignee or subtenant of Tenant or by anyone Tenant permits on the Premises and, if Tenant fails to remedy the condition giving rise to such cancellation, threatened cancellation, material reduction of coverage, threatened material reduction of coverage, within forty-eight (48) hours after notice thereof, Tenant will be deemed in material default of this Lease and Landlord may terminate this Lease and Landlord will have all of the remedies provided for in this Lease in the event of a default by Tenant. Additionally, in event of any cancellation, threatened cancellation, reduction in coverage (whether or not material), threatened reduction in coverage (whether or not material), increase in premium or threatened increase in premiums because of such use, Landlord may enter upon the Premises and attempt to remedy such condition, and Tenant shall promptly pay Landlord the reasonable costs of such remedy as additional rent. (e) Waiver of Subrogation. The insurance policies required to be maintained by Landlord and Tenant under this Lease shall contain a clause or endorsement whereby the insurer waives all rights of recovery by way of subrogation against the other party required to carry the applicable -22- insurance except that such waiver of subrogation need not apply to rights of recovery based on personal injury claims. Landlord and Tenant shall obtain and furnish evidence to each other evidence of the waiver by their insurance carrier(s) of all rights of recovery by way of subrogation. 20. DAMAGE OR DESTRUCTION. (a) Partial Destruction. If the Premises or the Buildings are damaged by fire or other casualty to an extent not exceeding twenty-five percent (25%) of the full replacement cost thereof, and Landlord's contractor reasonably estimates in a writing delivered to Landlord and Tenant that the damage thereto may be repaired, reconstructed or restored to substantially its condition immediately prior to such damage within one hundred eighty (180) days from the date of such casualty, and Landlord will receive insurance --- proceeds sufficient to cover the costs of such repairs, reconstruction and restoration (including proceeds from Tenant and/or Tenant's insurance which Tenant is required to deliver to Landlord pursuant to Subparagraph 20(e) below to cover Tenant's obligation for the costs of repair, reconstruction and restoration of any portion of the Tenant Improvements and any Alterations for which Tenant is responsible under this Lease) or Tenant agrees in writing to promptly pay to Landlord sums sufficient (with insurance proceeds received by Landlord) to pay for all such work and Tenant promptly delivers to Landlord reasonable evidence that Tenant will be able to pay such sums without materially and adversely affecting Tenant's ability to operate its business or perform its obligations under this Lease, then Landlord shall commence and proceed diligently with the work of repair, reconstruction and restoration and this Lease shall continue in full force and effect. Tenant shall have no right to repayment or reimbursement of any sums paid by Tenant to fund the work, nor shall Tenant have any interest in or to the Premises, Building or Development as a result of any such payment by Tenant. (b) Substantial Destruction. Any damage or destruction to the Premises or the Buildings which Landlord is not obligated to repair pursuant to Subparagraph 20(a) above shall be deemed a substantial destruction. In the event of a substantial destruction, Landlord may elect to either (i) repair, reconstruct and restore the portions of the Buildings or the Premises damaged by such casualty, in which case this Lease shall continue in full force and effect, subject to Tenant's termination right contained in Subparagraph 20(d) below; or (ii) terminate this Lease effective as of the date which is thirty (30) days after Tenant's receipt of Landlord's election to so terminate. (c) Notice. Under any of the conditions of Subparagraph 20(a) or (b) above, Landlord agrees to give written notice to Tenant of its intention to repair or terminate, as permitted in such paragraphs, within the earlier of sixty (60) days after the occurrence of such casualty, or fifteen (15) days after Landlord's receipt of the estimate from Landlord's contractor (the applicable time period to be referred to herein as the "Notice Period"). (d) Tenant's Termination Rights. If Landlord elects to repair, reconstruct and restore pursuant to Subparagraph 20(b)(i) above, and if Landlord's contractor estimates that as a result of such damage, Tenant cannot be given reasonable use of and access to the Premises within three hundred (300) days after the date of such damage, then Tenant may terminate this Lease effective upon delivery of written notice to Landlord within ten (10) days after Landlord delivers notice to Tenant of its election to so repair, reconstruct or restore. (e) Tenant's Costs and Insurance Proceeds. In the event of any damage or destruction of all or any part of the Premises, Tenant agrees to immediately (i) notify Landlord thereof, and (ii) deliver to Landlord all property insurance proceeds actually received by Tenant with respect to any Tenant Improvements and any Alterations (but not proceeds for Tenant's furniture, fixtures, equipment and other personal property) whether or not this Lease is terminated as permitted in this Paragraph 20, and Tenant hereby assigns to Landlord all rights to receive such insurance proceeds. If Tenant fails to obtain insurance for the full replacement cost of any Tenant Improvements and any Alterations covering any and all casualties, then Tenant will be deemed to have self-insured the replacement cost of such items, and upon any damage or destruction thereto, Tenant shall immediately pay to Landlord the full replacement cost of such items, less any insurance proceeds actually received by Landlord from Landlord's or Tenant's insurance with respect to such items. (f) Abatement of Rent. In the event of any damage, repair, reconstruction and/or restoration described in this Paragraph 20, rent will be abated or reduced, as the case may be, in proportion -23- to the degree to which Tenant's use of the Premises is impaired during such period of repair until such use is restored. Except for abatement of rent as provided hereinabove, Tenant will not be entitled to any compensation or damages for loss of, or interference with, Tenant's business or use or access of all or any part of the Premises, or for lost profits or for any other consequential damages of any kind or nature (except for damages for property damage and personal injury caused by active negligence or willful misconduct), which results from any such damage, repair, reconstruction or restoration. (g) Inability to Complete. Notwithstanding anything to the contrary contained in this Paragraph 20, if Landlord is obligated or elects to repair, reconstruct and/or restore the damaged portion of the Building or the Premises pursuant to Subparagraph 20(a) or 20(b)(i) above, but is delayed from completing such repair, reconstruction and/or restoration beyond the date which is one hundred twenty (120) days after the date estimated by Landlord's contractor for completion thereof by reason of any causes which are beyond the reasonable control of Landlord as described in Paragraph 33, then either Landlord or Tenant may elect to terminate this Lease upon ten (10) days' prior written notice given to the other after the expiration of such one hundred twenty (120) day period; provided, however, that if delays in completion are caused by Tenant or its subtenants, employees, agents or contractors, then Tenant may not terminate this Lease until the date which is one hundred and twenty (120) days after the date estimated by Landlord's contractor for completion as extended by such delay(s). (h) Damage Near End of Term. Landlord and Tenant shall each have the right to terminate this Lease if any damage to the Premises or the Building occurs during the last twelve (12) months of the Term of this Lease where Landlord's contractor estimates in a writing delivered to Landlord and Tenant that the repair, reconstruction or restoration of such damage cannot be completed within forty-five (45) days after the date of such casualty. If either party desires to terminate this Lease under this Subparagraph (h), it shall provide written notice to the other party of such election within ten (10) days after receipt of Landlord's contractor's repair estimates. (i) Waiver of Termination Right. Landlord and Tenant agree that the foregoing provisions of this Paragraph 20 are to govern their respective rights and obligations in the event of any damage or destruction and supersede and are in lieu of the provisions of any applicable law, statute, ordinance, rule, regulation, order or ruling now or hereafter in force which provide remedies for damage or destruction of leased premises (including, without limitation, the provisions of California Civil Code Section 1932, Subsection 2, and Section 1933, Subsection 4 and any successor statute or laws of a similar nature). (j) Termination. Upon any termination of this Lease under any of the provisions of this Paragraph 20, the parties will be released without further obligation to the other from the date possession of the Premises is surrendered to Landlord except for items which have accrued and are unpaid as of the date of termination and matters which are to survive any termination of this Lease as provided in this Lease. 21. EMINENT DOMAIN. (a) Substantial Taking. If the whole of the Premises, or such part thereof as shall substantially interfere with Tenant's use and occupancy of the Premises, as contemplated by this Lease, is taken for any public or quasi- public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, either party will have the right to terminate this Lease effective as of the date possession is required to be surrendered to such authority. (b) Partial Taking; Abatement of Rent. In the event of a taking of a portion of the Premises which does not substantially interfere with Tenant's use and occupancy of the Premises, then, neither party will have the right to terminate this Lease and Landlord will thereafter proceed to make a functional unit of the remaining portion of the Premises (but only to the extent Landlord receives proceeds therefor from the condemning authority), and rent will be abated with respect to the part of the Premises which Tenant is deprived of on account of such taking. Notwithstanding the immediately preceding sentence to the contrary, if any portion(s) of the Buildings or the Development is taken (whether or not such taking substantially interferes with Tenant's use of the Premises), Landlord may terminate this Lease upon thirty (30) days' prior written notice to Tenant if Landlord also terminates the leases of at least two other tenants of the Buildings. -24- (c) Condemnation Award. In connection with any taking of the Premises or the Buildings, Landlord will be entitled to receive the entire amount of any award which may be made or given in such taking or condemnation, without deduction or apportionment for any estate or interest of Tenant, it being expressly understood and agreed by Tenant that no portion of any such award will be allowed or paid to Tenant for any so-called bonus or excess value of this Lease, and such bonus or excess value will be the sole property of Landlord. Tenant agrees not to assert any claim against Landlord or the taking authority for any compensation because of such taking (including any claim for bonus or excess value of this Lease); provided, however, if any portion of the Premises is taken, Tenant will have the right to recover from the condemning authority (but not from Landlord) any compensation as may be separately awarded or recoverable by Tenant for the taking of Tenant's furniture, fixtures, equipment and other personal property within the Premises, for Tenant's relocation expenses, and for any loss of goodwill or other damage to Tenant's business by reason of such taking. (d) Temporary Taking. In the event of taking of the Premises or any part thereof for temporary use, (i) this Lease will remain unaffected thereby and rent will not abate, and (ii) Tenant will be entitled to receive such portion or portions of any award made for such use with respect to the period of the taking which is within the Term, provided that if such taking remains in force at the expiration or earlier termination of this Lease, Tenant will then pay to Landlord a sum equal to the reasonable cost of performing Tenant's obligations under Paragraph 11 with respect to surrender of the Premises and upon such payment Tenant will be excused from such obligations. For purpose of this Subparagraph 21(d), a temporary taking shall be defined as a taking for a period of ninety (90) days or less. (e) Waiver. The provisions of California Code of Civil Procedure Section 1265.130, which allows either party to petition the Superior Court to terminate the Lease in the event of a partial taking of the Premises, and any successor or similar law now or hereafter enacted, are hereby waived by Landlord and Tenant. 22. DEFAULTS AND REMEDIES. (a) Defaults. The occurrence of any one or more of the following events will be deemed a default by Tenant: (i) The vacation of the Premises by Tenant for sixty (60) days or longer (whether or not Tenant is otherwise in default under any provision of this Lease). (ii) The failure by Tenant to make any payment of rent or additional rent or any other payment required to be made by Tenant hereunder, as and when due, where such failure continues for a period of three (3) days after written notice thereof from Landlord to Tenant; provided, however, that any such notice will be in lieu of, and not in addition to, any notice required under applicable law (including, without limitation, to the extent the Premises are located in California, the provisions of California Code of Civil Procedure Section 1161 regarding unlawful detainer actions or any successor statute or law of a similar nature). (iii) Failure of Tenant to execute and deliver to Landlord any subordination agreement, estoppel certificates, lease amendment or separate lease within the time periods and in the manner required by Paragraph 25, 26, 29 or 30; (iv) An assignment or sublease, or attempted assignment or sublease by Tenant contrary to the provision of Paragraph 24; (v) The failure by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, other than as specified in Subparagraph 22(a)(i) or (ii) above, where such failure continues for a period of ten (10) days after written notice thereof from Landlord to Tenant. The provisions of any such notice will be in lieu of, and not in addition to, any notice required under applicable law (including, without limitation, to the extent the Premises are located in California, California Code of Civil Procedure Section 1161 regarding unlawful detainer actions and any successor statute or similar law). If the nature of Tenant's default is such that more than ten (10) days are reasonably required for its cure, then Tenant will not be deemed to be in default if Tenant commences such cure within such ten (10) day period and thereafter diligently prosecutes such -25- cure to completion and, in any event, completes the cure within one hundred and twenty (120) days after the notice from Landlord. (vi) (A) The making by Tenant of any general assignment for the benefit of creditors; (B) the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); (C) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or (D) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease where such seizure is not discharged within thirty (30) days. (b) Landlord's Remedies; Termination. In the event of any default by Tenant, in addition to any other remedies available to Landlord at law or in equity under applicable law and under this Lease (except for the remedy described in Subparagraph 22(c) below), Landlord will have the immediate right and option to terminate this Lease and all rights of Tenant hereunder. If Landlord elects to terminate this Lease then, to the extent permitted under applicable law, Landlord may recover from Tenant: (i) The worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rent loss that Tenant proves could have been reasonably avoided; plus (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rent loss that Tenant proves could be reasonably avoided; plus (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which, in the ordinary course of things, results therefrom including, but not limited to: attorneys' fees and costs; brokers' commissions; the costs of refurbishment, alterations, renovation and repair of the Premises, and removal (including the repair of any damage caused by such removal) and storage (or disposal) of Tenant's personal property, equipment, fixtures, Alterations, the Tenant Improvements and any other items which Tenant is required under this Lease to remove but does not remove, as well as the unamortized value of any free rent, reduced rent, free parking, reduced rate parking and any Tenant Improvement Allowance or other costs or economic concessions provided, paid, granted or incurred by Landlord pursuant to this Lease. The unamortized value of such concessions shall be determined by taking the total value of such concessions and multiplying such value by a fraction, the numerator of which is the number of months of the Lease Term not yet elapsed as of the date on which the Lease is terminated, and the denominator of which is the total number of months of the Lease Term. As used in Subparagraphs 22(b)(i) and (ii) above, the "worth at the time of award" is computed by allowing interest at the Interest Rate. As used in Subparagraph 22(b)(iii) above, the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). (c) Landlord's Remedies; Continuation of Lease. In the event of any default by Tenant, then in addition to any other remedies available to Landlord at law or in equity and under this Lease (except for the remedy described in Subparagraph 22(b) above), Landlord shall have the remedy described in California Civil Code Section 1951.4 (Landlord may continue this Lease in effect after Tenant's default and abandonment and recover Rent as it becomes due, provided Tenant has the right to sublet or assign, subject only to reasonable limitations). (d) Landlord's Remedies; Re-Entry Rights. In the event of any default by Tenant, in addition to any other remedies available to Landlord under this Lease, at law or in equity, Landlord will also have the right, with or without terminating this Lease, to re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere and/or disposed of at the cost of and for the account of Tenant in accordance with the provisions of Subparagraph 13(i) of this Lease or any other procedures permitted by applicable law. No re-entry or taking possession of the Premises by Landlord pursuant to this Subparagraph 22(d) will be construed as an election to terminate this Lease unless a written notice of such intention is given to Tenant or unless the termination thereof is decreed by a court of competent jurisdiction. -26- (e) Landlord's Remedies; Re-Letting. In the event of the vacation or abandonment of the Premises by Tenant or in the event that Landlord elects to re-enter the Premises or takes possession of the Premises pursuant to legal proceeding or pursuant to any notice provided by law, then if Landlord does not elect to terminate this Lease, Landlord may from time to time, without terminating this Lease, either recover all rent as it becomes due or relet the Premises or any part thereof on terms and conditions as Landlord in its sole discretion may deem advisable with the right to make alterations and repairs to the Premises in connection with such reletting. If Landlord elects to relet the Premises, then rents received by Landlord from such reletting will be applied: first, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any cost of such reletting; third, to the payment of the cost of any alterations and repairs to the Premises incurred in connection with such reletting; fourth, to the payment of rent due and unpaid hereunder and the residue, if any, will be held by Landlord and applied to payment of future rent as the same may become due and payable hereunder. Should that portion of such rents received from such reletting during any month, which is applied to the payment of rent hereunder, be less than the rent payable during that month by Tenant hereunder, then Tenant agrees to pay such deficiency to Landlord immediately upon demand therefor by Landlord. Such deficiency will be calculated and paid monthly. (f) Landlord's Remedies; Performance for Tenant. All covenants and agreements to be performed by Tenant under any of the terms of this Lease are to be performed by Tenant at Tenant's sole cost and expense and without any offset against, or abatement of, rent. If Tenant fails to pay any sum of money owed to any party other than Landlord, for which it is liable under this Lease, or if Tenant fails to perform any other act on its part to be performed hereunder, and such failure continues for ten (10) days after notice thereof by Landlord, Landlord may, without waiving or releasing Tenant from its obligations, but shall not be obligated to, make any such payment or perform any such other act to be made or performed by Tenant; provided, however, that if Tenant commences to perform such act and diligently continues to perform such act within the ten (10) day period following notice by Landlord, then Landlord shall not have the rights provided by this sentence until such time as Tenant ceases to diligently perform such act. Tenant agrees to reimburse Landlord upon demand for all sums so paid by Landlord and all necessary incidental costs, together with interest thereon at the Interest Rate, from the date of such payment by Landlord until reimbursed by Tenant. This remedy shall be in addition to any other right or remedy of Landlord set forth in this Paragraph 22. (g) Late Payment. If Tenant fails to pay any installment of rent within five (5) days after it is due, or if Tenant fails to make any other payment for which Tenant is obligated under this Lease within five (5) days of when due, such late amount will accrue interest at the Interest Rate and Tenant agrees to pay Landlord as additional rent such interest on such amount from the date such amount becomes due until such amount is paid. In addition, Tenant agrees to pay to Landlord concurrently with such late payment amount, as additional rent, a late charge equal to five percent (5%) of the amount due to compensate Landlord for the extra costs Landlord will incur as a result of such late payment. The parties agree that (i) it would be impractical and extremely difficult to fix the actual damage Landlord will suffer in the event of Tenant's late payment, (ii) such interest and late charge represents a fair and reasonable estimate of the detriment that Landlord will suffer by reason of late payment by Tenant, and (iii) the payment of interest and late charges are distinct and separate in that the payment of interest is to compensate Landlord for the use of Landlord's money by Tenant, while the payment of late charges is to compensate Landlord for Landlord's processing, administrative and other costs incurred by Landlord as a result of Tenant's delinquent payments. Acceptance of any such interest and late charge will not constitute a waiver of the Tenant's default with respect to the overdue amount, or prevent Landlord from exercising any of the other rights and remedies available to Landlord. If Tenant incurs a late charge more than three (3) times in any period of twelve (12) months during the Lease Term, then, notwithstanding that Tenant cures the late payments for which such late charges are imposed, Landlord will have the right to require Tenant thereafter to pay all installments of Monthly Base Rent quarterly in advance throughout the remainder of the Lease Term. (h) Landlord's Security Interest. [INTENTIONALLY DELETED] (i) Rights and Remedies Cumulative. All rights, options and remedies of Landlord contained in this Lease will be construed and held to be cumulative, and no one of them will be exclusive of the other, and Landlord shall have the right to pursue any one or all of such remedies or any other remedy or relief which may be provided by law or in equity, whether or not stated in this Lease. Nothing in this Paragraph 22 will be deemed to limit or otherwise affect Tenant's indemnification of Landlord pursuant to any provision of this Lease. -27- Nothing in this Paragraph 22 will be deemed to limit or otherwise affect Tenant's indemnification of Landlord pursuant to any provision of this Lease. (j) No Surrender. No act or conduct of Landlord, whether consisting of the acceptance of the keys to the Premises, or otherwise, shall be deemed to be or constitute an acceptance of the surrender of the Premises by Tenant prior to the expiration of the Term, and such acceptance by Landlord of surrender by Tenant shall only flow from and must be evidenced by a written acknowledgment of acceptance of surrender signed by Landlord. The surrender of this Lease by Tenant, voluntarily or otherwise, shall not work a merger unless Landlord elects in writing that such merger take place, but shall operate as an assignment to Landlord of any and all existing subleases, or Landlord may, at its option, elect in writing to treat such surrender as a merger terminating Tenant's estate under this Lease, and thereupon Landlord may terminate any or all such subleases by notifying the sublessee of its election so to do within five (5) days after such surrender. 23. LANDLORD'S DEFAULT. Landlord will not be in default in the performance of any obligation required to be performed by Landlord under this Lease unless Landlord fails to perform such obligation within thirty (30) days after the receipt of written notice from Tenant specifying in detail Landlord's failure to perform; provided however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for performance, then Landlord will not be deemed in default if it commences such performance within such thirty (30) day period and thereafter diligently pursues the same to completion. Upon any default by Landlord, Tenant may exercise any of its rights provided at law or in equity, subject to the limitations on liability set forth in Paragraph 35 of this Lease. In the event that Landlord fails to commence performance of any obligation which Landlord may have under Subparagraph 14(a) above to repair any utility system in the Premises within ten (10) business days after written notice from Tenant describing the necessary repairs in reasonable detail, or Landlord thereafter fails to prosecute such performance in good faith, and if such failure renders this Premises untenantable, then Tenant may upon prior written notice to Landlord and subject to Landlord's reasonable approval of plans therefor, cure the failure, in compliance with all applicable laws, at Tenant's cost, using due care, and Landlord shall reimburse Tenant for all of Tenant's reasonable out-of-pocket costs in connection therewith within fifteen (15) business days after receipt of copies of the bills therefor and appropriate mechanics lien releases. Landlord shall use reasonable efforts to investigate the need for such repairs within five (5) business days after receipt of Tenant's notice. 24. ASSIGNMENT AND SUBLETTING. (a) Restriction on Transfer. Except as expressly provided in this Paragraph 24, Tenant will not, either voluntarily or by operation of law, assign or encumber this Lease or any interest herein or sublet the Premises or any part thereof, or permit the use or occupancy of the Premises by any party other than Tenant (any such assignment, encumbrance, sublease or the like will sometimes be referred to as a "Transfer"), without the prior written consent of Landlord, which consent Landlord shall not unreasonably withhold. (b) Corporate and Partnership Transfers. For purposes of this Paragraph 24, each of the following shall be deemed a Transfer and will be subject to all of the restrictions and provisions contained in this Paragraph 24: (i) Any transfer, assignment, encumbrance or hypothecation of fifty percent (50%) or more (individually or in the aggregate) of any stock or other ownership interest in such Tenant; and (ii) Any transfer, assignment, hypothecation or encumbrance of any controlling ownership or voting interest in Tenant (whether or not such transfer is less than 50% of the stock or ownership interests of Tenant, but excluding any such transfer, assignment, hypothecation or encumbrance by MCA, Inc. of its ownership interest) which results in the transferee having the right, and actually exercising the right, to change the majority of the board of directors of Tenant. Tenant represents and warrants to Landlord that MCA, Inc. does not have the right to elect or appoint a majority of the board of directors of Tenant. Notwithstanding the foregoing, the immediately preceding sentence will not apply to any transfers of stock of Tenant if Tenant is a publicly-held corporation and such stock is transferred publicly over a recognized security exchange or over-the-counter market. (c) Permitted Controlled Transfers. Notwithstanding the provisions of this Paragraph 24 to the contrary, Tenant may assign this Lease or sublet the Premises or any portion thereof ("Permitted Transfer"), without Landlord's consent and without extending any sublease termination option to Landlord, to any parent, subsidiary or affiliate corporation which controls, is controlled by or is under common control with Tenant, or to any corporation resulting from a merger or -28- consolidation with Tenant, or to any person or entity which acquires all or substantially all of the assets or capital stock of Tenant, Tenant's business as a going concern, provided that: (i) at least twenty (20) days prior to such assignment or sublease, Tenant delivers to Landlord the financial statements and other financial and background information of the assignee or sublessee described in Subparagraph 24(d) below; (ii) if an assignment, the assignee assumes, in full, the obligations of Tenant under this Lease (or if a sublease, the sublessee of a portion of the Premises or Term assumes, in full, the obligations of Tenant with respect to such portion); (iii) the financial net worth of the assignee or sublessee as of the time of the proposed assignment or sublease equals or exceeds that of Tenant as of the date of execution of this Lease; (iv) Tenant remains fully liable under this Lease; (v) the use of the Premises under Paragraph 8 remains substantially the same; and (vi) the use of the Premises by the assignee or subtenant does not involve any types or quantities of Hazardous Materials in addition to the types and quantities of Hazardous Materials used by Tenant that have been approved by Landlord. (d) Transfer Notice. If Tenant desires to effect a Transfer, then at least thirty (30) days prior to the date when Tenant desires the Transfer to be effective (the "Transfer Date"), Tenant agrees to give Landlord a notice (the "Transfer Notice"), stating the name, address and business of the proposed assignee, sublessee or other transferee (sometimes referred to hereinafter as "Transferee"), reasonable information (including references) concerning the character, ownership, and financial condition of the proposed Transferee, the Transfer Date, any ownership or commercial relationship between Tenant and the proposed Transferee, and the consideration and all other material terms and conditions of the proposed Transfer, all in such detail as Landlord may reasonably require. If Landlord reasonably requests additional detail, the Transfer Notice will not be deemed to have been received until Landlord receives such additional detail, and Landlord may withhold consent to any Transfer until such information is provided to it. (e) Landlord's Options. Within fifteen (15) days of Landlord's receipt of any Transfer Notice, and any additional information requested by Landlord concerning the proposed Transferee's financial condition, Landlord will elect to do one of the following (i) consent to the proposed Transfer; or (ii) refuse such consent, which refusal shall be on reasonable grounds including, without limitation, those set forth in Subparagraph 24(f) below. (f) Reasonable Disapproval. Landlord and Tenant hereby acknowledge that Landlord's disapproval of any proposed Transfer pursuant to Subparagraph 24(e) will be deemed reasonably withheld if based upon any reasonable factor, including, without limitation, any or all of the following factors: (i) if the Development is less than seventy percent (70%) occupied, if the net effective rent payable by the Transferee (adjusted on a rentable square foot basis) is less than the net effective rent then being quoted by Landlord for new leases in the Development for comparable size space for a comparable period of time; (ii) the proposed Transferee is a governmental entity; (iii) the portion of the Premises to be sublet or assigned is irregular in shape with inadequate means of ingress and egress; (iv) the use of the Premises by the Transferee (A) is not permitted by the use provisions in Paragraph 8 hereof, or (B) violates any exclusive use granted by Landlord to another tenant in the Development; (v) the Transfer would likely result in a significant increase in the use of the parking areas or Development Common Areas by the Transferee's employees or visitors, and/or significantly increase the demand upon utilities and services to be provided by Landlord to the Premises; and (vi) the Transferee does not have the financial capability to fulfill the obligations imposed by the Transfer and this Lease. (g) Additional Conditions. A condition to Landlord's consent to any Transfer of this Lease will be the delivery to Landlord of a true copy of the fully executed instrument of assignment, sublease, transfer or hypothecation, and, in the case of an assignment, the delivery to Landlord of an agreement executed by the Transferee in form and substance reasonably satisfactory to Landlord, whereby the Transferee assumes and agrees to be bound by all of the terms and provisions of this Lease and to perform all of the obligations of Tenant hereunder. As a condition to Landlord's consent to any sublease, such sublease must provide that it is subject and subordinate to this Lease and to all mortgages; that Landlord may enforce the provisions of the sublease, including collection of rent; that in the event of termination of this Lease for any reason, including without limitation a voluntary surrender by Tenant, or in the event of any reentry or repossession of the Premises by Landlord, Landlord may, at its option, either (i) terminate the sublease, or (ii) take over all of the right, title and interest of Tenant, as sublessor, under such sublease, in which case such sublessee will attorn to Landlord, but that nevertheless Landlord will not (1) be liable for any previous act or omission of Tenant under such sublease, (2) be subject to any defense or offset previously accrued in favor of the sublessee against Tenant, or (3) be bound by any previous modification of any sublease made without Landlord's written consent, or by any previous prepayment by sublessee of more than one month's rent; and that -29- upon written notice from Landlord, the assignee or sublessee remit directly to Landlord on a monthly basis, all monies due to Tenant from the assignee or sublessee. (h) Excess Rent. If Landlord consents to any assignment of this Lease, Tenant agrees to pay to Landlord, as additional rent, fifty percent (50%) of the amount by which all sums and other consideration payable to and for the benefit of Tenant by the assignee on account of the assignment, as and when such sums and other consideration are due and payable by the assignee to or for the benefit of Tenant (or, if Landlord so requires, and without any release of Tenant's liability for the same, Tenant shall instruct the assignee to pay such sums and other consideration directly to Landlord). If for any proposed sublease Tenant receives rent or other consideration, either initially or over the term of the sublease, in excess of the rent fairly allocable to the portion of the Premises which is subleased based on square footage, Tenant shall pay to Landlord as additional rent the excess of each such payment of rent or other consideration received by Tenant promptly after its receipt. In calculating excess rent or other consideration which is to be split between Landlord and Tenant under this Subparagraph 24(b), Tenant will be entitled to first deduct commercially reasonable third party brokerage commissions, reasonable attorneys' fees and other reasonable out-of-pocket amounts actually expended by Tenant in connection with such assignment or subletting if reasonable written evidence of such expenditures is provided to Landlord. (i) Termination Rights. [INTENTIONALLY DELETED] (j) No Release. No Transfer will release Tenant of Tenant's obligations under this Lease or alter the primary liability of Tenant to pay the rent and to perform all other obligations to be performed by Tenant hereunder. However, the acceptance of rent by Landlord from any other person will not be deemed to be a waiver by Landlord of any provision hereof. Consent by Landlord to one Transfer will not be deemed consent to any subsequent Transfer. In the event of default by any Transferee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such Transferee or successor. Landlord may consent to subsequent assignments of this Lease or sublettings with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and any such actions will not relieve Tenant of liability under this Lease. (k) Administrative and Attorneys' Fees. If Tenant effects a Transfer or requests the consent of Landlord to any Transfer (whether or not such Transfer is consummated), then, upon demand, Tenant agrees to pay Landlord a non-refundable administrative fee of Two Hundred Fifty Dollars ($250.00), plus any reasonable attorneys' and paralegal fees incurred by Landlord in connection with such Transfer or request for consent (whether attributable to Landlord's in-house attorneys or paralegals or otherwise) not to exceed One Hundred Dollars ($100.00) for each one thousand (1,000) rentable square feet of area contained within the Premises or portion thereof to be assigned or sublet. Acceptance of the Two Hundred Fifty Dollar ($250.00) administrative fee and/or reimbursement of Landlord's attorneys' and paralegal fees will in no event obligate Landlord to consent to any proposed Transfer. 25. SUBORDINATION. This Lease will be subject and subordinate at all times to (i) all ground leases or underlying leases which may now exist or hereafter be executed affecting any of the Buildings and (ii) the lien of any mortgage or deed of trust may now exist or hereafter be executed for which any of the Buildings, the Development or any leases thereof, or Landlord's interest and estate in any of said items, is specified as security; provided, however, that such subordination is hereby conditioned upon the execution and delivery to Tenant by any mortgagee or beneficiary with a deed of trust encumbering any of the Buildings and/or the Development, or any lessor of a ground or underlying lease with respect to any of the Buildings, of the mortgagee's, beneficiary's or ground or underlying lessor's (as applicable) standard "subordination, nondisturbance and attornment agreement." Notwithstanding the foregoing, Landlord and Landlord's lender(s) with a security interest in the Development or any of the Buildings and any ground lessor may by written notice to Tenant subordinate any such ground leases or underlying leases or any such liens to this Lease. If any such ground lease or underlying lease terminates for any reason or any such mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, , Tenant shall attorn to and become the tenant of such successor, in which event Tenant's right to possession of the applicable portions of the Premises will not be disturbed so long as Tenant is not in default under this Lease. Tenant hereby waives its rights under any law which gives or purports to give Tenant any right to terminate or otherwise adversely affect this Lease and the obligations of Tenant hereunder in the event -30- of any such foreclosure proceeding or sale. Tenant covenants and agrees to execute and deliver, upon demand by Landlord and in the form reasonably required by Landlord or its secured lender(s) or any ground lessor, any additional documents evidencing the priority or subordination of this Lease and Tenant's attornment agreement with respect to any such ground lease or underlying leases or the lien of any such mortgage or deed of trust. If Tenant fails to sign and return any such documents within ten (10) days of receipt, Tenant will be in default hereunder. 26. ESTOPPEL CERTIFICATES. (a) Tenant's Obligations. Within ten (10) days following any written request which Landlord may make from time to time, Tenant agrees to execute and deliver to Landlord a statement, in a form substantially similar to the form of Exhibit "G" attached hereto or as may reasonably be required by ----------- Landlord's lender, certifying: (i) the date of commencement of this Lease; (ii) the fact that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect, and stating the date and nature of such modifications); (iii) the date to which the rent and other sums payable under this Lease have been paid; (iv) that there are no current defaults under this Lease by either Landlord or Tenant except as specified in Tenant's statement; (v) that this Lease represents the entire agreement between the parties with respect to Tenant's right to use and occupy the Premises (or specifying such other agreements, if any); (vi) that all obligations under this Lease to be performed by Landlord as of the date of such certificate have been satisfied (or specifying those as to which Tenant claims that Landlord has yet to perform); (vii) that all required contributions by Landlord to Tenant on account of Tenant's improvements have been received (or stating exceptions thereto); (viii) that on such date there exist no defenses or offsets that Tenant has against the enforcement of this Lease by Landlord (or stating exceptions thereto); and (ix) that no Rent or other sum payable by Tenant hereunder has been paid more than one (1) month in advance (or stating exceptions thereto); (x) that security has been deposited with Landlord, stating the amount thereof; (xi) any other matters evidencing the status of this Lease that may be required either by a lender making a loan to be secured by a deed of trust covering the Premises or by a purchaser of the Premises; and (xii) such other matters reasonably requested by Landlord. Landlord and Tenant intend that any statement delivered pursuant to this Paragraph 26 may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of any of the Buildings or any interest therein. (b) Tenant's Failure to Deliver. Tenant's failure to deliver such statement within such time will be conclusive upon Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord's performance, (iii) that not more than one (1) month's rent has been paid in advance; (iv) that this Lease represents the entire agreement between the parties with respect to Tenant's right to use and occupy the Premises; (v) that all obligations under this Lease to be performed by Landlord as of the date of such certificate have been satisfied; (vi) that all required contributions by Landlord to Tenant on account of Tenant's improvements have been received; (vii) that on such date there exist no defenses or offsets that Tenant has against the enforcement of this Lease by Landlord (or stating exceptions thereto); and (viii) that no Rent or other sum payable by Tenant hereunder has been paid more than one (1) month in advance. Without limiting the foregoing, if Tenant fails to deliver any such statement within such ten (10) day period, Landlord may deliver to Tenant an additional request for such statement and Tenant's failure to deliver such statement to Landlord within ten (10) days after delivery of such additional request will constitute a default under this Lease. Tenant agrees to indemnify and protect Landlord from and against any and all claims, damages, losses, liabilities and expenses (including attorneys' fees and costs) attributable to any failure by Tenant to timely deliver any such estoppel certificate to Landlord as required by this Paragraph 26. 27. BUILDING PLANNING. [INTENTIONALLY DELETED] 28. RULES AND REGULATIONS. Tenant agrees to faithfully observe and comply with the "Rules and Regulations," a copy of which is attached hereto and marked Exhibit "H", and all reasonable and nondiscriminatory modifications thereof and - ----------- additions thereto from time to time put into effect by Landlord. Landlord will not be responsible to Tenant for the violation or non-performance by any other tenant or occupant of the Buildings of any of the Rules and Regulations. -31- 29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS(R). (a) Modifications. If, in connection with Landlord's obtaining or entering into any financing or ground lease for any portion of any of the Buildings or the Development, the lender or ground lessor requests modifications to this Lease, Tenant, within ten (10) days after request therefor, agrees to execute an amendment to this Lease incorporating such modifications, provided such modifications are reasonable and do not increase the obligations of Tenant under this Lease or adversely affect the leasehold estate created by this Lease. (b) Cure Rights. In the event of any default on the part of Landlord, Tenant will give notice by registered or certified mail to any beneficiary of a deed of trust or mortgage covering the Premises or ground lessor of Landlord whose address has been furnished to Tenant, and Tenant agrees to offer such beneficiary, mortgagee or ground lessor a reasonable opportunity to cure the default (including with respect to any such beneficiary or mortgagee, time to obtain possession of the Premises, subject to this Lease and Tenant's rights hereunder, by power of sale or a judicial foreclosure, if such should prove necessary to effect a cure). 30. DEFINITION OF LANDLORD. The term "Landlord," as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, means and includes only the owner or owners, at the time in question, of the fee title of the Premises or the lessees under any ground lease, if any. In the event of any transfer, assignment or other conveyance of any such title (other than a transfer for security purposes only), Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) will be automatically relieved from and after the date of such transfer, assignment or conveyance of all liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed. Landlord and Landlord's transferees and assignees have the absolute right to transfer all or any portion of their respective title and interest in the Development, the Building, the Premises and/or this Lease without the consent of Tenant, and such transfer or subsequent transfer will not be deemed a violation on Landlord's part of any of the terms and conditions of this Lease. If Landlord transfers, assigns, sells, encumbers, or otherwise conveys one Building separately from any other Building then Tenant shall, within ten (10) days after delivery from Landlord, execute and return separate leases substantially in the form of this Lease for the Premises in each such Building provided that such separate leases do not, collectively, reduce the rights or increase the obligations of Tenant under this Lease. 31. WAIVER. The waiver by either party of any breach of any term, covenant or condition herein contained will not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition herein contained, nor will any custom or practice which may develop between the parties in the administration of the terms hereof be deemed a waiver of or in any way affect the right of either party to insist upon performance in strict accordance with said terms. The subsequent acceptance of rent or any other payment hereunder by Landlord will not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. No acceptance by Landlord of a lesser sum than the basic rent and additional rent or other sum then due will be deemed to be other than on account of the earliest installment of such rent or other amount due, nor will any endorsement or statement on any check or any letter accompanying any check be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or other amount or pursue any other remedy provided in this Lease. The consent or approval of Landlord to or of any act by Tenant requiring Landlord's consent or approval will not be deemed to waive or render unnecessary Landlord's consent or approval to or of any subsequent similar acts by Tenant. 32. PARKING. (a) Grant of Parking Rights. So long as this Lease is in effect and provided Tenant is not in default hereunder, Landlord grants to Tenant and Tenant's Authorized Users (as defined below) a license to use, at no charge, the number of parking spaces described in Subparagraph 1(s) which are located in the surface parking areas of the Development, subject to the terms and conditions of this Paragraph 32 and the Rules and Regulations regarding parking contained in Exhibit "H" attached hereto. If Tenant requires more ----------- parking spaces, Tenant shall so notify Landlord and, provided additional parking (the "Additional Parking") is then available, Landlord shall permit Tenant and Tenant's Authorized Users to use Additional Parking at no charge, at locations designated in writing by Landlord during such periods as such Additional Parking is not needed -32- for prospective or new tenants of the Development and is not required to be provided to any then existing tenants pursuant to the terms of their leases; however, Landlord shall give Tenant prior written notice of any termination by Landlord of the use of any Additional Parking by Tenant and Tenant's Authorized Users. All such parking shall be on a non-exclusive, in a common basis with all visitors, guests and tenants of the Development. Tenant agrees to submit to Landlord or, at Landlord's election, directly to Landlord's parking operator with a copy to Landlord, written notice in a form reasonably specified by Landlord containing the names, home and office addresses and telephone numbers of those persons who are authorized by Tenant to use Tenant's parking spaces on a monthly basis ("Tenant's Authorized Users") and shall use its best efforts to identify each vehicle of Tenant's Authorized Users by make, model and license number. Tenant agrees to deliver such notice prior to the beginning of the Term of this Lease and to periodically update such notice as well as upon specific request by Landlord or Landlord's parking operator to reflect changes to Tenant's Authorized Users or their vehicles. (b) Visitor Parking. So long as this Lease is in effect, Tenant's visitors and guests will be entitled to use the unreserved surface parking area(s) in the Development which serve the Buildings. Landlord may restrict visitor parking to certain parking areas. All non-reserved visitor parking will be on a non-exclusive, in-common basis with all other visitors, guests and tenants of the Development. (c) Use of Parking Spaces. Tenant will not use or allow any of Tenant's Authorized Users to use any parking spaces which have been specifically assigned by Landlord to other tenants or occupants or for other exclusive uses such as visitor parking or which have been designated by any governmental entity as being restricted to certain uses. If specific parking spaces are later reserved for Tenant, then Tenant will not be entitled to increase or reduce such spaces except as follows. If at any time Tenant desires to increase or reduce the number of such reserved parking spaces, Tenant must notify Landlord in writing of such desire and Landlord will have the right, in its sole and absolute discretion, to either (a) approve such requested increase in the number of reserved parking spaces allocated to Tenant, (b) approve such requested decrease in the number of reserved parking spaces allocated to Tenant, or (c) disapprove such requested increase or decrease in the number of reserved parking spaces allocated to Tenant. Promptly following receipt of Tenant's written request, Landlord will provide Tenant with written notice of its decision. (d) General Provisions. Landlord may assign any unreserved and unassigned parking spaces and/or make all or any portion of such spaces reserved, if Landlord reasonably determines that it is necessary for orderly and efficient parking or for any other reasonable reason. The failure by Tenant or any of Tenant's Authorized Users to comply with any terms and conditions of this Lease applicable to parking may be treated by Landlord as a default under this Lease and, in addition to all other remedies available to Landlord under the Lease, at law or in equity, Landlord may elect to recapture such parking spaces for the balance of the Term of this Lease if Tenant does not cure such failure within the applicable cure period set forth in Paragraph 22 of this Lease. In such event, Tenant and Tenant's Authorized Users will be deemed visitors for purposes of parking space use and will be entitled to use only those parking areas specifically designated for visitor parking subject to all provisions of this Lease applicable to such visitor parking use. Tenant's parking rights and privileges described herein are personal to Tenant and may not be assigned or transferred, or otherwise conveyed, without Landlord's prior written consent, which consent Landlord may withhold in its sole and absolute discretion. In any event, under no circumstances may Tenant's parking rights and privileges be transferred, assigned or otherwise conveyed separate and apart from Tenant's interest in this Lease. (e) Cooperation with Traffic Mitigation Measures. Tenant agrees to use its reasonable, good faith efforts to cooperate in traffic mitigation programs which may be undertaken by Landlord independently, or in cooperation with local municipalities or governmental agencies or other property owners in the vicinity of the Buildings. Such programs may include, but will not be limited to, carpools, vanpools and other ridesharing programs, public and private transit, flexible work hours, preferential assigned parking programs and programs to coordinate tenants within the Development with existing or proposed traffic mitigation programs. (f) Parking Rules and Regulations. Tenant and Tenant's Authorized Users shall comply with all rules and regulations regarding parking set forth in Exhibit "H" attached hereto and Tenant agrees to cause its employees, ----------- subtenants, assignees, contractors, suppliers, customers and invitees to comply with such rules and regulations. Landlord reserves the right from time to -33- time to modify and/or adopt such other reasonable and non-discriminatory rules and regulations for the parking facilities as it deems reasonably necessary for the operation of the parking facilities. 33. FORCE MAJEURE. If either Landlord or Tenant is delayed, hindered in or prevented from the performance of any act required under this Lease by reason of strikes, lock-outs, labor troubles, inability to procure standard materials, failure of power, restrictive governmental laws, regulations or orders or governmental action or inaction (including, without limitation, failure, refusal or delay in issuing permits, approvals and/or authorizations which is not the result of the action or inaction of the party claiming such delay), riots, unforeseen conditions of the Premises or any of the Buildings, insurrection, war, fire, earthquake, flood or other natural disaster, unusual and unforeseeable delay which results from an interruption of any public utilities (e.g., electricity, gas, water, telephone) or other unusual and unforeseeable delay not within the reasonable control of the party delayed in performing work or doing acts required under the provisions of this Lease, then performance of such act will be excused for the period of the delay and the period for the performance of any such act will be extended for a period equivalent to the period of such delay. The provisions of this Paragraph 33 will not operate to excuse Tenant from prompt payment of rent or any other payments required under the provisions of this Lease. 34. SIGNS. Landlord will designate the location on the Premises, if any, for one or more Tenant identification sign(s). Tenant agrees to have Landlord install and maintain Tenant's identification sign(s) in such designated location in accordance with this Paragraph 34 at Tenant's sole cost and expense. Tenant has no right to install Tenant identification signs in any other location in, on or about the Premises or the Development and will not display or erect any other signs, displays or other advertising materials that are visible from the exterior of any of the Buildings or from within any of the Buildings in any interior or exterior common areas. The size, design, color and other physical aspects of any and all permitted sign(s) will be subject to (i) Landlord's written approval prior to installation, which approval may be withheld in Landlord's discretion, (ii) any covenants, conditions or restrictions governing the Premises, and (iii) any applicable municipal or governmental permits and approvals. Tenant will be responsible for all costs for installation, maintenance, repair and removal of any Tenant identification sign(s). If Tenant fails to remove Tenant's sign(s) upon termination of this Lease and repair any damage caused by such removal, Landlord may do so at Tenant's expense. Tenant agrees to reimburse Landlord for all costs incurred by Landlord to effect any installation, maintenance or removal on Tenant's account, which amount will be deemed additional rent, and may include, without limitation, all sums disbursed, incurred or deposited by Landlord including Landlord's costs, expenses and actual attorneys' fees with interest thereon at the Interest Rate from the date of Landlord's demand until paid by Tenant. Any sign rights granted to Tenant under this Lease are personal to Tenant and may not be assigned, transferred or otherwise conveyed to any assignee or subtenant of Tenant without Landlord's prior written consent, which consent Landlord may withhold in its sole and absolute discretion. 35. LIMITATION ON LIABILITY. In consideration of the benefits accruing hereunder, Tenant on behalf of itself and all successors and assigns of Tenant covenants and agrees that, in the event of any actual or alleged failure, breach or default hereunder by Landlord: (a) while Landlord is Aetna Life Insurance Company of Illinois, Tenant's recourse against Landlord for monetary damages will be limited to an amount equal to the current fair market value of the Development, and if the Development is transferred, sold or conveyed to any other entity or person, then upon such a transfer, sale or conveyance, Tenant's recourse against the successor Landlord (and any other future Landlords) for monetary damages shall be limited to the Landlord's interest in the Development, including (subject to the prior rights of any holder of a lien on the Development), the Landlord's interest in the rents of the Development and any insurance proceeds paid to the Landlord for damage or destruction of the Development;; (b) except as may be necessary to secure jurisdiction of the partnership, no partner of Landlord shall be sued or named as a party in any suit or action and no service of process shall be made against any partner of Landlord; (c) no partner of Landlord shall be required to answer or otherwise plead to any service of process; (d) no judgment will be taken against any partner of Landlord and any judgment taken against any partner of Landlord may be vacated and set aside at any time after the fact; (e) no writ of execution will be levied against the assets of any partner of Landlord; (f) the obligations under this Lease do not constitute personal obligations of the individual partners, directors, officers or shareholders of Landlord, and Tenant shall not seek recourse against the individual partners, directors, officers or shareholders of Landlord or any of their personal assets for satisfaction of any liability in respect to this Lease; and (g) these covenants and agreements are enforceable both by Landlord and also by any partner of Landlord. -34- 36. FINANCIAL STATEMENTS. Prior to the execution of this Lease by Landlord and at any time during the Term of this Lease upon ten (10) days prior written notice from Landlord, Tenant agrees to provide Landlord with then-current financial statements for Tenant and financial statements for the two (2) years prior to the current financial statement year for Tenant. Such financial statements are to be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, such financial statements are to be prepared and audited by an independent certified public accountant. 37. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon Tenant paying the rent required under this Lease and paying all other charges and performing all of the covenants and provisions on Tenant's part to be observed and performed under this Lease, Tenant may peaceably and quietly have, hold and enjoy the Premises in accordance with this Lease. 38. MISCELLANEOUS. (a) Conflict of Laws. This Lease shall be governed by and construed pursuant to the laws of the State of California. (b) Successors and Assigns. Except as otherwise provided in this Lease, all of the covenants, conditions and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. (c) Professional Fees and Costs. If either Landlord or Tenant should bring suit against the other with respect to this Lease, then all costs and expenses, including without limitation, actual professional fees and costs such as appraisers', accountants' and attorneys' fees and costs, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment. As used herein, attorneys' fees and costs shall include, without limitation, attorneys' fees, costs and expenses incurred in connection with any (i) post-judgment motions; (ii) contempt proceedings; (iii) garnishment, levy, and debtor and third party examination; (iv) discovery; and (v) bankruptcy litigation. Any such attorneys' fees and other expenses incurred by either party in enforcing a judgment in its favor under this Lease shall be recoverable separately from and in addition to any other amount included in such judgment, and such attorneys' fees obligation is intended to be severable from the other provisions of this Lease and to survive and not be merged into any such judgment. (d) Terms and Headings. The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. Words used in any gender include other genders. The paragraph headings of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. (e) Time. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor. (f) Prior Agreement; Amendments. This Lease constitutes and is intended by the parties to be a final, complete and exclusive statement of their entire agreement with respect to the subject matter of this Lease. This Lease supersedes any and all prior and contemporaneous agreements and understandings of any kind relating to the subject matter of this Lease. There are no other agreements, understandings, representations, warranties, or statements, either oral or in written form, concerning the subject matter of this Lease. No alteration, modification, amendment or interpretation of this Lease shall be binding on the parties unless contained in a writing which is signed by both parties. (g) Separability. If any provision of this Lease is invalid, void or illegal, the same shall not affect, impair or invalidate any other provision hereof, and all other provisions shall remain in full force and effect. (h) Recording. Tenant shall not record this Lease nor any memorandum thereof without the consent of Landlord, which Landlord may withhold in its sole and absolute discretion. (i) Counterparts. This Lease may be executed in one or more counterparts, each of which shall constitute an original and all of which shall be one and the same agreement. -35- (j) Nondisclosure of Lease Terms. Tenant acknowledges and agrees that the terms of this Lease are confidential and constitute proprietary information of Landlord. Disclosure of the terms could adversely affect the ability of Landlord to negotiate other leases and impair Landlord's relationship with other tenants. Accordingly, Tenant agrees that it, and its partners, officers, directors, employees and attorneys, shall not intentionally and voluntarily disclose the terms and conditions of this Lease to any newspaper or other publication or any other tenant or apparent prospective tenant of the Building or other portion of the Development, or real estate agent, either directly or indirectly, without the prior written consent of Landlord, provided, however, that Tenant may disclose the terms to prospective subtenants or assignees under this Lease. (k) No Light, Air, View Easement. Tenant shall have no easement for light, air or view. (l) Waiver of Jury Trial. LANDLORD AND TENANT WAIVE ANY RIGHT TO A TRIAL BY JURY OF ALL CLAIMS WHICH MAY BE BROUGHT IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS LEASE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY TENANT, AND TENANT ACKNOWLEDGES THAT NEITHER LANDLORD NOR ANY PERSON ACTING ON BEHALF OF LANDLORD HAS MADE ANY REPRESENTATION OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. TENANT FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) BY INDEPENDENT COUNSEL IN THE SIGNING OF THIS LEASE AND IN THE MAKING OF THIS WAIVER. TENANT FURTHER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER PROVISION. [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] --------------------------- -------------------------- Landlord's Initials Tenant's Initials (m) Non-Discrimination. Tenant acknowledges and agrees that there shall be no discrimination against, or segregation of, any person, group of persons, or entity on the basis of race, color, creed, religion, age, sex, marital status, national origin, or ancestry in the leasing, subleasing, transferring, assignment, occupancy, tenure, use, or enjoyment of the Premises, or any portion thereof. 39. EXECUTION OF LEASE. (a) Joint and Several Obligations. If more than one person executes this Lease as Tenant, their execution of this Lease will constitute their covenant and agreement that (i) each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed and performed by Tenant, and (ii) the term "Tenant" as used in this Lease means and includes each of them jointly and severally. The act of or notice from, or notice or refund to, or the signature of any one or more of them, with respect to the tenancy of this Lease, including, but not limited to, any renewal, extension, expiration, termination or modification of this Lease, will be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted or so given or received such notice or refund or so signed. (b) Tenant as Corporation or Partnership. If Tenant executes this Lease as a corporation or partnership, then Tenant and the persons executing this Lease on behalf of Tenant represent and warrant that such entity is duly qualified and in good standing to do business in California and that the individuals executing this Lease on Tenant's behalf are duly authorized to execute and deliver this Lease on its behalf, and in the case of a corporation, in accordance with a duly adopted resolution of the board of directors of Tenant, a copy of which is to be delivered to Landlord on execution hereof, if requested by Landlord, and in accordance with the by- laws of Tenant, and, in the case of a partnership, in accordance with the partnership agreement and the most current amendments thereto, if any, copies of which are to be delivered to Landlord on execution hereof, if requested by Landlord, and that this Lease is binding upon Tenant in accordance with its terms. -36- (c) Examination of Lease. Submission of this instrument by Landlord to Tenant for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution by and delivery to both Landlord and Tenant. IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed by their duly authorized representatives as of the date first above written. TENANT: LANDLORD: INTERPLAY PRODUCTIONS, AETNA LIFE INSURANCE COMPANY OF ILLINOIS, a California corporation an Illinois corporation By: /s/ Chris KilPatrick By: /s/ Stephen J. Pilch --------------------------- -------------------------------------- Name: Chris KilPatrick Stephen J. Pilch ------------------------- Title: President Assistant Treasurer -37- EXHIBIT "A-I" ------------- SITE PLAN --------- The Site Plan comprising this Exhibit "A-I" is attached hereto and ------------- incorporated herein by reference. EXHIBIT "A-I" ------------- EXHIBIT A-I ----------- [SITE PLAN OF ALTON PARKWAY APPEARS HERE] EXHIBIT "A-II" -------------- OUTLINE OF FLOOR PLAN OF PREMISES ---------------- The outline of the floor plan of the Premises which comprises this Exhibit "A-II" is attached hereto and incorporated herein by reference. - -------------- EXHIBIT "A-II" -------------- EXHIBIT A-II ------------ [FLOOR OF VON KARMAN CORPORATE CENTER APPEARS HERE] EXHIBIT A-II ------------ [FLOOR OF VON KARMAN CORPORATE CENTER APPEARS HERE] EXHIBIT A-II ------------ [FLOOR OF VON KARMAN CORPORATE CENTER APPEARS HERE] EXHIBIT "B" ----------- RENTABLE SQUARE FEET AND USABLE SQUARE FEET ------------------------------------------- 1. The term "Rentable Square Feet" as used in the Lease will be deemed to include: (a) with respect to the Premises, the usable area of the Premises determined in accordance with the Method for Measuring Floor Area in Office Buildings, ANSI Z65.1-1980 (the "BOMA Standard"), plus a pro rata portion of all ground floor lobbies, all elevator machine rooms, electrical and telephone equipment rooms and mail delivery facilities and other areas used by all tenants of the Building, if any, plus (i) for single tenancy floors, all the area covered by elevator lobbies, corridors, special stairways, restrooms, mechanical rooms, electrical rooms and telephone closets on such floors, or (ii) for multiple tenancy floors, a pro-rata portion of all of the area covered by the elevator lobbies, corridors, special stairways, restrooms, mechanical rooms, electrical rooms and telephone closets on such floor; and (b) with respect to the Building, the total rentable area for all floors in the Building computed in accordance with the provisions of Subparagraph 1(a) above. In calculating the "Rentable Square Feet" of the Premises or any Building, the area contained within the exterior walls of the Building stairs, fire towers, vertical ducts, elevator shafts, flues, vents, stacks and major pipe shafts will be excluded. 2. The term "Usable Square Feet" as used in Exhibit "C" with respect to the ----------- Premises will be deemed to include the usable area of the Premises as determined in accordance with the BOMA Standard. 3. For purposes of establishing the initial Tenant's Percentage and Monthly Base Rent as shown in Paragraph 1 of the Lease, the number of Rentable Square Feet of the Premises is deemed to be as set forth in Subparagraph 1(g) of the Lease, and the number of Rentable Square Feet of the Development is deemed to be 454,400. For purposes of establishing the amount of the Tenant Improvement Allowance in Exhibit "C", the number of Usable Square Feet of the Premises is ----------- deemed to be as set forth in Subparagraph 1(g). From time to time at Landlord's option, Landlord's architect may redetermine the actual number of Rentable Square Feet of the Premises and the Development and the actual number of Usable Square Feet of the Premises based upon the criteria set forth in Paragraph 1 and Paragraph 2 above, which determination will be conclusive, and thereupon Tenant's Percentage, Monthly Base Rent, and the Tenant Improvement Allowance, as applicable, will be adjusted accordingly. EXHIBIT "B" ----------- EXHIBIT "C" ----------- WORK LETTER AGREEMENT --------------------- (ALLOWANCE) ----------- This WORK LETTER AGREEMENT ("Work Letter Agreement") is entered into as of the 8th day of September, 1995 by and between AETNA LIFE INSURANCE COMPANY OF ILLINOIS, an Illinois Corporation ("Landlord"), and INTERPLAY PRODUCTIONS, a California corporation ("Tenant"). RECITALS: -------- A. Concurrently with the execution of this Work Letter Agreement, Landlord and Tenant have entered into a lease (the "Lease") covering certain premises (the "Premises") more particularly described in Exhibit "A" attached to the Lease. ----------- All terms not defined herein have the same meaning as set forth in the Lease. To the extent applicable, the provisions of the Lease are incorporated herein by this reference. B. In order to induce Tenant to enter into the Lease and in consideration of the mutual covenants hereinafter contained, Landlord and Tenant agree as follows: 1. TENANT IMPROVEMENTS. As used in the Lease and this Work Letter Agreement, ------------------- the term "Tenant Improvements" or "Tenant Improvement Work" means those items of general tenant improvement construction shown on the Final Plans (described in Paragraph 4 below) and the work described in Paragraph 6 below. 2. CONSTRUCTION REPRESENTATIVES. ---------------------------- (a) Landlord. Landlord hereby appoints the following person(s) as Landlord's -------- representative ("Landlord's Representative") to act for Landlord in all matters covered by this Work Letter Agreement; Stein Kingsley Stein; 235 Montgomery St., Suite 1810, San Francisco, CA 94104; Attn.: Mr. Daniel R. Kingsley; Telephone (415) 393-9666, Fax (415) 393-8066. (b) Tenant. Tenant hereby appoints the following person(s) as Tenant's ------ representative ("Tenant's Representative") to act for Tenant in all matters covered by this Work Letter Agreement: Troy Worrell, Interplay Productions, 17922 Fitch Street, Irvine, California 92714; Telephone: (714) 553-6655; Fax: (714) 252-2820. (c) Communications. All communications with respect to matters covered by this -------------- Work Letter Agreement are to be made to Landlord's Representative or Tenant's Representative, as the case may be, in writing in compliance with the notice provisions of the Lease. Either party may change its representative under this Work Letter Agreement at any time by written notice to the other party in compliance with the notice provisions of the lease. 3. WORK SCHEDULE. ------------- (a) Work Schedule. Landlord and Tenant hereby agree to cooperate with one ------------- another in good faith to complete the Tenant Improvements on or before the Estimated Commencement Date described in Subparagraph 1(j) of the Lease. Within ten (10) days after the date on which the Lease is executed (the "Execution Date") Landlord will deliver to Tenant, for Tenant's review and approval, a schedule ("Work Schedule") which will set forth the timetable for the planning, design and construction of the Tenant Improvements and the Estimated Commencement Date of the Lease; provided, however, that Tenant shall have no right to disapprove any time periods in the Work Schedule which are set forth in this Work Letter Agreement. The Work Schedule will incorporate the activities and durations described in this Work Letter Agreement (including the various items of work to be done or approvals to be given by Landlord and Tenant in connection with the completion of the Tenant Improvements) and may not be changed without written consent of both Landlord and Tenant. (b) Tenant Approval. The Work Schedule will be submitted to Tenant for its --------------- approval, which approval Tenant shall not unreasonably withhold or delay, and once approved by both Landlord and Tenant, the Work Schedule will become the basis for completing the Tenant Improvements. All plans and drawings required by this Work Letter Agreement and all work performed pursuant thereto are to be prepared and performed in accordance with the Work Schedule. If Tenant fails to approve the Work Schedule, as it may be modified after discussions between Landlord and Tenant within five (5) EXHIBIT "C" ----------- Page 1 of 8 Pages business days after the date the Work Schedule is first received by Tenant, the Work Schedule shall be deemed to be approved by Tenant as submitted or Landlord may, at its option, terminate the Lease upon written notice to Tenant. 4. TENANT IMPROVEMENT PLANS. ------------------------ (a) Space Plan. Within three (3) business days after delivery from Landlord, ---------- Tenant shall approve or disapprove in writing the Space Plan to be prepared by LPA (Landlord's space planner), and the failure by Tenant to notify Landlord of its approval or disapproval of said Space Plan within said three (3) business day period shall constitute Tenant's approval of said Space Plan. If Tenant objects to said Space Plan, Tenant shall provide specific, detailed, written directions for the revisions of the Space Plan to Landlord within said three (3) business day period. Landlord then shall, to the extent consistent with the design, utility, character, construction and best interests of the Buildings, revise the Space Plan based on Tenant's objections thereto and resubmit them to Tenant within five (5) business days, and Tenant shall have three (3) business days thereafter to approve such resubmitted Space Plan or provide further specific objections. If Tenant disapproves the resubmitted Space Plan, Landlord and Tenant, together with the Architect, shall meet to resolve Tenant's objections and if Landlord and Tenant cannot promptly resolve their differences between themselves, the determination of the Architect with respect thereto shall be binding on the parties. If Tenant disapproves the revised Space Plan, the time required for resolution of Tenant's objections will be a "Tenant Delay" under Paragraph 8 of this Work Letter Agreement. Following resolution and approval of the Space Plan by Tenant in accordance with the procedures outlined above, no further changes may be made without prior written approval of Landlord. (b) Preparation of Final Plans. Promptly following the approval of the Space -------------------------- Plan, based on the Space Plan and in accordance with the Work Schedule, an architect and engineers selected by Landlord ("Landlord's Architect') and ("Landlord's Engineers," respectively) will prepare complete architectural plans, drawings and specifications and Landlord's Engineers will prepare complete engineered mechanical, structural and electrical working drawing for all of the Tenant Improvements for the Premises (collectively, the "Final Plans"). Concurrently with Tenant's approval of the Space Plan, Tenant shall deliver all necessary programming information and technical requirements for the Premises to Landlord's Architect. Within ten (10) days after Tenant's approval of the Space Plan, Tenant shall deliver all additional programming information requested by Landlord's Architect. Failure to deliver all requested information in sufficient detail within the time periods described above to allow completion of the Final Plans as determined by Landlord's Architect shall constitute a Tenant Delay as defined in Paragraph 8 of this Work Letter Agreement. The Final Plans will: (i) show the division (including partitions and walls), layout, lighting, finish and decoration work (including carpeting and other floor coverings) for the Premises; (ii) include locations and complete dimensions; (iii) be compatible with the shells of the Buildings and with the design, construction and equipment of the Buildings; (iv) be comprised of the building standards set forth in the written description thereof that will be delivered to Tenant (the "Building Standards"), or be compatible with and of at least equal quality as the Building Standards; (v) comply with all applicable laws, ordinances, rules and regulations of all governmental authorities having jurisdiction, and all applicable insurance regulations; (vi) not require Building service beyond the level normally provided to other tenants in the Buildings and will not overload and floors of any of the Building; (vii) be of a nature and quality consistent with the overall objectives of Landlord for the Buildings, as determined by Landlord in its reasonable discretion; and (viii) include all other specifications for the Tenant Improvements. EXHIBIT "C" ----------- Page 2 of 8 Pages (c) Tenant Approval. Landlord shall deliver the Final Plans to Tenant within --------------- six (6) weeks after the Execution Date for approval by Tenant. Tenant shall have three (3) business days from the date the Final Plans are presented to Tenant to approve the Final Plans. The failure of Tenant to give written approval or disapproval of the Final Plans within said three (3) business day period shall constitute approval by Tenant of the Final Plans. (d) Tenant Revisions, Final Approval. If Tenant objects to the Final Plans, -------------------------------- Tenant shall provide specific, detailed, written directions for the revisions of the Final Plans to Landlord within the three (3) business day period described in Subparagraph 4(c) above. Landlord then shall, to the extent consistent with the design, utility, character, construction and best interests of the Buildings, revise the Final Plans based on Tenant's objections thereto and resubmit them to Tenant within five (5) business days, and Tenant shall have three (3) business days thereafter to approve such resubmitted Final Plans or provide further specific objections. If Tenant disapproves the resubmitted Final Plans, Landlord and Tenant, together with the Landlord's Architect, shall meet to resolve Tenant's objections and if Landlord and Tenant cannot promptly resolve their differences between themselves, the determination of the Landlord's Architect with respect thereto shall be binding on the parties. If Tenant disapproves the revised Final Plans, the time required for resolution of Tenant's objections will be a "Tenant Delay" as defined in Paragraph 8 of this Work Letter Agreement. (e) Additional Changes. Following resolution and approval of Final Plans by ------------------ Landlord and Tenant in accordance with the procedures outlined above, no further changes may be made without prior written approval of both Landlord and Tenant with the exception of changes required by government agencies for issuance of the building permits. Tenant acknowledges that all changes made to the Final Plans at Tenant's request following Tenant's approval of the Final Plans shall be considered Tenant Changes in conformance with Paragraph 7 of this Work Letter Agreement. (f) Delays. If Tenant does not approve the resubmitted Final Plans within ------ the three (3) business day period allowed for such approval, then each day following the three (3) business day period shall constitute a "Tenant Delay" as defined in Paragraph 8 of this Work Letter Agreement. 5. CONSTRUCTION BUDGET ------------------- (a) Preparation of Construction Budget. Upon approval of the Final Plans by ---------------------------------- Tenant, Landlord shall submit the Final Plans to Landlord's Contractor (defined in Subparagraph 6(b) below) for pricing of the construction of the Tenant Improvements. Landlord shall cause the budget for the Tenant improvements (the "Construction Budget") to be delivered to Tenant within three (3) weeks after the date of approval of the Final Plans by Tenant. (b) Tenant Approval. Within three (3) business days after deliver to Tenant --------------- of the Construction Budget, Tenant shall give written approval of the Construction Budget or shall provide Landlord with specific written objections thereto. The failure of Tenant to either approve or disapprove the Construction Budget within said three (3) business day period shall constitute the approval thereof by Tenant. (c) Resolution. If Tenant objects to the Construction Budget, Landlord, ---------- Tenant and Landlord's Contractor shall meet within three (3) business days after receipt by Landlord of Tenant's written objections tot he Construction Budget to attempt to resolve such objections. The determination of Landlord as to the reasonableness of any item in the Construction Budget shall be final and binding. (d) Permits. After approval of the Final Plans by Tenant and concurrently ------- with Landlord's submission of the Final Plans to the Landlord's Contractor for pricing, Landlord's Architect will submit the Final Plans to the appropriate governmental agencies for plan checking and the issuance of a building permit. Landlord's Architect, with Tenant's cooperation, will make any changes to the Final Plans which are requested by the Applicable governmental authorities to obtain the building permit. (e) Delays. If Tenant does not approve the Construction Budget within the ------ three (3) business day period allowed for resolution of Tenant's objections to the Construction Budget, then each day following the three (3) day period shall constitute a "Tenant Delay" as defined in Paragraph 8 of this Work Letter Agreement. EXHIBIT "C" ----------- Page 3 of 8 Pages 6. CONSTRUCTION OF TENANT IMPROVEMENTS ----------------------------------- (a) Construction Commencement. Landlord will be under no obligation to cause ------------------------- the construction of any of the Tenant have been executed, Tenant has approved the Space Plan, the Final Plans and Construction Budget, Landlord has received all the required building permits and Tenant has paid to the Landlord the total amount (the "Excess Costs") by which the Construction Budget exceeds the Allowance (defined in Subparagraph 10(a) below), if any. Following satisfaction of all of these requirements, Landlord shall instruct Landlord's Contractor to commence and diligently proceed with the construction of the Tenant Improvements, subject to Tenant Delays (as described in Paragraph 8 below). (b) Contractor. Tenant hereby approves Design Build Development Structures, ---------- Inc. (dba "DBD Structures") as the licensed general contractor to be engaged by Landlord for the construction of the Tenant Improvements (the "Landlord's Contractor"). All subcontractors shall be chosen by the Landlord's Contractor and Landlord in their sole and absolute discretion. (c) Quality. The Tenant Improvements shall be construed in a good and ------- workmanlike manner in accordance with the Final Plans. (d) Tenant Work. Landlord and Tenant acknowledge and agree that certain work ----------- required for Tenant's occupancy of the Premises, including the procurement and installation of furniture, telephone systems and wiring, fixtures, art work and signage ("Tenant's Work"), may be beyond the scope of the Tenant Improvements, and may be performed by Tenant or its contractors at Tenant's sole cost and expense subject to the approval of Landlord and Tenant's compliance with this Subparagraph 6(d). Tenant shall adopt a construction schedule for Tenant's Work in conformance with the Work Schedule, and shall perform Tenant's Work in such a way as not to hinder or delay Landlord's or Landlord's Contractor's operations in the Buildings. Tenant's use of elevators in connection with any Tenant's Work shall be arranged with Landlord and shall be subject to Landlord's approval. Any costs incurred by Landlord as a result of any interference with Landlord's or Landlord's Contractor's operations by Tenant or its contractors shall be paid by Tenant to Landlord within five (5) business days after written demand from Landlord. (Any delays which arise by reasons fully outside the control of Tenant or its contractors, and not arising as a result of Tenant's prosecution of Tenant's Work, shall not give rise to a demand by Landlord for such costs.) Tenant's contractors shall be subject to the administrative supervision of Landlord's Contractor. Tenant's work shall comply with all of the following requirements: (i) Tenant's Work shall not proceed until Landlord has approved the following in writing: Tenant's contractors, proof that Tenant's contractors currently have licenses in good standing with the State of California Contractors State License Board, proof of the amount of coverage of public liability and property damage insurance carried by Tenant and Tenant's contractors in the form of insurance certificates with a valid endorsements naming Landlord and Landlord's Contractor as additionally insured and each in an amount not less than one million dollars ($1,000,000.00), complete and detailed plans and specifications for Tenant's Work and Tenant's detailed scheduled for Tenant's Work. (ii) Tenant's Work shall be performed in conformity with a valid permit when required, a copy of which shall be furnished to Landlord before such work is commenced. In any event, all Tenant's Work shall comply with all applicable laws, codes and ordinances of any governmental entity having jurisdiction over the Buildings. Landlord shall have no responsibility for Tenant's failure to comply with such applicable laws. Delays in obtaining final approvals allowing occupancy of the space which are wholly or partially due to Tenant's activities are the responsibility of Tenant. (iii) Tenant shall promptly pay Landlord upon demand for any extra expense incurred by Landlord by reason of faulty work done by Tenant or its contractors. (iv) Tenant's Work shall be completed in a lien-free and first-class and workmanlike manner shall be subject to (and Tenant shall comply with) Subparagraphs 13(e) and (f) of the Lease with respect to the Tenant's Work. EXHIBIT "C" ----------- Page 4 of 8 Pages 7. TENANT CHANGES -------------- (a) Request Procedure. Any request by Tenant for a change in the Tenant ----------------- Improvements after approval of the Final Plans (a "Tenant all information necessary to clearly identify and explain the proposed Tenant Change. As soon as practicable after receipt of a written Tenant Change request, Landlord shall notify Tenant of the estimated costs (including design costs) of such Tenant Change as well as the estimated increase in construction time caused by the Tenant Change, if any. Tenant shall approve such estimates within two (2) days after receipt of Landlord's notice. Upon such approval by Tenant, Landlord shall be authorized to cause the Landlord's Architect, Landlord's Engineers and Landlord's Contractor to proceed with the implementation of the requested Tenant Change. If Tenant disapproves such estimates, or fails to approve the cost and time estimates within two (2) day period, Landlord shall not be required to proceed with such Tenant Change, and all costs incurred or time lost, by Landlord or Landlord's Contractor in preparing such estimates shall be treated as a cost of the Tenant Improvements. (b) Increased Cost. The increased cost, as determined by Landlord, of all -------------- Tenant Changes, including the cost of architectural and engineering services required to revise the Final Drawings to reflect such Tenant Changes, including mark-ups for Landlord's Contractor's overhead and fee, not to exceed fifteen percent (15%) of the cost of the Tenant Changes, shall be included in the actual cost of the Tenant Improvements (the "Actual Cost") and shall be borne and paid in accordance with Paragraph 10 of this Work Letter Agreement. In the event Landlord is instructed by Tenant to proceed with a Tenant Change without a prior determination of the increased cost or the increased construction time resulting from such Tenant Change and without approval of such increase by Tenant, the amount thereof shall be determined by Landlord upon completion of the Tenant Improvements, subject only to Landlord's furnishing to Tenant appropriate back- up information from the Landlord's Contractor concerning the increased costs and increased construction time caused by such Tenant Change. (c) Landlord Approval. Any Tenant Changes to the Final Plans require written ----------------- approval of Landlord and Tenant in the manner set forth in Paragraph 4 above. Landlord reserves the right to decline requests for Tenant Changes to the Final Plans if such changes are inconsistent with the provisions of Paragraph 4 above, or if the change would unreasonably delay construction of the Tenant Improvements or the Commencement Date. (d) Additional Time. Any increase in construction time caused by the request --------------- for a Tenant Change, whether or not approved, and/or the design permitting and construction of an approved Tenant Change, will constitute a Tenant Delay as defined in Paragraph 8 of this Work Letter Agreement. 8. TENANT DELAYS ------------- (a) Defined. Landlord shall use commercially reasonable efforts to cause the ------- Tenant Improvements to be substantially completed by caused by Tenant ("Tenant Delays") and "Force Majeure Delays," as defined in Paragraph 9 of the Work Letter Agreement. Tenant Delays may include, but shall not be limited to the following: (i) Any material revisions to the Space Plan; (ii) Tenant's failure to timely provide programming information for the preparation of the Final Plans; (iii) Any Tenant Changes, including, without limitation, any revisions or request for revisions to the Space Plan or the Final Plans or the scope of the Tenant Improvements requested by Tenant from and after Tenant's approval of the Final Plan (not caused by an error on the part of Landlord in the preparation thereof) which increase the costs incurred by Landlord or cause a delay in constructing the Tenant Improvements; (iv) Any interruption or interference in the installation and construction of the Tenant Improvements caused by Tenant, its agents, employees, contractors or representatives; (v) Any demolition or structural changes (including electrical and mechanical changes) to the Premises not called for by the Final Plans in order to install or construct the Tenant Improvements; EXHIBIT "C" ----------- Pages 5 of 8 Pages (vi) Any other delay requested or caused by Tenant or any of Tenant's vendors, including a delay caused by Tenant's failure to pay invoices for Excess Costs (as defined in subparagraph 10(d) below) in the construction and installation of the Tenant Improvements; (vii) Tenant's failure to timely perform any of its obligations pursuant to this work Letter Agreement, including any failure to complete, on or before the due date therefore, any action item which is Tenant's responsibility pursuant to this work Letter Agreement; (viii) Tenant's request for materials, finishes, or installations which are not readily available or which are incompatible with the Building Standards; or (ix) Any other act or failure to act by Tenant, Tenant's employees, agents, architects, independent contractors, consultants and/or any other person performing or required to perform services on behalf of Tenant (including, without limitation, replacement of the existing security system servicing the Premises). (b) Effect of Tenant Delays. If Landlord is delayed in substantially ----------------------- completing the Tenant Improvements, or in obtaining approvals from the appropriate government authorities for occupancy of the Premises, as a result of Tenant Delays(s), then the date upon which the payment of Base Monthly Rent under the Lease shall commence shall be advanced by the number of days of such Tenant Delays. 9. FORCE MAJEURE DELAYS. For purposes of this Work Letter, "Force Majeure -------------------- Delays" means any actual delay in the construction permits) which is beyond the reasonable control of Landlord or Tenant, as the case may be, as described in Paragraph 33 of the Lease. 