THQ INC.FORM 10-Q SEPTEMBER 30, 2002

-----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, JZMm5pzVF7j2EPE+GZyovaG0el/hiarA0ZfZWJ28QepVrLSCI/e+Kzd0mIzA+YFI O/QrOPY/zdPyMO62C1bwBw== 0000950150-02-001060.txt : 20021114 0000950150-02-001060.hdr.sgml : 20021114 20021114172208 ACCESSION NUMBER: 0000950150-02-001060 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THQ INC CENTRAL INDEX KEY: 0000865570 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 133541686 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18813 FILM NUMBER: 02826381 BUSINESS ADDRESS: STREET 1: 27001 AGOURA ROAD STREET 2: SUITE # 325 CITY: CALABASAS HILLS, STATE: CA ZIP: 91301 BUSINESS PHONE: 8188715000 MAIL ADDRESS: STREET 1: 5016 N PKWY CALABASAS STREET 2: STE 100 CITY: CALABASAS STATE: CA ZIP: 91302 FORMER COMPANY: FORMER CONFORMED NAME: TRINITY ACQUISITION CORP/NY/ DATE OF NAME CHANGE: 19600201 10-Q 1 a85823e10vq.htm THQ INC.FORM 10-Q SEPTEMBER 30, 2002 THQ INC.FORM 10-Q SEPTEMBER 30, 2002

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

OR

[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number 0-18813

THQ INC.
(Exact Name of Registrant as Specified in Its Charter)

_______________

Delaware

13-3541686

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

27001 Agoura Road

Calabasas Hills, CA

91301

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (818) 871-5000
_______________

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock, $0.01 par value: 39,696,644 shares (as of November 11, 2002).

TABLE OF CONTENTS


Part I — Financial Information
	Item 1. Financial Statements.
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Disclosure Controls and Procedures
Part II — Other Information
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 10.6
Exhibit 10.7
Exhibit 10.8
Exhibit 10.9
Exhibit 10.10
EXHIBIT 10.11
EXHIBIT 10.12
Exhibit 99.1
Exhibit 99.2

THQ INC. AND SUBSIDIARIES

INDEX

PAGE

Part I — Financial Information

Item 1.
Consolidated Financial Statements:

Consolidated Balance Sheets — September 30, 2002 and December 31, 2001 3

Consolidated Statements of Operations — for the Three Months and Nine Months Ended September 30, 2002 and 2001 4

Consolidated Statements of Stockholders’ Equity — for the Year Ended December 31, 2001 and the Nine Months Ended September 30, 2002 5

Consolidated Statements of Cash Flows — for the Nine Months Ended September 30, 2002 and 2001 6

Notes to Consolidated Financial Statements 7

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations 14

Item 3.
Quantitative and Qualitative Disclosures About Market Risk 23

Item 4.
Disclosure Controls and Procedures 23

Part II — Other Information

Item 1.
Legal Proceedings 24

Item 2.
Changes in Securities and Use of Proceeds 25

Item 6.
Exhibits and Reports on Form 8-K 26

Signatures
28

Certifications
29

Part I — Financial Information

Item 1. Financial Statements.

THQ INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)


			September 30,			December 31,
			2002			2001

			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	66,169		$	171,059
	Short-term investments			139,870			35,106

		Cash, cash equivalents and short-term investments		206,039			206,165
	Accounts receivable net of allowances of $37,673 and $40,616, respectively			68,110			126,011
	Inventory, net			24,037			9,917
	Licenses			19,274			16,758
	Software development			55,473			34,664
	Income taxes receivable			—			290
	Prepaid expenses and other current assets			9,514			7,498

		Total current assets		382,447			401,303
Property and equipment, net				15,777			13,891
Licenses, net of current portion				28,672			8,345
Software development, net of current portion				4,746			4,466
Goodwill, net				60,322			48,202
Other long-term assets, net				8,142			11,759

TOTAL ASSETS			$	500,106		$	487,966

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	18,876		$	27,186
	Accrued expenses			15,294			22,944
	Accrued royalties			23,348			30,001
	Income taxes payable			2,351			—
	Deferred income taxes			1,629			1,567

		Total current liabilities		61,498			81,698
Accrued royalties, net of current portion				14,925			6,686
Deferred income taxes				1,130			720
Commitments and contingencies				—			—
Stockholders’ equity:
Common stock, par value $.01, 75,000,000 shares authorized; 39,578,987 and 38,979,747 shares issued and outstanding as of September 30, 2002 and December 31, 2001, respectively				396			390
Additional paid-in capital				329,045			316,758
Accumulated other comprehensive loss				(648	)		(2,187	)
Retained earnings				93,760			83,901

		Total stockholders’ equity		422,553			398,862

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$	500,106		$	487,966

See notes to consolidated financial statements.

THQ INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)


		For the Three Months Ended				For the Nine Months Ended
		September 30,				September 30,

		(Unaudited)				(Unaudited)
		2002		2001		2002			2001

Net sales		$	97,335	$	68,045	$	262,778		$	182,609
Costs and expenses:
	Cost of sales		37,006		29,378		103,182			81,262
	License amortization and royalties		8,015		6,616		22,178			15,876
	Software development amortization		12,982		6,774		35,370			15,825
	Product development		9,979		5,554		26,647			15,513
	Selling and marketing		13,838		9,952		35,018			25,563
	Payment to venture partner		1,044		342		4,116			2,105
	General and administrative		8,288		4,922		20,687			16,384

Total costs and expenses			91,152		63,538		247,198			172,528

Income from operations			6,183		4,507		15,580			10,081
Interest income, net			1,257		608		4,158			1,915
Other expenses			—		—		(3,006	)		—

Income before income taxes			7,440		5,115		16,732			11,996
Income taxes			2,636		1,901		6,873			4,468

Net income		$	4,804	$	3,214	$	9,859		$	7,528

Net income per share — basic		$	.12	$	.10	$	.25		$	.24

Net income per share — diluted		$	.12	$	.09	$	.24		$	.22

Shares used in per share calculation — basic			39,633		32,428		39,366			31,778

Shares used in per share calculation — diluted			41,464		35,333		41,742			34,654

See notes to consolidated financial statements.

THQ INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except per share data)


			For the Year Ended December 31, 2001 and the Nine Months Ended September 30, 2002

									(Unaudited)
												Accumulated
									Additional			Other
			Common			Common			Paid-in			Comprehensive			Retained
			Shares			Stock			Capital			Loss			Earnings		Total

Balance at January 1, 2001				30,690,807		$	307		$	85,645		$	(1,715	)	$	47,888	$	132,125
Exercise of warrants and options				2,405,413			24			16,697			—			—		16,721
Issuance of common stock from secondary offering				4,596,222			46			154,559			—			—		154,605
Issuance of common stock for Rainbow acquisition				1,287,305			13			48,635			—			—		48,648
Stock compensation				—			—			299			—			—		299
Tax benefit related to the exercise of employee stock options				—			—			10,923			—			—		10,923
Comprehensive income:
	Net income			—			—			—			—			36,013		36,013
	Other comprehensive income
		Foreign currency translation adjustment		—			—			—			(703	)		—		(703	)
		Unrealized gain on investments		—			—			—			231			—		231

Comprehensive income																		35,541

Balance at December 31, 2001				38,979,747			390			316,758			(2,187	)		83,901		398,862
Exercise of warrants and options				514,340			5			5,213			—			—		5,218
Adjustments related to secondary offering				—			—			52			—			—		52
Stock repurchase				(81,700	)		(1	)		(1,920	)							(1,921	)
Issuance of common stock for ValuSoft acquisition				166,600			2			4,626								4,628
Adjustments related to Rainbow acquisition				—			—			(82	)		—			—		(82	)
Issuance of warrants				—			—			1,213			—			—		1,213
Stock compensation				—			—			141			—			—		141
Tax benefit related to the exercise of employee stock options				—			—			3,044			—			—		3,044
Comprehensive income:
	Net income			—			—			—			—			9,859		9,859
	Other comprehensive income
		Foreign currency translation adjustment		—			—			—			2,631			—		2,631
		Unrealized loss on investments		—			—			—			(1,092	)		—		(1,092	)

Comprehensive income																		11,398

Balance at September 30, 2002				39,578,987		$	396		$	329,045		$	(648	)	$	93,760	$	422,553

See notes to consolidated financial statements.

THQ INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)


		For the Nine Months Ended
		September 30,

		(Unaudited)
		2002			2001

Cash flows from operating activities:
Net income		$	9,859		$	7,528
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		4,686			3,486
	Amortization of licenses and software development		41,589			18,709
	Provision for doubtful accounts, discounts and returns		43,201			23,113
	Loss on disposal of property and equipment		133			8
	Stock compensation		141			224
	Tax benefit related to the exercise of employee stock options		3,044			9,297
	Deferred income taxes		57			356
	Write-off of Network Interactive Sports Ltd.		3,006			—
Changes in operating assets and liabilities:
	Accounts receivable		17,101			64,890
	Inventory		(12,113	)		(393	)
	Licenses		(31,358	)		(22,762	)
	Software development		(52,876	)		(35,783	)
	Prepaid expenses and other current assets		423			(11,057	)
	Accounts payable		(9,766	)		(12,230	)
	Accrued expenses		(9,149	)		(7,928	)
	Accrued royalties		1,547			(3,190	)
	Income taxes		2,771			(11,718	)

Net cash provided by operating activities			12,296			22,550

Cash flows used in investing activities:
	Proceeds from sale of property and equipment		—			57
	Proceeds from sales and maturities of short-term investments		45,914			—
	Purchases of short-term investments		(151,185	)		—
	Acquisition of property and equipment		(5,973	)		(4,260	)
	Acquisition of ValuSoft, net of cash acquired		(9,373	)		—
	Investment in Network Interactive Sports Ltd.		(221	)		(3,174	)
	(Increase) decrease in other long-term assets		(114	)		461

Net cash used in investing activities			(120,952	)		(6,916	)

Cash flows used in financing activities:
	Net decrease in short-term borrowings		—			(15,473	)
	Stock repurchase		(1,921	)		—
	Proceeds from issuance of common stock		52			—
	Proceeds from exercise of warrants and options		5,218			13,046

Net cash provided by (used in) financing activities			3,349			(2,427	)

Effect of exchange rate changes on cash			417			(123	)

Net increase in cash and cash equivalents			(104,890	)		13,084
Cash and cash equivalents — beginning of period			171,059			27,998

Cash and cash equivalents — end of period		$	66,169		$	41,082

See notes to consolidated financial statements.

THQ INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. Basis of Presentation

In the opinion of management the accompanying interim balance sheet and related statements of operations, cash flows and stockholders’ equity include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with U.S. generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses. Examples include discounts, allowances and returns. Actual results may differ from these estimates. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis and financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2001. Certain reclassifications have been made for consistent presentation.

2. Cash, Cash Equivalents and Short-Term Investments


			As of		As of
			September 30,		December 31,
(In thousands)			2002		2001

Cash and cash equivalents			$	66,169	$	171,059
Short-term investments
	Available for sale			139,870		30,106
	Held to maturity			—		5,000

		Short-term investments		139,870		35,106
Cash, cash equivalents and short-term investments			$	206,039	$	206,165

We consider all highly liquid investments purchased with maturities less than three months to be cash equivalents.

Investments with a maturity greater than three months, but less than one year, at the time of purchase are considered to be short-term investments. We invest in highly liquid debt instruments with strong credit ratings. The carrying amount of the investments approximates fair value due to their short maturity. Unrealized gains and (losses) are recorded as a separate component of accumulated other comprehensive income for investments classified as available-for-sale. The unrealized gains and (losses) for the three months and nine months ended September 30, 2002 were ($330,000) and ($507,000). Investments in held-to-maturity instruments are stated at cost. The investment in Yuke’s Co., Ltd. is also classified as available-for-sale and is included in other long-term assets in the accompanying balance sheets. The unrealized holding gain (loss) on the investment in Yuke’s Co., Ltd. at September 30, 2002 and December 31, 2001 was ($585,000) and $249,000, respectively.

3. Business Combination

ValuSoft. On July 1, 2002, we completed the acquisition of substantially all the assets of ValuSoft, Inc. (“ValuSoft”), a publisher and developer of consumer-priced interactive entertainment and productivity software. The results of ValuSoft’s operations have been included in the consolidated financial statements since that date. This acquisition has provided us with a channel for consumer-priced personal computer products. We paid $9.7 million in cash and issued approximately 167,000 shares of our common stock as the initial purchase price. In addition, ValuSoft is entitled to additional consideration of up to $11 million if ValuSoft reaches certain pre-tax income targets in the five years following July 1, 2002. The annual payments of the additional consideration, if any, range from $1 million to $2.8 million per year and may be paid, at our discretion, in cash or shares of our common stock.