10. PAYMENT FOR THE TENANT IMPROVEMENTS ----------------------------------- (a) Allowance. Landlord hereby grants to Tenant a tenant improvement --------- allowance of up to $18.75 per usable square foot of used only for: (i) Payment of the costs of preparing the Space Plan and the Final Plans, excluding one preliminary Space Plan and one revision thereof (already provided at Landlord's cost), but including mechanical, electrical, plumbing and structural drawings and of all other items necessary to complete the Final Plans. The Allowance will not be used for the payment of extraordinary design work not consistent with the scope of the Building Standards (i.e., above-standard design work), or for payments ---- to any consultants, designers or architects other than the Landlord's Architect and Landlord's Engineers. (ii) The payment of plan check, permit and license fees relating to construction of the Tenant Improvements. (iii) Construction of the Tenant Improvements, including without limitation, the following: (aa) Installation within the Premises of partitioning, doors, floor coverings, ceilings, wall coverings and painting, millwork and similar items; (bb) Electrical wiring, lighting fixtures, outlets and switches, lighting control systems, and other electrical work necessary for the Premises; (cc) The finishing and installation of duct work, terminal boxes, diffusers and accessories necessary for the heating, ventilation and air conditioning systems within the Premises, including the cost of meters and key controls for after-hours air conditioning; (dd) Fire and life safety controls systems such as fire walls, sprinklers, fire alarms, including piping, wiring and accessories, necessary for the Premises; (ee) Plumbing, fixtures, pipes and accessories necessary for the Premises; (ff) The HVAC over-ride switches, timers and meters described in Exhibit "F". ----------- EXHIBIT "C" ----------- Page 6 of 8 Pages (iv) All other costs expended by Landlord in the construction of the Tenant Improvements (including, without limitation, any costs, incurred by Landlord for construction of elements of the Tenant Improvements in the Premises prior to the Execution Date which construction is for the benefit of tenants and is customarily performed by Landlord prior to the execution of leases for space in the Building for reasons of economics (examples of such construction would include, but not be limited to, the extension of mechanical [including heating, ventilating and air conditioning systems] and electrical distribution systems outside of the core of the Buildings, wall construction, column enclosures and paining outside of the cores of the Buildings, ceiling hanger wires and window treatment). (b) Changes to Shell of Building. If the Final Plans or any amendment ---------------------------- thereof or supplement thereto shall require changes in the shells of the Buildings, the increased cost of the shell work will be paid for by Tenant or charged against the Allowance in conformance with Paragraph 10(a) above. (c) Government Cost Increases. If as the result of the Tenant Improvements, ------------------------- Landlord is required by any governmental authorities to make changes in the Premises or the Building of any kind whatsoever other than the Tenant Improvements, then Tenant shall pay Landlord the amount of the costs of making such additional changes within five (5) days after Landlord's written notice; provided, however, that Landlord will first apply any remaining balance of the Allowance to such costs. (d) Excess Costs. The cost of each item referenced in Subparagraphs 10(a), ------------ 10(b) and 10(c) above shall be charged against the Allowance. If the Actual Cost exceeds the Allowance (the amount of such excess being the Excess Cost), Tenant agrees to pay the Excess Cost to Landlord prior to the commencement of construction and within five (5) business days after invoice therefore (less any sums previously paid by Tenant for such Excess Cost pursuant to the Construction Budget). If the sum of the Allowance plus any Excess Cost paid by Tenant exceeds the Actual Cost, Tenant will be entitled to a credit against the Base Monthly Rent next due equal to the amount of the unused Allowance and Excess Cost payments, as determined by Landlord. In no event will the Allowance or any Excess Cost paid by Tenant be used to pay for (i) Tenant's furniture (including systems furniture), equipment, telephone systems, telephone and/or data cabling or any other item of personal property which is not affixed to the Premises; (ii) defects in the Tenant Improvements caused by Landlord's Contractor. Tenant further agrees to pay Landlord all costs not covered by the Allowance (other than defects in the Tenant Improvements caused by Landlord's Contractor) under the same terms as the Excess Cost. (e) Unused Allowance Amounts. Any unused portion of the Allowance upon ------------------------ completion of the Tenant Improvements will not be refunded to Tenant. Any unused portion of the Allowance shall not be available to Tenant as a credit against any obligations of Tenant under the Lease unless Tenant has paid for Excess Costs as described herein. 11. COMMENCEMENT DATE, SUBSTANTIAL COMPLETION AND MOVE-IN ----------------------------------------------------- (a) Commencement. The Term of the Lease will commence on the date (the ------------ "Commencement Date") which is the earliest of: (i) the of its business in all or any portion of the Premises; (ii) the date Landlord's Contractor receives signed approvals from the required governmental agencies on the permit job cards allowing occupancy of the Premises; or (iii) the date the Tenant Improvements have been "substantially completed" (as defined below); provided, however, that if the Commencement Date is delayed as a result of any Tenant Delays described in Paragraph 8 above, then the Commencement Date as would otherwise have been established pursuant to this Subparagraph 11(a) will be accelerated by the number of says of such Tenant Delays as defined in Paragraph 8 of this Work Letter Agreement and provided, further, that if the Commencement Date is based on item (ii) or item (iii) above, then Base Monthly Rent for the Premises shall not commence until the date of the Monday after the date on which the Tenant Improvements are substantially completed, as such Monday date is accelerated by Tenant Delays (or if the date of substantial completion is a Saturday or Sunday, then the date of the second Monday after such date, as such second Monday date is accelerated by Tenant Delays). (b) Substantial Completion. For purposes of Subparagraph 11(a) above, the ---------------------- Tenant Improvements shall be deemed to be "substantially completed" when Landlord's Contractor certifies in writing to Landlord and Tenant that Landlord: (a) is able to provide Tenant with reasonable access to the Premises; and (b) has substantially performed all of the Tenant Improvement Work required to be performed by Landlord under this Work Letter Agreement, other than decoration and minor "punch-list" type items (as defined in Paragraph 11(c) below) which do not materially interfere with Tenant's access to or use of the Premises. EXHIBIT "C" ----------- Page 7 of 8 Pages (c) Punch-List. Within two (2) business days after the Commencement Date, ---------- Tenant will conduct a walk-through inspection of the Premises with Landlord, Landlord's Contractor and Landlord's Architect and provide to Landlord a written punch-list specifying those punch-list items conforming to the Final Plans which require completion, and Landlord will thereafter complete such items with reasonable diligence. (d) Delivery of Possession. Landlord shall deliver possession of the ---------------------- Premises to Tenant in accordance with Subparagraph 11(a) above. The parties estimate that Landlord will deliver possession of the Premises to Tenant, and the Term of this Lease will commence, on or before the Estimated Commencement date set forth in Subparagraph 1(i) of the Lease. Tenant agrees that if Landlord is unable to deliver possession of the Premises to Tenant on or prior to the Estimated Commencement Date specified in Subparagraph 1(j) of the Lease, the Lease will not be void or voidable, nor will Landlord be liable to Tenant for any loss or damage resulting therefrom. (e) Use of Freight/Construction Elevators. [INTENTIONALLY DELETED] ------------------------------------- (f) Early Entry. If Tenant is granted enter to the Premises by Landlord ----------- prior to completion of the Tenant Improvements, Landlord and Landlord's Contractor shall not be liable to Tenant or its employees or agents for any loss or damage to property, or injury to person, arising from or related to such early entry or the construction of the Tenant Improvements. Tenant shall take all reasonable precautions to protect against such loss, damage or injury during such early entry and construction of the Tenant Improvements, and shall not interfere with the conduct of the Tenant Improvements work. Tenant shall cooperate with all directives of Landlord and Landlord's Contractor in order to minimize any disruption or delay in completion of the Tenant Improvement work. Tenant shall be responsible for all costs or delays caused by Tenant or Tenant's contractors or agents as a result of early entry to the Premises if such early entry is granted. IN WITNESS WHEREOF, Landlord and Tenant have caused this Work Letter Agreement to be duly executed by their duly authorized representatives as of the date of the Lease. TENANT: LANDLORD: INTERPLAY PRODUCTIONS, AETNA LIFE INSURANCE COMPANY OF a California corporation ILLINOIS, an Illinois corporation By: /s/ Chris Kilpatrick By: /s/ Stephen J. Pilch -------------------- -------------------- Name: Chris Kilpatrick Name: Stephen J. Pilch ------------------ ----------------- Title: President Title: Assistant Treasurer EXHIBIT "C" ----------- Page 8 of 8 Pages EXHIBIT "D" ----------- NOTICE OF LEASE TERM DATES AND TENANT'S PERCENTAGE ----------------------- TO: __________________________ ______________________________ ______________________________ Date: __________, 199__ Re: Lease dated September 8, 1995 (the "Lease"), between AETNA LIFE INSURANCE COMPANY OF ILLINOIS, as Landlord, and INTERPLAY PRODUCTIONS, as Tenant, concerning premises consisting of all of the building located at 16815 Von Karman Avenue, the second floor of the building located at 16795 Von Karman Avenue at the Von Karman Corporate Center in Irvine, California (the "Premises") and 2121 Alton Avenue at the Von Karman Corporate Center in Irvine, California (the "Temporary Space"). To Whom It May Concern: In accordance with the subject Lease, we wish to advise and/or confirm as follows: 1. That the Premises and the Temporary Space have been accepted by the Tenant as being substantially complete in accordance with the subject lease and that there is no deficiency in construction (except as may be indicated for the Premises on the "Punch-List" prepared by Landlord and Tenant, a copy of which is attached hereto). 2. That (i) the Tenant has possession of the subject Premises and acknowledges that under the provisions of the Lease, the Commencement Date is ________________, and the Term of the Lease will expire on ______________; and (ii) that the Tenant occupied the Temporary Space on ___________, 1995 and vacated the same on ______________, 1995. 3. That in accordance with the Lease, Base Monthly Rent commenced to accrue on ________________. 4. Rent is due and payable on the first day of each and every month during the Term of the Lease. Your rent checks should be made payable to _________________. 5. The number of Rentable Square Feet within the Premises is ________________ square feet as determined by Landlord's architect in accordance with the terms of the Lease. 6. The number of Rentable Square Feet within the Development shall be deemed to be 454,400 square feet, subject to re-calculation as set forth in Exhibit "B" to ----------- the Lease. 7. Tenant's Percentage is ___________% and Tenant's Temporary Space Percentage is ________%. LANDLORD: AETNA LIFE INSURANCE COMPANY OF ILLINOIS, an Illinois corporation By: _______________________________________ Name: _____________________________________ Title: ____________________________________ EXHIBIT "D" ----------- EXHIBIT "E" ----------- DEFINITION OF OPERATING EXPENSES -------------------------------- 1. Items included in Operating Expenses. The term "Operating Expenses" as used ------------------------------------ in the Lease to which this Exhibit "E" is attached means: all costs and ----------- expenses of operation and maintenance of the Development and the Common Areas (as such terms are defined in the Lease), as determined by standard accounting practices, calculated assuming the Development is 95% occupied, including the following costs by way of illustration but not limitation, but excluding those items specifically set forth in Paragraph 3 below. (a) Real Property Taxes and Assessments (as defined in Paragraph 2 below) and any taxes or assessments imposed in lieu thereof; (b) and all assessments imposed pursuant to any covenants, conditions and restrictions affecting the Development, the Development Common Areas or the Buildings; (c) water and sewer charges and the costs of electricity, gas, heating, ventilating, air conditioning and other utilities; (d) utilities surcharges and any other costs, levies or assessments resulting from statutes or regulations promulgated by any government or quasi- government authority in connection with the use, occupancy or alteration of the Development or the parking facilities serving the Development; (e) costs of insurance obtained by Landlord for the Development; (f) waste disposal and janitorial services (including, without limitation, window cleaning); (g) labor; (h) costs incurred in the management of the Development, including, without limitation: (i) supplies, (ii) wages and salaries (and payroll taxes and similar governmental charges related thereto) of employees used in the management, operation and maintenance of the Development, (iii) Development management office rental, supplies, equipment and related operating expenses, and (iv) a management/administrative fee determined as a percentage of the annual gross revenues of the development exclusive of the proceeds of financing or a sale of the Development and administrative fee for the management of the Development Common Area determined as a percentage of Development Common Area Operating Expenses; (i) supplies, materials, equipment and tools including rental of personal property used for maintenance; (j) repair and maintenance of the elevators and the structural portions of the buildings in the Development, including the plumbing, heating, ventilating, air-conditioning and electrical systems installed or furnished by Landlord; (k) maintenance; costs and upkeep of all parking and Development Common Areas; (l) depreciation on a straight line basis and rental of personal property used in maintenance; (m) amortization on a straight line basis over the useful life [together with interest at the Interest Rate on the unamortized balance] of all capital expenditures which are: (i) intended to produce a reduction in operating charges or energy consumption; or (ii) required under any governmental law or regulation that was not applicable to the Development at the time it was originally constructed; or (iii) for replacement of any Development equipment needed to operate the Development at the same quality levels as prior to the replacement; or (iv) required by the Americans With Disabilities Act to be made to the Development; (n) costs and expenses of gardening and landscaping; (o) maintenance of signs (other than signs of tenants of the Development); EXHIBIT "E" ----------- Page 1 of 3 Pages (p) personal property taxes levied on or attributable to personal property used in connection with the Development or the Common Areas; (q) reasonable accounting, audit, verification, legal and other consulting fees; and (r) costs and expenses of repairs, resurfacing, repairing, maintenance, painting, lighting, cleaning; refuse removal, pest control, security and similar items, including appropriate reserves; When calculating Operating Expenses for the base year, Operating Expenses shall not include Real Property Taxes and Assessments attributable to special assessments, charges, costs, or fees or due to modifications or changes in governmental laws or regulations including, but not limited to, the institution of a split tax roll, and shall exclude market-wide labor-rate increases due to extraordinary circumstances including, but not limited to, boycotts and strikes and utility increases due to extraordinary circumstances including, but not limited to, conservation surcharges, boycotts, embargoes or other shortages. 2. Real Property Taxes and Assessments. The term "Real Property Taxes and ----------------------------------- Assessments," as used in this Exhibit "E", means: any form of assessment, ----------- license fee, license tax, business license fee, commercial rental tax, levy, charge, improvement bond, tax or similar imposition imposed by any authority having the direct power to tax, including any city, county, state or federal government, or any school, agricultural, lighting, drainage or other improvement or special assessment district thereof, as against any legal or equitable interest of Landlord in the Premises, Buildings, Common Areas or the Development (as such terms are defined in the Lease), adjusted to reflect an assumption that the buildings in the Development are assessed for real property tax purposes as completed buildings ready for occupancy, including the following by way of illustration but not limitation. (a) Any tax on Landlord's "right" to rent or "right" to other income from the Development or as against Landlord's business of leasing the Development; (b) any assessment, tax, fee, levy or charge in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June, 1978 election and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants. It is the intention of Tenant and Landlord that all such new and increased assessments, taxes, fees, levies and charges be included within the definition of "real property taxes" for the purposes of this Lease; (c) any assessment, tax, fee, levy or charge allocable to or measured by the area of the Development or any part thereof or the rent payable by Tenant hereunder or other tenants of the Development, including, without limitation, any gross receipts tax or excise tax levied by state, city or federal government, or any political subdivision thereof, with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Development, or any portion thereof but not on Landlord's other operations; (d) any assessment, tax, fee, levy or charge upon this transaction or any document to which any tenant is a party, creating or transferring an interest or an estate in the Development; and/or (e) any assessment, tax, fee, levy or charge by any governmental agency related to any transportation plan, fund or system (including assessment districts) instituted within the geographic area of which the Development is a part; Notwithstanding the foregoing, if during any year after the Base Year, the amount of Real Property Taxes and Assessments for such year is less than the amount of Real Property Taxes and Assessments for the Base Year, then Operating Expenses for the Base Year shall be reduced by such decrease in Real Property Taxes and Assessments. 3. Items Excluded From Operating Expenses. Notwithstanding the provisions of -------------------------------------- Paragraphs 1 and 2 above to the contrary, "Operating Expenses" will not include: (a) Landlord's federal or state income, franchise, inheritance or estate taxes; EXHIBIT "E" ----------- Page 2 of 3 Pages (b) any ground lease rental; (c) costs incurred by Landlord for the repair of damage to buildings in the Development to the extent that Landlord is reimbursed by insurance or condemnation proceeds or by tenants, warrantors or other third persons; (d) depreciation, amortization and interest payments, except as specifically provided herein, and except on materials, tools, supplies and vendor-type equipment purchased by Landlord to enable Landlord to supply services Landlord might otherwise contract for with a third party, where such depreciation, amortization and interest payments would otherwise have been included in the charge for such third party's services, all as determined in accordance with standard accounting practices; (e) brokerage commissions, finders' fees, attorneys' fees, space planning costs and other costs incurred by Landlord in leasing or attempting to lease space in the Development; (f) costs of a capital nature, including, without limitation, capital improvements, capital replacements, capital repairs, capital equipment and capital tools, all as determined in accordance with standard accounting practices; provided, however, the capital expenditures set forth in Subparagraph 1(m) above will in any event be included in the definition of Operating Expenses; (g) interest, principal, points and fees on debt or amortization on any mortgage, deed of trust or other debt encumbering any of the Buildings or the Development; (h) costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements for tenants in the Development (including the original Tenant Improvements for the Premises), or incurred in renovating or otherwise improving, decorating, painting or redecorating space for tenants or other occupants of the Development, including space planning and interior design costs and fees; (i) attorneys' fees and other costs and expenses incurred in connection with negotiations or disputes with present or prospective tenants or other occupants of the Development; provided, however, that Operating Expenses will include those attorneys' fees and other costs and expenses incurred in connection with negotiations, disputes or claims relating to items of Operating Expenses, enforcement of rules and regulations of the Development, and such other matters relating to the maintenance of standards required of Landlord under the Lease; (j) except for the administrative/management fees described in Subparagraph 1(i) above, costs of Landlord's general corporate overhead; (k) all items and services for which Tenant or any other tenant in the Development reimburses Landlord (other than through operating expense pass- through provisions); (l) electric power costs and other utilities for which Tenant contracts directly with the suppliers thereof; and (m) costs arising from Landlord's charitable or political contributions; and (n) costs of remediation of Hazardous Materials released in the Development (other than normal cleaning costs that would ordinarily be included in Operating Expenses). EXHIBIT "E" ----------- Page 3 of 3 Pages EXHIBIT "F" ----------- STANDARDS FOR UTILITIES AND SERVICES ------------------------------------ The following standards for utilities and services are in effect. Landlord reserves the right to adopt reasonable nondiscriminatory modifications and additions hereto (except that Landlord may not adopt any modifications and additions thereto which would reduce the utilities, including HVAC, to be provided to Tenant under this Exhibit "F"). ----------- Subject to the terms and conditions of the Lease and provided Tenant remains in occupancy of the Premises, Landlord will provide or make available the following utilities and services: 1. Provide non-attended automatic elevator facilities Monday through Friday, except holidays, from 7:30 a.m. to 6:30 p.m., and have the applicable Building elevator available for Tenant's use at all other times, subject to events beyond Landlord's control. 2. Provide Building standard ventilating, air conditioning and heating to the Premises for up to seventy-two and one half (72.5) hours a week (the "Free HVAC Hours") and for additional periods of time at the cost to Landlord of providing such additional HVAC, as determined by Landlord. Additional HVAC services will be available b the use of over-ride switches/timers that will be installed inside the Premises (with their location to be mutually agreed upon in good faith by Tenant and Landlord) and may be turned on or off by Tenant. Landlord shall install meters ("run clocks") to measure the HVAC usage by Tenant and Landlord shall monitor on a monthly basis the number of hours and minutes each unit operates during the applicable time period. (Run clocks will also be installed on any new or additional HVAC units that Tenant may install in the Premises in accordance with this Exhibit "F" and HVAC service from those units ----------- shall be monitored by Landlord in the same manner). The costs of installing over-ride switches/timers and run clocks for HVAC units shall be deducted from the allowance described in Paragraph 10 of Exhibit "C". Tenant hereby ----------- acknowledges that: (i) there are two (2) HVAC units per floor; (ii) Building standard HVAC is designed to achieve and maintain temperatures of 70 degrees to 74 degrees Fahrenheit in typical office space; (iii) computer rooms, high volume copy rooms, vaults, electrical and telephone rooms, and mechanical/power equipment rooms are not typical office space; and (iv) the air conditioning system achieves maximum cooling when the window coverings are extended to the full length of the window opening and adjusted to a 45 degrees angle upwards. Tenant agrees to cooperate fully at all times with Landlord, and to abide by all reasonable regulations and requirements which Landlord may prescribe for the proper function and protection of said air conditioning system. Tenant agrees not to connect any apparatus, device, conduit or pipe to the chilled and hot water air conditioning supply lines of the Building. If Tenant requires HVAC service or equipment in excess of the existing Building standard HVAC services or equipment, then subject to Tenant's compliance with Section 13 (alterations) of the Lease and Landlord's installation, at Tenant's sole cost and expense, of separate meters and "run clocks" for the additional HVAC equipment, Tenant may at Tenant's sole cost and expense, install and maintain additional HVAC equipment in the Premises and shall from time to time upon demand by Landlord, pay Landlord for the additional HVAC used by Tenant at the applicable Additional HVAC Monthly Rate, as hereinafter defined (and such sums shall constitute additional rent). As used herein, the term "Additional HVAC Monthly Rate" shall mean, for any calendar month for a particular Building and particular meter: (i) the number of kilowatt hours from the applicable meter for the applicable month, multiplied by (ii) the average cost per kilowatt hour for the applicable Building for the previous month (calculated by dividing the previous month's utility bill for the applicable Building by the total kilowatt hours used in the Building during such previous month). If Tenant installs new HVAC units in accordance with this Exhibit "F", Landlord will provide basic prevention ----------- maintenance services to each unit as required by their manufacturer. Should parts or repair services be required, Landlord will obtain Tenant's reasonable permission prior to purchasing such goods or providing such services, and Tenant's permission shall not be withheld if repairs or services are necessary to prevent damage to or interference with any Building electrical system or other Building system. Once Tenant's permission has been granted, Landlord will monitor the work to insure its proper completion. Tenant shall reimburse Landlord, within ten (10) days after demand, for the costs of all such maintenance, parts, repairs, monitoring and all other costs incurred by Landlord in performing its obligations hereunder with respect to any new HVAC units installed by Tenant, and such costs shall constitute additional rent under this Lease. Tenant further agrees that neither Tenant nor its servants, employees, agents, visitors, licensees or contractors shall at any time enter the mechanical installations or facilities of the Building or the Development to adjust, tamper with, touch or otherwise in any manner affect said installations or facilities. The cost of maintenance and service calls to adjust and regulate the air conditioning system will be charged to Tenant if the need for maintenance work results from either EXHIBIT "F" ----------- Page 1 of 2 Pages Tenant's adjustment of room thermostats or Tenant's failure to comply with its obligations under this Exhibit, including using good faith efforts to keep window coverings in rooms extended to the full length of the window opening and adjusted to a 45 degrees angle upwards when the rooms are not in use. Such work will be charged at hourly rates equal to then-current journeyman's wages for air conditioning mechanics. 3. Landlord will make available to the Premises, 24 hours per day, seven days a week, electric current as required by the Buildings' standard office lighting and fractional horsepower office business machines including copiers, normal personal computers for typical office use (including Building Standard HVAC and word processing equipment) in an amount not to exceed six (6) watts per square foot per normal business day. Tenant agrees, should its electrical installation or electrical consumption for Premises in a particular Building be in excess of the aforesaid quantity, to reimburse Landlord monthly for the measured consumption at the average cost per kilowatt hour charged to the applicable Building during the period. If a separate meter is not installed at Tenant's cost, such excess cost will be established by an estimate agreed upon by Landlord and Tenant, and if the parties fail to agree, such cost will be established by an independent licensed engineer selected in Landlord's reasonable discretion, whose fee shall be shared equally by Landlord and Tenant. Tenant agrees not to use any apparatus or device in, upon or about the Premises (other than standard office business machines, personal computers and word processing equipment) which may in any way increase the amount of such services usually furnished or supplied to said Premises, and Tenant further agrees not to connect any apparatus or device with wires, conduits or pipes, or other means by which such services are supplied, for the purpose of using additional or unusual amounts of such services without the written consent of Landlord. Should Tenant use the same to excess, the refusal on the part of Tenant to pay upon demand of Landlord the amount established by Landlord for such excess charge will constitute a breach of the obligation to pay rent under this Lease and will entitle Landlord to the rights therein granted for such breach. Tenant's use of electric current will never exceed the capacity of the feeders to the Buildings or the risers or wiring installation and tenants will not install or use or permit the installation or use of any computer or electronic data processing equipment in the premises (except standard office business machines, personal computers and word processing equipment) without the prior written consent of Landlord. 4. Water will be available in public areas for drinking and lavatory purposes only, but if Tenant requires, uses or consumes water for any purpose in addition to ordinary drinking and lavatory purposes, of which fact Tenant constitutes Landlord to be the sole judge, Landlord may install a water meter and thereby measure Tenant's water consumption for all purposes. Tenant agrees to pay Landlord for the cost of the meter and the cost of the installation thereof and throughout the duration of Tenant's occupancy Tenant will keep said meter and installation equipment in good working order and repair at Tenant's own cost and expense, in default of which Landlord may cause such meter and equipment to be replaced or repaired and collect the cost thereof from Tenant. Tenant agrees to pay for water consumed, as shown on such meter, as and when bills are rendered, and on default in making such payment. Landlord may pay such charges and collect the same from Tenant. Any such costs or expenses incurred, or payments made by Landlord for any of the reasons or purposes hereinabove stated will be deemed to be additional rent payable by Tenant and collectible by Landlord as such. 5. Landlord will provide janitor service to the Premises, provided the same are used exclusively as offices, and are kept reasonably in order by Tenant, and unless otherwise agreed to by Landlord and Tenant no one other than persons approved by Landlord shall be permitted to enter the Premises for such purposes. If the Premises are not used exclusively as offices, they will be kept clean and in order by Tenant, at Tenant's expense, and to the satisfaction of Landlord, and by persons approved by Landlord. Tenant agrees to pay to Landlord the cost of removal of any of Tenant's refuse and rubbish to the extent that the same exceeds the refuse and rubbish usually attendant upon the use of the Premises as offices. 6. Landlord reserves the right to stop service of the elevator, plumbing, ventilation, air conditioning and electrical systems, when necessary, by reason of accident or emergency or for repairs, alterations or improvements, when in the judgment of Landlord such actions are desirable or necessary to be made, until said repairs, alterations or improvements shall have been completed, and Landlord will have no responsibility or liability for failure to supply elevator facilities, plumbing, ventilating, air conditioning or electric service, when prevented from so doing by strike or accident or by any cause beyond Landlord's reasonable control, or by laws, rules, orders, ordinances, directions, regulations or by reason of the regulations or by reason of the requirements of any federal, state, county or municipal authority or failure of gas, oil or other suitable fuel supply or inability by exercise of reasonable diligence to obtain gas, oil or other suitable fuel supply. It is expressly understood and agreed that any covenants on EXHIBIT "F" ----------- Page 2 of 2 Pages Landlord's part to furnish any services pursuant to any of the terms, covenants, conditions, provisions or agreements of this Lease, or to perform any act or thing for the benefit of Tenant, will not be deemed breached if Landlord is unable to furnish or perform the same by virtue of a strike or labor trouble or any other cause whatsoever beyond Landlord's control. EXHIBIT "F" ----------- Page 3 of 2 Pages EXHIBIT "G" ----------- ESTOPPEL CERTIFICATE -------------------- The undersigned, INTERPLAY PRODUCTIONS, a ___________________________________ ("Tenant"), whose mailing address is ______________________________________________________, hereby certifies to ___________________________________________________, as follows: 1. Attached hereto is a true, correct and complete copy of that certain lease dated __________, 19__ between Landlord and Tenant (the "Lease"), regarding the premises located at ________________________________________________________________ (the "Premises"). The Lease is now in full force and effect and has not been amended, modified or supplemented, except as set forth in Paragraph 4 below. 2. The term of the Lease commenced on ____________, 19__. 3. The Term of the Lease shall expire on ___________, 19__. 4. The lease has: (Initial one) (______) not been amended, modified, supplemented, extended, renewed or assigned. (______) been amended, modified, supplemented, extended, renewed or assigned by the following described terms or agreements, copies of which are attached hereto: ___________________________________________________________ ___________________________________________________________ ___________________________________________________________ 5. Tenant has accepted and is now in possession of the Premises. 6. Tenant and Landlord acknowledge that Landlord's interest in the Lease will be assigned to __________________ and that no modification, adjustment, revision or cancellation of the Lease or amendments thereto shall be effective unless written consent of ________________________ _____________ is obtained, and that until further notice, payments under the Lease may continue as heretofore. 7. The amount of Monthly Base Rent is $____________. 8. The amount of security deposits (if any) is $ None. No other security deposits have been made except as follows:___________________________________________________________ _________________________________________. 9. Tenant is paying the full lease rental which has been paid in full as of the date hereof. No rent or other charges under the Lease have been paid for more than thirty (30) days in advance of its due date except as follows: ________________________________________________________________________________ ____. 10. All work required to be performed by Landlord under the Lease has been completed except as follows: ______________________________________________________________________________ _______________________________________. 11. There are no defaults on the part of the Landlord or Tenant under the Lease except as follows: ______________________________________________________________________________ _______________________________________. 12. Neither Landlord nor Tenant has any defense as to its obligations under the Lease and claims no set-off or counterclaim against the other party except as follows: __________________ _____________________________________________________. EXHIBIT "G" ----------- Page 1 of 2 Pages 13. Tenant has no right to any concession (rental or otherwise) or similar compensation in connection with renting the space it occupies other than as provided in the Lease except as follows: ___________________________________________________. All provisions of the Lease and the amendments thereto (if any) referred to above are hereby ratified. The foregoing certification is made with the knowledge that _________________________ is about to fund a loan to Landlord or is about to purchase the Project (or part thereof) from Landlord and that ___________________________ is relying upon the representations herein made in funding such loan or in purchasing the Project (or part thereof). IN WITNESS WHEREOF, this certificate has been duly executed and delivered by the authorized officers of the undersigned as of _______________, 19__. TENANT: INTERPLAY PRODUCTIONS, a California corporation By: _____________________________ Name: ___________________________ Title: __________________________ EXHIBIT "G" ----------- Page 2 of 2 Pages EXHIBIT "H" ----------- RULES AND REGULATIONS --------------------- A. General Rules and Regulations. The following rules and regulations govern ----------------------------- the use of the Buildings and the Development Common Areas. Tenant will be bound by such rules and regulations and agrees to cause Tenant's Authorized Users, its employees, subtenants, assignees, contractors, suppliers, customers and invitees to observe the same. 1. Except as specifically provided in the Lease to which these Rules and Regulations are attached, no sign, placard, picture, advertisement, name or notice may be installed or displayed on any part of the outside or inside of the Buildings or the Development without the prior written consent of Landlord. Landlord will have the right to remove, at Tenant's expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls are to be printed, painted, affixed or inscribed at the expense of Tenant and under the direction of Landlord by a person or company designated or approved by Landlord. 2. If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, or placed on any windowsill, which is visible from the exterior of the Premises, Tenant will immediately discontinue such use. Tenant agrees not to place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises including from within any interior common areas. 3. Tenant will not obstruct any sidewalks, halls, passages, exits, entrances, elevators, escalators, or stairways of the Development. The halls, passages, exits, entrances, elevators and stairways are not open to the general public, but are open, subject to reasonable regulations, to Tenant's business invitees. Landlord will in all cases retain the right to control and prevent access thereto of all persons whose presence in the reasonable judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Development and its tenants, provided that nothing herein contained will be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal or unlawful activities. No tenant and no employee or invitee of any tenant will go upon the roofs of the Buildings. 4. Tenant will not obtain for use on the Premises ice, drinking water, food, food vendors, beverage, towel or other similar services or accept barbering or bootblacking service upon the Premises, except at such reasonable hours and under such reasonable regulations as may be fixed by Landlord. Landlord will not unreasonably withhold its consent to Tenant's installation and use of a small office kitchen provided Tenant complies with all other provisions of this Lease applicable thereto. Landlord expressly reserves the right to absolutely prohibit solicitation, canvassing, sales and displays of products, goods and wares in all portions of the Development. Landlord reserves the right to restrict and regulate the use of the common areas of the Development and Buildings by invitees of tenants providing services to tenants on a periodic or daily basis including food and beverage vendors. Such restrictions may include limitations on time, place, manner and duration of access to a tenant's premises for such purposes. Without limiting the foregoing, Landlord may require that such parties use service elevators, halls, passageways and stairways for such purposes to preserve access within the Buildings for tenants and the general public. 5. Landlord reserves the right to require tenants to periodically provide Landlord with a written list of any and all business invitees which periodically or regularly provide goods and services to such tenants at the premises. Landlord reserves the right to preclude all vendors from entering or conducting business within the Buildings and the Development if such vendors are not listed on a tenant's list of requested vendors, but Landlord shall not be obligated to do so. 6. Landlord reserves the right to exclude from the Building between the hours of 6 p.m. and 8 a.m. the following business day, or such other hours as may be established from time to time by Landlord, and on Sundays and legal holidays, any person unless that person is known to the person or employee in charge of the applicable Building or has a pass or is properly identified. Tenant will be responsible for all persons for whom it requests passes and will be liable to Landlord for all acts of such persons. Landlord will not be liable for damages for any error with regard to the admission to or exclusion from any Building of any person. Landlord reserves the right to prevent access to any Building in case of invasion, mob, riot, public excitement or other commotion by closing the doors or by other appropriate action. EXHIBIT "H" ----------- Page 1 of 5 Pages 7. The directories of the Buildings and the Development will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to exclude any other names therefrom. 8. Except as provided in Section 4 of Exhibit "F", all cleaning and ------------ janitorial services for the Development and the Premises will be provided exclusively through Landlord, and except with the written consent of Landlord, no person or persons other than those reasonably approved by Landlord will be employed by Tenant or permitted to enter the Development for the purposes of cleaning the same. Tenant will not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises. 9. Landlord will furnish Tenant, free of charge, with two keys to each door lock in the Premises. Landlord may make a reasonable charge for any additional keys. Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install any new additional lock or bolt on any door of the Premises without Landlord's consent, which shall not be unreasonably withheld provided that Landlord receives, at Tenant's cost, three (3) sets of keys for each such new lock and Tenant complies with all applicable laws, ordinances and regulations with respect thereto. Tenant, upon the termination of its tenancy, will deliver to Landlord the keys to all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished will pay Landlord therefor. 10. If Tenant requires telegraphic, telephonic, burglar alarm, satellite dishes, antennae or similar devices, it will first obtain Landlord's approval, and comply with Landlord's reasonable rules and requirements applicable to such services, which may include separate licensing by, and fees paid to, Landlord. 11. Freight elevator(s), if any, will be available for use by all tenants in the applicable Building, subject to such reasonable scheduling as Landlord, in its discretion, deems appropriate. No equipment, materials, furniture, packages, supplies, merchandise or other property will be received in the Buildings or carried in the elevators except between such hours and in such elevators as may be designated by Landlord. Tenant's initial move into Building 5 and subsequent deliveries of bulky items, such as furniture, safes and similar items to Tenant's Premises in Building 5 will, unless otherwise agreed in writing by Landlord, be made during the hours of 6:00 p.m. to 6:00 a.m. or on Saturday or Sunday. Deliveries during normal office hours shall be limited to normal office supplies and other small items. No deliveries will be made which impede or interfere with other tenants or the operation of the Buildings. 12. Tenant will not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Landlord will have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Buildings. Heavy objects will, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to property distribute the weight, which platforms will be provided at Tenant's expense. Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the building or to any space therein to such a degree as to be objectionable to any tenants in the Building or Landlord, are to be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. Tenant will be responsible for the costs of all structural engineering required to determine structural load. The persons employed to move such equipment in or out of the Buildings must be reasonably acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Buildings by maintaining or moving such equipment or other property will be repaired at the expense of Tenant. 13. Tenant will not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities necessary for the operation or maintenance of office equipment. Tenant will not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Buildings by reason of noise, odors or vibrations, nor will Tenant bring into or keep in or about the Premises any birds or animals. 14. Tenant will not use any method of heating or air conditioning other than that supplied by Landlord without Landlord's prior written consent. EXHIBIT "H" ----------- Page 2 of 5 Pages 15. Tenant will not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Buildings' heating and air conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice, and will refrain from attempting to adjust controls. Tenant will use good faith efforts to keep corridor doors closed and window coverings in rooms pulled down when the rooms are not is use. 16. Landlord reserves the right, exercisable without notice and without liability to Tenant, to change the names and street addresses of the Buildings. Without the written consent of Landlord, Tenant will not use the names of the Buildings or the Development in connection with or in promoting or advertising the business of Tenant except as Tenant's address. 17. Tenant will close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus, and lighting or gas before Tenant and its employees leave the Premises. Tenant will be responsible for any damage or injuries sustained by other tenants or occupants of the Buildings or by Landlord for noncompliance with this rule. 18. The toilet rooms, toilets, urinals, wash bowls and other apparatus will not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from any violation of this rule will be borne by the tenant who, or whose employees or invitees, break this rule. Cleaning of equipment of any type is prohibited. Shaving is prohibited. 19. Tenants will not sell, or permit the sale of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant will not make any room-to-room solicitation of business from other tenants in the Development. Tenant will not use the Premises for any business or activity other than that specifically provided for in this Lease. Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Development are prohibited, and Tenant will cooperate with Landlord to prevent such activities. Tenant will not conduct, or permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Landlord's prior written consent, which consent Landlord may withhold in its sole and absolute discretion. 20. Tenant will not install any radio or television antenna, loudspeaker, satellite dishes or other devices on the roof(s) of exterior walls of the Buildings or the Development. Tenant will not interfere with radio or television broadcasting or reception from or in the Development or elsewhere. 21. Except for the ordinary hanging of pictures and wall decorations, Tenant will not mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof, except in accordance with the provisions of the Lease pertaining to alterations. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the premises. Tenant will not cut or bore holes for wires. Tenant will not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenants shall repair any damage resulting from noncompliance with this rule. 22. Tenant may install, maintain and operate at Tenant's sole cost, expense and risk, up to four (4) vending machines in the Premises in Building 4 and up to four (4) vending machines in the Premises in Building 5. Tenant may not install, maintain or operate upon the Premises any other vending machines without the written consent of Landlord. 23. Landlord reserves the right to exclude or expel from the Development any person who, in Landlord's judgment, is intoxicated or under the influence of liquor or drugs or who is in violation of any of the Rules and Regulations of the Buildings. 24. Tenant will store all its trash and garbage within is Premises or in other facilities provided by Landlord. Tenant will not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal is to be made in accordance with directions issued from time to time by Landlord. 25. The Premises will not be used for lodging or for the storage of merchandise held for sale to the general public, or for lodging or for manufacturing of any kind, nor shall the Premises be used for any improper, immoral or objectionable purpose. No cooking will be done or permitted on the Premises without Landlord's consent, except by the use by Tenant of Underwriters' Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted, and the use of a microwave oven for employees' use will be permitted, provided that such equipment and use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations. 26. Neither Tenant nor any of its employees, agents, customers and invitees may use in any space or in the public halls of the Buildings or the Development any hand truck except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant will not bring any other vehicles of any kind into the Buildings. 27. Tenant agrees to comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 28. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 29. To the extent Landlord reasonably deems it necessary to exercise exclusive control over any portions of the Common Areas for the mutual benefit of the tenants in the Buildings or the Development, Landlord may do so subject to reasonable, non-discriminatory additional rules and regulations. 30. Landlord may prohibit smoking in the Buildings and may require Tenant and any of its employees, agents, clients, customers, invitees and guests who desire to smoke, to smoke within designated smoking areas within the Development. 31. Tenant's requirements will be attended to only upon appropriate application to Landlord's asset management office for the Development by an authorized individual of Tenant. Employees of Landlord will not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord. 32. These Rules and Regulations are in addition to, and will not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord will be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Development. 33. Landlord reserves the right to make such other and reasonable and non-discriminatory Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Development and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations herein above stated and any additional reasonable and non-discriminatory rules and regulations which are adopted. Tenant is responsible for the observance of all of the foregoing rules by Tenant's employees, agents, clients, customers, invitees and guests. B. Parking Rules and Regulations. The following rules and regulations ----------------------------- govern the use of the parking facilities which serve the Buildings. Tenant will be bound by such rules and regulations and agrees to cause its employees, subtenants, assignees, contractors, suppliers, customers and invitees to observe the same: 1. Tenant will not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, subtenants, customers or invitees to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities. No vehicles are to be left in the parking areas overnight and no vehicles are to be parked in the parking areas other than normally sized passenger automobiles, motorcycles and pick-up trucks. No extended term storage of vehicles is permitted. 2. Vehicles must be parked entirely within painted stall lines of a single parking stall. 3. All directional signs and arrows must be observed. 4. The speed limit within all parking areas shall be five (5) miles per hour. EXHIBIT "H" ----------- Page 4 of 5 PAGES 5. Parking is prohibited: (a) in all areas not striped for parking; (b) in aisles or on ramps; (c) where "no parking" signs are posted; (d) in cross-hatched areas; and (e) in such other areas as may be designated from time to time by Landlord or Landlord's parking operator. 6. Landlord reserves the right, without cost or liability to Landlord, to tow any vehicle if such vehicle's audio theft alarm system remains engaged for an unreasonable period of time. 7. Washing, waxing, cleaning or servicing of any vehicle in any area not specifically reserved for such purpose is prohibited. 8. Landlord may refuse to permit any person to park in the parking facilities who violates these rules with unreasonable frequency, and any violation of these rules shall subject the violator's car to removal at such car owner's expense. Tenant agrees to use its best efforts to acquaint its employees, subtenants, assignees, contractors, suppliers, customers and invitees with these parking provisions, rules and regulations. 9. Parking stickers, access cards, or any other device or form of identification supplied by Landlord as a condition of use of the parking facilities shall remain the property of Landlord. Parking identification devices, if utilized by Landlord, must be displayed as requested and may not be mutilated in any manner. The serial number of the parking identification device may not be obliterated. Parking identification devices, if any, are not transferable and any device in the possession of an unauthorized holder will be void. Landlord reserves the right to refuse the sale of monthly stickers or other parking identification devices to Tenant or any of its agents, employees or representatives who willfully refuse to comply with these rules and regulations and all unposted city, state or federal ordinances, laws or agreements. 10. Loss or theft of parking identification devices or access cards must be reported to the management office in the Development immediately, and a lost or stolen report must be filed by the Tenant or user of such parking identification device or access card at the time. Landlord has the right to exclude any vehicle from the parking facilities that does not have a parking identification device or value access card. Any parking identification device or access card which is reported lost or stolen and which is subsequently found in the possession of an unauthorized person will be confiscated and the illegal holder will be subject to prosecution. 11. All damage or loss claimed to be the responsibility of Landlord must be reported, itemized in writing and delivered to the management office located within the Development within ten (10) business days after any claimed damage or loss occurs. Any claim not so made is waived. Landlord is not responsible for damage by water or fire, or for the acts or omissions of others, or for articles left in vehicles. In any event, the total liability of Landlord, if any, is limited to Two Hundred Fifty Dollars ($250.00) for all damages or loss to any car. Landlord is not responsible for loss of use. 12. The parking operators, managers or attendants are not authorized to make or allow any exceptions to these rules and regulations, without the express written consent of Landlord. Any exceptions to these rules and regulations made by the parking operators, managers or attendants without the express written consent of Landlord will not be deemed to have been approved by Landlord. 13. Landlord reserves the right, without cost or liability to Landlord, to tow any vehicles which are used or parked in violation of these rules and regulations. 14. Landlord reserves the right from time to time to modify and/or adopt such other reasonable and non-discriminatory rules and regulations for the parking facilities as it deems reasonably necessary for the operation of the parking facilities. EXHIIT "H" ---------- Page 5 of 5 Page EXHIBIT "I" ----------- TEMPORARY SPACE --------------- EXHIBIT "I" EXHIBIT "I" ----------- [Floor Plan of Second Floor Appears Here] EXHIBIT "J" ----------- LOCATION OF INITIAL ------------------- ADDITIONAL PARKING ------------------ EXHIBIT "J" EXHIBIT "J" [Site Plan Appears Here] EXHIBIT "J" KOLL THE REAL ESTATE SERVICES COMPANY PROPERTY DIVISION April 2, 1996 **REVISED** Mr. Troy Worrell INTERPLAY PRODUCTIONS 2121 Alton Avenue, 2nd Floor Irvine, CA 92714 RE: LEASE COMMENCEMENT AND OPERATING EXPENSES Dear Troy The purpose of this letter is to establish the lease commencement date and establish a charge for the estimated operating expenses for the premises listed below: PREMISES: all of Building 4 at 16815 Von Karman Avenue, Irvine, CA all of the second floor of Building 5 at 16795 Von Karman Avenue, Irvine, CA RSF: The Premises contain approximately 77,869 Rentable Square Feet. TENANT'S PERCENTAGE: The tenant's percentage for the above Premises is 17.136%. This is calculated by dividing the Premises RSF by the total RSF of the project (454,400 RSF). LEASE COMMENCEMENT: The Lease Commencement Date for the above premises is April 15, 1996. -------------- Rent will not be charged during the first two months of the lease term. However, estimated operating expenses, as calculated below, will be charged. Commencement Date: April 15, 1996. Total Project Sq. Ft.: 454,400 sf 1996 Operating Expense Estimate: $5.61 per Sq. Ft. 1996 Expenses: $5.61 x 454.400 sf x 17.136% = $436,846.01 Monthly Charge: (1/12) x $436,846.01 = $36,403.83 April's prorated (16 days) amount of $19,415.38 is due by April 15, 1996. Both ----------------------------------- April's prorated charge and May's charge will appear on the May rent statement. If you have any questions, please contact me at (714) 553-9253. Sincerely, KOLL /s/ Ted Dickerson - ----------------- Ted Dickerson Assistant Manager 18500 Von Karman Avenue Suite 120 Irvine, CA 92715 (714) 553-9470 FAX (714) 756-1946 FIRST AMENDMENT TO ------------------ VON KARMAN CORPORATE CENTER OFFICE BUILDING LEASE ------------------------------------------------- This FIRST AMENDMENT TO VON KARMAN CORPORATE CENTER OFFICE BUILDING LEASE (the "First Amendment") is dated as of December 1 1995, and is entered into by and between AETNA LIFE INSURANCE COMPANY OF ILLINOIS, an Illinois corporation ("Landlord") and INTERPLAY PRODUCTIONS, a California corporation ("Tenant"). R E C I T A L S --------------- A. Landlord and Tenant entered into that certain Von Karman Corporate Center Office Building Lease dated September 8, 1995 (the "Lease") covering premises located at 16815 and 16795 Von Karman Avenue in Irvine, California (the "Buildings") in the project known as the Von Karman Corporate Center. All capitalized terms used in this First Amendment but not defined herein shall have the same meanings as in the Lease. B. Landlord and Tenant have agreed to amend the Lease as hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing recitals and the terms and conditions set forth below, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. Additional Temporary Space. In addition to the Temporary Space -------------------------- described in Subparagraph 2(f) of the Lease, Tenant hereby leases from Landlord and Landlord hereby leases to Tenant, for the Additional Temporary Space Term (defined below) and on the terms and conditions hereinafter set forth, the premises on the second floor of the building located at 2121 Alton Avenue which are outlined on Exhibit "A" attached hereto (the "Additional Temporary Space"). ----------- Landlord and Tenant hereby stipulate and agree that the rentable area of the Additional Temporary Space is 9,205 square feet. 2. Additional Temporary Premises Term. The term of Tenant's leasing ---------------------------------- of the Additional Temporary Space (the "Additional Temporary Space Term") shall commence on December 1, 1995 (the "Additional Temporary Space Commencement Date") and shall end on the Commencement Date (as defined in the Lease). Tenant shall accept the Additional Temporary Space in its current "AS-IS" condition, without representation or warranty, express or implied, and Landlord shall not be obligated to make any improvements to the Additional Temporary Space or provide any improvement allowance or other allowance for or in connection with the Additional Temporary Space. Upon notice from Landlord that the Tenant Improvements for the Premises are substantially complete, Tenant shall promptly move out of the Additional Temporary Space and into the Premises and shall promptly remove all of Tenant's property from the Additional Temporary Space. 3. Additional Temporary Space Rent. Commencing on the Additional ------------------------------- Temporary Space Commencement Date, and continuing throughout the Additional 1 Temporary Premises Term, Tenant shall pay to Landlord as monthly rent for the Additional Temporary Space, the sum of $9,205.00 ("Monthly Additional Temporary Space Rent") on the first day of each calendar month without offset or deduction of any kind. Monthly Additional Temporary Space Rent for any partial month during the Additional Temporary Space Term shall be prorated. Tenant shall not be obligated to pay any Operating Expenses or Real Property Taxes and Assessments, nor shall Tenant's Temporary Space Percentage be increased as a result of Tenant's leasing the Additional Temporary Space. 4. Other Terms. Subject to the foregoing provisions of this First ----------- Amendment (which shall govern and prevail in the event of a conflict between them and the terms of the Lease), all of the terms of the Lease shall apply to the Additional Temporary Premises (including, without limitation, terms relating to use, insurance, indemnification and after-hours utility usage) except that Tenant may not in any event assign, sublet or make improvements to the Additional Temporary Space and no allowance or extension options, expansion options or similar options shall apply with respect to the Additional Temporary Space. 5. Brokers. Tenant represents that it has not had any dealings with ------- any real estate broker, finder or similar person or entity with respect to this First Amendment. Tenant shall defend, indemnify and hold Landlord harmless from and against any and all damages, costs, expenses, losses, liabilities and claims resulting directly or indirectly from any dealings Tenant has had with broker, finder, or similar person or entity in connection with this First Amendment. 6. Miscellaneous. ------------- a. Entire Agreement. This First Amendment embodies the entire ---------------- agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating thereto. b. Notices. All notices, requests, consents and demands ------- hereunder shall be given in accordance with the Lease. c. Amendment and Waiver. Neither this First Amendment nor any -------------------- provisions hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. No failure to exercise, and no delay in exercising any right hereunder or under delivered pursuant hereto shall impair any right, power or remedy which Landlord may have, nor shall any such delay be construed to be a waiver of any of such rights or remedies, or an acquiescence in any breach or default under this First Amendment or the Lease, nor shall any waiver of any breach or default of Tenant be deemed a waiver of any default or breach subsequently occurring. d. Severability of Provisions. If one or more of the -------------------------- provisions contained in this First Amendment should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 2 e. Successors and Assigns. Subject to the provisions of the ---------------------- Lease regarding assignment and subletting, this First Amendment shall be binding upon and inure to the benefit of Landlord, Tenant and their respective successors and assigns. f. Counterparts. This First Amendment may be executed in any ------------ number of counterparts all of which taken together shall constitute one agreement, and any party hereto may execute this First Amendment by signing any such counterpart. g. Choice of Law. This First Amendment shall be governed by ------------- and construed in accordance with the laws of the State of California. h. Time of Essence. Time is of the essence of each of --------------- Landlord's and Tenant's obligations under this First Amendment. j. Attorneys' Fees. If either party commences any legal action --------------- or other proceeding to enforce any of the terms of this First Amendment, or because of any breach by the other party or any dispute hereunder, the successful or prevailing party shall be entitled to recover from the nonprevailing party all reasonable attorneys' fees and disbursements incurred in connection therewith, whether or not such controversy, claim or dispute is prosecuted to a final judgment. Any such attorneys' fees and disbursements incurred by either party in enforcing a judgment in its favor under this First Amendment shall be recoverable separately from such judgment, and the obligation for such attorneys' fees and disbursements is intended to be severable from the other provisions of this First Amendment and any such judgment shall not be merged into any such judgment. IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment as of the day and year first written above. TENANT: LANDLORD: INTERPLAY PRODUCTIONS, AETNA LIFE INSURANCE COMPANY a California corporation OF ILLINOIS, an Illinois corporation By: /s/ Troy Worrell By: /s/ Steven J. Pilch ------------------------------- --------------------------------- Name: Troy Worrell Steven J. Pilch ----------------------------- Title: Vice President Operations Assistant Treasurer ---------------------------- 3 EXHIBIT "A" ----------- (Outline of Floor Plan of Additional Temporary Space) 4 EXHIBIT "A" [VON KARMAN CORPORATION CENTER FLOOR PLAN APPEARS HERE] SECOND AMENDMENT TO ------------------- VON KARMAN CORPORATE CENTER OFFICE BUILDING LEASE ------------------------------------------------- This SECOND AMENDMENT TO VON KARMAN CORPORATE CENTER OFFICE BUILDING LEASE (the "Second Amendment") is dated as of January 5, 1996, and is entered into by and between AETNA LIFE INSURANCE COMPANY OF ILLINOIS, an Illinois corporation ("Landlord") and INTERPLAY PRODUCTIONS, a California corporation ("Tenant"). R E C I T A L S --------------- A. Landlord and Tenant entered into that certain Von Karman Corporate Center Office Building Lease dated September 8, 1995 (as amended by a First Amendment to Von Karman Corporate Center Office Building Lease, said lease is hereinafter referred to as the "Lease") covering premises (the "Existing Premises") located at 16815 and 16795 Von Karman Avenue in Irvine, California in the project commonly known as the Von Karman Corporate Center. All capitalized terms used in this First Amendment but not defined herein shall have the same meanings as in the Lease. B. Landlord and Tenant have agreed to further amend the Lease as hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing recitals and the terms and conditions set forth below, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. Expansion Space. Tenant hereby leases from Landlord and Landlord --------------- hereby leases to Tenant, for the Expansion Space Term (defined below) and on the terms and conditions hereinafter set forth, the entire second floor of the building located at 16845 Von Karman Avenue, which is outlined on Exhibit "A" ---------- attached hereto (the "Expansion Space"). Landlord and Tenant hereby stipulate and agree that the rentable area of the Expansion Space is 23,456 rentable square feet and that the useable area of the Expansion Space is 20,633 useable ------- square feet. 2. Expansion Space Term. The term of Tenant's leasing of the -------------------- Expansion Space (the "Expansion Space Term") shall commence as described in Section 11 of the Work Letter Agreement attached hereto as Exhibit "B" (the ---------- "Expansion Space Commencement Date") and shall end on the expiration or earlier termination of the Lease. Tenant shall accept the Expansion Space in its current "AS-IS" condition, without representation or warranty, express or implied, except that Landlord will construct improvements to the Expansion Space pursuant to the Work Letter Agreement attached hereto as Exhibit "B." ----------- Prior to the Expansion Space Commencement Date, Landlord and Tenant (and/or their respective representatives, who shall be designated in writing and shall be paid by the party for whom the applicable representative is acting) will jointly conduct a walk-through inspection of the Expansion Space and will jointly prepare a punch-list ("Punch-List") of items required to be installed by Landlord under the Work Letter Agreement which require finishing or correction. The Punch-List will not include any items of damage to the Expansion Space caused by Tenant's move-in or early entry, if permitted, which damage will be corrected or repaired by Landlord, at Tenant's expense or, at Landlord's election, by Tenant, at Tenant's expense. Other than the items specified in the Punch-List, by taking possession of the Expansion Space, Tenant will be deemed to have accepted the Expansion Space in its condition on the date of delivery of possession and to have acknowledged that the Tenant Improvements have been installed as required by the Work Letter Agreement and that there are no additional items needing work or repair. Landlord will cause all items in the Punch-List to be repaired or corrected within thirty (30) days following the preparation of the Punch-List or as soon as practicable after the preparation of the Punch-List. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty, express or implied, with respect to the Expansion Space, the Buildings, the Development or any portions thereof or with respect to the suitability of same for the conduct of Tenant's business and Tenant further acknowledges that Landlord will have no obligation to construct or complete any additional buildings or improvements within the Development. 3. Expansion Space Rent. Commencing on the Expansion Space -------------------- Commencement Date, and continuing throughout the Expansion Space Term, Tenant shall pay to Landlord as 1 monthly rent for the Expansion Space ("Monthly Expansion Space Rent"), on the first day of each calendar month without offset or deduction, in accordance with the following schedule:
MONTHLY MONTHS MONTHLY BASE RENT RATE PER RSF - ------ ----------------- ------------ 1-30 $23,456.00 $1.00 31-end of the term $30,492.80 $1.30
Notwithstanding the foregoing, Monthly Base Rent for the Expansion Space shall be abated for the portion, if any, of the Expansion Space Term which is in effect during the first two (2) months of the Term of the Lease (i.e., the --- months in which Monthly Base Rent under the Lease for the Existing Premises is 0). Monthly Expansion Space Rent for any partial month during the Expansion Space Term shall be prorated. In the event of a failure by Tenant to timely pay Monthly Expansion Space Rent, Landlord shall have the same rights and remedies under the Lease as in the case of a failure to pay Monthly Base Rent for the Existing Premises. 4. Tenant's Percentage. Upon the Expansion Space Commencement Date, ------------------- "Tenant's Percentage," as such term is used in the Lease, shall mean 22.44%, but shall be subject to further adjustment as provided in Exhibit "B" and Exhibit ----------- ------- "D" to the Lease and in Subparagraphs 2(e), 2(f) and 3(b) of the Lease - --- 5. Other Terms. Subject to the foregoing provisions of this Second ----------- Amendment (which shall govern and prevail in the event of a conflict between them and the terms of the Lease), upon the Expansion Space Commencement Date all of the terms of the Lease shall apply to the Expansion Space (including, without limitation, terms relating to use, insurance, indemnification and after-hours utility usage) and the word "Premises" as used in the Lease shall mean both the Existing Premises and the Expansion Space. 6. Brokers. Tenant represents that it has not had any dealings with ------- any real estate broker, finder, or similar person or entity with respect to this Second Amendment except for Lee & Associates and Cushman & Wakefield of California, Inc. Tenant shall defend, indemnify and hold Landlord harmless from losses, claims, damages, costs, expenses, liabilities, causes of action that may be asserted against or incurred by Landlord as a direct or indirect result of Tenant's dealings with any other broker, finder, or similar person or entity in connection with this Second Amendment or the leasing of the Expansion Space to Tenant. Landlord shall pay all commissions due Cushman & Wakefield of California, Inc. in connection with this Second Amendment pursuant to a separate written agreement with Cushman & Wakefield of California, Inc. 7. Miscellaneous. ------------- a. Entire Agreement. This Second Amendment embodies the entire ---------------- agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating thereto. b. Notices. All notices, requests, consents and demands ------- hereunder shall be given in accordance with the Lease. c. Amendment and Waiver. Neither this Second Amendment nor any -------------------- provisions hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. No failure to exercise, and no delay in exercising any right hereunder or under delivered pursuant hereto shall impair any right, power or remedy which Landlord may have, nor shall any such delay be construed to be a waiver of any of such rights or remedies, or an acquiescence in any breach or default under this Second Amendment or the Lease, nor shall any waiver of any breach or default of Tenant be deemed a waiver of any default or breach subsequently occurring. d. Severability of Provisions. If one or more of the -------------------------- provisions contained in this Second Amendment should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 2 e. Successors and Assigns. Subject to the provisions of the ---------------------- Lease regarding assignment and subletting, this Second Amendment shall be binding upon and inure to the benefit of Landlord, Tenant and their respective successors and assigns. f. Counterparts. This Second Amendment may be executed in any ------------ number of counterparts all of which taken together shall constitute one agreement, and any party hereto may execute this Second Amendment by signing any such counterpart. g. Choice of Law. This Second Amendment shall be governed by ------------- and construed in accordance with the laws of the State of California. h. Time of Essence. Time is of the essence of each of --------------- Landlord's and Tenant's obligations under this Second Amendment. i. Attorneys' Fees. If either party commences any legal action --------------- or other proceeding to enforce any of the terms of this Second Amendment, or because of any breach by the other party or any dispute hereunder, the successful or prevailing party shall be entitled to recover from the nonprevailing party all reasonable attorneys' fees and disbursements incurred in connection therewith, whether or not such controversy, claim or dispute is prosecuted to a final judgment. Any such attorneys' fees and disbursements incurred by either party in enforcing a judgment in its favor under this Second Amendment shall be recoverable separately from such judgment, and the obligation for such attorneys' fees and disbursements is intended to be severable from the other provisions of this Second Amendment and any such judgment shall not be merged into any such judgment. IN WITNESS WHEREOF, Landlord and Tenant have executed this Second Amendment as of the day and year first written above. TENANT: LANDLORD: INTERPLAY PRODUCTIONS, AETNA LIFE INSURANCE COMPANY a California corporation OF ILLINOIS, an Illinois corporation By: /s/ Troy Worrell By: /s/ Steven J. Pilch ------------------------------- ------------------------------ Name: Troy Worrell Steven J. Pilch ----------------------------- Title: Vice President Operations Assistant Treasurer ---------------------------- 3 EXHIBIT "A" ----------- (Floor Plan of Expansion Space) EXHIBIT "A" ----------- [FLOOR PLAN OF VON KARMAN CORPORATE CENTER APPEARS HERE] EXHIBIT "B" ----------- WORK LETTER AGREEMENT --------------------- (ALLOWANCE) ----------- This WORK LETTER AGREEMENT ("Work Letter Agreement") is entered into as of the 5th day of January, 1996 by and between AETNA LIFE INSURANCE COMPANY OF ILLINOIS, an Illinois Corporation ("Landlord"), and INTERPLAY PRODUCTIONS, a California corporation ("Tenant"). RECITALS: -------- A. Concurrently with the execution of this Work Letter Agreement, Landlord and Tenant have entered into a Second Amendment to Von Karman Corporate Center Office Building Lease (the "Second Amendment") covering certain premises (the "Expansion Space") more particularly described in Exhibit "A" attached to ----------- the Second Amendment. All terms not defined herein have the same meaning as set forth in the Second Amendment. B. In order to induce Tenant to enter into the Second Amendment, and in consideration of the mutual covenants hereinafter contained, Landlord and Tenant agree as follows: 1. TENANT IMPROVEMENTS. As used in the Second Amendment and this ------------------- Work Letter Agreement, the term "Expansion Space Tenant Improvements" or "Expansion Space Tenant Improvement Work" means those items of general tenant improvement construction shown on the Final Plans (described in Paragraph 4 below) for the Expansion Space. 2. CONSTRUCTION REPRESENTATIVES. ---------------------------- (a) Landlord. Landlord hereby appoints the following person as -------- Landlord's representative ("Landlord's Representative") to act for Landlord in all matters covered by this Work Letter Agreement: Stein Kingsley Stein; 235 Montgomery St., Suite 1810, San Francisco, CA 94104; Attn.: Mr. Daniel R. Kingsley; Telephone (415) 393-9666, Fax (415) 393-8066. (b) Tenant. Tenant hereby appoints the following person as ------ Tenant's representative ("Tenant's Representative") to act for Tenant in all matters covered by this Work Letter Agreement: Troy Worrell, Interplay Productions, 17922 Fitch Street, Irvine, California 92714; Telephone: (714) 553- 6655; Fax: (714) 252-2820. (c) Communications. All communications with respect to matters -------------- covered by this Work Letter Agreement are to be made to Landlord's Representative or Tenant's Representative, as the case may be, in writing in compliance with the notice provisions of the Lease. Either party may change its representative under this Work Letter Agreement at any time by written notice to the other party in compliance with the notice provisions of the Lease. 3. WORK SCHEDULE. ------------- (a) Work Schedule. Landlord and Tenant hereby agree to ------------- cooperate with one another in good faith to complete the Expansion Space Tenant Improvements by the date that is six (6) months after the date of this Work Letter Agreement (the "Estimated Expansion Space Commencement Date"). Within ten (10) days after the date on which the Second Amendment is executed (the "Execution Date") Landlord will deliver to Tenant, for Tenant's review and approval, a schedule ("Work Schedule") which will set forth the timetable for the planning, design and construction of the Expansion Space Tenant Improvements and the Estimated Expansion Space Commencement Date; provided, however, that Tenant shall have no right to disapprove any time periods in the Work Schedule which are set forth in this Work Letter Agreement. The Work Schedule will incorporate the activities and durations described in this Work Letter Agreement (including the various items of work to be done or approvals to be given by Landlord and Tenant in connection with the completion of the Expansion Space Tenant Improvements) and may not be changed without written consent of both Landlord and Tenant. (b) Tenant Approval. The Work Schedule will be submitted to --------------- Tenant for its approval, which approval Tenant shall not unreasonably withhold or delay, and once approved by both Landlord and Tenant, the Work Schedule will become the basis for completing the Expansion Space Tenant Improvements. All plans and drawings required by this Work Letter Agreement and all work performed pursuant thereto are to be prepared and performed in accordance with the Work Schedule. If Tenant fails to approve the Work Schedule, as it may be EXHIBIT "B" ----------- Page 1 of 7 Pages modified after discussions between Landlord and Tenant within five (5) business days after the date the Work Schedule is first received by Tenant, the Work Schedule shall be deemed to be approved by Tenant as submitted or Landlord may, at its option, terminate the Lease upon written notice to Tenant. 4. TENANT IMPROVEMENT PLANS. ------------------------ (a) Space Plan. Within three (3) business days after delivery ---------- from Landlord, Tenant shall approve or disapprove in writing the Space Plan to be prepared by LPA (Landlord's space planner), and the failure by Tenant to notify Landlord of its approval or disapproval of said Space Plan within said three (3) business day period shall constitute Tenant's approval of said Space Plan. If Tenant objects to said Space Plan, Tenant shall provide specific, detailed, written directions for the revisions of the Space Plan to Landlord within said three (3) business day period. Landlord then shall, to the extent consistent with the design, utility, character, construction and best interests of the Expansion Space and the building containing the Expansion Space (the "Building"), revise the Space Plan based on Tenant's objections thereto and resubmit them to Tenant within five (5) business days, and Tenant shall have three (3) business days thereafter to approve such resubmitted Space Plan or provide further specific objections. If Tenant disapproves the resubmitted Space Plan, Landlord and Tenant, together with the Landlord's Architect (hereinafter defined), shall meet to resolve Tenant's objections and if Landlord and Tenant cannot promptly resolve their differences between themselves, the determination of the Architect with respect thereto shall be binding on the parties. If Tenant disapproves the revised Space Plan, the time required for resolution of Tenant's objections will be a "Tenant Delay" under Paragraph 8 of this Work Letter Agreement. Following resolution and approval of the Space Plan by Tenant in accordance with the procedures outlined above, no further changes may be made without prior written approval of Landlord. (b) Preparation of Final Plans. Promptly following the approval -------------------------- of the Space Plan, based on the Space Plan and in accordance with the Work Schedule, an architect and engineers selected by Landlord ("Landlord's Architect" and "Landlord's Engineers," respectively) will prepare complete architectural plans, drawings and specifications and complete engineered mechanical, structural and electrical working drawing for all of the Tenant Improvements for the Premises (collectively, the "Final Plans"). Concurrently with Tenant's approval of the Space Plan, Tenant shall deliver all necessary programming information and technical requirements for the Expansion Space to Landlord's Architect. Within ten (10) days after Tenant's approval of the Space Plan, Tenant shall deliver all additional programming information requested by Landlord's Architect. Failure to deliver all requested information in sufficient detail within the time periods described above to allow completion of the Final Plans as determined by Landlord's Architect shall constitute a Tenant Delay as defined in Paragraph 8 of this Work Letter Agreement. The Final Plans will: (i) show the division (including partitions and walls), layout, lighting, finish and decoration work (including carpeting and other floor coverings) for the Expansion Space; (ii) include locations and complete dimensions; (iii) be compatible with the shells of the Building and with the design, construction and equipment of the Building; (iv) be comprised of the building standards set forth in the written description thereof that will be delivered to Tenant (the "Building Standards"), or be compatible with and of at least equal quality as the Building Standards; (v) comply with all applicable laws, ordinances, rules and regulations of all governmental authorities having jurisdiction, and all applicable insurance regulations; (vi) not require Building service beyond the level normally provided to other tenants in the Buildings and will not overload and floors of any of the Building; (vii) be of a nature and quality consistent with the overall objectives of Landlord for the Building, as determined by Landlord in its reasonable discretion; and (viii) include all other specifications for the Expansion Space Tenant Improvements. (c) Tenant Approval. Landlord shall deliver the Final Plans to --------------- Tenant within six (6) weeks after the Execution Date for approval by Tenant. Tenant shall have three (3) business days from the date the Final Plans are presented to Tenant to approve the Final Plans. EXHIBIT "B" ---------- Page 2 of 7 Pages The failure of Tenant to give written approval or disapproval of the Final Plans within said three (3) business day period shall constitute approval by Tenant of the Final Plans. (d) Tenant Revisions, Final Approval. If Tenant objects to the -------------------------------- Final Plans, Tenant shall provide specific, detailed, written directions for the revisions of the Final Plans to Landlord within the three (3) business day period described in Subparagraph 4(c) above. Landlord then shall, to the extent consistent with the design, utility, character, construction and best interests of the Building, revise the Final Plans based on Tenant's objections thereto and resubmit them to Tenant within five (5) business days, and Tenant shall have three (3) business days thereafter to approve such resubmitted Final Plans or provide further specific objections. If Tenant disapproves the resubmitted Final Plans, Landlord and Tenant, together with the Landlord's Architect, shall meet to resolve Tenant's objections and if Landlord and Tenant cannot promptly resolve their differences between themselves, the determination of the Landlord's Architect with respect thereto shall be binding on the parties. If Tenant disapproves the revised Final Plans, the time required for resolution of Tenant's objections will be a "Tenant Delay" as defined in Paragraph 8 of this Work Letter Agreement. (e) Additional Changes. Following resolution and approval of ------------------ Final Plans by Landlord and Tenant in accordance with the procedures outlined above, no further changes may be made without prior written approval of both Landlord and Tenant with the exception of changes required by government agencies for issuance of the building permits. Tenant acknowledges that all changes made to the Final Plans at Tenant's request following Tenant's approval of the Final Plans shall be considered Tenant Changes in conformance with Paragraph 7 of this Work Letter Agreement. (f) Delays. If Tenant does not approve the resubmitted Final ------ Plans within the three (3) business day period allowed for such approval, then each day following the three (3) business day period shall constitute a "Tenant Delay" as defined in Paragraph 8 of this Work Letter Agreement. 5. CONSTRUCTION BUDGET ------------------- (a) Preparation of Construction Budget. Upon approval of the ---------------------------------- Final Plans by Tenant, Landlord shall submit the Final Plans to Landlord's Contractor (defined in Subparagraph 6(b) below) for pricing of the construction of the Expansion Space Tenant Improvements. Landlord shall cause the budget for the Expansion Space Tenant improvements (the "Construction Budget") to be delivered to Tenant within three (3) weeks after the date of approval of the Final Plans by Tenant. (b) Tenant Approval. Within three (3) business days after --------------- delivery to Tenant of the Construction Budget, Tenant shall give written approval of the Construction Budget or shall provide Landlord with specific written objections thereto. The failure of Tenant to either approve or disapprove the Construction Budget within said three (3) business day period shall constitute the approval thereof by Tenant. (c) Resolution. If Tenant objects to the Construction Budget, ---------- Landlord, Tenant and Landlord's Contractor shall meet within three (3) business days after receipt by Landlord of Tenant's written objections to the Construction Budget to attempt to resolve such objections. The determination of Landlord as to the reasonableness of any item in the Construction Budget shall be final and binding. (d) Permits. After approval of the Final Plans by Tenant and ------- concurrently with Landlord's submission of the Final Plans to the Landlord's Contractor for pricing, Landlord's Architect will submit the Final Plans to the appropriate governmental agencies for plan checking and the issuance of a building permit. Landlord's Architect, with Tenant's cooperation, will make any changes to the Final Plans which are requested by the Applicable governmental authorities to obtain the building permits. (e) Delays. If Tenant does not approve the Construction Budget ------ within the three (3) business day period allowed for resolution of Tenant's objections to the Construction Budget, then each day following the three (3) day period shall constitute a "Tenant Delay" as defined in Paragraph 8 of this Work Letter Agreement. 6. CONSTRUCTION OF EXPANSION SPACE TENANT IMPROVEMENTS --------------------------------------------------- (a) Construction Commencement. Landlord will be under no ------------------------- obligation to cause the construction of any of the Expansion Space Tenant Improvements until the Second Amendment and this Work Letter Agreement have been executed, Tenant has approved the Space Plan, the Final Plans and Construction Budget, Landlord has received all the required building permits and Tenant has paid to the Landlord the total amount (the "Excess Costs") by which the Construction Budget exceeds the Allowance (defined in Subparagraph EXHIBIT "B" ----------- Page 3 of 7 Pages 10(a) below), if any. Following satisfaction of all of these requirements, Landlord shall instruct Landlord's Contractor to commence and diligently proceed with the construction of the Expansion Space Tenant Improvements, subject to Tenant Delays (as described in Paragraph 8 below). (b) Contractor. Tenant hereby approves Design Build Development ---------- Structures, Inc. (dba "DBD Structures") as the licensed general contractor to be engaged by Landlord for the construction of the Expansion Space Tenant Improvements (the "Landlord's Contractor"). All subcontractors shall be chosen by the Landlord's Contractor and Landlord in their sole and absolute discretion. (c) Quality. The Expansion Space Tenant Improvements shall be ------- construed in a good and workmanlike manner in accordance with the Final Plans. 7. TENANT CHANGES -------------- (a) Request Procedure. Any request by Tenant for a change in the ----------------- Expansion Space Tenant Improvements after approval of the Final Plans (a "Tenant Change") shall be in writing and shall be accompanied by all information necessary to clearly identify and explain the proposed Tenant Change. As soon as practicable after receipt of a written Tenant Change request, Landlord shall notify Tenant of the estimated costs (including design costs) of such Tenant Change as well as the estimated increase in construction time caused by the Tenant Change, if any. Tenant shall approve such estimates within two (2) days after receipt of Landlord's notice. Upon such approval by Tenant, Landlord shall be authorized to cause the Landlord's Architect, Landlord's Engineers and Landlord's Contractor to proceed with the implementation of the requested Tenant Change. If Tenant disapproves such estimates, or fails to approve the cost and time estimates within two (2) day period, Landlord shall not be required to proceed with such Tenant Change, and all costs incurred or time lost, by Landlord or Landlord's Contractor in preparing such estimates shall be treated as a cost of the Expansion Space Tenant Improvements. (b) Increased Cost. The increased cost, as determined by -------------- Landlord, of all Tenant Changes, including the cost of architectural and engineering services required to revise the Final Drawings to reflect such Tenant Changes, including mark-ups for Landlord's Contractor's overhead and fee, not to exceed fifteen percent (15%) of the cost of the Tenant Changes, shall be included in the actual cost of the Expansion Space Tenant Improvements (the "Actual Cost") and shall be borne and paid in accordance with Paragraph 10 of this Work Letter Agreement. In the event Landlord is instructed by Tenant to proceed with a Tenant Change without a prior determination of the increased cost or the increased construction time resulting from such Tenant Change and without approval of such increase by Tenant, the amount thereof shall be determined by Landlord upon completion of the Expansion Space Tenant Improvements, subject only to Landlord's furnishing to Tenant appropriate back-up information from the Landlord's Contractor concerning the increased costs and increased construction time caused by such Tenant Change. (c) Landlord Approval. Any Tenant Changes to the Final Plans ----------------- require written approval of Landlord and Tenant in the manner set forth in Paragraph 4 above. Landlord reserves the right to decline requests for Tenant Changes to the Final Plans if such changes are inconsistent with the provisions of Paragraph 4 above, or if the change would unreasonably delay construction of the Expansion Space Tenant Improvements or the Commencement Date. (d) Additional Time. Any increase in construction time caused --------------- by the request for a Tenant Change, whether or not approved, and/or the design permitting and construction of an approved Tenant Change, will constitute a Tenant Delay as defined in Paragraph 8 of this Work Letter Agreement. 8. TENANT DELAYS ------------- (a) Defined. Landlord shall use commercially reasonable efforts ------- to cause the Expansion Space Tenant Improvements to be substantially completed by the Estimated Commencement Date, as extended by delays caused by Tenant ("Tenant Delays") and "Force Majeure Delays," as defined in Paragraph 9 of this Work Letter Agreement. Tenant Delays may include, but shall not be limited to the following: (i) Any material revisions to the Space Plan; (ii) Tenant's failure to timely provide programming information for the preparation of the Final Plans; (iii) Any Tenant Changes, including, without limitation, any revisions or request for revisions to the Space Plan or the Final Plans or the scope of the EXHIBIT "B" ----------- Page 4 of 7 Pages Expansion Space Tenant Improvements requested by Tenant from and after Tenant's approval of the Final Plan (not caused by an error on the part of Landlord in the preparation thereof) which increase the costs incurred by Landlord or cause a delay in constructing the Expansion Space Tenant Improvements; (iv) Any interruption or interference in the installation and construction of the Expansion Space Tenant Improvements caused by Tenant, its agents, employees, contractors or representatives; (v) Any demolition or structural changes (including electrical and mechanical changes) to the Expansion Space not called for by the Final Plans in order to install or construct the Expansion Space Tenant Improvements; (vi) Any other delay requested or caused by Tenant or any of Tenant's vendors, including a delay caused by Tenant's failure to pay invoices for Excess Costs (as defined in subparagraph 10(d) below) in the construction and installation of the Expansion Space Tenant Improvements; (vii) Tenant's failure to timely perform any of its obligations pursuant to this Work Letter Agreement, including any failure to complete, on or before the due date therefore, any action item which is Tenant's responsibility pursuant to this Work Letter Agreement; (viii) Tenant's request for materials, finishes, or installations which are not readily available or which are incompatible with the Building Standards; or (ix) Any other act or failure to act by Tenant, Tenant's employees, agents, architects, independent contractors, consultants and/or any other person performing or required to perform services on behalf of Tenant (including, without limitation, replacement of the existing security system servicing the Expansion Space). (b) Effect of Tenant Delays. If Landlord is delayed in ----------------------- substantially completing the Expansion Space Tenant Improvements, or in obtaining approvals from the appropriate government authorities for occupancy of the Expansion Space, as a result of Tenant Delays(s), then the date upon which the payment of Base Monthly Rent under the Second Amendment shall commence shall be advanced by the number of days of such Tenant Delays. 9. FORCE MAJEURE DELAYS. For purposes of this Work Letter, "Force -------------------- Majeure Delays" means any actual delay in the construction of the Expansion Space Tenant Improvements (including required Building permits) which is beyond the reasonable control of Landlord or Tenant, as the case may be, as described in Paragraph 33 of the Lease. 10. PAYMENT FOR THE TENANT IMPROVEMENTS ----------------------------------- (a) Allowance. Landlord hereby grants to Tenant a tenant --------- improvement allowance of $18.75 per useable square foot of the Expansion Space (i.e., $386,868.75) (the "Allowance"). The Allowance shall be used only for: --- (i) Payment of the costs of preparing the Space Plan and the Final Plans, excluding one preliminary Space Plan and one revision thereof (already provided at Landlord's cost), but including mechanical, electrical, plumbing and structural drawings and of all other items necessary to complete the Final Plans. The Allowance will not be used for the payment of extraordinary design work not consistent with the scope of the Building Standards (i.e., --- above-standard design work), or for payments to any consultants, designers or architects other than the Landlord's Architect and Landlord's Engineers. (ii) The payment of plan check, permit and license fees relating to construction of the Expansion Space Tenant Improvements. (iii) Construction of the Expansion Space Tenant Improvements, including without limitation, the following: (aa) Installation within the Expansion Space of partitioning, doors, floor coverings, ceilings, wall coverings and painting, millwork and similar items; (bb) Electrical wiring, lighting fixtures, outlets and switches, lighting control systems, and other electrical work necessary for the Expansion Space; (cc) The finishing and installation of duct work, terminal boxes, diffusers and accessories necessary for the heating, ventilation and air conditioning EXHIBIT "B" ----------- Page 5 of 7 Pages systems within the Premises, including the cost of meters and key controls for after-hours air conditioning; (dd) Fire and life safety controls systems such as fire walls, sprinklers, fire alarms, including piping, wiring and accessories, necessary for the Expansion Space; (ee) Plumbing, fixtures, pipes and accessories necessary for the Expansion Space; (ff) The HVAC over-ride switches, timers and meters described in Exhibit "F" to the Lease. ----------- (iv) All other costs expended by Landlord in the construction of the Expansion Space Tenant Improvements (including, without limitation, any costs, incurred by Landlord for construction of elements of the Expansion Space Tenant Improvements in the Expansion Space prior to the Execution Date which construction is for the benefit of tenants and is customarily performed by Landlord prior to the execution of leases for space in the Building for reasons of economics (examples of such construction would include, but not be limited to, the extension of mechanical [including heating, ventilating and air conditioning systems] and electrical distribution systems outside of the core of the Building, wall construction, column enclosures and paining outside of the cores of the Building, ceiling hanger wires and window treatment). (b) Changes to Shell of Building. If the Final Plans or any ---------------------------- amendment thereof or supplement thereto shall require changes in the shells of the Building, the increased cost of the shell work will be paid for by Tenant or charged against the Allowance in conformance with Paragraph 10(a) above. (c) Government Cost Increases. If as the result of the ------------------------- Expansion Space Tenant Improvements, Landlord is required by any governmental authorities to make changes in the Expansion Space or the Building of any kind whatsoever other than the Expansion Space Tenant Improvements, then Tenant shall pay Landlord the amount of the costs of making such additional changes within five (5) days after Landlord's written notice; provided, however, that Landlord will first apply any remaining balance of the Allowance to such costs. (d) Excess Costs. The cost of each item referenced in ------------ Subparagraphs 10(a), 10(b) and 10(c) above shall be charged against the Allowance. If the Actual Cost exceeds the Allowance (the amount of such excess being the Excess Cost), Tenant agrees to pay the Excess Cost to Landlord prior to the commencement of construction and within five (5) business days after invoice therefore (less any sums previously paid by Tenant for such Excess Cost pursuant to the Construction Budget). If the sum of the Allowance plus any Excess Cost paid by Tenant exceeds the Actual Cost, Tenant will be entitled to a credit against the Base Monthly Rent next due equal to the amount of the unused Allowance and Excess Cost payments, as determined by Landlord. In no event will the Allowance or any Excess Cost paid by Tenant be used to pay for (i) Tenant's furniture (including systems furniture), equipment, telephone systems, telephone and/or data cabling or any other item of personal property which is not affixed to the Premises; (ii) defects in the Expansion Space Tenant Improvements caused by Landlord's Contractor. Tenant further agrees to pay Landlord all costs not covered by the Allowance (other than defects in the Expansion Space Tenant Improvements caused by Landlord's Contractor) under the same terms as the Excess Cost. (e) Unused Allowance Amounts. Any unused portion of the ------------------------ Allowance upon completion of the Expansion Space Tenant Improvements will not be refunded to Tenant. Any unused portion of the Allowance shall not be available to Tenant as a credit against any obligations of Tenant under the Lease. 11. COMMENCEMENT DATE, SUBSTANTIAL COMPLETION AND MOVE-IN ----------------------------------------------------- (a) Commencement. The term of the Lease as to the Expansion ------------ Space (the "Expansion Space Commencement Date") shall be the earliest of: (i) the date Tenant moves into the Expansion Space to commence operation of its business in all or any portion of the Expansion Space; (ii) the date Landlord's Contractor receives signed approvals from the required governmental agencies on the permit job cards allowing occupancy of the Expansion Space; or (iii) the date the Expansion Space Tenant Improvements have been "substantially completed" (as defined below); provided, however, that if the Expansion Space Commencement Date is delayed as a result of any Tenant Delays described in Paragraph 8 above, then the Expansion Space Commencement Date as would otherwise have been established pursuant to this Subparagraph 11(a) will be accelerated by the number of says of such Tenant Delays as defined in Paragraph 8 of this Work Letter Agreement and provided, further, that if the Expansion Space Commencement Date is based on item (ii) or item (iii) above, then Base Monthly Rent for the EXHIBIT "B" ----------- Page 6 of 7 Pages Expansion Space shall not commence until the date of the Monday after the date on which the Expansion Space Tenant Improvements are substantially completed, as such Monday date is accelerated by Tenant Delays (or if the date of substantial completion is a Saturday or Sunday, then the date of the second Monday after such date, as such second Monday date is accelerated by Tenant Delays). (b) Substantial Completion. For purposes of Subparagraph 11(a) ---------------------- above, the Expansion Space Tenant Improvements shall be deemed to be "substantially completed" when Landlord's Contractor certifies in writing to Landlord and Tenant that Landlord: (a) is able to provide Tenant with reasonable access to the Expansion Space; and (b) has substantially performed all of the Expansion Space Tenant Improvement Work required to be performed by Landlord under this Work Letter Agreement, other than decoration and minor "punch-list" type items (as defined in Paragraph 11(c) below) which do not materially interfere with Tenant's access to or use of the Premises. (c) Punch-List. Within two (2) business days after the ---------- Commencement Date, Tenant will conduct a walk-through inspection of the Expansion Space with Landlord, Landlord's Contractor and Landlord's Architect and provide to Landlord a written punch-list specifying those punch-list items conforming to the Final Plans which require completion, and Landlord will thereafter complete such items with reasonable diligence. (d) Delivery of Possession. Landlord shall deliver possession ---------------------- of the Expansion Space to Tenant in accordance with Subparagraph 11(a) above. The parties estimate that Landlord will deliver possession of the Expansion Space to Tenant, and the Term of the Lease as to the Expansion Space will commence, on or before the Estimated Expansion Space Commencement date. Tenant agrees that if Landlord is unable to deliver possession of the Expansion Space to Tenant on or prior to the Estimated Expansion Space Commencement Date, neither the Second Amendment nor the Lease will not be void or voidable, nor will Landlord be liable to Tenant for any loss or damage resulting therefrom. (e) Use of Freight/Construction Elevators. [INTENTIONALLY ------------------------------------- DELETED] (f) Early Entry. If Tenant is granted enter to the Expansion ----------- Space by Landlord prior to completion of the Expansion Space Tenant Improvements, Landlord and Landlord's Contractor shall not be liable to Tenant or its employees or agents for any loss or damage to property, or injury to person, arising from or related to such early entry or the construction of the Expansion Space Tenant Improvements. Tenant shall take all reasonable precautions to protect against such loss, damage or injury during such early entry and construction of the Expansion Space Tenant Improvements, and shall not interfere with the conduct of the Expansion Space Tenant Improvement work. Tenant shall cooperate with all directives of Landlord and Landlord's Contractor in order to minimize any disruption or delay in completion of the Expansion Space Tenant Improvement work. Tenant shall be responsible for all costs or delays caused by Tenant or Tenant's contractors or agents as a result of early entry to the Expansion Space if such early entry is granted. IN WITNESS WHEREOF, Landlord and Tenant have caused this Work Letter Agreement to be duly executed by their duly authorized representatives as of the date of the Second Amendment. TENANT: LANDLORD: INTERPLAY PRODUCTIONS, AETNA LIFE INSURANCE COMPANY a California corporation OF ILLINOIS, an Illinois corporation By: /s/ Troy Worrell By: /s/ Stephen J. Pilch ------------------------------ ----------------------------- Name: Troy Worrell Name: Stephen J. Pilch ---------------------------- Title: Vice President Operations Title: Assistant Treasurer -------------------------- EXHIBIT "B" ----------- Page 7 of 7 Pages THIRD AMENDMENT TO VON KARMAN CORPORATE CENTER OFFICE BUILDING LEASE THIS THIRD AMENDMENT TO VON KARMAN CORPORATE CENTER OFFICE BUILDING LEASE (this "Third Amendment") is made as of June 30, 1997, by and between THE --------------- STANDARD FIRE INSURANCE COMPANY, a Connecticut corporation ("Landlord"), and -------- INTERPLAY PRODUCTION, a California corporation ("Tenant"), with reference to the ------ following: Recitals -------- A. Landlord's predecessor-in-interest, Aetna Life Insurance Company of Illinois, and Tenant entered into that certain Von Karman Corporate Center Office Building Lease dated September 8, 1995, and that certain First Lease Amendment to Von Karman Corporate Center Office Building Lease dated December 1, 1995, and that certain Second Amendment to Von Karman Corporate Center Office Building Lease dated as of January 5, 1996 (collectively, the "Lease"), relating ----- to all of that certain office building located at 16815 Von Karman Avenue, Irvine, California, the entire second floor of that certain office building located at 16795 Von Karman Avenue (collectively, the "Premises") in the project -------- commonly known as the Von Karman Corporate Center. All capitalized terms not otherwise defined herein shall have the meanings set forth in the Lease. B. The term of the Lease is set to expire on June 14, 2001 (the "Original -------- Expiration Date"). - --------------- C. Subject to the terms and conditions set forth below, Tenant desires to extend the term of the Lease applicable to the entire Premises in accordance with the extension option granted to Tenant by Section 3(b) of the Lease. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises and agreements of the parties set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows: 1. Extension of Term. the Term of the Lease applicable to the entire ----------------- Premises is hereby extended to June 14, 2006 (the "Extended Expiration Date"), ------------------------ unless earlier terminated in accordance with the provisions of the Lease. 2. Monthly Base Rent During Extended Term. Until the Original Expiration -------------------------------------- Date, the Monthly Base rent for the Premises shall be as specified in the Lease. From and after June 15, 2001 until December 14, 2003, the Monthly Base Rent for the Premises shall be $136,788.75 (101,325 sq. ft. at $1.35 per sq. ft.). From and after December 15, 2003 until the Extended Expiration Date, the Monthly Base Rent for the Premises shall be $151,987.50 (101,325 sq. ft. at $1.50 per sq. ft). 3. Limitation of Amendment. Except as expressly modified by this ----------------------- Amendment, the Lease shall remain in full force and effect. 4. Counterparts. This Amendment may be executed in any number of ------------ counterparts, each of which shall be deemed an original, and all of which, when taken together, shall constitute one and the same Amendment. IN WITNESS WHEREOF, the parties have executed this Third Amendment to Von Karman Corporate Center Office Building Lease as of the date first set forth above. TENANT: LANDLORD: INTERPLAY PRODUCTIONS, THE STANDARD FIRE INSURANCE a California corporation COMPANY, a Connecticut corporation By: /s/ Troy Worrell By: [SIGNATURE ILLEGIBLE] ---------------- --------------------- Name: Troy Worrell Name: ------------ -------------------- Title: Vice President Operations Title: Vice President ------------------------- ------------------- -2- EX-10.15 16 LOAN & SECURITY AGREEMENT - GREYROCK BUSINESS CREDIT ---------------------------------------------------------------------- EXHIBIT 10.15 [LOGO OF GREYROCK BUSINESS CREDIT APPEARS HERE] LOAN AND SECURITY AGREEMENT BORROWER(S): INTERPLAY PRODUCTIONS INTERPLAY OEM, INC. ADDRESS: 16815 VON KARMAN AVE. IRVINE, CA 92606 DATE: JUNE 16, 1997 This Loan and Security Agreement is entered into on the above date between GREYROCK BUSINESS CREDIT, a Division of NationsCredit Commercial Corporation ("GBC"), whose address is 10880 Wilshire Blvd, Suite 950, Los Angeles, Ca 90024 and the borrower named above (jointly and severally, "Borrower"), whose chief executive office is located at the above address ("Borrower's Address"). The Schedule to this Agreement (the "Schedule") being signed concurrently is an integral part of this Agreement. (Definitions of certain terms used in this Agreement are set forth in Section 8 below.) 1. LOANS. 1.1 LOANS. GBC will make loans to Borrower (the "Loans"), in amounts determined by GBC in its *, up to the amounts (the "Credit Limit") shown on the Schedule, provided no Default or Event of Default has occurred and is continuing. If at any time or for any reason the total of all outstanding Loans and all other Obligations exceeds the Credit Limit, Borrower shall immediately pay the amount of the excess to GBC, **. *GOOD FAITH BUSINESS JUDGMENT **WITHIN THREE (3) BUSINESS DAYS THEREAFTER 1.2 INTEREST. All Loans and all other monetary Obligations shall bear interest at the rate shown on the Schedule, except where expressly set forth to the contrary in this Agreement or in another written agreement signed by GBC and Borrower. Interest shall be payable monthly, on the last day of the month. Interest may, in GBC's discretion, be charged to Borrower's loan account, and the same shall thereafter bear interest at the same rate as the other Loans. 1.3 FEES. Borrower shall pay GBC the fee(s) shown on the Schedule, which are in addition to all interest and other sums payable to GBC and are not refundable. 2. SECURITY INTEREST. 2.1 SECURITY INTEREST. To secure the payment and performance of all of the Obligations when due, Borrower hereby grants to GBC a security interest in all of Borrower's interest in the following, whether now owned or hereafter acquired, and wherever located (collectively, the "Collateral"): All Inventory, Equipment, Receivables, and General Intangibles, including, without limitation, all of Borrower's Deposit Accounts, all money, all collateral in which GBC is granted a security interest pursuant to any other present or future agreement, all property now or at any time in the future in GBC's possession, and all proceeds (including proceeds of any insurance policies, proceeds of proceeds and claims against third parties), all products of the foregoing, and all books and records related to any of the foregoing. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. In order to induce GBC to enter into this Agreement and to make Loans, Borrower represents and warrants to GBC as follows, and Borrower covenants that the following representations will continue to be true, and that Borrower will at all times comply with all of the following covenants: 3.1 Corporate Existence and Authority. Borrower, if a corporation, is and will continue to be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Borrower is and will continue to be qualified and licensed to do business in all jurisdictions in which any failure to do so would have a material adverse effect on Borrower. The execution, delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby (i) have been duly and validly authorized, (ii) are enforceable against Borrower in accordance with their terms (except -1- GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT ---------------------------------------------------------------------- as enforcement may be limited by equitable principles and by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to creditors' rights generally), (iii) do not violate Borrower's articles or certificate of incorporation, or Borrower's by-laws, or any law or any material agreement or instrument which is binding upon Borrower or its property, and (iv) do not constitute grounds for acceleration of any material indebtedness or obligation under any material agreement or instrument which is binding upon Borrower or its property. 3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the heading to this Agreement is its correct name. Listed on the Schedule are all prior names of Borrower and all of Borrower's present and prior trade names. Borrower shall give GBC 30 days' prior written notice before changing its name or doing business under any other name. Borrower has complied, and will in the future comply, with all laws relating to the conduct of business under a fictitious business name. 3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the heading to this Agreement is Borrower's chief executive office. In addition, Borrower has places of business and Collateral is located only at the locations set forth on the Schedule. Borrower will give GBC at least 30 days prior written notice before opening any additional place of business, changing its chief executive office, or moving any of the Collateral to a location other than Borrower's Address or one of the locations set forth on the Schedule. 3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all times in the future be, the sole owner of all the Collateral, except for items of Equipment which are leased by Borrower. The Collateral now is and will remain free and clear of any and all liens, charges, security interests, encumbrances and adverse claims, except for Permitted Liens. GBC now has, and will continue to have, a first-priority perfected and enforceable security interest in all of the Collateral, subject only to the Permitted Liens, and Borrower will at all times defend GBC and the Collateral against all claims of others. So long as any Loan is outstanding which is a term loan, none of the Collateral now is or will be affixed to any real property in such a manner, or with such intent, as to become a fixture. Borrower is not and will not become a lessee under any real property lease pursuant to which the lessor may obtain any rights in any of the Collateral and no such lease now prohibits, restrains, impairs or will prohibit, restrain or impair Borrower's right to remove any Collateral from the leased premises. Whenever any Collateral is located upon premises in which any third party has an interest (whether as owner, mortgagee, beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever requested by GBC, use its best * efforts to cause such third party to execute and deliver to GBC, in form acceptable to GBC, such waivers and subordinations as GBC shall specify, so as to ensure that GBC's rights in the Collateral are, and will continue to be, superior to the rights of any such third party. Borrower will keep in full force and effect, and will comply with all the terms of, any lease of real property where any of the Collateral now or in the future may be located. * COMMERCIALLY REASONABLE 3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in good working condition, ordinary wear and tear excepted, and Borrower will not use the Collateral for any unlawful purpose. Borrower will immediately advise GBC in writing of any material loss or damage to the Collateral. 3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at Borrower's Address complete and accurate books and records, comprising an accounting system in accordance with generally accepted accounting principles. 3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now or in the future delivered to GBC have been, and will be, prepared in conformity with generally accepted accounting principles * and now and in the future will completely and fairly reflect the financial condition of Borrower, at the times and for the periods therein stated. Between the last date covered by any such statement provided to GBC and the date hereof, there has been no material adverse change in the financial condition or business of Borrower. Borrower is now and will continue to be solvent. *(EXCEPT IN THE CASE OF NON-ANNUAL FINANCIAL INFORMATION FOR THE ABSENCE OF FOOTNOTE DISCLOSURE AND SUBJECT TO CHANGES RESULTING FROM NORMAL, YEAR-END AUDIT ADJUSTMENTS) 3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely filed, and will timely file, all tax returns and reports required by applicable law, and Borrower has timely paid, and will timely pay, all applicable taxes, assessments, deposits and contributions now or in the future owed by Borrower. Borrower may, however, defer payment of any contested taxes, provided that Borrower (i) in good faith contests Borrower's obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (ii) notifies GBC in writing of the commencement of, and any material development in, the proceedings, and (iii) posts bonds or takes any other steps required to keep the contested taxes from becoming a lien upon any of the Collateral. Borrower is unaware of any claims or adjustments proposed for any of Borrower's prior tax years which could result in additional taxes becoming due and payable by Borrower. Borrower has paid, and shall continue to pay all amounts necessary to fund all present and future pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not and will not withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any such plan which could result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or any other governmental agency. Borrower shall, at all times, utilize the services of an -2- GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT ---------------------------------------------------------------------- outside payroll service providing for the automatic deposit of all payroll taxes payable by Borrower. 3.9 COMPLIANCE WITH LAW. * Borrower has complied, and will comply, in all material respects, with all provisions of all applicable laws and regulations, including, but not limited to, those relating to Borrower's ownership of real or personal property, the conduct and licensing of Borrower's business, and all environmental matters **. *TO THE BEST OF ITS KNOWLEDGE, **IN WHICH THE FAILURE TO SO COMPLY WILL HAVE A MATERIAL ADVERSE IMPACT ON THE BORROWER OR THE COLLATERAL. 3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim, suit, litigation, proceeding or investigation pending or (to best of Borrower's knowledge) threatened by or against or affecting Borrower in any court or before any governmental agency (or any basis therefor known to Borrower) which may result, either separately or in the aggregate, in any material adverse change in the financial condition or business of Borrower, or in any material impairment in the ability of Borrower to carry on its business in substantially the same manner as it is now being conducted. Borrower will promptly inform GBC in writing of any claim, proceeding, litigation or investigation in the future threatened or instituted by or against Borrower involving any single claim of $50,000 or more, or involving $100,000 or more in the aggregate. 3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for lawful business purposes. 4. RECEIVABLES. 4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants to GBC as follows: Each Receivable with respect to which Loans are requested by Borrower shall, on the date each Loan is requested and made, represent an undisputed, bona fide, existing, unconditional obligation of the Account Debtor created by the sale, delivery, and acceptance of goods or the rendition of services, in the ordinary course of Borrower's business*. * (BUT SALES ON TERMS PERMITTING CUSTOMERS TO RETURN DEFECTIVE GOODS OR TO RETURN GOODS AT THE TIME NEW GOODS ARE PURCHASED IN ACCORDANCE WITH "STOCK BALANCING" PROGRAMS OF THE BORROWER IN THE ORDINARY COURSE OF BUSINESS SHALL NOT BE DEEMED TO VIOLATE THIS COVENANT) 4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower represents and warrants to GBC as follows: All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Receivables are and shall be true and correct and all such invoices, instruments and other documents and all of Borrower's books and records are and shall be genuine and in all respects what they purport to be, and all signatories and endorsers have the capacity to contract. All sales and other transactions underlying or giving rise to each Receivable shall comply with all applicable laws and governmental rules and regulations. All signatures and indorsements on all documents, instruments, and agreements relating to all Receivables are and shall be genuine, and all such documents, instruments and agreements are and shall be legally enforceable in accordance with their terms. 4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver to GBC transaction reports and loan requests, schedules and assignments of all Receivables, and schedules of collections, all on GBC's standard forms; provided, however, that Borrower's failure to execute and deliver the same shall not affect or limit GBC's security interest and other rights in all of Borrower's Receivables, nor shall GBC's failure to advance or lend against a specific Receivable affect or limit GBC's security interest and other rights therein. if requested by GBC, Borrower shall furnish GBC with copies (or, at GBC's request***, originals) of all contracts, orders, invoices, and other similar documents, and all original shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to such Receivables*, and Borrower warrants the genuineness of all of the foregoing. Borrower shall also furnish to GBC an aged accounts receivable trial balance in such form and at such intervals as GBC shall request. In addition, ** Borrower shall deliver to GBC the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Receivables, immediately upon receipt thereof and in the same form as received, with all necessary indorsements. * (SUBJECT TO THE CONFIDENTIALITY PROVISIONS SET FORTH BELOW) **ON REQUEST BY GBC (SUBJECT TO THE CONFIDENTIALITY PROVISIONS SET FORTH IN SECTION 9.16A BELOW) ***THE ABILITY TO INSPECT (AND AFTER AN EVENT OF DEFAULT THE RIGHT TO POSSESSION OF) ALL 4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect all Receivables, unless and until a Default or an Event of Default has occurred. Borrower shall hold all payments on, and proceeds of, Receivables in trust for GBC, and Borrower shall deliver all such payments and proceeds to GBC, within one business day after receipt of the same, in their original form, duly endorsed, to be applied to the Obligations in such order as GBC shall determine. 4.5 DISPUTES. Borrower shall notify GBC promptly of all disputes or claims relating to Receivables on the regular reports to GBC. Borrower shall not forgive, or settle any Receivable for less than payment in full, or agree to do any of the foregoing, except that Borrower may do so, provided that: (i) Borrower does so in good faith, in a commercially reasonable manner, in the ordinary course of business, and in arm's length transactions, which are reported to GBC on the regular -3- GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT ---------------------------------------------------------------------- reports provided to GBC; (ii) no Default or Event of Default has occurred and is continuing; and (iii) taking into account all such settlements and forgiveness, the total outstanding Loans and other Obligations will not exceed the Credit Limit. 4.6 RETURNS. Provided no Event of Default has occurred and is continuing, if any Account Debtor returns any Inventory to Borrower in the ordinary course of its business, Borrower shall promptly determine the reason for such return and * promptly issue a credit memorandum to the Account Debtor in the appropriate amount (sending a copy to GBC). In the event any attempted return occurs after the occurrence of any Event of Default, Borrower shall (i) not accept any return without GBC's prior written consent, (ii) hold the returned Inventory in trust for GBC, (iii) segregate all returned Inventory from all of Borrower's other property, (iv) conspicuously label the returned Inventory as GBC's property, and (v) immediately notify GBC of the return of any Inventory, specifying the reason for such return, the location and condition of the returned Inventory, and on GBC's request deliver such returned Inventory to GBC. *IF APPROPRIATE, 4.7 VERIFICATION. GBC may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Receivables, by means of mail, telephone or otherwise, either in the name of Borrower or GBC or such other name as GBC may choose, and GBC or its designee may, at any time, notify Account Debtors that it has a security interest in the Receivables. 4.8 NO LIABILITY. GBC shall not under any circumstances be responsible or liable for any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to a Receivable, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Receivable, or for settling any Receivable in good faith for less than the full amount thereof, nor shall GBC be deemed to be responsible for any of Borrower's obligations under any contract or agreement giving rise to a Receivable. Nothing herein shall, however, relieve GBC from liability for its own gross negligence or willful misconduct. 5. ADDITIONAL DUTIES OF THE BORROWER. 5.1 INSURANCE. Borrower shall, at all times, insure all of the tangible personal property Collateral and carry such other business insurance, with insurers reasonably acceptable to GBC, in such form and amounts as *, and Borrower shall provide evidence of such insurance to GBC, so that GBC is satisfied that such insurance is, at all times, in full force and effect. All such insurance policies shall name GBC as an additional loss payee, and shall contain a lenders loss payee endorsement in form reasonably acceptable to GBC. Upon receipt of the proceeds of any such insurance, GBC shall apply such proceeds in reduction of the Obligations as GBC shall determine in its sole discretion, except that, provided no Default or Event of Default has occurred and is continuing, GBC shall release to Borrower insurance proceeds with respect to Equipment totaling less than ** $100,000, which shall be utilized by Borrower for the replacement of the Equipment with respect to which the insurance proceeds were paid. GBC may require reasonable assurance that the insurance proceeds so released will be so used. If Borrower fails to provide or pay for any insurance, GBC may, but is not obligated to, obtain the same at Borrower's expense. Borrower shall promptly deliver to GBC copies of all reports made to insurance companies. *IS CUSTOMARY AND AVAILABLE FOR BORROWER'S BUSINESS **$250,000 5.2 REPORTS. Borrower, at its expense, shall provide GBC with the written reports set forth in the Schedule, and such other written reports with respect to Borrower (including budgets, sales projections, operating plans and other financial documentation), as GBC shall from time to time reasonably specify. 5.3 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on one business day's notice, GBC, or its agents, shall have the right to inspect the Collateral, and the right to audit and copy Borrower's books and records. GBC shall take reasonable steps to keep confidential all information obtained in any such inspection or audit*. The foregoing inspections and audits shall be at Borrower's expense and the charge therefor shall be $600 per person per day (or such higher amount as shall represent GBC's then current standard charge for the same), plus reasonable out-of-pockets expenses. Borrower shall not be charged more than $3,000 per audit (plus reasonable out-of-pockets expenses), nor shall audits be done more frequently than four times per calendar year, provided that the foregoing limits shall not apply after the occurrence of a Default or Event of Default, nor shall they restrict GBC's right to conduct audits at its own expense (whether or not a Default or Event of Default has occurred). Borrower will not enter into any agreement with any accounting firm, service bureau or third party to store Borrower's books or records at any location other than Borrower's Address, without first obtaining GBC's written consent, which may be conditioned upon such accounting firm, service bureau or other third party agreeing to give GBC the same rights with respect to access to books and records and related rights as GBC has under this Agreement. *IN ACCORDANCE WITH SECTION 9.16A BELOW 5.4 REMITTANCE OF PROCEEDS. All proceeds arising from the sale or other disposition of any Collateral shall be delivered, in kind, by Borrower to GBC in the original form in which received by Borrower not later than the following business day after receipt by Borrower, to be applied to the Obligations in such order as GBC shall determine; provided that, if no Default or Event of -4- GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT ---------------------------------------------------------------------- Default has occurred and is continuing, and if no term loan is outstanding hereunder, then Borrower shall not be obligated to remit to GBC the proceeds of the sale of Equipment which is sold in the ordinary course of business, in a good-faith arm's length transaction. Except for the proceeds of the sale of Equipment as set forth above, Borrower shall not commingle proceeds of Collateral with any of Borrower's other funds or property, and shall hold such proceeds separate and apart from such other funds and property and in an express trust for GBC. Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement. 5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule, Borrower shall not, without GBC's prior written consent, do any of the following: (i) merge or consolidate with another corporation or entity*; (ii) acquire any assets, except in the ordinary course of business; (iii) enter into any other transaction outside the ordinary course of business; (iv) sell or transfer any Collateral, except that, provided no Default or Event of Default has occurred and is continuing, Borrower may (a) sell finished Inventory in the ordinary course of Borrower's business, and (b) if no term loan is outstanding hereunder, sell Equipment in the ordinary course of business, in good-faith arm's length transactions; (v) store any Inventory or other Collateral with any warehouseman or other third party; (vi) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent basis; (vii) make any loans of any money or other assets**; (viii) incur any debts, outside the ordinary course of business, which would have a material, adverse effect on Borrower or on the prospect of repayment of the Obligations; (ix) guarantee or otherwise become liable with respect to the obligations of another party or entity***; (x) pay or declare any dividends on Borrower's stock (except for dividends payable solely in stock of Borrower); (xi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrower's stock****; (xii) make any change in Borrower's capital structure which would have a material adverse effect on Borrower or on the prospect of repayment of the Obligations; or (xiii) dissolve or elect to dissolve; or (xiv) agree to do any of the foregoing. *EXCEPT PURSUANT TO A REINCORPORATION IN THE STATE OF DELAWARE (PROVIDED THAT, CONCURRENTLY, BORROWER EXECUTES AND DELIVERS TO GBC SUCH DOCUMENTS AND INSTRUMENTS AS ARE NECESSARY TO HAVE THE SURVIVING DELAWARE CORPORATION BOUND BY THIS AGREEMENT AND ALL OTHER DOCUMENTS AND AGREEMENTS RELATING THERETO AND BORROWER DELIVERS SUCH OTHER DOCUMENTS AS ARE REASONABLY REQUESTED BY GBC IN CONNECTION WITH SUCH MERGER) +(OTHER THAN FOR STOCK OF THE BORROWER) ++(BUT SALES ON TERMS PERMITTING CUSTOMERS TO RETURN DEFECTIVE GOODS OR TO RETURN GOODS AT THE TIME NEW GOODS ARE PURCHASED IN ACCORDANCE WITH "STOCK BALANCING" PROGRAMS OF THE BORROWER IN THE ORDINARY COURSE OF BUSINESS SHALL NOT BE DEEMED TO VIOLATE THIS COVENANT) ** (PROVIDED, HOWEVER, BORROWER MAY (A) SELL AND ISSUE TO ITS EMPLOYEES SHARES OF ITS CAPITAL STOCK FOR WHICH SAID EMPLOYEES PAY THE PURCHASE PRICE THEREOF IN INSTALLMENTS, AND (B) MAKE OTHER LOANS TO EMPLOYEES OF BORROWER IN THE ORDINARY COURSE OF BORROWER'S BUSINESS WHICH IN THE AGGREGATE SHALL NOT EXCEED AT ANY TIME $150,000); ***(EXCEPT FOR (A) GUARANTEES MADE ON BEHALF OF ANY SUBSIDIARY OF BORROWER IN THE ORDINARY COURSE OF BORROWER'S BUSINESS IN CONNECTION WITH LICENSING TRANSACTIONS BETWEEN SAID SUBSIDIARY AND THIRD PARTIES, PROVIDED SUCH LICENSING TRANSACTIONS ARE OF THE TYPE AND ON TERMS AND CONDITIONS SIMILAR TO THE LICENSING TRANSACTIONS IN WHICH BORROWER ENGAGES DIRECTLY, OR (B) GUARANTEES OF OBLIGATIONS OF GAMES ON-LINE, INC. DBA ENGAGE GAMES ONLINE ("ENGAGE"), NOT TO EXCEED $100,000 IN THE AGGREGATE OF LIABILITIES OF ENGAGE AT ANY ONE TIME; ****(EXCEPT THAT BORROWER MAY REPURCHASE STOCK FROM EMPLOYEES, CONSULTANTS AND OTHER SERVICE PROVIDERS OF BORROWER PURSUANT TO AGREEMENTS UNDER WHICH SUCH STOCK WAS ACQUIRED BY SUCH PERSON(S) SUBJECT TO VESTING, FORFEITURE OR OTHER PROVISIONS WHICH ENTITLE BORROWER TO REPURCHASE SUCH STOCK, PROVIDED THAT THE AGGREGATE PAID FOR SUCH STOCK IN ANY FISCAL YEAR DOES NOT EXCEED $500,000); 5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be instituted by or against GBC with respect to any Collateral or in any manner relating to Borrower, Borrower shall, without expense to GBC, make available Borrower and its officers, employees and agents, and Borrower's books and records, without charge, to the extent that GBC may deem them reasonably necessary in order to prosecute or defend any such suit or proceeding. 5.7 NOTIFICATION OF CHANGES. Borrower will promptly notify GBC in writing of any change in its officers or directors, the opening of any new bank account or other deposit account, and any material adverse change in the business or financial affairs of Borrower. 5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by GBC, to execute all documents and take all actions, as GBC may deem reasonably necessary or useful in order to perfect and maintain GBC's perfected security interest in the Collateral, and in order to fully consummate the transactions contemplated by this Agreement. 5.9 INDEMNITY. Borrower hereby agrees to indemnify GBC and hold GBC harmless from and against any and all claims, debts, liabilities, demands, obligations, actions, causes of action, penalties, costs and expenses (including attorneys' fees), of every nature, character and description, which GBC may sustain or incur based upon or arising out of any of the Obligations, any actual or alleged failure to collect and pay over any withholding or other tax relating to Borrower or its employees, any relationship or agreement between GBC and Borrower, any actual or alleged failure of GBC to comply with any writ of attachment or other legal process relating to Borrower or -5- GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT ---------------------------------------------------------------------- any of its property, or any other matter, cause or thing whatsoever occurred, done, omitted or suffered to be done by GBC relating to Borrower or the Obligations (except any such amounts sustained or incurred as the result of the gross negligence or willful misconduct of GBC or any of its directors, officers, employees, agents, attorneys, or any other person affiliated with or representing GBC). Notwithstanding any provision in this Agreement to the contrary, the indemnity agreement set forth in this Section shall survive any termination of this Agreement and shall for all purposes continue in full force and effect. 6. TERM. 6.1 MATURITY DATE. This Agreement shall continue in effect until the maturity date set forth on the Schedule (the "Maturity Date"); provided that the Maturity Date shall automatically be extended, and this Agreement shall automatically and continuously renew, for successive additional terms of one year each, unless one party gives written notice to the other, not less than sixty days prior to the next Maturity Date, that such party elects to terminate this Agreement effective on the next Maturity Date. 6.2 EARLY TERMINATION. This Agreement may be terminated prior to the Maturity Date as follows: (i) by Borrower, effective three business days after written notice of termination is given to GBC; or (ii) by GBC at any time after the occurrence of an Event of Default, without notice, effective immediately. If this Agreement is terminated by Borrower or by GBC under this Section 6.2, Borrower shall pay to GBC a termination fee (the "Termination Fee") in the amount shown on the Schedule. The Termination Fee shall be due and payable on the effective date of termination and thereafter shall bear interest at a rate equal to the highest rate applicable to any of the Obligations. 6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective date of termination, Borrower shall pay and perform in full all Obligations, whether evidenced by installment notes or otherwise, and whether or not all or any part of such Obligations are otherwise then due and payable. Without limiting the generality of the foregoing, if on the Maturity Date, or on any earlier effective date of termination, there are any outstanding letters of credit issued based upon an application, guarantee, indemnity or similar agreement on the part of GBC, then on such date Borrower shall provide to GBC cash collateral in an amount equal to * of the face amount of all such letters of credit plus all interest, fees and costs due or (in GBC's estimation) likely to become due in connection therewith, to secure all of the Obligations relating to said letters of credit, pursuant to GBC's then standard form cash pledge agreement. Notwithstanding any termination of this Agreement, all of GBC's security interests in all of the Collateral and all of the terms and provisions of this Agreement shall continue in full force and effect until all Obligations have been paid and performed in full; provided that, without limiting the fact that Loans are subject to the discretion of GBC, GBC may, in its sole discretion, refuse to make any further Loans after termination. No termination shall in any way affect or impair any right or remedy of GBC, nor shall any such termination relieve Borrower of any Obligation to GBC, until all of the Obligations have been paid and performed in full. Upon payment and performance in full of all the Obligations and termination of this Agreement, GBC shall promptly deliver to Borrower termination statements, requests for reconveyances and such other documents as may be reasonably required to terminate GBC's security interests. *100% 7. EVENTS OF DEFAULT AND REMEDIES. 7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an "Event of Default" under this Agreement, and Borrower shall give GBC immediate written notice thereof: (a) Any warranty, representation, statement, report or certificate made or delivered to GBC by Borrower or any of Borrower's officers, employees or agents, now or in the future, shall be untrue or misleading in a material respect; or (b) Borrower shall fail to pay when due any Loan or any interest thereon or any other monetary Obligation*; or (c) the total Loans and other Obligations outstanding at any time shall exceed the Credit Limit**; or (d) Borrower shall fail to perform any non-monetary Obligation which by its nature cannot be cured; or (e) Borrower shall fail to perform any other non-monetary Obligation, which failure is not cured within 5 business days after the date performance is due; or (f) any levy, assessment, attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made on all or any part of the Collateral which is not cured within *** days after the occurrence of the same; or (g) any default or event of default occurs under any obligation secured by a Permitted Lien, which is not cured within any applicable cure period or waived in writing by the holder of the Permitted Lien; or (h) Borrower breaches any material contract or obligation, which has or may reasonably be expected to have a material adverse effect on Borrower's business or financial condition****; or (i) dissolution, termination of existence, insolvency or business failure of Borrower or any Guarantor; or appointment of a receiver, trustee or custodian, for all or any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by Borrower or any Guarantor under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect; or (j) the commencement of any proceeding against Borrower or any Guarantor under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect, which is not cured by the dismissal thereof within 45 days after the date commenced; or (k) revocation or termination of, or limitation or denial of liability upon, any guaranty of the Obligations or any attempt to do any of the foregoing; or (l) revocation or termination of, or limitation or denial of liability upon, any pledge of any certificate of deposit, securities or other property or asset -6- GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT ---------------------------------------------------------------------- pledged by any third party to secure any or all of the Obligations, or any attempt to do any of the foregoing, or commencement of proceedings by or against any such third party under any bankruptcy or insolvency law; or (m) Borrower makes any payment on account of any indebtedness or obligation which has been subordinated to the Obligations other than as permitted in the applicable subordination agreement, or if any Person who has subordinated such indebtedness or obligations terminates or in any way limits or terminates its subordination agreement; or (n) there shall be a change in the record or beneficial ownership of an aggregate of more than ***** 20% of the outstanding shares of stock of Borrower, in one or more transactions, compared to the ownership of outstanding shares of stock of Borrower in effect on the date hereof, without the prior written consent of GBC; or (o) Borrower shall generally not pay its debts as they become due, or Borrower shall conceal, remove or transfer any part of its property, with intent to hinder, delay or defraud its creditors, or make or suffer any transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or (p) there shall be a material adverse change in Borrower's business or financial condition. GBC may cease making any Loans hereunder during any of the above cure periods, and thereafter if an Event of Default has occurred. *AND SUCH DEFAULT SHALL NOT BE CURED WITHIN THREE (3) BUSINESS DAYS; **AND BORROWER SHALL FAIL TO PAY THE EXCESS TO GBC WITHIN THREE (3) BUSINESS DAYS THEREAFTER ***FIFTEEN (15) ****IF SUCH BREACH HAS NOT BEEN CURED WITHIN TWENTY (20) DAYS AFTER NOTICE FROM GBC *****50% +which would materially and adversely affect the ability of Borrower to repay the Obligations. 7.2 REMEDIES. Upon the occurrence and during the continuance of any Event of Default, and at any time thereafter*, GBC, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by Borrower), may do any one or more of the following: (a) Cease making Loans or otherwise extending credit to Borrower under this Agreement or any other document or agreement; (b) Accelerate and declare all or any part of the Obligations to be immediately due, payable, and performable, notwithstanding any deferred or installment payments allowed by any instrument evidencing or relating to any Obligation; (c) Take possession of any or all of the Collateral wherever it may be found, and for that purpose Borrower hereby authorizes GBC without judicial process to enter onto any of Borrower's premises without interference to search for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises or cause a custodian to remain on the premises in exclusive control thereof, without charge for so long as GBC deems it reasonably necessary in order to complete the enforcement of its rights under this Agreement or any other agreement; provided, however, that should GBC seek to take possession of any of the Collateral by Court process, Borrower hereby irrevocably waives: (i) any bond and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession; (ii) any demand for possession prior to the commencement of any suit or action to recover possession thereof; and (iii) any requirement that GBC retain possession of, and not dispose of, any such Collateral until after trial or final judgment; (d) Require Borrower to assemble any or all of the Collateral and make it available to GBC at places designated by GBC which are reasonably convenient to GBC and Borrower, and to remove the Collateral to such locations as GBC may deem advisable; (e) Complete the processing, manufacturing or repair of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, GBC shall have the right to use Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all other property without charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its condition at the time GBC obtains possession of it or after further manufacturing, processing or repair, at one or more public and/or private sales, in lots or in bulk, for cash, exchange or other property, or on credit, and to adjourn any such sale from time to time without notice other than oral announcement at the time scheduled for sale. GBC shall have the right to conduct such disposition on Borrower's premises without charge, for such time or times as GBC deems reasonable, or on GBC's premises, or elsewhere and the Collateral need not be located at the place of disposition. GBC may directly or through any affiliated company purchase or lease any Collateral at any such public disposition, and if permissible under applicable law, at any private disposition. Any sale or other disposition of Collateral shall not relieve Borrower of any liability Borrower may have if any Collateral is defective as to title or physical condition or otherwise at the time of sale; (g) Demand payment of, and collect any Receivables and General Intangibles comprising Collateral and, in connection therewith, Borrower irrevocably authorizes GBC to endorse or sign Borrower's name on all collections, receipts, instruments and other documents, to take possession of and open mail addressed to Borrower and remove therefrom payments made with respect to any item of the Collateral or proceeds thereof, and, in GBC's sole discretion, to grant extensions of time to pay, compromise claims and settle Receivables, General Intangibles and the like for less than face value; and (h) Demand and receive possession of any of Borrower's federal and state income tax returns and the books and records utilized in the preparation thereof or referring thereto. All reasonable attorneys' fees, expenses, costs, liabilities and obligations incurred by GBC with respect to the foregoing shall be added to and become part of the Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. Without limiting any of GBC's rights and remedies, from and after the occur- -7- GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT ---------------------------------------------------------------------- rence of any Event of Default, the interest rate applicable to the Obligations shall be increased by an additional four percent per annum*. *SO LONG AS SUCH EVENT OF DEFAULT HAS NOT BEEN EITHER CURED OR WAIVED 7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and GBC agree that a sale or other disposition (collectively, "sale") of any Collateral which complies with the following standards will conclusively be deemed to be commercially reasonable: (i) Notice of the sale is given to Borrower at least seven days prior to the sale, and, in the case of a public sale, notice of the sale is published at least seven days before the sale in a newspaper of general circulation in the county where the sale is to be conducted; (ii) Notice of the sale describes the collateral in general, non-specific terms; (iii) The sale is conducted at a place designated by GBC, with or without the Collateral being present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in cash or by cashier's check or wire transfer is required; (vi) With respect to any sale of any of the Collateral, GBC may (but is not obligated to) direct any prospective purchaser to ascertain directly from Borrower any and all information concerning the same. GBC shall be free to employ other methods of noticing and selling the Collateral, in its discretion, if they are commercially reasonable. 7.4 POWER OF ATTORNEY. Upon the occurrence and during the continuance of any Event of Default, without limiting GBC's other rights and remedies, Borrower grants to GBC an irrevocable power of attorney coupled with an interest, authorizing and permitting GBC (acting through any of its employees, attorneys or agents) at any time, at its option, but without obligation, with or without notice to Borrower, and at Borrower's expense, to do any or all of the following, in Borrower's name or otherwise, but GBC agrees to exercise the following powers in a commercially reasonable manner: (a) Execute on behalf of Borrower any documents that GBC may, in its sole discretion, deem advisable in order to perfect and maintain GBC's security interest in the Collateral, or in order to exercise a right of Borrower or GBC, or in order to fully consummate all the transactions contemplated under this Agreement, and all other present and future agreements; (b) Execute on behalf of Borrower any document exercising, transferring or assigning any option to purchase, sell or otherwise dispose of or to lease (as lessor or lessee) any real or personal property which is part of GBC's Collateral or in which GBC has an interest; (c) Execute on behalf of Borrower, any invoices relating to any Receivable, any draft against any Account Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or other lien, or assignment or satisfaction of mechanic's, materialman's or other lien; (d) Take control in any manner of any cash or non-cash items of payment or proceeds of Collateral; endorse the name of Borrower upon any instruments, or documents, evidence of payment or Collateral that may come into GBC's possession; (e) Endorse all checks and other forms of remittances received by GBC; (f) Pay, contest or settle any lien, charge, encumbrance, security interest and adverse claim in or to any of the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; (g) Grant extensions of time to pay, compromise claims and settle Receivables and General Intangibles for less than face value and execute all releases and other documents in connection therewith; (h) Pay any sums required on account of Borrower's taxes or to secure the release of any liens therefor, or both; (i) Settle and adjust, and give releases of, any insurance claim that relates to any of the Collateral and obtain payment therefor; (j) Instruct any third party having custody or control of any books or records belonging to, or relating to, Borrower to give GBC the same rights of access and other rights with respect thereto as GBC has under this Agreement; and (k) Take any action or pay any sum required of Borrower pursuant to this Agreement and any other present or future agreements. Any and all reasonable sums paid and any and all reasonable costs, expenses, liabilities, obligations and reasonable attorneys' fees incurred by GBC with respect to the foregoing shall be added to and become part of the Obligations, shall be payable on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. In no event shall GBC's rights under the foregoing power of attorney or any of GBC's other rights under this Agreement be deemed to indicate that GBC is in control of the business, management or properties of Borrower. 7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale or other disposition of the Collateral shall be applied by GBC first to the reasonable costs, expenses, liabilities, obligations and attorneys' fees incurred by GBC in the exercise of its rights under this Agreement, second to the interest due upon any of the Obligations, and third to the principal of the Obligations, in such order as GBC shall determine in its sole discretion. Any surplus shall be paid to Borrower or other persons legally entitled thereto; Borrower shall remain liable to GBC for any deficiency. If GBC, in its sole discretion, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, GBC shall have the option, exercisable at any time, in its sole discretion, of either reducing the Obligations by the principal amount of purchase price or deferring the reduction of the Obligations until the actual receipt by GBC of the cash therefor. 7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in this Agreement, GBC shall have all the other rights and remedies accorded a secured party under the California Uniform Commercial Code and under all other applicable laws, and under any other instrument or agreement now or in the future entered into between GBC and Borrower, and all of such rights and remedies are cumulative and none is exclusive. Exercise or partial exercise by GBC of one or more of its rights or remedies shall not be deemed an election, nor bar GBC -8- GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT ---------------------------------------------------------------------- from subsequent exercise or partial exercise of any other rights or remedies. The failure or delay of GBC to exercise any rights or remedies shall not operate as a waiver thereof, but all rights and remedies shall continue in full force and effect until all of the Obligations have been fully paid and performed. 8. DEFINITIONS. As used in this Agreement, the following terms have the following meanings: "Account Debtor" means the obligor on a Receivable. -------------- "Affiliate" means, with respect to any Person, a relative, partner, --------- shareholder, director, officer, or employee of such Person, or any parent or subsidiary of such Person, or any Person controlling, controlled by or under common control with such Person. "Agreement" and "this Agreement" means this Loan and Security Agreement and ---------- -------------- all modifications and amendments thereto, extensions thereof, and replacements therefor. "Business Day" means a day on which GBC is open for business. ------------ "Code" means the Uniform Commercial Code as adopted and in effect in the ---- State of California from time to time. "Collateral" has the meaning set forth in Section 2.1 above. ---------- "Default" means any event which with notice or passage of time or both, ------- would constitute an Event of Default. "Deposit Account" has the meaning set forth in Section 9105 of the Code. --------------- "Eligible Inventory" means Inventory which GBC, in its *, deems eligible ------------------ for borrowing, based on such ** considerations as GBC may from time to time deem appropriate. Without limiting the fact that the determination of which Inventory is eligible for borrowing is a matter of GBC's discretion, Inventory which does not meet the following requirements will not be deemed to be Eligible Inventory: Inventory which (i) consists of finished goods, in good, new and salable condition which is not perishable, not obsolete or unmerchantable, and is not comprised of raw materials, work in process, packaging materials or supplies; (ii) meets all applicable governmental standards; (iii) has been manufactured in compliance with the Fair Labor Standards Act; (iv) conforms in all respects to the warranties and representations set forth in this Agreement; (v) is at all times subject to GBC's duly perfected, first priority security interest; and (vii) is situated at Borrower's Address or at one of Borrower's other locations set forth on the Schedule. *GOOD FAITH BUSINESS JUDGMENT **RELEVANT "Eligible Receivables" means unconditional Receivables arising in the -------------------- ordinary course of Borrower's business from the completed sale of goods or rendition of services, which GBC, in its *,shall deem eligible for borrowing, based on such ** considerations as GBC may from time to time deem appropriate. *** *GOOD FAITH BUSINESS JUDGMENT **RELEVANT ***Without limiting the fact that the determination of which Receivables are eligible for borrowing is a matter of GBC's discretion, the following (the "Minimum Eligibility Requirements") are the minimum requirements for a -------------------------------- Receivable to be an Eligible Receivable: (i) the Receivable must not be outstanding for more than 120 days from its invoice date, (ii) the Receivable must not represent progress billings, or be due under a fulfillment or requirements contract with the Account Debtor (provided that installment payments shall be permitted, if disclosed to GBC), (iii) the Receivable must not be subject to any contingencies (including Receivables arising from sales on consignment, guaranteed sale or other terms pursuant to which payment by the Account Debtor may be conditional, but sales on terms permitting customers to return defective goods or to return goods at the time new goods are purchased in accordance with "stock balancing" programs of the Borrower in the ordinary course of business shall not be deemed to violate this provision), (iv) the Receivable must not be owing from an Account Debtor with whom the Borrower has any dispute (whether or not relating to the particular Receivable) (and if it is, the Receivable will be considered ineligible to the extent of the amount of the dispute), (v) the Receivable must not be owing from an Affiliate of Borrower, (vi) the Receivable must not be owing from an Account Debtor which is subject to any insolvency or bankruptcy proceeding, or whose financial condition is not acceptable to GBC in its good faith business judgment, or which, fails or goes out of a material portion of its business, (vii) the Receivable must not be owing from an Account Debtor to whom Borrower is or may be liable for goods purchased from such Account Debtor or otherwise (to the extent of the amount of such liability of the Borrower). If more than 50% of the Receivables owing from an Account Debtor are outstanding more than 120 days from their invoice date (without regard to unapplied credits) or are otherwise not eligible Receivables, then all Receivables owing from that Account Debtor will be deemed ineligible for borrowing. GBC may, from time to time, in its discretion, revise the Minimum Eligibility Requirements, upon written notice to the Borrower, provided that in no event shall the 120-day period in clause (i) or the 50% cross-aging clause in the immediately preceding sentence be modfied without the written consent of the Borrower. Notwithstanding the foregoing, if GBC withdraws approval of a particular Account Debtor, so that Receivables owing from such Account Debtor cease to be Eligible, the Receivables -9- GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT ---------------------------------------------------------------------- outstanding at the date of the withdrawal shall nevertheless continue to be Eligible Receivables, so long as they comply with the other Minimum Eligibility Requirements. "Equipment" means all of Borrower's present and hereafter acquired --------- machinery, molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible personal property (other than Inventory) of every kind and description used in Borrower's operations or owned by Borrower and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions or improvements to any of the foregoing, wherever located. "Event of Default" means any of the events set forth in Section 7.1 of this ---------------- Agreement. "General Intangibles" means all general intangibles of Borrower, whether ------------------- now owned or hereafter created or acquired by Borrower, including, without limitation, all choses in action, causes of action, corporate or other business records, Deposit Accounts, inventions, designs, drawings, blueprints, patents, patent applications, trademarks and the goodwill of the business symbolized thereby, names, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, security and other deposits, rights in all litigation presently or hereafter pending for any cause or claim (whether in contract, tort or otherwise), and all judgments now or hereafter arising therefrom, all claims of Borrower against GBC, rights to purchase or sell real or personal property, rights as a licensor or licensee of any kind, royalties, telephone numbers, proprietary information, purchase orders, and all insurance policies and claims (including life insurance, key man insurance, credit insurance, liability insurance, property insurance and other insurance), tax refunds and claims, computer programs, discs, tapes and tape files, claims under guaranties, security interests or other security held by or granted to Borrower, all rights to indemnification and all other intangible property of every kind and nature (other than Receivables). "Guarantor" means any Person who has guaranteed any of the Obligations. --------- "Inventory" means all of Borrower's now owned and hereafter acquired goods, --------- merchandise or other personal property, wherever located, to be furnished under any contract of service or held for sale or lease (including all raw materials, work in process, finished goods and goods in transit), and all materials and supplies of every kind, nature and description which are or might be used or consumed in Borrower's business or used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise or other personal property, and all warehouse receipts, documents of title and other documents representing any of the foregoing. "LIBOR Rate" means (i) the one-month London Interbank Offered Rate for ---------- deposits in U.S. dollars, as shown each day in The Wall Street Journal (Eastern Edition) under the caption "Money Rates - London Interbank Offered Rates (LIBOR)"; or (ii) if the Wall Street Journal does not publish such rate, the offered one-month rate for deposits in U.S. dollars which appears on the Reuters Screen LIBO Page as of 10:00 a.m., New York time, each day, provided that if at -------- least two rates appear on the Reuters Screen LIBO Page on any day, the "LIBOR Rate" for such day shall be the arithmetic mean of such rates; or (iii) if the Wall Street Journal does not publish such rate on a particular day and no such rate appears on the Reuters Screen LIBO Page on such day, the rate per annum at which deposits in U.S. dollars are offered to the principal London office of The Chase Manhattan Bank, in the London interbank market at approximately 11:00 A.M., London time, on such day in an amount approximately equal to the outstanding principal amount of the Loans, for a period of one month, in each of the foregoing cases as determined in good faith by GBC, which determination shall be conclusive absent manifest error. "Obligations" means all present and future Loans, advances, debts, ----------- liabilities, obligations, guaranties, covenants, duties and indebtedness at any time owing by Borrower to GBC, whether evidenced by this Agreement or any note or other instrument or document, whether arising from an extension of credit, opening of a letter of credit, banker's acceptance, loan, guaranty, indemnification or otherwise, whether direct or indirect (including, without limitation, those acquired by assignment and any participation by GBC in Borrower's debts owing to others), absolute or contingent, due or to become due, including, without limitation, all interest, charges, expenses, fees, attorney's fees, expert witness fees, audit fees, letter of credit fees, loan fees, termination fees, minimum interest charges and any other sums chargeable to Borrower under this Agreement or under any other present or future instrument or agreement between Borrower and GBC. "Permitted Liens" means the following: (i) purchase money security --------------- interests in specific items of Equipment; (ii) leases of specific items of Equipment; (iii) liens for taxes not yet payable; (iv) additional security interests and liens which are subordinate to the security interest in favor of GBC and are consented to in writing by GBC (which consent shall not be unreasonably withheld); (v) security interests being terminated substantially concurrently with this Agreement; (vi) liens of materialmen, mechanics, warehousemen, carriers, or other similar liens arising in the ordinary course of business and securing obligations which are not delinquent; (vii) liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by liens of the type described above in clauses (i) or (ii) above, provided that any extension, renewal or replacement lien is limited to the property encumbered by the existing lien and the principal amount of the indebtedness being extended, -10- GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT ---------------------------------------------------------------------- renewed or refinanced does not increase; (viii) Liens in favor of customs and revenue authorities which secure payment of customs duties in connection with the importation of goods*. GBC will have the right to require, as a condition to its consent under subparagraph (iv) above, that the holder of the additional security interest or lien sign an intercreditor agreement on GBC's then standard form, acknowledge that the security interest is subordinate to the security interest in favor of GBC, and agree not to take any action to enforce its subordinate security interest so long as any Obligations remain outstanding, and that Borrower agree that any uncured default in any obligation secured by the subordinate security interest shall also constitute an Event of Default under this Agreement. * (IX) PRESENT SECURITY INTERESTS SECURING THE PRESENTLY OUTSTANDING SUBORDINATED SECURED NOTES OF BORROWER. "Person" means any individual, sole proprietorship, partnership, joint ------ venture, trust, unincorporated organization, association, corporation, government, or any agency or political division thereof, or any other entity. "Receivables" means all of Borrower's * now owned and hereafter acquired ----------- accounts (whether or not earned by performance), letters of credit, contract rights, chattel paper, instruments, securities, documents and all other forms of obligations at any time owing to Borrower, all guaranties and other security therefor, all merchandise returned to or repossessed by Borrower, and all rights of stoppage in transit and all other rights or remedies of an unpaid vendor, lienor or secured party. *AND THE UK SUBSIDIARY'S (AS DEFINED IN THE SCHEDULE) Other Terms. All accounting terms used in this Agreement, unless otherwise ----------- indicated, shall have the meanings given to such terms in accordance with generally accepted accounting principles, consistently applied. All other terms contained in this Agreement, unless otherwise indicated, shall have the meanings provided by the Code, to the extent such terms are defined therein. 9. GENERAL PROVISIONS. 9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all checks, wire transfers and other items of payment received by GBC (including proceeds of Receivables and payment of the Obligations in full) shall be deemed applied by GBC on account of the Obligations three Business Days after receipt by GBC of immediately available funds. GBC shall not, however, be required to credit Borrower's account for the amount of any item of payment which is unsatisfactory to GBC in its discretion, and GBC may charge Borrower's Loan account for the amount of any item of payment which is returned to GBC unpaid. 9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may be applied, and in GBC's sole discretion reversed and re-applied, to the Obligations, in such order and manner as GBC shall determine in its sole discretion. 9.3 CHARGES TO ACCOUNT. GBC may, in its discretion, require that Borrower pay monetary Obligations in cash to GBC, or charge them to Borrower's Loan account, in which event they will bear interest at the same rate applicable to the Loans. 9.4 MONTHLY ACCOUNTINGS. GBC shall provide Borrower monthly with an account of advances, charges, expenses and payments made pursuant to this Agreement. Such account shall be deemed correct, accurate and binding on Borrower and an account stated (except for reverses and reapplications of payments made and corrections of errors discovered by GBC), unless Borrower notifies GBC in writing to the contrary within * sixty days after each account is rendered, describing the nature of any alleged errors or admissions. * 180 9.5 NOTICES. All notices to be given under this Agreement shall be in writing and shall be given either personally or by reputable private delivery service or by regular first-class mail, or certified mail return receipt requested, addressed to GBC or Borrower at the addresses shown in the heading to this Agreement, or at any other address designated in writing by one party to the other party. All notices shall be deemed to have been given upon delivery in the case of notices personally delivered, or at the expiration of one business day following delivery to the private delivery service, or two business days following the deposit thereof in the United States mail, with postage prepaid. 9.6 SEVERABILITY. Should any provision of this Agreement be held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect the remainder of this Agreement, which shall continue in full force and effect. 9.7 INTEGRATION. This Agreement and such other written agreements, documents and instruments as may be executed in connection herewith are the final, entire and complete agreement between Borrower and GBC and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement. There are no oral ----------------- understandings, representations or agreements between the parties which are not - ------------------------------------------------------------------------------- set forth in this Agreement or in other written agreements signed by the parties - -------------------------------------------------------------------------------- in connection herewith. - ----------------------- 9.8 WAIVERS. The failure of GBC at any time or times to require Borrower to strictly comply with any of the provisions of this Agreement or any other present or future agreement between Borrower and GBC shall not waive or diminish any right of GBC later to demand and receive strict compliance therewith. Any waiver of any default shall not waive or affect any other default, whether prior or subsequent, and whether or not similar. None of the provisions of this Agreement or any other agreement now -11- GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT ---------------------------------------------------------------------- or in the future executed by Borrower and delivered to GBC shall be deemed to have been waived by any act or knowledge of GBC or its agents or employees, but only by a specific written waiver signed by an authorized officer of GBC and delivered to Borrower. Borrower waives demand, protest, notice of protest and notice of default or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, instrument, account, General Intangible, document or guaranty at any time held by GBC on which Borrower is or may in any way be liable, and notice of any action taken by GBC, unless expressly required by this Agreement. 9.9 AMENDMENT. The terms and provisions of this Agreement may not be waived or amended, except in a writing executed by Borrower and a duly authorized officer of GBC. 9.10 TIME OF ESSENCE. Time is of the essence in the performance by Borrower of each and every obligation under this Agreement. 9.11 ATTORNEYS FEES AND COSTS. Borrower shall reimburse GBC for all reasonable attorneys' fees and all filing, recording, search, title insurance, appraisal, audit, and other reasonable costs incurred by GBC, pursuant to, or in connection with, or relating to this Agreement (whether or not a lawsuit is filed), including, but not limited to, any reasonable attorneys' fees and costs GBC incurs in order to do the following: prepare and negotiate this Agreement and the documents relating to this Agreement; obtain legal advice in connection with this Agreement or Borrower; enforce, or seek to enforce, any of its rights; prosecute actions against, or defend actions by, Account Debtors; commence, intervene in, or defend any action or proceeding; initiate any complaint to be relieved of the automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party claim, or other claim; examine, audit, copy, and inspect any of the Collateral or any of Borrower's books and records; protect, obtain possession of, lease, dispose of, or otherwise enforce GBC's security interest in, the Collateral; and otherwise represent GBC in any litigation relating to Borrower. If either GBC or Borrower files any lawsuit against the other predicated on a breach of this Agreement, the prevailing party in such action shall be entitled to recover its reasonable costs and attorneys' fees, including (but not limited to) reasonable attorneys' fees and costs incurred in the enforcement of, execution upon or defense of any order, decree, award or judgment. All attorneys' fees and costs to which GBC may be entitled pursuant to this Paragraph shall immediately become part of Borrower's Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. 9.12 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of Borrower and GBC; provided, however, that Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of GBC, and any prohibited assignment shall be void. No consent by GBC to any assignment shall release Borrower from its liability for the Obligations. 9.13 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one Person, their liability shall be joint and several, and the compromise of any claim with, or the release of, any Borrower shall not constitute a compromise with, or a release of, any other Borrower. 9.14 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower against GBC, its directors, officers, employees, agents, accountants or attorneys, based upon, arising from, or relating to this Loan Agreement, or any other present or future document or agreement, or any other transaction contemplated hereby or thereby or relating hereto or thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted or suffered to be done by GBC, its directors, officers, employees, agents, accountants or attorneys, shall be barred unless asserted by Borrower by the commencement of an action or proceeding in a court of competent jurisdiction by the filing of a complaint within *, and the service of a summons and complaint on an officer of GBC, or on any other person authorized to accept service on behalf of GBC, within ** days thereafter. Borrower agrees that such *** is a reasonable and sufficient time for Borrower to investigate and act upon any such claim or cause of action. The *** one-year period provided herein shall not be waived, tolled, or extended except by the written consent of GBC in its sole discretion. This provision shall survive any termination of this Loan Agreement or any other present or future agreement. *TWO YEARS AFTER SUCH CLAIM OR CAUSE OF ACTION ACCRUES **SIXTY (60) ***TWO-YEAR 9.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in this Agreement for convenience. Borrower and GBC acknowledge that the headings may not describe completely the subject matter of the applicable paragraph, and the headings shall not be used in any manner to construe, limit, define or interpret any term or provision of this Agreement. The term "including", whenever used in this Agreement, shall mean "including (but not limited to)". This Agreement has been fully reviewed and negotiated between the parties and no uncertainty or ambiguity in any term or provision of this Agreement shall be construed strictly against GBC or Borrower under any rule of construction or otherwise. 9.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and transactions hereunder and all rights and obligations of GBC and Borrower shall be governed by the laws of the State of California. As a material part of the consideration to GBC to enter into this Agreement, Borrower (i) agrees that all actions and pro- -12- GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT ---------------------------------------------------------------------- ceedings relating directly or indirectly to this Agreement shall, at GBC's option, be litigated in courts located within California, and that the exclusive venue therefor shall be Los Angeles County; (ii) consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (iii) waives any and all rights Borrower may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding. * * 9.16A CONFIDENTIALITY. GBC agrees to exercise reasonable care to --------------- maintain the confidentiality of all proprietary, confidential or trade secret information disclosed pursuant to Sections 4.3, 5.2 or 5.3 hereof, and any such other information which is identified as "confidential" by Borrower and provided to GBC by Borrower in connection with this Agreement, and GBC shall not use any such information for any purpose or in any matter other than pursuant to the terms contemplated by this Agreement, except to the extent such information (i) was or becomes generally available to the public other than as a result of a disclosure by GBC, or (ii) was or became available on a non-confidential basis from a source other than Borrower, provided that such source is not bound by a confidentiality agreement with Borrower known to GBC; provided, however, that GBC may disclose such information (A) at the request or pursuant to any requirement of any governmental agency to which GBC is subject or in connection with an examination of GBC by any such agency; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable law; (D) to the extent reasonably required in connection with the exercise of any remedy hereunder; and (E) to GBC's independent auditors, attorneys and other professional advisors, provided such auditors, attorneys and professional advisors agree to keep such information confidential to the same extent required of GBC hereunder. 9.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND GBC EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN GBC AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF GBC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GBC OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. BORROWER: INTERPLAY PRODUCTIONS BY [SIGNATURE ILLEGIBLE] ------------------------------ PRESIDENT OR VICE PRESIDENT BY [SIGNATURE ILLEGIBLE] ------------------------------ SECRETARY OR ASS'T SECRETARY INTERPLAY OEM, INC. BY [SIGNATURE ILLEGIBLE] ------------------------------- PRESIDENT OR VICE PRESIDENT BY [SIGNATURE ILLEGIBLE] ------------------------------- ASS'T SECRETARY GBC: GREYROCK BUSINESS CREDIT, A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION BY [SIGNATURE ILLEGIBLE] -------------------------------- TITLE Vice President ----------------------------- 46,335-6 -13- - -------------------------------------------------------------------------------- [LOGO OF GREYROCK BUSINESS APPEARS HERE] SCHEDULE TO LOAN AND SECURITY AGREEMENT BORROWER(S): INTERPLAY PRODUCTIONS INTERPLAY OEM, INC. DATE: JUNE 16, 1997 This Schedule is an integral part of the Loan and Security Agreement between GREYROCK BUSINESS CREDIT, A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION ("GBC") and the above-borrower ("Borrower") of even date. ================================================================================ 1. CREDIT LIMIT (Section 1.1): An amount not to exceed the lesser of (1) or (2) below: (1) $20,000,000 at any one time outstanding; or (2) an amount equal to (i) 65% of the amount of Borrower's Eligible Receivables (as defined in Section 8 above), plus 65% of the amount of the Eligible Receivables (as defined in Section 8 above) of Interplay Productions Limited (U.K.) (the AUK Subsidiary@), which Borrower represents is a wholly-owned subsidiary of Interplay Productions (the "Parent"), plus (ii) the lesser of (A) 100% of the Value of Borrower's Eligible Inventory (as defined in Section 8 above), consisting of "Interplay Titles" (i.e. software titles as to which Borrower is the publisher and does marketing and manufacturing) and 20% of the Value of Borrower's Eligible Inventory (as defined in Section 8 above), consisting of "Affiliate Titles" (i.e. software titles as to which Borrower is not the publisher and does not do marketing and manufacturing) or (B) $5,000,000. "Value", as used herein, means the lower of cost or wholesale market value. The UK Subsidiary shall provide a cross-corporate guarantee and first-priority security interests in its Receivables and other assets prior to the making of any Loans with respect to the same. In order to be Eligible Receivables, the UK Subsidiary's Receivables (the AUK Receivables@) shall be billed from and payable to offices in the UK (even though bills may be sent to, and payments may be remitted from, other countries). Currencies in which Receivables are denominated shall be acceptable to GBC in its sole discretion. -1- GREYROCK BUSINESS CREDIT SCHEDULE LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- Loans will be made separately to each Borrower based on the Receivables and Inventory of each Borrower. Loans based on the UK Receivables will be made to the Parent. ================================================================================ 2. INTEREST. INTEREST RATE (Section 1.2): The interest rate in effect throughout each calendar month during the term of this Agreement shall be the highest "LIBOR Rate" in effect during such month, plus 4.87% per annum, provided that the interest rate in effect in each month shall not be less than 8% per annum, and provided that the interest charged for each month shall be a minimum of $20,000, regardless of the amount of the Obligations outstanding. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. "LIBOR Rate" has the meaning set forth in Section 8 above. ================================================================================ 3. FEES (Section 1.3/Section 6.2): Loan Fee: $200,000, payable concurrently herewith. Termination Fee: $2,000 per month for each month (or portion thereof) from the effective date of termination to the Maturity Date NSF Check Charge: $15.00 per item. Wire Transfers: $15.00 per transfer. ================================================================================ 4. MATURITY DATE (Section 6.1): MAY 31, 1998, subject to automatic renewal as provided in Section 6.1 above, and early termination as provided in Section 6.2 above. ================================================================================ 5. REPORTING. (Section 5.2): Borrower shall provide GBC with the following: 1. Annual financial statements, as soon as available, and in any event within 120 days following the end of Borrower's fiscal year, certified by independent certified public accountants acceptable to GBC. 2. Quarterly unaudited financial statements, as soon as available, and in any event within 45 days after the end of each fiscal quarter of Borrower. 3. Monthly unaudited financial statements, as soon as available, and in any event within 30 days after the end of each month. -2- GREYROCK BUSINESS CREDIT SCHEDULE LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- 4. Monthly Receivable agings, aged by invoice date, within 10 days after the end of each month. 5. Monthly accounts payable agings, aged by invoice date, and outstanding or held check registers within 10 days after the end of each month. 6. Monthly perpetual inventory reports for the Inventory valued on a first-in, first-out basis at the lower of cost or market (in accordance with generally accepted accounting principles) or such other inventory reports as are reasonably requested by GBC, all within 30 days after the end of each month. ================================================================================ 6. BORROWER INFORMATION: PRIOR NAMES OF BORROWER (Section 3.2): See Exhibits hereto PRIOR TRADE NAMES OF BORROWER (Section 3.2): See Exhibits hereto EXISTING TRADE NAMES OF BORROWER (Section 3.2): See Exhibits hereto OTHER LOCATIONS AND ADDRESSES (Section 3.3): See Exhibits hereto MATERIAL ADVERSE LITIGATION (Section 3.10): See Exhibits hereto ================================================================================ 7. ADDITIONAL PROVISIONS: 7.1 CORPORATE STRUCTURE. BORROWERS represent and warrant that their corporate structure is as follows: Interplay Productions (the "Parent") owns 100% of the outstanding stock of the UK Subsidiary and Interplay OEM, Inc., 91% of the outstanding stock of Shiny Entertainment, Inc. ("Shiny") and 100% of the outstanding stock of Interplay Co., Ltd. (a Japanese company) (the "Japanese Subsidiary"). The Japanese Subsidiary does not and will not do business in the United States and does not and will not own any assets in the United States. The UK Subsidiary, Interplay OEM, Inc., Shiny and Interplay Co., Ltd. have no subsidiaries. The Parent has no other subsidiaries, other than as set forth above. 7.2 AFFILIATE GUARANTIES. Concurrently, Borrowers shall cause the UK Subsidiary to execute and deliver to GBC a Continuing Guarantee with respect to all of the Obligations and security agreements, UCC-1 Financing Statements and all such other documents as shall be necessary, in GBC's judgment, to grant GBC a first priority security interest in all of its assets, all of which shall be on such form as GBC shall specify. 7.3 PLEDGE OF SHINY STOCK. Concurrently, the Parent shall execute and deliver to GBC a Stock Pledge Agreement pledging not less than 91% of the outstanding stock of -3- GREYROCK BUSINESS CREDIT SCHEDULE LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- Shiny, in such form as GBC shall specify, and shall deliver to GBC certificates evidencing such shares together with duly executed stock powers with respect thereto. Throughout the term of this Agreement, said pledged stock shall continue to represent not less than 91% of the outstanding stock of Shiny, except for reductions in such percentage as a result of the exercise of employee stock options. 7.4 COPYRIGHT FILINGS. Concurrently, Borrowers are executing and delivering to GBC a Security Agreement in Copyrighted Works (the "Copyright Agreement"). Borrower represents and covenants as follows: (a) Future Owned Software. Borrower shall register with the United ---------------------- States Copyright Office (the "Copyright Office") all future software, computer programs and other material works of authorship subject to United States copyright protection ("Copyrights") which are hereafter owned, developed or acquired by the Borrower, within 30 days after the date the same are first owned, developed or acquired, and Borrower shall, within said 30-day period cause the Copyright Agreement to be amended to include such Copyrights, and cause such amendment to be filed in the Copyright Office. (b) Future Licensed Software. Borrower shall cause all Copyrights ------------------------- hereafter licensed by the Borrower as a licensee, which give rise to Receivables and as to which Borrower has exclusive publishing rights in the United States, to be registered by the owner thereof with the Copyright Office, within 30 days after the date the same is licensed by the Borrower, and Borrower shall, within said 30-day period cause its license or a memorandum thereof to be filed in the Copyright Office and cause the Copyright Agreement to be amended to include such license, and cause such amendment to be filed in the Copyright Office. (c) All Owned and Licensed Software. From the date hereof to and -------------------------------- including November 29, 1997, not less than 50% of all Eligible Receivables arising from the sale or licensing of Copyrights ("Copyright Receivables") shall arise from the sale or licensing of Copyrights which have been registered with the United States Copyright Office, and which are expressly included in the Copyright Agreement filed with the Copyright Office; (iii) on and after November 30, 1997 not less than 70% of all Copyright Receivables shall arise from the sale or licensing of Copyrights which have been registered with the United States Copyright Office, and which are expressly included in the Copyright Agreement filed with the Copyright Office. (d) Shiny. Parent has filed in the Copyright Office its license ------ rights to Shiny's products pursuant to Product Agreement between Parent and Shiny dated July 24, 1995 (the "Shiny Exclusive Output Agreement"), and Parent's license rights thereunder shall be included in the Copyright Agreement filed with the Copyright Office. In addition, concurrently, Borrower shall provide GBC with an agreement by Shiny, in form and substance satisfactory to GBC, pursuant to which Shiny agrees not to modify the Shiny Exclusive Output Agreement in such manner as to materially increase the amount of advances, minimum guarantees, royalties or other payments to be made by Parent to Shiny or to reduce materially of otherwise adversely and materially affect any rights or obligations of Parent under the Shine Exclusive Output Agreement, without GBC's prior written consent. 