The acquisition has been accounted for using the purchase method under SFAS No. 141. The purchase price was determined based on the average market price of our common stock over the two-day period before and after July 1, 2002. The purchase price includes actual and estimated transaction costs and an adjustment for ValuSoft’s accounts

receivable and estimated net book value at July 1, 2002. The allocation of the purchase price is based on studies and valuations that are currently being finalized. We do not believe that the final purchase price allocation will produce materially different results than those reflected below. The allocation of the purchase price is as follows:


Estimated Fair value (in thousands)
	Tangible assets acquired		$	2,837
	Software development acquired			1,491
	Licenses acquired			1,109
	Liabilities assumed			(2,940	)
	Goodwill			12,040

		Purchase price	$	14,537

The following unaudited pro forma financial information for the three and nine months ended September 30, 2002 and 2001 assumes the purchase of substantially all the assets of ValuSoft, Inc. and the purchase of Rainbow Multimedia Group, Inc., (which occurred on December 21, 2001), had occurred as of the beginning of the respective periods. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations that may occur in the future or that would have occurred had the acquisition of the assets been consummated on the dates indicated.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,

(In thousands, except per share data)	2002		2001		2002		2001

Revenue	$	97,335	$	75,477	$	273,831	$	206,992
Net income		4,804		4,052		11,449		11,778
Basic earnings per share		0.12		0.12		0.29		0.35
Diluted earnings per share		0.12		0.11		0.27		0.33

4. Licenses

Minimum guaranteed payments for intellectual property licenses are initially recorded as an asset (licenses) and as a liability (accrued royalties) at the contractual amount upon execution of the contract when no significant performance remains with the licensor. When significant performance remains with the licensor, we record payments as an asset (licenses) when paid. Payments for intellectual property licenses are classified as current assets and current liabilities to the extent they relate to anticipated sales during the subsequent year and long-term assets and long-term liabilities if the sales are anticipated after one year.

The gross carrying value of our licenses was $92.0 million and the related accumulated amortization was $44.1 million at September 30, 2002. For the three months and nine months ended September 30, 2002, our aggregate amortization expense was $2.4 million and $9.7 million, respectively. We estimate that the current portion of licenses, $19.3 million, will be amortized over the next twelve months. We estimate that licenses, net of current portion, $28.7 million, will be amortized after September 30, 2003 over varying periods, depending on the release dates of the related products.

5. Software Development

We utilize both independent software developers and internal development teams to develop our software. We account for software development costs in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.” We capitalize software development costs once technological feasibility is established and we determine that such costs are recoverable against future revenues. For products where proven game engine technology exists, this may occur

early in the development cycle. We capitalize the milestone payments made to independent software developers and the direct payroll costs for our internal development teams. We evaluate technological feasibility on a product-by-product basis. Amounts related to software development for which technological feasibility is not yet met are charged immediately to product development.

The gross carrying value of our software development was $130.5 million and the related accumulated amortization was $70.3 million at September 30, 2002. For the three months and nine months ended September 30, 2002, our aggregate amortization expense was $11.2 million and $31.6 million, respectively. We estimate that the current portion of software development, $55.5 million, will be amortized over the next twelve months. We estimate that software development, net of current portion, $4.7 million, will be amortized after September 30, 2003 over varying periods of time, depending on the release dates of the related products.

6. Goodwill and Other Intangible Assets

In accordance with the adoption of SFAS No. 142, on January 1, 2002, we no longer amortize goodwill. The following table reconciles net income and earnings per share as reported for the three months and nine months ended September 30, 2002 and 2001 to net income and earnings per share, as adjusted to exclude goodwill amortization.


		For the Three Months Ended				For the Nine Months Ended
		September 30,				September 30,

(In thousands, except per share data)		2002		2001		2002		2001

Reported net income		$	4,804	$	3,214	$	9,859	$	7,528
Add back: Goodwill amortization			—		52		—		156

Adjusted net income		$	4,804	$	3,266	$	9,859	$	7,684

Basic earnings per share:
	Reported net income	$	.12	$	.10	$	.25	$	.24
	Goodwill amortization		—		—		—		—

	Adjusted net income	$	.12	$	.10	$	.25	$	.24

Diluted earnings per share:
	Reported net income	$	.12	$	.09	$	.24	$	.22
	Goodwill amortization		—		—		—		—

	Adjusted net income	$	.12	$	.09	$	.24	$	.22

The changes in the carrying amount of goodwill for the nine months ended September 30, 2002, are as follows:


Balance at December 31, 2001		$	48,202
	ValuSoft acquisition		12,040
	Adjustments related to Rainbow acquisition		16
	Effect of foreign currency exchange rates		64

Balance at September 30, 2002		$	60,322

Other intangible assets are included in other long-term assets, net, except licenses and software development, which are reported separately in the accompanying balance sheets. Other intangible assets are as follows:

Other Intangible Assets


				September 30, 2002					December 31, 2001

				Gross					Gross
				Carrying		Accumulated			Carrying		Accumulated
(In thousands)			Useful Lives	Amount		Amortization			Amount		Amortization

Amortized intangible assets
	Trade secrets		5 years	$	1,800	$	(270	)	$	1,800	$	—
	Non-compete /
	Employment contracts		6.5 years		706		(81	)		706		—

		Subtotal			2,506		(351	)		2,506		—
Unamortized intangible assets
	Trade name		indefinite		1,025		N/A			1,025		N/A

		Total		$	3,531	$	(351	)	$	3,531	$	—

For the three months and nine months ended September 30, 2002, our aggregate amortization expense related to other intangible assets was $117,000 and $351,000, respectively.

Estimated Amortization Expense


(In thousands):
For the Year Ended
December 31,

	2002	$	461
	2003	$	461
	2004	$	461
	2005	$	461
	2006	$	461
Thereafter		$	201

7. Credit Facility

On September 27, 2002, we entered into an Amended and Restated Revolving Credit Agreement with Union Bank of California. Under the terms of the Amended and Restated Revolving Credit Agreement, we are permitted to borrow (and maintain obligations under outstanding letters of credit) up to an aggregate of $35 million through August 31, 2004.

We are permitted to maintain outstanding letters of credit for product purchases and outstanding borrowings in the aggregate as follows (in thousands):


September 27, 2002 - January 31, 2003	$	35,000
February 1, 2003 - August 31, 2003	$	20,000
September 1, 2003 - January 31, 2004	$	35,000
February 1, 2004 - August 31, 2004	$	20,000

In addition, our outstanding borrowings cannot exceed the following amounts (in thousands):


September 27, 2002 - October 31, 2002	$	10,000
November 1, 2002 - January 31, 2003	$	20,000
February 1, 2003 - October 31, 2003	$	10,000
November 1, 2003 - January 31, 2004	$	20,000
February 1, 2004 - August 31, 2004	$	10,000

We are not permitted to have any outstanding borrowings for a period of at least 60 days during each year of the agreement.

This credit facility is secured by a lien on substantially all of our assets and contains customary financial and non-financial covenants, which require us to maintain a specified minimum net worth and limits our ability to incur additional indebtedness, sell assets and enter into certain mergers or acquisitions. We are not permitted to pay cash dividends. Amounts outstanding under these credit facilities bear interest, at our choice, at either (a) the bank’s prime rate (4.8% at September 30, 2002) or (b) the London Interbank Offered Rate (1.8% at September 30, 2002) plus 1.85%. As of September 30, 2002, we had approximately $7.2 million in obligations with respect to outstanding letters of credit and no outstanding borrowings. As of December 31, 2001, we had approximately $6.8 million in obligations with respect to outstanding letters of credit and no outstanding borrowings.

8. Commitments and Contingencies

Advertising. We have certain minimum advertising commitments under most of our major license agreements. The minimum commitments generally range from 2% to 10% of net sales related to the respective license. We estimate that our minimum commitment for advertising in 2002 to be approximately $15-$20 million. We also have a commitment for $4.8 million under a sponsorship agreement. The payments under the agreement will be spread equally over the next three years.

Warrants. We are committed under various license and software development agreements to issue warrants to purchase a total of approximately 430,000 shares of common stock. At this time, the warrant terms related to these various agreements are being negotiated. We will record the fair market value of these warrants when the terms are finalized.

Legal Proceedings. We and certain of our officers and directors are defendants in a class action lawsuit filed in the United States District Court for the Central District of California entitled In re THQ Inc. Securities Litigation, Master File No. CV-00-1783-AHM. On December 20, 2000, the court dismissed this action with prejudice as to all of the defendants. On April 23, 2001, the United States District Court for the Central District of California modified its December 20, 2000 order and permitted plaintiffs to file a third amended complaint on that date. Defendants have filed an answer denying all of the material allegations of the third amended complaint and asserting legal and factual defenses. The third amended complaint alleges that defendants violated Rule 10b-5 and Section 20(a) of the Securities Exchange Act of 1934, including allegations that defendants manipulated our stock price; distributed false and misleading information concerning revenue recognition, forecasts and earnings estimates; selectively disclosed material information; and engaged in insider trading. The complaint seeks an unspecified amount in damages. The plaintiffs are purported investors who purchased shares of our common stock from October 26, 1999 through May 24, 2000. Factual discovery has been completed, and the defendants have filed a motion seeking summary judgment. Plaintiffs have not yet filed a response to the summary judgment motion, which is scheduled to be heard on February 10, 2003. Trial is currently scheduled to begin on April 1, 2003. In the pending summary judgment motion, we and all of the individual defendants have taken the position that this lawsuit is without merit. At this stage, however, we cannot predict the likely outcome of this motion or of the litigation.

As a result of an action in the United Kingdom by the World Wide Fund for Nature (the “Fund”) against the World Wrestling Entertainment, Inc. (the “WWE”) the use of the initials “WWF” is prohibited directly or indirectly by the WWE after November 10, 2002. Accordingly, on November 10, 2002, upon instruction from the WWE, we ceased sales at least temporarily of certain of our interactive entertainment software games containing the “WWF” brand. These games contain artwork files with the initials WWF and/or the WWF logo that cannot practicably be removed from the games. We (through our joint venture THQ/JAKKS Pacific LLC (“THQ/JAKKS”)) have pending an Application for relief from the order. In addition, since October 2002 we have been incorporating the “WWE” brand in place of the “WWF” brand in all of the new wrestling games that we publish, including the recently published WWE Road to WrestleMania X8 for Game Boy Advance and WWE SmackDown! Shut Your Mouth for PlayStation 2. We presently have approximately $1.6 million of games that contain the “WWF” brand in inventory that we may be required to write-down if we are unsuccessful in our bid for relief from the injunction. We are exploring other solutions to remedy any adverse impact of the injunction against the WWE. The consumer products license agreement with the WWE contains a provision that may entitle THQ/JAKKS, among other things, to indemnification against certain losses arising out of the claims raised by the Fund against the WWE relating to the intellectual property licensed by THQ/JAKKS from the WWE.

We are involved in other routine litigation arising in the ordinary course of our business. In the opinion of our management, none of the other pending litigation will have a material adverse effect on our consolidated financial condition or results of operations.

9. Capital Stock Transactions

On September 10, 2002, we announced that our Board of Directors authorized the repurchase of up to $25,000,000 of our common stock from time to time on the open market or in private transactions. During September 2002, we repurchased 81,700 shares of our common stock for $1.9 million.

On March 8, 2002, we announced that our Board of Directors declared a three-for-two stock split of our shares of common stock to be effected in the form of a 50% stock dividend distributed on April 9, 2002, to stockholders of record as of the close of business on March 26, 2002 (the “Dividend”). All references in the accompanying consolidated financial statements to number of shares, sales price and per share amounts of our common stock have been retroactively restated to reflect the increased number of shares of common stock outstanding. In addition, stockholders’ equity has been restated to give retroactive recognition to the stock split by reclassifying from paid-in capital to common stock the par value of the additional shares of common stock issued pursuant to the split. The terms of our Amended and Restated Rights Agreement were adjusted to take into account the Dividend.

10. Basic and Diluted Earnings Per Share

The following table is a reconciliation of the weighted-average shares used in the computation of basic and diluted EPS for the years presented:


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,

(In thousands, except per share data)	2002		2001		2002		2001

Net income used to compute basic and diluted earnings per share	$	4,804	$	3,214	$	9,859	$	7,528

Weighted average number of shares outstanding — basic		39,633		32,428		39,366		31,778
Dilutive effect of stock options and warrants		1,831		2,905		2,376		2,876

Number of shares used to compute earnings per share — diluted		41,464		35,333		41,742		34,654

Stock options to purchase 3,471,000 and 1,608,000 shares of common stock in the three months and nine months ended September 30, 2002, respectively, were outstanding but not included in the computation of diluted earnings per common share because the option exercise price for these options was greater than the average market price of our shares of common stock. There were no anti-dilutive stock options in the three months and nine months ended September 30, 2001.

11. Comprehensive Income

The table below presents the components of our comprehensive income for the three and nine months ended September 30, 2002 and 2001, respectively:


		For the Three Months Ended					For the Nine Months Ended
		September 30,					September 30,

(In thousands)		2002			2001		2002			2001

Net income		$	4,804		$	3,214	$	9,859		$	7,528
Other comprehensive income (loss)
	Foreign currency translation adjustment		26			759		2,631			(308	)
	Unrealized gain (loss) on investments		(189	)		—		(1,092	)		—

Other comprehensive income (loss)			(163	)		759		1,539			(308	)

Comprehensive income		$	4,641		$	3,973	$	11,398		$	7,220

12. Recently Issued Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 as to all goodwill and other intangible assets recognized in an entity’s statement of financial position at that date, regardless of when those assets were initially recognized. We have adopted SFAS No. 142 as of January 1, 2002 and no longer amortize goodwill. We completed our impairment test for goodwill as of June 30, 2002. There was no impairment of goodwill upon adoption of SFAS 142. We will perform our annual impairment review during the second quarter of each year, commencing in the second quarter of 2003.

In August 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses the financial accounting and reporting issues for the impairment or disposal of long-lived assets. This statement supersedes SFAS No. 121 but retains the fundamental provisions for (a) recognition/measurement of impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sales. We have adopted SFAS No. 144 effective January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on our financial statements.

consideration from a vendor to a reseller of the vendor’s products is presumed to be a reduction of the selling prices of the vendor’s products and, therefore, should be characterized as a reduction of revenue when recognized in the vendor’s income statement. That presumption is overcome and the consideration can be categorized as a cost incurred if, and to the extent that, a benefit is or will be received from the recipient of the consideration. That benefit must meet certain conditions described in EITF 00-25. We have adopted EITF 00-25 effective January 1, 2002. The adoption of EITF 00-25 did not have a material impact on our financial statements.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be initially measured at fair value and recognized when the liability is incurred. The provisions of SFAS No. 146 are required to be applied prospectively to exit or disposal activities initiated after December 31, 2002. We do not expect the adoption of SFAS No. 146 to have a material impact on our financial statements.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report contains, or incorporates by reference, certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation “Management Discussion and Analysis of Financial Condition and Results of Operations.” These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including those described above and the following: changes in demand for our products, product mix, the timing of customer orders and deliveries, the impact of competitive products and pricing and difficulties encountered in the integration of acquired businesses. In addition, such statements could be affected by growth rates and market conditions relating to the interactive software industry and general domestic and international economic conditions. Specific information concerning these and other such factors is contained in our Registration Statement on Form S-3, as filed with the Securities and Exchange Commission on August 16, 2002. A copy of this filing may be obtained by contacting us or the SEC. The forward-looking statements contained herein speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Quarterly Report.

The Company

We are a leading global developer and publisher of interactive entertainment software for the major hardware platforms in the home video game market. We currently develop and publish titles for Sony PlayStation 2, Microsoft Xbox, Nintendo GameCube, Nintendo Game Boy Advance, PCs, wireless devices and online. Our titles span most major interactive entertainment software genres, including action, adventure, children’s, driving, fighting, puzzle, role playing, simulation, sports and strategy.

Our software is based on intellectual property licensed or assigned from third parties or created internally. We continually seek to identify and develop titles based on content from other entertainment media (such as movies and television programs), sports and entertainment personalities, popular sports and trends or concepts that have high public visibility or recognition or that reflect the trends of popular culture. Our portfolio of licensed brands includes World Wrestling Entertainment, Rugrats, SpongeBob SquarePants, Scooby-Doo, Star Wars, Hot Wheels, Power Rangers, Disney/Pixar’s Monsters, Inc. and three future Disney/Pixar properties, as well as others.

We also develop software based on brands created by our eight internal development studios and by external developers under contract with us. Our original brands include Red Faction®, MX and Summoner®. Other than games that we release on PCs, the manufacturers or their authorized vendors manufacture all of our products for us.

In North America, we market and distribute our software to customers including Wal-Mart, Toys “R” Us, Target, Electronics Boutique, Best Buy, GameStop, Kay Bee Toys and other regional and national general merchandisers, discount store chains, and specialty retailers. Outside North America, we market and distribute our software to retailers in 70 countries and territories through offices in the United Kingdom, France, Germany and Australia.

Our business cycle generally commences with the securing of a license to publish one or more titles based on a property or agreement with a developer to create a game based on original content. These licenses typically require an advance payment to the licensor and a guarantee of minimum future royalties. See-Critical Accounting Policies — “Licenses” and “Software Development.” We also develop games internally through our development studios Cranky Pants Games (“Cranky Pants”), Genetic Anomalies, Inc. (“GA”), Heavy Iron Studios® (“Heavy Iron”), Helixe, Outrage® Games (“Outrage”), Pacific Coast Power & Light Co.® (“PCP&L”), Rainbow Multimedia Group, Inc., also known as Rainbow Studios, (“Rainbow”) and Volition, Inc. (“Volition”). After we acquire rights to a property from a licensor or develop a concept internally, we begin software development for the title. Upon completion of development and approval of the title by the manufacturer and licensor, we order products and generally cause a letter of credit to be opened in favor of the manufacturer or obtain a line of credit from the manufacturer. Products are shipped at our expense to a public warehouse for domestic distribution or to warehouses in the United Kingdom, Germany, France or Australia for foreign distribution. We then sell directly to our major

retail accounts both domestically and in the United Kingdom, Germany, France and Australia. Foreign sales to distributors in other territories are shipped directly to the customers’ locations at their expense.

Unfilled sales orders are commonly referred to as backlog. Since substantially all of our product orders are fulfilled shortly after we receive them, we do not believe that the amount of our unfilled sales orders as of the end of a period is a meaningful indicator of sales in future periods. Accordingly, we do not report the amount of our unfilled sales orders.

Platform Licenses

Our business is dependent on our license agreements with the manufacturers. All of these licenses are for fixed terms and are not exclusive. Each license grants us the right to develop, publish and distribute titles for use on such manufacturer’s platform(s), and requires that each such title be approved by the manufacturer prior to development of the software and embodied in products that are manufactured solely by such manufacturer or (in the case of Microsoft) its authorized vendor.

The following table sets forth information with respect to our platform licenses. In some instances, we have more than one platform license for a particular platform.


Manufacturer	Platform	Territory	Expiration Date(s)

Nintendo	Nintendo 64	North America, South America, Central America and Mexico	May 2003
Nintendo	Nintendo 64	Europe, Australia and New Zealand	January 2004
Nintendo	Game Boy Color	North America and Latin America	March 2004
Nintendo	Game Boy Color	Europe, Australia and New Zealand	October 2002(1)
Nintendo	Game Boy Advance	Western Hemisphere	July 2004
Nintendo	Game Boy Advance(2)	Europe, Australia and New Zealand	(2)
Nintendo	GameCube	Western Hemisphere	April 2005
Nintendo	GameCube(2)	Europe, Australia and New Zealand	(2)
Sony	PlayStation	United States, Canada and Mexico	August 2006
Sony	PlayStation	Europe, Australia and New Zealand	December 2005
Sony	PlayStation 2	United States and Canada	March 2003
Sony	PlayStation 2(2)	Europe, Australia and New Zealand	(2)
Microsoft	Xbox	(3)	November 2004

(1) The renewal for this agreement is in negotiation; terms to be determined.

(2) In negotiation; terms to be determined.

(3) The territory is determined on a title-by-title basis.

Nintendo charges us an amount for each Nintendo Game Boy Advance and Game Boy Color cartridge. This amount varies based, in part, on the memory capacity of the cartridges. Nintendo GameCube, Sony and Microsoft contracts include a charge for every disc manufactured. The amounts charged by the manufacturers include a manufacturing, printing and packaging fee as well as a royalty for the use of the manufacturer’s name, proprietary information and technology, and are subject to adjustment by the manufacturers at their discretion. The manufacturers have the right to review, evaluate and approve a prototype of each title and the title’s packaging.

In addition, we must indemnify the manufacturers with respect to all loss, liability and expense resulting from any claim against the manufacturer involving the development, marketing, sale or use of our games, including any claims for copyright or trademark infringement brought against the manufacturer. As a result, we bear a risk that the properties upon which the titles are based, or that the information and technology licensed from the manufacturer and incorporated in the products, may infringe the rights of third parties. Our agreements with our independent software developers and property licensors typically provide for us to be indemnified with respect to certain matters. If any claim is brought by a manufacturer against us for indemnification, however, our developers or licensors may not have sufficient resources to in turn, indemnify us. Furthermore, these parties’ indemnification of us may not cover the matter that gives rise to the manufacturer’s claim.

Each platform license may be terminated by the manufacturer if a breach or default by us is not cured after we receive written notice from the manufacturer, or if we become insolvent. Upon termination of a platform license for any reason other than our breach or default, the manufacturer has the right to purchase from us, at the price paid by us, any product inventory manufactured by such manufacturer that remains unsold for a specified period after termination. We must destroy any such inventory not purchased by the manufacturer. Upon termination as a result of our breach or default, we must destroy any remaining inventory, subject to the right of any of our institutional lenders to sell such inventory for a specified period.

Critical Accounting Policies

The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, which require us to make estimates and assumptions. We believe that of our significant accounting policies, the following may involve a higher degree of judgment and complexity.

Discounts, Allowances and Returns; Inventory Management. In general, except for PC titles, our arrangements with retailers and distributors do not give them the right to return products to us (other than damaged or defective products) or to cancel firm orders. However, we sometimes negotiate accommodations to retailers (and, less often, to distributors) when demand for specific games falls below expectations, in order to maintain our relationships with our customers. These accommodations include negotiated price discounts and credits against future orders and not requiring that all booked orders be filled. We may also permit the return of products. Arrangements made with our distributors and retailers for PC titles do customarily require us to accept product returns.

At the time of product shipment, we establish allowances based on estimates of future returns and customer accommodations with respect to such products. These allowances are taken as deductions against gross sales except for the advertising allowance, which we expense to selling and marketing. We base this amount on our historical experience, retailer inventories, the nature of the titles and other factors. We also establish allowances for doubtful accounts based on estimates of future bad debts based on customer credit ratings, historical experience and other factors. The allowance for doubtful accounts is expensed to general and administrative expense. For the three months ended September 30, 2002 and 2001, we took provisions for future returns, customer accommodations and doubtful accounts of approximately $17.7 million and $8.9 million, respectively. For the nine months ended September 30, 2002 and 2001, we took provisions for future returns, customer accommodations and doubtful accounts of approximately $43.2 million and $23.1 million, respectively. As of September 30, 2002 and December 31, 2001, our aggregate reserves against accounts receivable for returns, customer accommodations and doubtful accounts were approximately $37.7 million and $40.6 million, respectively.

Our identification of slow-moving or obsolete inventory requires us to write-down the value of such inventory to its estimated net realizable value. The write-down of the value of such inventory is expensed to cost of sales. For the three and nine months ended September 30, 2002 and 2001, the write-downs were immaterial.

Licenses. Minimum guaranteed payments for intellectual property licenses are initially recorded as an asset (licenses) and as a liability (accrued royalties) at the contractual amount upon execution of the contract when no significant performance remains with the licensor. When significant performance remains with the licensor, we record payments as an asset (licenses) when paid. Payments for intellectual property licenses are classified as current assets and current liabilities to the extent they relate to anticipated sales during the subsequent year and long-term assets and long-term liabilities if the sales are anticipated after one year.

Licenses are expensed to license amortization and royalties at the higher of the contractual royalty rate based on actual net product sales or on the ratio of current units sold to total projected units sold. When, in management’s estimate, future cash flows will not be sufficient to recover previously capitalized costs, we expense these items to license amortization and royalties. Such charges are attributable to changes in market conditions or product quality considerations. As of September 30, 2002, the net carrying value of our licenses was $47.9 million. If we were required to write off licenses, due to changes in market condition or product quality, our results of operations could be materially adversely affected.

Software Development. We utilize both independent software developers and internal development teams to develop our software. We account for software development costs in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.” We capitalize software development costs once technological feasibility is established and we determine that such costs are recoverable against future revenues. For products where proven game engine technology exists, this may occur early in the development cycle. We capitalize the milestone payments made to

independent software developers and the direct payroll costs for our internal development teams. We evaluate technological feasibility on a product-by-product basis. Amounts related to software development for which technological feasibility is not yet met are charged immediately to product development expense.

Capitalized software development is expensed to software development amortization at the higher of the contractual rate based on actual net product sales or on the ratio of current units sold to total projected units sold. When, in management’s estimate, future cash flows will not be sufficient to recover previously capitalized costs, we expense these items to software development amortization. Such charges are attributable to changes in market conditions or product quality considerations. As of September 30, 2002, the net carrying value of our software development was $60.2 million. If we were required to write off software development, due to changes in market condition or product quality, our results of operations could be materially adversely affected.

Revenue Recognition. We recognize revenue when title and risk of loss transfers to the customer, provided that no significant vendor support obligations remain outstanding and that collection of the resulting receivable is deemed probable by management. Although we generally sell our products on a no-return basis, in certain circumstances we may allow returns, price concessions, or allowances on a negotiated basis. We estimate such returns and allowances based upon management’s evaluation of our historical experience, retailer inventories, the nature of the titles and other factors. Such estimates are deducted from gross sales. Software is sold under a limited 90-day warranty against defects in material and workmanship. To date, we have not experienced material warranty claims.