7.5 BAILEE AGREEMENTS. Concurrently, Borrowers shall cause Ditan, IPC, Omni Resources, Advance Paper Box, Banta and Future Media to execute and deliver Bailee Agreements in such form as GBC shall specify. 7.6 SUBORDINATED DEBT HOLDER AGREEMENTS. Within 30 days after the date hereof, Borrower shall obtain and deliver to GBC (i) copies of signed Subordination Agreements -4- GREYROCK BUSINESS CREDIT SCHEDULE LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- in favor of Imperial Bank in the form previously provided by the Borrower to GBC, and (ii) signed Subordinated Debt Holder Agreements, in the form provided to the Borrower by GBC, in each case, executed by the holders of not less than 90% of the Parent's presently outstanding Subordinated Secured Notes. 7.7 UK RECEIVABLES-STREAMLINE PROVISIONS. (a) Borrowing Base Certificate. Daily reporting of transactions and -------------------------- daily schedules and assignments of Receivables and schedules of collections, called for by Section 4.3 of this Loan Agreement, will not be required with respect to the UK Receivables. Instead, the Borrower shall provide GBC with a monthly Borrowing Base Certificate, in such form as GBC shall from time to time specify, within 10 days after the end of each month, with respect to the UK Receivables. (b) Proceeds of Receivables. Delivery of the proceeds of Receivables ----------------------- within one business day after receipt, as called for by Sections 4.4 and 5.4 of this Loan Agreement will not be required with respect to the UK Receivables. (c) Termination of Streamline Provisions on Default. The provisions ------------------------------------------------ of Sections 7.6 (a) and 7.6 (b) above shall immediately terminate if any Event of Default occurs and is continuing. Upon termination of said provisions, the Borrower shall, then and thereafter, provide GBC with the daily reporting of transactions and daily schedules and assignments of the UK Receivables and schedules of collections, as called for by Section 4.3 of the Loan Agreement, and the Borrower shall cause the UK Subsidiary to deliver all proceeds of UK Receivables and other Collateral to GBC, within one business day after receipt, as called for by Sections 4.4 and 5.4 of this Loan Agreement. 7.8 FOREIGN LAW PROVISIONS. (a) No Reduction of Payments. The Borrower shall pay all amounts of ------------------------ principal, interest, fees and other amounts due under this Agreement free and clear of, and without reduction for or on account of, any present and future taxes, levies, imposts, duties, fees, assessments, charges, deductions or withholdings and all liabilities with respect thereto (excluding, in the case of GBC, income and franchise taxes imposed on it by the jurisdiction under the laws of which GBC is organized or in which its principal executive offices may be located or any political subdivision or taxing authority thereof or therein) (all such nonexcluded taxes, levies, imposts, duties, fees, assessments, charges, deductions, withholdings and liabilities being hereinafter referred to as "Taxes"). If any Taxes shall be required by law to be deducted or withheld from any payment, the Borrower shall increase the amount paid so that GBC receives when due (and is entitled to retain), after deduction or withholding for or on account of such Taxes (including deductions or withholdings applicable to additional sums payable under this Section), the full amount of the payment provided for in this Agreement. (b) Deduction or Withholding; Tax Receipts. If the Borrower makes -------------------------------------- any payment hereunder in respect of which it is required by law to make any deduction or withholding, it shall pay the full amount to be deducted or withheld to the relevant taxation or other authority within the time allowed for such payment under applicable law and promptly thereafter shall furnish to GBC an original or certified copy of a receipt evidencing payment thereof, together with such other information and documents as GBC may reasonably request. If no Taxes are payable in respect of any payment hereunder or in connection herewith, the Borrower shall, upon request of GBC, furnish to GBC a certificate from each appropriate taxing authority, or an opinion of counsel acceptable to GBC, in either case stating that such payment is exempt from or not subject to Taxes. -5- GREYROCK BUSINESS CREDIT SCHEDULE LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- (c) Indemnity. Without limiting any other provisions of this --------- Agreement, if GBC is required by law to make any payment on account of Taxes, or any liability in respect of any Tax is imposed, levied or assessed against GBC, the Borrower shall indemnify GBC for and against such payment or liability, together with any incremental taxes, interest or penalties, and all costs and expenses, payable or incurred in connection therewith, including Taxes imposed on amounts payable under this Section 7.8, whether or not such payment or liability was correctly or legally asserted. A certificate of GBC as to the amount of any such payment shall, in the absence of manifest error, be conclusive and binding for all purposes. (d) Other Charges. Without limiting any other provisions of this ------------- Agreement, the Borrower agrees to indemnify GBC against and hold it harmless from any and all present and future stamp, transfer, documentary and other such taxes, levies, fees, assessments and other charges made by any jurisdiction by reason of the execution, delivery, performance and enforcement of the Loan Documents. (e) Obligation to Make Payments in Dollars. Payment in United States -------------------------------------- Dollars ("Dollars") of all amounts due under this Loan Agreement and all other present and future documents, instruments and agreements relating hereto (with this Loan Agreement, the "Loan Documents") is of the essence, and Dollars shall be the currency of account in all events. The payment obligations of the Borrower under the Loan Documents shall not be discharged by an amount paid in another currency or in another place, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on conversion to Dollars and transfer to GBC under normal banking procedures (after premium and costs of exchange) does not yield the amount of Dollars due under the Loan Documents. If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or any other Loan Document in Dollars into another currency (the "Other Currency"), the rate of exchange used shall be that at which in accordance with normal banking procedures GBC could purchase Dollars with the Other Currency on the Business Day preceding that on which final judgment is given. The obligation of the Borrower in respect of any such sum due from it to GBC under the Loan Documents shall, notwithstanding any judgment in such Other Currency, be discharged only to the extent that on the Business Day following receipt by GBC of any sum adjudged to be so due in the Other Currency, GBC may in accordance with normal banking procedures purchase Dollars with the Other Currency; if the Dollars so purchased are less than the sum originally due GBC in Dollars, the Borrower agrees, as a separate and independent obligation and notwithstanding any such judgment, to indemnify GBC against such loss, -6- GREYROCK BUSINESS CREDIT SCHEDULE LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- and if the Dollars so purchased exceed the sum originally due to GBC in Dollars, GBC agrees to remit to the Borrower such excess." Borrower: GBC: INTERPLAY PRODUCTIONS Greyrock Business Credit, a Division of NationsCredit Commercial Corporation By /s/ Christopher J. Kilpatrick ------------------------------- President or Vice President By /s/ Lisa Nagano -------------------------------------- Title V.P. ----------------------------------- By /s/ Steven Camps ------------------------------- Ass't Secretary Borrower: INTERPLAY OEM, INC. By /s/ Jill S. Goldworn ------------------------------- President or Vice President By /s/ Lisa A. Latham ------------------------------- Ass't Secretary -7- Exhibit A-1 To Schedule to Loan Security Agreement Greyrock Business Credit Interplay Productions and Interplay OEMS, Inc. 6. BORROWER INFORMATION PRIOR NAMES OF BORROWER (SECTION 3.2) Interplay Productions --------------------- Frank Fargo Corp. Interplay OEM, Inc. ------------------- None Exhibit A-2 To Schedule to Loan Security Agreement Greyrock Business Credit Interplay Productions and Interplay OEMS, Inc. PRIOR TRADE NAMES OF BORROWER (SECTION 3.2) Interplay Productions --------------------- None Interplay OEM, Inc. ------------------- None Exhibit A-3 To Schedule to Loan Security Agreement Greyrock Business Credit Interplay Productions and Interplay OEMS, Inc. EXISTING TRADE NAMES OF BORROWER (SECTION 3.2) Interplay Productions --------------------- Brainstorm VR Sports I.O.L. MacPlay Digital Voodoo Interplay Pictures Interplay OEM, Inc. ------------------- Interplay Licensing & Merchandising Exhibit A-4 To Schedule to Loan Security Agreement Greyrock Business Credit Interplay Productions and Interplay OEMS, Inc. OTHER LOCATIONS AND ADDRESSES (SECTION 3.3) Interplay Productions --------------------- Interplay Productions 16795, 16815 and 16845 Von Karman Avenue Irvine, CA 92606 IPC 9400 Jeronimo Road Irvine, CA 92718 Ditan 3317 Ardin Road Hayward, CA 94545 Advance Paper Box 6100 S. Gramercy Place Los Angeles, CA 90047 Omni Resources 590 Brennan Street San Jose, CA 92618 Banta Global Turnkey 3351 Jeronimo Road Irvine, CA 92618 Future Media 25136 Anza Drive Valencia, CA 91355 Interplay OEM, Inc. ------------------ Same as above Exhibit A-5 To Schedule to Loan Security Agreement Greyrock Business Credit Interplay Productions and Interplay OEMS, Inc. MATERIAL ADVERSE LITIGATION (SECTION 3.10) Interplay Productions --------------------- 1. David Weinstock dba The Chessworks Studio. Interplay received a ----------------------------------------- letter dated November 4, 1996. The Chessworks Studio alleges that Interplay's use of the mark "Chess Mates" may infringe its rights to the mark "The Chess Mate." The Chessworks Studio and Interplay are currently in discussions to resolve the matter. The Company does not believe that this dispute will have a material adverse impact on the Company or its financial condition or business Interplay OEM, Inc. ------------------ None [LOGO OF INTERPLAY APPEARS HERE] June 19, 1997 Greyrock Business Credit a Division of NationsCredit Commercial Corporation 10880 Wilshire Boulevard, Suite 950 Los Angeles, CA 90024 Re: Interplay Productions --------------------- Gentlemen: In order to facilitate the closing of the Loan and Security Agreement transaction between Interplay Productions, a California corporation ("Parent"), Interplay OEM, Inc., a California corporation ("OEM"), and Greyrock Business Credit, a division of NationsCredit Commercial Corporation ("Greyrock"), the parties have executed the transaction documents with certain points still outstanding. The parties agree under this side letter to the final modifications to the definitive transaction documents as follows: SCHEDULE TO LOAN AND SECURITY AGREEMENT - --------------------------------------- Section 7.6. Section 7.6 of the Schedule to Loan and Security Agreement is - ----------- hereby amended and restated in its entirety to read as follows: (a) Borrower represents and warrants to GBC that the principal amount of the presently outstanding Subordinated Secured Promissory Notes of the Parent (the "Notes") is $14,803,000 and that the holders of approximately $9,100,000 of the Notes previously signed subordination and standstill agreements in favor of Imperial Bank. Within 30 days of the date hereof, Borrower shall obtain and deliver to GBC Subordinated Debt Holder Agreements ("SDH Agreements"), in the form provided to the Borrower by GBC, executed by the holder of not less than 20% in principal amount of the Notes; and within 60 days hereof, Borrower shall obtain and deliver to GBC SDH Agreements executed by the holders of an additional 20% in principal amount of the Notes; and within 90 days after the date hereof, Borrower shall obtain and deliver to GBC SDH Agreements, executed by the holders of an additional 20% in principal amount of the Notes, so that within 90 days after the date hereof GBC will have signed SDH Agreements from the holders of a total of at least 60% in principal amount of the Notes. Greyrock Business Credit A Division of NationsCredit Commercial Corporation June 19, 1997 Page 2 (b) In addition, Borrower shall use its diligent efforts to obtain subordination and standstill agreements in favor of GBC from the holders of Notes who did not previously sign Subordination Agreements in favor of Imperial Bank (the "Non-signing Holders"), in substantially the Imperial Bank form, within 90 days after the date hereof. In the event any of the Non-signing Holders, who have not signed such subordination and standstill agreements in favor of GBC, take any actions which would be prohibited by such subordination and standstill agreements if they had signed them, the same shall constitute an Event of Default hereunder. PLEDGE AGREEMENT - ---------------- Section 3. Add the following words at the end of Section 3 to the Pledge - --------- Agreement: "other than as set forth in the Shareholders Agreement dated July 24, 1995 between Pledgor, and Shiny Entertainment, Inc. and David Perry as modified by that certain letter agreement dated June [16], 1997." Section 4. Add to Section 4 at the top of Page 2, commencing in the first line - --------- on that page replace the words commencing with "due" and ending with "event of default," to read as follows: "due, or within any applicable cure period, part or all of any of the Obligations, or any event of default" Section 5. Add to Section 5 at the top of page 2, in the fourth line on that - --------- page between the words "thereafter" and "GBC shall," the words: "so long as such Event of Default has not been either cured or waived," Exhibit A. The blank on Exhibit A should be completed so that the Exhibit - --------- reads: "8,500,000 shares of Common Stock of Shiny Entertainment, Inc." CROSS-CORPORATE CONTINUING GUARANTY - ----------------------------------- Section 3. On page 2, in Section 3, at the twelfth through eighteenth lines, - --------- delete the words: "or any failure of GBC to comply with any provision of applicable law in enforcing any security interest in or lien upon any property securing any or all of the Indebtedness including, but not limited to, any failure by GBC to dispose of Greyrock Business Credit A Division of NationsCredit Commercial Corporation June 19, 1997 Page 3 any property securing any or all of the Indebtedness in a commercially reasonable manner;" Section 7. On page 3, in Section 7, at the seventh through eighth lines, delete - --------- the words "default or". Section 9. On page 3, in Section 9, at the seventh line, between the words - --------- "indebtedness." and "No payment", insert the words: "Except as permitted by the Loan Agreement," Section 16. On page 5, in Section 16, commencing with the sixteenth line, - ---------- replace the section which begins with "one year after" and ends with "such one year period" to read as follows: "within two years after such claim or cause of action accrues, and service of a summons and complaint on an officer of GBC or any other person authorized to accept service of process on behalf of GBC, within 60 days thereafter, Guarantor agrees that such two-year period" TRADEMARK SECURITY AGREEMENT FOR PARENT - --------------------------------------- Section 3.3. On page 3, immediately before the first sentence of that section, - ----------- insert the words: "Except as provided in the Loan Documents," SECURITY AGREEMENT IN COPYRIGHTED WORKS - --------------------------------------- Section 2(b). On page 2 in Section 2(b), delete from the first line the words - ------------ "non-exclusive". Section 2(d). On page 2 in Section 2(d), add the following words after the word - ------------ "Grantor" at the end of that section: "; provided such Schedules also include copyrights licensed by Grantor." Section 3(d). On page 3, in Section 3(d), in the second line between the words - ------------ "contractors," and "to assign", insert the words: "who develop products on a "work for hire" basis" Greyrock Business Credit A Division of NationsCredit Commercial Corporation June 19, 1997 Page 4 Please countersign this side letter confirming the agreement of Greyrock to the modifications to the Loan Documents expressly provided by Parent and OEM on this side letter. Sincerely yours, INTERPLAY PRODUCTIONS, a California corporation By: /s/ Steven Camps ---------------------------------------- Steven "Chuck" Camps, Chief Financial Officer, Chief Operating Officer and Assistant Secretary INTERPLAY OEM, INC., a California corporation By: /s/ Steven Camps ---------------------------- Steven "Chuck" Camps, Chief Financial Officer AGREED & ACCEPTED: GREYROCK BUSINESS CREDIT, a division of NationsCredit Commercial Corporation By: /s/ Lisa Nagano --------------------- Its: Vice President -------------------- ________________________________________________________________________________ [LOGO OF GREYROCK BUSINESS CREDIT APPEARS HERE] AMENDMENT TO LOAN DOCUMENTS BORROWER(S): INTERPLAY PRODUCTIONS INTERPLAY OEM, INC. ADDRESS: 16815 VON KARMAN AVE. IRVINE, CA 92606 DATE: SEPTEMBER 10, 1997 THIS AMENDMENT TO LOAN DOCUMENTS is entered into between GREYROCK BUSINESS CREDIT, a Division of NationsCredit Commercial Corporation ("GBC"), whose address is 10880 Wilshire Blvd., Suite 950, Los Angeles, CA 90024 and the borrowers named above (jointly and severally, the "Borrower"). The Parties agree to amend the Loan and Security Agreement between them, dated JUNE 16, 1997 (as amended, the "Loan Agreement") as follows, effective on the date hereof. (This Amendment, the Loan Agreement, any prior written amendments to said agreements signed by GBC and the Borrower, and all other written documents and agreements between GBC and the Borrower are referred to herein collectively as the "Loan Documents". Capitalized terms used but not defined in this Amendment, shall have the meanings set forth in the Loan Agreement.) 1. INCREASE IN CREDIT LIMIT. Section 1(1) of the Schedule to the Loan Agreement, which presently reads "(1) $20,000,000 at any one time outstanding; or" is amended to read as follows: "(1) An amount equal to the "Dollar Limit" (as defined below); or" and the following is added at the end of Section 1 of the Schedule: "As used herein 'Dollar Limit' means the following amounts during the following periods: From September 10, 1997 to and including October 30, 1997 $30,000,000 From October 30, 1997 to and including January 31, 1998 $25,000,000 From January 31, 1998 to and including February 28, 1998 $22,500,000 -1- GREYROCK BUSINESS CREDIT AMENDMENT TO LOAN DOCUMENTS ------------------------------------------------------------------------ From February 28, 1998 and thereafter $20,000,000" 2. LETTER OF CREDIT FACILITY. Borrower and GBC are concurrently entering into a Letter of Credit Agreement, providing for a temporary letter of credit facility for the Borrower. 3. FEE. In consideration for GBC entering into this Amendment and the Letter of Credit Agreement, the Borrower shall concurrently pay GBC a fee in the amount of $75,000, which shall be non-refundable and in addition to all interest and other fees payable to GBC under the Loan Documents. GBC is authorized to charge said fee to Borrower's loan account. 4. REPRESENTATIONS TRUE. Borrower represents and warrants to GBC that all representations and warranties set forth in the Loan Agreement, as amended hereby, are true and correct. 5. GENERAL PROVISIONS. This Amendment, the Loan Agreement, and the other Loan Documents set forth in full all of the representations and agreements of the parties with respect to the subject matter hereof and supersede all prior discussions, representations, agreements and understandings between the parties with respect to the subject hereof. Except as herein expressly amended, all of the terms and provisions of the Loan Agreement and the other Loan Documents shall continue in full force and effect and the same are hereby ratified and confirmed. Borrower: GBC: INTERPLAY PRODUCTIONS GREYROCK BUSINESS CREDIT, a Division of NationsCredit Commercial Corporation By /s/ Steven Camps --------------------------- President or Vice President By /s/ Lisa Nagano ----------------------------- Title VP --------------------------- Borrower: INTERPLAY OEM, INC. By /s/ Steven Camps -------------------------- Secretary/CFO -2- AMENDMENT TO LOAN DOCUMENTS BORROWER(S): INTERPLAY PRODUCTIONS INTERPLAY OEM, INC. DATE: FEBRUARY 26, 1998 THIS AMENDMENT TO LOAN DOCUMENTS is entered into between GREYROCK BUSINESS CREDIT, a Division of NationsCredit Commercial Corporation ("GBC"), whose address is 10880 Wilshire Blvd., Suite 950, Los Angeles, CA 90024 and the borrower named above ("Borrower"). The Parties agree to amend the Loan and Security Agreement between them, dated June 16, 1997 (the "Loan Agreement"), as modified by that certain Letter Agreement dated June 19, 1997 (the "Letter Agreement"), as follows. (This Amendment, the Loan Agreement, the Letter Agreement, any prior written amendments to said agreements signed by GBC and the Borrower, and all other written documents and agreements between GBC and the Borrower are referred to herein collectively as the "Loan Documents". Capitalized terms used but not defined in this Amendment, shall have the meanings set forth in the Loan Agreement.) 1. INCREASE IN CREDIT LIMIT. The portion of Section 1 of the Schedule, which presently reads as follows: "1. CREDIT LIMIT (Section 1.1): An amount not to exceed the lesser of (1) or (2) below: "(1) An amount equal to the "Dollar Limit" (as defined below); or "(2) an amount equal to "(i) 65% of the amount of Borrower's Eligible Receivables (as defined in Section 8 above), plus 65% of the amount of the Eligible Receivables (as defined in Section 8 above) of Interplay Productions Limited (U.K.) (the 'UK Subsidiary'), which Borrower represents is a wholly-owned subsidiary of Interplay Productions (the 'Parent'), plus "(ii) the lesser of (A) 100% of the Value of Borrower's Eligible Inventory (as defined in Section 8 above), consisting of 'Interplay Titles' (i.e. software titles as to which Borrower is the publisher and does marketing and manufacturing) and 20% of the Value of Borrower's Eligible Inventory (as defined in Section 8 above), consisting of 'Affiliate Titles' (i.e. software titles as to which Borrower is not the publisher and -1- GREYROCK BUINESS CREDIT AMENDMENT TO LOAN DOCUMENTS - ------------------------------------------------------------------------------- does not do marketing and manufacturing) or (B) $5,000,000. 'Value', as used herein, means the lower of cost or wholesale market value." "As used herein 'Dollar Limit' means the following amounts during the following periods: "From September 10, 1997 to and including October 30, $30,000,000 1997 "From October 30, 1997 to and including January 31, $25,000,000 1998 "From January 31, 1998 to and including February 28, $22,500,000 1998 "From February 28, 1998 and thereafter $20,000,000" is amended to read as follows: "1. CREDIT LIMIT (Section 1.1): An amount not to exceed the lesser of (1) or (2) below: "(A) an amount equal to the 'Dollar Limit' (as defined below) at any one time outstanding; or "(B) an amount equal to "(1) 65% of the amount of Borrower's Eligible Receivables (as defined in Section 8 above), plus 65% of the amount of the Eligible Receivables (as defined in Section 8 above) of Interplay Productions Limited (U.K.) (the 'UK Subsidiary'), which Borrower represents is a wholly-owned subsidiary of Interplay Productions (the 'Parent'), "Plus "(2) the lesser of (A) 100% of the Value of Borrower's Eligible Inventory (as defined in Section 8 above), consisting of 'Interplay Titles' (i.e. software titles as to which Borrower is the publisher and does marketing and manufacturing) and 20% of the Value of Borrower's Eligible Inventory (as defined in Section 8 above), consisting of 'Affiliate Titles' (i.e. software titles as to which Borrower is not the publisher and does not do marketing and manufacturing) or (B) $5,000,000. 'Value', as used herein, means the lower of cost or wholesale market value." "Plus "(3) The 'Permitted Overadvance Amount' (as defined below). "As used above, 'Dollar Limit' shall mean the following amounts during the following periods: "Present to August 30, 1998 $35,000,000 "August 31, 1998 to December 30, 1998 $30,000,000 -2- GREYROCK BUSINESS CREDIT AMENDMENT TO LOAN DOCUMENTS - -------------------------------------------------------------------------------- "December 31, 1998 to May 31, 1999 and thereafter $25,000,000 "As used above, 'Permitted Overadvance Amount' shall mean the following amounts during the following periods: "Present to June 29, 1998 $10,000,000 "June 30, 1998 -0- "July 1, 1998 to August 30, 1998 $10,000,000 "August 31, 1998 to December 30, 1998 $ 5,000,000 "December 31, 1998 to May 31, 1999 and thereafter -0- "It is a material part of the agreement between GBC and Borrower that the Permitted Overadvance Amount be reduced to zero on June 30, 1998 and on the other dates shown above, and that the Dollar Limit and Permitted Overadvance Amounts be reduced as set forth above on the dates set forth above, and any failure to do so shall constitute an Event of Default." 2. EXTENSION. The date "May 31, 1998" in Section 4 of the Schedule is hereby amended to read "May 31, 1999". 3. FEE. (a) In consideration for GBC entering into this Amendment, the Borrower shall pay GBC a fee in the amount of $225,000 (the "Line Increase and Extension Fee"), which is fully earned on the date hereof, non-refundable and in addition to all interest and other fees payable to GBC under the Loan Documents. (b) The Line Increase and Extension Fee shall be payable, without interest, in 12 equal monthly installments of $18,750 each, commencing on March 1, 1998 and continuing on the first day of each month thereafter until paid in full, provided that the entire unpaid balance of the Line Increase and Extension Fee shall be payable in full on any termination of the Loan Agreement. GBC is authorized to charge the monthly payments of the Line Increase and Extension Fee to Borrower's loan account, as they come due. (c) The Line Increase and Extension Fee shall be included in the "Obligations" for all purposes of the Loan Agreement, except that it shall not be considered outstanding for purposes of determining compliance with the Credit Limit under Section 1 of the Schedule. 4. REPRESENTATIONS TRUE. Borrower represents and warrants to GBC that all representations and warranties set forth in the Loan Agreement, as amended hereby, are true and correct. 5. GENERAL PROVISIONS. This Amendment, the Loan Agreement, and the other Loan Documents set forth in full all of the representations and agreements of the parties with respect to the subject matter hereof and supersede all prior discussions, representations, agreements and understandings between the parties with respect to the subject hereof. Except as herein expressly -3- GREYROCK BUSINESS CREDIT AMENDMENT TO LOAN DOCUMENTS - -------------------------------------------------------------------------------- amended, all of the terms and provisions of the Loan Agreement and the other Loan Documents shall continue in full force and effect and the same are hereby ratified and confirmed. Borrower: GBC: INTERPLAY PRODUCTIONS GREYROCK BUSINESS CREDIT, a Division of NationsCredit Commercial Corporation By /s/ Christopher J. Kilpatrick ------------------------------ President or Vice President By /s/ Lisa Nagano By /s/ Lisa Ann Latham -------------------------------- ----------------------------- Title V.P. Secretary ---------------------------- Borrower: INTERPLAY OEM, INC. By /s/ Jill S. Goldworn ------------------------------- President By /s/ Lori Colombana ------------------------------- Secretary CONSENT The undersigned, guarantor, acknowledges that its consent to the foregoing Agreement is not required, but the undersigned nevertheless does hereby consent to the foregoing Agreement and to the documents and agreements referred to therein and to all future modifications and amendments thereto, and any termination thereof, and to any and all other present and future documents and agreements between or among the foregoing parties. Nothing herein shall in any way limit any of the terms or provisions of the Continuing Guaranty of the undersigned, all of which are hereby ratified and affirmed. Interplay Productions Limited (U.K.) By /s/ Peter A. Bilotta ------------------------------- Title President -------------------------- -4- EX-10.18 17 LETTER OF CREDIT AGREEMENT - 9/10/97 EXHIBIT 10.18 ________________________________________________________________________________ [LOGO OF GREYROCK BUSINESS CREDIT APPEARS HERE] LETTER OF CREDIT AGREEMENT BORROWER(S): INTERPLAY PRODUCTIONS INTERPLAY OEM, INC. ADDRESS: 16815 VON KARMAN AVE. IRVINE, CA 92606 DATE: SEPTEMBER 10, 1997 THIS LETTER OF CREDIT AGREEMENT ("Agreement"), dated the above date, is entered into between GREYROCK BUSINESS CREDIT, a Division of NationsCredit Commercial Corporation ("GBC") and the borrower named above ("Borrower"), in connection with the Loan and Security Agreement ("Loan Agreement") between GBC and Borrower dated JUNE 16, 1997. This Agreement is an integral part of the Loan Agreement, and all of the terms and provisions of the Loan Agreement are incorporated herein by this reference. (Capitalized terms used in this Agreement, which are not defined in this Agreement, shall have the meanings set forth in the Loan Agreement. This Agreement, the Loan Agreement and all other present and future documents instruments and agreements between GBC and the Borrower are referred to herein collectively as the "Loan Documents.") 1. LETTERS OF CREDIT. 1.1 LCS. In order to assist Borrower in establishing or opening a --- documentary Letter of Credit (the "LC" or "LCs") with a bank, trust company or other issuer ("Bank") in the amount of $5,858,568, to cover the purchase of goods by Borrower, Borrower has requested that GBC join in the application for the LC, and/or provide guarantees of, and/or indemnities with respect to, payment or performance of the LC and/or any drafts or acceptances thereunder and/or Borrower's obligations in connection therewith (collectively, "Guarantees"). The amount, extent, terms and conditions of the LC and any drafts or acceptance relating thereto and all matters and transactions relating thereto, shall in all respects be subject to approval by GBC in its sole discretion and shall be subject to change, modification and revision by GBC at any time and from time to time, in its sole discretion. 1.2 CONDITIONS. Without limiting any of the terms of the Loan ---------- Agreement or other Loan Documents, and without limiting the fact that the issuance of Guarantees by GBC is a matter of its sole discretion, the issuance of Guarantees by GBC shall be subject to the following conditions: (a) No Event of Default and no event which, with notice or passage of time or both, would constitute an Event of Default shall have occurred and be continuing. (b) No Guarantees shall be issued after September 11, 1997. (c) The LC shall have an expiration date of no later than November 15, 1997. 1.3 COLLATERAL LCS. Borrower represents and warrants that the goods -------------- being purchased with the LC are being simultaneously sold, and Borrower has received from its customers duly issued letters of credit in the aggregate amount of not less than $_____________ as to which Borrower is the beneficiary (the "Collateral LCs"), representing the proceeds of sale of such goods. All Collateral LCs shall, in all respects by in form and substance satisfactory to GBC in its sole discretion -1- GREYROCK BUSINESS CREDIT LETTER OF CREDIT AGREEMENT - ------------------------------------------------------------------------------- and shall be issued by banks satisfactory to GBC in its sole discretion. Borrower acknowledges and agrees that GBC has a perfected security interest in all of the Collateral LCs under the Loan Agreement. 1.3 PAYMENT ON COLLATERAL LCS. All proceeds of the Collateral LCs ------------------------- (the "Proceeds") shall be held in trust by Borrower for GBC and shall be delivered by Borrower to GBC immediately on receipt and in the form received, to be held as additional collateral for all of the Obligations, including without limitation the obligations of the Borrower under this Agreement. GBC may comingle the Proceeds with GBC's other funds, and GBC shall not be required to pay interest on the Proceeds. 2. LC LIMITS. The total amount of all LC Obligations and all outstanding "Loans" and other "Obligations" (as defined in the Loan Agreement) shall not at any time exceed the "Dollar Limit" specified in Section 1 of the Schedule to the Loan Agreement, and if for any reason they do, Borrower shall immediately pay the excess to GBC to be applied to the Obligations in such order and manner as GBC shall determine in its sole discretion. 3. GENERAL. Without limiting any of the other provisions of this Agreement, this Agreement is subject to all of the General LC Provisions attached hereto and incorporated herein by this reference, and to the General Provisions of Section 9 of the Loan Agreement, as well as all other provisions of the Loan Agreement, all of which are hereby incorporated herein by this reference. 4. MUTUAL WAIVER OF JURY TRIAL. BORROWER AND GBC EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN GBC AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF GBC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GBC OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. Borrower: GBC: INTERPLAY PRODUCTIONS GREYROCK BUSINESS CREDIT, a Division of NationsCredit Commercial Corporation By /s/ Steven Camps --------------------------- President or Vice President By /s/ Lisa Nagano ----------------------------- Title VP -------------------------- Borrower: INTERPLAY OEM, INC. By /s/ Steven Camps --------------------------------- Secretary/CFO -2- - -------------------------------------------------------------------------------- GENERAL LC PROVISIONS Attached to and forming a part of the Letter of Credit Agreement between GREYROCK BUSINESS CREDIT, a Division of NationsCredit Commercial Corporation ("GBC") and Interplay Productions and Interplay OEM, Inc. (jointly and severally, "Borrower"). 1. INDEMNITY. Borrower unconditionally agrees to indemnify, defend and hold GBC harmless from any and all indebtedness, liabilities, obligations, losses and claims, of every sort whatsoever, however arising, whether present or future, fixed or contingent, due or to become due, paid or incurred, arising, incurred in connection with, or relating to, any LCs, applications for LCs, Guarantees, drafts or acceptances thereunder or LC Collateral (as defined below), including without limitation (i) any and all losses and claims due to any action or omission by any Bank, any errors or omissions of GBC or any Bank, or otherwise, (ii) all amounts due or which may become due under LCs, or any drafts or acceptances thereunder, (iii) all liabilities and obligations under any steamship or airway guarantees or releases or any Guarantees, (iv) all amounts charged or chargeable to Borrower or to GBC by any Bank, any other financial institution or any correspondent bank which opens, issues or is involved with the LCs, (v) all other bank charges, and (vi) all fees, commissions, duties, taxes, costs of insurance, and all such other charges and expenses which may pertain either directly or indirectly to any LC, draft, acceptance, or Guarantee or to the goods or documents relating thereto. Borrower's obligation to indemnify GBC under this Agreement and Borrower's other obligations under this Agreement are referred to herein as the "LC Obligations" (which shall include, without limitaion, the aggregate face amounts of all LCs and Guarantees). Borrower's LC Obligations shall not be modified or diminished for any reason or in any manner whatsoever, shall be included in the "Obligations" (as defined in the Loan Agreement), and shall survive termination of the Loan Agreement and any other Loan Document. Without limiting the generality of the foregoing, Borrower agrees that any charges made to GBC by any Bank for Borrower's account or relating to any LC shall be conclusive on Borrower and may be charged to any of Borrower's Loan accounts with GBC. GBC shall have the right, at any time and without notice to Borrower, to charge any of Borrower's Loan accounts with GBC with the amount of any and all sums due from Borrower to GBC under this Agreement, and the same shall constitute Loans for all purposes of the Loan Documents and shall bear interest at the rate provided in the Loan Agreement. All sums payable by Borrower to GBC under this Agreement shall be paid solely in United States dollars. 3. SECURITY. Without limiting the security interests granted in the Loan Documents, Borrower hereby grants GBC a security interest in the following (the "LC Collateral"), whether now owned or hereafter acquired by Borrower, wherever located, whether in transit or not, to secure all of the Obligations: all bills of lading, shipping documents, documents of title, chattel paper, invoices, cash, checks, drafts, notes, documents, warehouse, shipping and dock receipts, and other title, payment, or other instruments, and instruments, whether negotiable or not, relating to any LC, and all goods and inventory relating thereto in all stages of manufacture, process or production, and all cash and non-cash proceeds and insurance proceeds thereof of whatever sort and however arising. All references in the Loan Agreement to "Collateral" shall, for all purposes, include without limitation the LC Collateral, and all terms and provisions of the Loan Agreement applicable to Collateral shall also apply to the LC Collateral. 4. NON-RESPONSIBILITY. GBC shall not be responsible for: the existence, character, quality, quantity, condition, packing, value or delivery of the goods purporting to be represented by any documents; any difference or variation in the character, quality, quantity, condition, packing, value or delivery of the goods from that expressed in the documents; the validity, sufficiency or genuineness of any documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; the time, place, manner or order in which shipment is made; partial or incomplete shipment, or failure or omission to ship any or all of the goods referred to in the LCs or documents; any deviation from instructions, delay, default, or fraud by the shipper and/or anyone else in connection with the LC Collateral or the shipping thereof; or any breach of contract between the GREYROCK BUSINESS CREDIT LETTER OF CREDIT AGREEMENT - -------------------------------------------------------------------------------- shipper or vendors and Borrower. Furthermore, without being limited by the foregoing, GBC shall not be responsible for any act or omission with respect to or in connection with any LC Collateral. 5. GBC'S AUTHORITY. Borrower agrees that any action taken by GBC, if taken in good faith, or any action taken by any Bank, under or in connection with the LCs, the Guarantees, the drafts or acceptances, or the LC Collateral, shall be binding on Borrower and shall not result in any liability of GBC to Borrower. In furtherance thereof, GBC shall have the full right and authority to clear and resolve any questions of non-compliance of documents; to give any instructions as to acceptance or rejection of any documents or goods; to execute any and all applications for steamship or airway guarantees, indemnities or delivery orders; to grant any extensions of the maturity of, time or payment for, or time of presentation of, any drafts, acceptances, or documents; and to agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, LCs, drafts or acceptances; all in GBC's sole name, and the Bank shall be entitled to comply with and honor any and all such documents or instruments executed by or received solely from GBC, all without any notice to or any consent from Borrower. 6. GBC'S RIGHTS. Any rights, remedies, duties or obligations granted or undertaken by Borrower to any Bank in any application for LCs, or any standing agreement relating to LCs or otherwise, shall be deemed to have been granted to GBC and apply in all respects to GBC and shall be in addition to any rights, remedies, duties or obligations contained herein. Borrower hereby agrees that prior to the payment of all Obligations to GBC, GBC may be deemed to be the absolute owner of, with unqualified rights to possession and disposition of, all LC Collateral, all of which may be held by GBC as security as herein provided. Should possession of any LC Collateral be transferred to Borrower, said LC Collateral shall continue to serve as security as herein provided, and any goods or inventory covered hereby may be sold, transferred or disposed of only as permitted by the Loan Documents. 7. NEGATIVE COVENANTS. Without GBC's prior written approval, Borrower agrees not to clear or resolve any questions of non-compliance of documents; not to give any instructions as to acceptance or rejection of any documents or goods; not to execute any applications for steamship or airway guarantees, indemnities or delivery orders; not to grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances or documents; and not to agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the appli cations, LCs, drafts or acceptances. 8. AFFIRMATIVE COVENANTS. Borrower shall cause: all necessary import, export or other licenses or certificates for the import or handling of the LC Collateral to be promptly procured; all foreign and domestic governmental laws and regulations in regard to the shipment and importation of the LC Collateral, or the financing thereof to be promptly and fully complied with; and any certificates in that regard that GBC may at any time request to be promptly furnished. In this connection, Borrower warrants and represents to GBC that all shipments made under the LCs are and shall be in accordance with the governmental laws and regulations of the countries in which the shipments originate and terminate, and shall not be prohibited by any such laws or regulations. Borrower assumes all risk, liability and responsibility for, and agrees to pay and discharge, all present and future local, state, federal or foreign taxes, duties, and levies. Any embargo, restriction, laws, customs or regulations of any country, state, city, or other political subdivision, where the Collateral is or may be located, or wherein payments are to be made, or wherein drafts may be drawn, negotiated, accepted, or paid, shall be solely Borrower's risk, liability and responsibility. 9. TERMINATION. Without limiting any of the terms of the Loan Agreement, on the effective date of termination of the Loan Agreement, in addition to paying and performing in full all other Obligations, Borrower shall provide cash collateral to GBC in an amount equal to 110% of the amount of all LC Obligations, to secure all of the Obligations, and Borrower shall execute and deliver to GBC a pledge agreement with respect thereto on GBC's standard form. (If the Loan Agreement provides for a lesser amount of cash collateral, this Agreement shall control..) 10. DEFAULT. On any failure to pay or perform any Obligation when due, or the occurrence of any other "Event of Default" (as defined in the Loan Agreement), GBC shall have all of the rights and remedies set forth in the Loan Documents and which it otherwise has under applicable law, and without -2- GREYROCK BUSINESS CREDIT LETTER OF CREDIT AGREEMENT - ------------------------------------------------------------------------------- limiting the generality of the foregoing, GBC shall have the right to require Borrower to deposit cash collateral with GBC in an amount equal to 110% of the amount of all LC Obligations, to secure all of the Obligations, and Borrower shall execute and deliver to GBC a pledge agreement with respect thereto on GBC's standard form. 11. POWER OF ATTORNEY. Without limiting the terms of any of the Loan Documents, Borrower hereby appoints each employee, attorney or agent of GBC as Borrower's attorney-in-fact, with full power and authority in each of them, at GBC's option, but without obligation, with or without notice to Borrower, in connection with any LC and any purchase agreement or other document or agreement entered into, or goods delivered, in connection therewith, at Borrower's expense, to do any or all of the following in Borrower's name or otherwise: (i) to sign or endorse all warehouse, shipping, dock or other receipts, letters of credit, notes, acceptances, checks, drafts, money orders and all other evidence of indebtedness, and all financing statements, invoices, trust receipts, bills of lading and other title documents; (ii) to complete any transaction in connection with, arising out of, or which is the subject of any LC or Guarantee, to obtain, execute and deliver all necessary or proper documents in connection therewith and to collect the proceeds thereof; (iii) upon any Event of Default under the Loan Agreement, or this Agreement, to cancel, rescind, terminate, modify, amend, or adjust, in any other way, in whole or in part, any transaction in connection with, arising out of, or which is the subject of any LC or Guarantee; and (iv) to do any and all other acts and things which may be necessary or appropriate in connection with this Agreement or any LC, or any transaction relating thereto, or to enable GBC to obtain payment of any Obligations. The power of attorney granted hereunder is coupled with an interest and shall be irrevocable until all Obligations have been paid in full. -3- EX-10.19 18 LETTER OF CREDIT AGREEMENT - 9/24/97 EXHIBIT 10.19 ________________________________________________________________________________ [LOGO OF GREYROCK BUSINESS CREDIT APPEARS HERE] LETTER OF CREDIT AGREEMENT BORROWER(S): INTERPLAY PRODUCTIONS INTERPLAY OEM, INC. ADDRESS: 16815 VON KARMAN AVE. IRVINE, CA 92606 DATE: SEPTEMBER 24, 1997 THIS LETTER OF CREDIT AGREEMENT ("Agreement"), dated the above date, is entered into between GREYROCK BUSINESS CREDIT, a Division of NationsCredit Commercial Corporation ("GBC") and the borrower named above ("Borrower"), in connection with the Loan and Security Agreement ("Loan Agreement") between GBC and Borrower dated JUNE 16, 1997. This Agreement is an integral part of the Loan Agreement, and all of the terms and provisions of the Loan Agreement are incorporated herein by this reference. (Capitalized terms used in this Agreement, which are not defined in this Agreement, shall have the meanings set forth in the Loan Agreement. This Agreement, the Loan Agreement and all other present and future documents instruments and agreements between GBC and the Borrower are referred to herein collectively as the "Loan Documents.") *THIS AGREEMENT DOES NOT SUPERSEDE THE LETTER OF CREDIT AGREEMENT BETWEEN BORROWER AND GBC DATED SEPTEMBER 10, 1997 (THE "SEPTEMBER 10 AGREEMENT"). THE SEPTEMBER 10 AGREEMENT SHALL CONTINUE IN FULL FORCE AND EFFECT AND CONTINUE TO APPLY TO THE LETTER OF CREDIT REFERRED TO THEREIN. 1. LETTERS OF CREDIT. From time to time, in order to assist Borrower in establishing or opening Letters of Credit (the "LCs") with a bank, trust company or other issuer ("Bank") to cover the purchase of goods or for other purposes, Borrower may request that GBC join in the applications for the LCs, and/or provide guarantees of, and/or indemnities with respect to, payment or performance of the LCs and/or any drafts or acceptances thereunder and/or Borrower's obligations in connection therewith (collectively, "Guarantees"). The decision to do so shall be a matter of GBC's sole discretion. In the event GBC joins in such applications and/or provides Guarantees, the transactions shall be subject to the terms and conditions of this Agreement. The amount, extent, terms and conditions of the LCs and any drafts or acceptance relating thereto, shall in all respects be determined solely by GBC and shall be subject to change, modification and revision by GBC at any time and from time to time, in its discretion. 2. INDEMNITY. Borrower unconditionally agrees to indemnify, defend and hold GBC harmless from any and all indebtedness, liabilities, obligations, losses and claims, of every sort whatsoever, however arising, whether present or future, fixed or contingent, due or to become due, paid or incurred, arising, incurred in connection with, or relating to, any LCs, applications for LCs, Guarantees, drafts or acceptances thereunder or LC Collateral (as defined below), including without limitation (i) any and all losses and claims due to any action or omission by any Bank, any errors or omissions of GBC or any Bank, or otherwise, (ii) all amounts due or which may become due under LCs, or any drafts or acceptances thereunder, (iii) all liabilities and obligations under any steamship or airway guarantees or releases or any Guarantees, (iv) all amounts charged or chargeable to Borrower or to GBC by any Bank, any other financial institution or any correspondent bank which opens, issues or is involved with the LCs, (v) all other bank charges, and (vi) all fees, commissions, duties, taxes, costs of insurance, and all such other charges and expenses which may pertain either directly or indirectly to any LC, draft, acceptance, or Guarantee or to the goods or documents relating thereto. Borrower's obligation to indemnify GBC under this Agreement and Borrower's other obligations under this Agreement are referred to herein as the "LC Obligations" (which shall include, without limitation, the aggregate face amounts of all LCs and Guarantees). Borrower's LC Obligations shall not be modified or diminished for any reason or in any manner whatsoever, shall be included in the "Obligations" (as defined in the Loan Agreement), and shall survive -1- GREYROCK BUSINESS CREDIT LETTER OF CREDIT AGREEMENT - -------------------------------------------------------------------------------- termination of the Loan Agreement and any other Loan Document. Without limiting the generality of the foregoing, Borrower agrees that any charges made to GBC by any Bank for Borrower's account or relating to any LC shall be conclusive on Borrower and may be charged to any of Borrower's Loan accounts with GBC. GBC shall have the right, at any time and without notice to Borrower, to charge any of Borrower's Loan accounts with GBC with the amount of any and all sums due from Borrower to GBC under this Agreement, and the same shall constitute Loans for all purposes of the Loan Documents and shall bear interest at the rate provided in the Loan Agreement. All sums payable by Borrower to GBC under this Agreement shall be paid solely in United States dollars. 3. LC LIMITS. The total amount of all LC Obligations and all outstanding "Loans" and other "Obligations" (as defined in the Loan Agreement) shall not at any time exceed the maximum amount of all Loans and other Obligations specified in Section 1.1 of the Loan Agreement, and if for any reason they do, Borrower shall immediately pay the excess to GBC to be applied to the Obligations in such order and manner as GBC shall determine in its sole discretion. 4. LOAN AVAILABILITY RESERVE. Without limiting the fact that Loans under the Loan Documents are discretionary on the part of GBC, the amount of Loans which would otherwise be available to Borrower from time to time under the lending formulas set forth in the Loan Agreement and the other Loan Documents shall be reduced by 100% of the total amount of all LC Obligations from time to time outstanding. 5. CHARGES. In addition to any charges, fees or expenses of any Bank or other person in connection with any LC (all of which shall be charged to Borrower's Loan account), GBC shall be entitled to charge Borrower's Loan account with a fee as follows: A FLAT FEE IN AN AMOUNT EQUAL TO ONE AND ONE QUARTER PERCENT (1.25%) OF THE AMOUNT OF ALL LCS ISSUED PURSUANT HERETO, PAYABLE UPON ISSUANCE THEREOF (REGARDLESS OF THE TERM OF SAID LCS). 6. SECURITY. Without limiting the security interests granted in the Loan Documents, Borrower hereby grants GBC a security interest in the following (the "LC Collateral"), whether now owned or hereafter acquired by Borrower, wherever located, whether in transit or not, to secure all of the Obligations: all bills of lading, shipping documents, documents of title, chattel paper, invoices, cash, checks, drafts, notes, documents, warehouse, shipping and dock receipts, and other title, payment, or other instruments, and instruments, whether negotiable or not, relating to any LC, and all goods and inventory relating thereto in all stages of manufacture, process or production, and all cash and non-cash proceeds and insurance proceeds thereof of whatever sort and however arising. All references in the Loan Agreement to "Collateral" shall, for all purposes, include without limitation the LC Collateral, and all terms and provisions of the Loan Agreement applicable to Collateral shall also apply to the LC Collateral. 7. NON-RESPONSIBILITY. GBC shall not be responsible for: the existence, character, quality, quantity, condition, packing, value or delivery of the goods purporting to be represented by any documents; any difference or variation in the character, quality, quantity, condition, packing, value or delivery of the goods from that expressed in the documents; the validity, sufficiency or genuineness of any documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; the time, place, manner or order in which shipment is made; partial or incomplete shipment, or failure or omission to ship any or all of the goods referred to in the LCs or documents; any deviation from instructions, delay, default, or fraud by the shipper and/or anyone else in connection with the LC Collateral or the shipping thereof; or any breach of contract between the shipper or vendors and Borrower. Furthermore, without being limited by the foregoing, GBC shall not be responsible for any act or omission with respect to or in connection with any LC Collateral. 8. GBC's AUTHORITY. Borrower agrees that any action taken by GBC, if taken in good faith, or any action taken by any Bank, under or in connection with the LCs, the Guarantees, the drafts or acceptances, or the LC Collateral, shall be binding on Borrower and shall not result in any liability of GBC to Borrower. In furtherance thereof, GBC shall have the full right and authority to clear and resolve any questions of non-compliance of documents; to give any instructions as to acceptance or rejection of any documents or goods; to execute any and all applications for steamship or airway guarantees, indemnities or delivery orders; to grant any extensions of the maturity of, time or payment for, or time of presentation of, any drafts, acceptances, or documents; and to agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, LCs, drafts or acceptances; all in GBC's sole name, and the Bank shall be entitled to comply with and honor any and all such documents or instruments executed by or received solely from GBC, all without any notice to or any consent from Borrower. 9. GBC's RIGHTS. Any rights, remedies, duties or obligations granted or undertaken by Borrower to any Bank in any application for LCs, or any standing agreement relating to LCs or otherwise, shall be deemed to have been granted to GBC and apply in all respects to GBC and -2- GREYROCK BUSINESS CREDIT LETTER OF CREDIT AGREEMENT - -------------------------------------------------------------------------------- shall be in addition to any rights, remedies, duties or obligations contained herein. Borrower hereby agrees that prior to the payment of all Obligations to GBC, GBC may be deemed to be the absolute owner of, with unqualified rights to possession and disposition of, all LC Collateral, all of which may be held by GBC as security as herein provided. Should possession of any LC Collateral be transferred to Borrower, said LC Collateral shall continue to serve as security as herein provided, and any goods or inventory covered hereby may be sold, transferred or disposed of only as permitted by the Loan Documents. 10. NEGATIVE COVENANTS. Without GBC's prior written approval, Borrower agrees not to clear or resolve any questions of non-compliance of documents; not to give any instructions as to acceptance or rejection of any documents or goods; not to execute any applications for steamship or airway guarantees, indemnities or delivery orders; not to grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances or documents; and not to agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, LCs, drafts or acceptances. 11. AFFIRMATIVE COVENANTS. Borrower shall cause: all necessary import, export or other licenses or certificates for the import or handling of the LC Collateral to be promptly procured; all foreign and domestic governmental laws and regulations in regard to the shipment and importation of the LC Collateral, or the financing thereof to be promptly and fully complied with; and any certificates in that regard that GBC may at any time request to be promptly furnished. In this connection, Borrower warrants and represents to GBC that all shipments made under the LCs are and shall be in accordance with the governmental laws and regulations of the countries in which the shipments originate and terminate, and shall not be prohibited by any such laws or regulations. Borrower assumes all risk, liability and responsibility for, and agrees to pay and discharge, all present and future local, state, federal or foreign taxes, duties, and levies. Any embargo, restriction, laws, customs or regulations of any country, state, city, or other political subdivision, where the Collateral is or may be located, or wherein payments are to be made, or wherein drafts may be drawn, negotiated, accepted, or paid, shall be solely Borrower's risk, liability and responsibility. 12. TERMINATION. Without limiting any of the terms of the Loan Agreement, on the effective date of termination of the Loan Agreement, in addition to paying and performing in full all other Obligations, Borrower shall provide cash collateral to GBC in an amount equal to 110% of the amount of all LC Obligations, to secure all of the Obligations, and Borrower shall execute and deliver to GBC a pledge agreement with respect thereto on GBC's standard form. (If the Loan Agreement provides for a lesser amount of cash collateral, this Agreement shall control..) 13. DEFAULT. On any failure to pay or perform any Obligation when due, or the occurrence of any other "Event of Default" (as defined in the Loan Agreement), GBC shall have all of the rights and remedies set forth in the Loan Documents and which it otherwise has under applicable law, and without limiting the generality of the foregoing, GBC shall have the right to require Borrower to deposit cash collateral with GBC in an amount equal to 110% of the amount of all LC Obligations, to secure all of the Obligations, and Borrower shall execute and deliver to GBC a pledge agreement with respect thereto on GBC's standard form. 14. POWER OF ATTORNEY. Without limiting the terms of any of the Loan Documents, Borrower hereby appoints each employee, attorney or agent of GBC as Borrower's attorney-in-fact, with full power and authority in each of them, at GBC's option, but without obligation, with or without notice to Borrower, in connection with any LC and any purchase agreement or other document or agreement entered into, or goods delivered, in connection therewith, at Borrower's expense, to do any or all of the following in Borrower's name or otherwise: (i) to sign or endorse all warehouse, shipping, dock or other receipts, letters of credit, notes, acceptances, checks, drafts, money orders and all other evidence of indebtedness, and all financing statements, invoices, trust receipts, bills of lading and other title documents; (ii) to complete any transaction in connection with, arising out of, or which is the subject of any LC or Guarantee, to obtain, execute and deliver all necessary or proper documents in connection therewith and to collect the proceeds thereof; (iii) upon any Event of Default under the Loan Agreement, or this Agreement, to cancel, rescind, terminate, modify, amend, or adjust, in any other way, in whole or in part, any transaction in connection with, arising out of, or which is the subject of any LC or Guarantee; and (iv) to do any and all other acts and things which may be necessary or appropriate in connection with this Agreement or any LC, or any transaction relating thereto, or to enable GBC to obtain payment of any Obligations. The power of attorney granted hereunder is coupled with an interest and shall be irrevocable until all Obligations have been paid in full. 15. GENERAL. Without limiting any of the other provisions of this Agreement, all of the General Provisions of Section 9 of the Loan Agreement, as well as all other provisions of the Loan Agreement, are hereby incorporated herein by this reference. 16. MUTUAL WAIVER OF JURY TRIAL. BORROWER AND GBC EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN GBC AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF GBC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY -3- GREYROCK BUSINESS CREDIT LETTER OF CREDIT AGREEMENT - -------------------------------------------------------------------------------- OTHER PERSONS AFFILIATED WITH GBC OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. BORROWER: INTERPLAY PRODUCTIONS BY /s/ Steven Camps ------------------------------------- PRESIDENT OR VICE PRESIDENT BORROWER: INTERPLAY OEM, INC. BY /s/ Jill S. Goldworn ------------------------------------- PRESIDENT OR VICE PRESIDENT GBC: GREYROCK BUSINESS CREDIT, A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION BY /s/ Lisa Nagano ------------------------------------- TITLE VP ---------------------------------- -4- EX-10.20 19 MASTER EQUIPMENT LEASE - BRENTWOOD CREDIT 3/28/96 EXHIBIT 10.21 [LOGO OF BRENTWOOD CREDIT] BRENTWOOD CREDIT CORPORATION Master Equipment Lease No. IPI-1000-100 ------------ This Master Equipment Lease dated MARCH 28, 1996 (the "Master Equipment Lease"), is entered into between Brentwood Credit Corporation ("Lessor"), 1620 26th Street, Suite 290-S, Santa Monica, California 90404 and INTERPLAY PRODUCTIONS, INC. ("Lessee"). - -------------------------------------------------------------------- 17922 FITCH AVENUE - ------------------------------------------------------------------------------ IRVINE, CALIFORNIA 92660 - ------------------------------------------------------------------------------ In consideration of the mutual agreements hereinafter set forth and the payment of rent as hereinafter provided, Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, all of the tangible or intangible personal property which may include such items as general equipment, computer hardware, software, and services, described in each Schedule ("Schedule") executed from time to time pursuant to this Master Equipment Lease (with respect to any Schedule, herein called "Equipment") subject to the terms and conditions set forth below. Each Schedule shall constitute a separate "Lease" incorporating by reference this Master Equipment Lease, and any amendments, addenda, supplements or riders hereto. 1. TERM, RENTAL AND NOTICE (a) The term of this Master Equipment Lease -------------------------- shall commence on the date set forth above and shall continue in effect thereafter so long as any Schedule entered into hereunder remains in effect. The lease term for any Schedule shall commence on the date on which Equipment is accepted for delivery by Lessee ("Commencement Date"), and shall remain in force until the Initial Expiration Date set forth in such Schedule ("Initial Term"), unless extended pursuant to the terms hereof. This lease shall be automatically extended for consecutive terms of one (1) calendar quarter on the Initial Expiration Date, unless either party give written notice of its intention to terminate this Lease to the other party not less than 90 days nor more than 180 days prior to the Initial Expiration Date or successive periods, as the case may be. (b) Lessee agrees to pay the total rental for the entire lease term, including all extensions hereof, plus such additional amounts as may arise pursuant to the terms and conditions of this Lease. During the term of this Lease, the payments of rental for each item of Equipment, as set forth in the applicable Schedule, shall be due and payable monthly in advance on the Commencement Date and on the same day of each month thereafter to the address of Lessor specified in this Lease. If any payment to be made by Lessee hereunder is due on a day on which banks are not open for the transaction of business, Lessee shall make such payment to Lessor on the first preceding day on which such banks are open. If Lessee defaults in the payment of any amount due under this Lease, Lessee shall pay interest thereon from the date due until the date of payment at the lower of 18% per annum and the highest rate permitted by law. (c) Notices shall be deemed given on the earlier of receipt, or five (5) days after mailing, if mailed by certified mail, postage prepaid, to an officer of each party at the address or addresses of such party specified in this Lease, with the right of either party to change, by notice to the other, its address for the foregoing purposes. 2. PURCHASE, DELIVERY AND ACCEPTANCE, AND LESSOR'S WARRANTIES (3) Lessee ------------------------------------------------------------- acknowledges, warrants and represents that it has selected the equipment based on its own judgment, has requested Lessor to purchase same from the manufacturer/licensor or other "supplier" thereof and expressly disclaims any reliance made upon prior statements made by Lessor. Lessee acknowledges and agrees that neither the manufacturer, supplier, nor any salesman, representative or other agent of the manufacturer or supplier, is an agent of Lessor nor are any of the above authorized to waive or alter any term or condition of this lease. No representation by the manufacturer or supplier shall in any way affect Lessee's duty to pay rent and perform its other obligations as set forth in this lease. (b) Delivery of equipment under this lease shall be deemed complete and such equipment shall be deemed unconditionally accepted by Lessee for all purposes of this lease upon the earlier of the execution by Lessee of the delivery certificate, or seven (7) days after delivery of Equipment by supplier which shall be conclusive proof that Lessee has examined such equipment and Lessee is fully satisfied therewith. (c) EXCEPT AS EXPRESSLY SET FORTH HEREIN, LESSOR MAKES NO WARRANTIES, EXPRESSED OR IMPLIED, WITH THE RESPECT TO THIS LEASE OR THE EQUIPMENT, AND EXPRESSLY DISCLAIMS AND LESSEE EXPRESSLY WAIVES, RELEASES AND RENOUNCES ALL OTHER WARRANTIES (WHETHER STATUTORY OR OTHERWISE), EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, (i) ANY IMPLIED WARRANTY OF MERCHANTABILITY; (ii) ANY IMPLIED WARRANTY THAT THE EQUIPMENT IS FIT FOR ANY PARTICULAR PURPOSE; (iii) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE; (iv) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, EXCLUDING THOSE ARISING FROM LESSOR'S GROSS NEGLIGENCE IN ACTUALLY OPERATING ANY EQUIPMENT; AND (v) ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING STRICT OR ABSOLUTE LIABILITY IN TORT. LESSEE LEASES THE EQUIPMENT "AS-IS, WHERE-IS" AND LESSOR SPECIFICALLY MAKES NO WARRANTIES AS TO THE QUALITY OF MATERIALS OR WORKMANSHIP OR THE CONFORMITY THEREOF TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE ORDER OR AGREEMENT RELATING THERETO. Lessor hereby assigns to Lessee all assignable warranties of the manufacturer/licensor during the lease term. Lessee shall, at its expense, take all reasonable action to enforce such warranties. Lessor, at Lessee's expense, shall provide reasonable assistance to Lessee in enforcing such warranties. 3. TITLE Lessor or its assigns warrant that it will have, at the time of -------- delivery hereunder of each item of Equipment, title or rights to title thereto, and to the extent that any software license conveys title or use to licensee said title or use shall be conveyed to lessor. Lessee will, upon request of Lessor from time to time, affix to the Equipment, in a prominent place, tags, plates, decals or labels supplied by Lessor indicating the ownership of, and other interests in, the Equipment. From time to time, upon request of Lessor, Lessee shall file, record, re-file and re-record this Lease and/or any applicable Uniform Commercial Code financing statement or similar instrument in respect of this Lease evidencing the respective interests of Lessor and its successors and assigns in the Equipment, the rentals and any other sums to be paid by Lessee hereunder. Lessee, at its expense, shall keep the Equipment and this Lease free and clear, and indemnify and hold Lessor harmless from, all levies, liens and encumbrances whatsoever, except any thereof caused by Lessor and/or its successors and assigns, and shall give Lessor immediate written notice thereof. Lessee agrees that this Lease constitutes a lease of the Equipment and the Software only and nothing contained herein shall give or convey to Lessee any right, title or interest in or to the Equipment and software except as a Lessee herein. 4. CARE AND USE OF EQUIPMENT Lessee shall maintain the Equipment in fit ---------------------------- and merchantable condition, working order, repair and appearance, shall not make modification, alteration or addition to the equipment (other than normal operating accessories or controls) without the consent of Lessor, which shall not be unreasonably withheld, shall not so affix the Equipment to realty so as to change its nature to real property and agrees that the Equipment shall remain tangible personal property at all times regardless of how attached or installed. Lessee shall keep the Equipment at the location shown on the applicable Schedule, and shall not remove the Equipment from such location without the consent of Lessor, which shall not be unreasonably withheld. All modifications, repairs, alterations, additions, operating accessories and controls (except those purchased by Lessee which can be removed from the Equipment without causing material damage or impairment of the value or intended function or use of the Equipment) shall accrue to the Equipment and become the property (Lien free) of Lessor. Lessor and its agents or representatives may inspect the Equipment, Lessee's equipment log and maintenance records upon prior notice during normal business hours, subject to Lessee's reasonable security requirements. Lessee agrees to enter into a prime shift standard maintenance contract with the manufacturer/licensor or any other provider approved by Lessor. 5. NET LEASE AND TAXES (a) This Lease constitutes a net lease and Lessee ---------------------- agrees that its obligations under this Lease are absolute and unconditional, and are not subject to any abatement, reduction, setoff, defense, counterclaim or recoupment due or alleged to be due, by reason of any past, present or future claim which Lessee may have against Lessor, its successors or assigns, the manufacturer or other supplier of the Equipment or any person whatsoever. (b) During the term of this Lease, Lessee shall pay Lessor, and agrees to indemnify and hold Lessor harmless from and against, any and all sales, use, personal property, gross income, gross receipts, leasing, stamp or other taxes, levies, imposts, duties, charges or withholdings of any nature when they become due (excluding Federal or State net income taxes), together with any penalties, fines or interest thereon not arising from negligence on the part of Lessor or anyone claiming by or through Lessor, license and registration fees, and similar charges imposed against Lessor or Lessee, or upon the Equipment, by an Federal, State or local government or taxing authority upon the ownership, delivery, lease, possession, rental, use, operation, return, sale or other disposition thereof hereunder or in connection herewith, or upon the rentals, receipts or earnings arising therefrom, or with respect to any Schedule. To the extent lawfully permitted, Lessee agrees to promptly file or cause to be filed all personal property tax returns with respect to the Equipment and to promptly provide the lessor with copies of any such filings. In the event that Lessor is required to file any such returns, Lessee shall promptly advise Lessor thereof and cooperate with and provide such assistance to Lessor in connection therewith as Lessor may require. 6. INDEMNITY Lessee shall and does hereby agree to indemnify and save ------------ Lessor and its successors and assigns harmless from and against any and all loss (including any loss of tax benefits), claims, expenses, damages or liabilities, (including negligence, tort and strict liability), including attorneys' fees, arising out of or pertaining to this Lease or any item of equipment, including, without limitation, the ownership, selection, possession, leasing, renting, operation, control, use, storage, maintenance, delivery and return of the Equipment, and claims for property damage or personal injury arising in strict liability or negligence. The indemnities and covenants contained in this Lease shall survive the termination of any Schedule under this Lease. 7. INSURANCE At its expense, Lessee shall keep the Equipment insured ------------ against all risks of loss or damage from every cause whatsoever in an amount ("Stipulated Loss Value") not less than the greater of replacement value of the Equipment or 120% of the aggregate remaining rental payments of the Equipment as of the relevant date of determination, provided that the amount of such insurance shall be sufficient so that neither Lessor, its successors or assigns, nor Lessee will be a co-insurer. With Lessor's consent Lessee may self-insure software and bear all risks of loss. Lessee also shall carry general comprehensive liability insurance in an amount not less than $1,000,000 covering the Equipment. All such insurance shall be in form and with companies satisfactory to Lessor. All insurance for loss or damage shall provide that losses, if any, shall be payable to Lessor, its successors and assigns, and Lessee, as their respective interests may appear, and all such liability insurance shall provide that Lessor and its successors and assigns shall be named as additional insureds. Lessee shall pay the premiums for such insurance and deliver to Lessor evidence satisfactory to Lessor of the insurance coverage required hereunder. Each insurer shall agree, by endorsement upon the policy or policies issued by it or by independent instrument furnished to Lessor, that it will give Lessor and any other additional insured or loss payee at least 30 days' prior written notice of the effective date of any alteration or cancellation of such policy. Lessee shall be responsible for promptly making claims for any loss or damage with respect to the Equipment and Lessee hereby irrevocably appoints Lessor as Lessee's attorney-in-fact to receive payment of and execute and endorse all documents, checks or drafts received in payment for any loss or damage under any insurance policy. 8. RISK OF LOSS From the date the Supplier ships the Equipment to Lessee --------------- or the date Lessor confirms Lessee's purchase order or contract to Supplier, Lessee hereby assumes and shall bear the entire risk of loss for theft, damage, destruction or other injury to the Equipment from any and every cause whatsoever. NO SUCH LOSS OR DAMAGE SHALL IMPAIR ANY OBLIGATION OF LESSEE UNDER THIS LEASE WHICH SHALL CONTINUE IN FULL FORCE AND EFFECT. In the event of damage or loss to the Equipment (or any part thereof) and irrespective of payment from any insurance coverage maintained by Lessee, but applying full credit therefor, Lessee shall at the option of Lessor, (a) place the Equipment in good repair, condition, and working order; or (b) replace the Equipment (or any part thereof) with like equipment in good repair, condition and working order and transfer clear title to such replacement equipment to Lessor whereupon such replacement equipment shall be deemed the Equipment for all purposes; or (c) pay to Lessor the total aggregate remaining rentals discounted to its present value at a discount rate of equal to the one year Treasury Bill at the date the Schedule was accepted by Lessor and any other amounts due and owing hereunder at the time of such casualty plus an amount calculated by Lessor which is equal to the Fair Market Value of the Equipment at the end of the lease term. 9. PERFORMANCE BY LESSOR OF LESSEE'S OBLIGATIONS In the case of the ------------------------------------------------ failure of Lessee to comply with any provision of this Lease, after giving Lessee ten (10) days' prior written notice to cure such noncompliance, Lessor shall have the right, but shall not be obligated, to cure such noncompliance. In such event, all monies spent by and expenses of Lessor in effecting such compliance, including interest accrued thereon, shall be deemed to be additional rental and shall be due and payable immediately. 10. OTHER COVENANTS AND WARRANTIES OF LESSEE (a) Lessee agrees that the -------------------------------------------- application, statements and financial reports submitted by it to Lessor are material inducements to the execution by Lessor of this Lease, and Lessee warrants that such application, statements and reports are, and all information hereafter furnished by Lessee to Lessor will be, true and correct in all material respects as of the date submitted. Lessee agrees to furnish promptly to Lessor the annual financial statements of Lessee, certified by independent certified public accountants. (b) Lessee warrants the (i) Lessee has full power to enter into and perform this Lease; (ii) this Lease has been duly authorized, executed and delivered by Lessee and constitutes the valid and binding agreement of Lessee enforceable against Lessee in accordance with its terms; and (iii) Lessee has obtained all necessary consents to enter into the Lease pursuant to the terms hereof. Lessee agrees to procure for Lessor such reasonable evidence of Lessee's authority, including without limitation, copies of necessary consents, as Lessor may request. (c) LESSEE AGREES NOT TO ASSIGN, SUBLET OR OTHERWISE TRANSFER ITS RIGHTS HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF THE LESSOR, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD. (d) Lessee shall not change its name or address from that set forth above, unless it shall have given Lessor or its assigns no less than thirty (30) days' prior written notice; Lessee, if an organization, shall not merge or consolidate with any other person or entity or change its identity. 11. DEFAULT If any one of the following events (each of which is herein ----------- called an "Event of Default") shall occur: (a) Lessee shall default in the payment of any rental or in making any other payment hereunder when due and such default shall continue for three (3) days after written notice of non-payment received by Lessee; (b) Lessee shall breach any representation, warranty, or covenant hereunder; (c) Lessee shall default in the performance of any other agreement hereunder and such default shall continue for five (5) days after either written notice thereof to Lessee by Lessor or Lessee has actual knowledge of such default; (d) Lessee shall have engaged in the unauthorized reproduction, distribution, or disclosure of and software related trade secrets, methods of expression or other proprietary information related thereto; (e) Lessee becomes insolvent or makes an assignment for the benefit of creditors; (f) Lessee applies for or consents to the appointment of a receiver, trustee, conservator or liquidator of Lessee or of all or a substantial part of its assets, or such receiver, trustee, conservator or liquidator is appointed without the application or consent of Lessee; (g) a petition is filed by or against Lessee under the Bankruptcy Act or any amendment thereto (including, without limitation, a petition for reorganization, arrangement or extension) or under any other insolvency law or laws providing for the relief of debtors; (h) a substantial part of the Lessee's assets or any item of Equipment becomes subject to any levy, seizure, attachment, assignment or sale for or by any person or governmental agency; (i) Lessee creates, incurs, assumes or suffers to exist any mortgage, lien, pledge or other encumbrance or attachment of any kind whatsoever upon, affecting or with respect to the Equipment or this Lease or any of Lessor's interests thereunder; or (j) Lessee suffers an adverse material change in its financial condition from the date hereof and as a result thereof Lessor deems itself or any of its Equipment to be insecure. Then, if and to the extent permitted by the applicable law, Lessor shall have the right to exercise any one or more of the remedies hereinafter provided. 12. REMEDIES Upon the occurrence of any Event of Default with respect to ------------ any item of Equipment under a Schedule and at any time thereafter, Lessor, may in its discretion, do one or more of the following: (a) terminate the applicable Schedule upon notice to Lessee; (b) declare all unaccrued monthly rental under such Schedule for the remainder of the Initial Term, or any extended term then in effect, immediately due and payable and Lessee shall pay same, discounted to its then present value (using an interest rate equal to that of a 1 year Treasury Bill at the date the Schedule was accepted by the Lessor) to the earlier of the date Lessor obtains possession of the Equipment and the date Lessee makes effective tender thereof to Lessor; (c) Lessor is entitled to immediate possession of all equipment and Lessee shall return all equipment to Lessor in accordance to Paragraph 14 thereof; and (d) exercise any other right or remedy which may be available to it under the California Uniform Commercial Code or other applicable law. In addition to the forgoing, Lessor shall be entitled to recover from Lessee: (i) any loss, premium, penalty or expense which may be incurred in repaying funds raised to finance the Equipment or in unwinding any financial instrument relating in whole or in part to Lessor's financing of the Equipment; (ii) any other losses (including lost profits), damage, expense, cost or liability which Lessor suffers or incurs as a result of an Event of Default and/or termination of the Lease including an amount sufficient to fully compensate Lessor for any loss of or damage to Lessor's residual interest in the Equipment caused by Lessee's default; and (iii) any loss, cost, expense or liability sustained by Lessor due to Lessee's failure to redeliver the Equipment in the condition required by this Lease. No remedy referred to in this Section 12 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Lessor at law or in equity. No express or implied waiver by Lessor of any default shall constitute a waiver of any other default by Lessee, or a waiver of any of Lessor's rights. 13. ASSIGNMENT (a) Subject to Lessee's rights under this Lease, Lessor may -------------- at any time and without Lessee's consent (i) sell, assign or transfer this Lease, the Equipment and any rental and other sums due or to become due hereunder, or any rights to or interest in any part of the foregoing to a third party ("Lessor's Assignee") and/or (ii) grant security interests over the Equipment and over the benefit of this Lease to a lender ("Lessor's Lender") as security for Lessor's obligations to Lessor's Lender. Lessee acknowledges that neither any such assignment of Lessor's interest, nor any such granting of security interests and the enforcement by Lessor's Lender of its rights of foreclosure or otherwise will materially change Lessee's duties or will materially increase the risk or burden imposed on Lessee by this Lease. (b) Lessee agrees to promptly execute all acknowledgments, consents, agreements and other instruments, and deliver legal opinions, as Lessor may require to effect such assignments and/or grants of security interests and to confirm Lessee's obligation under the Lease, at Lessee's expense. (c) Lessor's Assignee and/or Lessor's Lender shall have, to the extent transferred or assigned to it, all rights, powers, privileges and remedies of Lessor hereunder. Lessee agrees that no such Lessor's Assignee and/or Lessor's Lender shall assume any obligation of Lessor hereunder (except for the application pursuant hereto of any insurance or other proceeds) and the obligations of Lessee hereunder shall not be subject, as against any such person, to any defense, set-off or counterclaim available to Lessee against Lessor, and that the same may be asserted only against Lessor. Lessee hereby expressly acknowledges that its rights in and to the Equipment are expressly subject and subordinate to the rights of Lessor, Lessor's Assignee and/or Lessor's Lender. (d) Any such assignment or grant of security interest by Lessor shall be made subject to the rights of Lessee under this Lease. Subject to the full, complete and timely performance and observance of each and every obligation on the part of Lessee under this Lease, Lessor warrants that no person holds a claim to or interest in the Equipment that arises from an act or omission of Lessor which will interfere with Lessee's enjoyment of its leasehold interest in the Equipment. 14. REDELIVERY Upon termination of this Lease. Lessee shall, at its -------------- expense, deinstall, pack in accordance with manufacturer's specifications using such manufacturer's packing materials and deliver the Equipment, in whole and not in part, at an address specified by Lessor, in the same condition as received, ordinary wear and tear from proper use excepted, including eligibility for manufacturer's then-current prime shift standard maintenance contract. If the equipment manufacturer is IBM and unless IBM Equipment is designated herein as "unbanded", Lessee agrees that such Equipment which is subject to IBM's Invisible Transit Damage policy shall be "banded" in that untampered IBM transit seals shall be present thereon upon delivery. Failure to deliver banded Equipment shall constitute a failure to deliver hereunder, unless the Equipment is inspected and recertified for Maintenance Service Qualification by IBM at the delivery location on or prior to the delivery date. Lessee shall pay all costs associated with the foregoing. 15. COUNTERPARTS Each executed copy of the Master Equipment Lease shall be ---------------- an original. There shall be two (2) signed and consecutively numbered counterparts of each Schedule. To the extent that any Schedule constitutes chattel paper (as that term is defined by the California Uniform Commercial Code), a security interest only may be created in "Counterpart No. 1". 16. MISCELLANEOUS THIS MASTER EQUIPMENT LEASE AND EACH SCHEDULE ISSUED ----------------- HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. Lessor and Lessee intend this Master Equipment Lease and each Schedule issued hereunder to be valid and subsisting legal instruments, and no provision of this Master Equipment Lease or any Schedule issued hereunder which may be deemed unenforceable shall in any way invalidate any other provision or provisions of this Master Equipment Lease or any Schedule issued hereunder, all of which shall remain in full force and effect. This Master Equipment Lease and the Schedules issued hereunder shall be binding upon and inure to the benefit of the parties, their successors and assigns. ATTORNEY'S FEES. Lessee shall reimburse Lessor for all charges, costs, --------------- expenses and reasonable attorneys' fees, incurred by Lessor; (a) in defending or protecting its interests in the Equipment; (b) in the execution, delivery, administration, amendment and enforcement of this Lease or the collection of any installment of Rent under this Lease, and; (c) in any lawsuit or other legal proceeding to which this Lease gives rise, including, but not limited to, actions in tort. 17. ENTIRE AGREEMENT AND AMENDMENT This Master Equipment Lease and any ---------------------------------- Schedule issued hereunder contains the entire agreement between the parties with respect to the Equipment, and may not be altered, modified, terminated or discharged except by a writing signed by the party against whom such alteration, modification, termination or discharge is sought. Lessee's initials /s/ Chuck Camps. ---------------- BRENTWOOD CREDIT CORPORATION, Lessor By: /s/ Michael J. Budzinski ---------------------------------- Title: CFO ---------------------------------- ................................................................................ INTERPLAY PRODUCTIONS, INC. , Lessee ---------------------------------- By: /s/ Chuck Camps ---------------------------------- Title: CFO ---------------------------------- Lessee's Address: 17922 FITCH AVENUE ---------------------------------- IRVINE, CALIFORNIA 92660 ---------------------------------- ---------------------------------- [LOGO OF BRENTWOOD CREDIT] Brentwood Credit Amendment A to Master Lease IPI-1000-100 dated 3/28/96 between Brentwood Credit - ---------------------------------------- ------- Corporation as Lessor and Interplay Productions, Inc. as Lessee. It is hereby understood between Lessor and Lessee that Lessee's principal place of business has been changed to 16815 VonKarman Avenue, Irvine, CA 92606, effective 8/5/96. ------ Brentwood Credit Corporation Date: 10/24/96 By: /s/ MICHAEL J. BUDZINSKI ------------ ------------------------------ Title: CFO ---------------------------- Interplay Productions, Inc. By: /s/ CHUCK CAMPS ------------------------------ Title: CFO --------------------------- BRENTWOOD CREDIT CORPORATION SCHEDULE NO. 01 TO EQUIPMENT LEASE NO. IPI-1000-100 DATED MARCH 28, 1996 LESSEE INTERPLAY PRODUCTIONS, INC. EQUIPMENT DATA: - -------------- QUANTITY TYPE MODEL & DESCRIPTION - -------- ---- ------------------- SEE ATTACHED FOR BREAKDOWN OF EQUIPMENT. Location of Equipment: 17922 Fitch Avenue - ---------------------- Irvine, California 92660 Term of Schedule: 36 months commencing on the first day of the month following - ---------------- -- the date that Seller certifies that the equipment is in good working order and made ready for use. If equipment is installed, the commencement date is the first day of the month following the date the delivery and acceptance document is executed. Interim rent: Will be an amount equal to 1/30 of the rental payment multiplied - ------------ by the number of days elapsed between the above seller certification date or, if installed, execution of this schedule and the first day of the following month, or the first day of an otherwise specified month (commencement date). Rental Payments: $12,910.00 per month in advance. Includes sales tax paid at - --------------- purchase. Brentwood Credit Corporation, (Lessor) hereby agrees to lease to the Lessee named below, and Lessee hereby agrees to lease and rent from Lessor the equipment listed above, for the term and rental payments specified, all subject to the terms and conditions set forth in such equipment lease. Lessor: BRENTWOOD CREDIT Lessee: INTERPLAY PRODUCTIONS, INC. CORPORATION By: /s/ MICHAEL J. BUDZINSKI By: /s/ CHUCK CAMPS ------------------------------- -------------------------------- Title: CFO Title: CFO ---------------------------- ----------------------------- Date: 4/2/96 Date: 4/1/96 ----------------------------- ----------------------------- 1620 26th Street 17922 Fitch Avenue Suite #290-S Irvine, CA 92660 Santa Monica, CA 90404 [LETTERHEAD OF BRENTWOOD CREDIT] INTERPLAY PRODUCTIONS, INC. SCHEDULE 01 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 1 INVOICE # QTY EQUIPMENT DESCRIPTION - --------- --- --------------------- ANTI GRAVITY PRODUCTS --------------------- 07086 1 PERSEPTION (SN-5K893139) 1 VIDEO CAPTURE CARD (SN-5K894172) HAMILTON HALLMARK ----------------- 53641627 4 S120EDZ8FLC (SN-A05604346, A05604349, A05604356, A05604445) (ADVANCED/ZE PENT120, EXP DT, 8MB, FPM, 256K CACHE) 53643504 2 S120EDZ8FLC (SN-A05604434, A05604466) (ADVANCED/ZE PENT120, EXP DT, 8MB, FPM, 256K CACHE) 53646455 2 CIF10CA2M16 (SN-A05531455,C1F100A2M16) (ALTSERVER PENT100, CS TOWER CHASSIS 8-SLOT 16MB F 53648226 1 BXCPLPENT100 (SN-BC0647670) (XPRESS PENTIUM 100MHZ CPL MODULE) 53649617 2 CIF1CCA2M16 (SN-A05511366, A05531462) (ALTSERVER PENT100, CS TOWER CHASSIS 8-SLOT, 16MB) 53677068 1 S100MTZ8FLC (SN-A05669456) (ADVANCED/ZE PENTICO, MT SYS, 8MB, FPM, FL, 256K C) 53677017 5 S12CEDZ8FLC (SN-A05693690, A057C1369, A05701373, A05701376, A057C1377) (ADVANCED/ZE PENT120, EXP DT, 8MB, FPM, 256K CACHE) 53677669 3 ST1515CN (SN-K414911C, K7017529, K7031772) (4.1GE/3.5"HH/ BARRACUDA 4/FAST SCSI-2/MTBF 800K) 53679164 2 SP6AXD200MT32 (SN-A05712290, A05712300) ("AURORA" SYSTEM 200MHZ 32MG) 53672605 2 S120 EDZ8FLC (SN-A05693628, A05693673) ADVANCED/ZE PENT120, EXP DT, 8MB, FPM, 256K CACHE) 53673847 1 C1F133A2M16B (SN-A05683060) (PENT133, CSTOWER CHASSIS 8-SLOT 16MB FL F/WSCSI) 53673575 3 S120EDZ8FLC (SN-A05693580, A05693583, A05693584) (ADVANCED/ZE PENT120, EXP DT, 8MB, FPM, 256K CACHE) 53673609 2 EXB-8505XLE/KIT (SN-8521287, SN-6592384) (7-14GB/8MM/EXTERNAL/ W/HW DC/CABLES/MANUAL/EXATAPE) 1 468039 MOUSE SERIAL PS/2 V2.0 2-BTN INTERPLAY PRODUCTIONS, INC. SCHEDULE 01 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 2 53671987 1 S100MT ZBFLC (SN-A05629550) (ADVANCED/ZE PENT1CO, MT SYS, 8MB, FPM, FL, 256K) 29036468 5 S120EDZ8FLC PENT 120 MHZ COMP. 29036444 1 C1F133A2M16B 53671399 5 S100MTZ8FLC (SN-A05629478, A05629479, A05629524, A05629537, A05629541**) (ADVANCED/ZE PENT100, M SYS, 8MB, FPM, FL, 256K C) 53670480 4 S100MTZ8FLC (SN-A05629552, A05629583, A05629594, A05629608) (ADVANCED/ZE PENT100, MT SYS, 8MB, FPM, FL, 256K C) 53668996 4 S100MTZ8FLC (SN-A05629486, A05629553, A05629554, A05629597) (ADVANCED/ZE PENT100, MT SYS, 8MB, FPM, FL, 256K C) 53671873 1 EXB-8505XLE/KIT (SN-8520553) (7-14 GB/8MM/EXTERNAL/W/HW DC/CABLES/MANUAL/EXATAPE) 53655780 3 S12D EDZ8FLC (SN-A05589943, A05604427, A05616778) (ADVANCED/ZE PENT120, EXT DT, 8MB, FPM, 256 CACHE) 53655179 1 C1F100A2M16 (SN-A05559915) (ALTSERVER PENT100, CS TOWER CHASSIS 8-SLOT 16MB F) 53656815 1 EXB-8505XL/KIT (SN-6579333) (7-14GB/8MM/INTERNAL/W/HW DC/CABLES MANUAL/EXATAPE) 53656814 1 C1F100A2M16 (SN-A05563128) (ALTSERVER PENT100, CS TOWER CHASSIS 8-SLOT 16MB F) 53657338 2 S120EDZ8FLC (SN-A05589856, A05616729) (ADVANCED/ZE PENT120, EXP DT, 8MB, FPM, 256K CACHE) 53660685 2 S120EDZ8FLC (SN-A05551520, A05667520) (ADVANCED/ZE PENT120, EXP DT, 8MB, FPM, 256K CACHE) 53662655 2 S120EDZ8FLC (SN-A05604415, A05604446) (ADVANCED/ZE PENT120, EXP DT, 8MB, FPM, 256K CACHE) 29036381 1 LM4300 (DISK ARRAY) 29036380 1 LM4300 (DISK ARRAY) 29036383 1 LM4300 (DISK ARRAY) 29036379 1 LTX8600 (DISK ARRAY) 53659751 1 S120 EDZ8FLC (SN-A05667476) (ADVANCED/ZE PENT120, EXP DT, 8MB, FPM, 256K CACHE) INTERPLAY PRODUCTIONS, INC. SCHEDULE 01 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 3 53659279 2 S120EDZ8FLC (SN-A05616737, A05616815) (ADVANCED/ZE PENT120, EXP DT, 8MB, FPM, 256K CACHE) 53665193 1 4221AV (SN-5113780358) 2.1GB/1"HGT/3.5/7200RPM/SCSI-2/ AUDIO-VISUAL) 53663642 3 S120EDZ8FLC (SN-A05588685, A05589890, A05604421) ADVANCED/ZE PENT120, EXP DT, 8MB, FPM, 256K CACHE) 53661875 3 S120EDZ8FLC (SN-A05588700, A05604428, A05667492) (ADVANCED/ZE PENT120, EXP DT, 8MB, FPM, 256K CACHE) 53661874 1 S120EDZ8FLC (SN-A05589898) (ADVANCED/ZE PENT120, EXP DT, 8MB, FPM, 256K CACHE) 53661287 1 S120EDZ8FLC (SN-A05667512) (ADVANCED/ZE PENT120, EXP DT, 8MB, FPM, 256K CACHE) 53660818 1 1991 (SN-5124761760) (5.25/FH/PBG/FAST SCSI 2/MTBF) 53663633 1 C1F133A2M16B (SN-A05683032) (PENT133, CS TOWER CHASSIS 8-SLOT 16MB FL F/WSCSI) 53665560 5 S120EDZ8FLC (SN-A05589852, A05589880, A05589888, A05589914, A05589917) (ADVANCED/ZE PENT120, EXP DT, 8MB, FPM, 256K CACHE) 53627724 2 S120ECZ8FLC (SN-A05551515, A05551574) (ADVANCED/ZE PENT120, EXP DT, 8MB, FPM, 256K CACHE) 53649644 2 EXB-8505X./KIT (SN-6574330, 6576957) (4-14GB/8MM/INTERNAL/W/Hh CC/CABLES MANUAL/EXATAPE) 53652365 1 SP6AXD150MT32 (SN-A05642644) ("AURORA" SYSTEM 150MHZ 32MG) COMPUTER CITY ------------- 323366 1 POWERMAC 8500/120 16/2000 4X (SN-SXB6021YL3FT) 1 POWERMAC 7400/100 16/500 4X (SN-SFC60452J3FV) 291437 1 POWERMAC 9500/120 16/1GB (SN-SXB52410Z2QH) PLEXUS DATA ----------- 3937 1 PLX-M-BOARD TYPE P-90 W/FAN 4056 1 PLX-CPU TYPE P133MHZ W/FAN 1 PLX-CASE PREMIUM DESKTOP 4055 1 PLX-M-BOARD TYPE P100MHZ W/FAN INTERPLAY PRODUCTIONS, INC. SCHEDULE 01 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 4 4027 1 PLX-M-BOARD P133 TRITON W/SOUND/256K/FAN 5 PLX-CPU/FAN PENTIUM 1 PLX-SOUND BLASTER 32 (AWE) 4058 4 PLX-HDD TYPE QUANTUM 4GIG GP-SCSI-W 1 PLX-MONOGRAPHICS CARD 4059 16 PLX-HDD TYPE QUANTUM 4GIG GP-SCSI 16 PLX-CASE 5.25" HALF HEIGHT SCSI PREMIUM W/ID 1 PLX-CASE 5.25" HALF HEIGHT SCSI *USED* 16 PLX-CABLE TYPE SCSI-1 TO SCSI-2 3FT 16 PLX-SCSI TERMINATOR 4065 1 PLX-HDD TYPE QUANTUM 4GIG GP-SCSI-2 1 PLX-CASE 5.25" PREMIUM HALF HEIGHT SCSI W/ID 4216 1 PLX-CPU TYPE P133MHZ W/FAN 4203 2 PLX-HDD TYPE QUANTUM 2GIG SCSI-2 1 PLX-M-BOARD TYPE INTEL ZAPPA 4207 3 PLX-CPU TYPE P133MHZ W/FAN 4239 1 PLX-CPU TYPE P-133MHZ W/FAN 4240 1 PLX-CPU TYPE P-133MHZ W/FAN 4253 1 PLX-M-BOARD TYPE ZAPPA W/P-120MHZ W/FAN 4346 1 PLX-HDD TYPE QUANTUM 4GIG WIDE SCSI GP ADVANTAGE MEMORY CORPORATION ---------------------------- 68496 2 4MX36 AMC4X36-70TIN 68693 2 4MX36 AMC4X36-70TIN 69654 2 8MX36 AMC8X36-70TIN 69532 4 8MX36 AMC8X36-70TIN (2-VERSION CONTROL SERVER, 2-OEM SERVER) 69172 1 IBM I16/365C AMC 69772 2 APPLE APL16/9500-16 AMC 70291 2 4MX36 AMC4X36-60 NEC/NEC 1 IBM I16/365C AMC 70368 1 APPLE APL16/9500-16 AMC 70516 2 8MX36 AMC8X36-70TIN AMC INTERPLAY PRODUCTIONS, INC. SCHEDULE 01 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 5 70581 2 4MX36 ANC4X36-60 NEC/NEC 70755 2 8MX36 ANC8X36-70TIN SAM/SAM 70756 2 8MX36 AMC8X36-70TIN SAM/SAM 71948 4 2MX36 AMC2X36-70TIN AMC 4 4MX36 KM4MX36-70SS SAM 71957 1 APPLE APL16/9500-16 AMC 1 DEC DC16/HINOTE AMC 73267 2 8MX36 AMC8X36-70 AMC, 72 PIN 32 MEG UPGRADE MODULE 70 NANOSECONDS 72754 2 IBM I16/TP760 AMC 72154 1 IBM I16/TP750 AMC, 66G5109 73535 8 2MX36 AMC2X36-70TIN AMC 4 4MX36 AMC4X36-70TIN SAM 73583 2 RMX36 KMRX36-7088 SAM 73625 2 4MX36 AMCRX36-70SSTIN HYN 2 8MX36 AMC8X36-70TIN SAM 68343 2 8MX36 AMC8X36-70TIN SAM/SAM 68342 1 DELL DL16/4100CX AMC, 310-3422, 16MB UPGRADE FOR DELL 4100CX 74152 2 APPLE APL32/PPC AMC, 32MB MEMORY MODULE FOR APPLE POWER PC 6100 & 7100 75864 4 8MX36 AMC8X36-70TIN SAM/MIT 75617 2 APPLE APL16/9500-16 AMC 71627 2 4MX36 AMC4X36-60 NEC (NEC) 71558 1 TOSHIBA T08/610 (AMC) 71557 2 4MX36 AMC4X36-70 TIN (AMC) 4 2MX36 AMC2X36-70 TIN (AMC) 71390 2 4MX36 AMC4X36-60-TIN (NEC) 71221 4 4MX9 AMC4X9-70-3 GOLDSTAR 4 APPLE APL16/9500 AMC 16MB MODULE FOR POWER MAC 9500 2 APPLE APL16/PPC AMC 16MB MEMORY MODULE FOR APPLE POWER PC 6100,7100 70799 4 4MX36 AMC4X36-60 NEC/NEC INTERPLAY PRODUCTIONS, INC. SCHEDULE 01 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 6 BEAMSCOPE --------- 0323861 1 LJ 5L ENGLISH/FRENCH-C3941A, HP LASERJET SERIES ARROW ELECTRONICS ----------------- 331276 1 TP760C2-95 IBM TPAD 760, P90, 8MB, 720HD, WIN 95 MAC WAREHOUSE ------------- B8962318 1 POWER MACINTOSH 8100/100AV 16/1000 CD B9085556 1 POWER MAC 7200/75 8/500/CD 1 APPLE MULTIPLE SCAN 15" DISPLAY 1 EXTENDED KEYBOARD II R0194639 1 POWER MAC 7200/75 8/500/CD MC INFO ------- 1828 2 ASCEND 2 TYLINK CSU/DSU 2 RS449MALE CABLES 1976 2 TYLINK CSU/DSU 2 RS449 CABLES PANASONIC --------- 11793 2 FAX MACHINE-MODEL UF 788 CR COMPLETE BUSINESS SYSTEMS ---------------------------- 104581 1 MISCH DIGITAL PC/8E RS-422 ASYNCHRONOUS AXIS SYSTEMS ------------ 9601275 1 INTEL PENTIUM 166 SYSTEM 1 INTEL PENTIUM 166 CPU 1 ASUS P54C TRITON 512K BURST MF 2 EDO 2X32 8MB 60NS 72-PIN STMM 1 DIAMOND S64 VIDEO PCI 2MB VRAM 1 WESTERN DIGITAL 1.08GB SIDE HD 1 TEAC 3.5" 1.44MB FLOPPY DRIVE INTERPLAY PRODUCTIONS, INC. SCHEDULE 01 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 7 1 TOSHIBA 5402B 4/SIDE CD-ROM 1 SOUND BLASTER AWE32 1 MID-TOWER CASEE W/250W PS 1 MICROSOFT MOUSE 2.0 1 KEYTRONIC 104 ENHANCED KEYBOARD 1 MAG DX1595 .28 DIG SVGA MONITOR 1 586 CPU COOLING FAN/HEAT INGRAM MICRO, INC. ------------------ 10-8139911 3 VIEWSONIC 17PS 17IN MULT 25MM MNTR 1600X1280NI FLAT W/CABLE EPA 7 STEALTH 64 VIDEO 3240XL PCI MODL 1600X1200 NI 2MB-VRAM SVGA COREL4 2 NATURAL KEYBOARD 104 KEYS WIN95 PERP ENH-AT PS/2-CONNECTOR OPT AT5DIN 2 6X8 ARTZ II SERIAL W/ERASING PERP, ULTRAPEN & TRANSPARENT OVERLAY 10-99810-11 1 THINKPAD 755CD 486DX4-100 540MBSYST HD 8MB TFT W/2XCDROM, FAX&DATA MDM (SN-95459B023745B1) 10-97228-11 1 THINKPAD 755CD 486DX4-100 540MBSYST HD 8MB TFT W/2XDCROM, FAX&DATA MDM (SN-2630-7SU23WM223) 10-72525-11 6 STEALTH 64 VIDEO 3240-XL PCI, 1600X1200 NI 2MB-VRAM SVGA 5 VALUE CD 4X TRAY 220MS, SB-16 SPEAKERS SW 5 VIEWSONIC 17GS 17IN MULT 27MM MONITOR, 1280X1024NI FLAT W/CABLE TCO'92 10-48778-11 1 STEALTH 64 VIDEO 3240 PCI 10PK MODL, 1600X1200 NI 2MB-VRAM SVGA NO COREL 6 VIEWSONIC 17PS 17IN MULT 25MM MONITOR, 1600X1280NI, 60HZ FLAT W/CABLE EPA 1 ETHERLINK IIIB 20PK ENET ISA16 MODL, 10MBS, 19BT, THICK W/SW IP 4 ATLAS 2100 QM32150AL-S,2.1GB SCSI 3.5LP 7200RPM 8MS (SN-PE54649545, PE54736662, PE54736789, PE55059184) 10-20318-11 7 AHA-2940 KIT FASTSCSI PCI MODL, NOFLOP W/CABLE, ASW-EZ 3.0S/W INTERPLAY PRODUCTIONS, INC. SCHEDULE 01 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 8 5 ATLAS 2100 QM32150AL-S DRIVE, 2.1GB SCSI 3.5LP 7200RPM 8MS (SN-PE54042425, PE54534573, PE54738375, PE55056751, PE55058940) 1 DEBABELIZER TOOLBOX V1.6.5, 5-USER, 1-DOC 10-20318-21 1 ATLAS 4300 4.3GB SCSI WIDE DRIVE, 7200RPM, 8MS, 3.5HH 10-14004-21 3 VIEWSONIC 17GS 17IN MULT 27MM MONITOR, 1280X1024NI FLAT W/CBL TCO WIN 10-14004-11 1 FIREBALL 1280 1.28GB FAST-ATA2 DRIVE, 3.5LPAV 12MS 12-PACK (SN- 122532129837) 11 DISCOVERY CD16 4X IDE DRIVE, 250MS, 600KBP, MPC2, PLUG-N-PLAY 1 MOUSEMAN COMBO RIGHT 5 PK W/SERIAL & PS/2 CONNECTORS 5 STEALTH 64 VIDEO 3240XL PCI, 1600X1200 NI 2MB-VRAM SVGA COREL4 10-55627-21 2 GRAND PRIX 4300 4.2GB-HD 3.5LP DRIVE, WIDE SCSI (SN-474534760080, 474535260133) 10-41608-11 2 MOUSEMAN COMBO RIGHT 5 PK W/SERIAL & PS/2 CONNECTORS 1 OPTIQUEST 1000S 14IN 28MM, 1024X7 68NI ROUND 1 LINKBUILDER TP/8 UNMANAGED 10BMODL, 8PORT HUB 1 FAST ETHERNET PCI ADAPTERMODL, 100 BT 1 ADOBE PHOTOSHOP V3.05 W/DISK & CD 1 BACKUP EXEC V6.0 WINDOWS NT ENTERPRISE EDITION 10-433315-11 1 FIREBALL 1280 1.28GB FAST-ATA2 DRIVE, 3.5LPAV 12MS 12-PACK (SN- N/A1) 10-39149-11 1 ETHERLINK IIIB 20PK ENET ISA16 MODL, 10MBS 10BT THICK W/SW TP 10-29876-11 1 CAPELLA 2210 WIDE INT 2.1GB SCSI 5400RPM 3.5LP (SN-PE54726222) 10-36297-21 1 QUARK XPRESS V3.32 MAC&PWRMAC CROM 10-34008-11 3 FAST ETHERLINK 10/100 SPK ENET MODL, PCI 10/100MBS 10BT W/SW CAT 5 1 JETDIRECT ENET, BNC (10BASE2)MODL, RJ-45(10BASET), LOCAL TALK, MIO 10-39155-11 1 MULTISCAN 15SF2 15IN TRIN 25MM MNTR, 1280X1024NI 60HZ FLT W/CBL MPRII 1 4PLEX PLUS INI CADDY 130MS CROM, 675KB W/PCI CTLR, CABLE, SW 2 ATLAS 2150 WIDE 2.1GB SCSI DRIVE, 3.5LP 7200RPM 8MS (SN-CX54231411, CX54333412) 1 BACKUP EXEC V6.0 WINDOWS NT CROM, ENTERPRISE EDITION INTERPLAY PRODUCTIONS, INC. SCHEDULE 01 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 9 10-93408-21 7 VIEWSONIC 17GS, 17IN MULT 27MM MNTR, 1280X1024NI FLAT W/CABLE TCO'92 1 OFFICE V4.2 STANDARD EDITION CROM SINGLE ONLINE-DOC 10-88311-31 1 12X18 ARTZII (SERIAL) W/ERASINGPERP ULTRAPEN AND ELECTROSTATIC SURFACE 10-50259-11 2 DISCOVERY CD164X IDE DRIVE, 250MS, 600KBP, MPC2 PLUG-N-PLAY 1 EXT SCSI CABINET, 4-5.25" HH OPEACCS, N/CLSD, METAL, CENT50, 200W PS, TOWER 1 ATALAS 2100 QM32150AL-S DRIVE, 2.1GB SCSI, 3.5LP 7200RPM 8MS 10-05310-21 2 GRAND PRIX 4300 QM34301GP-SW DRIVE, 4.2GB-HD, 3.5LP WIDE SCSI (SN-474529850098, 474533450286) 1 WINDOWS NT WORKSTATION V3.51 CROMM SINGLE ONLINE-DOC 10-05310-11 1 4PLEX PLUS INT CADDY 130MS, 675KBW/PCI CTLR, CABLE, SW 1 VIEWSONIC 14ES 14IN MULTI 28MM MNTR, 1024X768NI 60HZ ROUNDW/CABLE MPRII 1 ADV2000E MAC 2.0 GM FAST SCSI2 DRIVE, 3.5HH 10MS W/CABLE, SW 1 UPGRD VISUAL C++ V4.0, SINGLE, ONLINE-DOC VER/COMPET UGRGD 1 VISUAL SOURCESAFE V4.0, SINGLE ONLINE-DOC 10-84122-11 5 COLOR RIBBON FOR ML393+/395 8 COURIER 28.8EXT V.34 19.2KBPS PERP V.EVERYTHING FLASHROM QCKLINK II SW 1 THINKPAD 760C PENT-90 720MB-HD SYST, 8MB 12.1 TFT SVGA W/WARP, WIN3.1 1 THINKPAD DOCKING STATION II PERP FOR THINK PADS 360,750, 755 1 CD-ROM KIT 2X WITH INSTALL KIT DRIVE FOR THINKPAD DOCK I&II 1 SERIAL INFRARED PCMCIA ADAPTER PERP FOR THINKPAD 1 COURIER 28.8INT PCMCIA DATA/FAXMODL, V.34 DUAL STRD DATAVIEW QCKLINK II 1 CREDIT CARD IIPS ENET 10MBS MODL PCMCIA COMBO 10BT THIN 1 ETHERNETXPRESS PRO/10 PCI 5PK MODL ENET 32BIT TP ONLY 10-66333-11 2 DAT EXT 4-8GB 5.25 DDS-2, SCSI WO/MEDIA, WO/SW, WO/CABLE 10-53963-11 4 STEALTH 64 VIDEO 3240XL PCI MODL, 1600X1200 NI 2MB-VRAM SVGA INTERPLAY PRODUCTIONS, INC. SCHEDULE 01 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 10 2 VIEWSONIC 17GS 17IN MULT 27MM MNTR 1280X1024NI FLAT W/CABLE TCO"92 10-62537-21 2 BACKUP EXEC V6.0 WINDOWS NT CROM ENTERPRISE EDITION 1 THINKPAD 365C 486DX4-75 540MB SYST, HD 8MB NOTE 10.4 TFT VGA (SN-1S262530523D3259) 10-55898-21 1 LINKSWITCH 1000, 24 SWITCHED ENET 7 1 100 BASE 10-55898-11 1 BACKUP EXEC V6.0 WINDOWS NI CROM ENTERPRISE EDITION 1 GDM-17SE1/P MULTISCAN TRINITRONMNTR, 17IN MULT 25MM 1600X1200NI 60HZ FLT 1 FAST ETHERLINK 10/100 ENET EISAMODL, 10/100MBS 10BT W/SW CAT 5 UTP 1 FAST ETHERLINK 10/100 ENET EISAMODL, 10/100MBS 10BT W/SW CAT 5 UTP 1 VIEWSONIC 17GS 17IN MULT 27MM MNTR, 1280X1024NI FLAT W/CABLE TCO'92 5 DISCOVERY CD16 4X IDE 250MS 600KBP MPC2 PLUG-N-PLAY 5 SPORTSTER 28,8EXT 14.4-SR FAX PERP V.34 INTERNET BUNDLE 10 STEALTH 64 VIDEO 3240XL PCI, 1600X1200 NI 2MB-VRAM SVGA COREL4 2 MOUSEMAN COMBO RIGHT 5PK PERP W/SERIAL & PS/2 CONNECTORS 2 GRAND PRIX 4300 4.3GB SCSI DRIVE 3.5HH 8.6MS 7200RPM (SN-474524250206, 474535050334) 5 ATLAS 2100 QM32150AL-S DRIVE, 2.1GB SCSI 3.5LP 7200RPM 8MS (SN-PE53639116, PE54456979, PE54649357, PE54651074, PE55056166) 4 MOUSEMAN MAC MOUSE PERP 5 AT TO PS/2 KEYBOARD CONVERTER ACCS, 5 PIN DIN FEMALE/6 PIN MINI MALE 10-12816-21 3 ATLAS 4300 QM34300AL-S INT 4GB DRIVE SCSI 7200RPM 8MS 3.5HH 10-08773-21 1 ATLAS 4300 QM QM34300AL-S INT 4GB DRIVE SCSI 7200RPM 8MS 3.5HH 10-05570-11 1 CAPELLA 2210 INT 2.2GB SCSI DRIVE 5400RPM 3.5LP QM32210CP-S 10-01696-11 2 ETHEREXPRESS PRO/10 PCI 5 PK MODL ENET 32BIT TP ONLY 10-06634-11 1 ETHEREXPRESS PRO/10 PCI 5 PK MODL ENET 32BIT TP ONLY 10-12792-11 2 DISCOVERY CD16 4X IDE DRIVE 250MS, 600KBP MPC2 PLUG-N-PLAY 2 VIEWSONIC 17GS 17IN MULT 27MM MNTR, 1280X1024 NI FLAT W/CABLE TCO'92 INTERPLAY PRODUCTIONS, INC. SCHEDULE 01 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 11 1 STEALTH 64 VIDEO 3240XL PCI MODL, 1600X1200 NI 2MB-VRAM SVGA 10-31873-11 1 POWER MO 230/MAC EXT 230MB 3.5 DRIVE 4500RPM 1MB CACHE W/SW, CBL 10-33291-11 1 ATLAS 2100 QM32150AL-S DRIVE 2.1GB SCSI 3.5LP 7200RPM 8MS (SN-PE5467574) 1 MINISCSI EPP SCSI PAR NOFLOP MODL W/CABLE DOS, OS2, SCSI WORKS 1 2MB UPGRADE FOR THE GRAPHICS PRO TURBO 1 JAZ 1GB 3.5 EXTERNAL SCSI DRIVE MAC READY 2 JAZ 1GB 3.5 SINGLE PACK ACCS 1 JETDIRECT ENET 10BT RJ-45 MODL 10-41969-11 3 STEALTH 64 VIDEO 3240XL PCI MODL 1600X1200 NI 2MB-VRAM SVGA COREL4 3 DISCOVERY CD16 4X IDE, 250MS 600KBP MPC2 PLUG-N-PLAY 3 VIEWSONIC 17GS 17IN MULT 27MM MNTR 1280X1024NI FLAT W/CABLE TCO'92 1 ATLAS 2100 QM32150AL-S DRIVE 2.1GB SCSI 3.5LP 7200RPM 8MS (SN-PL54540762) 10-39210-11 4 VIEWSONIC 17GS 17IN MULT 27MM MNTR 1280X1024NI FLAT W/CABLE TCO'92 1 ATLAS 2100 QM32150AL-S 2.1GB SCSI 3.5LP 7200RPM 8MS (SN-PE54658911) 1 ADAPTER 400MA, SINGLE PLUG ACCS 1 CSD-760S KIT 4X 190MS 600KB 600KB DRIVE, SCSI2 ISA16 256KB BUFFER W/CABLE, SW 10-39155-11 1 VISUAL BASIC PRO V4.0 FOR WIN CROM SINGLE ONLINE-DOC 16&32BIT 4 UPGRD VISUAL SOURCESAFE V4.0 CROM SINGLE ONLINE-DOC COMP/VER UPGRD 1 VIEWSONIC 17GS 17IN MULT 27MM MNTR 1280X1024NI FLAT W/CABLE TCO'92 1 QUARK XPRESS V3.3.2 MAC&PWRMAC CROM 1 ADOBE PHOTOSHOP V3.0.5 SINGLE DSK3 1-DOC POWERMAC COMPATABLE W/CD 10-16086-11 1 ATLAS 4300 QM34300AL-S INT 4GB DRIVE SCSI 7200RPM 8MS 3.5HH 10-44233-11 1 GRAND PRIX 4300 4.2GB-HD 3.5LP DRIVE SIDE SCSI (SN-474529760432) INTERPLAY PRODUCTIONS, INC. SCHEDULE 01 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 12 10-66700-21 1 DISCOVERY CD16 4X IDE 250MS 600KBP MPC2 PLUG-N-PLAY 2 ETHERNETXPRESS PRO/10 5PK ENET MODL ISA16 10BT, THIN, THICK, FLASH UPGRADE 1 VIEWSONIC 17GS 17IN MULT 27MM MNTR 1280X1024NI FLAT W/CABLE TCO'92 10-31805-11 2 DISCOVERY CD16 4X IDE 250MS 600KBP MPC2 PLUG-N-PLAY 1 VIEWSONIC 17GS 17IN MULT 27MM MNTR 1280X1024NI FLAT W/CABLE TCO'92 10-67681-11 1 IBM THINKPAD DOCKING STATION IIPERP FOR THINKPADS 360, 750, 755 10-70809-21 2 QUARK XPRESS V3.3.2 MAC&PWRMAC CROM W/DISK 1 ADOBE ILLUSTRATOR V.5.5 W/DRAWTOOL DISK & CD 1 PROMO PANTONE COLOR DRIVE V1.5 FOR ADOBE PROMO 10-70809-11 1 VIEWSONIC 17GS 17IN MULT 27MM MNTR 1280X1024NI FLAT W/CABLE TCO'92 10-58600-11 1 MULTISYNC XV17 17IN MULT 28MM MNTR 1280X1024NI 60HZ FLAT W/CABLE MPRII 2 STEALTH 64 VIDEO 3400XL PCI MODL 1600X1200 NI 4MB VRAM SVGA 10-64629-11 2 BACKOFFICE SERVER V1.5 SINGLE CROM ON-LINE DOC CONDITIONAL BILL OF SALE TO BRENTWOOD CREDIT CORPORATION KNOW ALL MEN BY THESE PRESENTS THAT: The Undersigned Interplay Productions, Inc., a California corporation (herein called the "Seller"), for and in future consideration of the sum of Four Hundred Fifty Seven Thousand Dollars ($457,000.00) and other good and valuable consideration, does hereby conditionally grant, sell, assign, transfer, and set over unto Brentwood Credit Corporation, a California corporation (herein called the "Buyer"), its successors, and assigns, all right, title, and interest of the Seller in and to the personal property described below (and, if accessories attached thereto (all such personal property, parts, and accessories being herein collectively called the "Equipment"). TO HAVE AND TO HOLD for its and their own use and benefit forever. All such rights granted by Seller to Buyer are conditional upon Seller (or Seller's assignee) receiving from Buyer funds in the amount of $457,000.00. Upon Seller's (or Seller's assignee) receipt of such funds no further documents shall be necessary to unconditionally pass title from Seller to Buyer. QUANTITY MANUFACTURER/MODEL DESCRIPTION & SERIAL NO. - -------- ------------------ ------------------------ (2) SEE ATTACHMENT SEE ATTACHMENT The Seller hereby represents and warrants to the Buyer, its successors, and assigns: (i) that the Equipment is new or has been acquired within the past ninety (90) days; (ii) that the respective Seller has full legal and beneficial title to the Equipment and the good and lawful right to sell the same; and (iii) that good and marketable title to the Equipment will be duly vested in the Buyer, free and clear of all claims, liens, encumbrances, and rights of others of any nature. The Seller hereby covenants and agrees to defend such title forever against all claims and demands whatsoever. IN WITNESS WHEREOF, the Seller has caused this Conditional Bill of Sale to be executed and delivered by its duly authorized officer this 15th day of April ---- ----- 1996. /s/ CHUCK CAMPS, CPA - ---------------------------------- By: Chuck Camps, CPA ----------------------------- Title: Chief Financial Officer --------------------------- Interplay Productions, Inc. --------------------------- [LETTERHEAD OF BRENTWOOD CREDIT] Rider No.: 01 To: Schedule No.: 01 To Equipment Lease No.: IPI-1000-100 Lessee: INTERPLAY PRODUCTIONS, INC. PURCHASE OPTION --------------- So long as no Event of Default (or an occurrence that would constitute an Event of Default with the giving of notice or the lapse of time or both) shall have occurred and be continuing, the Lessee shall have the option, on at least 90 days' prior written notice to the Lessor, to purchase all (but not less than all) items of equipment then subject hereto on the date of expiration of the Term for a purchase price equal to the Fair Market Value of such item of equipment on such date. If such notice shall be given, the Lessor shall sell and the Lessee shall purchase each item on such date for its Fair Market Value. Upon payment by the Lessee of the purchase price for each item of Equipment, the Lessor shall execute and deliver to or at the direction of the Lessee a bill of sale therefor on an "As-is, Where-Is" basis and without any representation or warranty, except that such item of equipment is free and clear of all claims, liens, security interests and other encumbrances in favor of the Lessor or of any person claiming through or under the Lessor. The Lessee shall pay or cause to be paid all sales and use taxes payable in connection with such sale to it of any such item of equipment and all unpaid property taxes thereto assessed or levied against such item of equipment and attributable to the period prior to such expiration. Software licenses covered in this schedule shall revert to the Lessee upon expiration of this schedule. BRENTWOOD CREDIT CORPORATION Date: 4/2/96 By: /s/ MICHAEL J. BUDZINSKI --------- --------------------------- Title: CFO ------------------------ INTERPLAY PRODUCTIONS, INC. DATE: 4/1/96 By: /s/ CHUCK CAMPS -------- --------------------------- Title: CFO ------------------------ CERTIFIED COPY ILLEGIBLE SIGNATURE ------------------- BRENTWOOD CREDIT CORPORATION SCHEDULE NO. 02 TO EQUIPMENT LEASE NO. IPI-1000-100 DATED MARCH 28, 1996 LESSEE INTERPLAY PRODUCTIONS, INC. Equipment Data: - --------------- QUANTITY TYPE MODEL & DESCRIPTION - -------- ---- ------------------- SEE ATTACHED FOR BREAKDOWN OF EQUIPMENT. Location of Equipment: 17922 Fitch Avenue - ---------------------- Irvine, California 92660 Term of Schedule: 24 months commencing on the first day of the month following - ---------------- -- the date that Seller certifies that the equipment is in good working order and made ready for use. If equipment is installed, the commencement date is the first day of the month following the date the delivery and acceptance document is executed. Interim rent: Will be an amount equal to 1/30 of the rental payment multiplied - ------------ by the number of days elapsed between the above seller certification date or, if installed, execution of this schedule and the first day of the following month, or the first day of an otherwise specified month (commencement date). Rental Payments: $4,200.00 per month in advance plus applicable taxes. - --------------- --------- Brentwood Credit Corporation, (Lessor) hereby agrees to lease to the Lessee named below, and Lessee hereby agrees to lease and rent from Lessor the equipment listed above, for the term and rental payments specified, all subject to the terms and conditions set forth in such equipment lease. Lessor: BRENTWOOD CREDIT Lessee: INTERPLAY PRODUCTIONS, INC. CORPORATION By: /s/ MICHAEL J. BUDZINSKI By: /s/ CHUCK CAMPS ----------------------------- --------------------------------- Title: CFO Title: CFO -------------------------- ------------------------------ Date: 7/3/96 Date: 7/1/96 -------------------------- ------------------------------- 1620 26th Street 17922 Fitch Avenue Suite #290-S Irvine, CA 92660 Santa Monica, CA 90404 [LETTERHEAD OF BRENTWOOD CREDIT CORPORATION] INTERPLAY PRODUCTIONS, INC. SCHEDULE 02 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 1 QTY EQUIPMENT DESCRIPTION - --- --------------------- VERIDIAN, INC. -------------- 7 SGI Indy R5000 Workstation (24-bit), 150MHZ, 64MB, 2GB Disk, External DAT, External CD-ROM, 17" color monitor. BRENTWOOD CREDIT CORPORATION SCHEDULE NO. 03 TO EQUIPMENT LEASE NO. IPI-1000-100 DATED MARCH 28, 1996 LESSEE INTERPLAY PRODUCTIONS, INC. Equipment Data: - --------------- QUANTITY TYPE MODEL & DESCRIPTION - -------- ---- ------------------- See attached for breakdown of equipment. Location of Equipment: 17922 Fitch Avenue - ---------------------- Irvine, California 92660 Term of Schedule: 24 months commencing on the first day of the month following - ----------------- -- the date that Seller certifies that the equipment is in good working order and made ready for use. If equipment is installed, the commencement date is the first day of the month following the date the delivery and acceptance document is executed. Iterim rent: Will be an amount equal to 1/30 of the rental payment multiplied - ------------ by the number of days elapsed between the above seller certification date or, if installed, execution of this schedule and the first day of the following month, or the first day of an otherwise specified month (commencement date). Rental Payments: $3,790.00 per month in advance, plus applicable sales tax. - ---------------- --------- Brentwood Credit Corporation, (Lessor) hereby agrees to lease to the Lessee named below, and Lessee hereby agrees to lease and rent from Lessor the equipment listed above, for the term and rental payments specified, all subject to the terms and conditions set forth in such equipment lease. Lessor: BRENTWOOD CREDIT CORPORATION Lessee: INTERPLAY PRODUCTIONS, INC. By: /s/ MICHAEL J. BUDZINSKI By: /s/ CHUCK CAMPS --------------------------------- --------------------------------- Title: CFO Title: CFO ------------------------------- ------------------------------ Date: 7/19/96 Date: 7/15/96 ------------------------------- ------------------------------- 1620 26th Street 17922 Fitch Avenue Suite #290-S Irvine, CA 92660 Santa Monica, CA 90404 [LETTERHEAD OF BRENTWOOD CREDIT CORPORATION] INTERPLAY PRODUCTIONS, INC. SCH: 03 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT QUANTITY EQUIPMENT DESCRIPTION - -------- --------------------- 11 21164, 300-333MHZ BASED MOTHERBOARD W/2MEG CACHE, 400 WATT PS, CABLES, FOR WNT AND LINUX 11 128 MEG MEMORY (8 STICKS OF 16 MEG EACH, 60 NS W/PARITY) 11 SCSI III 1 GIG HARD DRIVE 11 WINDOWS NT 3.51 WORKSTATION - SINGLE USER 11 MATROX MILLENIUM 2 MEG VRAM 11 QLOGIC SCSI III PCI SCSI CONTROLLER 11 6X BLACK CD ROM SCSI 11 100 MBIT/S COGENT ETHERNET CARD 11 HIGH DENSITY FLOPPY DISK CONTROLLER 3 PS/2 101 KEY KEYBOARD BLACK AND MOUSE (WHITE) 3 PS/2 3 BUTTON MOUSE 3 17 INCH MONITOR VIEW SONIC BRENTWOOD CREDIT CORPORATION SCHEDULE NO. 04 TO EQUIPMENT LEASE NO. IPI-1000-100 DATED MARCH 28, 1996 LESSEE INTERPLAY PRODUCTIONS, INC. Equipment Data: - --------------- QUANTITY TYPE MODEL & DESCRIPTION - -------- ---- ------------------- SEE ATTACHED FOR BREAKDOWN OF EQUIPMENT. Location of Equipment: 16815 Von Karman Ave. - ---------------------- Irvine, California 92606 Term of Schedule: 48 months commencing on the first day of the month following - ----------------- -- the date that Seller certifies that the equipment is in good working order and made ready for use. If equipment is installed, the commencement date is the first day of the month following the date the delivery and acceptance document is executed. Interim rent: Will be an amount equal to 1/30 of the rental payment multiplied - ------------- by the number of days elapsed between the above seller certification date or, if installed, execution of this schedule and the first day of the following month, or the first day of an otherwise specified month (commencement date). Rental Payments: $11,030.00 per month (includes tax paid at purchase). - ---------------- ---------- Brentwood Credit Corporation, (Lessor) hereby agrees to lease to the Lessee named below, and Lessee hereby agrees to lease and rent from Lessor the equipment listed above, for the term and rental payments specified, all subject to the terms and conditions set forth in such equipment lease. Lessor: BRENTWOOD CREDIT CORPORATION Lessee: INTERPLAY PRODUCTIONS, INC. By: Michael J. Budzinski By: Chuck Camps --------------------------------- -------------------------------- Title: CFO Title: CFO ------------------------------ ----------------------------- Date: 8/1/96 Date: 8/1/96 ------------------------------- ------------------------------ 1620 26th Street 17922 Fitch Avenue Suite #290-S Irvine, CA 92660 Santa Monica, CA 90404 This is Counterpart # 2 of 3 serially numbered, manually executed --- --- counterparts. To the extent this document constitutes chattel paper under the Uniform Commercial Code. No Security interest in this document may be created through the transfer and possession of any counterpart other than Counterpart #01. [LETTERHEAD OF BRENTWOOD CREDIT] INTERPLAY PRODUCTIONS, INC. SCHEDULE 04 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 1 QTY EQUIPMENT DESCRIPTION - --- --------------------- INTERIOR RESOURCES: ------------------- (Invoice #34840) ---------------- 1 To Receive, Deliver & Install Building 3/Quad C/2nd Floor (Invoice #34841) ---------------- 1 To Receive, Deliver, & Install For Building 3/Quad B/2nd Floor (Invoice #34836) ---------------- 220 Modular Plates 3 RJ Holes BU-Black UMBER 1 Expediting Upcharge Next Day Ship Via UPS (Invoices #34282) ----------------- 1 Product Required For Building 4-2nd Floor 83 Panel, Tack Acoust-Barr Nonpwr W/Recep Loc 62H 24W 2 Panel, Tack Acoust-Barrier Powered 4-Circ 62H 24W 67 Panel, Tack Acoust-Barr Nonpwr W/Recep Loc 62H 48W 123 Panel, Tack Acoust-Barrier Powered 4-Circ 62H 48W 56 Conn, 2-Way 90 Deg Hard 62H 20 Conn, 3-Way 90 Deg Hard 62H 22 Conn, 4-Way 90 Deg 62H 83 Finished End 62H 10 Duplex Receptacle, 4-Circ A 6/Pkg 10 Duplex Receptacle, 4-Circ B 6/Pkg 5 Duplex Receptacle, 4-Circ B Isol 6/Pkg 5 Duplex Receptacle, 4-Circ C Isol 6/Pkg 4 Base Power Entry, Direct Connect 4-Circ, 6ft Long 1 Base Power Entry, Direct Connect 4-Circ, 12ft Long 9 Ceiling Power Entry, 4-Circ 62H 51 Power Jumper, Panel Pass-Through 24W 110 Work Surf, Sq-Edge Rect Lam 24D 48W 55 Work Surf, Sq-Edge Rect Lam 30D 48W INTERPLAY PRODUCTIONS, INC. SCHEDULE 04 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 2 55 Shelf, B-Style 7-1/2H 13D 48W 55 Flipper Door Unit, B-Style Painted, W/Lock 13D 48W 15-1/2H 108 Draw Rod 57H 55 Ped H-Front, Stationary 20D Box/Box/File 110 Task Light, Basic, Cool White 4100K, 48W 2 ea. Universal Lock Cylinder and Key for Stations Numbers: 4-31, 36-43, 46-48, 51-66 (Invoice #34281) ---------------- 1 Product Required For Building 4-1st Floor 35 Panel, Tack Acoust-Barr Nonpwr W/Recep Loc 62H 24W 3 Panel, Tack Acoust-Barrier Powered 4-Circ 62H 24W 21 Panel, Tack Acoust-Barr Nonpwr W/Recep Loc 62H 48W 41 Panel, Tack Acoust-Barrier Powered 4-Circ 62H 48W 15 Conn, 2-Way 90 Deg Hard 62H 15 Conn, 3-Way 90 Deg Hard 62H 3 Conn, 4-Way 90 Deg 62H 28 Finished End 62H 4 Duplex Receptacle, 4-Circ A 6/Pkg 4 Duplex Receptacle, 4-Circ B 6/Pkg 2 Duplex Receptacle, 4-Circ B Isol 6/Pkg 2 Duplex Receptacle, 4-Circ C Isol 6/Pkg 4 Base Power Entry, Direct Connect 4-Circ, 6ft Long 5 Ceiling Power Entry, 4-Circ 62H 18 Power Jumper, Panel Pass-Through 24W 38 Work Surf, Sq-Edge Rect Lam 24D 48W 19 Work Surf, Sq-Edge Rect Lam 30D 48W 19 Shelf, B-Style 7-1/2H 13D 48W 19 Flipper Door Unit, B-Style Painted, W/Lock 13D 48W 15-1/2H 4 Wall Start 57H 45 Draw Rod 57H 19 Ped H-Front, Stationary 20D Box/Box/File 38 Task Light, Basic, Cool White 4100K, 48W 3 ea. Universal Lock Cylinder and Key for Station Numbers: 1-19 INTERPLAY PRODUCTIONS, INC. SCHEDULE 04 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 3 1 Product Required For Building 4-1st Floor "Vanessa Station" 1 Panel, Tack Acoust-Barr Nonpwr W/Recep Loc 47H 24W 2 Panel, Tack Acoust-Barrier Powered 4-Circ 47H 48W 1 Panel, Tack Acoust-Barr Nonpwr W/Recep Loc 53H 24W 2 Panel, Tack Acoust-Barrier Powered 4-Circ 67H 24W 1 Conn, 2-Way 90 Deg Hard 47 1 Conn, 2-Way 90 Deg Hard 53H 1 Hardware Package-Top Block and Screws 1 Finished End, Hingeable 34H 1 Finished End 47H 1 Trans Surf Support, Center 2 Trans Surf Support, Mid-End 1 Base Power Entry, Direct Connect 4-Circ, 6ft Long 1 Power Jumper, Panel Pass-Through 24W 1 Work Surf. Sq-Edge Rect Lam 24D 96W 1 Work Surf. Sq-Edge Rect Lam 30D 48W 2 Trans Surf, Sq-Edge Rect Lam Top 48W 1 Flipper Door Unit, B-Style Painted, W/Lock 13D 48W 15-1/2H 2 Tool Bar, B-Style 4H 24W 4 Diagonal Tray 2 Paper Tray 10W 1 Wall Start 62H 1 Draw Rod 42H 1 Draw Rod 48H 1 Draw Rod 62H 2 Finished End, Chg-Of-Ht 1 Lat File, H-Frt F/S 2-Drawer 30W 1 Drawer, Pencil 21W 16D 1 Stealth Keyboard Tray, Fully Adj, Mouse Tray 2 Universal Lock Cylinder and Key For Station #20 (Invoice #34280) ---------------- 1 Product Required For Building 3-2nd Floor - Quad B 4 Panel, Tack Acoust-Barrier Powered 4-Circ 47H 60W INTERPLAY PRODUCTIONS, INC. SCHEDULE 04 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 4 121 Panel, Tack Acoust-Barr Nonpwr W/Recep Loc 62H 30W 3 Panel, Tack Acoust-Barrier Powered 4-Circ 62H 30W 4 Panel, Tack Acoust-Barr Nonpwr W/Recep Loc 62H 36W 4 Panel, Tack Acoust-Barrier Powered 4-Circ 62H 36W 23 Panel, Tack Acoust-Barr Nonpwr W/Recep Loc 62H 48W 1 Panel, Tack Acoust-Barrier Powered 4-Circ 62H 48W 11 Panel, Tack Acoust-Barr Nonpwr W/Recep Loc 62H 60W 54 Panel, Tack Acoust-Barrier Powered 4-Circ 62H 60W 13 Conn, 2-Way 90 Deg Hard 62H 39 Conn, 3-Way 90 Deg Hard 62H 32 Conn, 4-Way 90 Deg 62H 118 Finished End 62H 8 Duplex Receptacle, 4-Circ A 6/Pkg 8 Duplex Receptacle, 4-Circ B 6/Pkg 7 Duplex Receptacle, 4-Circ B Isol 6/Pkg 8 Duplex Receptacle, 4-Circ C Isol 6/Pkg 4 Base Power Entry, Direct Connect 4-Circ, 6Ft Long Ceiling Power Entry, Nonpowered 62H 17 Ceiling Power Entry, 4-Circ 62H 2 Power Jumper, Panel Pass-Through 36W 30 Wall Start 57H 56 Draw Rod 57H 8 Finished End, Chg-Of-Ht (Invoice #34279) ---------------- 1 Product Required For Building 3-2nd Floor-Quad C 21 Panel, Tack Acoust-Barr Nonpwr W/Recep Loc 53H 24W 13 Panel, Tack Acoust-Barrier Powered 4-Circ 53H 24W 20 Panel, Tack Acoust-Barr Nonpwr W/Recep Loc 53H 36W 16 Panel, Tack Acoust-Barrier Powered 4-Circ 53H 36W 2 Conn, 2-Way 90 Deg Hard 53H 9 Conn, 3-Way 90 Deg Hard 53H 4 Conn, 4-Way 90 Deg 53H 23 Finished End 53H INTERPLAY PRODUCTIONS, INC. SCHEDULE 04 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 5 2 Duplex Receptacle, 4-Circ A 6/Pkg 2 Duplex Receptacle, 4-Circ B 6/Pkg 2 Duplex Receptacle, 4-Circ B Isol 6/Pkg 2 Duplex Receptacle, 4-Circ C Isol 6/Pkg 5 Base Power Entry, Direct Connect 4-Circ, 6Ft Long 40 Work Surf, Sq-Edge Rect Lam 24D 24W 20 Work Surf, Sq-Edge Corner Lam 24D 36W 20 Shelf, B-Style 7-1/2H 13D 24W 2 Wall Start 48H 36 Draw Rod 48H 20 Ped H-Front, Stationary 20D Box/Box/File 20 Task Light, Basic, Cool White 4100K, 24W 2 Support Panel, Work Surf, End Lam 24D 1 Universal Lock Cylinder and Key for Stations #1-20 (Invoice #79571) ---------------- 1 To Receive, Deliver and Install For Building 4/1st Floor (Invoice #79572) ---------------- 1 To Receive, Deliver and Install 4th/2nd Floor JMG SECURITY SYSTEMS -------------------- Closed Circuit Television System: --------------------------------- Building #3 - ------------- 7 CCD-PI-3705 Infrared Sensors 2 CCD-PI-370 Infrared Sensor 1 Dedicated Micros SPQ1DE16U Multiplexer 1 AGRT600 Video Recorder 1 WBM1700 - 17" Monitor 1 Lot Fire Rated Cable Building #4 - ------------- INTERPLAY PRODUCTIONS, INC. SCHEDULE 04 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 6 1 GB-FD 3506 Smoke Detectors 9 CCD-PI-3705 Infrared Sensors 1 Dedicated Micros SPQ1DE16U Multiplexer 1 AGRT600 Video Recorder 1 WBM1700 - 17" Monitor 1 Lot Fire Rated Cable Building #5 (Second Floor) - ---------------------------- 2 GB-FD-3506 Smoke Detectors 2 CB-UK-3506 Cameras 10 CCD-PI-3705 Infrared Sensor 1 Dedicated Micros SPQ1DE16U Multiplexer 1 ACTRT600 Video Recorder 1 WBM1700 - 17" Monitor 1 Lot Fire Rated Cable Burglar Alarm System -------------------- 1 Radionics 7212 Control Panel 1 Alpha IV Command Center Access Control System: ---------------------- Building 3 - Second Floor - --------------------------- 2 Readykey K2100 Controllers 1 K6100 - 32 Readykey for Windows 2 Readykey K2001 Readers - Main Lobby Door #3041 2 Readykey K2001 Readers - Stairwell Door #3070 2 Readykey K2001 Readers - Stairwell Door #3001 4 Door Sensors 3 Door Sounders Building 3 - First Floor - -------------------------- 1 Readykey K2001 Reader - Exterior Double Doors INTERPLAY PRODUCTIONS, INC. SCHEDULE 04 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 7 1 Readykey K2001 Reader - Single Interior Door 1 Door Sensor 1 Door Sounder Building 4 - First Floor - -------------------------- 2 Readykey K2100 Controllers 1 Readykey K2001 Reader - Main Lobby Double Door #4002 1 Readykey K2001 Reader - Stairwell Double Door #4068 1 Readykey K2001 Reader - Rear Single Door #4038 1 Readykey K2001 Reader - Vestibule Double Door #4027 1 Readykey K2001 Reader - Interior Door #4055 1 Readykey K2001 Reader - Interior Door #4057 9 Door Sensors 6 Door Sounders 1 Request To Exit Motion Sensor - Door #4055 Building 5 - Second Floor - --------------------------- 2 Readykey K2100 Controllers 2 Readykey K2001 Readers - Main Lobby Double Door #5001 2 Readykey K2001 Readers - Interior Door #5002 2 Door Sounders Building 5 - First Floor - --------------------------- 2 Readykey K2001 Readers - 2 Exterior Doors 2 Readykey K2001 Readers - 2 Interior Doors 2 Door Sensors 2 Door Sounders LPA --- (Invoice #5224) --------------- 1 Design and Consulting Services Rendered for February 1996 EXECUTONE --------- INTERPLAY PRODUCTIONS, INC. SCHEDULE 04 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 8 1 Install temporary cabinets into all new locations 1 Move and reinstall IDS 648 (2 cabinets-main bldg., 1 cabinet- development bldg.) 1 Move and reinstall voice mail system - main bldg. 1 Move and reinstall (2) operator consoles 1 Reconfigure IDS 648 to new specifications 1 Move and reinstall 342 existing extensions 1 Move IDS 228 cabinet to customer service/QA Building 1 Port ACD Software to new CPU and reprogram to desired specs 1 Add (1) T-1 Card 1 Connect all telco COM-NET INDUSTRIES ------------------ 1 NEC Bipolar M1-3 MUX 2 Tellabs Power Supply 1 Rack Mount UPS 1 DAMAC 19' Relay Rack 7' 1 Misc. Cables RG59 CATS 4 ADTRAN T1-CSU ACE 2 Cray Routermate T1 CSU/DSU 1 Hardware Installation 1 Yearly Maintenance 1 NEC RC-28D MUX 12 Port 10 CSU's 1 Installation of DSU's and CSU's COAST RECORDING EQUIPMENT SUPPLY INC. ------------------------------------- 1 Z-Systems 32x32 AES Matrix WEST LA MUSIC ------------- (Invoice #339001) ----------------- 2 EMU 6311 FX Hardware 1 EMU 6313 8-Output Expander 2 EMU 6314 Software Update INTERPLAY PRODUCTIONS, INC. SCHEDULE 04 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 9 (Invoice #338277) ----------------- 2 EMU 6300 Emulator IV (SN-1213, 0767) 2 ROL SRJV80-04 Vintage Synth Card 1 ROL SRJV80-09 Session Card 1 ROL SRJV80-05 World Card 1 TAS IF88AE Digital Interface (SN-0026) 2 ODY SRS20 20 Space Racks 1 SON DRSV77 FX Processor (SN-673A) 1 EMA SD3 Sound Diver (Invoice #339285) ----------------- 2 FUR AR1215 AR117 Power Controllers (sn-1770, 1771) 10 ROL JAZ1GBP 1 GIG Jazz Cartridge 2 BOS EVS Volume Pedals MC INFO ------- (Invoice #00002677) ------------------- 1 Fore Systems 10 Slot Chassis 2 Fore Systems Power Supply 1 Fore Systems Flash Memory 5 Fore Systems Fast Ethernet Module 24 Fore Systems 100BaseTX Fast Ethernet Media Adapt. 6 Fore Systems 100BaseFX Fast Ethernet Media Adapt. [LETTERHEAD OF BRENTWOOD CREDIT] Rider No. 01 To: Schedule No. 04 To: Lease No. IPI-1000-100 Lessee: INTERPLAY PRODUCTIONS, INC. PURCHASE AGREEMENT ------------------ Interplay Productions, Inc. (hereinafter referred to as "Lessee") the Lessee named in a certain Equipment Lease dated March 28, 1996, Lease Number IPI-1000-100 Schedule Number 04 with Brentwood Credit Corporation, (the "Lessor") covering certain property described in the Lease and Schedule hereby agrees that effective as of the expiration of the term of the Lease Schedule 04, expiring 7/31/00, Lessee must purchase the property described in said Lease Schedule, as a whole and not in part, on an as-is where-is basis, for the sum of $77,000.00 plus all unpaid rentals and other amounts owing the Lessor, under the terms and conditions of the Lease. Lessor: Lessee: BRENTWOOD CREDIT CORPORATION INTERPLAY PRODUCTIONS, INC. 1620 26th Street, Suite 290-S 16815 Von Karman Ave. Santa Monica, CA 90404 Irvine, CA 92606 By: /s/ MICHAEL J. BUDZINSKI By: /s/ CHUCK CAMPS --------------------------- -------------------------- Title: CFO Title: CFO ----------------------- --------------------- Date: 8/1/96 Date: 8/1/96 ----------------------- --------------------- BRENTWOOD CREDIT CORPORATION SCHEDULE NO. 05 TO EQUIPMENT LEASE NO. IPI-1000-100 DATED MARCH 28, 1996 LESSEE INTERPLAY PRODUCTIONS, INC. Equipment Data: - --------------- QUANTITY TYPE MODEL & DESCRIPTION - -------- ---- ------------------- See attached for breakdown of equipment. Location of Equipment: 16815 Von Karman Ave. - ---------------------- Irvine, California 92606 Term of Schedule: 24 months commencing on the first day of the month following - ----------------- -- the date that Seller certifies that the equipment is in good working order and made ready for use. If equipment is installed, the commencement date is the first day of the month following the date the delivery and acceptance document is executed. Interim rent: Will be an amount equal to 1/30 of the rental payment multiplied - ------------- by the number of days elapsed between the above seller certification date or, if installed, execution of this schedule and the first day of the following month, or the first day of an otherwise specified month (commencement date). Rental Payments: $11,120.00 per month in advance plus applicable taxes. - ---------------- ---------- Brentwood Credit Corporation, (Lessor) hereby agrees to lease to the Lessee named below, and Lessee hereby agrees to lease and rent from Lessor the equipment listed above, for the term and rental payments specified, all subject to the terms and conditions set forth in such equipment lease. Lessor: BRENTWOOD CREDIT Lessee: INTERPLAY PRODUCTIONS, INC. CORPORATION By: /s/ MICHAEL J. BUDZINSKI By: /s/ CHUCK CAMPS ---------------------------------- --------------------------------- Title: CFO Title: CFO ------------------------------- ------------------------------ Date: 10/23/96 Date: 10/24/96 -------------------------------- ------------------------------- 1620 26th Street 16815 Von Karman Ave. Suite #290-S Irvine, CA 92606 Santa Monica, CA 90404 This is Counterpart No. 1 of 3 serially --- --- numbered, manually executed counterparts. To the extent that this document constitutes chattel paper under the Uniform Commercial Code, no security interest in this document may be created through the transfer and possession of any counterpart other than Counterpart No. 1 . Lessee initial --- ------ [LETTERHEAD OF BRENTWOOD CREDIT CORPORATION] INTERPLAY PRODUCTIONS, INC. SCHEDULE 05 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 1 QTY EQUIPMENT DESCRIPTION - --- --------------------- EUPHONIX -------- 1 Euphonix Digital Control Studio System - a 72 fader Mix Controller frame, fitted with 56 faders - One Audio Tower - System Power Supply: 120VAC/60Hz - Support Computer with Color Graphics Display - V.2 MixView Software, Operation Manual & user software license - Patchbay: 8 x 96 jack connectorized patchrows - Cabling: Mix controller to Machine Room = 15m, Patch Bay = 10m - Upper and lower faders have access to 6 stereo buses and ST1, ST2 - One Digital Studio Controller 3 ES108A-1/Chan Cables (2m/7ft) for 24 Channels of Dynamics SILICON GRAPHICS, INC. ---------------------- 2 High IMPACT 10000, 195MHz/1MB cache, 128MB Memory, 4GB System Disk. 20" Monitor 2 Internal 4mm Digital Audio SCSI Tape Drive, 4.0GB Capacity 2 Internal 4x CD ROM SCSI Drive 2 20" Multi-Scan Tilt-Swivel, Color Monitor 2 CD-ROM Update Media requirement-For Support Only SILICON CITY, INC. ------------------ 1 INDIGO High IMPACT Graphics, 250MHz/2MB cache, 128MB Memory, 4GB System Disk, 20" Monitor 1 Internal 4mm Digital Audio SCSI Tape Drive, 4.0GB Capacity 1 Internal 4x CD ROM SCSI Drive 1 Network File System for IRIX 6.2 1 CD-Update Media Charge [LETTERHEAD OF BRENTWOOD CREDIT CORPORATION] Rider No.: 01 To: Schedule No.: 05 To Equipment Lease No.: IPI-1000-100 Lessee: INTERPLAY PRODUCTIONS, INC. PURCHASE OPTION --------------- So long as no Event of Default (or an occurrence that would constitute an Event of Default with the giving of notice or the lapse of time or both) shall have occurred and be continuing, the Lessee shall have the option, on at least 90 days' prior written notice to the Lessor, to purchase all (but not less than all) items of equipment then subject hereto on the date of expiration of the Term for a purchase price equal to the Fair Market Value (as defined below) of such item of equipment on such date. If such notice shall be given, the Lessor shall sell and the Lessee shall purchase each item on such date for its Fair Market Value. Upon payment by the Lessee of the purchase price for each item of Equipment, the Lessor shall execute and deliver to or at the direction of the Lessee a bill of sale therefor on an "As-is, Where-Is" basis and without any representation or warranty, except that such item of equipment is free and clear of all claims, liens, security interests and other encumbrances in favor of the Lessor or of any person claiming through or under the Lessor. The Lessee shall pay or cause to be paid all sales and use taxes payable in connection with such sale to it of any such item of equipment and all unpaid property taxes thereto assessed or levied against such item of equipment and attributable to the period prior to such expiration. "Fair Market Value" for purposes of the purchase option is defined as the purchase price would be obtained in an arms-length transaction as of the end of the Extended Term between informed and willing buyers under no compulsion to buy or sell. In the event Lessor and Lessee cannot agree upon the purchase price, such amount shall be determined by an independent appraiser selected by Lessor and satisfactory to Lessee. The cost of such appraisal shall be paid equally by Lessor and Lessee. BRENTWOOD CREDIT CORPORATION Date: 10/23/96 By: /s/ MICHAEL J. BUDZINSKI --------------------------- --------------------------------- Title: CFO ------------------------------ INTERPLAY PRODUCTIONS, INC. Date: 10/24/96 By: /s/ CHUCK CAMPS --------------------------- --------------------------------- Title: CFO ------------------------------ CERTIFIED COPY AG -------------- BRENTWOOD CREDIT CORPORATION SCHEDULE NO. 06 TO EQUIPMENT LEASE NO. IPI-1000-100 DATED March 28, 1996 LESSEE INTERPLAY PRODUCTIONS, INC. Equipment Data: - --------------- QUANTITY TYPE MODEL & DESCRIPTION - -------- ---- ------------------- See attached for breakdown of equipment. Location of Equipment: 16815 Von Karman Ave. - ---------------------- Irvine, California 92606 Term of Schedule: 24 months commencing on the first day of the month following - ----------------- the date that Seller certifies that the equipment is in good working order and made ready for use. If equipment is installed, the commencement date is the first day of the month following the date the delivery and acceptance document is executed. Interim rent: Will be an amount equal to 1/30 of the rental payment multiplied - ------------- by the number of days elapsed between the above seller certification date or, if installed, execution of this schedule and the first day of the following month, or the first day of an otherwise specified month (commencement date). Rental Payments: $3,385.00 per month in advance plus applicable taxes. - ---------------- --------- Brentwood Credit Corporation, (Lessor) hereby agrees to lease to the Lessee named below, and Lessee hereby agrees to lease and rent from Lessor the equipment listed above, for the term and rental payments specified, all subject to the terms and conditions set forth in such equipment lease. Lessor: BRENTWOOD CREDIT Lessee: INTERPLAY PRODUCTIONS, INC. CORPORATION By: /s/ MICHAEL J. BUDZINSKI By: /s/ CHUCK CAMPS ---------------------------- ---------------------------- Title: CFO Title: CFO --------------------- --------------------- Date: 12/13/96 Date: 12-12-91 ---------------------- ---------------------- 1620 26th Street 16815 Von Karman Ave. Suite #290-S Irvine, CA 92606 Santa Monica, CA 90404 [LOGO OF BRENTWOOD CREDIT] INTERPLAY PRODUCTIONS, INC. --------------------------- SCHEDULE 06 TO MASTER LEASE IPI-1000-100 ---------------------------------------- EQUIPMENT ATTACHMENT -------------------- PAGE 1 ------ QTY EQUIPMENT DESCRIPTION - --- --------------------- PO#13846 (Plexus Data Inc.) -------- 1 -MAST9500 Inteligent RAID Subsystem 7 -Ultra Wide 7200rpm HDD (includes 1 hotspare) 7 -MAST9500 Drive Shuttles 1 -CMD Wide Bridge Controller 1 -Management Board for CMD 1 -68pin to 68pin External SCSI Cable PO#13849 (Plexus Data Inc.) -------- 3 -MAST9500 Inteligent RAID Subsystems 23 -Ultra Wide 7200rpm HDD (includes 2 hotspare) 23 -MAST9500 Drive Shuttles 2 -CMD Wide Bridge Controller 3 -Management Board for CMD 3 -68pin to 68pin External SCSI Cable [LETTERHEAD OF BRENTWOOD CREDIT] Rider No.: 01 To: Schedule No.: 06 To Equipment Lease No.: IPI-1000-100 Lessee: INTERPLAY PRODUCTIONS, INC. PURCHASE OPTION --------------- So long as no Event of Default (or an occurrence that would constitute an Event of Default with the giving of notice or the lapse of time or both) shall have occurred and be continuing, the Lessee shall have the option, on at least 90 days' prior written notice to the Lessor, to purchase all (but not less than all) items of equipment then subject hereto on the date of expiration of the Term for a purchase price equal to the Fair Market Value (as defined below) of such item of equipment on such date. If such notice shall be given, the Lessor shall sell and the Lessee shall purchase each item on such date for its Fair Market Value. Upon payment by the Lessee of the purchase price for each item of Equipment, the Lessor shall execute and deliver to or at the direction of the Lessee a bill of sale therefor on an "As-is, Where-is" basis and without any representation or warranty, except that such item of equipment is free and clear of all claims, liens, security interests and other encumbrances in favor of the Lessor or of any person claiming through or under the Lessor. The Lessee shall pay or cause to be paid all sales and use taxes payable in connection with such sale to it of any such item of equipment and all unpaid property taxes thereto assessed or levied against such item of equipment and attributable to the period prior to such expiration. "Fair Market Value" for purposes of the purchase option is defined as the purchase price would be obtained in an arms-length transaction as of the end of the Extended Term between informed and willing buyers under no compulsion to buy or sell. In the event Lessor and Lessee cannot agree upon the purchase price, such amount shall be determined by an independent appraiser selected by Lessor and satisfactory to Lessee. The cost of such appraisal shall be paid equally by Lessor and Lessee. BRENTWOOD CREDIT CORPORATION Date: 12/13/96 By: /s/ MICHAEL J. BUDZINSKI ------------------------ ---------------------------- Title: CFO ------------------------- INTERPLAY PRODUCTIONS, INC. Date: By: /s/ CHUCK CAMPS ------------------------ ---------------------------- Title: CFO ------------------------- BRENTWOOD CREDIT CORPORATION SCHEDULE NO. 07 TO EQUIPMENT LEASE NO. IPI-1000-100 DATED March 28, 1996 LESSEE INTERPLAY PRODUCTIONS, INC. Equipment Data: - --------------- QUANTITY TYPE MODEL DESCRIPTION - -------- ---- ----- ----------- See attached for breakdown of equipment. Location of Equipment: 16815 Von Karman Avenue - ---------------------- Irvine, CA 92606 Term of Schedule: 24 months commencing on the first day of the month following - ----------------- the date that Seller certifies that the equipment is in good working order and made ready for use. If equipment is installed, the commencement date is the first day of the month following the date the delivery and acceptance document is executed. Interim rent: Will be an amount equal to 1/30 of the rental payment multiplied - ------------- by the number of days elapsed between the above seller certification date or, if installed, execution of this schedule and the first day of the following month, or the first day of an otherwise specified month (commencement date). Rental Payments: $3,590.00 per month in advance plus applicable taxes. - ---------------- Brentwood Credit Corporation, Lessor, hereby agrees to lease to the Lessee named below, and Lessee hereby agrees to lease and rent from Lessor the equipment listed above, for the term and rental payments specified, all subject to the terms and conditions set forth in such equipment lease. Lessor: BRENTWOOD CREDIT Lessee: INTERPLAY PRODUCTIONS, CORPORATION INC. By: /s/ MICHAEL J. BUDZINSKI By: /s/ CHUCK CAMPS --------------------------- --------------------------- Title: CFO Title: CFO ------------------------- ------------------------- Date: 10-21-97 Date: 10-17-97 -------------------------- -------------------------- 1620 26th Street, Suite 290-S 16815 Von Karman Avenue Santa Monica, CA 90404 Irvine, CA 92606 [LETTERHEAD OF BRENTWOOD CREDIT CORPORATION] INTERPLAY PRODUCTIONS, INC. SCHEDULE 07 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 1 OF 2 QTY EQUIPMENT DESCRIPTION - --- --------------------- CSI Digital - Invoice #709632 ----------------------------- 1 Avid Technologies, Inc. (LA), AVI-00200040701, MC1000 System Software Avid Media Composer 1000 Image Resolutions/Frame Rates . 720x486 images at 30 fps (NTSC) or 720x576 images at 25 fps (PAL) . AVR 12 two-field offline images; AVR 70, 71, and 75 two-field online images; AVR 77 two-field online images optional . AVR 3s single field offline images; AVR 8s and 9s single-field online images optional 1 Avid Technologies, Inc. (LA), AVI-001000008601, Country Kit MC 110V Avid 1 Avid Technologies, Inc. (LA), AVI-001000057601, Video Betacam PCI Video Kit 1 Avid Technologies, Inc. (LA), AVI-001000058501, Host Adapter PCI Dual SCSI 1 Avid Technologies, Inc. (LA), AVI-001000058901, Audio Kit PCI 4-Chan NTSC 4 Channel Input and Output, 8 Channel Monitoring 1 Avid Technologies, Inc. (LA), AVI-00700041601, Cable Kit 20" HR Bin Monitor 1 Avid Technologies, Inc. (LA), AVI-00700041801, Cable Kit 20" HR Edit Monitor 1 Apple Computer, APP-M6338LLA, PowerMac9600/300/4GB/64MG/CD . Power Macintosh 9600/300 computer with 64MB of RAM, a built-in 1.4MB Apple SuperDrive floppy disk drive, an internal 4GB hard disk drive, an internal 24x-speed CD-ROM drive, and a Plain Talk microphone. Includes keyboard and mouse; Mac OS 7.6.1 or later; Internet access software; complete setup, learning, and reference documentation; and limited warranty. 5 ram, RAM-KTA60464, Kingston 64MB PowerMac 9600 Memory Upgrade > Total System Memory - 384Mb 1 hard drive - external, HDE-10134, Iomega 1Gb External Mac Jaz 1 Apple Computer, APP-M0312, Keyboard Extended Apple 1 Avid Technologies, Inc. (LA), AVI-0010058002, PCI 3D Genie, Multicam Ready Avid's 3D Effects module delivers an extensive range of real-time, customizable 3D digital video effects to Avid's Media Composer 1000 nonlinear online editing systems. It integrates seamlessly into the Media Composer editing environment, and lets you create sophisticated 3D moves directly within the Media Composer application, all in real-time. - Genie, Internal 2 *VIE-PT813, Viewsonic 21" PT813 1 speakers, SPK-MA12CP, Roland Speakers PAIR White Self-powered Speakers 1 Avid Technologies, Inc. (LA), AVI-05400028201, MC1000 Support SoftPack 1 Yr. 1 Avid Technologies, Inc. (LA), AVI-05400030701, Support 7 X 24 Avid Hot-Line . Extended Support 7 X 24 1 CSI-Training, Avid Training . One-Day On Site Avid Training Avid Media Composer 1000 INTERPLAY PRODUCTIONS, INC. SCHEDULE 07 TO MASTER LEASE IPI-1000-100 EQUIPMENT ATTACHMENT PAGE 2 OF 2 QTY EQUIPMENT DESCRIPTION - --- --------------------- 1 CSI-Install, Installation Components Install, Test and Burn-In of Avid Media Composer 1000 Editing System 4 Avid Technologies, Inc. (LA), AVI-00200036701, Drive iS9 MediaDrive External Avid iS9 9Gb MediaDrive / Avid's new Fast & Wide Format 1 Avid Technologies, Inc. (LA), AVI-01000070401, AVR 77 Image Resolution . AVR 77 (two-field 2:1) 1 Adobe Systems, Inc., ADO-15510002, AfterEffects Prod.Bundle/Mac After Effects Production Bundle 1 Adobe Systems, Inc., ADO-13100322, Photoshop V 4.0.1/Mac/Single CSI Digital - Sales Agreement dated 10/10/97 (Tim Stockhaus 126362-1) --------------------------------------------------------------------- 2 * CAB-V43C45 V43C45' 4 * CAB-XLRMBARE45 XLR Male to Bare 45' 4 * CAB-XLRFBARE45 XLR Female to Bare 45' 1 * CAB-BB50 BNC to BNC 50' 1 * CAB-D9MF40 9 Pin Female to 9 Pin Male 40' [LETTERHEAD OF BRENTWOOD CREDIT CORPORATION] Rider No.: 01 To: Schedule No.: 07 To Equipment Lease No.: IPI-1000-100 Lessee: INTERPLAY PRODUCTIONS, INC. PURCHASE OPTION So long as no Event of Default (or an occurrence that would constitute an Event of Default with the giving of notice or the lapse of time or both) shall have occurred and be continuing, the Lessee shall have the option, on at least 90 days' prior written notice to the Lessor, to purchase all (but not less than all) items of equipment then subject hereto on the date of expiration of the Term for a purchase price equal to the Fair Market Value (as defined below) of such item of equipment on such date. If such notice shall be given, the Lessor shall sell and the Lessee shall purchase each item on such date for its Fair Market Value. Upon payment by the Lessee of the purchase price for each item of Equipment, the Lessor shall execute and deliver to or at the direction of the Lessee a bill of sale therefor on an "As-is, Where-Is" basis and without any representation or warranty, except that such item of equipment is free and clear of all claims, liens, security interests and other encumbrances in favor of the Lessor or of any person claiming through or under the Lessor. The Lessee shall pay or cause to be paid all sales and use taxes payable in connection with such sale to it of any such item of equipment and all unpaid property taxes thereto assessed or levied against such item of equipment and attributable to the period prior to such expiration. "Fair Market Value" for purposes of the purchase option is defined as the purchase price would be obtained in an arms-length transaction as of the end of the Extended Term between informed and willing buyers under no compulsion to buy or sell. In the event Lessor and Lessee cannot agree upon the purchase price, such amount shall be determined by an independent appraiser selected by Lessor and satisfactory to Lessee. The cost of such appraisal shall be paid equally by Lessor and Lessee. BRENTWOOD CREDIT CORPORATION Date: 10-21-97 By: /s/ MICHAEL J. BUDZINKSI ----------------------------- ------------------------------- Title: CFO ---------------------------- INTERPLAY PRODUCTIONS, INC. Date: 10-17-97 By: /s/ CHUCK CAMPS ----------------------------- ------------------------------- Title: CFO ---------------------------- ACKNOWLEDGMENT OF ASSIGNMENT AT&T Systems Leasing Corporation 2555 Telegraph Road Third Floor Bloomfield Hills, MI 48302 Re: Equipment Schedule No. 07 under Master Lease IPI-1000-100 dated March 28, 1996 (the "Lease") between Brentwood Credit Corporation ("Lessor") and Interplay Productions, Inc. ("Lessee"). Gentlemen: Lessee understands and expressly acknowledges that Lessor has or will shortly assign the Lease and the Equipment leased thereon including, but not limited to, all monthly rental payments commencing with the rental payments due on December 1, 1997, each in the amount of $3,590.00 to AT&T Systems Leasing Corporation ("Assignee"). Assignee acknowledges to Lessee that: 1. The assignment does not modify or expand the rights and obligations of Lessee and Lessor under the Lease; and 2. So long as Lessee is not in default under the Lease, Assignee will not violate Lessee's right of quiet possession and use of the Equipment. Lessee agrees that pursuant to the assignment of the Lease it will: 1. Remit all rental payments commencing with the payment due on December 1, 1997 to: AT&T Systems Leasing Corporation GPO Drawer 67-865 Detroit, MI 48267 The remittances will identify the source and application of funds, and rental payments shall be made without abatement, reduction, counterclaim or offset; 2. Lessee will send directly to Assignee at the address above copies of all material notices pursuant to the Lease; 3. Make no change or modification to the Lease without Assignee's consent; and 4. Lessee will not sublease or relocate the Equipment without prior notice to Lessor and Assignee and will not assign the Lease without notice to and approval of Assignee, all in compliance with the terms of the Lease. LESSEE ACKNOWLEDGMENT TO ASSIGNEE THAT: 1. As of the date hereof, the Lease is in full force and effect, and Lessee is not in default thereunder; 2. As of the date that the first rental payment is due to Assignee, twenty-three (23) monthly payments in the amount referenced above remain payable by Lessee; 3. The Equipment under the Lease has been delivered and accepted at the following location: Interplay Productions, Inc. ---------------------------------- 16815 Von Karman Avenue ---------------------------------- Irvine, CA 92606 ---------------------------------- 4. Lessee has entered into no other Agreements with respect to the Equipment other than the Lease. This Acknowledgment of Assignment is effective this 5th day of November, --- -------- 1997. - INTERPLAY PRODUCTIONS, INC. BRENTWOOD CREDIT CORPORATION (Lessee) (Lessor) By: /s/ CHUCK CAMPS By: /s/ MICHAEL J. BUDZINSKI --------------------------- --------------------------- Title: CFO Title: CFO ------------------------ ------------------------ Date: 10-17-97 Date: 10-21-97 ------------------------- ------------------------- AT&T SYSTEMS LEASING CORPORATION (Assignee) By: /s/ ANNE G. VACH --------------------------- Title: Finance Negotiator ------------------------ Date: 11-5-97 ------------------------- EX-10.22 20 MASTER EQUIPMENT LEASE AGREEMENT - G.E. CAPITAL 12/14/94 EXHIBIT 10.22 MASTER EQUIPMENT LEASE ---------------------- This Master Equipment Lease Agreement ("Agreement") is entered into as of the 14th day of December, 1994, by and between General Electric Capital Computer Leasing Corporation ("Lessor") and Interplay Productions, Inc. ("Lessee"). Article 1. Leasing, Term and Rent 1.1 This Agreement states the general terms and conditions upon which Lessor from time to time will acquire and lease certain equipment, additions or upgrade ("Equipment") to Lessee. At the time Lessor and Lessee mutually agree to lease particular Equipment, each item of Equipment ("Item") shall be described on an Equipment schedule ("Schedule") in the form of Exhibit A, which Schedule shall incorporate this Agreement by reference. Each Schedule shall constitute a separate lease ("Lease"). If specific provisions of a Schedule are inconsistant with this Agreement, the Schedule shall control. 1.2 A Lease shall commence with respect to an Item on the date ("Lease Commencement Date") which (a) for Equipment installed by the vendor, supplier or manufacturer (any such vendor, supplier or manufacturer being herein called a "Vendor"), is the date the Equipment is accepted by Lessee, and (b) for all other Equipment (e.g., not requiring installation, or used), is five days after the Equipment is delivered to Lessee. Lessee shall notify Lessor of the Lease Commencement Date by promptly delivering to Lessor a Certificate of Acceptance in the form of Exhibit B. If the Lease Commencement Date is the first day of a month, the "Term Commencement Date" shall be the same date. If not, the Term Commencement Date shall be the first day of the month immediately following the Lease Commencement Date. 1.3 Prior to any Lease Commencement Date, Lessee agrees to provide to Lessor an executed Schedule and the documents identified on the Schedule. If Lessee shall fail timely and properly to deliver such documents to Lessor, Lessor shall have no obligations to lease the Equipment in respect of which such documents are requested. Lessor's obligation to lease Equipment to Lessee is further subject to (a) no "Default" (as defined in Section 6.1), or event which with the giving of notice, passage of time or both, would constitute a Default, occurring and continuing under this Agreement or any Lease, and (b) the Lease Commencement Date being prior to the "Cut-off Date" (as set forth in the applicable Schedule). In the event the conditions precedent stated in this Section 1.3 are not satisfied, and Lessor has delivered its purchase order for the Equipment to Vendor or entered into a purchase order assignment with Lessee, then Lessor shall be entitled to (x) assign (or re-assign, as applicable) the purchase order for the Equipment to Lessee without recourse or warranty, (y) collect from Lessee all sums theretofore paid by Lessor to Vendor, and (z) collect from Lessee any out-of-pocket expenses incurred in connection with the Equipment or purchase order. 1.4 The "Term" of the Lease shall consist of the "Interim Period" (the period of time from and including the Lease Commencement Date to the Term Commencement Date), if any, plus the number of full months specified in the Schedule as the "Initial Term." Thereafter, if no Default, or event which with the giving of notice, passage of time or both, would constitute a Default, has occurred an is continuing under a Lease, the Term shall be automatically extended for successive one-month "Renewal Terms" unless the Lease is terminated by either party by giving notice of termination to the other party. Such termination shall be effective on a date not earlier than ninety days after said notice, and in no event prior to expiration of the Term. The last day of the Term (i.e, Initial Term or Renewal Term, as applicable) shall be the "Termination Date". 1.5 Lessee shall pay to Lessor as rent ("Rent") for the Equipment, "Interim Rent" equal to one-thirtieth of the "Basic Rent" specified in the Schedule for each day of the Interim Period, plus the Basic Rent for each full month of the Term. All Rent payments shall be due for such periods and at such times as indicated on the applicable Schedule. Lessee shall pay to Lessor the fair market rental value of the -1- Equipment or one-twentieth of the Basic Rent, whichever is higher, for each day beginning with the day after the Termination Date up to and including the date the Equipment is returned to Lessor in accordance with Section 2.8. Article II. Use of Equipment by Lessee 2.1 Lessee shall be responsible for the preparation of a suitable site for the Equipment on or before its scheduled delivery date and for the installation of the Equipment. Equipment which requires installation shall be installed by the Equipment manufacturer or its designated representative. All installation charges shall be borne by the Lessee. 2.2 Lease shall at its expense comply with and conform to all federal, state and local laws, ordinances, rules and regulations relating to the possession, use, maintenance or modification of the Equipment. Lessee shall not take any action which would impair or violate Vendor's patent rights or copyrights in and to the Equipment, or any software license for the Equipment. On reasonable prior notice to Lessee, Lessor and Lessor's agents shall have the right, during Lessee's business hours, to enter the premises where the Equipment is located for the purpose of inspecting the Equipment and observing its use. 2.3 Lessee shall at its expense affix and maintain in a prominent position on each Item any plates, tags or identifying labels provided by Lessor to indicate its ownership of the Equipment. 2.4 Lessee may at its expense relocate the Equipment with the prior written consent of Lessor, which consent shall not be unreasonably withheld. In no event shall Lessee relocate the Equipment outside the continental United States. 2.5 Lessor hereby assigns to Lessee for the Term all warranties made with regard to the Equipment by Vendor. With respect to warranties which are not assignable, Lessor agrees to take such reasonable actions at Lessee's request and expense as are necessary to enforce such warranties for Lessee's benefit. 2.6 It is the intention of Lessor and Lessee that the Equipment shall at all times be and remain personal property and shall not become a fixture upon or a part of any real property where the Equipment is located, Lessee shall not affix the Equipment to the real property. Lessee shall obtain and provide to Lessor, upon request, waivers from each real property landlord, mortgagee or lienholder for the site at which the Equipment is located, waiving any interest that it may have in the Equipment arising from its interest in the real property. 2.7 Lessee shall at its expense and all times during the Term operate and maintain the Equipment in good operating order, repair, conditions and appearances, normal wear and tear excepted, and in accordances with Vendor's specifications and recommendations. Lessee covenants that it will, at its expense, enter into, maintain and enforce for the Term a maintenance agreement with a maintenance organization acceptable to Lessor, covering at lease prime shift maintenance of the Equipment. 2.8 On or before the Termination Date, Lessee shall pack the Equipment in accordance with Vendor's guidelines and in Vendor's standard packaging materials, load the Equipment on board such carrier as Lessor shall specify, and deliver the same to Lessor at any destination within the continental United States designated by Lessor. Any dismantling, packaging, transportation charges and transportation insurance costs shall be borne by Lessee. The Equipment returned to Lessor shall, at the time it is removed from Lessee's premises, be in the same condition and working order as when delivered to Lessee, reasonable wear and tear excepted, and certified for manufacturer's maintenance by its manufacturer. -2- Article III. Upgrades 3.1 Lessee may from time to time install alterations, additions and upgrades to the Equipment (collectively "Upgrades") if they are readily removable, will not impair the originally intended function or purpose of the Equipment, are owned by Lessee or leased from Lessor, and do not subject the Equipment to any lien or security interest in favor of any other party. Upgrades which are owned by Lessee shall, upon Lessor's request, be removed from the Equipment prior to return of the Equipment pursuant to Section 2.8. Lessee at its own expense shall repair any damage caused by such removal and return the Equipment to its original state, normal wear and tear accepted. Any Upgrade which is not removed prior to return of the Equipment to Lessor shall become the property of Lessor upon return of the Equipment, and Lessee shall have no further right, title or interest in the Upgrade or in the proceeds thereof. 3.2 Lessee shall not, without the prior written consent of Lessor, affix or install any Upgrade on the Equipment if it is not readily removable. If Lessor consents to a non-removable Upgrade, it shall be affixed or installed in accordance with applicable law, shall become the property of Lessor upon affixation or installation, and shall be considered an Item. Article IV. Risk of Loss 4.1 From the date Equipment is delivered to Lessee until it is returned to Lessor, Lessee shall bear all risk of loss, damage, theft, destruction, wearing out and condemnation to or of the Equipment from any and every cause whatsoever. 4.2 Lessee shall at its expense maintain all-risk, public liability, theft and property damage insurance on the Equipment in amounts as stated in the Schedule. Additionally, if Lessee shall relocate the Equipment in accordance with Section 2.4, Lessee shall maintain in-transit insurance on the Equipment. All policies for such insurance shall include Lessor as an additional insured, as its interest may appear, and shall name Lessor as loss payee. All insurance shall be primary and shall not be subject to any co-insurance clause. All policies of insurance required hereunder shall be issued by insurance companies acceptable to Lessor and shall provide that they may not be cancelled or materially altered without at least thirty days' prior written notice to Lessor. Not later than the Lease Commencement Date, Lessee shall furnish Lessor with certificates and, if requested, copies of all insurance policies required to be carried by Lessee with respect to the Equipment. 4.3 In the event any Item is lost, destroyed stolen or damaged beyond repair ("Casualty"), Lessee shall be liable to Lessor and shall pay Lessor an amount ("Casualty Value") equal to all Rent and other amounts then due and owing with respect to such Item plus the greater of (a) the fair market value of the Item immediately preceding the Casualty thereto, or (b) the Stipulated Loss Value determined in accordance with Annex A to the applicable Schedule. Lessee shall pay Lessor such Casualty Value within thirty days of the date of the Casualty. Upon receipt by Lessor of the Casualty Value for any Item, the Lease shall terminate with respect to such Item. The fair market value of an Item shall be the price at which a buyer under no compulsion to buy would purchase such Item at retail from a seller under no compulsion to sell. Upon termination of the Lease with respect to an Item, Lessee shall dispose of Item salvage in accordance with Lessor's instructions. In the event of a partial destruction of or repairable damage to any Item, the Lease shall continue with respect to such Item and Lessee shall at its expense promptly cause such Item to be repaired to a condition acceptable to Lessor. There shall be no abatement of Rent hereunder in such event. Lessee will notify Lessor of any Casualty or partial destruction to the Equipment within three business days of the date of its occurrence. -3- Article V. Assignment or Sublease 5.1 Lease shall not assign, sublease, hypothecate, mortgage, pledge or encumber, in whole or in part, its rights under this Agreement or any Lease, or its rights to the Equipment or any Item, without the prior written consent of Lessor, which consent shall not be unreasonably withheld. Any action in contradiction hereto shall be null and void and without force or effect. Lessee may assign or sublease this Agreement or any Lease to an affiliate of Lessee, provided that such assignment or sublease shall not relieve Lessee of its obligations under this Agreement or such Lease. Lessor shall have the option to substitute itself for the assignee or sublessee under the terms of any proposed assignment or sublease. 5.2 Lessor may without notice to Lessee assign, sublease, hypothecate, mortgage, pledge or encumber, in whole or in part, its right, title and interest in and to this Agreement, any Lessee or, subject to Lessee's rights hereunder, any Item. In the event of any such action by Lessor; (a) upon notification by Lessor and request by an assignee, Lessee will execute such documents as Lessor or its assignee may reasonably request confirming Lessee's obligations hereunder and will make all payments of Rent and other amounts due hereunder directly to such assignee; (b) Lessee's obligations hereunder shall not be subject to any reduction, abatement, defense, set-off, counterclaim or recoupment for any reason whatsoever; (c) Lessee will not, after obtaining knowledge of any such assignment, consent to any modification of the Agreement or any assigned Lease without the consent of such assignee; and (d) Lessor's assignee shall be entitled to such right, title and interest in the Agreement, Lease or Equipment as is set forth in Lessor's notification of assignment to Lessee. Article VI. Default and Remedies 6.1 With respect to each Lease, the occurrence of any of the following events shall constitute a Default hereunder; (a) a failure by Lessee to pay when due any Rent or other charge required to be paid by Lessee hereunder, and the continuance of such failure for seven days after notice from Lessor; (b) a failure by Lessee to maintain insurance on the Equipment as required by Section 4.2; (c) a failure by Lessee to perform or observe any other term or condition of a Lease, which failure is not cured within thirty days after notice from Lessor; (d) the breach by Lessee of any term or condition of any software license for the Equipment or used in conjunction with the Equipment, provided that such breach has a material adverse impact on the value or usefulness of the Equipment; (e) Lessee cases doing business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts as they become due, files a petition seeking relief for itself under the federal Bankruptcy Code or any similar federal or state statute, law or regulation, or files an answer admitting the material allegation of such a petition, or consents to or acquiesces in the appointment of a trustee, receiver or liquidator for the Equipment of for Lessee or all or any substantial part of its assets or properties; (f) the filing of proceedings against Lessee under the federal Bankruptcy Code or any similar federal or state statute, law or regulation, which have not been dismissed within sixty days of filing, or the appointment without Lessee's consent or acquiescence of any trustee, receiver or liquidator for Lessee or any substantial part of Lessee's assets or properties, which appointment has not been vacated within sixty days of appointment; (g) the sale, transfer or disposal by Lessee of all or substantially all of its assets or property, or the merger or consolidation of Lessee with any other entity, unless Lessee in the surviving entity and has a net worth greater than or equal to its net worth immediately prior to the merger or consolidation; or (h) any representation or warranty of Lessee proves untrue. 6.2 Upon the occurrence of a Default, Lessor by written notice to Lessee may declare the subject Lease in default, and unless otherwise agreed to by Lessor, such Default shall apply to any Leases executed hereunder specifically designated in such notice. Alternatively, Lessor may, without waiving the Default, make a payment or perform or comply with the provisions of the Lease, the nonpayment, nonperformance or noncompliance of which caused the Default, and in addition to any other obligations hereunder, Lessee shall pay Lessor upon demand the amount of such payment and/or shall reimburse -4- Lessor for the expenses actually incurred in connection with such payment, performance or compliance, as the case may be. 6.3 Upon Default, Lessor shall have the right, in its sole discretion, to exercise any one or more of the following remedies in order to protect its interests, reasonably expected profits and economic benefits. Lessor may (a) declare any Lease entered into pursuant to this Agreement in default, (b) terminate in whole or in part any Lease, (c) recover from Lessee any and all amounts then due and to become due, discounted to present value at the rate of U.S. Treasury bills with a three-month maturity, (d) take possession of any or all Items, wherever located, without demand or notice, and without any court order or other process of law, and (e) demand that Lessee return any or all Items in accordance with Section 2.8 and, for each day that Lessee shall fail to return any Item, Lessor may demand an amount equal to the Rent, prorated on the basis of a thirty-day month, in effect immediately prior to such Default. Upon repossession or return of such Item(s), Lessor may sell, lease or otherwise dispose of such Items in a commercially reasonable manner, with or without notice and on public or private bid, and apply the net proceeds thereof toward the amounts due under the Lessee, but only after deducting (x) all expenses, including attorney's fees, incurred in connection therewith, and (y) in the case of any sale, the estimated fair market value at retail of such Items as of the scheduled expiration of the Lease, or (z) in the case of any replacement lease, the rent due for any period beyond the scheduled expiration of the Lease for such Items. Any excess proceeds are to be retained by Lessor. 6.4 The foregoing remedies are cumulative and may be exercised in lieu of or in addition to each other or any remedies at law, in equity or under statute. Lessee waives demand of performance and notice of or place of sale or other disposition and the manner and place of any advertising. No delay or failure to exercise any right, power or remedy by Lessor shall impair any such right, power or remedy of Lessor, nor shall it be construed to be a waiver of or acquiescence in any later breach or Default. Article VII. Net Lease Provisions 7.1 Lessor warrants that Lessor will not interfere, nor cause anyone acting by or through Lessor to interfere, with Lessee's quiet enjoyment of the use of the Equipment, so long as no Default shall have occurred and be continuing. Except for Lessor's warranty of quiet enjoyment, Lessor makes no warranty, express or implied, as to any matter whatsoever, including but not limited to the Equipment design, workmanship or materials, or the implied warranties of merchantability or fitness for a particular purpose. Lessee acknowledges that Vendor and Lessor are separate entities, each of which has entered into this transaction for independent business reasons, and that neither Lessor nor Vendor has acted, acts, or shall be deemed to have acted or act, as an agent of the other. Lessor shall have no responsibility or liability to Lessee for (a) loss or damage cause directly or indirectly by any Item, or (b) the delivery, use, operation, servicing, maintenance, repair, replacement or performance of any Item. 7.2 Each Lease is a net lease and Lessee's obligations to pay Rent and other amounts due shall be absolute and unconditional. This obligation of Lessee shall not be affected by or subject to any abatement, reduction, set-off, defense, counterclaim, interruption, deferment or recoupment of any kind whatsoever, including without limitation Lessor's actual or alleged gross negligence or willful misconduct, frustration of contract, or the loss of possession or destruction of all or any part of the Equipment. It is the intent of the parties that Rent and other amounts due shall continue to be payable in all events in the manner and at the times set forth in the Lease. Nothing contained herein shall impair Lessee's right to maintain an independent action at law or in equity. 7.3 As additional Rent, Lessee shall pay and discharge before they become delinquent, or shall reimburse Lessor in accordance with this Section for, all license fees, assessments and sales, use, property, excise and other taxes, however designated (each such fee, assessment or tax an "Imposition") now or hereafter imposed or assessed by any foreign, federal, state or local government upon the ownership, delivery, installation, leasing, renting, use or sale of the Equipment, or the Rent or other -5- charges payable hereunder, whether assessed on Lessor or Lessee, together with any penalties or interest in connection therewith attributable to Lessee's acts or failure to act. Notwithstanding the foregoing, Lessee shall have no liability for any Imposition on or measured by the net income of Lessor. For Impositions for which Lessor is responsible under applicable law, lessor shall file all declarations, forms and returns and shall pay the taxing authority directly. Lessor shall invoice Lessee for such Impositions and Lessee shall pay Lessor as additional Rent amounts owed for such Impositions within thirty days of receipt of such invoice. For all Impositions other than those described in he proceeding sentence, Lessee shall file all declarations, forms and returns and do all things necessary and appropriate in connection with the levy, assessment, billing or payment of same, including whatever action may be required to have the Imposition billed directly to Lessee or to the Lessor in the care of Lessee. In all declarations, forms or returns Lessee shall show Lessor as owner of the Equipment and shall send copies of name to Lessor with evidence of payment. 7.4 Lessee shall indemnify, defend and hold harmless Lessor, its agents and assignees, from and against any and all claims, actions, suits, proceedings, costs, expenses (including court costs and attorneys' fees), damages, obligations, penalties, injuries and liabilities (whether or not discovered or arising before or after Lease termination), including Lessor's strict liability in ???? ("Claims"), arising out of, connected with or resulting from the selection, manufacture, purchase, acceptance or rejection of Equipment, the ownership of Equipment during the term of this Agreement or any Lease, and the delivery, lease, possession, maintenance, use, condition, return, or operation of Equipment or Upgrades thereto (including, without limitation, latent and other defects, whether or not discoverable by Lessor or Lessee, and any claim for patent, trademark or copyright infringement), excepting only Claims that arise solely out of the gross negligence or willful misconduct of Lessor. Lessee shall at its expense defend any and all actions based on or arising out of the foregoing. Lessee shall notify Lessor immediately upon receipt of notice or knowledge of any event which may give rise to a Claim, and shall not, without the consent of Lessor, settle any Claim without obtaining a full release of any and all possible claims against Lessor. 7.5 Lessee shall have no right, title or interest in or to the Equipment except as lessee and as expressly set forth in the Lease. Throughout the term of each Lease, Lessee shall, upon Lessor's request, execute and deliver to Lessor for filing such Uniform Commercial Code financing statements or other similar or substitute documents as Lessor in its discretion deems necessary and/or appropriate to protect its right, title and interest in and to the Equipment. Lessee shall at its expense protect and defend the title and rights of Lessor to or in the Equipment from and against all claims, liens, charges, encumbrances and legal processes, whether imposed, asserted or instituted by creditors of Lessee or otherwise, and shall at its expense promptly take all action necessary to discharge the same. 7.6 Lessee hereby represents, warrants and covenants that (a) Lessor as owner of the Equipment shall be entitled to all items of deduction specified in the applicable Schedule ("Tax Benefits"), and (b) at no time will Lessee take or omit to take, or permit any sublessee or assignee to take or omit to take, any action (whether or not permitted hereby) which would result in the disqualification of the Equipment for, or recapture of, all or any portion of the Tax Benefits. If as a result of a breach of any representation, warranty or covenant of Lessee relating to any Item (x) Lessor shall determine that Lessor is not entitled to claim on its Federal income tax return all or any portion of the Tax Benefits with respect to any Item, or (y) any Tax Benefit claimed on the Federal income tax return of Lessor is disallowed or adjusted by the Internal Revenue Service, or (z) any Tax Benefit is recomputed or recaptured (any such determinations, disallowance, adjustment, recomputation or recapture being herin called a "Loss"), then Lessee shall pay to Lessor as additional Rent such amounts, or from time to time such amounts, on the next succeeding Rent payment date but in no event more than thirty days after written notice to Lessee of such Loss, as shall in the reasonable opinion of Lessor, cause Lessor's net after-tax rate of return in respect of each Item as to which a Loss has occurred to equal the net after-tax rate of return that would have been in affect had Lessor been entitled to its anticipated utilization of all of the Tax Benefits. -6- 7.7 Lessee agrees to take such further action and to execute such additional documents, instruments and financing statements as Lessor shall reasonably request in order to complete the transactions contemplated by this Agreement or by any assignment by Lessor or to protect Lessor's interest in the Equipment. 7.8 The rights and obligations set forth in this Article shall survive the termination or expiration of this Agreement or any Lease. Article VIII. Miscellaneous 8.1 Any notice shall be effective upon personal delivery or mailing by certified mail, return receipt requested. Notices shall be delivered or sent to the addresses stated below, or at such other address as a party may provide by notice. 8.2 Lessee shall within ninety days of the close of each fiscal year of Lessee deliver to Lessor Financial Statements certified to by a recognized firm of certified public accountants. Upon request, Lessee will deliver to Lessor quarterly, within ninety days of the close of each fiscal quarter of Lessee, in reasonable detail, quarterly Financial Statements certified to by the chief financial officer of Lessee. 8.3 This Agreement shall be interpreted in accordance with the substantive law, but not the choice of law rules, of the State of California. 8.4 This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, both written and oral, with respect to the subject matter hereof. Lessor's failure at any time to require strict performance by Lessee of any of the provisions hereof shall not waive or diminish Lessor's right thereafter to demand strict compliance therewith. If any provision of this Agreement shall be deemed unenforceable under applicable law, it shall be deemed stricken, but the remainder of this Agreement shall remain in full force and effect and shall be construed to give effect to the intent of the parties. In any litigation arising out of a Lease, the prevailing party shall be entitled to recover its costs and reasonable attorneys' fees, whether or not the action is prosecuted to judgment. The parties waive all right to trial by jury in any litigation. Neither party shall be liable to the other party for any consequential damages arising under or in any way connected with this Agreement. Time is of the essence in this Agreement. 8.5 This Agreement may not be altered or varied nor its provisions waived except in writing duly executed by Lessor and Lessee. 8.6 Any payments of Rent or other amounts payable by Lessee hereunder that become past due shall bear interest compounded monthly from the due date until the date received by Lessor at the rate of eighteen percent per annum or the maximum rate allowed by applicable law, whichever is lower. 8.7 This Agreement may be executed by the parties in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. To the extent a Lease constitutes chattel paper (as such term is defined in the Uniform Commercial Code or portions thereof adopted by the applicable jurisdiction), no security interest may be created or conveyed through the transfer or posession of any document other than the original Schedule to such Lease. 8.8 This Agreement may be terminated by either party upon thirty days' notice, provided that each Lease then in effect shall survive any termination of this Agreement. -7- In witness whereof, the parties have caused this Agreement to be executed by their duly authorized representatives as of the date first above-written. LESSEE: LESSOR: INTERPLAY PRODUCTIONS, INC. GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION By: /s/ Chuck Camps By: /s/ David J. Lidstone ----------------------------------- ----------------------------------- Name: CHUCK CAMPS Names: David J. Lidstone ---------------------------------- -------------------------------- Title: CFO Title: VP and General Counsel --------------------------------- -------------------------------- Address: 17922 Fitch Avenue Address: 2000 Powell Street, Suite 200 Irvine, CA 92714 Emeryville, CA 94608 Attn: Chuck Camps Attn: VP-Operations -8- EQUIPMENT SCHEDULE 1 GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION ("Lessor") and INTERPLAY PRODUCTIONS, INC. ("Lessee") are parties to a Master Equipment Lease Agreement dated as of December 14, 1994 (the "Agreement"). This Schedule and the Agreement together comprise a separate Lease between the parties. The terms and conditions of the Agreement are hereby incorporated by reference into this Schedule. All initially-capitalized terms not defined in this Schedule shall have the meanings ascribed to them in the Agreement. EQUIPMENT GROUP A: HARDWARE - ------------------- Type/Model of Manufacturer New Equipment Qty Unit Cost Extended Cost ------------ ------------- --- --------- ------------- SGI Indigo 2 Extreme workstation 2 $38,043.00 $76,086.00 GROUP B: SOFTWARE - ------------------- Manufacturer License No Type/Version of Software Qty Unit Cost Extended Cost - ------------ ---------- ------------------------ --- --------- ------------- Alias Power Animator Software 2 $26,214.00 $52,428.0O DOCUMENTS Lessee shall provide the following prior to the Lease Commencement Date: 1. Executed Master Equipment Lease Agreement 2. Executed Equipment Schedule 1 3. Executed UCC-1 Financing Statement(s) 4. Insurance Documentation 5. Purchase Order Assignment & Consent 6. Executed Certificate of Incumbency WARRANTIES AND REPRESENTATIONS Lessee hereby represents, warrants and covenants to Lessor that: 1. Lessee is a corporation validly existing and in good standing under the laws of the state of its incorporation, with adequate power and capacity to enter into this Lease, documents relative to the purchase of the Equipment and any other documents required to be delivered in connection with this Lease (the Lease, purchase documents and other documents collectively referred to as the "Documents"), and is qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Equipment is to be located. Lessee is not a public utility holding company or a not-for-profit corporation. 1 2. The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal, and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws. 3. No approval, consent or withholding of objections is required from any federal, state or local government authority or instrumentality with respect to the entry into or performance by Lessee of the Documents. 4. The entry into and performance by Lessee of the Documents will not (a) violate any judgment, order, law or regulation applicable to Lessee, or any provision of Lessee's Certificate of Incorporation or Bylaws, or (b) result in any breach of, constitute a default under, or result in the creation of, any lien, charge, security interest or other encumbrance upon any Equipment. 5. There are no suits or proceedings pending or threatened in court or before any regulatory commission, board or other administrative governmental agency against or affecting Lessee which will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Lease. 6. The Financial Statements delivered to Lessor have been prepared in accordance with generally accepted accounting principles consistently applied and fairly present the financial position of Lessee on and as of the date thereof and the results of its operations for the period or periods covered thereby. Since the date of such Financial Statements there has been no material adverse change that would affect the accuracy of such Financial Statements. MISCELLANEOUS The following terms are specifically applicable to this Schedule: 1. The Lease Commencement Date shall be December 31, 1994, therefore the Cut-off Date shall not apply 2. The Initial Term is 36 months. 3. The Basis Rent is $3,680.00 per month, payable in advance. 4. Commencing on the Lease Commencement Date and on the same date of each month thereafter during the Initial Term and any Renewal Term, Lessee shall pay the Basis Rent in immediately-available U.S. funds. 5. The Equipment is to be located at 17922 Fiche Avenue, Arvin, CA.92714. 6. The Lessee shall carry public liability insurance in the amount of $2,000,000 total liability per occurrence and casualty and property damage insurance in an amount equal to the greater of the Casualty Value or full replacement cost of the Equipment. 2 7. The Stipulated Loss Values shall be as determined by the attached Annex A. 8. In the Equipment description, Item(s) listed in Group B are software (the "Software"). Lessor makes no representation or warranty relating to the Software, including without limitation any warranty of title, infringement, quiet enjoyment, description or fitness for use with respect thereto, it being understood that Lessor does not lease or license the Software to Lessee. Lessor shall pay Alias Corporation, the licensor of the Software, $52,428.00 as the fee to acquire for Lessee the right to use the Software. Lessee's obligation under Section 7.2 of the Agreement to pay Rent shall not be affected by any inadequacy of the Software, by the failure of the licensor to support the Software, by the bankruptcy of the licensor of the Software, or the like. In the event of a Casualty of the Equipment in Group A, then the fee for the software license shall be added to and included in the determination of the Casualty Value. Upon the occurrence of a Default, then in addition to the remedies specified in 6.3 of the Default and Remedies, Lessor shall be entitled to direct Lessee to cease further use of the Software. Lessee hereby agrees to immediately cease use of the Software upon receipt of such a direction from Lessor. Lessee further agrees that the detriment which Lessor will suffer as a result of a breach by Lessee of the obligation contained in the foregoing sentence cannot be adequately compensated by monetary damages, and therefore Lessor shall be entitled to injunctive and other equitable relief to enforce this Section 8. 9. End of Lease Options: So long as there is no Default, or event which --------------------- with the giving of notice or passage of time or both, would constitute a Default, occurring and continuing under this Lease or the Agreement, Lessee must choose one of the following options with (90) days' prior written notice to Lessor: Purchase Option: Purchase all but not less than all of the Equipment ---------------- in Group A at the expiration of the Initial Term at a purchase price equal to $29,790.00. - ----------- Renewal Options: Renew the Lease at the expiration of the Initial --------------- Term for a period of twelve (12) months (the "Renewal Term") at a renewal rent of $1,875.00. At the end of the Renewal Term, if no event of Default has --------- occurred and is continuing, and if no Rent or outstanding amounts are due or owing, Lessee shall have the right, within ninety (90) days' prior written notice to Lessor to purchase all of the Equipment in Group A for a price of $9,765.00. Return Option: Return all, but not less than all of the Equipment in ------------- Group A at the expiration of the Initial Term and pay a fee equal to $14,442.00. ---------- 10. The Tax Benefits are depreciation and interest deductions. As its depreciation method, Lessor shall use a 200% declining balance method, switching to a straight-line method for the first taxable year for which the straight-line method with respect to the adjusted basis as of the beginning of such year yields a larger allowance, and assumes a recovery period of five years. 3 IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be executed by their duly authorized representatives on the dates indicated below. LESSEE: INTERPLAY LESSOR: GENERAL ELECTRIC PRODUCTIONS, INC. CAPITAL COMPUTER LEASING CORPORATION By: /s/ Chuck Camps By: /s/ Mike McFadden ------------------------------- ------------------------------- Name: CHUCK CAMPS NAME: MIKE MCFADDEN ----------------------------- ----------------------------- Title: CFO Title: Regional Operations Manager ---------------------------- ---------------------------- Date: 12-27-94 Date: 12/30/97 ---------------------------- ------------------------------ 4 ANNEX A TO EQUIPMENT SCHEDULE 1 TO MASTER EQUIPMENT LEASE AGREEMENT DATED AS OF DECEMBER 14, 1994 BETWEEN INTERPLAY PRODUCTIONS, INC., AS LESSEE AND GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION, AS LESSOR Table of Stipulated Loss Values ------------------------------- The Rent payments numbered below commence with the Term Commencement Date and coincide with the Rent payment dates through the end of the Initial Term. This table extends beyond the Initial Term in a similar manner to provide for renewals and extensions beyond the Initial Term. Stipulated Loss Values are determined by multiplying the percentage stated opposite the Rent payment corresponding to the Rent payment date next following a Casualty or other event requiring payment of the Casualty Value by the Unit Cost as stated in the applicable Schedule.