Recently Issued Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 as to all goodwill and other intangible assets recognized in an entity’s statement of financial position at that date, regardless of when those assets were initially recognized. We have adopted SFAS No. 142 as of January 1, 2002 and no longer amortize goodwill. We tested our goodwill for impairment as of June 30, 2002. There was no impairment of goodwill upon adoption of SFAS 142. We will perform our annual impairment review during the second quarter of each year, commencing in the second quarter of 2003.

In April 2001, the Emerging Issues Task Force issued EITF No. 00-25, “Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products” (codified in EITF No. 01-09), which states that consideration from a vendor to a reseller of the vendor’s products is presumed to be a reduction of the selling prices of the vendor’s products and, therefore, should be characterized as a reduction of revenue when recognized in the vendor’s income statement. That presumption is overcome and the consideration can be categorized as a cost incurred if, and to the extent that, a benefit is or will be received from the recipient of the consideration. That benefit must meet certain conditions described in EITF 00-25. We have adopted EITF 00-25 effective January 1, 2002. The adoption of EITF 00-25 did not have a material impact on our financial statements.

Results of Operations

Sales by Platform

The following table sets forth our net sales by platform as a percentage of sales for the three months and nine months ended September 30, 2002 and 2001:


	Three Months Ended						Nine Months Ended
	September 30,							September 30,

Platform Revenue Mix	2002			2001				2002			2001

Sony PlayStation 2		23.4	%		19.4	%			21.4	%		20.3	%
Sony PlayStation		10.2			10.8				10.1			18.7
Nintendo Game Boy Advance		24.8			33.5				29.1			15.7
Nintendo Game Boy Color		7.5			17.4				5.8			24.8
Nintendo GameCube		17.0			—				12.8			—
Nintendo 64		—			1.5				—			9.7
Microsoft Xbox		4.9			—				10.9			—
PC		12.7			16.7				9.4			10.2
Other		(0.5	)		0.7				0.5			0.6

		100.0	%		100.0	%			100.0	%		100.0	%

The following table sets forth our net sales by platform for the three months ended September 30, 2002 and 2001:


Net Sales for the Three Months Ended	September 30,			September 30,		Increase/
(In thousands)	2002			2001		(Decrease)			% Change

Sony PlayStation 2	$	22,728		$	13,238	$	9,490			71.7	%
Sony PlayStation		9,885			7,335		2,550			34.8	%
Nintendo Game Boy Advance		24,160			22,820		1,340			5.9	%
Nintendo Game Boy Color		7,340			11,821		(4,481	)		(37.9	)%
Nintendo GameCube		16,533			—		16,533			N/A
Nintendo 64		(34	)		1,031		(1,065	)		(103.3	)%
Microsoft Xbox		4,777			—		4,777			N/A
PC CD-ROM		12,397			11,341		1,056			9.3	%
Other		(451	)		459		(910	)		(198.3	)%

Net Sales	$	97,335		$	68,045	$	29,290			43.0	%

The following table sets forth our net sales by platform for the nine months ended September 30, 2002 and 2001:


Net Sales for the Nine Months Ended	September 30,		September 30,		Increase/
(In thousands)	2002		2001		(Decrease)			% Change

Sony PlayStation 2	$	56,053	$	37,138	$	18,915			50.9	%
Sony PlayStation		26,662		34,150		(7,488	)		(21.9	)%
Nintendo Game Boy Advance		76,470		28,662		47,808			166.8
Nintendo Game Boy Color		15,172		45,325		(30,153	)		(66.6	)%
Nintendo GameCube		33,533		—		33,533			N/A
Nintendo 64		282		17,762		(17,480	)		(98.4	)%
Microsoft Xbox		28,613		—		28,613			N/A
PC CD-ROM		24,757		18,583		6,174			33.2	%
Other		1,236		989		247			25.0	%

Net Sales	$	262,778	$	182,609	$	80,169			43.9	%

Sony PlayStation 2 Net Sales

We released three new PlayStation 2 titles including Rocket Power Beach Bandits, Summoner® 2 and Jimmy Neutron Boy Genius, in the three months ended September 30, 2002, whereas we had no new releases in the same

period of 2001. In the nine months ended September 30, 2002, we released seven PlayStation 2 titles; in the same period of 2001, we released two PlayStation 2 titles.

Sony PlayStation Net Sales

We did not release any PlayStation products in the three months ended September 30, 2002, whereas we released four PlayStation titles in the three months ended September 30, 2001. However, continued demand for previously released titles in the children’s genre caused an increase in sales when comparing the two periods. We did not release any PlayStation products in the nine months ended September 30, 2002. Due to the transition to the next generation of hardware, we do not anticipate having any new releases of PlayStation products in the future, but we do not anticipate that this will have a material effect on our overall net sales because of the increase in PlayStation 2 net sales and the continued demand for our current PlayStation catalogue titles in the children’s genre.

Nintendo Game Boy Advance Net Sales

We released five new Game Boy Advance titles during the three months ended September 30, 2002, including SpongeBob SquarePants: Revenge of the Flying Dutchman, Jimmy Neutron vs. Jimmy Negatron and Sega Smash Pack and we also had continued strong sales of Sonic Advance, which we released in the first quarter of 2002. During the three months ended September 30, 2001, we released six Game Boy Advance titles. In the nine months ended September 30, 2002, we released 19 Game Boy Advance titles; in the same period of 2001, we released seven Game Boy Advance titles.

Nintendo Game Boy Color Net Sales

Game Boy Color net sales decreased during the three months and nine months ended September 30, 2002, as compared to the same periods of 2001, due to the introduction of the Game Boy Advance platform. We had no new releases of Game Boy Color titles in the three months and nine months ended September 30, 2002, whereas we released three Game Boy Color titles in the three months ended September 30, 2001 and 15 Game Boy Color titles in the nine months ended September 30, 2001. We do not anticipate releasing new titles for the Game Boy Color platform in the future, but we do not anticipate that this will have a material effect on our overall net sales because of the industry’s transition to the Nintendo Game Boy Advance.

Nintendo GameCube Net Sales

We released three GameCube titles: Disney/Pixar’s Monsters, Inc. Scream Arena, Scooby-Doo! Night of 100 Frights and Rocket Power Beach Bandits in the three months ended September 30, 2002. We had no releases of GameCube titles in the three months and nine months ended September 30, 2001 as the GameCube platform did not launch until November 2001.

Nintendo 64 Net Sales

We did not release any Nintendo 64 (“N64”) products in the three months and nine months ended September 30, 2002. We had no new releases of N64 titles in the three months ended September 30, 2001 and we released two N64 titles in the nine months ended September 30, 2001. Due to the transition to the next generation of hardware, we do not anticipate having any new releases of N64 products in the future, but we do not anticipate that this will have a material effect on our overall net sales because of the increase in Nintendo GameCube net sales.

Microsoft Xbox

We released one Xbox title in the three months ended September 30, 2002, Fila World Tour Tennis. We released five Xbox titles in the nine months ended September 30, 2002 including WWF Raw and MotoGP. We had no releases of Xbox titles in the three months and nine months ended September 30, 2001 as the Xbox platform did not launch until November 2001.

PC CD-ROM Net Sales

The increase in PC CD-ROM net sales for the three months ended September 30, 2002 as compared to the same period of 2001 can be attributed to the release of nine PC CD-ROM titles including Jimmy Neutron vs. Jimmy Negatron, SpongeBob SquarePants: Employee of the Month and Rugrats Munchin Land. The increase in PC CD-ROM net sales for the nine months ended September 30, 2002 as compared to the same period of 2001 is due to the release of 14 PC CD-ROM titles, versus only nine PC CD-ROM titles released in the nine months ended September 30, 2001.

Sales by Territory

The following table sets forth, for the three months ended September 30, 2002 and 2001, our sales for the North America and international territories:


Net Sales for the Three Months Ended	September 30,		September 30,		Increase/
(In thousands)	2002		2001		(Decrease)		% Change

North America	$	74,356	$	47,182	$	27,174		57.6	%
International		22,979		20,863		2,116		10.1	%

Net Sales	$	97,335	$	68,045	$	29,290		43.0	%

The following table sets forth, for the nine months ended September 30, 2002 and 2001, our sales for the North America and international territories:


Net Sales for the Nine Months Ended	September 30,		September 30,		Increase/
(In thousands)	2002		2001		(Decrease)			% Change

North America	$	199,337	$	118,713	$	80,624			67.9	%
International		63,441		63,896		(455	)		(0.7	)%

Net Sales	$	262,778	$	182,609	$	80,169			43.9	%

North America Net Sales

The increase in net sales in North America for the three months ended September 30, 2002 as compared to the same period of 2001 was primarily due to:

       •    The release of Disney/Pixar’s Monsters, Inc. Scream Arena, Scooby-Doo! Night of 100 Frights and Rocket Power Beach Bandits for the GameCube.

       •    The release of three PlayStation 2 titles: Rocket Power Beach Bandits, Summoner® 2 and Jimmy Neutron Boy Genius.

       •    The release of five Game Boy Advance titles including SpongeBob SquarePants: Revenge of the Flying Dutchman, Sega Smash Pack and Jimmy Neutron vs. Jimmy Negatron.

       •    The release of nine PC CD-ROM titles including Jimmy Neutron vs. Jimmy Negatron, SpongeBob SquarePants: Employee of the Month and Rugrats Munchin Land.

This increase was offset by a decrease in N64 net sales and a decrease in Game Boy Color net sales, each related to the industry’s transition to next generation hardware.

The increase in net sales in North America for the nine months ended September 30, 2002 as compared to the same period of 2001 was primarily due to:

       •    The release of 19 Game Boy Advance titles including SpongeBob SquarePants: Revenge of the Flying Dutchman and continued strong sales of Sonic Advance, Star Wars Episode 2: Attack of the Clones and Disney/Pixar’s Monsters, Inc. (which was released in October 2001).

       •    The release of WWE Wrestlemania X8 for GameCube.

       •    The release of WWF Raw for Xbox.

• The release of seven PlayStation 2 titles: Rocket Power Beach Bandits, Summoner 2, Jimmy Neutron Boy Genius, Britney’s Dance Beat, Scooby-Doo! Night of 100 Frights, Tetris Worlds and MX Superfly featuring Ricky Carmichael.

This increase was offset by a decrease in N64 net sales and a decrease in Game Boy Color net sales, each related to the industry’s transition to next generation hardware.

International Net Sales

The increase in net sales in the international territories for the three months ended September 30, 2002, as compared to the same periods of 2001, was primarily due to the release of key titles such as WWE Wrestlemania X8, WWF Raw, MX Superfly featuring Ricky Carmichael and Scooby-Doo! Night of 100 Frights, which were released internationally in the third quarter of 2002. The decrease in net sales in the international territories for the nine months ended September 30, 2002 as compared to the same period of 2001 is due to the industry’s transition to next generation hardware, which is still at an early stage in these territories, slower demand for titles on the Game Boy Advance platform and decreased demand for games for legacy platforms.

Costs and Expenses, Interest Income, net, Other Expenses and Income Taxes

Information about our costs and expenses, interest income, net, other expenses and income taxes for the three months and nine months ended September 30, 2002 and 2001 is presented below:


		Percent of Net Sales						Percent of Net Sales
		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2002			2001			2002			2001

Costs and expenses:
	Cost of sales		38.0	%		43.2	%		39.3	%		44.5	%
	License amortization and royalties		8.2			9.7			8.4			8.7
	Software development amortization		13.4			10.0			13.5			8.7
	Product development		10.3			8.2			10.1			8.5
	Selling and marketing		14.2			14.6			13.3			14.0
	Payment to venture partner		1.1			0.5			1.6			1.1
	General and administrative		8.5			7.2			7.9			9.0

Total costs and expenses			93.7			93.4			94.1			94.5

Income from operations			6.3			6.6			5.9			5.5
Interest income, net			1.3			0.9			1.6			1.1
Other expenses			—			—			(1.1	)		—

Income before income taxes			7.6			7.5			6.4			6.6
Income taxes			2.7			2.8			2.6			2.5

Net income			4.9	%		4.7	%		3.8	%		4.1	%

Cost of Sales

Cost of sales as a percentage of net sales decreased for the three months and nine months ended September 30, 2002 compared to the same periods of 2001 as a result of an increase in sales from next generation console games that carry higher profit margins than handheld games and games on legacy platforms.

License Amortization and Royalties

License amortization and royalties increased in absolute dollars but decreased as a percentage of net sales for the three months and nine months ended September 30, 2002 compared to the same periods of 2001.

Software Development Amortization

Software development amortization increased as a percentage of net sales for the three months and nine months ended September 30, 2002 compared to the same periods of 2001 primarily due to an increase in the percentage of

next generation console games sold during the period, which have longer development cycles and higher development costs than handheld games and games for legacy platforms.

Product Development

Product development expenses increased as a percentage of net sales for the three months and nine months ended September 30, 2002 compared to the same periods of 2001. This increase is primarily due to the addition of three new development studios: Rainbow, Outrage and Cranky Pants. We have also increased the number of personnel in our corporate product development department to support the launch of four new hardware platforms and the increased number of titles under development. We also had increased expenses for our wireless division.

Selling and Marketing

Selling and marketing expenses increased in absolute dollars but remained relatively constant as a percentage of net sales for the three months and nine months ended September 30, 2002.

Payment to Venture Partner

The payment to JAKKS Pacific, Inc. (“JAKKS”) has increased in absolute dollars and as a percentage of total net sales for the three months and nine months ended September 30, 2002 compared to the same periods of 2001 due to the release of WWE Wrestlemania X8 on GameCube and WWF Raw on Xbox. We released one World Wrestling Entertainment title, WWF Betrayal for the Game Boy Color, in the first nine months of 2001. For the year ended December 31, 2002, we expect the expense to decrease as a percentage of net sales as we continue to diversify our product portfolio.

General and Administrative

General and administrative expenses increased in absolute dollars and as a percentage of net sales for the three months ended September 30, 2002 compared to the same period of 2001. The increase is attributable to the acquisition of ValuSoft on July 1, 2002 and an increase in our bad debt allowance. For the nine months ended September 30, 2002, general and administrative expenses increased in absolute dollars but decreased as a percentage of net sales. This decrease as a percentage of net sales is primarily due to an increase in our sales for the nine months ended September 30, 2002.

Interest Income, net

Interest income, net increased for the three months and nine months ended September 30, 2002 compared to the same periods of 2001 as a result of higher average cash, cash equivalents and short-term investment balances due to the proceeds from our public offering on November 13, 2001.

Other Expenses

Other expenses for the nine months ended September 30, 2002 represents the $3.0 million non-cash charge related to the discontinuation of our online joint venture in the United Kingdom (Network Interactive Sports, Ltd.).

Income Taxes

The effective tax rate for the nine months ended September 30, 2002 was 41.1%. The increase in the effective tax rate from the previously estimated 37.5% is due to a non-deductible capital loss related to the discontinuation of our online joint venture in the United Kingdom. We expect our effective tax rate for the fourth quarter of 2002 to be 35.5%. The effective tax rate for the full year of 2001 was 36.5%.

Liquidity and Capital Resources

Our principal uses of cash are product purchases, payments to licensors, payments to developers and the costs of internal software development. In order to purchase products from the manufacturers, we typically open letters of credit in their favor or obtain a line of credit from the manufacturer.

Our cash, cash equivalents and short-term investments remained relatively constant at $206.0 million during the nine months ended September 30, 2002. Cash, cash equivalents and short-term investments were $194.9 million as of November 11, 2002. Cash provided by operating activities for the nine months ended September 30, 2002 was $12.3 million.

We entered into approximately 15 new license agreements during the nine months ended September 30, 2002 with potential obligations of approximately $75.3 million. As of November 11, 2002, we had obligations with respect to future potential license payments of approximately $70.1 million.

We used approximately $52.9 million to fund external and internal software development of approximately 153 games during the nine months ended September 30, 2002 and used approximately $35.8 million to fund external and internal development of approximately 67 games during the same period in 2001.

The amount of our accounts receivable is subject to significant seasonal variations as a consequence of the seasonality of our sales and is typically highest at the end of the year.

Accordingly, we believe that our cash, cash equivalents and short-term investments, funds provided by operations and our borrowing capacity will be adequate to meet our anticipated requirements, on both a short-term and long-term basis, for operating expenses, product purchases and payments for licenses and software development.

Guarantees and Commitments. In addition to the future guaranteed minimum license payments mentioned above, we have various operating lease commitments of $14.7 million expiring at various times through 2012. We also have advertising commitments under most of our major license agreements. These minimum commitments generally range from 2% to 10% of net sales related to the respective license. We estimate that our minimum commitment for advertising in 2002 will be approximately $15-$20 million. We also have a commitment for $4.8 million under a sponsorship agreement. The payments under the agreement will be spread equally over the next three years. As of September 30, 2002, we had approximately $7.2 million in obligations under our credit facilities with respect to outstanding letters of credit and no outstanding borrowings.

Credit Facilities. On September 27, 2002, we entered into an Amended and Restated Revolving Credit Agreement with Union Bank of California. Under the terms of the Amended and Restated Revolving Credit Agreement, we are permitted to borrow (and maintain obligations under outstanding letters of credit) up to an aggregate of $35 million through August 31, 2004.

We are permitted to maintain outstanding letters of credit for product purchases and outstanding borrowings in the aggregate as follows (in thousands):


September 27, 2002 — January 31, 2003	$	35,000
February 1, 2003 — August 31, 2003	$	20,000
September 1, 2003 — January 31, 2004	$	35,000
February 1, 2004 — August 31, 2004	$	20,000

In addition, our outstanding borrowings cannot exceed the following amounts (in thousands):


September 27, 2002 — October 31, 2002	$	10,000
November 1, 2002 — January 31, 2003	$	20,000
February 1, 2003 — October 31, 2003	$	10,000
November 1, 2003 — January 31, 2004	$	20,000
February 1, 2004 — August 31, 2004	$	10,000

We are not permitted to have any outstanding borrowings for a period of at least 60 days during each year of the agreement.

This credit facility is secured by a lien on substantially all of our assets and contains customary financial and non-financial covenants which require us to maintain a specified minimum net worth and limits our ability to incur additional indebtedness, sell assets and enter into certain mergers or acquisitions. We are not permitted to pay cash dividends. Amounts outstanding under these credit facilities bear interest, at our choice, at either (a) the bank’s prime rate (4.8% at September 30, 2002) or (b) the London Interbank Offered Rate (1.8% at September 30, 2002) plus 1.85%.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks arising from transactions in the normal course of business, principally risk associated with interest rate and foreign currency fluctuations.

Interest Rate Risk

We have interest rate risk primarily related to our investment portfolio. A substantial portion of our short-term investments is in a mutual fund made up of non-mortgage United States Government Securities, corporate notes and commercial paper and fixed and floating rate asset-backed securities. The value of this investment may fluctuate with changes in interest rates. However, we believe this risk is immaterial due to the short-term nature of the fund. The credit facility is based on variable interest rates. At September 30, 2002, we had no borrowings on the credit facility.

Foreign Currency Risk

We transact business in many different foreign currencies and may be exposed to financial market risk resulting from fluctuations in foreign currency exchange rates, particularly the Great British Pound (“GBP”) and the Euro which may result in a loss of earnings to us. The volatility of the GBP and the Euro (and all other applicable currencies) is monitored frequently throughout the year. While we have not engaged in foreign currency hedging, we may in the future use hedging programs, currency forward contracts, currency options and/or other derivative financial instruments commonly utilized to reduce financial market risks if it is determined that such hedging activities are appropriate to reduce risk.

Item 4. Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, as of a date within 90 days before the filing of this Form 10-Q, have evaluated our disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934) and have concluded that such controls and procedures are effective. There have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Part II — Other Information

Item 1. Legal Proceedings

We are a party to lawsuits in the normal course of our business. Litigation in general, and securities and intellectual property litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. Other than as described below, we are not a party to any legal proceedings which would have a material impact on our business.

We and certain of our officers and directors are defendants in a class action lawsuit filed in the United States District Court for the Central District of California entitled In re THQ Inc. Securities Litigation, Master File No. CV-00-1783-AHM. On December 20, 2000, the court dismissed this action with prejudice as to all of the defendants. On April 23, 2001, the United States District Court for the Central District of California modified its December 20, 2000 order and permitted plaintiffs to file a third amended complaint on that date. Defendants have filed an answer denying all of the material allegations of the third amended complaint and asserting legal and factual defenses. The third amended complaint alleges that defendants violated Rule 10b-5 and Section 20(a) of the Securities Exchange Act of 1934, including allegations that defendants manipulated our stock price; distributed false and misleading information concerning revenue recognition, forecasts and earnings estimates; selectively disclosed material information; and engaged in insider trading. The complaint seeks an unspecified amount in damages. The plaintiffs are purported investors who purchased shares of our common stock from October 26, 1999 through May 24, 2000. Factual discovery has been completed, and the defendants have filed a motion seeking summary judgment. Plaintiffs have not yet filed a response to the summary judgment motion, which is scheduled to be heard on February 10, 2003. Trial is currently scheduled to begin on April 1, 2003. In the pending summary judgment motion, we and all of the individual defendants have taken the position that this lawsuit is without merit. At this stage, however, we cannot predict the likely outcome of this motion or of the litigation.

As a result of an action in the United Kingdom by the World Wide Fund for Nature (the “Fund”) against the World Wrestling Entertainment, Inc. (the “WWE”) the use of the initials “WWF” is prohibited directly or indirectly by the WWE after November 10, 2002. Accordingly, on November 10, 2002, upon instruction from the WWE, we ceased sales at least temporarily of certain of our interactive entertainment software games containing the “WWF” brand. These games contain artwork files with the initials WWF and/or the WWF logo that cannot practicably be removed from the games. We (through our joint venture THQ/JAKKS Pacific LLC (“THQ/JAKKS”)) have pending an Application for relief from the order. In addition, since October 2002 we have been incorporating the “WWE” brand in place of the “WWF” brand in all of the new wrestling games that we publish, including the recently published WWE Road to Wrestle Mania X8 for Game Boy Advance and WWE SmackDown! Shut Your Mouth for PlayStation 2. We presently have approximately $1.6 million of games that contain the “WWF” brand in inventory that we may be required to write-down if we are unsuccessful in our bid for relief from the injunction. We are exploring other solutions to remedy any adverse impact of the injunction against the WWE. The consumer products license agreement with the WWE contains a provision that may entitle THQ/JAKKS, among other things, to indemnification against certain losses arising out of the claims raised by the Fund against the WWE relating to the intellectual property licensed by THQ/JAKKS from the WWE.

Item 2. Changes in Securities and Use of Proceeds

On September 10, 2002, we announced that our Board of Directors authorized the repurchase of up to $25,000,000 of our common stock from time to time on the open market or in private transactions. During September 2002, we repurchased approximately 82,000 shares of our common stock for $1.9 million.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits.

Exhibit

Number Title

3.1 Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Post-Effective Amendment No. 1 to the Registration Statement on Form S-3 filed on January 9, 1998 (File No. 333-32221) (the “S-3 Registration Statement”)).

3.2 Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to Post-Effective Amendment No. 1 to the S-3 Registration Statement).

3.3 Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001).

3.4 Amended and Restated Bylaws (incorporated by reference to Exhibit 3 to the Registrant’s Current Report on Form 8-K, dated June 22, 2000).

3.5 Certificate of Designation of Series A Junior Participating Preferred Stock of THQ Inc. (incorporated by reference to Exhibit A of Amendment No. 2 to the Registrant’s Registration Statement on Form 8-A filed on August 28, 2001 (File No. 001-15959)).

3.6 Amendment to Certificate of Designation of Series A Junior Participating Preferred Stock of THQ Inc. (incorporated by reference to Exhibit 3.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001).

3.7 Amended and Restated Rights Agreement, dated as of August 22, 2001 between the Registrant and Computershare Investor Services, LLC, as Rights Agent (incorporated by reference to Exhibit 1 to Amendment No. 2 to the Registrant’s Registration Statement on Form 8-A (File No. 001-15959), filed on August 28, 2001).

3.8 First Amendment to Amended and Restated Rights Agreement, dated April 9, 2002 (incorporated by reference to Exhibit 2 to Amendment No. 3 to the Registrant’s Registration Statement on Form 8-A (file No. 000-18813), filed on April 12, 2002).

10.1* Waiver under Revolving Credit Agreement, dated as of September 10, 2002 by and between the Company and Union Bank of California, N.A. (“Union Bank”).

10.2* Amended and Restated Revolving Credit Agreement, dated as of September 27, 2002 by and between the Company and Union Bank of California, N.A. (“Union Bank”).

10.3* Second Amendment to Security Agreement, dated as of September 27, 2002 between the Company and Union Bank.

10.4* Confidential License Agreement for Game Boy, Game Boy Color and Game Boy Pocket Handheld Video Game Systems (Western Hemisphere), dated as of March 9, 1999, between Nintendo of America Inc. (“NOA”) and the Company. (Portions hereof have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Securities Exchange Act of 1934, as amended (“Exchange Act”).)

10.5* First Amendment to the Confidential License Agreement for Game Boy, Game Boy Color and Game Boy Pocket Handheld Video Game Systems (Western Hemisphere) dated as of March 8, 2002, between NOA and the Company.

10.6* Confidential License Agreement for Game Boy Advance (Western Hemisphere), dated as of July 18, 2001, between NOA and the Company. (Portions hereof have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Exchange Act.)

10.7* Confidential License Agreement for Nintendo GameCube (Western Hemisphere), dated as of April 5, 2002, between NOA and the Company (Western Hemisphere). (Portions hereof have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Exchange Act.)

10.8* Microsoft Corporation Xbox ™ Publisher License Agreement, dated as of March 20, 2001, between Microsoft Corporation and the Company. (Portions hereof have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Exchange Act.)

10.9* Licensed Publisher Agreement, dated as of August 28, 2002, by and between Sony Computer Entertainment America Inc. (“Sony”) and the Company. (Portions hereof have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Exchange Act.)