Rent Rent Payment Percent Payment Percent ------- ------- ------- ------- 1 112.05% 19 60.51% 2 109.19% 20 57.65% 3 106.32% 21 54.79% 4 103.46% 22 51.92% 5 100.60% 23 49.06% 6 97.73% 24 46.20% 7 94.87% 25 43.33% 8 92.01% 26 40.47% 9 89.14% 27 37.61% 10 86.28% 28 34.75% 11 83.42% 29 31.88% 12 80.56% 30 29.02% 13 77.69% 31 26.16% 14 74.83% 32 23.29% 15 71.97% 33 20.43% 16 69.10% 34 17.57% 17 66.24% 35 14.70% 18 63.38% 36 11.84%
5 EQUIPMENT SCHEDULE 2 GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION ("lessor") and INTERPLAY PRODUCTIONS, INC. ("Lessee") are parties to a Master Equipment Lease Agreement dated as of December 14, 1994 (the "Agreement"). This Schedule and the Agreement together comprise a separate Lease between the parties. The terms and conditions of the Agreement are hereby incorporated by reference into this Schedule. All initially-capitalized terms not defined in this Schedule shall have the meanings ascribed to them in the Agreement. EQUIPMENT GROUP A: HARDWARE - -----------------
Serial Type/Model of ------ ------------- Manufacturer Number New Equipment Qty Unit Cost Extended Cost ------------ ------ ------------- --- --------- ------------- SGI TBD Indy Workstation 1 $ 13,243.00 $13,243.00 ---------- Sub Total $13,243.00
GROUP B: SOFTWARE - -----------------
Manufacturer Type/Version of software Qty Unit Cost Extended - ------------ ------------------------ --- --------- -------- Cost ---- Alias Power Animator Software 1 $ 15,000.00 $15,000.00 ---------- Sub Total $15,000.00
GROUP C: SERVICES - -----------------
Manufacturer Type of Service Qty Unit Cost Extended - ------------ --------------- --- --------- -------- Cost ---- Alias Full extended warranty 1 $1,490.00 $1,490.00 Alias CD-ROM Update Media Option 1 $240.00 $240.00 Alias Support price for software options for 1 $1,200.00 $1,200.00 systems with IDO. Full/Basic/IRIX Alias Software Support 1 $1,600.00 $1,600.00 --------- Sub Total $4,530.00 ---------- GRAND TOTAL $32,773.00
1 DOCUMENTS Lessee shall provide the following prior to the Lease Commencement Date: 1. Executed Master Equipment Lease Agreement 2. Executed Equipment Schedule 2 3. Executed UCC-1 Financing Statement(s) 4. Insurance Documentation WARRANTIES AND REPRESENTATIONS Lessee hereby represents, warrants and covenants to Lessor that: 1. Lessee is a corporation validly existing and in good standing under the laws of the state of its incorporation, with adequate power and capacity to enter into this Lease, documents relative to the purchase of the Equipment and any other documents required to be delivered in connection with this Lease (the Lease, purchase documents and other documents collectively referred to as the "Documents"), and is qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Equipment is to be located. Lessee is not a public utility holding company or a not-for-profit corporation. 2. The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal, and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws. 3. No approval, consent or withholding of objections is required from any federal, state or local government authority or instrumentality with respect to the entry into or performance by Lessee of the Documents. 4. The entry into and performance by Lessee of the Documents will not (a) violate any judgment, order, law or regulation applicable to Lessee, or any provision of Lessee's Certificate of Incorporation or Bylaws, or (b) result in any breach of, constitute a default under, or result in the creation of, any lien, charge, security interest in other encumbrance upon any Equipment. 5. There are no suits or proceedings pending or threatened in court or before any regulatory commission, board or other administrative governmental agency against or affecting Lessee which will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Lease. 6. The Financial Statements delivered to Lessor have been prepared in accordance with generally accepted accounting principles consistently applied and fairly present the financial position of Lessee on and as of the date thereof and the results of its operations for the period or periods covered thereby. Since the date of such Financial Statements there has been no material adverse change that would affect the accuracy of such Financial Statements. 2 MISCELLANEOUS The following terms are specifically applicable to this Schedule: 1. The Lease Commencement Date shall be May 1, 1995, therefore the Cut-off Date shall not apply 2. The Initial Term is 36 months. 3. The Basic Rent is $945.00 per month, payable in advance. 4. Commencing on the Lease Commencement Date and on the same date of each month thereafter during the Initial Term and any Renewal Term, Lessee shall pay the Basic Rent in immediately-available U.S. funds. 5. The Equipment is to be located at 17922 Fitch Avenue, Irvine, CA. 92714. 6. The Lessee shall carry public liability insurance in the amount of $2,000,000 total liability per occurrence and casualty and property damage insurance in an amount equal to the greater of the Casualty Value or full replacement cost of the Equipment. 7. The Stipulated Loss Values shall be as determined by the attached Annex A. 8. Software and Services. In the Equipment description above, some items --------------------- are software (the "Software"). Lessor makes no representation or warranty -------- relating to the Software, including without limitation any warranty of title, infringement, quiet enjoyment, description or fitness for use with respect thereto, it being understood that Lessor does not lease or license the Software to Lessee. On behalf of Lessee, Lessor shall pay Vendor $16,600.00 as the license fee for the Software. Upon the occurrence of a Default, in addition to the remedies specified in Article VI of the Agreement, Lessor shall be entitled to direct Lessee to cease further use of the Software. Lessee hereby agrees to immediately cease use of the Software upon receipt of such a direction from Lessor. Lessee further agrees that the detriment which Lessor will suffer as a result of a breach by Lessee of the obligation contained in the foregoing sentence cannot be adequately compensated by monetary damages, and therefore Lessor shall be entitled to injunctive and other equitable relief to enforce this provision. Additionally, in the Equipment description above, some items are consulting, installation, training and/or custom programming services("Services -------- ") which Vendor will perform for the benefit of Lessee. Lessor shall pay Vendor $2,930.00 for the performance of such Services. Lessee's obligation under Section 7.2 of the Agreement to pay Rent shall not be affected by any inadequacy of the Software or the Services, by the bankruptcy of the licensor of the Software or Vendor, by the failure of licensor of the Software to support the Software, or the like. In the event of a Casualty of the items of Equipment which are hardware, in addition to the payment from Lessee to Lessor of the Stipulated Loss Value of such Equipment, at Lessor's option Lessee shall (a) pay Lessor the present value of all Rent allocable to Software and Services, or (b) continue the Lease and pay the Rent allocable to Software and Services on a monthly basis until the end of the Initial Term 3 9. End of Lease Options: So long as there is no Default, or event which -------------------- with the giving of notice or passage of time or both, would constitute a Default, occurring and continuing this Lease or the Agreement, Lessee must choose one of the following options with (90) days' prior written notice to Lessor: Purchase Option: Purchase all but not less than all of the Equipment --------------- in Group A at the expiration of the Initial Term at a purchase price equal to $7,800.00. - --------- Renewal Options: Renew all but not less than all of the Equipment in --------------- Group A at the expiration of the Initial Term for a period of twelve (12) months (the "Renewal Term") at a renewal rent of $478.00. At the end of the Renewal ------- Term, Lessee must purchase all of the Equipment in Group A for a price of $3,100.00. Return Option: Return all, but not less than all of the Equipment ------------- in Group A at the expiration of the Initial Term and pay a fee equal to $6,000.00. - --------- 10. The Tax Benefits are depreciation and interest deductions. As its depreciation method, Lessor shall use a 200% declining balance method, switching to a straight-line method for the first taxable year for which the straight-line method with respect to the adjusted basis as of the beginning of such year yields a larger allowance, and assumes a recovery period of five years. 11. Lessee hereby assigns to Lessor all of its under any purchase order or agreement (the "Purchase Document") issued or executed by Lessee with respect to the Equipment in Group A. Lessor assumes the obligation to pay the purchase price under such Purchase Document, provided Lessee accepts the Equipment for all purposes under the Lease. Lessee retains all other obligations under the Purchase Document. IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be executed by their duly authorized representatives on the dates indicated below. LESSEE: INTERPLAY LESSOR: GENERAL ELECTRIC CAPITAL PRODUCTIONS, INC. COMPUTER LEASING CORPORATION By: /s/ Chuck Camps By: /s/ Mike McFadden --------------------------------- ------------------------------------ Name: CHUCK CAMPS Name: MIKE MCFADDEN ------------------------------- ---------------------------------- Regional Operations Manager Title: CFO ------------------------- Title --------------------------------- Date: 5-15-95 Date: 6-30-95 ------------------------------- ---------------------------------- 4 ANNEX A TO EQUIPMENT SCHEDULE 2 TO MASTER EQUIPMENT LEASE AGREEMENT DATED AS OF DECEMBER 14, 1994 BETWEEN INTERPLAY PRODUCTIONS, INC., AS LESSEE AND GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION, AS LESSOR Table of Stipulated Loss Values ------------------------------- The Rent payments numbered below commence with the Term Commencement Date and coincide with the Rent payment dates through the end of the Initial Term. This table extends beyond the Initial Term in a similar manner to provide for renewals and extensions beyond the Initial Term. Stipulated Loss Values are determined by multiplying the percentage stated opposite the Rent payment corresponding to the Rent payment date next following a Casualty or other event requiring payment of the Casualty Value by the Unit Cost as stated in the applicable Schedule.
Rent Rent Payment Percent Payment percent ------- ------- ------- ------- 1 112.00% 19 64.69% 2 109.37% 20 62.06% 3 106.74% 21 59.43% 4 104.11% 22 56.80% 5 101.49% 23 54.17% 6 98.86% 24 51.54% 7 96.23% 25 48.91% 8 93.60% 26 46.29% 9 90.97% 27 43.66% 10 88.34% 28 41.03% 11 85.71% 29 38.40% 12 83.09% 30 35.77% 13 80.46% 31 33.14% 14 77.83% 32 30.51% 15 75.20% 33 27.89% 16 72.57% 34 25.26% 17 69.94% 35 22.63% 18 67.31% 36 20.00%
5 EQUIPMENT SCHEDULE 3 GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION ("Lessor") and INTERPLAY PRODUCTIONS, INC. ("Lessee") are parties to a Master Equipment Lease Agreement dated as of December 14, 1994 (the "Agreement"). This Schedule and the Agreement together comprise a separate Lease between the parties. The terms and conditions of the Agreement are hereby incorporated by reference into this Schedule. All initially-capitalized terms not defined in this Schedule shall have the meanings ascribed to them in the Agreement.
EQUIPMENT Group A: Hardware - ----------------- Type/Model of Manufacturer New Equipment Qty Unit Cost Extended Cost ------------ ------------- --- --------- ------------- SGI Challenge DM 1 $89,675.00 $89,675.00 SGI Indigo 2 Upgrades 4 $5,840.00 $23,360.00 Group B: Services - ----------------- Manufacturer Type/Version of Software Qty Unit Cost Extended Cost ------------ ------------------------ --- --------- ------------- SGI Power Animator Software 1 $5,980.00 $5,980.00 GRAND TOTAL --------- $119,015.00
DOCUMENTS Lessee shall provide the following prior to the Lease Commencement Date: 1. Executed Equipment Schedule 3 2. Executed UCC-I Financing Statement(s) 3. Insurance Documentation 4. Purchase Order Assignment & Consent WARRANTIES AND REPRESENTATIONS Lessee hereby represents, warrants and covenants to Lessor that: 1. Lessee is a corporation validly existing and in good standing under the laws of the state of its incorporation, with adequate power and capacity to enter into this Lease, documents relative to the purchase of the Equipment and any other documents required to be delivered in connection with this Lease (the Lease, purchase documents and other documents collectively referred to as the "Documents"), and is qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Equipment is to be located. Lessee is not a public utility holding company or a not-for-profit corporation. 1 2. The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal, and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws. 3. No approval consent or withholding of objections is required from any federal, state or local governmental authority or instrumentality with respect to the entry into or performance by Lessee of the Documents. 4. The entry into and performance by Lessee of the Documents will not (a) violate any judgment, order, law or regulation applicable to Lessee, or any provision of Lessee's Certificate of Incorporation or Bylaws, or (b) result in any breach of, constitute a default under, or result in the creation of, any lien, charge, security interest or other encumbrance upon any Equipment. 5. There are no suits or proceedings pending or threatened in court or before any regulatory commission, board or other administrative governmental agency against or affecting Lessee which will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Lease. 6. The Financial Statements delivered to Lessor have been prepared in accordance with generally accepted accounting principles consistently applied and fairly present the financial position of Lessee on and as of the date thereof and the results of its operations for the period or periods covered thereby. Since the date of such Financial Statements there has been no material adverse change that would affect the accuracy of such Financial Statements. MISCELLANEOUS The following terms are specifically applicable to this Schedule: 1. Notwithstanding anything to the contrary in the Agreement, the Term Commencement Date shall be November 1, 1995. 2. The Initial Term is 36 months. 3. The Basic Rent is $3,450.00 per month, payable in advance. 4. Commencing on the Lease Commencement Date and on the same date of each month thereafter during the Initial Term and any Renewal Term, Lessee shall pay the Basic Rent in immediately-available U.S. funds. In addition, on the Term Commencement Date, Lessee shall pay any accrued Interim Rent. 5. The Equipment is to be located at 17922 Fitch Avenue, Irvine, CA.92714. 6. The Lessee shall carry public liability insurance in the amount of $2,000,000 total liability per occurrence and casualty and property damage insurance in an amount equal to the greater of the Casualty Value or full replacement cost of the Equipment. 2 7. The Stipulated Loss Values shall be as determined by the attached Annex A. 8. In the Equipment description above, some items are consulting, installation, training and/or custom programming services or other services ("Services") which Vendor will perform for the benefit of Lessee. Lessor shall -------- pay Vendor $5,980.00 for the performance of such Services. Lessor makes no representation or warranty relating to the Services, including without limitation any warranty of title, patent, infringement, quiet enjoyment, description or fitness for use with respect thereto, it being understood that Lessor does not perform the Services. Lessee's obligation under Section 7.2 of the Agreement to pay Rent shall not be affected by any inadequacy of the Services, by the bankruptcy of the Vendor, or the like. In the event of a Casualty of the items of Equipment which are hardware, at Lessor's option Lessee shall (a) pay Lessor the present value of all Rent allocable to Services, or (b) continue the Lease any pay the Rent allocable to Services on a monthly basis until the end of the Initial Term. 9. Lessee agrees to accept partial shipments of the Equipment unless Lessor and Vendor have agreed otherwise in writing. Should Vendor install the equipment, Lessee shall deliver a Certificate of Acceptance, a copy of which is attached hereto as Exhibit A and made a part hereof, within five (5) days from the date of installation. Should Lessee install the Equipment, Lessee shall deliver a Certificate of Acceptance to Lessor within ten (10) days from the date of delivery of the Equipment or partial delivery of the Equipment or within five (5) days from the date Vendor installed the Equipment. Should Lessee fail to deliver the Certificate of Acceptance as required above or should Lessee fail to notify Vendor of any problems with the Equipment, the Equipment shall be deemed accepted. If Lessor does not receive a Certificate of Acceptance on or before the date set forth herein Lessor may, at Lessor's sole discretion, assign its obligations under the Purchase Order Agreement to Lessee and Lessee shall assume such obligation. 10. End of Lease Options: So long as there is no Default, or event which -------------------- with the giving of notice or passage of time or both, would constitute a Default, occurring and continuing under this Lease or the Agreement, Lessee must choose one of the following options with (90)days' prior written notice to lessor: Purchase Option: Purchase all but not less than all of the Equipment --------------- in Group A at the expiration of the Initial Term at a purchase price equal to $28,325.00. - ---------- Renewal Options: Renew the Lease at the expiration of the Initial Term --------------- for a period of twelve (12) months (the "Renewal Term") at a renewal rent of $1,740,00. At the end of the Renewal Term, if no event of Default has occurred - --------- and is continuing, and if no Rent or outstanding amounts are due or owing, Lessee shall have the right, within ninety (90) days' prior written notice to Lessor to purchase all of the Equipment in Group A for a price of $11,260.00. 3 Return Option: Return all, but not less than all of the Equipment in ------------- Group A at the expiration of the Initial Term in accordance with the terms of the Agreement and pay a fee equal to $21,800.00. ---------- 11. Lessor has or will enter into a purchase agreement with Vendor (the "Purchase Agreement") a copy of which is attached hereto as Exhibit B and made a part hereof, to purchase the Equipment for lease to Lessee. Lessee represents that the terms and conditions of the Purchase Agreement are acceptable to Lessee, and Lessee understands that certain terms and conditions (e.g., warranty and patent infringement) may effect Lessee's use of the Equipment. In addition, Lessee acknowledges by entering into this Lease that Lessor is hereby authorized to purchase the Equipment on Lessee's behalf under the terms and conditions of the Purchase Agreement. Lessee agrees that it shall be obligated to pay the ten percent (10%) restocking fee set forth in Paragraph 1 under the Terms Section of the Purchase Agreement. Lessee further acknowledges that Lessee shall have no greater rights against Vendor than what exists under the terms and conditions of the Purchase Agreement. Lessee agrees to pay for the transportation costs of the Equipment and authorizes Lessor to instruct Vendor in its Purchase Agreement to invoice Lessee for the cost of such transportation. Lessee agrees to assume the risk of loss, damage or destruction of the Equipment at the time the Equipment is delivered to the freight carrier at Vendor's facility. If the Equipment is lost, stolen, damaged or destroyed in-transit to Lessee's site, Lessee shall assume Lessor's obligation to pay Vendor the purchase price. Lessee shall pay for installation and extended maintenance services by separate agreement with Vendor. IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be executed by their duly authorized representatives on the dates indicated below. LESSEE: INTERPLAY LESSOR: GENERAL ELECTRIC CAPITAL PRODUCTIONS, INC. COMPUTER LEASING CORPORATION By: /s/ Chuck Camps By: /s/ Mike McFadden ----------------------------- -------------------------------- Name: CHUCK CAMPS Name: MIKE McFADDEN --------------------------- ------------------------------ Title: CFO Title: Regional Operations Manager -------------------------- ----------------------------- Date: 10-8-95 Date: 10/13/95 --------------------------- ------------------------------ 4 ANNEX A TO EQUIPMENT SCHEDULE 3 TO MASTER EQUIPMENT LEASE AGREEMENT DATED AS OF DECEMBER 14,1994 BETWEEN INTERPLAY PRODUCTIONS, INC., AS LESSEE AND GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION, AS LESSOR Table of Stipulated Loss Values -------- ---------------------- The Rent payments numbered below commence with the Term Commencement Date and coincide with the Rent payment dates through the end of the Initial Term. This table extends beyond the Initial Term in a similar manner to provide for renewals and extensions beyond the Initial Term. Stipulated Loss Values are determined by multiplying the percentage stated opposite the Rent payment corresponding to the Rent payment date next following a Casualty or other event requiring payment of the Casualty Value by the Unit Cost as stated in the applicable Schedule.
Rent Rent Payment Percent Payment Percent ------- ------- ------- ------- 1 112.00% 19 69.83% 2 109.66% 20 67.49% 3 107.31% 21 65.14% 4 104.97% 22 62.80% 5 102.63% 23 60.46% 6 100.29% 24 58.11% 7 97.94% 25 55.77% 8 95.60% 26 53.43% 9 93.26% 27 51.09% 10 90.91% 28 48.74% 11 88.57% 29 46.40% 12 86.23% 30 44.06% 13 83.89% 31 41.71% 14 81.54% 32 39.37% 15 79.20% 33 37.03% 16 76.86% 34 34.69% 17 74.51% 35 32.34% 18 72.17% 36 30.00%
5 EQUIPMENT SCHEDULE 4 GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION ("Lessor") AND INTERPLAY PRODUCTIONS, INC. ("Lessee") are parties to a Master Equipment Lease Agreement dated as of December 14, 1994 (the "Agreement"). This Schedule and the Agreement together comprise a separate Lease between the parties. The terms and conditions of the Agreement are hereby incorporated by reference into this Schedule (the "Lease"). All initially-capitalized terms not defined in this Schedule shall have the meanings ascribed to them in the Agreement. EQUIPMENT --------- GROUP A: HARDWARE
Type/Model of Unit Extended ---- Manufacturer New Equipment Qty Cost Cost - ------------ ------------- --- ---- --------- SGI INDIGO2 Solid IMPACT graphics. 4 $20,250.00 $81,000.00 250MHz/MB cache. 64MB Memory. 2GB System Disk. 20in. monitor SGI 64MB Memory upgrade for Indigo2. POWER 4 $ 2,650.00 $10,600.00 Indigo 2. and SGI Ram SGI DAT Drives 4 $ 2,000.00 $ 8,000.00 SGI CD ROM 4x 4 $ 749.00 $ 2,996.00 SGI 20 Gig Raid Systems raid 5 1 $15,995.00 $15,995.00 SGI Trancivers 4 $ 79.00 $ 316.00
GROUP B: SOFTWARE AND SERVICES
Type/Model of Unit Extended ---- Manufacturer New Equipment Qty Cost Cost - ------------ ------------- --- ---- ------------ SGI Basic Extended Warranty - Support for HW, 4 $ 1,540.00 $ 6,160.00 O/S, NFS SGI Alias Power Animator 4 $ 7,496.25 $ 29,985.00 SGI Alias Power Modeler 4 $ 7,496.25 $ 29,985.00 SGI Power & Tracer Caster 1 $11,250.00 $ 11,250.00 SGI Wavefront Video Computer 2 $ 4,500.00 $ 9,000.00 SGI NFS Licenses 4 $ 495.00 $ 1,980.00 ---------- GRAND TOTAL $207,267.00
DOCUMENTS --------- Lessee shall provide the following documents prior to the Lease Commencement Date: 1. Executed Equipment Schedule 4 2. Executed UCC-I Financing Statement(s) 3. Insurance Documentation 4. Executed Purchase order Assignment and Consent -1- WARRANTIES AND REPRESENTATIONS ------------------------------ Lessee hereby represents, warrants and covenants to Lessor that: 1. Lessee is a corporation validly existing and in good standing under the laws of the state of its incorporation, with adequate power and capacity to enter into this Lease, documents relative to the purchase of the Equipment and any other documents required to be delivered in connection with this Lease (the Lease purchase documents and other documents collectively referred to as the "Documents") and is qualified to do business wherever necessary to carry on its present business and operations including the jurisdiction(s) where the Equipment is to be located. Lessee is not a public utility holding company or a tax exempt corporation. 2. The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal, and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws. 3. No approval, consent or withholding of objections is required from any federal state or local governmental authority or instrumentality with respect to the entry into or performance by Lessee of the Documents. 4. The entry into and performance by Lessee of the Documents will not (a) violate any judgment, order, law or regulation applicable to Lessee, or any provision of Lessee's Certificate of Incorporation or Bylaws, or (b) result in any breach or, constitute a default under any agreement to which Lessee is a party, or result in the creation of, any lien, charge, security interest or other encumbrance upon any Equipment. 5. There are no suits or proceedings pending or threatened in court or before any regulatory commission, board or other administrative governmental agency against or affecting Lessee which will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Lease. 6. The Financial Statements delivered to Lessor have been prepared in accordance with generally accepted accounting principles consistently applied and fairly present the financial position of Lessee on and as of the date thereof and the results of its operations for the period or periods covered thereby. Since the date of such Financial Statements there has been no material adverse change that would affect the accuracy of such Financial Statements. MISCELLANEOUS ------------- The following terms are specifically applicable to this Schedule: 1. Notwithstanding anything to the contrary in the Agreement, the Term Commencement Date shall be May 1, 1996. 2. The Initial Term is 36 months. 3. The Basic Rent is $5,999.00 per month payable in advance. 4. Commencing on the Term Commencement Date and on the same of each month thereafter during the Initial Term and any Renewal Term. lessee shall pay the Basic Rent in immediately available U.S. funds. In addition, on the Term Commencement Date, lessee shall pay and accrued Interim Rent. 5. The Equipment is to be located at Hartland Enterprises. 12B North Park Road, Harrogate North Yorkshire, England HG1-5TG. 6. Lessee shall file and pay directly all foreign taxes however designated (each such fee, assessment or tax an" Foreign Imposition") now or hereafter imposed or assessed by any foreign government upon the ownership, delivery, installation, leasing, renting, use or sale of the Equipment, or the Basic Rent or other charges payable hereunder whether assessed on Lessor or Lessee. Lessee agrees to indemnify, defend and hold harmless Lessor, its agents and assignees, from and against any and all claims, actions, suits, proceedings, costs expenses (including court costs and attorney's fees), damages, obligations penalties, arising out of Foreign Imposition. As additional rent, Lessee shall reimburse Lessor for all Foreign Impositions, together with any penalties or interest in connection therewith attributable to Lessee's acts of failure to act. 7. Lessee shall carry public liability insurance in the amount of $2,000.000 total liability per occurrence and casualty and property damage insurance in an amount equal to the greater of the Casualty Value or full replacement cost of the Equipment. 8. The Stipulated Loss Values shall be as determined by the attached Annex A. 9. Software and Services. In the Equipment description above, some items --------------------- are software (the "Software"). Lessor makes no representation or warranty -------- relating to the Software, including without limitation any warranty of title, patent, infringement, quiet enjoyment, description or fitness for use with respect thereto, it being understood that Lessor does not lease or license the Software to Lessee. On behalf of Lessee, Lessor shall pay Vendor $82,200.00 as the license fee for the Software. Upon the occurrence of a Default, in addition to the remedies specified in Article VI of the Agreement, Lessor shall be entitled to direct Lessee to cease further use of the Software. Lessee hereby agrees to immediately cease use of the Software upon receipt of such a direction from Lessor. Lessee further agrees that the detriment which Lessor will suffer as a result of a breach by Lessee of the obligation contained in the foregoing sentence cannot by adequately compensated by monetary damages, and therefore Lessor shall be entitled to injunctive and other equitable relief to enforce this provision. Additionally, in the Equipment description above, some items are consulting, installation, training and/or custom programming services or other services ("Services") which Vendor will perform for the benefit of Lessee. ---------- Lessor shall pay Vendor will perform for the benefit of Lessee. Lessor shall pay Vendor $6,160.00 for the performance of such Services. Lessee's obligation under Section 7.2 of the Agreement to pay Rent shall not be affected by any inadequacy of the Software or the Services, by the bankruptcy of the licensor of the Software or Vendor, by the failure of licensor of the Software to support the Software, or the like. In the event of a Casualty of the items of Equipment which are hardware, in addition to the payment from Lessee to Lessor of the Stipulated Loss Value of such Equipment, at Lessor's option Lessee shall (a) pay Lessor the present value of all Rent allocable to Software and Services, or (b) continue the Lease and pay the Rent allocable to Software and Services on a monthly basis until the end of the Initial Term. -3- 10. End of Lease Options: So long as there is no Default or event which -------------------- with the giving of notice or passage of time or both, would constitute a Default, occurring and continuing under this Lease or the Agreement. Lessee must choose one of the following two options with (90) days prior written notice to Lessor: Purchase Option: Purchase all but not less than all of the Equipment --------------- in Group A at the expiration of the Initial Term at a purchase price equal to $31,090.00: or Renewal Option: At the expiration of the Initial Term, renew the Lease -------------- for a period of twelve (12) months (the "Renewal Term") at a renewal monthly rent of $2,995.00. IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be executed by their duly authorized representatives on the dates indicated below. LESSEE: LESSOR: INTERPLAY PRODUCTIONS, INC. GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION By: /s/ Chuck Camps By: /s/ Mike McFadden -------------------------------- ------------------------------ Name: CHUCK CAMPS Name: MIKE McFADDEN ------------------------------ ----------------------------- Title: CFO Title: Regional Operations Manager ------------------------------ ---------------------------- Date: 4-4-91 Date: 5/14/96 ------------------------------ ----------------------------- -1- ANNEX A to EQUIPMENT SCHEDULE 4 Table of Stipulated Loss Values ------------------------------- The Rent payments numbered below commence with the Term Commencement Date and coincide with the Rent payment dates through the end of the Initial Term. This table extends beyond the Initial Term in a similar manner to provide for renewals and extensions beyond the Initial Term. Stipulated Loss Values are determined by multiplying the percentage stated opposite the Rent payment corresponding to the Rent payment date next following a Casualty or other event requiring payment of the Casualty Value by the Unit Cost as stated in the applicable Schedule.
Rent Rent Payment Percent Payment Percent ------- ------- ------- ------- 1 112.00% 19 74.97% 2 109.94% 20 72.91% 3 107.89% 21 70.86% 4 105.83% 22 68.80% 5 103.77% 23 66.74% 6 101.71% 24 64.69% 7 99.66% 25 62.63% 8 97.60% 26 60.57% 9 95.54% 27 58.51% 10 93.49% 28 56.46% 11 91.43% 29 54.40% 12 89.37% 30 52.34% 13 87.31% 31 50.29% 14 85.26% 32 48.23% 15 83.20% 33 46.17% 16 81.14% 34 44.11% 17 79.09% 35 42.06% 18 77.03% 36 40.00%
-5- AMENDMENT NO. 2 TO EQUIPMENT SCHEDULE 4 This Amendment No. 2 is made as of May 21, 1996, by and between GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION ("Lessor") and INTERPLAY ------ PRODUCTIONS ("Lessee"). Lessor and Lessee are parties to Equipment Schedule 4, ------ as amended, to Master Equipment Lease Agreement dated December 14, 1994, as amended (collectively, the "Lease"). The parties hereby amend the Lease as set ----- forth herein. 1. Equipment Section on Equipment Schedule 1 and on the Certificate of Acceptance to Equipment Schedule 1 is hereby deleted and replaced with the following.
GROUP A: HARDWARE Type/Model of Unit Extended ---- Manufacturer New Equipment Qty Cost Cost - ------------ ------------- --- ---- ----------- SGI INDIGO2 Solid IMPACT graphics, 4 $20,250.00 $81,000.00 250MHz/MB cache, 64MB Memory, 2GB System Disk, 20in. monitor SGI 64MB Memory upgrade for Indigo2, POWER 4 $2,650.00 $10,600.00 Indigo2, and SGI Ram SGI DAT Drives 4 $2,000.00 $8,000.00 SGI CD ROM 4x 4 $749.00 $2,996.00 SGI 20 Gig Raid Systems raid 5 1 $15,995.00 $15,995.00 SGI Transceivers 4 $79.00 $316.00
GROUP B: SOFTCOSTS Type/Model of Unit Extended ---- Manufacturer New Equipment Qty Cost Cost - ------------ ------------- --- ---- ----------- SGI Basic Extended Warranty - Support for HW, 4 $1,540.00 $6,160.00 O/S, NFS SGI Alias Power Animator 4 $7,496.25 $29,985.00 SGI Alias Power Modeler 4 $7,496.25 $29,985.00 SGI Power & Tracer Caster 1 $11,250.00 $11,250.00 SGI Wavefront Video Computer 2 $4,500.00 $9,000.00 SGI NFS Licenses 4 $495.00 $1,980.00 SGI Advanced Animation 2 $7,500.00 $15,000.00 GRAND TOTAL $222,267.00
2. Miscellaneous Section 1 is hereby deleted and replaced with the following: "Notwithstanding anything to the contrary in the Agreement, the Term Commencement Date shall be June 1, 1996." 3. Miscellaneous Section 3 is hereby deleted and replaced with the following: PAGE> "3. The Basic Rent is $6,497.00 per month, payable in advance." 4. Miscellaneous Section 9 is hereby deleted and replaced with the following: In the Equipment description above, some items are software (the "Software"). -------- Lessor makes no representation or warranty relating to the Software, including without limitation any warranty of title, patent, infringement, quiet enjoyment, description or fitness for use with respect thereto, it being understood that Lessor does not lease or license the Software to Lessee. On behalf of Lessee, Lessor shall pay Vendor $97,200.00 as the license fee for the Software. Upon the occurrence of a Default, in addition to the remedies specified in Article VI (if Rev. 10/89) (Section 15 if Rev. 10/95) of the Agreement, Lessor shall be entitled to direct Lessee to cease further use of the Software. Lessee hereby agrees to immediately cease use of the Software upon receipt of such a direction from Lessor. Lessee further agrees that the detriment which Lessor will suffer as a result of a breach by Lessee of the obligation contained in the foregoing sentence cannot be adequately compensated by monetary damages, and therefore Lessor shall be entitled to injunctive and other equitable relief to enforce this provision. Lessee's obligation under Section 7.2 (if Rev. 10/89) (Section 4 if Rev. 10/95) of the Agreement to pay Rent shall not be affected by any inadequacy of the Software, by the bankruptcy of the licensor of the Software or Vendor, by the failure of the licensor of the Software to support the Software, or the like. In the event of a Casualty of the items of Equipment which are hardware, at Lessor's option Lessee shall (a) pay Lessor the present value of all Rent allocable to Software and Services, or (b) continue the Lease and pay the Rent allocable to Software and Services on a monthly basis until the end of the Initial Term. Except as specifically modified herein, all other terms and conditions of the Lease shall remain unchanged. IN WITNESS WHEREOF, the undersigned have executed this Amendment effective as of the date last written above. LESSEE: LESSOR: INTERPLAY PRODUCTIONS GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION By: [SIGNATURE ILLEGIBLE] By: /s/ MIKE MCFADDEN ------------------------- ---------------------------- Name: [SIGNATURE ILLEGIBLE] Name: MIKE MCFADDEN Title: CFO Title: REGIONAL OPERATIONS MANAGER EQUIPMENT SCHEDULE 5 GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION ("Lessor") and Interplay Productions, Inc. ("Interplay") are parties to a Master Equipment Lease Agreement dated as of December 14, 1994 (the "Agreement"). This Schedule is a lease between Lessor and INTERPLAY PRODUCTIONS, INC. AND ENGAGE GAMES ONLINE, jointly and severally liable as Co-Lessees (collectively and individually as "Lessee") ("I and E"), with I and E substituted for Interplay as Lessee in the Agreement. This Schedule and the Agreement together comprise a separate Lease between the parties. The terms and conditions of the Agreement are hereby incorporated by reference into this Schedule (the "Lease"). All initially-capitalized terms not defined in this Schedule shall have the meanings ascribed to them in the Agreement. EQUIPMENT --------- Equipment as more fully described on Exhibit A attached hereto and made a part hereof. The Equipment costs shall have an aggregate price not to exceed $651,650.00. DOCUMENTS --------- Lessee shall provide the following documents prior to the Lease Commencement Date: 1. Executed Equipment Schedule 5 2. Executed UCC-1 Financing Statement(s) 3. Insurance Documentation 4. Executed Purchase Order Assignment and Consent 5. Certificate of Incumbency for Engage Games OnLine WARRANTIES AND REPRESENTATIONS ------------------------------ Lessee hereby represents, warrants and covenants to Lessor that: 1. Lessee is a corporation validly existing and in good standing under the laws of the state of its incorporation, with adequate power and capacity to enter into this Lease, documents relative to the purchase of the Equipment and any other documents required to be delivered in connection with this Lease (the Lease, purchase documents and other documents collectively referred to as the "Documents"), and is qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Equipment is to be located. Lessee is not a public utility holding company or a tax exempt corporation. 2. The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws. 3. No approval, consent or withholding of objections is required from any federal, state or local governmental authority or instrumentality with respect to the entry into or performance by Lessee of the Documents. 4. The entry into and performance by Lessee of the Documents will not (a) violate any judgment order, law or regulation applicable to Lessee, or any provision of Lessee's Certificate of Incorporation or Bylaws, or (b) result in any breach or constitute a default under any agreement to which Lessee is a party, or result in the creation of any lien, charge, security interest or other encumbrance upon any Equipment. -1- 5. There are no suits or proceedings pending or threatened in court or before any regulatory commission, board or other administrative governmental agency against or affecting Lessee which will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Lease. 6. The Financial Statements delivered to Lessor have been prepared in accordance with generally accepted accounting principles consistently applied and fairly present the financial position of Lessee on and as of the date thereof and the results of its operations for the period or periods covered thereby. Since the date of such Financial Statements there has been no material adverse change that would affect the accuracy of such Financial Statements. MISCELLANEOUS ------------- The following terms are specifically applicable to this Schedule: 1. The Cut-Off Date shall be May 1, 1996. 2. The Initial Term is 24 months. 3. The Basic Rent is $25,347.00 per month, payable in advance. 4. Commencing on the Term Commencement Date and on the same date of each month thereafter during the Initial Term and any Renewal Term, Lessee shall pay the Basic Rent in immediately-available U.S. funds. In addition, on the Term Commencement Date, Lessee shall pay any accrued Interim Rent. For the purpose of this Schedule, the Interim Period shall be the period from each Progress Payment Date (as defined in Section 9) to the day prior to the Term Commencement Date. 5. The Equipment is to be located at 17922 Fitch Avenue, Irvine, CA. 6. Lessee shall carry public liability insurance in the amount of $2,000,000 total liability per occurrence and casualty and property damage insurance in an amount equal to the greater of the Casualty Value or full replacement cost of the Equipment. 7. The Stipulated Loss Values shall be as determined by the attached Annex A. 8. The Tax Benefits are depreciation and interest deductions. As its depreciation method, Lessor shall use a 200% declining balance method, switching to a straight-line method for the first taxable year for which the straight-line method with respect to the adjusted basis as of the beginning of such year yields a larger allowance, and assumes a recovery period of five years. 9. Lessor may make payments ("Progress Payments") to Vendor provided (a) no Default, or an event with which the giving of notice, passage of time, or both, would constitute a Default, has occurred and is continuing, (b) Lessee delivers to Lessor five (5) business days prior to the date the Progress Payment is funded to Vendor ("Progress Payment Date") a written instruction to pay Vendor in the form of Exhibit B ("Vendor Payment Notice"), (c) Lessee delivers to Lessor all executed documents described in the Documents section of this Schedule, and (d) on or before April 30, 1996, Lessee delivers to Lessor a Certificate of Acceptance for all Equipment under the Lease. Such Equipment shall be deemed fully and finally accepted for all purposes under the Lease and the Lease shall commence for such Equipment. If Lessee has not delivered the Certificate of Acceptance on or before April 30, 1996, then Lessor shall be entitled to (w) terminate this Lease, (x) re-assign to Lessee without recourse or warranty all of Lessor's rights and obligations with respect to the Equipment and any equipment purchase agreement between Lessee and Vendor, (y) immediately collect from Lessee the sum of the Deposit plus interest on the Deposit from the date the Deposit was paid at the rate of one and a half percent (1.5%) per month, and (z) collect from Lessee any reasonable out-of-pocket expenses incurred in connection with the Equipment or purchase thereof. -2- IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be executed by their duly authorized representatives on the dates indicated below. CO-LESSEE: LESSOR: INTERPLAY PRODUCTIONS,INC., JOINTLY GENERAL ELECTRIC CAPITAL COMPUTER AND SEVERALLY LIABLE AS CO-LESSEE LEASING CORPORATION By: /s/ Chuck Camps By: /s/ Wendy Sievert -------------------------------------- ------------------------------ Name: CHUCK CAMPS Name: WENDY SIEVERT ------------------------------------ ---------------------------- Title: CFO Title: Regional Operations Manager ----------------------------------- --------------------------- Date: 4-4-91 Date: 7/31/96 ------------------------------------ ---------------------------- CO-LESSEE: ENGAGE GAMES ONLINE, JOINTLY AND SEVERALLY LIABLE AS CO-LESSEE By: /s/ Grey McKenzie -------------------------------------- Name: GREY MCKENZIE ------------------------------------ Title: CFO ----------------------------------- Date: 4/30/96 ------------------------------------ -3- ANNEX A to EQUIPMENT SCHEDULE 5 Table of Stipulated Loss Values ------------------------------- The Rent payments numbered below commence with the Term Commencement Date and coincide with the Rent payment dates through the end of the Initial Term. This table extends beyond the Initial Term in a similar manner to provide for renewals and extensions beyond the Initial Term. Stipulated Loss Values are determined by multiplying the percentage stated opposite the Rent payment corresponding to the Rent payment date next following a Casualty or other event requiring payment of the Casualty Value by the Unit Cost as stated in the applicable Schedule. Rent Rent Payment Percent Payment Percent ------- ------- ------- ------- 1 112.00% 19 69.83% 2 109.66% 20 67.49% 3 107.31% 21 65.14% 4 104.97% 22 62.80% 5 102.63% 23 60.46% 6 100.29% 24 58.11% 7 97.94% 25 55.77% 8 95.60% 26 53.43% 9 93.26% 27 51.09% 10 90.91% 28 48.74% 11 88.57% 29 46.40% 12 86.23% 30 44.06% 13 83.89% 31 41.71% 14 81.54% 32 39.37% 15 79.20% 33 37.03% 16 76.86% 34 34.69% 17 74.51% 35 32.34% 18 72.17% 36 30.00% -1- UPGRADE 1 TO EQUIPMENT SCHEDULE 5 GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION ("Lessor") and INTERPLAY PRODUCTIONS ("INTERPLAY") are parties to a Master Equipment Lease Agreement dated as of December 14, 1994, as amended (collectively, the "Lease"). This Schedule is a lease between Lessor and INTERPLAY PRODUCTIONS AND ENGAGE GAMES ONLINE, jointly and severally liable as Co-Lessees (collectively and individually as "Lessee") ("I and E"), with I and E substituted for Interplay as Lessee in the Agreement. This Schedule and the Agreement together comprise a separate Lease between the parties. The terms and conditions of the Agreement are hereby incorporated by reference into this Schedule (the "Lease"). All initially-capitalized terms not defined in this Schedule shall have the meanings ascribed to them in the Agreement. EQUIPMENT ---------
GROUP A1: HARDWARE - NEW EQUIPMENT Type/Model of Unit Extended ---- Manufacturer Serial No. New Equipment Qty Cost Cost - ------------ ---------- ------------- --- ---- ---------- Sun TBD S5x1-110-32 2 $7,115.00 $14,230.00 SPARCSTATION 5 W/17" MONITOR & 2GB HARD DRIVE Sun X13M - 32MB MEMORY RAM 4 $600.00 $2,400.00 Sun X6002A - 5" Floppy Drive 2 $108.00 $216.00 GROUP A1 SUB-TOTAL $16,846.00
GROUP A2: HARDWARE - USED EQUIPMENT Type/Model of Unit Extended ---- Manufacturer Serial No. Used Equipment Qty Cost Cost - ------------ ---------- ------------- --- ---- ---------- Sun TBD S5x1-110-32 1 $7,115.00 $7,115.00 SPARCSTATION 5 W/17" MONITOR & 2GB HARD DRIVE Sun X13M - 32MB MEMORY RAM 2 $600.00 $1,200.00 Sun X6002A - 5" Floppy Drive 1 $108.00 $108.00 GROUP A2 SUB-TOTAL $8,423.00
GROUP B: SOFTWARE Type/Model of Unit Extended ---- Manufacturer Serial No. Software Qty Cost Cost - ------------ ---------- ------------- --- ---- ---------- Sun VWSCPL - 2.1-P 3 $2,800 $8,400.00 VISUAL C++ WORKSHOP GROUP B SUB- TOTAL $8,400.00 GRAND TOTAL OF GROUP $33,669.00 A & GROUP B
-1- AMENDMENT NO.2 TO EQUIPMENT SCHEDULE 5 This Amendment No. 2 is made as of June 3, 1996, by and between GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION ("Lessor") and INTERPLAY ------ PRODUCTIONS AND ENGAGE GAMES ONLINE, jointly and severally liable as Co-Lessees (collectively and individually as "Lessee"). Lessor and Lessee are parties to Equipment Schedule 5, as amended, to Master Equipment Lease Agreement dated December 14, 1994, as amended (collectively, the "Lease"). The parties hereby ----- amend the Lease as set forth herein. 1. Equipment Section is hereby deleted and replaced with the following: "Equipment as more fully described on Exhibit A and Exhibit B attached hereto and made a part hereof. The Equipment cost shall have an aggregate price not to exceed $852,153.00." 2. Miscellaneous Section 1 is hereby deleted and replaced with the following: "1. The Cut-off Date shall be June 1, 1996." 3. Miscellaneous Section 3 is hereby deleted and replaced with the following: "3. The Basic Rent is $32,965.00 per month, payable in advance." 4. Lessee shall execute a Certificate of Acceptance for the Equipment described on Exhibit B. Except as specifically modified herein, all other terms and conditions of the Lease shall remain unchanged. IN WITNESS WHEREOF, the undersigned have executed this Amendment effective as of the date last written above. CO-LESSEE: LESSOR: INTERPLAY PRODUCTIONS, JOINTLY AND GENERAL ELECTRIC CAPITAL COMPUTER SEVERALLY LIABLE AS CO-LESSEE LEASING CORPORATION By: /s/ Chuck Camps By: /s/ Wendy Sievert -------------------------------- ---------------------------------- Name: CHUCK CAMPS Name: WENDY SIEVERT Title: CFO Title: REGIONAL OPERATIONS MANAGER CO-LESSEE: ENGAGE GAMES ONLINE JOINTLY AND SEVERALLY LIABLE AS CO-LESSEE By: /s/ Gary McKenzie -------------------------------- Name: GARY MCKENZIE Title: EVP, CFO EQUIPMENT SCHEDULE 6 GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION ("Lessor") and Interplay Productions, Inc. ("Interplay") are parties to a Master Equipment Lease Agreement dated as of December 14, 1994 (the "Agreement"). This Schedule is a lease between Lessor and INTERPLAY PRODUCTIONS, INC. AND ENGAGE GAMES ONLINE, jointly and severally liable as Co-Lessees (collectively and individually as "Lessee") ("I and E"), with I and E substituted for Interplay as Lessee in the Agreement. This Schedule and the Agreement together comprise a separate Lease between the parties. The terms and conditions of the Agreement are hereby incorporated by reference into this Schedule (the "Lease"). All initially-capitalized terms not defined in this Schedule shall have the meanings ascribed to them in the Agreement. EQUIPMENT --------- GROUP A: HARDWARE
Type/Model of Unit Extended Manufacturer New Equipment Qty Cost Cost - ----------- ------------- --- ---- -------- Cisco Cisco 7513 13 Slot, 2 CyBus, 1 RSP2, 1A 1 $21,675.00 $21,675.00 Cisco Cisco 7513 Power Supply Spare, AC, US 1 $6,000.00 $6,000.00 Cisco Cisco 7507/7513 Route Switch Processor S 1 $11,250.00 $11,250.00 Cisco Cisco 7507 7-Slot, 2CyBus, 1 RSP2, 1 AC 2 $14,925.00 $29,850.00 Cisco RSP Flash Credit Card: 16MB Option 2 $900.00 $1,800.00 Cisco Ciso 7507 Dual AC power Supply Option 2 $6,000.00 $12,000.00 Cisco 8 Port Serial Interface Processor 3 $12,000.00 $36,000.00 Cisco Catalyst 5000 (Chassis, Supervisor Engin 3 $8,996.00 $26,988.00 Cisco Catalyst 5000 Redundant Power Supply 3 $1,496.00 $4,488.00 Cisco Catalyst 1700 25 port 10 BaseT, 2 100 Base 4 $2,996.00 $11,984.00 Cisco 2-Port Fast Ethernet Interface Processor 6 $10,500.00 $63,000.00 Cisco Catalyst 500 Fast Ethernet Switching Mo 6 $7,496.00 $44,976.00 GROUP B: SOFTWARE AND SERVICES Type/Model of Unit Extended Manufactuer New Equipment Qty Cost - ----------- ------------- --- ---- -------- Cisco Cisco 7513 SMARTnet Maintenance 1 $5.900.00 $5,900.00 Cisco Cisco 7507 SMARTnet Maintenance 2 $5,300.00 $10,600.00 Cisco Cisco Catalyst 5001 SMARTnet Maintenance 3 $3,500.00 $10,500.00 Cisco Cisco Works Switched Internetwork, SunNet 1 $5,996.00 $5,996.00 Cisco Cisco 7500 Series IOS IP/IPX and IBM Base 1 $3,750.00 $3,750.00 cisco Cisco 7500 Series IOS IP Only Feature 2 $1,650.00 $3,300.00 ----------- GRAND TOTAL $310,057.00
DOCUMENTS --------- Lessee shall provide the following documents prior to the Lease Commencement Date: 1. Executed Equipment Schedule 6 2. Executed UCC - 1 Financing Statement(s) -1- 3. Insurance Documentation 4. Executed Purchase Order Assignment and Consent WARRANTIES AND REPRESENTATIONS ------------------------------ Lessee hereby represents, warrants and covenants to Lessor that: 1. Lessee is a corporation validly existing and in good standing under the laws of the state of its incorporation, with adequate power and capacity to enter into this Lease, documents relative to the purchase of the Equipment and any other documents required to be delivered in connection with this Lease (the Lease, purchased documents and other documents collectively referred to as the "Documents"), and is qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Equipment is to be located. Lessee is not a public utility holding company or a tax exempt corporation. 2. The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal, and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws. 3. No approval, consent or withholding of objections is required from any federal, state or local governmental authority or instrumentality with respect to the entry into or performance by Lessee of the Documents. 4. The entry into and performance by Lessee of the Documents will not (a) violate any judgment, order, law or regulation applicable to Lessee, or any provision of Lessee's Certificate of Incorporation or Bylaws, or (b) result in any breach or, constitute a default under any agreement to which Lessee is a party, or result in the creation of, any lien, charge, security interest or other encumbrance upon any Equipment. 5. There are no suits or proceedings pending or threatened in court or before any regulatory commission, board or other administrative governmental agency against or affecting Lessee which will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Lease. 6. The Financial Statements delivered to Lessor have been prepared in accordance with generally accepted accounting principles consistently applied and fairly present the financial position of Lessee on and as of the date thereof and the results of its operations for the period or periods covered thereby. Since the date of such Financial Statements there has been no material adverse change that would affect the accuracy of such Financial Statements. MISCELLANEOUS ------------- The following terms are specifically applicable to this Schedule: 1. The Cut-off Date shall be May 1, 1996. 2. The Initial Term is 36 months. -2- 3. The Basic Rent is $9,200.00 per month, payable in advance. 4. Commencing on the Term Commencement Date and on the same date of each month thereafter during the Initial Term and any Renewal Term, Lessee shall pay the Basic Rent in immediately-available U.S. funds. In addition, on the Term Commencement Date, Lessee shall pay any accrued Interim Rent. For the purpose of this Schedule, the Interim Period shall be the period from each Progress Payment Date (as defined in Section 10) to the day prior to the Term Commencement Date. 5. The Equipment is to be located at 17922 Fitch Avenue, Irvine, CA. 6. Lessee shall carry public liability insurance in the amount of $2,000,000 total liability per occurrence and casualty and property damage insurance in an amount equal to the greater of the Casualty Value or full replacement cost of the Equipment. 7. The Stipulated Loss Values shall be as determined by the attached Annex A. 8. The Tax Benefits are depreciation and interest deductions. As its depreciation method. Lessor shall use a 200% declining balance method, switching to a straight-line method for the first taxable year for which the straight-line method with respect to the adjusted basis as of the beginning of such year yields a larger allowance, and assumes a recovery period of five years. 9. Software and Services. In the Equipment description above, some items --------------------- are software (the "Software"). Lessor makes no representation or warranty -------- relating to the Software, including without limitation any warranty of title, patent, infringement, quiet enjoyment, description or fitness for use with respect thereto, it being understood that Lessor does not lease or license the Software to Lessee. On behalf of Lessee, Lessor shall pay Vendor $13,046.00 as the license fee for the Software. Upon the occurrence of a Default, in addition to the remedies specified in Article VI of the Agreement, Lessor shall be entitled to direct Lessee to cease further use of the Software. Lessee hereby agrees to immediately cease use of the Software upon receipt of such a direction from Lessor. Lessee further agrees that the detriment which Lessor will suffer as a result of a breach by Lessee of the obligation contained in the foregoing sentence cannot be adequately compensated by monetary damages, and therefore Lessor shall be entitled to injunctive and other equitable relief to enforce this provision. Additionally, in the Equipment description above, some items are consulting, installation, training and/or custom programming services or other services ("Services") which Vendor will perform for the benefit of Lessee. -------- Lessor shall pay Vendor $27,000.00 for the performance of such Services. Lessee's obligation under Section 7.2 of the Agreement to pay Rent shall not be affected by any inadequacy of the Software or the Services, by the bankruptcy of the licensor of the Software or Vendor, by the failure of licensor of the Software to support the Software, or the like. In the event of a Casualty of the items of Equipment which are hardware, in addition to the payment from Lessee to Lessor of the Stipulated Loss Value of such Equipment, at Lessor's option Lessee shall (a) pay Lessor the present value of all Rent allocable to Software and Services, or (b) continue the Lease and pay the Rent allocable to Software and Services on a monthly basis until the end of the Initial Term. 10. Lessor may make payments ("Progress Payments") to Vendor provided (a) no Default, or an event with which the giving of notice, passage of time, or both, would constitute a Default, -3- has occurred and is continuing, (b) Lessee delivers to Lessor five (5) business days prior to the date the Progress Payment is funded to Vendor ("Progress Payment Date") a written instruction to pay Vendor in the form of Exhibit B ("Vendor Payment Notice"), (c) Lessee delivers to Lessor all executed documents described in the Documents section of this Schedule, and (d) on or before April 30, 1996. Lessee delivers to Lessor a Certificate of Acceptance for all Equipment under the Lease. Such Equipment shall be deemed fully and finally accepted for all purposes under the Lease and the Lease shall commence for such Equipment. If Lessee has not delivered the Certificate of Acceptance on or before April 30, 1996, then Lessor shall be entitled to (w) terminate this Lease, (x) re-assign to Lessee without recourse or warranty all of Lessor's rights and obligations with respect to the Equipment and any equipment purchase agreement between Lessee and Vendor, (y) immediately collect from Lessee the sum of the Deposit plus interest on the Deposit from the date the Deposit was paid at the rate of one and a half percent (1.5%) per month, and (z) collect from Lessee any reasonable out-of-pocket expenses incurred in connection with the Equipment or purchase thereof. IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be executed by their duly authorized representatives on the dates indicated below. CO-LESSEE: LESSOR: INTERPLAY PRODUCTIONS, INC., JOINTLY AND GENERAL ELECTRIC CAPITAL COMPUTER SEVERALLY LIABLE AS CO-LESSEE LEASING CORPORATION By: /s/ Chuck Camps By: /s/ Mike McFadden --------------------------------- ----------------------------- Name: CHUCK CAMPS Name: MIKE McFADDEN ------------------------------- ----------------------------- Title: CFO Title: REGIONAL OPERATIONS MANAGER ----------------------------- ----------------------------- Date: 4-4-96 Date: 6/18/96 ------------------------------- ----------------------------- CO-LESSEE: ENGAGE GAMES ONLINE, JOINTLY AND SEVERALLY LIABLE AS CO-LESSEE BY: /s/ Gary McKenzie ---------------------------------- Name: GARY McKENZIE -------------------------------- Title: CFO ------------------------------- Date: 4/30/96 -------------------------------- -1- UPGRADE 1 TO EQUIPMENT SCHEDULE 6 GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION ("Lessor") and INTERPLAY PRODUCTIONS ("INTERPLAY") are parties to a Master Equipment Lease Agreement dated as of December 14. 1994, as amended (collectively the "Lease"). This Schedule is a lease between Lessor and INTERPLAY PRODUCTIONS AND ENGAGE GAMES ONLINE jointly and severally liable as Co-Lessees (collectively and individually as ("Lessee")) ("I and E"). with I and E substituted for Interplay as Lessee in the Agreement. This Schedule and the Agreement together comprise a separate Lease between the parties. The terms and conditions of the Agreement are hereby incorporated by reference into this Schedule (the "Lease"). All initially-capitalized terms not defined in this Schedule shall have the meanings ascribed to them in the Agreement. EQUIPMENT ---------
Type/Model of Unit Extended Manufacturer New Equipment Qty Cost Cost - ------------ ------------- --- ---- -------- Cisco High Speed Serial Router Blades 3 $ 7,000.00 $21,000.00 Cisco HSSI Cables 3 $ 75.00 $ 225.00 Cisco HSSI Adaptors 3 $ 75.00 $ 225.00 Cisco 6-Port 1O Base T Router Blade (CX-E1P6) 1 $12,000.00 $12,000.00 Cisco Credit on 8 Port Serial I/F Proc 2 ($12,000.00) ($24,000.00) GRAND TOTAL $ 9450.00
DOCUMENTS --------- Lessee shall provide the following documents prior to the Lease Commencement Date: 1. Executed Upgrade 1 to Equipment Schedule 6 2. Executed UCC-1 Financing Statement 3. Insurance Documentation WARRANTIES AND REPRESENTATIONS ------------------------------ Lessee hereby represents, warrants and covenants to Lessor that: 1. Lessee is a corporation validly existing and in good standing under the laws of the state of its incorporation, with adequate power and capacity to enter into this Lease, documents relative to the purchase of the Equipment and any other documents required to be delivered in connection with this Lease (the Lease, purchase documents and other documents collectively referred to as the "Documents"), and is qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Equipment is to be located. Lessee is not a public utility holding company or a tax exempt corporation. 2. The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal, and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws. Interplay Productions and Engage Games Online -1- 3. No approval, consent or withholding of objections is required from any federal, state or local governmental authority or instrumentality with respect to the entry into or performance by Lessee of the Documents. 4. The entry into and performance by Lessee of the Documents will not (a) violate any judgment, order, law or regulation applicable to Lessee, or any provision of Lessee's Certificate of Incorporation or Bylaws, or (b) result in any breach or, constitute a default under any agreement to which Lessee is a party, or result in the creation of, any lien, charge, security interest or other encumbrance upon any Equipment. 5. There are no suits or proceedings pending or threatened in court or before any regulatory commission, board or other administrative governmental agency against or affecting Lessee which will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Lease. 6. The Financial Statements delivered to Lessor have been prepared in accordance with generally accepted accounting principles consistently applied and fairly present the financial position of Lessee on and as of the date thereof and the results of its operations for the period or periods covered thereby. Since the date of such Financial Statements there has been no material adverse change that would affect the accuracy of such Financial Statements. MISCELLANEOUS ------------- The following terms are specifically applicable to this Schedule: 1. Notwithstanding anything to the contrary in the Agreement, the Term Commencement Date shall be August 1, 1996. 2. The Initial Term is 35 months. 3. The Basic Rent is $315.00 per month, payable in advance. 4. Commencing on the Term Commencement Date and on the same date of each month thereafter during the Initial Term and any Renewal Term, Lessee shall pay the Basic Rent in immediately-available U.S. funds. In addition, on the Term Commencement Date, Lessee shall pay any accrued Interim Rent. 5. The Equipment is to be located at 17922 Fitch Avenue, Irvine, CA. 92714. 6. Lessee shall carry public liability insurance in the amount of $2,000,000 total liability per occurrence and casualty and property damage insurance in an amount equal to the greater of the Casualty Value or full replacement cost of the Equipment. 7. The Stipulated Loss Values shall be as determined by the attached Annex A. 8. Lessee hereby assigns to Lessor all of its rights under any purchase order or agreement (the "Purchase Document") issued or executed by Lessee with respect to the Equipment. Lessor assumes the obligation to pay the purchase price under such Purchase Document, provided Lessee accepts the Equipment for all purposes under the Lease. Lessee retains all other obligations under the Purchase Document. -2- IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be executed by their duly authorized representatives on the dates indicated below. CO-LESSEE: LESSOR: INTERPLAY PRODUCTIONS JOINTLY AND GENERAL ELECTRIC CAPITAL COMPUTER SEVERALLY LIABLE AS CO-LESSEE LEASING CORPORATION BY: [SIGNATURE ILLEGIBLE] By: /s/ Mike McFadden -------------------------------- ------------------------------- Name: [SIGNATURE ILLEGIBLE] Name: MIKE MCFADDEN ------------------------------ ----------------------------- Title: CFO Title: Regional Operations Manager ------------------------------ ---------------------------- Date: 7-19-96 Date: 7-29-96 ------------------------------ ----------------------------- CO-LESSEE: ENGAGE GAMES ONLINE, JOINTLY AND SEVERALLY LIABLE AS CO-LESSEE By: /s/ GARY MCKENZIE -------------------------------- Name: GARY MCKENZIE ------------------------------ Title: CFO ----------------------------- Date: 7/11/96 ------------------------------ Interplay Productions and Engage Games Online -3- EQUIPMENT SCHEDULE 7 GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION ("Lessor") and Interplay Productions, Inc, ("Interplay") are parties to a Master Equipment Lease Agreement dated as of December 14, 1994 (the "Agreement"). This Schedule is a lease between Lessor and INTERPLAY PRODUCTIONS, INC. AND ENGAGE GAMES ONLINE, jointly and severally liable as Co-Lessees (collectively and individually as "Lessee") ("I and E"), with I and E substituted for Interplay as Lessee in the Agreement. This Schedule and the Agreement together comprise a separate Lease between the parties. The terms and conditions of the Agreement are hereby incorporated by reference into this Schedule (the "Lease"). All initially-capitalized terms not defined in this Schedule shall have the meanings ascribed to them in the Agreement. EQUIPMENT ---------
Type/Model of Unit Retail Extended Manufacturer New Equipment Qty Value Retail Value - ------------ ------------- --- ----- ------------ SGI Indy Modeler, 180 Mhz R5000SC, XGE, 3 $17,000.00 $51,000.00 32MB, 4GB System Disk, 1280X1024, 20" Monitor, Indycam includes NFS, 180MB swap space, IRIS Annotator Insignia Softwindows, IRIS Impressario, Webspace Author
DOCUMENTS --------- Lessee shall provide the following documents prior to the Lease Commencement Date. 1. Executed Equipment Schedule 7 2. Executed UCC-1 Financing Statement 3. Insurance Documentation WARRANTIES AND REPRESENTATIONS ------------------------------ Lessee hereby represents, warrants and covenants to Lessor that: 1. Lessee is a corporation validly existing and in good standing under the laws of the state of its incorporation, with adequate power and capacity to enter into this Lease, documents relative to the purchase of the Equipment and any other documents required to be delivered in connection with this Lease (the Lease, purchase documents and other documents collectively referred to as the "Documents"), and is qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Equipment is to be located. Lessee is not a public utility holding company or a tax exempt corporation. 2. The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal, and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws. -1- 3. No approval, consent or withholding of objections is required from any federal, state or local governmental authority or instrumentality with respect to the entry into or performance by Lessee of the Documents. 4. The entry into and performance by Lessee of the Documents will not (a) violate any judgment, order, law or regulation applicable to Lessee, or any provision of Lessee's Certificate of Incorporation or Bylaws, or (b) result in any breach or, constitute a default under any agreement to which Lessee is a party, or result in the creation of, any lien, charge, security interest or other encumbrance upon any Equipment. 5. There are no suits or proceedings pending or threatened in court or before any regulatory commission, board or other administrative governmental agency against or affecting Lessee which will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Lease. 6. The Financial Statements delivered to Lessor have been prepared in accordance with generally accepted accounting principles consistently applied and fairly present the financial position of Lessee on and as of the date thereof and the results of its operations for the period or periods covered thereby. Since the date of such Financial Statements there has been no material adverse change that would affect the accuracy of such Financial Statements. MISCELLANEOUS ------------- The following terms are specifically applicable to this Schedule: 1. Notwithstanding anything to the contrary in the Agreement, the Term Commencement Date shall be June 1, 1996. 2. The Initial Term is 36 months. 3. The Basic Rent is $1,462.50 per month, payable in advance. 4. Commencing on the Term Commencement Date and on the same date of each month thereafter during the Initial Term and any Renewal Term, Lessee shall pay the Basic Rent in immediately-available U.S. funds. In addition, on the Term Commencement Date, Lessee shall pay any accrued Interim Rent. 5. The Equipment is to be located at 17922 Fitch Avenue, Irvine, CA. 92714. 6. Lessee shall carry public liability insurance in the amount of $2,000,000 total liability per occurrence and casualty and property damage insurance in an amount equal to the greater of the Casualty Value or full replacement cost of the Equipment. 7. The Stipulated Loss Values shall be as determined by the attached Annex A. -2- 8. The Tax Benefits are depreciation and interest deductions. As its depreciation method, Lessor shall use a 200% declining balance method, switching to a straight-line method for the first taxable year for which the straight-line method with respect to the adjusted basis as of the beginning of such year yields a larger allowance, and assumes a recovery period of five years. In witness whereof, Lessor and Lessee have caused this Schedule to be executed by their duly authorized representatives on the dates indicated below. CO-LESSEE: LESSOR: INTERPLAY PRODUCTIONS, INC., JOINTLY GENERAL ELECTRIC CAPITAL COMPUTER AND SEVERALLY LIABLE AS CO-LESSEE LEASING CORPORATION By: /s/ CHUCK CAMPS By: /s/ MIKE McFADDEN -------------------------------------- -------------------------------- Name: Chuck Camps Name: Mike McFadden ------------------------------------ ------------------------------ Title: CFO Title: Regional Operations Manager ----------------------------------- ----------------------------- Date: 5-13-96 Date: 6/26/96 ------------------------------------ ----------------------------- CO-LESSEE: ENGAGE GAMES ONLINE, JOINTLY AND SEVERALLY LIABLE AS CO-LESSEE By: /s/ GARY McKENZIE -------------------------------------- Name: Gary McKenzie ----------------------------------- Title: CFO ---------------------------------- Date: ---------------------------------- ANNEX A to EQUIPMENT SCHEDULE 7 Table of Stipulated Loss Values ------------------------------- The Rent payments numbered below commence with the Term Commencement Date and coincide with the Rent payment dates through the end of the Initial Term. This table extends beyond the Initial Term in a similar manner to provide for renewals and extensions beyond the Initial Term. Stipulated Loss Values are determined by multiplying the percentage stated opposite the Rent payment corresponding to the Rent payment date next following a Casualty or other event requiring payment of the Casualty Value by the Unit Retail Value as stated in the applicable Schedule.
Rent Rent Payment Percent Payment Percent ------- ------- ------- ------- 1 112.00% 19 69.83% 2 109.66% 20 67.49% 3 107.31% 21 65.14% 4 104.97% 22 62.80% 5 102.63% 23 60.46% 6 100.29% 24 58.11% 7 97.94% 25 55.77% 8 95.60% 26 53.43% 9 93.26% 27 51.09% 10 90.91% 28 48.74% 11 88.57% 29 46.40% 12 86.23% 30 44.06% 13 83.89% 31 41.71% 14 81.54% 32 39.37% 15 79.20% 33 37.03% 16 76.86% 34 34.69% 17 74.51% 35 32.34% 18 72.17% 36 30.00%
-4- EQUIPMENT SCHEDULE 8 GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION ("Lessor") and INTERPLAY PRODUCTIONS ("INTERPLAY") are parties to a Master Equipment Lease Agreement dated as of December 14, 1994, as amended (collectively, the "Lease"). This Schedule is a lease between Lessor and INTERPLAY PRODUCTIONS AND ENGAGE GAMES ONLINE, jointly and severally liable as Co-Lessees (collectively and individually as "Lessee")) ("I and E"), with I and E substituted for Interplay as Lessee in the Agreement. This Schedule and the Agreement together comprise a separate Lease between the parties. The terms and conditions of the Agreement are hereby incorporated by reference into this Schedule (the "Lease"). All initially-capitalized terms not defined in this Schedule shall have the meanings ascribed to them in the Agreement. EQUIPMENT ---------
Type/Model of Extended Manufacturer New Equipment Qty Cost - ------------ ------------- --- ------------- Nortel Option IIE Phone System and 6 Port Meridian Mail 1 $ 86,373.60 See attached Exhibit A
DOCUMENTS --------- Lessee shall provide the following documents prior to the Lease Commencement Date: 1. Executed Equipment Schedule 8 2. Executed UCC-1 Financing Statement 3. Insurance Documentation WARRANTIES AND REPRESENTATIONS ------------------------------ Lessee hereby represents, warrants and covenants to Lessor that: 1. Lessee is a corporation validly existing and in good standing under the laws of the state of its incorporation, with adequate power and capacity to enter into this Lease, documents relative to the purchase of the Equipment and any other documents required to be delivered in connection with this Lease (the Lease, purchase documents and other documents collectively referred to as the "Documents"), and is qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Equipment is to be located. Lessee is not a public utility holding company or a tax exempt corporation. 2. The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal, and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bunkruptcy and insolvency laws. 3. No approval, consent or withholding of objections is required from any federal, state or local governmental authority or instrumentality with respect to the entry into or performance by Lessee of the Documents. 4. The entry into and performance by Lessee of the Documents will not (a) violate any judgment, order, law or regulation applicable to Lessee, or any provision of Lessee's Certificate of Incorporation or (Interplay Productions and Engage Games Online) -1- Bylaws, or (b) result in any breach or, constitute a default under any agreement to which Lessee is a party, or result in the creation of, any lien, charge, security interest or other encumbrance upon any Equipment. 5. There are no suits or proceedings pending or threatened in court or before any regulatory commission, board or other administrative governmental agency against or affecting Lessee which will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Lease. 6. The Financial Statements delivered to Lessor have been prepared in accordance with generally accepted accounting principles consistently applied and fairly present the financial position of Lessee on and as of the date thereof and the results of its operations for the period or periods covered thereby. Since the date of such Financial Statements there has been no material adverse change that would affect the accuracy of such Financial Statements. MISCELLANEOUS ------------- The following terms are specifically applicable to this Schedule: 1. Notwithstanding anything to the contrary in the Agreement, the Lease Commencement Date shall be on or before August 1, 1996 and the Term Commencement Date shall be September 1, 1996. 2. The Initial Term is 48 months. 3. The Basic Rent is $1,951.00 per month, payable in advance. 4. Commencing on the Term Commencement Date and on the same date of each month thereafter during the Initial Term and any Renewal Term, Lessee shall pay the Basic Rent in immediately-available U.S. funds. In addition, on the Term Commencement Date, Lessee shall pay any accrued Interim Rent. 5. The Equipment is to be located at 17922 Fitch Avenue, Irvine, CA 92714. 6. Lessee shall carry public liability insurance in the amount of $2,000,000 total liability per occurrence and casualty and property damage insurance in an amount equal to the greater of the Casualty Value or full replacement cost of the Equipment. 7. The Stipulated Loss Values shall be as determined by the attached Annex A. 8. The Tax Benefits are depreciation and interest deductions. As its depreciation method, Lessor shall use a 200% declining balance method, switching to a straight-line method for the first taxable year for which the straight-line method with respect to the adjusted basis as of the beginning of such year yields a larger allowance, and assumes a recovery period of five years. 9. Lessee hereby assigns to Lessor all of its rights under any purchase order or agreement (the "Purchase Document") issued or executed by Lessee with respect to the Equipment. Lessor assumes the obligation to pay the purchase price under such Purchase Document, provided Lessee accepts the Equipment for all purposes under the Lease. Lessee retains all other obligations under the Purchase Document. -2- IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be executed by their duly authorized representatives on the dates indicated below. CO-LESSEE: LESSOR: INTERPLAY PRODUCTIONS, JOINTLY AND GENERAL ELECTRIC CAPITAL COMPUTER SEVERALLY LIABLE AS CO-LESSEE LEASING CORPORATION By: /s/ Chuck Camps By:_______________________________ --------------------------------------- Name: Chuck Camps Name:_____________________________ ------------------------------------ Title: CFO Title:____________________________ ----------------------------------- Date: 8-25-96 Date: ____________________________ ------------------------------------ CO-LESSEE: ENGAGE GAMES ONLINE, JOINTLY AND SEVERALLY LIABLE AS CO-LESSEE BY: /s/ Gary McKenzie -------------------------------------- Name: Gary McKenzie ------------------------------------ Title: CFO ------------------------------------ Date: 8/15/96 ----------------------------------- -3- ANNEX A to EQUIPMENT SCHEDULE 8 Table of Stipulated Loss Values ------------------------------- The Rent payments numbered below commence with the Term Commencement Date and coincide with the Rent payment dates through the end of the Initial Term. This table extends beyond the Initial Term in a similar manner to provide for renewals and extensions beyond the Initial Term. Stipulated Loss Values are determined by multiplying the percentage stated opposite the Rent payment corresponding to the Rent payment date next following a Casualty or other event requiring payment of the Casualty Value by the Extended Cost as stated in the applicable Schedule.
Rent Rent Payment Percent Payment Percent ------- ------- ------- ------- 1 112.00% 25 72.68% 2 110.36% 26 71.04% 3 108.72% 27 69.40% 4 107.09% 28 67.77% 5 105.45% 29 66.13% 6 103.81% 30 64.49% 7 102.17% 31 62.85% 8 100.53% 32 61.21% 9 98.89% 33 59.57% 10 97.26% 34 57.94% 11 95.62% 35 56.30% 12 93.98% 36 54.66% 13 92.34% 37 53.02% 14 90.70% 38 51.38% 15 89.06% 39 49.74% 16 87.43% 40 48.11% 17 85.79% 41 46.47% 18 84.15% 42 44.83% 19 82.51% 43 43.19% 20 80.87% 44 41.55% 21 79.23% 45 39.91% 22 77.60% 46 38.28% 23 75.96% 47 36.64% 24 74.32% 48 35.00%
-4- EXHIBIT B
Type/Model of Manufacturer New Equipment Qty ------------ ------------- --- Nortel Option 11E Phone System and 6 Port Meridian Mail 1 Nortel M2008HF Standard Business w/Display 21 Nortel M2616 Performance Plu Tel w/Display 21 Nortel DTI/PRI Package 1 Nortel Verilink ESF/CSU W/20' Power Cable 2 Nortel Analog Message Waiting Line Card 3 Nortel Universal Trunk Card 2 Nortel Clock Controller Card 1 Nortel Power Connector Kit 1 Nortel Cook 4 Channel Announcer 1 Nortel AC Converter 1 Nortel Digitial Line Card 1 Nortel C25 Voice Processor Card 2 Nortel Meridian Mail Card Option 2-6 Ports 1 Nortel Meridan Mail Voice User Guide 2 Nortel Option 11E First Expansion Cabinet Package 1 Nortel Pre-Printed Feature Key Cap Package 42 Nortel Meridian Modular Telephone User Guide 2 Nortel Power Failure Transer Unit 1 Nortel Mat Administration Module 1 Nortel Mat Single Site Common Services 1 Nortel 25 Pair F/M 75' Cable 10 Nortel 25' Mount Cords 42 Nortel Quad-Jacks 20 Nortel Face-Plates 20 Nortel Wire Management Panel 8 Nortel Add'l Labor 1 Nortel Quad-jack Outlet 20 Nortel M2008HF 6 Nortel M2616 6 Nortel M2008HF 10 Nortel CSU/DSU 1 Nortel CSU/DSU 1
AMENDMENT NO. 1 TO EQUIPMENT SCHEDULE 8 This Amendment No. 1 is made as of December 30, 1996, by and between GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION ("Lessor) and INTERPLAY -------- PRODUCTIONS ("Lessee"). Lessor and Lessee are parties to Equipment Schedule 8 to ------ Master Equipment Lease Agreement dated December 14, 1994 (collectively, the "Lease"). The parties hereby amend the Lease as set forth herein. ----- 1. EQUIPMENT SECTION Delete "$86,373.60" and replace with "$103,239.60." 2. RENT SECTION is deleted and replaced with the following: " The Basic Rent is $2,502.68 per month, payable in advance." Except as specifically modified herein, all other terms and conditions of the Lease shall remain unchanged. IN WITNESS WHEREOF, the undersigned have executed this Amendment effective as of the date first above written. LESSEE: LESSOR: CO-LESSEE: GENERAL ELECTRIC CAPITAL COMPUTER Interplay Productions jointly and LEASING CORPORATION severally liable as Co-Lessee By: /s/ Chuck Camps By: /s/ Dennis P. Baldwin --------------------------------- -------------------------------- Name: CHUCK CAMPS Name: DENNIS P. BALDWIN Title: CFO Title: Senior Account Specialist LESSEE: CO-LESSEE: GAMES ONLINE, INC., JOINTLY AND SEVERALLY LIABLE AS CO-LESSEE By: /s/ Gary McKenzie ---------------------------------- Name: GARY McKENZIE TITLE: Prior to complete execution of Equipment Schedule 8, as amended, the parties agreed instead to execute Equipment Schedule 9, which follows. EQUIPMENT SCHEDULE 9 GENERAL ELECTRIC CAPITAL COMPUTER LEASING CORPORATION ("Lessor") and INTERPLAY PRODUCTIONS, ("INTERPLAY") are parties to a Master Equipment Lease Agreement dated as of December 14, 1994, as amended (collectively, the "Lease"). This Schedule is a lease between Lessor and INTERPLAY PRODUCTIONS AND ENGAGE GAMES ONLINE, jointly and severally liable as Co-Lessees (collectively and individually as ("Lessee")) ("I and E"), with I and E substituted for Interplay as Lessee in the Agreement. This Schedule and the Agreement together comprise a separate Lease between the parties. The terms and conditions of the Agreement are hereby incorporated by reference into this Schedule (the "Lease"). All initially-capitalized terms not defined in this Schedule shall have the meanings ascribed to them in the Agreement. EQUIPMENT ---------
GROUP A: Type/Model of Extended Manufacturer New Equipment Qty Cost - ------------ ------------- --- --------- Nortel Option 11E Phone System and 6 Port Meridian Mail 1 $103,239.60 (See Attached Exhibit 1) GROUP B Type/Model of Extended Manufacturer New Equipment Qty Cost - ------------ ------------- --- --------- Nortel Phone System Upgrades 1 $37,350.00 (See Attached Exhibit 2)
DOCUMENTS --------- Lessee shall provide the following prior to the Lease Commencement Date: 1. Executed Equipment Schedule 9 2. Executed UCC-1 Financing Statement 4. Insurance Documentation WARRANTIES AND REPRESENTATIONS ------------------------------ Lessee hereby represents, warrants and covenants to Lessor that: 1. Lessee is a corporation validly existing and in good standing under the laws of the state of its incorporation, with adequate power and capacity to enter into this Lease, documents relative to the purchase of the Equipment and any other documents required to be delivered in connection with this Lease (the Lease, purchase documents and other documents collectively referred to as the "Documents"), and is qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Equipment is to be located. Lessee is not a public utility holding company or a tax exempt corporation. 2. The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal, and binding agreements enforceable in accordance with their terms except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws -1- 3. No approval, consent or withholding of objections is required from any federal, state or local governmental authority or instrumentality with respect to the entry into or performance by Lessee of the Documents. 4. The entry into and performance by Lessee of the Documents will not (a) violate any judgment, order, law or regulation applicable to Lessee, or any provison of Lessee's Certificate of Incorporation or Bylaws, or (b) result in any breach or, constitute a default under any agreement to which Lessee is a party, or result in the creation of, any lien, charge, security interest or other encumbrance upon any Equipment. 5. There are no suits or proceedings pending or threatened in court or before any regulatory commission, board or other administrative governmental agency against or affecting lessee which will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Lease. 6. The Financial Statements delivered to Lessor have been prepared in accordance with generally accepted accounting principles consistently applied and fairly present the financial position of Lessee on and as of the date thereof and the results of its operations for the period or periods covered thereby. Since the date of such Financial Statements there has been no material adverse change that would affect the accuracy of such Financial Statements. MISCELLANEOUS ------------- The following terms are specifically applicable to this Schedule: 1. The Term Commencement Date shall be May 1, 1997. 2. The Initial Term is 48 months. 3. The Basic Rent for months 1 through 12 is $2,508.68.00 per month and for months 13 through 48 $4,200.00 per month, payable in advance. 4. Commencing on the Term Commencement Date and on the same date of each month thereafter during the Initial Term and any Renewal Term, Lessee shall pay the Basic Rent in immediately- available U.S. funds. In addition, on the Term Commencement Date, Lessee shall pay any accrued Interim Rent. 5. The Equipment is to be located at 17922 Fitch Avenue, Irvine, CA 92714. 6. Lessee shall carry public liability insurance in the amount of $2,000,000 total liability per occurrence and casualty and property damage insurance in an amount equal to the greater of the Casualty Value or full replacement cost of the Equipment. 7. The Stipulated Loss Values shall be as determined by the attached Annex A. 8. The Tax Benefits are depreciation and interest deductions. As its depreciation method. Lessor shall use a 200% declining balance method, switching to a straight-line method for the first taxable year for which the straight-line method with respect to the adjusted basis as of the beginning of such year yields a larger allowance and assumes a recovery period of five years. 9. Lessee hereby assigns to Lessor all of its rights under any purchase order or agreement (the "Purchase Document") issued or executed by Lessee with respect to the Equipment. Lessor assumes the obligation to pay the purchase price under such Purchase Document, provided Lessee accepts the Equipment for all purposes under the Lease. Lessee retains all other obligations under the Purchase Document. -2- 10. The Equipment listed on Exhibit 1 to this Schedule is currently leased under Equipment Schedule 8 between the parties ("Early Renewal Lease"). Lessee has elected to early renew the Equipment identified on Exhibit 1 ("Early Renewal Equipment"). Effective May 1, 1997, the terms and conditions of this Schedule shall supersede in all respects those on the Early Renewal Lease regarding the Early Renewal Equipment, except for those obligations that would ordinarily survive a Lease. Also, Lessee confirms to Lessor that the Early Renewal Equipment is installed, in service and accepted for the purposes of this Lease. The Equipment listed on Exhibit 2 to this Schedule is new Equipment which must be accepted by the Lessee no later that May 1, 1997. IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be executd by their duly authorized representatives on the dates indicated below. CO-LESSEE: LESSOR: INTERPLAY PRODUCTIONS, JOINTLY AND GENERAL ELECTRIC CAPITAL COMPUTER SEVERALLY LIABLE AS CO-LESSEE LEASING CORPORATION By: /s/ Chuck Camps By: /s/ Laura Springer -------------------------------------- ------------------------------ Name: Chuck Camps Name: Laura Springer ------------------------------------ ---------------------------- Title: CFO Title: Deal Team Manager ----------------------------------- --------------------------- Date: ?/7/97 Date: 5-29-97 ------------------------------------ --------------------------- CO-LESSEE: ENGAGE GAMES ONLINE, JOINTLY AND SEVERALLY LIABLE AS CO-LESSEE By: /s/ Gary McKenzie ------------------------------------- Name: Gary McKenzie ----------------------------------- Title: COO ----------------------------------- Date: 5/5/97 ------------------------------------ -3- AMENDMENT TO MASTER EQUIPMENT LEASE AGREEMENT AND EQUIPMENT SCHEDULES 1, 2, 3, 4, 5, 6 & 7 This Amendment to Master Equipment Lease Agreement and Equipment Schedules 1, 2, 3, 4, 5, 6 & 7 ("Amendment") is entered into as of May 22, 1996 by and among General Electric Capital Computer Leasing Corporation ("Lessor") and Interplay Productions ("Lessee"). The purpose of this Amendment is to amend the Master Equipment Lease Agreement dated as of December 14, 1994 (the "Lease Agreement") and Equipment Schedules 1, 2, 3, 4, 5, 6 & 7 to the Lease Agreement dated December 14, 1994 between the parties. Unless otherwise defined herein all initially-capitalized terms shall have the meanings given to them in the Lease Agreement. The Lease Agreement and Equipment Schedules 1, 2, 3, 4, 5, 6 & 7 are hereby amended as follows: The Lease Agreement and Equipment Schedules 1, 2, 3, 4, 5, 6 & 7 are hereby amended to correct Lessee's name to "Interplay Productions". For purposes of the Lease Agreement and Equipment Schedules 1, 2, 3, 4, 5, 6 & 7, all of Lessee's rights and obligations shall remain the same except that Lessee's correct corporate name is "Interplay Productions". All future Leases executed by Lessee shall reference such name. In Witness Whereof, the parties have caused this Agreement to be executed by their duly authorized representatives as of the date first above-written. LESSEE: LESSOR: Interplay Productions General Electric Capital Computer Leasing Corporation By: /s/ Chuck Camps By: /s/ Mark L. Brandt -------------------------- --------------------- Name: Chuck Camps Name: Mark L. Brandt Title: CFO Title: -1- EX-10.23 21 CONFIDENTIAL LICENSE AGREEMENT - NINTENDO 64 10/7/97 EXHIBIT 10.23 Confidential Portions Omitted CONFIDENTIAL LICENSE AGREEMENT FOR NINTENDO 64 VIDEO GAME SYSTEM (Western Hemisphere) THIS AGREEMENT is entered into between NINTENDO OF AMERICA INC., a Washington corporation with an address for notice purposes of 4820 150th Avenue N.E., Redmond, WA 98052 (Fax: 206-882-3585) ("NINTENDO") and INTERPLAY PRODUCTIONS, a California corporation with an address for notice purposes of 16815 Von Karman Avenue, Irvine, CA 92606 (Fax: (714) 252-0667), Attention: President ("LICENSEE"). NINTENDO and LICENSEE acknowledge and agree as follows: 1. RECITALS -------- 1.1 NINTENDO markets and sells a high-quality video game system, including hardware, software and an input controller, marketed by NINTENDO under its trademarks "Nintendo 64(R)" and "N64(TM)", for playing video games. 1.2 LICENSEE desires to gain access to and rights to utilize highly proprietary programming specifications, development tools, trademarks and other valuable intellectual property rights in order to develop video game software and to purchase and sell such video game software from NINTENDO for play on the Nintendo 64 system, which system was developed by NCL and Silicon Graphics, Inc. 1.3 NINTENDO is willing to grant a license to utilize such proprietary information and intellectual property rights and to sell video game software to LICENSEE upon the terms and conditions set forth in this Agreement. 2. DEFINITIONS ----------- 2.1 "Artwork" shall mean the final art and mechanical formats for the Licensed Product including the Game Cartridge box, user instruction manual with consumer precautions and warranty, Game Cartridge label and inserts. 2.2 "Competing Systems" shall mean hardware platforms, whether marketed now or in the future, designed to play interactive video games, including, but without limitation: Apple/Bandai Pippin or Atmark, Atari Jaguar, Atari Lynx, 3DO Real, Matsushita M2, Phillips CD-I Interactive Player, Sega Master System, Sega Genesis, Sega CD, Sega Game Gear, Sega CD/X, Sega Nomad, Sega 32X, Sega Saturn, Sega Pico, Sony PSX/Playstation and SNK Neo Geo. IBM-PC and Macintosh personal computer systems are expressly omitted from the definition of "Competing Systems". 2.3 "Effective Date" shall mean the last date in which all parties shall have signed this Agreement. 2.4 "Exclusive Licensed Product" shall mean the audiovisual work to be agreed upon by the parties during the Term, and shipped during the Term. 2.5 "Game Cartridge(s)" shall mean interchangeable plastic cartridges adapted for use with the N64 System, housing the Game embodied in electronic memory devices or comparable medium authorized by NINTENDO for storing and playing Games on the N64 System. 2.6 "Game(s)" shall mean video game software compatible with the N64 System developed under NINTENDO 64 LICENSE AGREEMENT PAGE 1 this Agreement. 2.7 "Guidelines" shall mean the "Nintendo 64 Packaging Guidelines" and the "Nintendo 64 Development Manual" setting forth trademark, copyright and related artwork standards, as published from time to time by NINTENDO. 2.8 "Independent Contractor" shall mean any third party agent, consultant, contractor or independent programmer, other than LICENSEE. 2.9 "Licensed Copyright(s)" shall mean various copyrights in printed materials, art or logo designs, trade dress, computer software, microcode, electronic circuitry and rights in integrated circuit layout designs employed in the N64 System. 2.10 "Licensed Intellectual Properties" shall mean individually, collectively or in any combination, the Licensed Inventions, Licensed Proprietary Information, Licensed Copyrights and Licensed Trademarks. 2.11 "Licensed Invention(s)" shall mean improvements and inventions concerning the N64 System, including inventions which are or may become the subject matter of various patents or patent applications. 2.12 "Licensed Product(s)" shall mean Game Cartridges (or comparable medium authorized by Nintendo) for employing the Licensed Intellectual Properties and having electronic memory devices storing the Games. 2.13 "Licensed Proprietary Information" shall mean any of the following information relating to the N64 System: (a) all current or future information, know-how, techniques, methods, information, tools, emulator boards, software development specifications, and/or trade secrets, (b) any patents or patent applications, (c) any business, marketing or sales data information, and (d) any other information or data relating to development, design, operation, manufacturing, marketing or sales. "Licensed Proprietary Information" shall include information disclosed to LICENSEE by NINTENDO, NINTENDO's affiliated companies, SGI, and/or other third parties working with NINTENDO. Such Licensed Proprietary Information shall include all confidential information disclosed, whether in writing, orally, visually, or in the form of drawings, technical specifications, software, samples, pictures, models, recordings, or other tangible items which contain or manifest, in any form, the Licensed Proprietary Information. Licensed Proprietary Information shall not include: (a) data and information which was in the public domain prior to LICENSEE's receipt of the same hereunder, or which subsequently becomes part of the public domain by publication or otherwise, except by LICENSEE's wrongful act or omission, (b) data and information which LICENSEE can demonstrate, through written records kept in the ordinary course of business, was in its possession without restriction on use or disclosure, prior to its receipt of the same hereunder and was not acquired directly or indirectly from NINTENDO under an obligation of confidentiality which is still in force, (c) data and information which LICENSEE can show was received by it from a third party who did not acquire the same directly or indirectly from NINTENDO and to whom LICENSEE has no obligation of confidentiality, and (d) data and information which is required to be disclosed by an authorized governmental or judicial entity, provided that LICENSEE shall notify NINTENDO at least thirty (30) days prior to such disclosure. 2.14 "Licensed Trademarks" shall mean registered and unregistered trademarks and trademark applications used in connection with the N64 System, including "Nintendo(R)", "Nintendo 64 (R)", "N64(TM)," "Official Nintendo Seal of Quality(R)" and trade dress in the N64 System. 2.15 "Marketing Materials" shall mean marketing, advertising or promotional materials which incorporate the Licensed Intellectual Properties which are developed by or for LICENSEE to promote the sale of the Licensed Products. NINTENDO 64 LICENSE AGREEMENT PAGE 2 2.16 "NCL" shall mean NINTENDO's parent company, Nintendo Co., Ltd. of Kyoto, Japan. 2.17 "Nintendo 64 System" and "N64 System" shall mean the 64-bit Nintendo 64 video game system, including the hardware, software and input controller marketed by NINTENDO and Nintendo Co., Ltd. 2.18 "Other Agreements" shall mean that certain Product Developer Non- Disclosure Agreement for Nintendo 64 entered into between NINTENDO and LICENSEE with an effective date of 4/23/96. 2.19 "Product Proposal" shall mean a written proposal which provides a detailed explanation of the Game. 2.20 "Schedule 1" shall mean the "Nintendo of America Inc. Price Sheet N64 Licensed Game Paks" attached to this Agreement and incorporated by reference into this Agreement. 2.21 "SGI" shall mean Silicon Graphics, Inc. and/or MIPS Technologies, Inc. 2.22 "Term" shall mean three (3) years from the Effective Date. 2.23 "Territory" shall mean all countries within the Western Hemisphere, including the United States, Canada, South America, Central America, Mexico and all applicable territories and possessions. 3. GRANT OF LICENSE; RESERVATION OF RIGHTS BY NINTENDO --------------------------------------------------- 3.1 Grant. For the Term and in the Territory, NINTENDO hereby grants to ----- LICENSEE, and LICENSEE hereby accepts under the terms and conditions set forth in this Agreement, a nonexclusive license to employ the Licensed Intellectual Properties solely to develop and sell video games incorporated into Game Cartridges for play on the N64 System. Except as may be permitted under a separate written authorization from NINTENDO or Nintendo Co., Ltd., LICENSEE shall not use the Licensed Intellectual Properties for any other purpose. 3.2 Reservation of Rights in the Licensed Intellectual Properties. ------------------------------------------------------------- LICENSEE acknowledges NINTENDO and Nintendo Co., Ltd.'s right, title, and interest in and to the Licensed Intellectual Properties and the goodwill associated with the Licensed Trademarks. LICENSEE will not at any time do or cause to be done any act or thing which in any way impairs or is intended to impair any part of such right, title, interest or goodwill. LICENSEE shall not represent that it has any ownership in the Licensed Intellectual Properties. Use of the Licensed Intellectual Properties shall not create any right, title or interest therein in LICENSEE's favor. 3.3 Reservation of Rights of Distribution Outside the Territory. ----------------------------------------------------------- LICENSEE shall market and sell the Licensed Products only in the Territory. LICENSEE shall not directly or indirectly export any Licensed Products from the Territory nor shall LICENSEE knowingly permit or assist any third party in doing so. 3.4 Reservation of Rights to Reverse Engineer. LICENSEE may utilize and ----------------------------------------- study the design, performance and operation of the N64 System and the Licensed Proprietary Information solely for the purpose of developing software which is compatible with the N64 System for license under this Agreement. LICENSEE shall not, directly or indirectly, reverse engineer or aid or assist in the reverse engineering of all or any part of the N64 System, including the hardware, software, input controller and/or tools. For purposes of this Agreement, "reverse engineering" shall mean: (a) the x-ray electronic scanning and/or physical or chemical stripping of semiconductor components; (b) the disassembly, decompilation, decryption, simulation, debugging or code tracing of microcode; and/or (c) the disassembly, decompilation, decryption, simulation, debugging or code tracing of object code or executable code, specifically including, but not limited to, any NINTENDO supplied or developed libraries or microcode. The limitations set forth in this Section 3.4 shall not preclude NINTENDO 64 LICENSE AGREEMENT PAGE 3 LICENSEE from engaging in reverse engineering of any Game code which was developed solely by LICENSEE and related only to the Game and was not supplied by nor derived from any code supplied by NINTENDO. 3.5 Reservation of Rights of Electronic Transmission. LICENSEE shall not ------------------------------------------------ directly or indirectly duplicate, distribute or transmit Games via electronic means or any other means now known or hereafter devised, including without limitation, wireless, cable, fiber optic means, telephone lines, satellite transmission, microwave or radio waves or over a network of interconnected computers or other devices. Notwithstanding this limitation, LICENSEE shall not be prohibited from the electronic transmission of Games during the development process for the sole purpose of facilitating development; provided, however, that no right of retransmission shall attach to any such transmission, and, provided further, that LICENSEE shall use reasonable security measures, customary within the industry, to reduce the risk of unauthorized interception or retransmission of such transmissions. 3.6 Notification Obligations. LICENSEE shall promptly notify NINTENDO of ------------------------ the loss or unauthorized use or disclosure of any Licensed Proprietary Information and shall promptly act to recover any such information and/or prevent further breach of the confidentiality obligations herein. 4. CONFIDENTIALITY --------------- 4.1 Disclosure of Proprietary Information. NINTENDO has and shall during ------------------------------------- the Term provide LICENSEE with highly proprietary development information, development tools, emulation systems, programming specifications and related resources and information constituting and incorporating the Licensed Proprietary Information to enable LICENSEE to develop video games for use with the N64 System. 4.2 Confidentiality of Licensed Proprietary Information. LICENSEE shall --------------------------------------------------- maintain all Licensed Proprietary Information as strictly confidential and will use such Licensed Proprietary Information only in accordance with this Agreement. LICENSEE shall limit access to the Licensed Proprietary Information to LICENSEE's employees having a strict need to know and shall advise such employees of their obligation of confidentiality as provided herein. LICENSEE shall require each such employee to retain in confidence the Licensed Proprietary Information pursuant to a written non-disclosure agreement between LICENSEE and such employee. LICENSEE shall use its best efforts to ensure that its employees working with or otherwise having access to Licensed Proprietary Information shall not disclose or make unauthorized use of the Licensed Proprietary Information. 4.3 Agent/Consultant Confidentiality. LICENSEE shall not disclose the -------------------------------- Licensed Proprietary Information to any Independent Contractor without NINTENDO's prior written approval. Each approved Independent Contractor shall be required to enter into a written non-disclosure agreement with NINTENDO prior to receiving any access to or disclosure of the Licensed Proprietary Information. 4.4 SGI as a Third-Party Beneficiary. LICENSEE hereby acknowledges and --------------------------------- agrees that SGI shall be a third-party beneficiary of LICENSEE's confidentiality obligations as set forth in this Section 4. 5. DEVELOPMENT; QUALITY STANDARDS; ARTWORK; MANUFACTURING ------------------------------------------------------ 5.1 Development and Sale of the N64 System Programs. During the Term, ----------------------------------------------- LICENSEE may develop Games and/or sell Licensed Products for the N64 System in accordance with this Agreement. 5.2 Exclusivity; Exclusive Licensed Product. For the Exclusive Licensed --------------------------------------- Product, LICENSEE agrees that, commencing on the Effective Date and continuing for a period of one (1) year from NINTENDO's first shipment of such Exclusive Licensed Product to LICENSEE, neither the Game incorporated into such NINTENDO 64 LICENSE AGREEMENT PAGE 4 Exclusive Licensed Product nor any adaptation, translation, derivative, sequel or substantially similar game which is sold by LICENSEE as a Licensed Product under this Agreement shall be sold anywhere in the Territory by LICENSEE or by any third party for play on any Competing System. Except as provided herein with regard to the Exclusive Licensed Product, or as may otherwise be limited by the legitimate intellectual property rights of NINTENDO or any third party, LICENSEE shall retain all rights with regard to the adaptation of Games for development and sale in any other format, including on any Competing System. 5.3 Submission of Game Concept. Before commencing development of a Game, -------------------------- LICENSEE shall submit to NINTENDO for approval, a Product Proposal. Such Product Proposal must include a detailed explanation of the manner in which the Game will utilize and exploit: (a) the unique 3-D capabilities and high quality graphics display of the N64 System; (b) the complex, high-capacity processing speed of the N64 System; and, (c) the dynamic interfaces and touch control features of the unique N64 System controller. For that purpose, the Product Proposal shall include: (a) a description of the proposed Game; (b) the development team profile, including information regarding any Independent Contractor which LICENSEE proposes to retain to work on the Game; (c) a description of any special hardware or software requirements; and, (d) the anticipated completion date of the proposed Licensed Product. Subsequent to acceptance and approval of a Product Proposal, LICENSEE shall notify NINTENDO in writing of any material proposed changes in the Product Proposal and/or the proposed Licensed Product. From time to time, at approximately quarterly intervals or such other reasonable times NINTENDO may establish for purposes of ensuring utilization and exploitation of the N64 System in the manner set forth above, LICENSEE shall submit work-in-progress on the Game to NINTENDO for further review in accordance with the criteria set forth herein. NINTENDO shall not unreasonably withhold or delay any approval provided for herein. 5.4 Delivery of Completed Game. Upon completion of a Game, LICENSEE shall -------------------------- deliver to NINTENDO one (1) prototype of the Game in a format specified by NINTENDO, together with written user instructions and a complete screen text script. NINTENDO shall promptly evaluate the Game with regard to: (a) its technical compatibility with and error-free operation on the N64 System; (b) the suitability of the Game content, taking into account reasonable standards set forth in the Guidelines; and, (c) whether the Game achieves the objectives set forth in LICENSEE's approved Product Proposal. LICENSEE shall have satisfied the Game content suitability criteria by providing NINTENDO with proof that the Game has been provided with a certificate of a rating other than ADULTS ONLY (or its equivalent) from the Entertainment Software Ratings Board or comparable independent ratings body which reviews and certifies product for violent or sexual content. 5.5 Approval of Completed Game. NINTENDO shall, within a reasonable period -------------------------- of time after receipt, approve or disapprove such Game. If such Game is disapproved, NINTENDO shall specify in writing the reasons for such disapproval and state what corrections and/or improvements are necessary. After making the necessary corrections and/or improvements, LICENSEE shall submit a revised Game for approval by NINTENDO, provided, however, that LICENSEE shall not be obligated to submit a revised Game for approval if LICENSEE decides not to sell the Game. The approval of any Game by NINTENDO shall not relieve LICENSEE of its sole responsibility for the development, quality and operation of the Game or in any way create any warranty for a Licensed Product by NINTENDO. NINTENDO shall not unreasonably withhold or delay any approval provided for herein. 5.6 Development and Quality of Artwork. In connection with the submission ---------------------------------- of a proposed Licensed Product to NINTENDO, LICENSEE shall submit all Artwork to NINTENDO. All Artwork shall conform to the requirements set forth in the Guidelines. Within fifteen (15) business days of receipt of the Artwork, NINTENDO shall approve or disapprove the Artwork based upon the Guidelines. If any of the Artwork is disapproved, NINTENDO shall specify in writing the reasons for such disapproval and state what corrections and/or improvements are necessary. After making the necessary corrections and/or improvements to the disapproved Artwork, LICENSEE shall resubmit new Artwork for approval by NINTENDO, provided, however, NINTENDO 64 LICENSE AGREEMENT PAGE 5 that LICENSEE shall not be obligated to submit new Artwork for approval if LICENSEE decides not to use the Artwork. NINTENDO shall not unreasonably withhold or delay its approval of any Artwork. 5.7 Appointment of NCL as Manufacturer. LICENSEE hereby appoints NCL, and ---------------------------------- NCL hereby accepts appointment, as manufacturer of the Licensed Products. LICENSEE shall purchase from NCL through NINTENDO all of its requirements for the Licensed Products. NCL shall have the sole responsibility for establishing and fulfilling all aspects of the manufacturing process, including selecting the location of and specifications for any manufacturing facilities, appointing suppliers and subcontractors, and managing all work-in-progress and finished goods inventory. NCL shall acquire and retain responsibility for all equipment, tooling, molds or masks used in connection with the manufacture of the Licensed Products. 5.8 Manufacture of Licensed Products. Upon approval of a Game and the -------------------------------- Artwork and upon receipt from LICENSEE of an order in accordance with Section 7 herein, NCL will manufacture the Licensed Products for LICENSEE, including the Artwork. 5.9 Retention of Sample Licensed Products. NCL may, at its own expense, ------------------------------------- manufacture samples of the Licensed Products, only to the extent necessary, to be used by NINTENDO for archival purposes, legal proceedings against infringers of the Licensed Intellectual Properties, and for other lawful purposes. 6. PURCHASE PRICE; PAYMENT; DELIVERY OF COMPLETED LICENSED PRODUCT --------------------------------------------------------------- 6.1 Minimum Initial Orders. Upon placement of an initial order, LICENSEE ---------------------- shall order a minimum quantity of [ * ] units of a Licensed Product. 6.2 Subsequent Minimum Orders. LICENSEE may subsequently order additional ------------------------- Licensed Product in a minimum quantity of [ * ] units per title. 6.3 Purchase Price. The purchase price to be paid by LICENSEE to NINTENDO -------------- for the Licensed Products shall be in accordance with NINTENDO's pricing schedule currently set forth in the attached Schedule 1. The purchase price includes the cost of manufacturing, printing and packaging the Licensed Products and a royalty for the use of the Licensed Intellectual Properties. Schedule 1 is subject to change by NINTENDO at any time without notice. 6.4 Payment. At the time an order is placed, LICENSEE shall provide to ------- NINTENDO an irrevocable letter of credit in favor of NINTENDO and payable at sight, issued by a bank acceptable to NINTENDO and confirmed, at LICENSEE's expense, if requested by NINTENDO. The letter of credit shall be in United States dollars in an amount equal to the purchase price of the Licensed Products ordered. All associated banking charges are for LICENSEE's account. 6.5 Shipment and Delivery. The Licensed Products shall be delivered --------------------- F.O.B. Japan, with shipment at LICENSEE's direction and expense. Orders may be delivered by NINTENDO in partial shipments, each directed to no more than two (2) destinations designated by LICENSEE in the Territory. Title to the Licensed Products shall vest in accordance with the terms of the applicable letter of credit. 7. MARKETING, SALE AND RENTAL OF THE LICENSED PRODUCTS --------------------------------------------------- 7.1 Marketing Materials. LICENSEE agrees that any Marketing Materials ------------------- shall all be of high quality and shall comply with the Guidelines. 7.2 Submission of Proposed Marketing Materials. Prior to actual use or ------------------------------------------ distribution, LICENSEE shall submit to NINTENDO for review and evaluation initial samples of all Marketing Materials. NINTENDO NINTENDO 64 LICENSE AGREEMENT PAGE 6 * Confidential Portions Omitted and Filed Separately with the Commission. shall, within fifteen (15) business days of receipt of such samples, approve or disapprove of the quality of such samples. If any of the samples are disapproved as to quality, NINTENDO shall specify the reasons for such disapproval and state what corrections and/or improvements are necessary. After making the necessary corrections and/or improvements to the disapproved samples, LICENSEE may resubmit new samples for approval by NINTENDO as to quality. No Marketing Materials shall be distributed or utilized by LICENSEE without obtaining prior written approval as to quality by NINTENDO. NINTENDO shall not unreasonably withhold or delay its approval of the proposed Marketing Materials. 7.3 Warranty and Repair. With respect to the Licensed Product, LICENSEE ------------------- shall provide to the original consumer a minimum ninety (90) day limited warranty, comparable to that offered by NINTENDO. LICENSEE shall also provide to the original consumer, either directly or indirectly through authorized service centers, reasonably accessible product service, including out-of- warranty service for a period of three (3) years following sale of the Licensed Product. In the event LICENSEE is unable to obtain sufficient quantities of repair parts for service obligations from defective and/or product returns, NINTENDO shall cooperate in providing reasonable quantities of repair parts to LICENSEE at its standard cost. 7.4 Business Facilities; Sales of Game Cartridges. LICENSEE agrees to --------------------------------------------- develop, maintain and utilize during the Term: (a) suitable office facilities within the Territory, adequately staffed to enable LICENSEE to fulfill all responsibilities under this Agreement; (b) necessary warehouse, distribution, marketing, sales, collection and credit operations to facilitate proper handling of the Licensed Product; and, (c) customer service and game counseling support, including telephone service, to adequately support the Licensed Product. 7.5 Defects; Recall. In the event of a material programming defect in the --------------- Licensed Product, which defect in the reasonable judgment of NINTENDO would significantly impair the ability of a consumer to play the Licensed Product, NINTENDO may require the LICENSEE to recall the Licensed Product and undertake suitable repairs or replacements prior to sale. 7.6 Rental. In the event LICENSEE elects to engage in the commercial ------ rental of the Licensed Products within the Territory on such terms and conditions as LICENSEE shall determine, LICENSEE shall secure appropriate authorizations and/or assignments from the author(s) of the copyrightable elements in the computer programs for the Licensed Product. LICENSEE shall clearly provide notice on the Artwork for each Licensed Product of any rental right or reservation thereof. 7.7 Nintendo Promotional Materials, Publications and Events. At its ------------------------------------------------------- option, NINTENDO may: (a) insert in the packaging for the Licensed Product promotional materials concerning Nintendo Power(R) magazine; (b) utilize screen -------------- shots, package art and related art and information regarding the Licensed Product in Nintendo Power(R) or other media or marketing programs which promote -------------- NINTENDO products; and (c) exercise public performance rights of the Licensed Product, related trademarks and art in NINTENDO sponsored contests, tours and events which generally promote NINTENDO products. 8. LICENSEE'S COPYRIGHTS AND TRADEMARKS ------------------------------------ 8.1 Copyright and Trademark Warranties. LICENSEE represents and warrants ---------------------------------- that, throughout the Territory, LICENSEE is either: (a) the sole owner of all right, title and interest in and to the trademarks, copyrights and Artwork used on or in association with the Licensed Products; or (b) the holder of sufficient rights to the trademarks, copyrights and Artwork which have been licensed from a third party for use in the Licensed Product. 8.2 Licensee's Indemnification. LICENSEE shall indemnify and hold -------------------------- NINTENDO harmless from any claims, losses, liabilities, damages, expenses and costs, including, without limitation, reasonable NINTENDO 64 LICENSE AGREEMENT PAGE 7 attorneys' fees and costs, which result from: (a) a breach of any of the representations or warranties provided by LICENSEE herein; (b) any claim of infringement of any third party's intellectual property rights with respect to the Licensed Product, excluding claims based solely upon NINTENDO's trademarks, copyrights and patents; or, (c) any claim of bodily injury (including death) or property damage arising out of, or in connection with, the development, sale and/or use of any of the Licensed Products. NINTENDO shall give LICENSEE prompt written notice of the assertion of any such claim and provided, further, that LICENSEE shall have the right to select counsel and control the defense and/or settlement of any such claim, subject to the right of NINTENDO to participate in any such action or proceeding at its own expense with counsel of its own choice. 8.3 Insurance. LICENSEE shall, at its own expense, obtain a policy of --------- general liability insurance which includes product liability coverage by a recognized insurance company. Such policy of insurance shall be in an amount of not less than Two Million Dollars ($2,000,000 USD) and shall provide for adequate protection against any suits, claims, loss or damage or any alleged intellectual property infringements (excluding patent infringements) by the Licensed Products. Protection against any alleged intellectual property infringements (excluding patent infringements) by the Licensed Products may instead, at LICENSEE's option, be obtained under a separate errors and omissions policy by a recognized insurance company in an amount of not less than One Million Dollars ($1,000,000 USD), in which case the policy of general liability covering any suits, claims, loss or damage by the Licensed Products shall still be in an amount not less than Two Million Dollars ($2,000,000 USD). The policy of general liability shall name NINTENDO as an additional insured, and neither policy may be canceled without thirty (30) days prior written notice to NINTENDO. A Certificate of Insurance for each policy shall be provided to NINTENDO's Licensing Department within thirty (30) days of the Effective Date. If LICENSEE fails to maintain such insurance during the Term, NINTENDO may secure and maintain such insurance at LICENSEE's expense. 9. LIMITATION OF LIABILITY ----------------------- 9.1 Disclaimer of Licensed Intellectual Properties. NINTENDO makes no ---------------------------------------------- representations, guarantees or warranties concerning the scope or validity of the Licensed Intellectual Properties, and does not warrant that the sale of the Licensed Products by LICENSEE will not infringe upon the patent, trade secret, copyright, mask work or trademark rights of another in the Territory. THE RISK OF INFRINGEMENT IS HEREBY ASSUMED BY LICENSEE. 9.2 Warranty Disclaimer. NINTENDO DISCLAIMS ANY AND ALL WARRANTIES OF THE ------------------- LICENSED PRODUCTS AS BETWEEN NINTENDO AND LICENSEE AND AS BETWEEN NINTENDO AND ANY THIRD PARTY PURCHASERS FROM LICENSEE. LICENSEE PURCHASES AND ACCEPTS ALL LICENSED PRODUCTS FROM NINTENDO ON AN "AS IS" AND "WHERE IS" BASIS AND WITHOUT ANY WARRANTIES, EXPRESS OR IMPLIED. WITH RESPECT TO THE LICENSED PRODUCTS, NINTENDO DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A GENERAL OR PARTICULAR PURPOSE AND SHALL IN NO EVENT BE LIABLE FOR ANY INCIDENTAL AND/OR CONSEQUENTIAL DAMAGES OF LICENSEE, ITS RETAILERS OR CUSTOMERS. LICENSEE SHALL BE SOLELY RESPONSIBLE FOR PROVIDING WARRANTY AND REPAIR/REPLACEMENT SERVICES FOR ANY DEFECTIVE LICENSED PRODUCTS. NOTWITHSTANDING THE CONDITIONS SET FORTH IN THIS PARAGRAPH, NINTENDO WILL USE ITS BEST EFFORTS TO RESOLVE ANY CATASTROPHIC DEFECT IN THE LICENSED PRODUCTS PURCHASED BY LICENSEE FROM NINTENDO. A "CATASTROPHIC DEFECT" IS DEFINED AS A MANUFACTURING DEFECT RATE OF FIVE PERCENT (5%) OR GREATER IN ANY SHIPMENT OF LICENSED PRODUCTS TO LICENSEE. NINTENDO 64 LICENSE AGREEMENT PAGE 8 10. INFRINGEMENT OF LICENSED INTELLECTUAL PROPERTIES AND ---------------------------------------------------- LICENSEE'S TRADEMARKS AND COPYRIGHTS ------------------------------------ 10.1 Reporting. In the event: (a) any claim is asserted against either --------- party alleging that any of the Licensed Intellectual Properties or a Licensed Product constitutes an infringement of another's rights; or, (b) either party discovers that any of the Licensed Intellectual Properties or LICENSEE's copyrights or trademarks used in connection with the Licensed Products have been infringed by a third party, then the party with such knowledge shall promptly notify the other party. 10.2 Licensed Intellectual Properties. NINTENDO shall have the sole -------------------------------- right, at its expense, to commence and/or defend a legal action or negotiate a settlement relating to any alleged infringement by the Licensed Intellectual Properties. LICENSEE agrees to give reasonable assistance in any such legal action, but at no expense to it. NINTENDO shall be entitled to all of the recovery or damages collected as a result of such legal action or negotiated settlement. In the event of a legal action against LICENSEE alleging an infringement by the Licensed Intellectual Properties as incorporated into LICENSEE's Licensed Products which NINTENDO affirmatively elects in writing not to defend, LICENSEE may defend or settle such legal action, at its option and expense. NINTENDO agrees to provide reasonable assistance in defending any such legal action. LICENSEE agrees to keep NINTENDO fully informed with respect to developments in any such legal action and to provide NINTENDO reasonable notice of the terms of any proposed settlement and to consider any comments by NINTENDO before settlement is made. 10.3 Infringement of Licensed Products. LICENSEE shall take reasonable --------------------------------- steps to abate any infringement of LICENSEE's copyrights and trademarks in the Licensed Products. LICENSEE shall also take all reasonable and necessary steps, including legal action, to defend against any alleged infringement caused by any of LICENSEE's software programs developed under this Agreement or any Artwork, title or designation used in conjunction with any of the Licensed Products. NINTENDO shall give to LICENSEE reasonable assistance and cooperation in any such legal action, but at no expense to NINTENDO. 11. TERM AND TERMINATION -------------------- 11.1 Default or Breach. In the event that either party is in default or ----------------- commits a breach of this Agreement which is not cured within thirty (30) days after written notice thereof, then this Agreement shall automatically terminate on the date specified in such notice. 11.2 Termination Other Than by Breach. Upon the expiration of this -------------------------------- Agreement or its termination other than by LICENSEE's breach, LICENSEE shall have a period of one hundred eighty (180) days to sell any unsold Licensed Products. All Licensed Products in LICENSEE's control following expiration of such sell-off period, shall be destroyed by LICENSEE within ten (10) days. 11.3 Termination by LICENSEE's Breach. If this Agreement is terminated by -------------------------------- NINTENDO as a result of a breach of its terms and conditions by LICENSEE, LICENSEE shall immediately cease all distribution, promotion or sale of any Licensed Products. All Licensed Products in LICENSEE's control as of such termination shall be destroyed by LICENSEE within ten (10) days. 11.4 Licensed Intellectual Property Rights. Except as provided in Section ------------------------------------- 11.5, upon expiration and/or termination of this Agreement (or expiration of any sell-off period, as applicable), LICENSEE will cease all use of the Licensed Intellectual Properties for any purpose, and will not disclose to third parties any Licensed Proprietary Information. LICENSEE shall also return to NINTENDO all writings, drawings, models, data and other materials and things in LICENSEE's possession or in the possession of any past or present employee, agent or contractor receiving the information through LICENSEE, which constitute or relate to or disclose any Licensed Proprietary Information without making copies or otherwise retaining any such NINTENDO 64 LICENSE AGREEMENT PAGE 9 information. 11.5 Termination by Nintendo's Breach. If this Agreement is terminated by -------------------------------- LICENSEE as a result of a breach of its terms or conditions by NINTENDO, LICENSEE may continue to sell the Licensed Products in the Territory until the expiration of the Term, at which time the provisions herein relating to termination other than by default of LICENSEE shall apply to any unsold Licensed Products. 12. GENERAL PROVISIONS ------------------ 12.1 Nonassignability/Sublicensing. This Agreement is personal to ----------------------------- LICENSEE and may not be sold, assigned, delegated, sublicensed or otherwise transferred or encumbered, including by operation of law or by the sale or transfer of more than fifty percent (50%) of the stock, assets or ownership interest or control of LICENSEE, without the prior written consent of NINTENDO. 12.2 Force Majeure. Neither party shall be liable for any breach of this ------------- Agreement occasioned by any cause beyond the reasonable control of such party, including governmental action, war, riot or civil commotion, fire, natural disaster, labor disputes, restraints affecting shipping or credit, delay of carriers, inadequate supply of suitable materials, or any other cause which could not with reasonable diligence be controlled or prevented by the parties. In the event of material shortages, including shortages of microcomputer chips necessary for production of the Licensed Products, NINTENDO reserves the right to allocate essential materials among itself and its licensees. 12.3 Waiver; Severability; Integration. The failure of any party to enforce --------------------------------- any provision of this Agreement shall not be construed to be a waiver of such provision or of the right of such party to thereafter enforce such provision. In the event that any term, clause or provision of this Agreement shall be construed to be or adjudged invalid, void or unenforceable, such term, clause or provision shall be construed as severed from this Agreement, and the remaining terms, clauses and provisions shall remain in effect. This Agreement constitutes the entire agreement between the parties relating to the subject matter hereof, provided, however, that the Other Agreements shall remain in effect, except as may be modified by specific reference herein. All prior negotiations, representations, agreements and understandings are merged into, extinguished by and completely expressed by this Agreement. Any amendment to this Agreement shall be in writing, signed by both parties. 12.4 Governing Law: Venue. This Agreement shall be governed by, subject -------------------- to and construed under the laws of the State of Washington. Any legal actions prosecuted or instituted by NINTENDO or by LICENSEE under this Agreement, with respect to any matters arising under or growing out of this Agreement, shall only be brought in a court of competent jurisdiction in King County, Washington and each party hereby consents to the jurisdiction and venue of such courts for such purposes. 12.5 Equitable Relief. LICENSEE acknowledges that in the event of its ---------------- breach of this Agreement, no adequate remedy at law may be available to NINTENDO and that NINTENDO shall be entitled to seek injunctive or other equitable relief in addition to any relief available at law. 12.6 Attorneys' Fees. In the event it is necessary for either party of --------------- this Agreement to undertake legal action to enforce any of the terms, conditions or rights contained herein, or to defend any such action, then the prevailing party in any such action shall be entitled to recover from the other party all reasonable attorneys' fees, costs and expenses relating to such legal action. 12.7 Notices. All notices required or permitted under this Agreement ------- shall be sufficiently given when: (a) personally served or delivered; (b) deposited, postage prepaid, with a guaranteed air courier service, addressed as stated herein, or to such other person or address either party may designate in a notice; NINTENDO 64 LICENSE AGREEMENT PAGE 10 or, (c) by facsimile, with an original sent concurrently by first class U.S. mail. Notice shall be deemed effective upon the earlier of actual receipt or two (2) business days after transmittal. 12.8 Counterparts; Signature by Facsimile. This Agreement may be signed ------------------------------------ in counterparts, which shall together constitute a complete Agreement. A signature transmitted by facsimile shall be considered an original for purposes of this Agreement. IN WITNESS WHEREOF, NINTENDO and LICENSEE have entered into this Agreement on the dates set forth below. NINTENDO: LICENSEE: NINTENDO OF AMERICA INC. INTERPLAY PRODUCTIONS By:/s/ John A. Bauer By: /s/ Richard S. F. Lehrberg ----------------------------------------- --------------------------- Its: Executive Vice President, Administration Its: Exec. V.P. -------------------------- Date: 10/7/97 Date: 27 Aug. 97 --------------------------------------- ------------------------- NINTENDO 64 LICENSE AGREEMENT PAGE 11 SCHEDULE 1 ---------- NINTENDO OF AMERICA INC. PRICE SHEET N64 LICENSED GAME PAKS
MEMORY CAPACITY NOA PRICE 32 Megabit $ [ * ] 32 Megabit + 4k bit E/2/ ROM $ [ * ] 32 Megabit + 16k bit E/2/ ROM $ [ * ] 64 Megabit $ [ * ] 64 Megabit + 4k bit E/2/ ROM $ [ * ] 64 Megabit + 16k bit E/2/ ROM $ [ * ] 96 Megabit $ [ * ] 96 Megabit + 4k bit E/2/ ROM $ [ * ] 96 Megabit + 16k bit E/2/ ROM $ [ * ] 128 Megabit $ [ * ] 128 Megabit + 4k bit E/2/ ROM $ [ * ] 128 Megabit + 16k bit E/2/ ROM $ [ * ]
Price includes an instruction manual up to 40 pages. There will be an extra charge for manuals larger than 40 pages (including the front and back cover) EXTRA PACKAGING (MUST BE ORDERED WITH PRODUCT ON A SEPARATE PO) Game Pak Box $ [ * ] Instruction Manual $ [ * ] (under 40 pages) Instruction Manual $ [ * ] (over 40 pages) Game Pak Label $ [ * ] Game Pak Poster $ [ * ] ALL PRICES ARE SUBJECT TO CHANGE WITHOUT NOTICE Revised 7/9/97 NINTENDO 64 LICENSE AGREEMENT PAGE 12 * Confidential Portions Omitted and Filed Separately with the Commission. EX-10.24 22 PLAYSTATION LICENSE AGREEMENT - 2/16/95 EXHIBIT 10.24 Confidential Portions Omitted SONY PLAYSTATION(TM) LICENSE AGREEMENT THIS LICENSE AGREEMENT is entered into as of the 16th day of February, 1995, by and between SONY COMPUTER ENTERTAINMENT OF AMERICA, a division of Sony Electronic Publishing Company, with offices at 711 Fifth Avenue, New York, New York 10022 (hereinafter "Sony"), and Interplay Productions, with offices at 17922 Fitch Avenue, Irvine, CA 92714 (hereinafter "Licensee"). WHEREAS, Sony and/or its affiliates have developed a CD-based interactive console for playing video games and for other entertainment purposes known as PlayStation(TM) (formerly known under the development code name "PS-X") (hereinafter referred to as the "Player") and also own or have the right to grant licenses to certain intellectual property rights used in connection with the Player. WHEREAS, Licensee desires to be granted a non-exclusive license to develop and distribute Licensed Products (as defined below) pursuant to the terms and conditions set forth in this Agreement. WHEREAS, Sony is willing, on the terms and subject to the conditions of this Agreement, to grant Licensee the desired non-exclusive license to develop and distribute Licensed Products, and desires to manufacture such Licensed Products for Licensee. NOW, THEREFORE, in consideration of the representations, warranties and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Licensee and Sony hereby agree as follows: 1. DEFINITION OF TERMS. 1.1 "Executable Software" means Licensee's object code software which includes the Licensee Software and any software (whether in object code or source code form) provided by Sony which is intended to be combined with Licensee Software for execution on a Player and has the ability to communicate with the software resident in the Player. 1.2 "Intellectual Property Rights" means, by way of example but not by way of limitation, all current and future worldwide patents and other patent rights, copyrights, trademarks, service marks, trade names, mask work rights, trade secret rights, technical information, know-how, and the equivalents of the foregoing under the laws of any jurisdiction, and all other proprietary or intellectual property rights throughout the universe, including without limitation all applications and registrations with respect thereto, and all renewals and extensions thereof. 1.3 "Licensed Territory" means the countries listed in Exhibit A, as may be in effect from time to time. 1.4 "Licensed Products" shall mean the Executable Software embodied on CD- ROM media. 1.5 "Licensed Trademarks" means the trademarks, service marks and logos designated by Sony. Nothing contained in this Agreement shall in any way grant Licensee the right to use the trademark "Sony" in any manner as a trademark, trade name, service mark or logo other than as expressly permitted by Sony. Sony may amend such Licensed Trademarks upon reasonable notice to Licensee. 1.6 "Licensee Software" means Licensee's application object code and data (including audio and video material) developed by Licensee in accordance with this Agreement, which, when linked to any software provided by Sony, create Executable Software. 1 1.7 "Packaging" means, with respect to each Licensed Product, the carton, containers, packaging and wrapping materials (but excluding instructional manuals, liners or other user information for such Licensed Product to be inserted in the jewel case). 1.8 "Sony Materials" means any data, object code, source code, documentation, and hardware provided or supplied to Licensee by Sony, including, without limitation, any portion or portions of the development tools. 2. LICENSE GRANT. Sony hereby grants to Licensee, and Licensee hereby accepts, for the term of this Agreement, within the Licensed Territory, under Sony's Intellectual Property Rights, including without limitation any relevant patents Sony may own or have acquired by license, a non-exclusive, nontransferable license, without the right to sublicense (except as specifically provided herein): (i) to use the object code version of any software supplied by Sony that is intended to be combined with Licensee Software and executed on a Player internally as may reasonably be necessary to develop Licensed Products; (ii) to reproduce and distribute executable files for execution on a Player incorporating such software in accordance with the provisions of this License Agreement, including without limitation, Section 7; (iii) to market, distribute and sell such Licensed Products; (iv) to use the Licensed Trademarks in connection with the packaging, advertising and promotion of the Licensed Products; and (v) to sublicense to end users the right to use the Licensed Products for non- commercial purposes only and not for public performance. 3. DEVELOPMENT TOOLS. After execution of this Agreement, Sony will provide to Licensee the hardware and software development tools which Sony deems to be necessary for development of the Executable Software pursuant to an agreement to be entered into separately between the parties hereto. 4. LIMITATIONS ON LICENSES; RESERVATION OF RIGHTS. 4.1 REVERSE ENGINEERING PROHIBITED. Licensee hereby agrees not to ------------------------------ disassemble, peel semiconductor components, decompile, or otherwise reverse engineer or attempt to reverse engineer or derive source code from, all or any portion of the Sony Materials (whether or not all or any portion of the Sony Materials are integrated with the Licensee Software), or permit or encourage any third party to do so, or use or acquire any materials from any third party who does so. Licensee shall not use, modify, reproduce, sublicense, distribute, create derivative works from, or otherwise provide to third parties, the Sony Materials, in whole or in part, other than as expressly permitted by this License Agreement. Licensee shall be required in all cases to pay royalties in accordance with Section 9 hereto to Sony on any of Licensee's products utilizing Sony Materials or which are in any way derived from the disassembly, decompilation, reverse engineering of, or use of source code derived from, the Sony Materials. 4.2 RESERVATION OF SONY'S RIGHTS. The licenses granted in this License ---------------------------- Agreement extend only to development of Licensed Products for use on the Player, in such format as may be designated by Sony. Without limiting the generality of the foregoing, Licensee shall not have the right to distribute or transmit the Executable Software or the Licensed Products via electronic means or any other means now known or hereafter devised, including without limitation, via wireless, cable, fiber optic means, telephone lines, microwave and/or radio waves, or over a network of interconnected computers or other devices; provided, however, that Licensee may distribute the Licensed Software in its discretion so long as it does not contain any Sony Materials or Licensed Trademarks. This License Agreement does not grant any right or license, under any Intellectual Property Rights of Sony or otherwise, except as expressly provided herein, and no other right or license is to be implied by or inferred from any provision of this License Agreement or the conduct of the parties hereunder. Licensee shall not make use of any of the Sony Materials and Player or any Intellectual 2 Property Rights related to the Sony Materials and Player (or any portion thereof) except as authorized by and in compliance with the provisions of this License Agreement or as may be otherwise expressly authorized in writing by Sony. No right, license or privilege has been granted to Licensee hereunder concerning the development of any collateral product or other use or purpose of any kind whatsoever which displays or depicts any of the Licensed Trademarks. 4.3 RESERVATION OF LICENSEE'S RIGHTS. Licensee retains all rights, title -------------------------------- and interest in and to the Licensee Software, including without limitation, Licensee's Intellectual Property Rights therein, and nothing in this Agreement shall be construed to restrict the right of Licensee to develop products incorporating the Licensee Software (separate and apart from the Sony Materials) for any hardware platform or service other than the Player. 5. QUALITY STANDARDS FOR THE LICENSED PRODUCTS. 5.1 QUALITY ASSURANCE OF PRODUCT PROPOSAL. The Licensed Products, ------------------------------------- including, without limitation, the contents and title of each of the Licensed Products, and/or Licensee's use of any of the Licensed Trademarks, shall be subject to Sony's prior written approval, which shall be within Sony's sole discretion as to acceptable standards of quality. Before Licensee commences programming of the Licensee Software for each of the Licensed Products, Licensee shall submit to Sony, for Sony's written approval or disapproval, which shall not be unreasonably withheld or delayed, a written proposal (the "Product Proposal") [*]. In the event that Sony rejects such Product Proposal, Sony shall have the right in its sole discretion to request Licensee to make revisions or modifications to such proposal, and any such changes shall be made at Licensee's cost. Licensee shall notify Sony promptly in writing in the event of any material proposed change in any portion of the Product Proposal and shall, from time to time at the request of Sony for quality assurance purposes, submit work-in-progress on the Licensed Product during the development process, in a medium designated by Sony, for Sony's approval. Sony agrees to be reasonable with respect to work-in-progress submissions. Sony shall have the right, from time-to-time with appropriate notice to Licensee, to limit the number of proposed Licensed Products that Licensee may submit to Sony for review and approval or disapproval, during any [*] period following the effective date of this Agreement. [*] Licensee agrees that all Licensed Products will be designed (if an original title for the Player) or modified (if a pre-existing title) to substantially utilize the particular capabilities of the Sony Materials and the Player, as may be described in the Product Proposal relating to that Licensed Product. 5.2 APPROVAL OF EXECUTABLE SOFTWARE. Following Sony's written approval of ------------------------------- the Product Proposal, Licensee shall on or before the date specified in the Product Proposal, deliver to Sony for its inspection and evaluation, a prototype of the Executable Software for the proposed Licensed Product. Such prototype shall be in the format prescribed by Sony. Sony will evaluate such prototype Executable Software and notify Licensee in writing of its approval or disapproval of such Executable Software, which shall not be unreasonably withheld or delayed. If such Executable Software is disapproved, Sony shall specify the reasons for such disapproval in writing and state what corrections and/or improvements are necessary. After making the necessary corrections and/or improvements, Licensee may submit a new prototype for approval or disapproval by Sony. No approval by Sony of any element of the Executable Software shall be deemed an approval of any other element of the Licensed Product, nor shall any such approval be deemed to constitute a waiver of any of Sony's rights under this Agreement. ____________ [*] Confidential Portions Omitted and Filed Separately with the Commission. 3 5.3 APPROVAL OF PACKAGING AND ARTWORK. For each proposed Licensed --------------------------------- Product, Licensee shall be responsible, at Licensee's expense, for developing all artwork and mechanicals ("Artwork") set forth on the Packaging, and all instructional manuals, liners and other user materials ("Inserts") inserted into the jewel box (Artwork and Inserts herein collectively referred to as "Printed Materials"). All Printed Materials shall comply with the requirements of the Sony Guidelines (hereinafter "Guidelines") to be provided to Licensee subsequent to the execution of this License Agreement, and as may be amended from time to time by Sony. At the time prototype Executable Software for a proposed Licensed Product is submitted to Sony for inspection and evaluation, Licensee shall also deliver to Sony, for review and evaluation, the proposed final Printed Materials for such proposed Licensed Product, and a form of limited warranty for the proposed Licensed Product. Licensee agrees that the quality of such Printed Materials shall be of the same quality as that associated with high quality consumer products. Sony shall promptly evaluate any and all proposed Printed Materials submitted to Sony by Licensee, and shall use reasonable efforts to approve or disapprove any such submitted Printed Materials [*]. If any of the Printed Materials are disapproved, Sony shall specify the reasons for such disapproval and state what corrections are necessary. After making the necessary corrections to the disapproved Printed Materials, Licensee may submit new proposed Printed Materials for approval by Sony. Sony shall not unreasonably withhold its approval of the proposed Printed Materials submitted for review by Licensee. No approval by Sony of any element of the Printed Materials shall be deemed an approval of any other element of the Licensed Product, nor shall any such approval be deemed to constitute a waiver of any of Sony's rights under this Agreement. 5.4 ADVERTISING MATERIALS. Pre-production samples of the advertising, --------------------- merchandising, promotional, and display materials of or concerning the Licensed Products (collectively referred to hereinafter as the "Advertising Materials") shall be submitted by Licensee to Sony, free of cost, for Sony's evaluation and approval as to quality, style, appearance, usage of any of the Licensed Trademarks, and appropriate reference of the notices, prior to any actual production, use, or distribution of any such items by Licensee or in its behalf. No such proposed Advertising Materials shall be produced, used, or distributed directly or indirectly by Licensee without first obtaining the written approval of Sony. Sony shall promptly evaluate any and all Advertising Materials submitted to Sony by Licensee, and shall use reasonable efforts to approve or disapprove any such submitted Advertising Materials [*]. Subject in each instance to the prior written approval of Sony, Licensee may use such textual and/or pictorial advertising matter (if any) as may be created by Sony or in its behalf pertaining to the Sony Materials and/or to the Licensed Trademarks on such promotional and advertising materials as may, in Licensee's judgment, promote the sale of the Licensed Products within the Licensed Territory. Sony shall have the right to use the Licensed Products in any advertising or promotion for Player at Sony's expense, subject to giving Licensee reasonable prior notice of such advertisement or promotion. Sony shall confer with Licensee regarding the text of any such advertisement. If required by Sony and/or any governmental entity, Licensee shall include, at Licensee's cost and expense, the required consumer advisory rating code(s) on any and all marketing and advertising materials used in connection with the Licensed Product, which shall be procured in accordance with the provisions of Section 6 below. 6. LABELING REQUIREMENTS. All Printed Materials for each unit of the Licensed Products shall have conspicuously, legibly and irremovably affixed thereto the notices specified in a template to be provided to Licensee subsequent to the execution of this License Agreement, which template may be amended from time to time by Sony during the term of this License Agreement. Licensee agrees that, if required by Sony or any governmental entity, it shall submit each Licensed Product to a consumer advisory ratings system designated by Sony and/or such governmental entity for the purpose of obtaining rating code(s) for each Licensed Product. Any and all costs and expenses incurred in connection with obtaining such rating code(s) shall be borne solely by Licensee. Any required consumer advisory rating code(s) procured hereby shall be displayed on the Licensed Product and the associated Printed Materials in accordance with the Guidelines, at Licensee's cost and expense. ____________ [*] Confidential Portions Omitted and Filed Separately with the Commission. 4 7. MANUFACTURE OF THE LICENSED PRODUCTS. 7.1 MANUFACTURE BY SONY. ------------------- 7.1.1 APPOINTMENT OF SONY [ * ]. Licensee hereby appoints Sony, -------------------------- and Sony hereby accepts such appointment, as the [*] manufacturer of all units of the Licensed Products. Licensee acknowledges and agrees that it shall purchase from Sony [*] percent of its requirements for finished units of the Licensed Products and Inserts for such Licensed Products, subject to Section 7.1.3 below, during the term of the Agreement. Sony shall provide to Licensee written specifications setting forth terms relating to the manufacturing of Licensed Products and their component parts ("Specifications") subsequent to execution of this Agreement, which may be amended from time to time upon reasonable notice to Licensee. Sony shall have the right, but no obligation, to subcontract any phase of production of any or all of the Licensed Products or any part thereof. 7.1.2 CREATION OF MASTER CD-ROM. Following approval by Sony of ------------------------- each Licensed Product pursuant to Section 5.2, Licensee shall provide Sony with two (2) copies (in the form of CD write-once discs or such other form as may be requested by Sony in the Specifications) of the pre-production Executable Software for the original master CD-ROM (the "Master CD-ROM") from which all other copies of the Licensed Product are to be replicated. Promptly following such receipt of such samples, Sony shall create the Master CD-ROM from one (1) such sample of the pre-production Executable Software in compliance with specifications effective at the time of replication. The price for mastering shall be based on the market price for mastering CD-ROM discs, plus costs necessary to protect Sony's Intellectual Property Rights in the Sony Materials and the Player. Licensee shall be responsible for the costs, as set forth in the Specifications, of creating such Master CD-ROM. In order to insure against loss or damage to the copies of the Executable Software furnished to Sony, Licensee will retain duplicates of all such Executable Software. Sony shall not be liable for loss of or damage to any copies of the Executable Software. 7.1.3 DELIVERY OF PRINTED MATERIALS. Licensee shall deliver the ----------------------------- film for all Printed Materials to Sony or at Sony's option to Sony's designated manufacturing facility in accordance with the Specifications, at Licensee's sole risk and expense. In the event that Licensee elects to be responsible for manufacturing the Printed Materials, Licensee shall deliver such Printed Materials, in the minimum order quantities set forth in Section 7.2.2 below. 7.1.4 MANUFACTURE OF UNITS. Upon approval, pursuant to Section 5, -------------------- of such pre-production samples of the Executable Software for the Master CD-ROM and the associated Artwork, Sony will, in accordance with the terms and conditions set forth in this Section 7, and at Licensee's expense (a) manufacture units of the Licensed Product for Licensee; (b) manufacture Licensee's Packaging and Inserts (subject to Licensee's right to manufacture its own Printed Materials at Licensee's sole cost and expense); and (C) package the CD-ROMs with the Printed Materials. 7.2 PRICE, PAYMENT AND TERMS. ------------------------ 7.2.1 PRICE. The applicable price for manufacture of any units of ----- the Licensed Products ordered hereunder shall be determined by Sony and provided to Licensee in the Specifications prior to manufacture of the Licensed Products. Such price shall be based on [*] (subject to Section 7.1.4 above), [*] provided by Sony [*]. Purchase price(s) shall be stated in United States dollars and are subject to change by Sony at any time upon reasonable notice to Licensee; provided, however, the applicable price shall not be changed with respect to any units of the Licensed Products which are the subject of an effective purchase order but which have not yet been delivered by Sony at the designated F.O.B. point. Prices ____________ [*] Confidential Portions Omitted and Filed Separately with the Commission. 5 for the finished units of the Licensed Products are exclusive of any foreign or U.S. federal, state, or local sales or value-added tax, use, excise, customs duties or other similar taxes or duties, which Sony may be required to collect or pay as a consequence of the sale or delivery of any units of the Licensed Products to Licensee. Licensee shall be solely responsible for the payment or reimbursement of any such taxes, fees, and other such charges or assessments applicable to the sale and/or purchase of any finished units of any of the Licensed Products. 7.2.2 ORDERS. Licensee shall issue to Sony written purchase ------ order(s) in accordance with the Specifications. Such orders shall reference this Agreement, give Licensee authorization number, specify quantities by Licensed Product, state requested delivery date and all packaging information and be submitted on or with an order form to be provided in the Specifications. Licensee acknowledges that Sony may impose lead times (a) with respect to initial orders, of [*] from the date on which Sony receives all materials necessary to complete the manufacturing of Licensed Products pursuant to this Section 7 and the Specifications referred to herein, and (b) with respect to reorders, [*] provided that Sony has in inventory additional Printed Materials in anticipation of reorders as set forth in this Section. All purchase orders shall be subject to acceptance by Sony. Licensee shall issue to Sony, for each of the Licensed Products approved by Sony pursuant to Section 5.1, a non- cancelable Purchase Order for at least [*] units of such Licensed Product. In the event that Sony manufactures the Printed Materials for the Licensee pursuant to Section 7.1.3 above, Licensee may, at Licensee's option, allow Sony to purchase an additional 20% of such Printed Materials at Licensee's expense in anticipation of reorders. Licensee agrees that such Printed Materials will be stored by Sony for a period of no more than ninety (90) days. Licensee may order additional units of any of such Licensed Products in the minimum reorder quantity of [*] units per order, provided that reorder quantities may be less than [*] units per order (but in no event less than [*] units per order), in Sony's sole discretion, in the event that either (i) Sony has additional quantities of Printed Materials in stock with respect to any such Licensed Product, or (ii) Licensee agrees to provide its own Printed Materials in accordance with Section 7.1.3 above. Licensee shall have no right to cancel or reschedule any Purchase Order (or any portion thereof) for any of the Licensed Products unless the parties shall first have reached mutual agreement as to Licensee's financial liability with respect to any desired cancellation or rescheduling of any such Purchase Order (or any portion thereof). 7.2.3 PAYMENT TERMS. Orders will be invoiced upon shipment, and ------------- will include royalties payable pursuant to Section 9 hereto. Each invoice will be paid within [*] days of the date of the invoice. No other deduction may be made from remittances unless an approved credit memo has been issued by Sony. No claim for credit due to shortage or breakage will be allowed unless it is made within seven (7) days from the date of shipment. Each shipment of Licensed Products to Licensee shall constitute a separate sale obligating Licensee to pay therefore, whether said shipment be whole or partial fulfillment of any order. All sums owed or otherwise payable to Sony under this Section 7 and under Section 9 hereto shall bear interest at the rate of one and one-half (1-1/2%) percent per month, or such lower rate as may be the maximum rate permitted under applicable law, from the date upon which payment of the same shall first become due up to and including the date of payment thereof whether before or after judgment. Licensee shall be additionally liable for all of Sony's costs and expenses of collection, including, without limitation, reasonable fees for attorneys and court costs. Notwithstanding the foregoing, such specified rate of interest shall not excuse or be construed as a waiver of Licensee's obligation to timely provide any and all payments owed to Sony hereunder. 7.3 DELIVERY OF LICENSED PRODUCTS. Sony shall have no obligation to store ----------------------------- completed units of Licensed Products. Delivery of Licensed Products shall be in accordance with the Specifications. Title, risk of loss, or damage in transit to any and all Licensed Products manufactured by Sony pursuant to Licensee's orders shall vest in Licensee immediately upon delivery to the carrier. ____________ [*] Confidential Portions Omitted and Filed Separately with the Commission. 6 7.4 TECHNOLOGY EXCHANGE AND QUALITY ASSURANCE. There will be no ----------------------------------------- technology exchange between Sony and Licensee under this Agreement. Due to the proprietary nature of the mastering process, Sony will not under any circumstances release any master discs or other in-process materials to the Licensee. All such physical master discs, stampers, etc. shall be and remain the sole property of Sony. 7.5 INSPECTION AND ACCEPTANCE. Licensee may inspect and test any units of ------------------------- the Licensed Products at Licensee's receiving destination. Any finished units of the Licensed Products which fail to conform to the Specifications and/or any descriptions contained in this Agreement may be rejected by Licensee by providing written notice thereof to Sony within thirty (30) days of receipt of such units of the Licensed Products at Licensee's receiving destination. In such event, the provisions of Section 11.4 regarding Sony's warranty of the units shall apply with respect to any such rejected units of the Licensed Products. Subject to the provisions of Section 11.4.1 hereto, if Licensee fails to properly reject any units of the Licensed Products within such thirty (30) day period, such Licensed Product units shall be deemed accepted by Licensee and may not be subsequently rejected. 8. MARKETING AND DISTRIBUTION. In accordance with the provisions of this License Agreement, Licensee shall, at no expense to Sony, diligently market, sell and distribute the Licensed Products, and shall use its reasonable best efforts to stimulate demand for such Licensed Products in the Licensed Territory and to supply any resulting demand. Licensee shall use its reasonable best efforts to protect the Licensed Products from and against illegal reproduction and/or copying by end users or by any other persons or entities. Such methods of protection may include, without limitation, markings or insignia providing identification of authenticity and packaging seals. Subject to availability, Licensee shall sell to Sony quantities of the Licensed Products at as low a price and on terms as favorable as Licensee sells similar quantities of the Licensed Products to the general trade; provided, however, Sony shall not directly or indirectly resell any such units of the Licensed Products within the Licensed Territory without Licensee's prior written consent. 9. ROYALTIES. Licensee shall pay Sony a per unit royalty in United States dollars, as set forth on Exhibit B hereto, for each unit of the Licensed Products manufactured. Payment of such royalties shall be made to Sony in conjunction with the payment to Sony of the manufacturing costs for each unit and pursuant to the payment terms of Section 7.2.3 hereto. No costs incurred in the development, manufacture, marketing, sale, and/or distribution of the Licensed Products shall be deducted from any royalties payable to Sony hereunder. [*] Similarly, there shall be no deduction from the royalties otherwise owed to Sony hereunder as a result of any uncollectible accounts owed to Licensee, or for any credits, discounts, allowances or returns which Licensee may credit or otherwise grant to any third party customer of any units of the Licensed Products, or for any taxes, fees, assessments, or expenses of any kind which may be incurred by Licensee in connection with its sale and/or distribution of any units of the Licensed Products and/or arising with respect to the payment of royalties hereunder. In addition to the royalty payments provided to Sony hereunder, Licensee shall be solely responsible for and bear any cost relating to any withholding taxes and/or other such assessments which may ____________ [*] Confidential Portions Omitted and Filed Separately with the Commission. 7 provide Sony with official tax receipts or other such documentary evidence issued by the applicable tax authorities sufficient to substantiate that any such taxes and/or assessments have in fact been paid. 10. REPRESENTATIONS AND WARRANTIES. 10.1 REPRESENTATIONS AND WARRANTIES OF SONY. Sony represents and warrants -------------------------------------- solely for the benefit of Licensee that Sony has the right, power and authority to enter into this License Agreement and to fully perform its obligations hereunder. 10.2 REPRESENTATIONS AND WARRANTIES OF LICENSEE. Licensee represents and ------------------------------------------ warrants that: (i) there is no threatened or pending action, suit, claim or proceeding alleging that the use by Licensee of all or any part of the Licensee Software or any underlying work or content embodied therein, or any name, designation or trademark used in conjunction with the Licensed Products infringes or otherwise violates any Intellectual Property Right or other right or interest of any kind whatsoever of any third party, or otherwise contesting any right, title or interest of Licensee in or to the Licensee Software or any underlying work or content embodied therein, or any name, designation or trademark used in conjunction with the Licensed Products; (ii) Licensee has the right, power and authority to enter into this License Agreement and to fully perform its obligations hereunder; (iii) the making of this License Agreement by Licensee does not violate any separate agreement, rights or obligations existing between Licensee and any other person or entity, and, throughout the term of this License Agreement, Licensee shall not make any separate agreement with any person or entity that is inconsistent with any of the provisions of this License Agreement; (iv) Licensee shall not make any representation or give any warranty to any person or entity expressly or impliedly on Sony's behalf, or to the effect that the Licensed Products are connected in any way with Sony (other than that the Licensed Products have been developed, marketed, manufactured, sold, and/or distributed under license from Sony), (v) the Executable Software shall be distributed by Licensee solely in object code form; (vi) each of the Licensed Products shall be marketed, sold, and distributed in an ethical manner and in accordance with all applicable laws and regulations; and (vii) Licensee's policies and practices with respect to the marketing, sale, and/or distribution of the Licensed Products shall in no manner reflect adversely upon the name, reputation or goodwill of Sony. 11. INDEMNITIES; LIMITED LIABILITY. ------------------------------ 11.1 INDEMNIFICATION BY SONY. Sony shall indemnify and hold Licensee ----------------------- harmless from and against any and all claims, losses, liabilities, damages, expenses and costs, including, without limitation, reasonable fees for attorneys, expert witnesses and litigation costs, and including costs incurred in the settlement or avoidance of any such claim which result from or are in connection with a breach of any of the representations or warranties provided by Sony herein; provided, however, that Licensee shall give prompt written notice to Sony of the assertion of any such claim, and provided, further, that Sony shall have the right to select counsel and control the defense and/or settlement thereof, subject to the right of Licensee to participate in any such action or proceeding at its own expense with counsel of its own choosing. Sony shall have the exclusive right, at its discretion, to commence and prosecute at its own expense any lawsuit or to take such other action with respect to such matters as shall be deemed appropriate by Sony. Licensee agrees to provide Sony, at no expense to Licensee, reasonable assistance and cooperation concerning any such matter; and Licensee shall not agree to the settlement of any such claim, action or proceeding without Sony's prior written consent. 11.2 INDEMNIFICATION BY LICENSEE. Licensee shall indemnify and hold Sony --------------------------- harmless from and against any and all claims, losses, liabilities, damages, expenses and costs, including, without limitation, reasonable fees for attorneys, expert witnesses and litigation costs, and including costs incurred in the settlement or avoidance of any such claim, which result from or are in connection with (i) a breach of any of the representations or warranties provided by Licensee herein, including without limitation claims resulting from Licensee's failure to timely pay, any withholding taxes or other assessments as set forth in Section 9 8 hereto or any breach of Licensee's confidentiality obligations as set forth in Section 14 hereto; or (ii) any claim of infringement or alleged infringement of any third party's Intellectual Property Rights with respect to the Licensee Software; or (iii) any claims of or in connection with any bodily injury (including death) or property damage, by whomsoever such claim is made, arising out of, in whole or in part, the sale, and/or use of any of the Licensed Products manufactured by Sony hereunder, unless due to the negligence of Sony in performing any of the specific duties and/or providing any of the specific manufacturing services required of it hereunder; provided, however, that Sony shall give prompt written notice to Licensee of the assertion of any such claim, and provided, further, that Licensee shall have the right to select counsel and control the defense and/or settlement thereof, subject to the right of Sony to participate in any such action or proceeding at its own expense with counsel of its own choosing. Licensee shall have the exclusive right, at its discretion, to commence and/or prosecute at its own expense any lawsuit or to take such other action with respect to such matter as shall be deemed appropriate by Licensee. Sony shall provide Licensee, at no expense to Sony, reasonable assistance and cooperation concerning any such matter. If Sony is joined as a party to any lawsuit initiated by or against Licensee, Licensee shall indemnify and hold Sony harmless from and against all claims, losses, liabilities, damages, expenses and costs, including, without limitation, reasonable fees for attorneys and court costs, incurred in connection with any such lawsuit. Sony shall not agree to the settlement of any such claim, action or proceeding without Licensee's prior written consent. 11.3 LIMITATION OF LIABILITY; LICENSEE'S OBLIGATIONS. ----------------------------------------------- 11.3.1 LIMITATION OF SONY'S LIABILITY. IN NO EVENT SHALL SONY OR ------------------------------ ITS AFFILIATES, SUPPLIERS OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS BE LIABLE FOR PROSPECTIVE PROFITS, OR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, INCLUDING WITHOUT LIMITATION THE BREACH OF THIS AGREEMENT BY SONY, THE MANUFACTURE OF THE LICENSED PRODUCTS AND THE USE OF THE LICENSED PRODUCTS BY LICENSEE OR ANY END-USER, WHETHER UNDER THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE), INDEMNITY, PRODUCT LIABILITY OR OTHERWISE. IT IS THE RESPONSIBILITY OF LICENSEE TO REVIEW THE ACCURACY OF THE DATA ON THE UNITS MANUFACTURED BY SONY FOR LICENSEE. IN NO EVENT SHALL SONY'S LIABILITY ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT, INCLUDING WITHOUT LIMITATION ANY LIABILITY FOR DIRECT DAMAGES, AND INCLUDING WITHOUT LIMITATION ANY LIABILITY UNDER SECTION 11.1 AND ANY WARRANTY IN SECTION 11.4 HERETO, EXCEED THE TOTAL AMOUNT PAID BY LICENSEE TO SONY UNDER THIS AGREEMENT. EXCEPT AS EXPRESSLY SET FORTH HEREIN, NEITHER SONY, NOR ANY AFFILIATE, NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, SHALL BEAR ANY RISK, OR HAVE ANY RESPONSIBILITY OR LIABILITY, OF ANY KIND TO LICENSEE OR TO ANY THIRD PARTIES WITH RESPECT TO THE QUALITY AND/OR PERFORMANCE OF ANY PORTION OF THE SONY MATERIALS OR THE LICENSED PRODUCTS, INCLUDING, WITHOUT LIMITATION, THE OPERATION OR PERFORMANCE OF ANY OF THE LICENSED PRODUCTS. 11.3.2 LIMITATION OF LICENSEE'S LIABILITY. IN NO EVENT SHALL ---------------------------------- LICENSEE BE LIABLE TO SONY FOR ANY PROSPECTIVE PROFITS, OR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH (i) THIS AGREEMENT OR (ii) THE USE OR DISTRIBUTION IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS AGREEMENT OF ANY OBJECT CODE PROVIDED BY SONY, IN WHOLE OR IN PART, OR ANY LICENSEE SOFTWARE BY LICENSEE OR ANY THIRD PARTY, WHETHER UNDER THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE), INDEMNITY, PRODUCT LIABILITY OR OTHERWISE, PROVIDED THAT LICENSEE EXPRESSLY AGREES THAT SUCH LIMITATIONS SHALL NOT APPLY TO DAMAGES RESULTING FROM LICENSEE'S BREACH OF SECTIONS 2, 4, 11.2, 12.2 OR 14 OF THIS AGREEMENT, AND PROVIDED FURTHER THAT SUCH LIMITATIONS SHALL NOT APPLY TO AMOUNTS WHICH LICENSEE MAY BE REQUIRED TO PAY TO THIRD PARTIES UNDER SECTIONS 11.2 OR 17.9. 9 11.3.3 LICENSEE'S OBLIGATIONS. If at any time or times subsequent ---------------------- to the approval of the Executable Software pursuant to Section 5.2, Sony identifies any material bugs with respect to the Licensed Product or any bugs are brought to the attention of Sony, Licensee shall, at no cost to Sony, promptly correct any such bugs, to Sony's reasonable satisfaction. In the event any units of any of the Licensed Products create any risk of loss or damage to any property or injury to any person, Licensee shall immediately take effective steps, at Licensee's sole liability and expense, to recall and/or to remove such defective product units from any affected channels of distribution. Licensee shall provide all end-user support for the Licensed Products. 11.4 WARRANTIES; DISCLAIMER OF WARRANTIES. ------------------------------------ 11.4.1 MANUFACTURING WARRANTY. Sony warrants that the units that are manufactured by Sony for Licensee pursuant to Section 7 of this Agreement shall, at time of delivery to Licensee, be [*]. The sole obligation of Sony under this warranty shall be, for a period of [*] the date of shipment of such discs by Sony to Licensee, at Sony's election, either to replace, to issue credit, or to refund to Licensee the purchase price paid to Sony for any such [*]. Such warranty is the only warranty applicable to the Licensed Product manufactured by Sony for Licensee pursuant to Section 7 of this Agreement. This warranty shall not apply to damage resulting from accident, alteration, negligence or misuse of the Licensed Products. If, during the aforesaid period, a [*] is received by Licensee, Licensee shall notify Sony and, upon request by Sony, provide Sony with the returned disc(s) and a written description of the [*]. Sony shall not accept the return of any disc(s) except [*] (i.e., those discs that are not [*], and all such returns must be authorized by Sony in writing and in advance. All discs for which return is authorized will be sent to a place designated by Sony at Sony's expense. If the defect did not arise from causes placing liability on Sony under the above warranty, Licensee shall reimburse Sony for expenses incurred in shipping, processing and analyzing the discs. Sony's judgment as to the [*] shall be final and binding. 11.4.2 DISCLAIMER OF WARRANTY. EXCEPT AS OTHERWISE EXPRESSLY SET ---------------------- FORTH ABOVE, NEITHER SONY NOR ITS AFFILIATES AND SUPPLIERS MAKE, NOR DOES LICENSEE RECEIVE, ANY WARRANTIES, EXPRESS, IMPLIED OR STATUTORY REGARDING THE SONY MATERIALS AND THE PLAYER AND/OR THE UNITS OF THE LICENSED PRODUCTS MANUFACTURED HEREUNDER. SONY SHALL NOT BE LIABLE FOR ANY INJURY, LOSS OR DAMAGE, DIRECT OR CONSEQUENTIAL, ARISING OUT OF THE USE OR INABILITY TO USE THE UNITS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SONY AND ITS AFFILIATES AND SUPPLIERS EXPRESSLY DISCLAIM THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND THEIR EQUIVALENTS UNDER THE LAWS OF ANY JURISDICTION, REGARDING THE SONY MATERIALS AND THE PLAYER AND/OR THE UNITS MANUFACTURED HEREUNDER. ANY WARRANTY AGAINST INFRINGEMENT THAT MAY BE PROVIDED IN SECTION 2-312(3) OF THE UNIFORM COMMERCIAL CODE AND/OR IN ANY OTHER COMPARABLE STATUTE IS EXPRESSLY DISCLAIMED. 12. COPYRIGHT, TRADEMARK AND TRADE SECRET RIGHTS. 12.1 LICENSEE RIGHTS. The copyrights with respect to the Licensee --------------- Software (exclusive of the rights licensed from Sony hereunder) and any names or other designations used as titles for the Licensed Products are and shall be the exclusive property of Licensee or of any third party from which Licensee has been granted the license and related rights to develop and otherwise exploit any such Licensee Software or any such names or other designations. ____________ [*] Confidential Portions Omitted and Filed Separately with the Commission. 10 12.2 SONY RIGHTS. ----------- 12.2.1 LICENSED TRADEMARKS. The Licensed Trademarks and the ------------------- goodwill associated therewith are and shall be the exclusive property of Sony. Nothing herein shall give Licensee any right, title or interest in or to any of the Licensed Trademarks, other than the non-exclusive license and privilege during the term hereof to display and use the Licensed Trademarks solely in accordance with the provisions of this License Agreement. Licensee shall not do or cause to be done any act or thing contesting or in any way impairing or tending to impair any of Sony's rights, title, or interests in or to any of the Licensed Trademarks, nor shall Licensee register any trademark in its own name or in the name of any other person or entity which is similar to or is likely to be confused with any of the Licensed Trademarks. 12.2.2 LICENSE OF SONY MATERIALS AND PLAYER. Subject to the rights ------------------------------------ granted by Sony to Licensee hereunder, all rights with respect to the Sony Materials and Player, including, without limitation, all of Sony's Intellectual Property Rights therein, are and shall be the exclusive property of Sony. Nothing herein shall give Licensee any right, title or interest in or to the Sony Materials or the Player (or any portion thereof), other than the non- exclusive license and privilege during the term hereof to use the Sony Materials and Player for the development of the Executable Software solely in accordance with the provisions of this License Agreement. Licensee shall not do or cause to be done any act or thing contesting or in any way impairing or tending to impair any of Sony's rights, title, and/or interests in or to the Sony Materials or the Player (or any portion thereof). 12.3 EFFECT OF TERMINATION. Upon the expiration or earlier termination of --------------------- this License Agreement for any reason, Licensee shall immediately cease and desist from any further use of the Licensed Trademarks and Sony Materials licensed hereunder, subject to the provisions of Section 16.3, below. 13. COPYRIGHT, TRADEMARK AND TRADE SECRET PROTECTION. In the event that either Licensee or Sony discovers or otherwise becomes aware that any of the Intellectual Property Rights of the other embodied in any of the Licensed Products have been or are being infringed upon by any third party, then the party with knowledge of such infringement or apparent infringement shall promptly notify the other party. 14. CONFIDENTIALITY. 14.1 NONDISCLOSURE AGREEMENT. Licensee hereby acknowledges that the ----------------------- Nondisclosure Agreement dated December 14, 1993 between Sony and Licensee ("Nondisclosure Agreement") will remain in full force and effect with respect to the Confidential Information of Sony throughout the term of this Agreement. In the event of any conflict or inconsistency between the provisions of the Nondisclosure Agreement and the provisions of this Section 14, the provisions of the Nondisclosure Agreement shall control with respect to the Confidential Information of Sony. 14.2 CONFIDENTIAL INFORMATION. For the purposes of this License Agreement, ------------------------ "Confidential Information" of Sony means (i) the Sony Materials and information regarding Sony's finances, business, marketing and technical plans, (ii) all documentation and information relating to the foregoing (other than documentation and information expressly intended for use by and released to end users or the general public), and (iii) any and all other information, of whatever type and in whatever medium (including without limitation all data, ideas, discoveries, developments, know-how, trade secrets, inventions, creations and improvements), that is disclosed in writing or in any other form by Sony to Licensee. "Confidential Information" of Licensee shall mean the Licensee Software as provided to Sony pursuant to this License Agreement and all documentation and information relating thereto that is disclosed in writing or in any other form by Licensee to Sony if the information is designated as (or is provided under circumstances indicating the information is) confidential or proprietary. 11 14.3 PRESERVATION OF CONFIDENTIALITY; NON-DISCLOSURE. Each party ----------------------------------------------- ("receiving party") shall hold all Confidential Information of the other party ("disclosing party") in trust and in strict confidence for the sole benefit of the disclosing party and for the exercise of the limited rights expressly granted to the receiving party under this License Agreement. The receiving party shall take all steps necessary to preserve the confidentiality of the Confidential Information of the disclosing party, and to prevent it from falling into the public domain or into the possession of persons other than those persons to whom disclosure is authorized hereunder, including but not limited to those steps that the receiving party takes to protect the confidentiality of its own most highly confidential information. Except as may be expressly authorized by the disclosing party in writing, the receiving party shall not at any time, either before or after any termination of this License Agreement, directly or indirectly: (i) disclose any Confidential Information to any person other than an employee or subcontractor of the receiving party who needs to know or have access to such Confidential Information for the purposes of this License Agreement, and only to the extent necessary for such purposes (and with respect to any subcontractor, only in accordance with Section 17.5 below); (ii) except as otherwise provided in this License Agreement, duplicate the Confidential Information for any purpose whatsoever; (iii) use the Confidential Information for any reason or purpose other than as expressly permitted in this License Agreement; or (iv) remove any copyright notice, trademark notice and/or other proprietary legend set forth on or contained within any of the Confidential Information. 14.4 OBLIGATIONS UPON UNAUTHORIZED DISCLOSURE. ---------------------------------------- 14.4.1 NOTICE TO DISCLOSING PARTY. If at any time the receiving -------------------------- party becomes aware of any unauthorized duplication, access, use, possession or knowledge of any Confidential Information, the receiving party shall immediately notify the disclosing party. The receiving party shall provide any and all reasonable assistance to the disclosing party to protect the disclosing party's proprietary rights in any Confidential Information that the receiving party or its employees or permitted subcontractors may have directly or indirectly disclosed or made available and that may be duplicated, accessed, used, possessed or known in a manner or for a purpose not expressly authorized by this License Agreement including but not limited to enforcement of confidentiality agreements, commencement and prosecution in good faith (alone or with the disclosing party) of legal action, and reimbursement for all reasonable attorneys' fees (and all related costs), costs and expenses incurred by the disclosing party to protect its proprietary rights in the Confidential Information. The receiving party shall take all reasonable steps requested by the disclosing party to prevent the recurrence of any unauthorized duplication, access, use, possession or knowledge of the Confidential Information. 14.4.2 ACCOUNTING, ETC. If Licensee violates or fails to comply --------------- with any of the terms or conditions of this Section 14 or Section 4 hereto, Sony shall be entitled to an accounting and repayment of all forms of compensation, commissions, remuneration or benefits which Licensee directly or indirectly realizes as a result of or in connection with any such violation or failure to comply. Such remedy shall be in addition to and not in limitation of any injunctive relief or other remedies to which Sony may be entitled under this Agreement or otherwise, at law or in equity. 14.5 EXCEPTIONS. The foregoing restrictions will not apply to information ---------- to the extent that the receiving party can demonstrate such information: (i) was known to the receiving party at the time of disclosure to the receiving party by the disclosing party as shown by the files of the receiving party in existence at the time of disclosure; (ii) becomes part of information in the public domain through no fault of the receiving party; (iii) has been rightfully received from a third party authorized by the disclosing party to make such disclosure without restriction; (iv) has been approved for release by prior written authorization of the disclosing party; or (v) has been disclosed by court order or as otherwise required by law (including without limitation to the extent that disclosure may be required under Federal or state securities laws), provided that the receiving party has notified the disclosing party immediately upon learning of the possibility of any such court order or legal requirement and has given the disclosing party a reasonable opportunity (and cooperated with the disclosing party) to contest or limit the scope of such required disclosure (including application for a protective order). Information shall not be deemed known to the receiving party or publicly 12 known for purposes of the above exceptions (A) merely because it is embraced by more general information in the prior possession of the receiving party or others, or (B) merely because it is expressed in public material in general terms not specifically the same as Confidential Information. 14.6 CONFIDENTIALITY OF AGREEMENT. The terms and conditions of this ---------------------------- License Agreement shall be treated as Confidential Information; provided that each party may disclose the terms and conditions of this License Agreement: (i) to legal counsel; (ii) in confidence, to accountants, banks and financing sources and their advisors; and (iii) in confidence, in connection with the enforcement of this License Agreement or rights under this License Agreement. Both parties shall treat the fact that the parties have entered into this License Agreement as Confidential Information until a public announcement regarding this License Agreement is released by Sony, at its sole discretion, announcing that Licensee has become a Licensee under this License Agreement. 15. TERM AND TERMINATION. 15.1 EFFECTIVE DATE; TERM. This License Agreement shall not be binding -------------------- upon the parties until it has been signed by or on behalf of each party, in which event it shall be effective as of the date first written above (the "Effective Date"). Unless sooner terminated in accordance with the provisions hereof, the initial term of this License Agreement shall be for four (4) years from the Effective Date. 15.2 TERMINATION BY SONY. Sony shall have the right to terminate this ------------------- License Agreement immediately, by providing written notice of such election to Licensee, upon the occurrence of any of the following events or circumstances: (i) If Licensee breaches any of its material obligations provided for in this License Agreement, including, but not limited to, a failure to pay any amount due hereunder, and such breach is not corrected or cured within thirty (30) days after receipt of written notice of such breach; (ii) Licensee's statement that it is unable to pay any amount due hereunder, or is unable to pay its debts generally as they shall become due; or (iii) Licensee's filing of an application for, or consenting to, or directing the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of all or substantially all of Licensee's property, whether tangible or intangible, wherever located; or (iv) The making by Licensee of a general assignment for the benefit of creditors; or (v) The commencing by Licensee or Licensee's intention to commence a voluntary case under any applicable bankruptcy laws (as now or hereafter may be in effect); or (vi) The adjudication that Licensee is a bankrupt or insolvent; or (vii) The filing by Licensee or the intent to file by Licensee of a petition seeking to take advantage of any other law providing for the relief of debtors; or (viii) Licensee's acquiescence to, intention to acquiesce to, or failure to have dismissed within ninety (90) days, any petition filed against it in any involuntary case under any such bankruptcy law; or (ix) If control of more than [*] of the ownership of Licensee or substantially all of Licensee's assets are transferred to any person or entity [*]. 