10.10* PlayStation ® 2 CD-Rom/ DVD-Rom Licensed Publisher Agreement, dated as of April 1, 2000, between Sony and the Company. (Portions hereof have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Exchange Act.)


Exhibit
Number		Title

	10.11*	PlayStation® Licensed Publisher Agreement, dated as of June 25, 1998, between Sony Computer Entertainment Europe and THQ International Limited. (Portions hereof have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Exchange Act.)
	10.12*	PlayStation® Licensed Publisher — Supplemental Agreement, dated as of June 25, 1998, between Sony Computer Entertainment Europe and THQ International Limited. (Portions hereof have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Exchange Act.)
	99.1*	Certification of Brian J. Farrell, Chief Executive Officer, Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
	99.2*	Certification of Fred A. Gysi, Chief Financial Officer, Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

Filed herewith.

(b) Reports on Form 8-K.

Current Report on Form 8-K dated September 17, 2002, reporting under Item 5.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 14, 2002 THQ INC.

By: /s/ Brian J. Farrell

Brian J. Farrell
Chairman of the Board,
President and Chief Executive Officer

THQ INC.

By: /s/ Fred A. Gysi

Fred A. Gysi
Senior Vice President — Finance and Administration,
Chief Financial Officer and Secretary
(Principal Financial Officer and Principal Accounting Officer)

CERTIFICATIONS

I, Brian J. Farrell, Chief Executive Officer of THQ Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of THQ Inc., the registrant;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

By: /s/ Brian J. Farrell

Brian J. Farrell
Chief Executive Officer

CERTIFICATIONS

I, Fred A. Gysi, Chief Financial Officer of THQ Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of THQ Inc., the registrant;

b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

30 EX-10.1 3 a85823exv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 September 10, 2002 Union Bank of California, N.A., as Agent and Lender 445 South Figueroa Street Los Angeles, California 90071 Attention: John C. Kase Re: Waiver under Revolving Credit Agreement Ladies and Gentlemen: We refer to the Revolving Credit Agreement dated as of August 31, 2000, as amended by the First Amendment to Revolving Credit Agreement dated October 23, 2000, the Second Amendment to Revolving Credit Agreement dated February 20, 2001, the Third Amendment to Revolving Credit Agreement dated June 12, 2001, the Fourth Amendment to Revolving Credit Agreement dated as of July 31, 2001, the Fifth Amendment to Revolving Credit Agreement dated August 28, 2001, the Sixth Amendment to Revolving Credit Agreement dated October 26, 2001, the Seventh Amendment to Revolving Credit Agreement and First Amendment to Security Agreement dated as of January 8, 2002, the Eighth Amendment to Revolving Credit Agreement dated as of May 1, 2002 and the Ninth Amendment to Revolving Credit Agreement dated July 26, 2002 (said Agreement, as so amended, herein called the "Credit Agreement"), among THQ Inc. (the "Borrower"), Union Bank of California, N.A. as sole lender (the "Lender"), and Union Bank of California, N.A. as administrative agent (in such capacity, the "Agent") for itself as Lender, as syndication agent and as arranger. Terms defined in the Credit Agreement and not otherwise defined herein have the same respective meanings when used herein, and the rules of interpretation set forth in Sections 1.2 and 1.3 of the Credit Agreement are incorporated by reference herein. 1. The Borrower has requested that the Lender waive the provisions of Section 6.2(g) of the Credit Agreement to the extent necessary to permit the Borrower to repurchase shares of its outstanding common stock for an aggregate purchase price of up to $25,000,000. The Lender is willing to grant such waiver on the terms and conditions set forth in this waiver letter. 2. The Borrower hereby represents and warrants for the benefit of the Lender and the Agent that (a) the representations and warranties contained in the Credit Documents are correct in all material respects on and as of the date of this waiver letter, before and after giving effect to the same, as if made on and as of such date, and (b) no event has occurred and is continuing, or would result from the effectiveness of this waiver letter, that constitutes a Default. Union Bank of California, N.A. September 10, 2002 Page 2 3. This waiver letter shall become effective when the Agent has received a fee of $7,500 and all of the following documents, in form and substance satisfactory to the Agent and in the number of originals requested thereby: (a) this waiver letter, duly executed by the Borrower and the Lender; (b) a consent to this waiver letter, duly executed by THQ/Jakks; and (c) such other approvals, opinions, evidence and documents as the Lender may reasonably request. 4. On and after the effective date of this waiver letter, each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import referring to the Credit Agreement, and each reference in the other Credit Documents to "the Credit Agreement," "thereunder," "thereof," "therein" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified by this waiver letter. The Credit Agreement, as modified by this waiver letter, is and shall continue to be in full force and effect and is hereby ratified and confirmed in all respects. Except as specifically provided herein, the execution, delivery and effectiveness of this waiver letter shall not operate as a waiver of any right, power or remedy of the Agent or the Lender under any of the Credit Documents or constitute a waiver of any provision of any of the Credit Documents. 5. This waiver letter may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which counterparts shall be an original and all of which taken together shall constitute one and the same waiver letter. [THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY.] Union Bank of California, N.A. September 10, 2002 Page 3 6. THIS WAIVER LETTER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REFERENCE TO THE CHOICE-OF-LAW PRINCIPLES THEREOF. Very truly yours, THQ INC. By: /s/ Fred Gysi ------------------------------- Fred Gysi Senior Vice President, Finance & Administration Agreed as of the date first written above: UNION BANK OF CALIFORNIA, N.A., as Agent and Lender By: /s/ John Kase ------------------------------- John Kase Vice President EX-10.2 4 a85823exv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 - -------------------------------------------------------------------------------- $35,000,000 REVOLVING CREDIT AGREEMENT among THQ INC. and THE LENDERS NAMED HEREIN and UNION BANK OF CALIFORNIA, N.A., as Administrative Agent, Syndication Agent and Arranger September 27, 2002 - -------------------------------------------------------------------------------- Table of Contents
Page ---- ARTICLE 1.....................................................................................1 INTERPRETATION AND DEFINITIONS................................................................1 Section 1.1 Definitions..............................................................1 Section 1.2 Accounting Terms........................................................10 Section 1.3 Interpretation..........................................................10 ARTICLE 2. COMMITMENTS.......................................................................11 Section 2.1 Commitments.............................................................11 Section 2.2 Fees....................................................................11 Section 2.3 Mandatory Prepayment or Pledge..........................................12 Section 2.4 Making Advances.........................................................13 Section 2.5 Repayment...............................................................14 Section 2.6 Interest................................................................14 Section 2.7 Optional Prepayments....................................................15 Section 2.8 Conversion of Advances..................................................15 Section 2.9 Issuance of Letters of Credit...........................................16 Section 2.10 Drawing and Reimbursement...............................................16 Section 2.11 Obligations Absolute....................................................17 Section 2.12 Limits of Liability of Agent and Lenders................................17 Section 2.13 Payments................................................................18 Section 2.14 Computation of Interest and Fees........................................19 Section 2.15 Payments on Non-Business Days...........................................19 Section 2.16 Sharing of Payments, Etc................................................19 Section 2.17 Evidence of Debt........................................................19 Section 2.18 Extensions of Credit Outstanding under Old Credit Agreement.............20 ARTICLE 3. YIELD PROTECTION..................................................................20 Section 3.1 Increased LIBOR Advance Costs...........................................20 Section 3.2 Illegality..............................................................20 Section 3.3 Inadequacy of LIBOR.....................................................21 Section 3.4 Increased Letter of Credit Costs........................................21 Section 3.5 Capital Adequacy........................................................21 Section 3.6 Funding Losses..........................................................22 ARTICLE 4. CONDITIONS OF LENDING.............................................................22 Section 4.1 Effectiveness of Agreement..............................................23 Section 4.2 Advances................................................................24 Section 4.3 Letters of Credit.......................................................24 Section 4.4 Determinations under Section 4.1........................................25 ARTICLE 5. REPRESENTATIONS AND WARRANTIES....................................................26 Section 5.1 Corporate Existence and Power...........................................26 Section 5.2 Authorization...........................................................26 Section 5.3 Governmental Action.....................................................27 Section 5.4 Binding Effect..........................................................27 Section 5.5 Financial Information...................................................27 Section 5.6 Other Information.......................................................27
i Section 5.7 Litigation..............................................................27 Section 5.8 Subsidiaries............................................................28 Section 5.9 Intellectual Property...................................................28 Section 5.10 Fire, Etc..............................................................28 Section 5.11 Burdensome Agreements..................................................28 Section 5.12 Taxes..................................................................28 Section 5.13 Title to Property......................................................28 Section 5.14 Margin Stock...........................................................28 Section 5.15 ERISA..................................................................29 Section 5.16 Solvency...............................................................29 ARTICLE 6. COVENANTS........................................................................29 Section 6.1 Affirmative Covenants...................................................29 Section 6.2 Negative Covenants......................................................32 ARTICLE 7. EVENTS OF DEFAULT................................................................37 Section 7.1 Events of Default.......................................................37 ARTICLE 8. THE AGENT........................................................................39 Section 8.1 Authorization and Action................................................39 Section 8.2 Agent's Reliance, Etc...................................................39 Section 8.3 UBOC and Affiliates.....................................................39 Section 8.4 Lender Credit Decision..................................................40 Section 8.5 Indemnification.........................................................40 Section 8.6 Successor Agent.........................................................40 Section 8.7 Agent as Collateral Holder..............................................41 Section 8.8 Lenders' Responsibilities...............................................41 ARTICLE 9. MISCELLANEOUS....................................................................42 Section 9.1 Amendments, Etc.........................................................42 Section 9.2 Notices, Etc............................................................43 Section 9.3 No Waiver; Remedies.....................................................43 Section 9.4 Costs and Expenses......................................................43 Section 9.5 Indemnification.........................................................43 Section 9.6 Right of Setoff.........................................................44 Section 9.7 Binding Effect..........................................................44 Section 9.8 Assignments and Participations..........................................45 Section 9.9 Governing Law...........................................................47 Section 9.10 Headings...............................................................47 Section 9.11 Execution in Counterparts..............................................47 Section 9.12 Reference to and Effect on Credit Documents............................47 Section 9.13 Waiver of Jury Trial..................................................S-1 Schedule 1: Facility Amount and Advance Sublimit Schedule 2: Subsidiaries Exhibit A: Revolving Note Exhibit B: Notice of Borrowing Exhibit C: Notice of Conversion/Continuation Exhibit D: Assignment and Acceptance