15.3 PRODUCT-BY-PRODUCT TERMINATION BY SONY. In addition to the events of -------------------------------------- termination described in Section 15.2, above, Sony, at its option, shall be entitled to terminate, on a product-by-product basis, the licenses and related rights herein granted to Licensee (a) in the event that Licensee fails to notify Sony promptly in writing of any material change to any of the elements approved in Section 5.1, above; (b) if Licensee fails to provide Sony in accordance with the provisions of Section 5.2, above, with the prototype Executable Software for any Licensed Product, in the format required by Sony, and which meets Sony's specifications; provided, however, Sony shall not be entitled to exercise such right of termination if Licensee's ____________ [*] Confidential Portions Omitted and Filed Separately with the Commission. 13 failure to provide such final Executable Software for any of the Licensed Products is directly caused by Sony's failure to timely comply with any of its material obligations expressly set forth herein. 15.4 NO REFUNDS. In the event of the termination of this License Agreement ---------- in accordance with any of the provisions of Sections 15.2 or 15.3, above, no portion of any payments of any kind whatsoever previously provided to Sony hereunder shall be owed or be repayable to Licensee. 16. EFFECT OF EXPIRATION OR TERMINATION. 16.1 INVENTORY STATEMENT. Within thirty (30) days of the date of ------------------- expiration or the effective date of termination with respect to any or all Licensed Products, Licensee shall provide Sony with an itemized statement, certified to be accurate by an officer of Licensee, specifying the number of unsold units of the Licensed Products as to which such termination applies, on a title-by-title basis, which remain in its inventory and/or under its control at the time of expiration or the effective date of termination. Sony shall be entitled to conduct a physical inspection of Licensee's inventory and work in process during normal business hours in order to ascertain or verify such inventory and/or statement. 16.2 REVERSION OF RIGHTS. If this License Agreement is terminated by Sony ------------------- as a result of any breach or default by Licensee, the licenses and related rights herein granted to Licensee shall immediately revert to Sony, and Licensee shall cease and desist from any further use of the Sony Materials and any Intellectual Property Rights related to the Sony Materials, and, subject to the provisions of Section 16.3, below, Licensee shall have no further right to continue the development, marketing, sale, and/or distribution of any units of the Licensed Products, provided, however, that Licensee may distribute the Licensee Software in its discretion so long as it does not contain any Sony Materials or Licensed Trademarks, nor to continue to use the Licensed Trademarks. 16.3 DISPOSAL OF UNSOLD UNITS. Provided this License Agreement is not ------------------------ terminated due to a breach or default by Licensee, Licensee may, upon expiration or termination of this License Agreement, sell off existing inventories of Licensed Products, on a non-exclusive basis, for a period of ninety (90) days from the date of expiration or termination of this License Agreement, and provided such inventories have not been manufactured solely or principally for sale during such period. Subsequent to the expiration of such ninety (90) day period, or in the event this License Agreement is terminated as a result of any breach or default by Licensee, any and all units of the Licensed Products remaining in Licensee's inventory shall be destroyed by Licensee within five (5) working days of such expiration or termination. Within five (5) working days after such destruction, Licensee shall provide Sony with an itemized statement, certified to be accurate by an officer of Licensee, indicating the number of units of the Licensed Products which have been destroyed (on a title-by-title basis), the location and date of such destruction, and the disposition of the remains of such destroyed materials. 16.4 RETURN OF CONFIDENTIAL INFORMATION. Upon the expiration or earlier ---------------------------------- termination of this License Agreement, Licensee and Sony shall immediately deliver to the other party, as the disclosing party all Confidential Information of the other party, including any and all copies thereof, which the other party previously furnished to it in furtherance of this License Agreement, including, without limitation, any such information, knowledge, or know-how of which either party, as the receiving party, was apprised and which was reduced to tangible or written form by such party or in its behalf at any time during the term of this License Agreement. 16.5 RENEWAL OR EXTENSION OF LICENSE AGREEMENT. Sony shall be under no ----------------------------------------- obligation to renew or extend this License Agreement notwithstanding any actions taken by either of the parties prior to the expiration of this License Agreement. Upon the expiration of this License Agreement neither party shall be liable to the other for any damages (whether direct, consequential, or incidental, and including, without limitation, any expenditures, loss of profits, or prospective profits) sustained or arising out of or alleged to have 14 been sustained or to have arisen out of such expiration. However, the expiration of this License Agreement shall not excuse either party from its previous breach of any of the provisions of this License Agreement or from any obligations surviving the expiration of this License Agreement, and full legal and equitable remedies shall remain available for any breach or threatened breach of this License Agreement or any obligations arising therefrom. 16.6 TERMINATION WITHOUT PREJUDICE. The expiration or termination of this ----------------------------- License Agreement in accordance with the provisions of Section 15, above, shall be without prejudice to any rights or remedies which one party may otherwise have against the other party. 17. MISCELLANEOUS PROVISIONS. 17.1 NOTICES. All notices or other communications required or desired to ------- be sent to either of the parties shall be in writing and shall be sent by registered or certified mail, postage prepaid, return receipt requested, or sent by recognized international courier service (e.g., Federal Express, DHL, etc.), telex, telegram or facsimile, with charges prepaid and subject to confirmation by letter sent via registered or certified mail, postage prepaid, return receipt requested. The address for all notices or other communications required to be sent to Sony or Licensee, respectively, shall be the mailing address stated in the preamble hereof, or such other address as may be provided by written notice from one party to the other on at least ten (10) days' prior written notice. Any such notice shall be effective upon the date of receipt. 17.2 FORCE MAJEURE. Neither Sony nor Licensee shall be liable for any loss ------------- or damage or be deemed to be in breach of this License Agreement if its failure to perform or failure to cure any of its obligations under this License Agreement results from any event or circumstance beyond its reasonable control, including, without limitation, any natural disaster, fire, flood, earthquake, or other Act of God; shortage of equipment, materials, supplies, or transportation facilities; strike or other industrial dispute; war or rebellion; or compliance with any law, regulation, or order (whether valid or invalid) of any governmental body, other than an order, requirement, or instruction arising out of Licensee's violation of any applicable law or regulation; provided, however, that the party interfered with gives the other party written notice thereof promptly, and, in any event, within fifteen (15) working days of discovery of any such Force Majeure condition. If notice of the existence of any Force Majeure condition is provided within such period, the time for performance or cure shall be extended for a period equal to the duration of the Force Majeure event or circumstance described in such notice, except that any such cause shall not excuse the payment of any sums owed to Sony prior to, during, or after any such Force Majeure condition. 17.3 NO PARTNERSHIP OR JOINT VENTURE. The relationship between Sony and ------------------------------- Licensee, respectively, is that of licensor and licensee. Licensee is an independent contractor and is not the legal representative, agent, joint venturer, partner, or employee of Sony for any purpose whatsoever. Neither party has any right or authority to assume or create any obligations 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. 17.4 ASSIGNMENT. Sony has entered into this License Agreement based upon ---------- the particular reputation, capabilities and experience of Licensee and its officers, directors and employees. Accordingly, Licensee may not assign this License Agreement or any of its rights hereunder, nor delegate or otherwise transfer any of its obligations hereunder, to any third party unless the prior written consent of Sony shall first be obtained. Any attempted or purported assignment, delegation or other such transfer without the required consent of Sony shall be void and a material breach of this License Agreement. Subject to the foregoing, this License Agreement shall inure to the benefit of the parties and their respective successors and permitted assigns. Sony shall have the right to assign any and all of its rights and obligations hereunder to any affiliate(s), including, without limitation, its obligations under Section 7 hereof. 15 17.5 SUBCONTRACTORS. Licensee shall not sell, assign, delegate, -------------- subcontract, sublicense or otherwise transfer or encumber all or any portion of the licenses herein granted. Licensee shall have the right to employ suitable subcontractors for the purposes of assisting Licensee with the development of the Licensed Products, provided that Licensee must obtain the prior written consent of Sony. Licensee shall not disclose to any subcontractor any Confidential Information of Sony (as defined herein and in the Nondisclosure Agreement), including, without limitation, any Sony Materials, unless and until Licensee shall have such subcontractor sign a written agreement containing substantially identical terms to the Nondisclosure Agreement and the confidentiality provisions of this Agreement and shall submit a copy of such agreement to Sony. Any and all agreements between Licensee and its permitted subcontractors shall provide that Sony is a third party beneficiary of such agreements and has the full right to bring any actions against such subcontractors to comply in all respects with the terms and conditions of this Agreement. Notwithstanding any consent which may be granted by Sony for Licensee to employ any such permitted subcontractor(s), or any such separate agreement(s) that may be entered into by Licensee with any such permitted subcontractor, Licensee shall remain fully liable for its compliance with all of the provisions of this License Agreement and for the compliance of any and all permitted subcontractors with the provisions of any agreements entered into by such subcontractors in accordance with this Section 17.5. Licensee shall cause its subcontractors to comply in all respects with the terms and conditions of this License Agreement, and hereby unconditionally guarantees all obligations of its subcontractors. 17.6 COMPLIANCE WITH APPLICABLE LAWS. The parties shall at all times ------------------------------- comply with all applicable regulations and orders of their respective countries and all conventions and treaties to which their countries are a party or relating to or in any way affecting this License Agreement and the performance by the parties of this License Agreement. Each party, at its own expense, shall negotiate and obtain any approval, license or permit required in the performance of its obligations, and shall declare, record or take such steps to render this License Agreement binding, including, without limitation, the recording of this License Agreement with any appropriate governmental authorities (if required). 17.7 GOVERNING LAW; CONSENT TO JURISDICTION. This License Agreement shall -------------------------------------- be governed by and interpreted in accordance with the laws of the State of New York, excluding that body of law related to choice of laws, and of the United States of America. Any action or proceeding brought to enforce the terms of this License Agreement or to adjudicate any dispute arising hereunder shall be brought in the courts of the County of New York, State of New York (if under State law) or the Southern District of New York (if under Federal law). Each of the parties hereby submits itself to the exclusive jurisdiction and venue of such courts for purposes of any such action and agrees that any service of process may be effected by delivery of the summons in the manner provided in the delivery of notices set forth in Section 17.1, above. 17.8 LEGAL COSTS AND EXPENSES. In the event it is necessary for either ------------------------ party to retain the services of an attorney or attorneys to enforce the terms of this License Agreement or to file or defend any action arising out of this Agreement, then the prevailing party in any such action shall be entitled, in addition to any other rights and remedies available to it at law or in equity to recover from the other party its reasonable fees for attorneys and expert witnesses, plus such court costs and expenses as may be fixed by any court of competent jurisdiction. The term "prevailing party" for the purposes of this Section shall include a defendant who has by motion, judgment, verdict or dismissal by the court, successfully defended against any claim that has been asserted against it. 17.9 REMEDIES. Unless expressly set forth to the contrary, either party's -------- election of any remedies provided for in this License 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. Any breach of Sections 2, 4, 5, 6, 7.1.1, 12 and 14 of this Agreement would cause irreparable harm to Sony, the extent of which would be difficult to ascertain. Accordingly, Licensee agrees that, in addition to any other remedies to which Sony may be entitled, in the event of a breach by Licensee or any of its employees or permitted subcontractors of any such sections of this Agreement, Sony shall be entitled to the immediate issuance without bond of exparte 16 injunctive relief enjoining any breach or threatened breach of any or all of such provisions. In addition, Licensee shall indemnify Sony for all losses, damages, liabilities, costs and expenses (including actual attorneys' fees and all related costs) which Sony may sustain or incur as a result of such breach. 17.10 SEVERABILITY. In the event that any provision of this License ------------ Agreement (or portion thereof) is determined by a court of competent jurisdiction to be 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 License Agreement, while the remainder of this License Agreement shall continue in full force and remain in effect according to its stated terms and conditions. 17.11 SECTIONS SURVIVING EXPIRATION OR TERMINATION. The following sections -------------------------------------------- shall survive the expiration or earlier termination of this License Agreement for any reason: 4, 6, 7.2, 9, 10.2, 11, 12, 13, 14, 15.4, 16, 17.4, 17.5, 17.7, 17.8, 17.9, 17.10. 17.12 WAIVER. No failure or delay by either party in exercising any right, ------ power, or remedy under this License Agreement shall operate as a waiver of any such right, power, or remedy. No waiver of any provision of this License Agreement shall be effective unless in writing and signed by the party against whom such waiver is sought to be enforced. Any waiver by either party of any provision of this License Agreement shall not be construed as a waiver of any other provision of this License Agreement, nor shall such waiver operate as or be construed as a waiver of such provision respecting any future event or circumstance. 17.13 MODIFICATION. No modification of any provision of this License ------------ Agreement shall be effective unless in writing and signed by both of the parties. 17.14 HEADINGS. The section headings used in this License Agreement are -------- intended primarily for reference and shall not by themselves determine the construction or interpretation of this License Agreement or any portion hereof. 17.15 INTEGRATION. This License Agreement (together with the Exhibits ----------- attached hereto) constitutes the entire agreement between Sony and Licensee and supersedes all prior or contemporaneous agreements, proposals, understandings, and communications between Sony and Licensee, whether oral or written, with respect to the subject matter hereof; provided, however, that notwithstanding anything to the contrary in the foregoing, the Nondisclosure Agreement referred to in Section 14 hereto shall remain in full force and effect. 17.16 COUNTERPARTS. This Agreement may be executed in two counterparts, ------------ each of which shall be deemed an original, and both of which together shall constitute one and the same instrument. 17.17 CONSTRUCTION. This License Agreement shall be fairly interpreted in ------------ accordance with its terms and without any strict construction in favor of or against either of the parties. 17 IN WITNESS WHEREOF, the parties have caused this License Agreement to be duly executed as of the day and year first written above. SONY COMPUTER ENTERTAINMENT OF AMERICA INTERPLAY PRODUCTIONS By /s/ Stephen M. Pace By /s/ BRIAN FARGO -------------------------- ---------------------------- Title: President Title: President ---------------------- ------------------------ Date: Feb. 27, 1995 Date: 2/20/95 ----------------------- ------------------------- NOT AN AGREEMENT UNTIL EXECUTED BY BOTH PARTIES 18 EXHIBIT A LICENSED TERRITORY 1. LICENSED TERRITORY: United States and Canada ------------------- 2. ADDITIONAL PROVISIONS: ---------------------- (a) DISTRIBUTION CHANNELS. Licensee may, pursuant to the licenses --------------------- granted in Section 2 above, distribute Licensee's Licensed Products throughout the Licensed Territory and may use such distribution channels as Licensee deems appropriate, including the use of third party distributors, resellers, dealers and sales representatives (collectively, "Distributors"). (b) LIMITATIONS ON DISTRIBUTION. Notwithstanding any other provisions --------------------------- in this License Agreement, Licensee shall not, directly or indirectly, solicit orders from and/or sell any units of the Licensed Products to any person or entity outside of the Licensed Territory, and Licensee further agrees that it shall not directly or indirectly solicit orders for and/or sell any units of the Licensed Products in any situation where Licensee reasonably should know that such Licensed Products will be exported or resold outside of the Licensed Territory. (c) CHANGES TO LICENSED TERRITORY. The licenses granted in Section 2 ----------------------------- of this License Agreement may only be exercised by Licensee in the Licensed Territory. Sony shall have the right to delete, and intends to delete any country or countries from the Licensed Territory if, in Sony's reasonable judgment, the laws or enforcement of such laws in such country or countries do not protect Sony's Intellectual Property Rights. In the event a country is deleted from the Licensed Territory, Sony shall deliver to Licensee a notice stating the number of days within which Licensee shall cease exercising such licenses in the deleted country or countries. Licensee agrees to cease exercising such licenses, directly or through subcontractors, in such deleted country or countries, by the end of the period stated in such notice. E-1 EXHIBIT B ROYALTIES A. PER UNIT ROYALTY. The per unit royalty due under Section 9 of the ----------------- Agreement with respect to each Licensed Product shall be [*] unless otherwise set forth below with respect to a Licensed Product: B. ADJUSTMENTS TO ROYALTY - HIT TITLE REBATE ----------------------------------------- (1) In the event that the total purchases by Licensee from Sony with respect to any Licensed Product exceed the following numbers of units during [*] of the Licensed Product, Licensee shall be entitled to a rebate with respect to royalties paid by Licensee to Sony pursuant to Section 9 of the Agreement which shall be credited to Licensee's account 60 days following the date that the relevant royalties are paid, as follows:
VOLUME ROYALTY REBATE ------ -------------- a. Over [*] units and up to [*] units [*]% of Royalty paid with respect to such units b. Over [*] units and up to [*] units [*]% of Royalty paid with respect to such units c. Over [*] units [*]% of Royalty paid with respect to such units
(2) Each title shall be considered independently for purposes of calculating and the rebates shall be [*]. By way of example: a. If Licensee's aggregate orders for a single Licensed Product are less than [*] no rebate is available. b. If Licensee's aggregate orders for a single Licensed Product exceed [*] but are less than [*] Licensee will receive [*]% of the Royalty paid as a rebate with respect to the first units, at the time Licensee places such excess order. c. If Licensee's aggregate orders for a single Licensed Product exceed [*] but are less than [*] Licensee will receive [*]% of the Royalty paid as a rebate with respect to the first [*] units, at the time Licensee places such excess order. (Please note that in this case Licensee will only receive a [*]% additional rebate with respect to the first [*] units because they have already received a [*]% rebate. ____________ [*] Confidential Portions Omitted and Filed Separately with the Commission. E-2 [LOGO OF SONY COMPUTER ENTERTAINMENT APPEARS HERE] PRODUCT PROPOSAL PLANNING GUIDE + (Please use a separate form for each title) ================================================================================ [ * ] * Confidential Portions Omitted and Filed Separately with the Commission. EX-10.25 23 MASTER MERCHANDISING LICENSE AGREEMENT - 6/16/92 EXHIBIT 10.25 Confidential Portions Omitted MASTER MERCHANDISING LICENSE AGREEMENT -------------------------------------- Dated as of June 16, 1992. 1. PARTIES: PARAMOUNT PICTURES CORPORATION ("Paramount") ------- 5555 Melrose Avenue Hollywood, California 90038 INTERPLAY PRODUCTIONS, INC. ("Licensee") 17922 Fitch Avenue Irvine, California 92714 Attention: Brian Fargo 2. PROPERTY: -------- As used herein, the term "Property" shall mean the characters, characterizations, designs and visual representations which appear, and only as they appear, in the theatrical motion picture and/or television series (for convenience, the "Picture") specified in the numbered Addendum ("Addendum") to this Agreement, set forth in the form as Exhibit A hereto, which may be executed by the parties hereto from time to time, including the names and likenesses of only those performers approved in writing by Paramount, and only as they appear as characters in the Picture; but not including, without the prior written consent of Paramount, any actual material from the Picture, such as footage (film, tape, disc or other medium), outtakes, music, effects track, voice track or sound track of the Picture. 3. LICENSED ARTICLES: ----------------- The articles to be manufactured and distributed by Licensee hereunder ("Licensed Articles") shall be set forth in each Addendum. 4. TERRITORY: As set forth in each Addendum. --------- 5. TERM: As set forth in each Addendum. ---- 6. LICENSE: ------- (a) Subject to the Terms of each Addendum and this Agreement, Paramount hereby grants to Licensee and Licensee hereby accepts, the right, license and privilege to manufacture or have manufactured the designated Licensed Articles based upon the Property, and to distribute, offer for sale, sell, advertise and promote them in the Territory during the Term. (b) The license granted herein includes the non-exclusive right to use, subject to all the terms and conditions hereof, the title of the Picture and the trade and service marks and names, and the logos and art work, if any, embodying them (all of which are, except where dealt with individually, referred to herein as the "Trademarks") as set forth in each Addendum. (c) Licensee shall not use the Property in any manner not specifically authorized by this Agreement. 1 7. RESERVATION OF RIGHTS: --------------------- (a) All rights in and to the Property and the Picture not expressly granted herein to Licensee are hereby expressly reserved to Paramount or its designees without restriction. (b) Licensee acknowledges that the license granted herein does not include any right, title or interest in or to the Property or the Picture, nor to any copyrights, patents, and/or trademarks therein or associated therewith. Furthermore, this Agreement relates solely to the Picture. Licensee is not, by virtue of this Agreement, acquiring any right whatsoever in any motion picture or television production or other endeavor which is based upon, derivative of, inspired by or otherwise related to the Picture, including without limitation, remakes, sequels, sound recordings, publications, or other endeavors in which the characters, characterizations, designs and/or visual representations contained in the Picture may appear; as between Paramount and Licensee, all right, title and interest in and to the foregoing is retained by Paramount. (c) With respect to the Property and the Picture, Paramount reserves unto itself and/or its designees the right to manufacture, distribute, offer for sale, sell, advertise, promote, display and otherwise exploit articles similar and/or identical to the Licensed Articles, for use in connection with premium sales or give-aways, promotional give-aways, vending machine sales, home television sales (e.g. home shopping club), and/or sales by or through fan clubs, and for sale, advertising, promotion, display and other exploitation in or in connection with any and all facilities owned, operated and/or controlled by Paramount, its parent, affiliated and/or subsidiary companies. Paramount agrees to purchase from Licensee, and Licensee agrees to furnish to Paramount, at its most favorable wholesale distributor price, any number of Licensed Articles required by Paramount for use in connection with any of the foregoing reserved activities. 8. MANUFACTURING AND DISTRIBUTION OBLIGATIONS/MARKETING DATE: --------------------------------------------------------- (a) Licensee shall manufacture, distribute and commence the marketing of a substantial number of items of the Licensed Articles not later than the date set forth in each Addendum ("Marketing Date"). (b) In the event Licensee fails, or demonstrates an inability to meet the Marketing Date for any Licensed Article, Paramount shall have the right, upon thirty (30) days written notice, to terminate the rights granted to Licensee with respect to such Licensed Article, without in any way reducing, proportionally or otherwise, the Guarantee (as such term is defined below) required to be paid to Paramount by Licensee hereunder. (c) If, subsequent to the commencement of marketing and distribution of any Licensed Article, Licensee fails to actively continue marketing and distributing any units of said Licensed Article in any country or substantial portion of the Territory, Paramount, in addition to any and all other remedies available to it hereunder, may, by giving written notice thereof to Licensee, terminate the license granted hereunder with respect to such Licensed Article within such country or substantial portion of the Territory. This notice shall be effective thirty (30) days after being given, unless Licensee shall, 2 within such period, have recommenced distribution or manufacture of such Licensed Article within such country or substantial portion of the Territory. (d) Licensee acknowledges that Paramount is entering into this Agreement not only in consideration of the payments to be made to it hereunder, but also in consideration of the promotional value to it and to the Picture of the widespread distribution, sale, advertising and promotion of each of the Licensed Articles. Accordingly, Licensee shall procure the greatest volume of sales of the Licensed Articles consistent with high quality and shall make and maintain timely and adequate arrangements for their manufacture, distribution, advertising and promotion. (e) Licensee shall distribute and sell the Licensed Articles outright at a competitive price, and not on approval, consignment, sale-or-return (except as may be permitted in each Addendum) or any similar basis, and further, only to jobbers, wholesalers, and retailers for distribution and sale to retail stores and merchants, and by or through mail/telephone order sales, radio sales, and computer shopping services; but not for any of the purposes or markets which are reserved to Paramount under Paragraph 7 herein. (f) Licensee may not enter into any agreement with any third party for the manufacturing or distribution of any of the Licensed Articles without Paramount's prior written consent. Licensee shall manufacture the Licensed Articles in N. America, S. America, Europe, Japan, Taiwan, Korea and Singapore. 9. PAYMENT: ------- Licensee shall pay Paramount the following: (a) A non-returnable advance ("Advance") of such sum as may be set forth in each Addendum, to be applied against royalties payable pursuant to Paragraph 9(b) below, and payable as may be set forth in each Addendum. (b) A royalty ("Royalty") of such amount as may be set forth in each Addendum or such percent of the greater of Licensee's gross wholesale price or such amount as Licensee may actually receive for each Licensed Article manufactured and sold hereunder as may be set forth in each Addendum. Said Royalty shall be paid to Paramount on all Licensed Articles distributed by Licensee hereunder whether for sale or for purposes of promoting sales (such as free samples in excess of an allowance of [*] units of each title and format) and shall be computed on the same basis as if sold by Licensee at its customary price without discount. [*] - --------------- [*] Confidential Portions Omitted and Filed Separately With the Commission 3 (c) A Guarantee of such sum as may be set forth in each Addendum payable, to the extent not then already paid to Paramount under subparagraphs 9(a) and 9(b), as may be set forth in each Addendum. 10. ACCOUNTING AND AUDIT: -------------------- (a) Licensee shall render accounting statements (in the form of Exhibit "B" attached hereto and made a part hereof) to Paramount on a quarterly (calendar year) basis within thirty (30) days of the end of each quarter, whether or not any payment is shown to be due to Paramount thereunder, and remit payments due Paramount along with such statements, addressed to: PARAMOUNT LICENSING, Department 4312, SCF Pasadena, California 91050-4312, with a copy of each such statement to the DIRECTOR, FINANCE - LICENSING, PARAMOUNT PICTURES CORPORATION, 5555 Melrose Avenue, Los Angeles, California 90038. If the Territory of the Agreement covers more than one country, accounting statements shall be separated on a country-by-country basis. All payments shall be made without set-off of any amount or nature whatsoever, whether based upon any claimed debt or liability of Paramount to Licensee. All sums not paid when due shall bear interest at the rate of ten percent (10%) per annum (or such higher percent, not to exceed twenty percent (20%), as may be permitted under the laws of the State of California), without prejudice to any other rights of Paramount in connection therewith. The receipt and deposit of monies by Paramount shall not prevent or limit Paramount's right to contest the accuracy and/or correctness of any statement in respect of such monies. (b) Licensee shall keep accurate books of account and records covering all transactions relating to this Agreement and shall retain all other documents and materials in its possession or under its control relating to the subject matter hereof, at Licensee's principal place of business for not less than two (2) years after the actual delivery of each accounting statement hereunder and shall allow Paramount and its representatives, upon prior written notice, to audit said books of account and records and to make copies thereof at Paramount's expense. If any such audit reveals Royalties due to Paramount in excess of [*] of the Royalties paid to Paramount for the period covered by such audit, all auditing fees, costs and expenses shall be borne by Licensee, in addition to which interest shall be added to the amount discovered to be due, to be computed from the first due date of the applicable accounting period in which such payment was found to be unpaid. If the services of attorneys are engaged by Paramount in collection of monies due to it hereunder, their fees, expenses and costs shall be borne by Licensee, or if paid by Paramount, promptly reimbursed to it by Licensee. If any such audits reveals Royalty payments due to Paramount in excess of [*] of the Royalties paid to Paramount for the period covered by such audit, then, in addition to any and all other rights, legal and/or equitable, of Paramount, Paramount shall have the right, effective immediately upon giving notice to such effect to Licensee, to terminate the Term of this Agreement. 11. APPROVALS/ARTWORK: ----------------- (a) The quality of the Licensed Articles as well as the quality of all packaging, hang-tags, labels, press releases, advertising, promotional, display and any other material prepared in connection - ---------- [*] Confidential Portions Omitted and Filed Separately With the Commission 4 with the Licensed Articles (collectively, "Packaging and Promotional Material") which includes the Property and/or Trademarks shall be no less than the best quality of similar articles, packaging, advertising, promotional and display materials presently manufactured, distributed, sold and/or used by Licensee in the Territory and shall be in full conformity with all applicable laws and regulations. (b) Paramount shall have absolute approval of the Licensed Articles and all Packaging and Promotional Material at all stages of the development and application thereof. Licensee may not manufacture, use, offer for sale, sell, advertise, promote, ship or distribute any Licensed Articles nor any Packaging and Promotional Material relating to the Licensed Articles until and unless Licensee has received Paramount's approval therefor in the manner prescribed hereinbelow. Any acts by Licensee contrary to the terms of this Paragraph shall be deemed a material breach of this Agreement, entitling Paramount, in addition to any and all remedies it may have at law and in equity, to terminate this Agreement. (c) Licensee shall, in a timely manner and in sufficient time for review and consideration, submit for Paramount's discretional approval all materials relating to the Licensed Articles, including, without limitation, drawings, plans, blueprints, models, computer graphics, prototype samples and component parts of the Licensed Articles and all Packaging and Promotional Material in connection therewith prior to any use thereof by Licensee; the same shall be submitted to APPROVALS COORDINATOR-LICENSING, at PARAMOUNT PICTURES CORPORATION, 5555 Melrose Avenue, Los Angeles, California 90038. All submissions shall be made prior to any use thereof, or public disclosure thereof, by or on behalf of Licensee. Any submission not approved in writing by Paramount within fourteen (14) days shall be deemed disapproved (see Exhibit "C" (Approval Guidelines) which is attached hereto and made a part hereof). All approvals requested of Paramount under this Agreement may be granted or withheld by Paramount in its sole discretion, subject to the terms of this paragraph. (d) Paramount shall furnish to Licensee, at Licensee's cost, such artwork as may be reasonably necessary for the manufacture, advertising and promotion of the Licensed Articles, subject to availability and to Paramount's absolute right of approval (the "Artwork"); all such Artwork shall be and remain the property of Paramount, notwithstanding its creation or modification (which is also subject to Paramount's absolute approval) by Licensee, and shall be returned to Paramount after its use by Licensee. Licensee shall not use the Artwork in any other manner. (e) In order that Paramount may be assured that the provisions of this Agreement are being observed, Licensee shall allow Paramount or its designee to enter upon Licensee's premises during regular business hours, upon prior notice, for the purpose of inspecting the Licensed Articles, Packaging and Promotional Material and the facilities in which they are manufactured and packaged. In the event that the quality standards hereinabove referred to are not met, or in the event that said quality standards are not maintained throughout the period of manufacture of any Licensed Articles hereunder, then, upon written notice from Paramount, Licensee shall immediately discontinue the manufacture and distribution of such Licensed 5 Articles that do not reasonable meet Paramount's quality standards, and/or the advertising and promotional material related thereto, unless Licensee shall have remedied such failure of quality to Paramount's satisfaction within ten (10) days after Licensee's receipt of notice thereof; failure to effect such remedial measures shall entitle Paramount to terminate this Agreement upon notice to Licensee. 12. SAMPLES: ------- Licensee shall furnish to Paramount [*] samples of each title of the Licensed Articles in the floppy disc and CD formats, and [*] samples of each title of the Licensed Articles in the cartridge format at the commencement of distribution thereof, and additional samples, as and when requested by Paramount, at cost, such samples not to be resold by Paramount. 13. GOODWILL, PATENTS, TRADEMARKS AND COPYRIGHT: -------------------------------------------- (a) Licensee recognizes and acknowledges that: (i) the title of the Picture (and, if the Picture is a sequel to a prior work, or if there are now or are later developed sequels to the Picture, the titles of such prior work and of such sequels) and the logos and/or artwork (including artwork developed for advertising and promotional use) embodying such title or titles are, as between Paramount and Licensee, trademarks of Paramount, whether or not registered as such; (ii) the good will associated with the Picture and the Trademarks inures soley and exclusively to Paramount; and (iii) that the Picture and the Trademarks have acquired, and will continue indefinitely to have and to acquire, a secondary meaning in the minds of the public. (b) All rights in the Property and Trademarks other than those specifically granted herein are reserved to Paramount for its own use and benefit. Licensee acknowledges that it shall not acquire any rights in the Property and/or Trademarks as a result of Licensee's use thereof, and that all use of the Property and/or Trademarks by Licensee shall inure to the benefit of Paramount. Licensee shall not, directly or indirectly, during the term of this Agreement or thereafter, attack the ownership by Paramount of the Property, the Trademarks or the validity thereof or attack the validity of the license herein granted to it. Licensee shall not at any time apply for any registration of any copyright, patent or trademark or other designation which would affect the ownership of the Property or Trademarks nor file any document with any governmental authority or take any action which would affect the ownership of the Property or Trademarks or aid or abet anyone else in doing so. Licensee shall at no time, whether during the Term or thereafter: (i) use or authorize the use of any trademark, trade name or other designation identical with or confusingly similar to the Trademarks; - ---------- [*] Confidential Portions Omitted and Filed Separately With the Commission 6 (ii) manufacture, distribute, offer for sale, advertise or promote any article, using in connection therewith any words and/or symbols and/or combinations thereof which are identical with or confusingly similar to any element of the Property or the Picture, whether or not such element shall have been protected by patent, copyright or trademark. (c) Except as may be set forth in each Addendum, all copyright, patent and trademark in the Licensed Articles and Packaging and Promotional Material shall be in the name of Paramount. Licensee shall cause copyright, patent and trademark notices to appear on or within each unit of the Licensed Articles and/or each item of Packaging and Promotional Material as may be designated and approved by Paramount. For purposes of trademark registration, promptly after the first public sale of each Licensed Article, Licensee shall deliver to Paramount such samples, free of cost, of each Licensed Article and its packaging, enclosures, promotional materials and advertising, along with a copy of the invoice showing the first public shipment of the Licensed Article from Licensee to any third party in interstate commerce as may be reasonable requested by Paramount. (d) Except as may be set forth in each Addendum, any and all additions to, and new renderings, modifications or embellishments of, the artwork shall, notwithstanding their invention, creation and use by Licensee, be and remain the property of Paramount, and Paramount may use, and license others to use, the same, subject only to the provisions of this Agreement. If Licensee retains or engages any third parties who are not employees of Licensee to make any contribution to the invention or creation of any artwork or designs involving or related to the Property or to the Picture, so that such third parties might be deemed "authors" or "inventors" of such artwork or designs (as the terms "authors" and "inventors" are used in present or future United States copyright and patent statutes or judicial decisions), then Licensee shall obtain from all such parties, and furnish to Paramount, a full assignment of rights in and to such artwork and/or designs (free and clear of any and all claims, encumbrances, interests or rights of any nature of such third parties, of Licensee, or of any and all other third parties), vesting same in Paramount. Licensee shall not permit any of its employees to obtain or reserve, by written or oral agreement or otherwise, any rights as "authors" or "inventors" of any such artwork or designs. Licensee shall furnish to Paramount, at Paramount's request, full information concerning the invention and creation of such artwork and designs, together with the originals of assignments of all rights therein obtained from all such third parties. (e) Licensee shall cooperate with Paramount in the prosecution and defense of the Property and/or the Trademarks, the filing and prosecution of any patent, trademark or copyright application or other applications, the recording of this Agreement or any other agreements, and the publication of any notices or the doing of any other act or acts with respect to the Property and/or Trademarks, including the prevention of the use thereof by any unauthorized person, firm or corporation, that in Paramount's judgment may be necessary or desirable under any law, regulation or decree of the Territory. In connection with any of the foregoing, Licensee shall arrange for Paramount to be promptly supplied with any such information or materials as Paramount may reasonably require. In 7 the event that any matter arises with respect to the protection of the Property and/or Trademarks in the Territory, Licensee shall promptly advise Paramount in writing of the nature and extent of same. Paramount may, in its sole discretion, take, or elect not to take, such action as it deems advisable against any infringing party, in its own name and/or Licensee's name, and may prosecute, settle or otherwise dispose of such action without consultation with, or responsibility to, Licensee. Paramount shall incur no liability to Licensee by reason of Paramount's failure or refusal to prosecute, or failure or refusal to permit Licensee to prosecute, any alleged infringement or imitation by third parties, nor by reason of any settlement to which Paramount may agree. Only if any such infringement is in the nature of imitation of the Licensed Articles or Packaging and Promotional Material, may Licensee, with Paramount's prior written consent and at Licensee's expense, commence an action or join in Paramount's action against the infringer. 14. WARRANTIES AND INDEMNIFICATION: ------------------------------- (a) Licensee represents and warrants that it is duly organized under applicable law; that it has the unencumbered right and authority to enter into and perform its obligations under this Agreement and under all collateral agreements to be entered into by it in furtherance of the provisions hereof. (b) Paramount represents and warrants that it is duly organized under applicable law; that it has the right and authority to enter into and perform this Agreement and to grant the rights granted hereunder. Paramount makes no representation or warranty as to the amount of receipts Licensee will derive hereunder or as to the quality or success of the Picture or reception it will receive by the public, nor shall Paramount be obligated to continue the exhibition, distribution or other exploitation of the Picture or continue the use of any element of the Property. (c) Licensee shall indemnify, hold harmless, and defend Paramount, its parent, affiliated and subsidiary companies, and its and their officers, directors, agents and employees ("Paramount Indemnitees") from and against any and all liabilities, claims, causes of action, suits, losses, damages, fines, judgments, settlements and expenses which may be suffered, made or incurred by any of such Paramount Indemnitees arising out of any breach or alleged breach of any of the covenants, warranties, representations and agreements made by Licensee herein, including without limitation, claims relating to or based upon (i) unauthorized use of, or infringement of any patent, trademark, design, copyright or other proprietary right of any third party by Licensee; (ii) libel or slander against, or invasion of the right of privacy, publicity or property of, or violation or misappropriation of any other right of any third party; (iii) defects in the Licensed Articles, despite Paramount's approval thereof, it being understood and agreed that any governmental order of recall or injunction against distribution and/or sale shall, as between Paramount and Licensee, be deemed conclusive 8 proof of such defect for the purpose of invoking the indemnifications set forth in this subparagraph 14(c); and/or (iv) agreements or alleged agreements made or entered into by Licensee to effectuate the terms of this Agreement. Paramount shall give Licensee prompt written notice of the institution of any action or the making of any claim alleging a breach hereunder. Paramount shall have the right to control all aspects of the disposition of such claim, and Licensee shall cooperate with Paramount in connection therewith. (d) Paramount shall indemnify, hold harmless and defend Licensee from and against any and all liabilities, claims, causes of action, suits, losses, damages, fines, judgments and expenses which may be suffered, made or incurred by Licensee Indemnitees arising solely out of use by Licensee of the Property as authorized in this Agreement or as a result of Paramount's conducting an action against an infringing party in Licensee's name without Licensee's participation therein. Licensee shall give Paramount prompt written notice of the institution of any action or the making of any such claims. Paramount shall control all aspects of the disposition of such claims and Licensee shall cooperate fully with Paramount in connection therewith. 15. INSURANCE: --------- Licensee shall obtain and maintain throughout the Term, at Licensee's sole expense, standard Product Liability Insurance and Advertiser's Liability Insurance from a reputable insurance company qualified to do business in the State of California, naming Paramount, its parent company, and their respective subsidiaries and affiliated companies, including all directors, officers, employees, agents and representatives, as additional insureds. Each policy will provide full indemnification and defense against any claims, liabilities, demands and causes of action arising out of the Licensed Articles, the creation or production thereof, and any advertising, promotion and publicity of same, and their use and/or any defects in, or the reasonably foreseeable use or misuse thereof. Coverage under each policy will be a minimum of One Million Dollars ($1,000,000) for each instance and Three Million Dollars ($3,000,000) in the aggregate. Each such policy shall require that Paramount receive at least thirty (30) days written notice of the cancellation, amendment or endorsement thereof. Licensee shall furnish Paramount upon execution of this Agreement by Licensee with certificates of insurance and certified policy endorsements envidencing that the insurance coverage is in full force and effect. 16. TERMINATION: ----------- (a) In the event Licensee fails to perform any of its obligations under this Agreement, including without limitation the active marketing and distribution of any and/or all the Licensed Articles; or breaches any covenant, representation, warranty or agreement contained herein, files a petition in bankruptcy or is adjudged a bankrupt, or if a petition in bankruptcy is filed against Licensee, or if Licensee becomes insolvent, or makes an assignment for the benefit of creditors, or if Licensee discontinues its business or if a receiver is appointed for Licensee or Licensee's business who is not discharged within thirty (30) days, Paramount may terminate this Agreement on thirty (30) days prior written notice [*]. - ---------- [*] Confidential Portions Omitted and Filed Separately With the Commission 9 [*] Time is of the essence of this Agreement. (b) In the event of termination of this Agreement by Paramount for any of the reasons set forth in Subparagraph 16(a) above, no creditor, agent, representative, receiver or trustee of Licensee shall have the right to dispose of any units of the Licensed Articles without the prior written consent of Paramount; until payment of all monies due to Paramount from Licensee, Paramount shall have a lien on any units of the Licensed Articles not then disposed of by Licensee at any time in respect of sales of the Licensed Articles; and on any monies due Licensee from any jobber, wholesaler, distributor, sub-licensee, or other third parties, in respect of sales of the Licensed Articles; Paramount may treat all of the aforesaid third parties as Paramount's direct licensees with no obligation to the Licensee. (c) In the event of termination of this Agreement by Paramount due to breach of any of the terms or conditions hereof by Licensee, Licensee shall have no right to sell, distribute or otherwise dispose of any units of the Licensed Articles without Paramount's prior written consent. (d) Upon the expiration of the Term or earlier termination of this Agreement: (i) All rights, licensee and privileges granted to Licensee hereunder shall automatically revert to Paramount and Licensee shall execute any and all documents evidencing such automatic reversion; (ii) Licensee shall, in Paramount's discretion, either deliver to Paramount materials in its possession or control which reproduce the Licensed Articles or give to Paramount satisfactory proof of the destruction thereof; (iii) All sums due Paramount hereunder, whether in the form of unpaid Advance, Royalties and/or Guarantee shall become immediately due and payable in full to Paramount without set off of any kind; (iv) Licensee shall, within one (1) month after such expiration or termination, deliver to Paramount a complete and accurate statement indicating the number, description and whereabouts of all units of the Licensed Articles on hand and/or in the process of manufacture, as of both the date of such expiration or termination and the date of such statement; (v) Paramount shall have the right, upon prior written notice, to enter onto Licensee's premises during normal business hours to conduct physical inventories to verify the accuracy of the aforesaid statement; - ---------------- [*] Confidential Portions Omitted and Filed Separately With the Commission 10 (vi) Provided Licensee is not in breach of this Agreement, Licensee may, upon expiration of the Term of this Agreement (or upon expiration of individual distribution periods for specific titles of the Licensed Articles as may be set forth in each Addendum) sell off existing inventories of the Licensed Articles, on a non-exclusive basis, for a period of [*], subject to all the other terms and conditions hereof, and provided the same have not been manufactured solely or principally for sale during such period and only after first giving Paramount the opportunity to purchase the same at Licensee's gross wholesale price thereof, which purchase may be of some or all of such units, in Paramount's sole discretion; in the event of early termination of this Agreement due to breach by Licensee, Licensee shall have no right to sell off existing inventories; (vii) In the event of a default by Licensee of this Agreement, Paramount, at its discretion, may terminate this Agreement and any and all other agreements entered into between Paramount and Licensee. 17. INJUNCTION: ---------- Licensee acknowledges that its failure to perform any of the terms or conditions of this Agreement, or its failure to cease the manufacture, distribution and sale of the Licensed Articles upon the expiration of the Term or earlier termination of the Agreement, shall result in immediate and irreparable damage to Paramount. Licensee also acknowledges that there may be no adequate remedy at law for such failures and that in the event thereof Paramount shall be entitled to equitable relief in the nature of injunction and to all other available relief, at law and/or in equity. 18. CONFIDENTIALITY: --------------- Other than as may be required by any applicable law, governmental order or regulation, or by order or decree of any court of competent jurisdiction, Licensee shall not publicly divulge or announce, or in any manner disclose to any third party, any information or matters revealed to Licensee pursuant hereto, or any of the specific terms and conditions of this Agreement, and Licensee shall do all such things as are reasonably necessary to prevent any such information becoming known to any party other than the parties involved with the transaction. 19. NO ASSIGNMENT: ------------- The rights and obligations of Licensee hereunder may not be assigned, delegated, or sublicensed without the prior written consent of Paramount. The transfer in the aggregate of fifty percent (50%) or more of the capital stock or voting power of Licensee shall be deemed an assignment for purposes of this Agreement. 20. FORCE MAJEURE: ------------- The parties shall be released from their respective obligations hereunder in the event government regulations or other causes arising out of a state - ---------- [*] Confidential Portions Omitted and Filed Separately With the Commission 11 of war or other national emergency, or other causes beyond the reasonable control of the parties, render performance of such obligations reasonably impracticable. In such event, all royalties due on sales theretofore made shall become then immediately due and payable, and no Advance, Royalties or Guarantee theretofore paid shall be repayable; if such event continues for a period of sixty (60) days, this Agreement shall be terminable, upon written notice, by either party. In the event neither party elects to terminate this Agreement as immediately hereinabove provided, the Term of this Agreement shall be extended automatically for a period of time equal to the period during which the parties shall have been released from performance of their respective obligations hereunder, but not to exceed six months from the date of first occurrence. 21. FURTHER INSTRUMENTS: ------------------- Licensee shall furnish Paramount with (and shall execute, acknowledge and deliver and cause to be executed, acknowledged and delivered to Paramount) any further instruments, in such form and substance as shall be approved or designated by Paramount, which Paramount may reasonably require or deem necessary, from time to time, in its discretion, to evidence, establish, protect, enforce, defend or secure to Paramount any or all of its rights, titles, properties or interests or more fully to effectuate or carry out the purposes, provisions or intent of this Agreement. In this connection, if Licensee fails or refuses without reasonable basis to execute such documents, Licensee hereby irrevocably constitutes and appoints Paramount as its lawful attorney-in-fact to execute, acknowledge and deliver all such further instruments and to do all acts and things contemplated by this paragraph. Paramount, at its sole discretion, shall have the right to record such instruments at the appropriate Registry or other place of registration in some or all of the various Countries comprising the Territory, at Paramount's expense. Licensee agrees to cooperate as requested by Paramount in arranging such recordation, and in cancelling or amending such registration, if so requested by Paramount, upon the expiration, termination, or amendment of this Agreement, as may be appropriate. 22. PARAGRAPH HEADINGS: ------------------ Paragraph headings contained in this Agreement are for convenience only and shall not otherwise be given any legal effect. 23. NO PARTNERSHIP; NO THIRD PARTY BENEFICIARIES: -------------------------------------------- Nothing herein contained shall constitute a partnership between or joint venture by the parties hereto, or constitute either party the agent of the other. Neither party shall hold itself out contrary to the terms of this paragraph and neither party shall become liable by any representation, act or omission of the other contrary to the provisions hereof. This Agreement is not for the benefit of any third party and shall not be deemed to give any right or remedy to any such party, whether referred to herein or not. 24. NO WAIVERS, CUMULATIVE RIGHTS: ----------------------------- No waiver by either party hereto of any breach of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision hereof. The exercise of any right granted to either party hereunder shall not operate as a waiver. The normal expiration of the Term of this Agreement shall not relieve either party of its 12 respective obligations accruing prior thereto, nor impair or prejudice the respective rights of either party against the other, which rights by their nature survive such expiration. 25. NO VIOLATION OF LAW: ------------------- Nothing herein contained shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provision of this Agreement and material statute, law or ordinance contrary to which parties have no legal right to contract, the latter shall prevail, but in such event the provision of this Agreement affected shall be curtailed and limited only to the extent necessary to bring it within the legal requirements. 26. NOTICES: ------- Notice hereunder shall be given in writing and sent by registered or certified mail, return receipt requested, or by prepaid telegram or nationally recognized express carrier, addressed to Paramount at the address indicated in the Agreement, to the attention of Legal Department, Motion Picture Group, or to License at the address indicated in Paragraph 1 above, to the attention of such official as Licensee shall designate in writing. Each party shall notify the other in writing promptly after any change of address. Requirements relating to Paragraph 11, and the like, shall be governed by the particular provisions of this Agreement which are, by their terms, applicable thereto. 27. GOVERNING LAW: ------------- This Agreement shall be construed and interpreted pursuant to the laws of the State of California applicable to agreements made to be performed entirely therein, and the parties hereto submit and consent to the jurisdiction of the court of the State of California, including Federal Courts located therein, should Federal jurisdiction requirements exit, in any action brought to enforce (or otherwise relating to) this contract. 28. ENTIRE AGREEMENT: ---------------- This Agreement (including any exhibits and schedules which are attached hereto and made a part hereof by this reference), when signed by the parties, shall constitute the entire understanding of the parties with respect to the subject matter, superseding all prior and contemporaneous promises, agreement and understandings, whether written or oral, pertaining thereto and cannot be modified except by a written instrument signed by the parties hereto, nor may it be amended or rescinded, other than as provided by its terms, except by a writing duly executed by an authorized officer of the party to be charged. If there is any inconsistency between this portion of the Agreement (i.e., inclusive of all preceding paragraphs and this paragraph) and the attached exhibits and/or schedules, this portion of the Agreement shall prevail. 13 29. ACCEPTANCE BY PARAMOUNT: ----------------------- This Agreement shall not be binding until accepted by Paramount and executed by a duly authorized officer of Paramount and Paramount shall have received any Advances payable hereunder. No additions, amendments or modifications to this Agreement shall be effective until accepted in a similar manner. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first witnessed above. PARAMOUNT PICTURES CORPORATION By: /s/ Andrea Hein ---------------------------------- Its SENIOR VICE PRESIDENT, LICENSING ---------------------------------- INTERPLAY PRODUCTIONS, INC. By: /s/ Brian Fargo ---------------------------------- Its: President ---------------------------------- 14 EXHIBIT "A" ADDENDUM NO. ____ TO THE MASTER MERCHANDISING LICENSE AGREEMENT ("AGREEMENT") AMONG PARAMOUNT PICTURES CORPORATION ON THE ONE HAND AND _________________________ ON THE OTHER HAND (JOINTLY, COLLECTIVELY AND SEVERALLY "LICENSEE") DATED AS OF ____________, 19__. 1. DEFINED TERMS: All terms used in this Addendum shall be used as defined in ------------- the Agreement. All provisions of this Addendum shall be governed by the terms of the Agreement. 2. PROPERTY: -------- 3. LICENSED ARTICLES: ----------------- 4. TRADEMARKS: ---------- 5. TERRITORY: --------- 6. TERM: ("License Term") ---- 7. MARKETING DATE: -------------- 8. PAYMENT: ------- (a) Advance: (b) Royalty: _____ percent (__%) of the greater of Licensee's gross wholesale price or amount actually received for each Licensed Article. (c) Guarantee: ______ payable within 30 days following the expiration or earlier termination of the License Term. 9. OTHER MATTERS: ------------- Except as set forth in this Addendum, the Agreement remains in full force and effect and is hereby ratified and affirmed. PARAMOUNT PICTURES CORPORATION By:___________________________ Its:__________________________ Date:_________________________ INTERPLAY PRODUCTIONS, INC. By:___________________________ Its:__________________________ Date:_________________________ INTERPLAY PRODUCTIONS, INC. Master Agreement 8/5/92 (rev 10/1/92) 15 EXHIBIT "B" LICENSEE'S ROYALTY STATEMENT (To be completed in local currency) - ----------------------------------------------------------------------------------------------------------------------------------- TO: PARAMOUNT PICTURES CORPORATION COPY TO: PARAMOUNT PICTURES CORPORATION --------------------------- Paramount Licensing 5555 Melrose Avenue PPC USE ONLY Department 4312, SCF Hollywood, CA 90038-3197 Reviewed by ___________ Pasadena, CA 91050-4312 Attn: Director, Finance - Licensing Period Ending _________ Check No. _____________ --------------------------- Licensee's Name:____________________________ Contract Number:_____________________ Period Being Reported:______________ Contract Date:______________________________ Film/TV Series Name:_________________ Country Being Reported:_____________ - ----------------------------------------------------------------------------------------------------------------------------------- Paramount Licensee's Licensee's Name of Performers' Unit Gross Royalty Current Cumulative Product Product Product Performance Likenesses Sales Sales Rate Royalty Royalty Number Description Number Used Used Amount Amount - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- PPC USE ONLY Royalties Earned ------------------------ Unrecouped Advance______________ Less: Advance Received ---------- Less: Previous Royalty Payments ---------- Balance Currently due to PPC ---------- Guarantee: ---------- Unearned Guarantee: ----------
EXHIBIT "C" APPROVAL GUIDELINES Your agreement with Paramount Pictures Corporation requires submission of all articles for review and written approval prior to production. THE ATTACHED FORM MUST ACCOMPANY ALL MATERIAL SUBMITTED FOR APPROVAL. Please send all materials to: Tammy Moore or Suzie Domnick Licensing Approvals Coordinator Paramount Pictures Corporation 5555 Melrose Avenue Los Angeles, CA 90038 Approval will be required at each of the following stages of preparation. This procedure insures that problems are caught early on, when they can still be changed, without great expense of time or money: 1. PACKAGING, COLLATERAL MATERIALS, CATALOGS AND BROCHURES, PRINT ADVERTISING (CONSUMER AND TRADE) AND PRINTED PRODUCT ---------------------------------------- a. Rough sketches or layout concepts and rough copy. b. Finished comps - final copy and art together (mechanical) including legal notices. c. Final art (color). Note: In some instances, such as posters, approval of color proof may be required to insure quality of the final product. 2. THREE-DIMENSIONAL PRODUCTS -------------------------- a. Concept (renderings). b. Prototypes (sculpture). c. Production samples or strike-offs. 3. AUDIO OR VIDEO ADVERTISING, SALES AIDS, ETC. ------------------------------------------- a. Radio script or television script and storyboard. b. Audio or video tapes prior to use or airing (rough cut and final cut); ---------------------- copyright notice must be on tape. Note: Revisions: In addition, all materials must be re-submitted for approval --------- each time a revision is made incorporating changes requested. Revisions of copy or manuscripts must be redlined or highlighted. Please advise us of your time constraints, if any, so we may respond on short notice, only if absolutely necessary. Also, please allow time to make necessary ---------------------------- changes. The approval time provided by agreement is generally fourteen (14) days. Every effort will be made to expedite approvals as quickly as possible. Samples of finished products must be submitted pursuant to the agreement. Please remember that all submissions not approved in writing are deemed disapproved. 17 EXHIBIT "C" (Continued) ADVERTISING AND PROMOTION APPROVAL GUIDELINES LICENSEES ______________________________________________________________________ 1. All advertising and promotional mechanicals or materials must be approved in writing. This encompasses print ads, commercial (radio or television), point-of-purchase materials, brochures and package designs. Please submit these materials to: Tammy Moore or Suzie Domnick Licensing Approvals Coordinator Paramount Pictures Corporation 5555 Melrose Ave., Balaban Building (Suites B & C) Hollywood, CA 90038 2. Do not proceed with any promotional activities prior to approval. The --- submission of promotion concepts for approval will prevent possible infringement of rights granted to other companies and spare you potential legal liability for such infringement. 18 EXHIBIT "C" (continued) STAR TREK APPROVAL GUIDELINES _______________________________________________________________ LEGAL PROCEDURES - ---------------- The purpose of these guidelines is to assist you in complying with our legal requirements regarding trademark use and proprietary notices. All items must include appropriate legal notices. We will review the legal notices on your products, catalogs, packaging and advertising when they are submitted for approval. The following is provided for guidance only. Paramount reserves the right to require revised wording depending upon the particular circumstances relating to a specific product. A Trademark Use ------------- 1. Trademarks must always be legible. 2. Trademarks must always be used as adjectives in conjunction with the licensed product, e.g., the STAR TREK(R) motion picture, the STAR TREK (R) t-shirt, STAR TREK(R) novel, and U.S.S. ENTERPRISE(TM) poster. 3. Trademarks must not be used in plural (e.g, STAR TREKS) or possessive form (e.g., STAR TREK'S) or as a noun (e.g., the STAR TREK). 4. Trademarks must be used in their entirety (i.e., never use TREK alone). 5. Trademarks may never be modified (i.e., STAR TREKKIN'). 6. Trademarks must always be given special typographical treatment, preferable logo treatment, or all capital letters, underline, italics, different colors or bold face type. 7. Always use the appropriate trademark symbol (see below). B. Trademark Symbols ----------------- A trademark symbol should follow all headline and prominent use of trademarks. Use the trademark symbol TM unless instructed to use R. Place the trademark symbol at the foot or on the shoulder of the trademark, whether or not other words are used with it. Examples: STAR TREK(R) STAR TREK(R) Posters C. Required Proprietary Notices ---------------------------- A proprietary notice which identifies Paramount Pictures as the copyright ---------------------------------------------- and trademark owner, and you as authorized licensee, must appear on all ------------------- --------------------------- packaging, catalogs, advertising and product. -------- 19 Example: (R) & (C) 19___ Paramount Pictures. All Rights Reserved. STAR TREK is a Trademark of Paramount Pictures. [Licensee] Authorized User. Example where space is limited: (R) & (C) 19___ Paramount Pictures. All Rights Reserved. [Licensee] Authorized User. Example where space is greatly limited: (R) & (C) 19___ Par. Pic. Used Under Authorization. Note: Unless we advise you otherwise, the year in the notice should be ---- the year in which the material which bears the notice was first (or will be first) sold or distributed for sale. D. Trademark symbols for some commonly-used STAR TREK-specific words are as follows: STAR TREK(R) STAR TREK(R) THE NEXT GENERATION (TM) STARSHIP ENTERPRISES(TM) U.S.S. ENTERPRISE(TM) "To Boldly Go Where No Man Has Gone Before...."(TM) "To Boldly Go Where No One Has Gone Before...."(TM) 20 EXHIBIT "C" (Continued) STAR TREK PUBLISHING ________________________________________________________________________________ A. WRITER' GUIDES -------------- Please pay close heed to the official writers' guides for the STAR TREK(R) television series' (available for both the original series and STAR TREK: THE NEXT GENERATION(R)). These guides will not only provide you with helpful direction and character outlines, but they will also provide technical information, terminology and some specific information about the STAR TREK Universal. Writers setting their stories in the STAR TREK original series or motion picture frameworks should be familiar with the STAR TREK: THE NEXT GENERATION writer's guide and episodes, so that the FEDERATION(TM) and STARFLEET(TM) in published original series/motion picture stories will be portrayed as developing in the appropriate direction. It would be grievously incorrect to write an original series story showing us a Starfleet that is more militaristic or Earth people of the 23rd century that are becoming more materialistic and irresponsible toward their planet or each other. B. PRIME DIRECTIVE/GENERAL ORDER NUMBER ONE ---------------------------------------- This very important Starfleet Order indicates that Starfleet officers and crew do not have the right to interfere with the natural process of -------------------------------------------------------------- evolution on any planet. They do not have the right to interfere with the ----------------------- culture of the people who live on the planet. They do not have the right to interfere with the natural processes of life. The Federation is not in the business of toppling cultures that it does not approve of. It will protect itself and its mission whenever necessary, but it is not a group of "space meddlers." There are only two possible exceptions to the Prime Directives: 1. When the safety of the starship is jeopardized. 2. When it is absolutely vital to the interests of the Federation. Any Captain who does find it necessary to violate the Prime Directive had better be ready to present a sound defense of his actions. C. THE FEDERATION IS NOT A MILITARY ENTITY --------------------------------------- 1. The STAR TREK(R) characters are not "galaxy policemen." Their mission --- is not one of spreading 20th century Euro/American cultural values throughout the galaxy. 2. STARFLEET(TM) is not a military organization. It is a scientific research and diplomatic body. The armaments and militarism have been de-emphasized significantly in STAR TREK: THE NEXT GENERATION(R) as opposed to the original series. 21 Although the duties of the U.S.S. ENTERPRISE(TM) may include some military responsibilities, primary purpose of the of the Enterprise -- as with all Starfleet vessels -- is to expand the body of human knowledge. --- The U.S.S Enterprise may, however, find itself in military situations. To that end, it has considerable defensive power and weapons systems available on the ship. D. PRINCIPAL CAST AND CHARACTERS ----------------------------- Please adhere closely to the characterizations and outlines in the official writers' guides; and to the subsequent development of the characters in the series episodes and features. The main characters should never be allowed ------------------------------------------- to die within your story line. No computer game variation or novel plot ----------------------------- twist should result in the death of a regular or occasional cast member. Our products must comply with and support the action of the television show and films. E. FURTHER SOURCE MATERIAL ----------------------- If you require further information, data or consultation for product development, Paramount Licensing will gladly accommodate. Contact: Carla Mason Publishing Editor Paramount Pictures 5555 Melrose Avenue, Balaban Suites B & C Hollywood, CA 90038 F. STAR TREK IS NOT JUST ABOUT THE FUTURE, IT IS ABOUT NOW ------------------------------------------------------- The series is partially about the problems and challenges which we face on our planet today. Writers of the STAR TREK stories should, when possible, write about present day problems and challenges, allegorically or directly, or at least include some relevant facet in their story. G. MAINTAIN AUTHENTICITY IN THE SCIENTIFIC PORTIONS OF THE STORY ------------------------------------------------------------- If the writers include a scientific element in the story, they should research current knowledge on the subject. 22 ADDENDUM NO. 1 TO THE MASTER MERCHANDISING LICENSE AGREEMENT ("AGREEMENT") BETWEEN PARAMOUNT PICTURES CORPORATION ("PARAMOUNT") AND INTERPLAY PRODUCTIONS, INC. ("LICENSEE") DATED AS OF JUNE 16, 1992. 1. DEFINED TERMS: All terms used in this Addendum shall be used as defined in ------------- the Agreement. All provisions of this Addendum shall be governed by the terms of the Agreement. 2. PROPERTY: The television series entitled "STAR TREK: THE ORIGINAL SERIES", -------- and the theatrical motion pictures based thereupon (collectively, the "Series"). 3. LICENSED ARTICLES: The articles to be manufactured and distributed ----------------- exclusively by Licensee hereunder ("Licensed Articles") are action/adventure and role playing games incorporating graphic elements of the Property for each of the following game systems: (a) Software (floppy disc and/or CD formats) compatible with personal computer hardware including, but not limited to, IBM PC and compatibles, Apple, MacIntosh, Amiga, and CDTV ("PC Games"). Licensee shall produce a minimum of [*] and a maximum of [*] titles per the schedule set forth in Paragraph 7, below. (b) Non-8-bit video games (cartridge and/or CD formats) for video game systems compatible with, but not limited to, the Sega Genesis and Super Nintendo Entertainment Systems and TurboGraphix, and CD- peripherals which operate in conjunction therewith (collectively, "Sega/Nintendo Games"). Licensee shall produce [*] titles per the schedule set forth in Paragraph 7, below. (c) "Game Hint" books ("Books"). Each Book shall be specific to the game to which relates, and Licensee agrees that the Books will be published by a publishing affiliate or subsidiary of Licensee, and not through any third party publisher. The term "Licensed Articles" relates only to the above articles and expressly excludes coin operated arcade systems (including conversion kits), liquid crystal display (dedicated non-interchangeable cartridge, e.g. Tiger Electronics-type games), 8-bit gaming systems, hand-held game formats (including, but not limited to, the Atari Lynx Hand Held System), software operating on a CD-I system (such as but not limited to the Philips/Sony CD-I system) and so-called "virtual reality" systems. Trivia and chess game programs are excluded from the Licensed Articles. Notwithstanding the foregoing, if within [*] from execution hereof by the parties, Paramount has not licensed a third party the right to manufacture and distribute software operating on a CD-I system in connection with the Series, Paramount agrees to enter into negotiations with Licensee with respect to such a license. Additionally, Licensee shall have the first right to negotiate with Paramount to manufacture and distribute 8-bit versions of the Nintendo Entertainment System, Nintendo GameBoy portable handheld system, Sega Master System, and Sega Game Gear portable handheld system at such time as those rights revert back to Paramount from present Paramount licensees. In both instances, upon receipt of notice from Paramount, the parties shall negotiate in good faith for a period of ten (10) business days the terms and conditions of such a license; if the parties fail to reach an agreement during the negotiation period, Paramount shall thereafter be free to exercise all rights with respect to such license without further obligation to Licensee - ---------- [*] Confidential Portions Omitted and Filed Separately With the Commission 1 (provided the terms negotiated with any third party for such license are more favorable to Paramount than that which was negotiated with Licensee, failing which the parties will enter into an agreement upon the terms last proposed by Licensee). 4. TRADEMARKS: STAR TREK ---------- 5. TERRITORY: Worldwide. For purposes of this Addendum, the term --------- "worldwide" shall be defined as provided in Exhibit "A" attached hereto and incorporated herein by this reference. 6. TERM: July 1, 1992 through the earlier of June 30, 2000 or three (3) ---- years from the first ship date of the last PC Game distributed hereunder ("License Term"). 7. MARKETING DATE: The Marketing Date for a substantial number of units of -------------- each title of the Licensed Articles shall be as follows: PC Game #1 : [*] PC Game #2 : [*] Sega/Nintendo Game #1: [*] Sega/Nintendo Game #2: [*] PC Game #3: [*] Sega/Nintendo Game #3: [*] PC Game #4: [*] Sega/Nintendo Game #4: [*] PC Game #5: [*] PC Game #6: [*] PC Game #7 (optional): [*] PC Game #8 (optional): [*] Each of the aforementioned titles may be distributed and sold by Licensee for a period of three (3) years commencing from the first ship date by Licensee of such title. Subject to Paragraph 16(d)(vi) of the Agreement, upon the expiration of each three year period Licensee may sell off existing inventories of the respective title. 8. PAYMENT: ------- (a) Advance: [*], payable [*] upon execution hereof by Licensee, -------- and [*] not later than October 15, 1992. (b) Royalty: For each unit manufactured and distributed by Licensee ------- hereunder, a Royalty as follows: (i) PC Games (floppy disc or CD format): ----------------------------------- (A) For each of the first [*] units, [*] of net sales ("Net Sales"); (B) Thereafter, for each of the next [*] units (i.e. [*] through [*]), [*] of Net Sales; (C) Thereafter, for each unit in excess of [*], [*] of Net Sales. - ---------- [*] Confidential Portions Omitted and Filed Separately With the Commission 2 (ii) Sega/Nintendo Games (Cartridge format): -------------------------------------- (A) For each of the first [*] units, [*] per unit; (B) Thereafter, for each of the next [*] units (i.e. [*] through [*]), [*] per unit; (C) Thereafter, for each unit in excess of [*], [*] per unit. (iii) Sega/Nintendo Games (CD format): ------------------------------- (A) For each of the first [*] units, [*] of Net Sales; (B) Thereafter, for each unit in excess of [*], [*] of Net Sales. (iv) Books: ----- (A) For each of the first [*] units, [*] of the retail cover price; (B) Thereafter, for each unit in excess of [*], [*] of the retail cover price. (v) Sublicensee Receipts: With respect to all Licensed -------------------- Articles referred to hereinabove, if, with Paramount's prior consent, Licensee sub-licenses to non-affiliated third parties the right to manufacture and distribute the Licensed Articles, Licensee shall pay Paramount [*] of the gross amounts received by or credited to Licensee from each such third party, whether in the nature of advance, royalty and/or guarantee with deduction therefrom only for non-affiliated third party agent commissions. For purposes of this Addendum, "Net Sales" shall mean Licensee's gross wholesale price for the Licensed Articles, less [*] - --------------- [*] Confidential Portions Omitte and Filed Separately With the Commission 3 For purposes of calculating Royalties, the escalation of Royalties as set forth hereinabove shall be applied on a per title basis and separately within each of the three portions of the Territory as provided in Exhibit "A" attached hereto. [*] (c) Guarantee: [*], payable to the extent not already paid to --------- Paramount as an Advance or Royalty, but in any event [*] not later than July 1, 1993, [*] not later than July 1, 1994, [*] not later than July 1, 1995, [*] not later than July 1, 1996, and [*] not later than July 1, 1997. 9. OTHER MATTERS: ------------- (a) Third Party Agreements: Licensee may not enter into any agreement with ---------------------- any third party for the manufacturing or distribution of any of the Licensed Articles without Paramount's prior written consent. With respect to the manufacture of the Licensed Articles, all companies which Licensee enters into agreements for such purpose shall execute and deliver to Paramount an Approval of Manufacture Agreement in the form attached hereto as Exhibit "B" and incorporated herein by this reference. (b) Home Use Only: The Licensed Articles shall be sold solely for home ------------- use, and each unit shall bear the following readable legend on the cartridge and preceding game play: "INTENDED SOLELY FOR PRIVATE HOME USE. PUBLIC PERFORMANCE OR OTHER USE IS EXPRESSLY PROHIBITED." (c) Copyright and Trademark: Except as otherwise expressly provided ----------------------- herein, all copyright, title and interest in the Licensed Articles and Packaging and Promotional Material shall be in the name of Paramount. The copyright in and to the computer program (object and source code) developed by Licensee for any game which is incorporated in the Licensed Articles shall be owned by Licensee. The copyright in and to the images displayed on the screen and sounds produced during the course of game play, including all possible combinations and sequences thereof, in both the "attract mode" and the "play mode" shall be owned by Paramount. Licensee shall cause copyright, patent and trademark notices to appear on or within each unit of the Licensed Articles and/or each item of Packaging and Promotional Material as may be designated and approved by Paramount. Licensee also shall cause an appropriate copyright notice to appear for the music which is separately licensed from Famous Music. Licensee shall advise Paramount of the date of first public sale and distribution. The parties agree and acknowledge that each shall have the same right as any person or party with regard to any material incorporated in the Licensed Articles which is in the public domain (provided that it has not entered in the public domain as the result of an act or omission in breach of this - --------------- [*] Confidential Portions Omitted and Filed Separately With the Commission 4 Agreement or any other written agreement by or between the parties hereof). (d) Production Costs/Music: Licensee shall be solely responsible for, and ---------------------- shall pay, any and all sums relating to the production of Licensed Articles hereunder, including without limitation sums payable to the designers of the Licensed Articles. Further, Licensee acknowledges that no rights are granted herein to use any musical compositions contained in or otherwise associated with the soundtrack of the Series. Such rights must be obtained by Licensee from Famous Music Corporation, on terms to be negotiated with such company. Except as set forth in this Addendum, the Agreement remains in full force and effect and is hereby ratified and affirmed. PARAMOUNT PICTURES CORPORATION By: /s/ Andrea Hein ---------------------------------- Its: SENIOR VICE PRESIDENT, LICENSING --------------------------------- Date: 10-22-92 -------------------------------- INTERPLAY PRODUCTIONS, INC. By: /s/ Brian Fargo ---------------------------------- Its: President --------------------------------- Date: 10/16/92 -------------------------------- 5 EXHIBIT "A" As used in Paragraph 5 of this Addendum, the term "worldwide" shall be defined for purposes of this Addendum as follows: [*] [*] CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION. 6 [*] CONFIDENTIAL PORTIONS OMITTED. 7 EXHIBIT "B" APPROVAL OF MANUFACTURER ------------------------ This AGREEMENT, dated as of _________________, 19__, is made by and between Paramount Pictures Corporation, whose address is 5555 Melrose Avenue, Los Angeles, California 90038 (hereinafter "Paramount") and ___________________ whose address is ______________________________________ (hereinafter "Company"). 1. APPROVAL GRANTED: Reference is made to that certain License Agreement ---------------- ("Agreement") dated as of _________________, 19__ between Paramount and ________ ____ ("Licensee'") granting Licensee the right to manufacture __________________ _________ ______________________________________________ ________________________________________________________________________________ _____________________________________ (collectively hereinafter referred to as the "Licensed Articles"). Licensee has advised Paramount that Licensee desires to use the services of Company to manufacture the Licensed Articles. Subject to the terms and conditions hereof, Paramount hereby grants its approval of Company to act for Licensee as the manufacturer of the Licensed Articles. 2. OBLIGATIONS OF COMPANY: Company hereby agrees that: ---------------------- A. Company shall only manufacture the Licensed Articles as and when directed by Licensee; B. Company shall manufacture the Licensed Articles in accordance with requirements imposed by Licensee, including without limitation any requirements regarding (i) compliance with all laws, regulations and governmental rules applicable to the Licensed Articles and/or their manufacture, and (ii) affixing notices such as copyright, trademark patent or other proprietary notices to the Licensed Articles as may be designated by Paramount; C. Company shall not supply the Licensed Articles to any person, firm, corporation or business entity other than Licensee; D. Company shall look solely to Licensee for any sums due Company for the manufacture of Licensed Articles; and E. Company shall acquire no proprietary rights of any kind or nature, including without limitation, copyright, patent, trademark or other intellectual property rights in the Licensed Articles, all such rights vesting solely and exclusively with Paramount. 8 By signing in the spaces provided below, the parties hereto have accepted and agreed to all of the terms and conditions hereof. PARAMOUNT PICTURES CORPORATION By:____________________________ Its:___________________________ ACCEPTED AND AGREED: By:____________________________ Its:___________________________ By signing in the space provided below, Licensee represents that it has familiarized Company with the Terms and Conditions of the License Agreement as they apply to Company. In addition, Licensee acknowledges and agrees that the approval by Paramount of Company as a manufacturer in no way derogates from or relieves Licensee of any of its obligations under the License Agreement. Licensee further acknowledges and agrees that it shall be responsible and primarily liable for all activities and obligations of Company with respect to the Licensed Articles. Licensee affirms all representations made hereinabove by Company. ACCEPTED AND AGREED TO: By:____________________________ Its:___________________________ 9 PARAMOUNT PICTURES - -------------------------------------------------------------------------------- as of May 1, 1993 Interplay Productions, Inc. 17922 Fitch Avenue Irvine, California 92714 Attn: Brian Fargo RE: PARAMOUNT PICTURES CORPORATION/INTERPLAY PRODUCTIONS, INC. -- STAR TREK (CONTRACT NO. 920322) Ladies and Gentlemen: Reference is made to the Master Merchandising License Agreement ("Master Agreement") dated June 16, 1992 between Paramount Pictures Corporation and Interplay Productions, Inc., and Addendum No. 1 thereto ("Addendum"), relating to the licensing of property rights associated with the original television series entitled "STAR TREK", and the theatrical motion pictures based thereupon. The parties agree to amend the Addendum as follows: 1. Under Paragraph 3 of the Addendum, the Licensed Articles shall be expanded to include the "STAR TREK 25th Anniversary" action/adventure game previously produced by Licensee pursuant to a sublicense agreement with Konami, Inc. ("Additional Licensed Articles"). The Additional Licensed Articles shall be produced only for the software game system specified in subparagraph 3(a) of the Addendum; further, the Additional Licensed Articles shall not be applied towards the minimum or maximum production requirements set forth in said subparagraph. 2. Under Paragraph 6 of the Addendum, the Term for the Additional Licensed Articles shall be May 1, 1993 through June 30, 1999, unless sooner terminated as provided in the Master Agreement. In the event Licensee exercises [LOGO OF PARAMOUNT APPEARS HERE] INTERPLAY PROD. Page 2 its option to produce PC Game #7 as provided in Paragraph 7 of the Addendum, then the Term for the Additional Licensed Articles shall automatically be extended through December 31, 1999; in the event Licensee exercises its option to produce PC Game #8 as provided in said Paragraph 7 of the Addendum, then the Term for the Additional Licensed Articles shall automatically be extended through June 30, 2000. 3. Under Paragraph 8(b)(i) of the Addendum, with respect only to the Additional Licensed Articles, Licensee agrees to pay Paramount a Royalty of [*] of Net Sales (as such term is defined under the Addendum) for each such unit manufactured and distributed by Licensee. Licensee shall account for such Royalties separately within each of the three portions of the Territory as set forth in Exhibit "A" to the Addendum. All other terms and conditions of the Master Agreement and the Addendum shall remain in full force and effect and are hereby ratified and affirmed. If the foregoing is in accord with your understanding of our agreement, please have an officer of Interplay Productions, Inc. sign in the appropriate space provided below. Very truly yours, PARAMOUNT PICTURES CORPORATION By: /s/ Robert B. Cohen --------------------------- ROBERT B. COHEN Its: Senior Vice President -------------------------- AGREED TO AND ACCEPTED: INTERPLAY PRODUCTIONS, INC. By: /s/ Richard Lehrberg --------------------------- Its: V.P. -------------------------- - --------------- [*] Confidential Portions Omitted and Filed Separately With the Commission VIACOM Consumer Products as of July 14, 1997 INTERPLAY PRODUCTIONS, INC. 16815 Von Karman Avenue Irvine, California 92606 Attn. Mr. Brian Fargo RE: -- STAR TREK (CONTRACT NO. 920322) Ladies and Gentlemen: Reference is made to the Master Merchandising License Agreement ("Master Agreement") dated June 16, 1992 between Paramount Pictures Corporation ("PPC") and Interplay Productions, Inc. ("Licensee"), and the Addenda and Amendments thereto (the "Master Agreement", the Addenda and the Amendments all collectively referred to herein as the "Agreement"), relating to the licensing of property rights associated with the television series entitled "STAR TREK: THE ORIGINAL SERIES", and the theatrical motion pictures based thereupon (collectively, the "Series"). PPC and Licensee agree to solely amend Addendum No. 1 as follows: 1. Under Paragraph 6 of Addendum No. 1, the Term shall be extended through June 30, 2002 ("Extended Term"), unless sooner terminated as provided in the Master Agreement. For purposes of clarification, each of the titles referenced in Paragraph 7 of Addendum No. 1 may be distributed and sold by Licensee for a period of [*] commencing from the applicable Marketing Date (as set forth in Paragraph 8 below), even if such period extends beyond the expiration of the Extended Term. Notwithstanding the preceding sentence, PPC acknowledges that Licensee may currently be selling the games: Star Trek 25th Anniversary (on PC and Macintosh), Star Trek: Judgement Rights (on PC) and Starfleet Academy (on SNES), and PPC permits Licensee to continue to do so until such time as PPC provides Licensee with sixty (60) days written notice to the contrary. Upon receipt of such notice Licensee may not enter into any new obligations or commitments with respect to sales of such games, but may fulfill existing orders. [*] 2. With respect to the Extended Term, Licensee shall pay to PPC an additional Advance ("Additional Advance"), as defined in Paragraph 8 (a) of the Addendum No. 1, of [*] upon execution hereof but no later than December 8, 1997, and; 3. Licensee shall only begin to recoup the Additional Advance against Royalties from the sales of any Licensed Article due after January 1, 1998. [LOGO OF PARAMOUNT APPEARS HERE] - --------------- [*] Confidential Portions Omitted and Filed Separately With the Commission 4. Licensee shall also pay PPC [*] upon the execution hereof but no later than December 8, 1997, recoupable against Royalties from the sale of the Starfleet Academy software game and mission disks for such game (as further set forth below). 5. If Licensee fails to ship the software game known as "The Secret of Vulcan Fury" or a comparable title (excluding pinball titles, mission disks and such) on or before May 31, 1998, then Licensee shall pay PPC a Second Additional Advance ("Second Additional Advance") of [*] on or before December 1, 1998. The Second Additional Advance shall be solely recouped against Royalties from the sales of the software game known as the "Secret of Vulcan Fury" or such comparable title and/or any other Licensed Articles (other than the software game entitled "Star Trek: Starfleet Academy") under Addendum No. 1 due after May 31, 1998. 6. If any payments required in sections 2 and 4 hereunder are not received by PPC on or before December 8, 1997, then this amendment shall be deemed immediately null and void without further notice to Licensee. 7. PPC acknowledges that with respect to Paragraph 9(c) of Addendum No. 1 and any restatement of such Paragraph in future Addenda to the Agreement regarding ownership of copyright of the Licensed Articles, that a third party developer may own the software engine/code. Thus, the second sentence of Paragraph 9(c) of Addendum No. 1 (and any restatement thereof in any future Addenda to the Agreement) shall read: "The copyright in and to the computer program (object and source code) developed by Licensee for any game which is incorporated in the Licensed Articles shall be owned by Licensee or, if applicable, the third party developer of the software engine/code." 8. For purposes of clarification and to summarize to date the status of the games produced by Licensee under the Agreement, specifically those which apply towards the minimum or maximum production requirements set forth in Paragraph 3 of Addendum No. 1, the references in Paragraph 7 of Addendum No. 1 to the PC games and Sega/Nintendo games shall be deemed references to the following:
Marketing Date PC Game #1: Star Trek: Judgment Rites 4/30/94 PC Game #2: Star Trek: Starfleet Academy 9/30/97 PC Game #3: Star Trek: Secret of Vulcan Fury (tentative) [*] PC Game #4: [*] [*] PC Game #5: [*] [*] PC Game #6: [*] [*] PC Game #7: [*] [*] PC Game #8: [*] [*] Sega/Nintendo (Console) Game #1: Star Trek: Starfleet Academy (SNES) 4/30/95 Sega/Nintendo (Console) Game #2: [*] [*] Sega/Nintendo (Console) Game #3: Star Trek: The Secret of Vulcan Fury (tentative) [*] Sega/Nintendo (Console) Game #4: [*] [*]
The parties acknowledge that the Star Trek 25th Anniversary game, produced pursuant to a letter addendum dated as of May 1, 1993, the two (2) Star Trek pinball games to be produced pursuant to Addendum No. 3, the OEM Additional Licensed Articles to be produced pursuant to a Letter of Addendum dated as of August 26, - --------------- [*] Confidential Portions Omitted and Filed Separately With the Commission 1997, and any mission disks, if applicable, as further set forth below, shall not be applied towards the minimum or maximum production requirements set forth in Paragraph 3 of Addendum No. 1. [*] Further to the above, upon prior written notice to VCP, Licensee may initially ship a Licensed Article prior to the applicable Marketing Date, in which event the Term for such Licensed Article will commence upon such earlier ship date. Notwithstanding the above, Licensee will not initially release any of the Licensed Articles after June 30, 2002, without the prior written consent of VCP. A Marketing Date may not be changed except with the express prior written consent of PPC. 9. [*] In addition, any and all distribution or sale of the Licensed Articles in any form or forms other than as approved or authorized by VCP (e.g.) "bundlings", "samplings", "compilations", "OEM" and other "arrangements" in connection with the Licensed Articles, shall be subject to VCP's prior written approval in each instance. Licensee shall submit any such proposal in writing to VCP (attention: Director, Consumer Electronics) and VCP agrees to approve or disapprove the same in writing within ten (10) business days from receipt thereof. If Licensee does not receive a response within such ten (10) business day period, Licensee shall resubmit same via certified mail to VCP to the attention of Vice President of Sales. Thereafter, if Licensee does not receive a response within five (5) business days such proposal shall be deemed approved. 10. With respect to Licensed Articles encompassed by Addendum No. 1 to the Agreement, Paragraph 16(d)(vi) shall not be applicable. - --------------- [*] Confidential Portions Omitted and Filed Separately With the Commission Except as otherwise modified hereinabove, all terms and conditions of the Agreement shall remain in full force and effect and are hereby ratified and affirmed. If the foregoing is in accord with your understanding of our agreement, please have an officer of Interplay Productions, Inc. sign in the appropriate space provided below. Very truly yours, PARAMOUNT PICTURES CORPORATION AGREED TO AND ACCEPTED: BY: /s/ Rebecca L. Prentice ----------------------------- INTERPLAY PRODUCTIONS, INC. Its: Senior Vice President and ---------------------------- General Counsel ------------------------- By: /s/ Brian Fargo ------------------------- Its: CEO ------------------------ [LETTERHEAD OF VIACOM CONSUMER PRODUCTS APPEARS HERE] as of August 26, 1997 INTERPLAY PRODUCTIONS, INC. 16815 Von Karman Avenue Irvine, California 92606 Attn: Mr. Brian Fargo RE: -- STAR TREK (CONTRACT NO. 920322/971600) Ladies and Gentlemen: Reference is made to the Master Merchandising License Agreement ("Master Agreement") dated June 16, 1992 between Paramount Pictures Corporation ("PPC") and Interplay Productions, Inc. ("Licensee") as thereafter amended, and Addendum No.1 thereto ("Addendum No.1") relating the licensing of property rights associated with the television series entitled "STAR TREK: THE ORIGINAL SERIES", and the theatrical motion pictures based thereupon (collectively, the "Series"). The parties hereby agree to further amend the Master Agreement as thereafter amended, and specifically Addendum No.1 as follows: 1. Under Paragraph 3 of Addendum No. 1, Licensee shall be granted the right to manufacture and distribute four (4) separate products for OEM bundles (for the purposes of clarification, OEM bundles are "hard bundles which includes equipment" as opposed to "soft bundles which includes software") for each of the following software titles: "StarFleet Academy", "Judgment Rites", "Star Trek Pinball" (game one and two under Addendum No. 3), and the "25th Anniversary" ("Additional Licensed Articles"). These OEM products shall be as follows: [*] Subject to Paragraph 2 below, PPC approves the Company and/or Organization listed on the attached Exhibit "A" as manufactures, duplicators and/or distributors of the Additional Licensed Articles. If Licensee wishes bundles to be manufactured, duplicated and/or distributed by Companies and/or Organizations not listed on the attached Exhibit "A", Licensee must receive the prior written approval of PPC. Licensee may manufacture and sublicense (and may sublicense the right to manufacture) the Additional Licensed Articles to the parties listed on Exhibit "A" attached hereto without the necessity of entering into the "Approval of Manufacturing" agreement attached as Exhibit "B" to Addendum No. 1., [LOGO] - --------------- [*] Confidential Portions Omitted and Filed Separately With the Commission 2. Licensee acknowledges and agrees that it shall include the following language in its manufacturers, duplicators and/or distributer agreements listed on Exhibit "A" or as otherwise approved by PPC: "Pursuant to Paramount Pictures Corporation's requirements, the Bundled Units may not include any pornographic, religious, or political material." 3. Licensee shall not bundle the Full PC-CD Version of "StarFleet Academy" Additional Licensed Articles until [*] from the initial release date of the PC-CD version of StarFleet Academy. 4. With respect to the Additional Licensed Articles, Licensee agrees to pay PPC the following: (a) Under Paragraph 9 of the Master Agreement, an Advance of [*] ("Additional Advance") payable as follows: [*] on or before October 30, 1997, and [*] on or before December 15, 1997. (b) A Royalty, as defined in Paragraph 9(b) of the Master Agreement, of [*] of the gross revenue Interplay Productions (or its subsidiary Interplay OEM, Inc.) receives from its distribution and sale of the Additional Licensed Articles or [*] of the gross revenue received by Interplay (or its subsidiary Interplay OEM, Inc.) from the sublicensing of the Licensed Articles to a third party on the attached Exhibit "A" or as otherwise approved in writing, in advance, by PPC. (c) The amounts payable pursuant to this amendment shall not be cross-collateralized with any other amounts payable pursuant to the Master Agreement, as thereafter amended, and any other Addendum to the Master Agreement. (d) Unless additional samples of the Additional Licensed Articles are requested by PPC, pursuant to Paragraph 12 of the Master Agreement, Licensee shall furnish to PPC [*] samples of each product Licensee produces, and to the extent possible, from the Sublicensees, of each of the Additional Licensed Articles at the commencement of distribution thereof. Except as otherwise modified herein above, all terms and conditions of the Agreement shall remain in full force and effect and are hereby ratified and affirmed. - ---------------- [*] Confidential Portions Omitted and Filed Separately With the Commission If the foregoing is in accord with your understanding of our agreement, please have an officer of Interplay Productions, Inc. sign in the appropriate space provided below. Very truly yours, PARAMOUNT PICTURES CORPORATION By: /s/ Elizabeth R. Dambriunas --------------------------- ELIZABETH R. DAMBRIUNAS Its: Vice President, Legal -------------------------- AGREED TO AND ACCEPTED: INTERPLAY PRODUCTIONS, INC. By: /s/ Brian Fargo --------------------- Its: CEO ------------------ EXHIBIT "A" Company/Organization Client Hardware - -------------------- --------------- [*] - --------------- [*] Confidential Portions Omitted and Filed Separately With the Commission VIACOM CONSUMER PRODUCTS as of December 5, 1997 INTERPLAY PRODUCTIONS, INC. 16815 Von Karman Avenue Irvine, California 92606 Attn: Mr. Brian Fargo RE: -- STAR TREK (CONTRACT NO. 970988) Ladies and Gentlemen: Reference is made to the Master Merchandising License Agreement dated June 16, 1992 between Paramount Pictures Corporation ("PPC") and Interplay Productions, Inc. ("Licensee"), and the Addenda and Amendments thereto (the Master Merchandising License Agreement, the Addenda and the Amendments all collectively referred to herein as the "Agreement"), relating to the licensing of property rights associated with the television series entitled "STAR TREK: THE ORIGINAL SERIES", and the theatrical motion pictures based thereupon (collectively, the "Series"). The parties hereby agree to further amend the Agreement, to provide that Exhibit "A" to Addenda 1, 2 and 3 shall be deleted and the Territory, as defined in Paragraph 5 to Addenda 1, 2 and 3 shall be [*]. Except as otherwise modified herein above, all terms and conditions of the Agreement shall remain in full force and effect and are hereby ratified and affirmed. If the foregoing is in accord with your understanding of our agreement, please have an officer of Interplay Productions, Inc. sign in the appropriate space provided below. Very truly yours, VIACOM CONSUMER PRODUCTS as agent for Paramount Pictures Corporation By: /s/ Elizabeth R. Dambriunas ---------------------------- ELIZABETH R. DAMBRIUNAS Its: Vice President, Legal --------------------------- AGREED TO AND ACCEPTED: INTERPLAY PRODUCTIONS, INC. By: /s/ Brian Fargo --------------------- Its: CEO -------------------- [LOGO] - --------------- [*] Confidential Portions Omitted and Filed Separately With the Commission EX-23.2 24 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report (and to all references to our Firm) included in or made a part of this registration statement. Arthur Andersen LLP Orange County, California March 20, 1998 EX-27.1 25 FDS FOR YEAR ENDED 12/31/97
5 1,000 YEAR 8-MOS APR-30-1997 DEC-31-1997 MAY-01-1996 MAY-01-1997 APR-30-1997 DEC-31-1997 5,410 1,536 0 0 37,240 49,145 (14,894) (14,461) 10,914 12,628 57,918 68,623 13,541 13,982 (5,424) (6,956) 69,005 77,821 50,028 55,007 0 0 0 0 0 0 11 11 0 0 69,005 77,821 83,262 85,961 83,262 85,961 62,480 44,864 55,466 43,883 1,600 2,273 34,424 21,915 1,907 3,009 (36,284) (5,059) (9,065) 0 (36,284) (5,059) 0 0 0 0 0 0 (27,219) (5,059) (2.46) (0.45) (2.46) (0.45)
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