ii AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT This Agreement, dated as of September 27, 2002, is entered into by (1) THQ INC., a Delaware corporation (the "Borrower"), (2) the financial institutions listed on the signature pages hereof and each other financial institution that becomes a party hereto pursuant to Section 9.8 (collectively the "Lenders"), and (3) UNION BANK OF CALIFORNIA, N.A., a national banking association, as administrative agent (in such capacity, the "Agent") for the Lenders, as syndication agent and as arranger. Recital The Borrower, the lenders referred to therein and the Agent are parties to a Revolving Credit Agreement dated as of August 31, 2000, as amended by a First Amendment to Revolving Credit Agreement dated October 23, 2000, a Second Amendment to Revolving Credit Agreement dated February 20, 2001, a Third Amendment to Revolving Credit Agreement dated June 12, 2001, a Fourth Amendment to Revolving Credit Agreement dated as of July 31, 2001, a Fifth Amendment to Revolving Credit Agreement dated August 28, 2001, a Sixth Amendment to Revolving Credit Agreement dated October 26, 2001, a Seventh Amendment to Revolving Credit Agreement and First Amendment to Security Agreement dated as of January 8, 2002, an Eighth Amendment to Revolving Credit Agreement dated as of May 1, 2002 and a Ninth Amendment to Revolving Credit Agreement dated July 26, 2002 (said Agreement, as so amended, herein called the "Old Credit Agreement"). The Borrower, the Lenders and the Agent now wish to amend and restate the Old Credit Agreement, and they accordingly agree as set forth below. ARTICLE 1. INTERPRETATION AND DEFINITIONS Section 1.1 Definitions. The terms set forth below, as used herein, shall have the respective meanings set forth below. "Advances" has the meaning set forth in Section 2.1(a). "Advance Sublimit" means, for each calendar month (or applicable portion thereof), the amount set forth opposite such month (or applicable portion thereof) in part II of Schedule 1. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling," "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 10% or more of the equity interests having ordinary voting power for the election of directors of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of equity interests, by contract or otherwise. "Asset Based Audit" means an audit of the Borrower's books, records and accounting procedures conducted by the Agent or a Person engaged by the Agent. "Assignment and Acceptance" means an Assignment and Acceptance substantially in the form of Exhibit D. "Authorized Officer" means, with respect to any action, an officer of the Borrower or THQI, as applicable, authorized to take such action pursuant to resolutions of the Borrower or THQI delivered to the Agent from time to time. "Borrower's Account" means the Borrower's operating account number 3030154710 maintained with the Agent. "Borrowing" means a borrowing by the Borrower consisting of Advances of the same Type made by the Lenders on the same day. "Business Day" means a day of the year on which banks are not required or authorized to close in Los Angeles and, if the applicable Business Day relates to any LIBOR Advances, on which dealings are carried on in the London interbank market. "Capitalized Leases" has the meaning set forth in clause (e) of the definition of Debt in this Section 1.1. "Cash Equivalents" means any of the following: (a) obligations having a term of not greater than five years issued or unconditionally guaranteed by the United States of America or any agency or instrumentality thereof, provided that the full faith and credit of the United States of America is pledged in support thereof; (b) bankers acceptances, deposit notes, time-deposit accounts and certificates of deposit issued by a bank or trust company organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America, provided that such bank or trust company has a long-term unsecured debt rating of at least "A" from Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P"); (c) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (a) above that are entered into with a bank meeting the qualifications described in clause (b) above; (d) commercial paper or medium-term notes issued by any corporation organized under the laws of any state of the United States of America and having a rating of at least "Prime-1" from Moody's Investors Service, Inc. ("Moody's") or "A-1" from S&P; (e) securities issued, or fully and unconditionally guaranteed, by any state, commonwealth or territory of the Untied States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Moody's or S&P; (f) other dollar-denominated securities issued by any Person incorporated in the United States of America or any state thereof, provided that such securities are rated at least "A" or the equivalent by S&P or at least "A2" or the equivalent by Moody's; (g) investments in money-market funds substantially all of whose assets comprise securities of the types described in clauses (a) through -2- (f) above; or (h) other investments agreed to in writing from time to time by the Borrower and the Agent. "Closing Date" means the date on which the conditions precedent set forth in Section 4.1 have been fulfilled. "Collateral" has the meaning set forth in Section 1 of the Security Agreement. "Commitment" has the meaning set forth in Section 2.1(a). "Commitment Termination Date" means August 31, 2004. "Conversion," "Convert" and "Converted" each refer to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.6, 2.8, 3.2 or 3.3. "Credit Documents" means this Agreement, the Notes, the Security Agreement, the Fee Letter, the Letter of Credit Documents and any other documents executed by the Borrower or any other Credit Party from time to time with respect to the subject matter of this Agreement. "Credit Parties" means the Borrower and THQI. "Currency Agreement" means, with respect to any Person, a foreign-exchange contract, a currency-swap agreement, a currency-future or - -option contract or any similar agreement or arrangement designed to protect such Person against fluctuations in currency values. "Debt" of any Person means, at any date without duplication, (a) all obligations of such Person for borrowed money; (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (c) all obligations of such Person to pay the deferred purchase price of property or services (excluding normal trade payables not overdue that are incurred in the ordinary course of such Person's business); (d) all indebtedness created or arising under any conditional-sale or other title-retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of a default are limited to repossession or sale of such property); (e) all obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capitalized leases; (f) all obligations, contingent or otherwise of such Person under acceptance, letter-of-credit or similar facilities; (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of such Person or any warrants, rights or options to acquire such capital stock, valued, in the case of redeemable preferred stock, at the greater of its voluntary and involuntary liquidation preference plus accrued and unpaid dividends; (h) all executory obligations of such Person in respect of interest-rate swap agreements and other similar agreements designed to hedge against fluctuations in interest rates; (i) all Debt referred to in any of clauses (a) through (h) above that is guaranteed directly or indirectly by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Debt or to advance or supply funds for the payment or -3- purchase of such Debt, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (iii) to advance or supply funds to maintain working capital or equity capital of another Person or otherwise to maintain the net worth or solvency of such Person (including any agreement in the nature of a support arrangement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss; (j) all Debt referred to in any of clauses (a) through (h) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including accounts receivable and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt; and (k) any accumulated funding deficiency (as defined in Section 412(a) of the Internal Revenue Code of 1986) for a Plan of such Person; provided, however, that in any case "Debt" shall not include any obligation of any Person pursuant to any Currency Agreement. "Default" means any Event of Default or any event or condition that, with the giving of notice or the lapse of time, or both, would become an Event of Default. "Environmental Law" means any Governmental Rule relating to pollution or protection of the environment or any natural resource, to any Hazardous Material or to health or safety, including any Governmental Rule relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of any Hazardous Material. "Environmental Permit" means any Governmental Action required under any Environmental Law. "Environmental Proceeding" means any action, suit, written demand, demand letter, claim, notice of noncompliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, any Environmental Permit or any Hazardous Material or arising from alleged injury or threat to health, safety or the environment, including (a) by any Governmental Person for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any Person for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "ERISA" means the Employee Retirement Income Security Act of 1974. "ERISA Affiliate" means, with respect to any Person, any trade or business (whether or not incorporated) that is a "commonly controlled entity" within the meaning of the regulations under Section 414 of the Internal Revenue Code of 1986. "Eurocurrency Liabilities" has the meaning set forth in Regulation D of the Board of Governors of the Federal Reserve System. "Event of Default" has the meaning set forth in Section 7.1. -4- "Facility Amount" means, for each calendar month, the amount set forth opposite such month in part I of Schedule 1. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. "Fee Letter" means each letter agreement entered into from time to time between the Borrower and UBOC concerning fees payable by the Borrower to UBOC for its own account with respect to this Agreement. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and in the statements and pronouncements of the Financial Accounting Standards Board. "Governmental Action" means any authorization, approval, consent, waiver, exception, license, filing, registration, permit, notarization, special lease or other requirement of any Governmental Person. "Governmental Person" means, whether domestic or foreign, any national, federal, state or local government, any political subdivision thereof, or any governmental, quasi-governmental, judicial, public or statutory instrumentality, authority, body or entity, including any central bank and any comparable authority. "Governmental Rule" means any treaty, law, rule, regulation, ordinance, order, code, interpretation, judgment, writ, injunction, decree, determination, directive, award, guideline, request, policy or similar form of decision of any Governmental Person or arbitrator. "Hazardous Material" means any substance or material that is described as a toxic or hazardous substance, waste or material or as a pollutant, contaminant or infectious waste, or words of similar import, in any Environmental Law, including asbestos, petroleum (including crude oil or any fraction thereof, natural gas, natural-gas liquid, liquefied natural gas or synthetic gas usable for fuel, or any mixture of any of the foregoing), polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive matter, and any chemical that may cause cancer or reproductive toxicity. "Interest Period' means, with respect to each LIBOR Advance making up part of the same Borrowing, the period commencing on the date of such Advance or the date of the Conversion of any Advance into such an Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent -5- period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each Interest Period shall be 1, 2, 3 or 6 months or 7, 14 or 21 days, as the Borrower may select upon notice (by means of a Notice of Borrowing or a Notice of Conversion/Continuation) received by the Agent not later than 11:00 a.m., Los Angeles time, on the third Business Day before the first day of such Interest Period; provided, however, that (a) Interest Periods commencing on the same date for Advances making up part of the same Borrowing shall be of the same duration; (b) whenever the last day of an Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, unless, if such Interest Period relates to LIBOR Advances, such extension would cause the last day of such Interest Period to occur in the next succeeding calendar month, in which case the last day of such Interest Period shall occur on the next preceding Business Day; (c) not more than 5 different Interest Periods may be outstanding at any one time; and (d) no Interest Period may end after the Commitment Termination Date. "Inventory" has the meaning set forth in Section 1(b) of the Security Agreement. "Issuing Bank" means UBOC in its capacity as issuer of Letters of Credit hereunder. Each reference in this Agreement to a Lender or the Lenders shall be deemed to include the Issuing Bank. "Jakks Pacific" means Jakks Pacific, Inc., a Delaware corporation. "Letter of Credit Amount" means the stated maximum amount available to be drawn under a particular Letter of Credit, as such amount may be reduced or reinstated from time to time in accordance with the terms of such Letter of Credit. "Letter of Credit Documents" means any and all Letter of Credit Requests, letter of credit agreements and other documents executed from time to time by any Credit Party in connection with the issuance of Letters of Credit. "Letter of Credit Request" means a request by the Borrower or THQI for the issuance of a Letter of Credit, either on the Issuing Bank's standard form of letter of credit application or by electronic means. "Letters of Credit" has the meaning set forth in Section 2.1(a). -6- "LIBOR Advance" means, at any time, any Advance that bears interest as provided in Section 2.6(a)(ii). "LIBOR" means, for any Interest Period for each LIBOR Advance that is part of the same Borrowing, the rate per annum obtained by dividing (a) the rate of interest per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) at which U.S.-dollar deposits would be offered to UBOC outside the United States of America 2 Business Days before the first day of such Interest Period, in an amount comparable to the amount of UBOC's LIBOR Advance for such Interest Period and for a term coinciding with such Interest Period, by (b) a percentage equal to 100% minus the LIBOR Reserve Percentage for such Interest Period. "LIBOR Reserve Percentage" means, for any Interest Period for each LIBOR Advance that is part of the same Borrowing, the reserve percentage applicable on any day not more than 2 Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) for UBOC with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on LIBOR Advances is determined) having a term equal to such Interest Period. "Lien" means, with respect to any asset, (a) any lien, charge, option, claim, mortgage, security interest, pledge or other encumbrance or any other type of preferential arrangement of any kind in respect of such asset or (b) the interest of a vendor or lessor under any conditional-sale agreement, capital lease or other title-retention agreement relating to such asset. "Material Contracts" means the THQ/Jakks Operating Agreement and the WWF License Agreement. "Multiemployer Plan" means, with respect to any Person, a multiemployer plan, as defined in Section 4001(a)(3) of ERISA and subject to Title IV thereof, to which such Person or any of its ERISA Affiliates is making or accruing an obligation to make contributions, or has within any of the preceding 5 plan years made or accrued an obligation to make contributions, such plan being maintained pursuant to one or more collective-bargaining agreements. "Note" means a Revolving Note of the Borrower payable to the order of a Lender, substantially in the form of Exhibit A, evidencing the indebtedness of the Borrower to such Lender resulting from the Advances made by such Lender from time to time. "Notice of Borrowing" has the meaning set forth in Section 2.4(a). "Notice of Conversion/Continuation" has the meaning set forth in Section 2.8(a). "Obligations" means all payment obligations of the Borrower outstanding from time to time under this Agreement and the other Credit Documents, whether for principal, -7- reimbursement of drawings under Letters of Credit (including contingent reimbursement obligations under outstanding Letters of Credit), interest, fees, expenses, indemnification or otherwise. "Old Credit Agreement" has the meaning set forth in the Recital to this Agreement. "Operating Profit" means, for any period, the sum of (a) the net earnings (or loss) of the Borrower and its Subsidiaries on a consolidated basis determined in conformity with GAAP plus (b) any extraordinary losses or noncash and nonrecurring losses plus (c) any losses attributable to discontinued operations (including operations disposed of during such period, whether or not such operations were classified as discontinued) minus (d) any extraordinary gains. "PBGC" means the Pension Benefit Guaranty Corporation. "Permitted Liens" means the following: (a) Liens for taxes, assessments and governmental charges or levies to the extent not required to be paid under Section 6.1(c); (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 30 days; (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; (d) easements, rights of way and other minor encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially and adversely affect the use of such property for its present purposes; and (e) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of like nature incurred in the ordinary course of business. "Person" means an individual, a corporation, a limited liability company, a partnership, an association, a business trust or any other entity or organization, including any Governmental Person. "Plan" means, with respect to any Person, an employee benefit plan (other than a Multiemployer Plan) maintained for employees of such Person or any ERISA Affiliate and covered by Title IV of ERISA. "Plan Termination Event" means, with respect to any Person, (a) a Reportable Event described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for 30-day notice to the PBGC under such regulations), or (b) the withdrawal of such Person or any of its ERISA Affiliates from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan under Section 4041 of ERISA, or (d) the institution of proceedings to terminate a Plan by the PBGC, or (e) any other event or condition that could reasonably be expected to constitute grounds under -8- Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Plan. "Reference" means a judicial reference conducted pursuant to any Credit Document in accordance with the law of the State of California, as in effect at the time the referee is selected pursuant to the judicial reference provision contained in such Credit Document. "Reference Rate" means the variable rate of interest per annum established by UBOC from time to time as its "reference rate." Such "reference rate" is set by UBOC as a general reference rate of interest, taking into account such factors as UBOC may deem appropriate, it being understood that many of UBOC's commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that UBOC may make various commercial or other loans at rates of interest having no relationship to such rate. For purposes of this Agreement, each change in the Reference Rate shall be effective as of the opening of business on the date announced as the effective date of any change in such "reference rate." "Reference Rate Advance" means, at any time, any Advance that bears interest as provided in Section 2.6(a)(i). "Register" has the meaning set forth in Section 9.8(c). "Required Lenders" means, at any time, Lenders owed at least 51% of the Obligations then outstanding or, if no Obligations are then outstanding, Lenders having at least 51% of the Commitments; provided, however, that, if and so long as there are only two Lenders, "Required Lenders" shall mean both of the Lenders. "Security Agreement" means the Security Agreement dated as of August 31, 2000 executed by the Borrower in favor of the Agent. "Significant Subsidiary" means each Subsidiary that (a) for the most recently completed fiscal year of the Borrower, accounted for more than 10% of the consolidated revenues of the Borrower and its Subsidiaries or (b) as of the end of the most recently completed fiscal year of the Borrower, was the owner, direct or indirect, of more than 10% of the consolidated assets of the Borrower and its Subsidiaries, all as shown in the Borrower's consolidated financial statements for such fiscal year. "Solvent" means, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature and (d) such Person is not engaged in business or a transaction, and is -9- not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. "Subsidiary" means, as to any Person, any corporation, limited liability company, partnership, joint venture or other entity of which (a) a majority of the outstanding capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or Persons performing similar functions (irrespective of whether at the time other such capital stock or interests have or might have voting power upon the occurrence of a contingency) or (b) a majority of the interests in the capital or profits of which is at the time directly or indirectly owned by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries; provided, however, that THQ/Jakks shall in any event be considered a Subsidiary of the Borrower. Unless otherwise specified herein, "Subsidiary" means a Subsidiary of the Borrower. "THQI" means T.HQ International, Ltd., an English corporation. "THQ/Jakks" means THQ/Jakks Pacific LLC, a Delaware limited liability company. "THQ/Jakks Operating Agreement" means the letter agreement dated October 25, 1999 between the Borrower and Jakks Pacific. "Type" refers to the distinction between Reference Rate Advances and LIBOR Advances." "UBOC" means Union Bank of California, N.A. in its individual capacity. "ValuSoft" means ValuSoft, Inc., a Minnesota corporation. "WWF License Agreement" means the World Wrestling Federation Consumer Products License Agreement dated June 10, 1998 between Titan Sports, Inc., a Delaware corporation, and THQ/Jakks. Section 1.2 Accounting Terms. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP as in effect from time to time, on a basis consistent with the audited consolidated financial statements of the Borrower referred to in Section 5.5. Section 1.3 Interpretation. In this Agreement the singular includes the plural and the plural the singular; words importing any gender include the other genders; references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute referred to; references to "writing" include printing, typing, lithography and other means of reproducing words in a tangible, visible form; the words "including," "includes" and "include" are deemed to be followed by the words "without limitation"; references to sections (or subdivisions of sections), recitals, exhibits, annexes or schedules are to those of this Agreement -10- unless otherwise provided; references to agreements and other contractual instruments are deemed to include all subsequent amendments and other modifications to such instruments, but only to the extent such amendments and other modifications are not prohibited by the terms of this Agreement; and references to Persons include their respective permitted successors and assigns. ARTICLE 2. COMMITMENTS Section 2.1 Commitments. (a) Each Lender agrees severally, on the terms and conditions contained in this Agreement, to extend credit to the Borrower from time to time from the Closing Date to the Commitment Termination Date by making funded advances to the Borrower (the "Advances") pursuant to Section 2.4 and participating in letters of credit issued for the account of the Borrower (the "Letters of Credit") pursuant to Section 2.9, in an aggregate amount not to exceed at any time outstanding the amount set forth opposite such Lender's name on the signature pages hereof or, if such Lender has entered into one or more Assignments and Acceptances, set forth for such Lender in the Register maintained by the Agent pursuant to Section 9.8(c); provided, however, that, during any calendar month, the sum of (i) the aggregate principal amount of all Advances outstanding, (ii) the aggregate Letter of Credit Amount of all Letters of Credit outstanding and (iii) the aggregate amount of unreimbursed drawings under all Letters of Credit shall not exceed the Facility Amount for such month at any time; further provided, however, that, during any calendar month (or applicable portion thereof), the aggregate principal amount of all Advances outstanding shall not exceed the Advance Sublimit for such month (or applicable portion thereof) at any time; and further provided, however, that the sum of (i) the aggregate Letter of Credit Amount of all Letters of Credit outstanding that were issued at the request of THQI and (ii) the aggregate amount of unreimbursed drawings under all Letters of Credit that were issued at the request of THQI shall not exceed $10,000,000 at any time (said agreement by each Lender, subject to the foregoing provisos, herein called such Lender's "Commitment"). Within the limits of each Lender's Commitment, the Borrower may borrow under Section 2.4, have Letters of Credit issued for the Borrower's account under Section 2.9, prepay Advances under Section 2.7, reborrow under Section 2.4, and have additional Letters Credit issued for the Borrower's account under Section 2.9 after the expiration or cancellation of previously issued Letters of Credit. (b) Reduction of Commitments. The Borrower shall have the right, upon at least 7 Business Days' notice to the Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders; provided, however, that each partial reduction shall be in the aggregate amount of $5,000,000 or an integral multiple thereof. Section 2.2 Fees. (a) The Borrower will pay to the Agent for the account of the Lenders, on the date of issuance of each commercial Letter of Credit, a nonrefundable issuance fee equal to the -11- greater of (i) the product of (A) 0.125% and (B) the initial Letter of Credit Amount of such Letter of Credit and (ii) $90. (b) The Borrower will pay to the Agent for the account of the Lenders, on the date of amendment of any commercial Letter of Credit, a nonrefundable amendment fee equal to the greater of (i) the product of (A) 0.125% and (B) the Letter of Credit Amount of such Letter of Credit, as so amended, and (ii) $60. (c) The Borrower will pay to the Agent for the account of the Lenders, on the date of payment of any drawing under any commercial Letter of Credit, a nonrefundable negotiation fee equal to the greater of (i) the product of (A) 0.125% and (B) the amount of such drawing paid by the Issuing Bank and (ii) $70. (d) The Borrower will pay to the Agent for the account of the Lenders, from the Closing Date to the Commitment Termination Date (or, if later, the date on which all outstanding standby Letters of Credit have expired), a letter of credit fee at the rate of 1.60% per annum on the average of the aggregate daily Letter of Credit Amounts of all standby Letters of Credit outstanding from time to time. (e) The Borrower will pay to the Issuing Bank such additional fees and charges (including cable charges) as are generally associated with letters of credit, in accordance with the Bank's standard internal charge guidelines. (f) The Borrower will pay to the Agent for the account of the Lenders an upfront fee of $175,000, payable on the Closing Date and on the first anniversary of the Closing Date. (g) The Borrower will pay to the Agent for its own account such fees as specified in the Fee Letter. (h) Fees payable by the Borrower to the Agent for the account of the Lenders pursuant to Sections 2.2(a), (b), (c) and (d) shall be payable to the Lenders quarterly in arrears on the 10th day of each January, April, July and October, commencing on October 10, 2002, with respect to the calendar quarter ended as of the last day of the preceding month in each case, and on the 10th day after the last Letter of Credit outstanding hereunder has expired. Section 2.3 Mandatory Prepayment or Pledge. (a) If, at any time during any calendar month, (i) the sum of (A) the aggregate principal amount of all Advances outstanding, (B) the aggregate Letter of Credit Amount of all Letters of Credit outstanding and (C) the aggregate amount of unreimbursed drawings under all Letters of Credit exceeds (ii) the Facility Amount for such month, then the Borrower will immediately, without notice or request by the Agent or any Lender, prepay the Advances (together, in the case of LIBOR Advances, with accrued interest to the date of prepayment on the principal amount prepaid), reimburse such unreimbursed drawings and/or pledge additional cash -12- collateral to the Agent to secure reimbursement of amounts available to be drawn under outstanding Letters of Credit, in the aggregate amount equal to such excess. (b) If, at any time during any calendar month, the aggregate principal amount of all Advances outstanding exceeds the Advance Sublimit for such month (or applicable portion thereof), then the Borrower will immediately, without notice or request by the Agent or any Lender, prepay the Advances (together, in the case of LIBOR Advances, with accrued interest to the date of prepayment on the principal amount prepaid) in the aggregate amount equal to such excess. (c) If at any time (i) the sum of (A) the aggregate Letter of Credit Amount of all Letters of Credit outstanding that were issued at the request of THQI and (B) the aggregate amount of unreimbursed drawings under all Letters of Credit that were issued at the request of THQI exceeds (ii) $10,000,000, then the Borrower will immediately, without notice or request by the Agent or any Lender, reimburse such unreimbursed drawings and/or pledge additional cash collateral to the Agent to secure reimbursement of amounts available to be drawn under outstanding Letters of Credit issued at the request of THQI, in the aggregate amount equal to such excess. A. ADVANCES Section 2.4 Making Advances. Any Borrowing not made in accordance with Section 2.10 shall be made in accordance with this Section 2.4. (a) A Borrowing pursuant to this Section 2.4(a) shall be made on notice, given (i) with respect to any Borrowing consisting of Reference Rate Advances, not later than noon, Los Angeles time, on the Business Day before the date of the proposed Borrowing and (ii) with respect to any Borrowing consisting of LIBOR Advances, not later than 11:00 a.m., Los Angeles time, on the third Business Day before the date of the proposed Borrowing, each such notice to be given by the Borrower to the Agent, which shall give each Lender prompt notice thereof by telecopier. Each such notice of a Borrowing shall be in writing in the form of Exhibit B (a "Notice of Borrowing"), or by telephone confirmed promptly in writing, by an Authorized Officer, specifying (A) the requested date of such Borrowing (which shall be a Business Day), (B) the requested Type of Advances making up such Borrowing, (C) the requested aggregate amount of such Borrowing, (D) in the case of a Borrowing comprising LIBOR Advances, the requested initial Interest Period for such Advances and (E) the fact that the statements set forth in Section 4.2(b) are true as of the date of such Borrowing. Each Lender shall, before 11:00 a.m., Los Angeles time, on the day of such Borrowing, make available to the Agent at its address specified in Section 9.2, in immediately available funds, such Lender's ratable portion of such Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article 4, the Agent will make such funds available to the Borrower by crediting the Borrower's Account. -13- (b) Each Notice of Borrowing shall be irrevocable and binding on the Borrower. The Borrower will indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill, on or before the date specified for such Borrowing in the related Notice of Borrowing, the applicable conditions set forth in Article 4, including any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. (c) Unless the Agent receives notice from a Lender before the date of any Borrowing under this Section 2.4 that such Lender will not make available to the Agent such Lender's ratable portion of such Borrowing, the Agent may assume that such Lender has made such portion available to the Agent on the date of such Borrowing in accordance with Section 2.4(a), and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender has not made such ratable portion available to the Agent, such Lender and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount, together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to the Advances making up such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender repays to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance as part of such Borrowing for purposes of this Agreement. (d) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing. Section 2.5 Repayment. On the Commitment Termination Date, the Borrower will repay to the Agent for the account of the Lenders the outstanding principal amount of the Advances. Section 2.6 Interest. (a) The Borrower will pay interest on the unpaid principal amount of each Advance, from the date of such Advance until such principal amount has been paid in full, (i) during such periods as such Advance is a Reference Rate Advance, at a rate per annum equal at all times to the Reference Rate in effect from time to time, payable monthly in arrears on the last Business Day of each calendar month during such periods and on the Commitment Termination Date, and (ii) during such periods as such Advance is a LIBOR Advance, at a rate per annum equal at all times during each Interest Period for such Advance to the sum of LIBOR for such Interest Period for such Advance plus 1.60% per annum, payable on the last day of such Interest Period. -14- (b) Upon the occurrence and during the continuation of any Default, interest on the unpaid principal amount of each Advance owing to each Lender shall instead accrue at a rate per annum equal at all times to the sum of the otherwise applicable interest rate plus 2.00% per annum, and such interest shall be payable on demand. (c) If the Borrower fails to select the duration of any Interest Period for any LIBOR Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.1, the Agent will forthwith so notify the Borrower and the Lenders, and such Advances shall automatically, on the last day of the then existing Interest Period therefor, Convert into Reference Rate Advances. Section 2.7 Optional Prepayments. The Borrower may on any Business Day, in the case of Reference Rate Advances upon prior written notice not later than 9:00 a.m., Los Angeles time, on the day of any prepayment of such Advances, and in the case of LIBOR Advances upon at least 3 Business Days' prior written notice, to the Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower will, prepay the outstanding principal amounts of the Advances making up a Borrowing in whole or ratably in part, together, in the case of LIBOR Advances, with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that any prepayment of LIBOR Advances shall be made on, and only on, the last day of an Interest Period for such Advances; and further provided, however, that each partial prepayment shall be in the aggregate principal amount of $1,000,000 or an integral multiple of $1,000,000 in excess thereof. Section 2.8 Conversion of Advances. (a) The Borrower may on any Business Day, upon prior written notice in the form of Exhibit C (a "Notice of Conversion/Continuation") signed by an Authorized Officer and given to the Agent (a) with respect to any Conversion to Reference Rate Advances, not later than 11:00 a.m., Los Angeles time, on the Business Day immediately preceding the date of the proposed Conversion and (b) with respect to any Conversion to LIBOR Advances, not later than 11:00 a.m., Los Angeles time, on the third Business Day before the date of the proposed Conversion, subject to the provisions of Sections 3.2 and 3.3, Convert all the Advances of one Type making up the same Borrowing into Advances of another Type; provided, however, that any Conversion of LIBOR Advances into Reference Rate Advances shall be made on, and only on, the last day of an Interest Period for such LIBOR Advances. Each notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Advances to be Converted and (iii) if such Conversion is into LIBOR Advances, the duration of the initial Interest Period for such Advances. Each Notice of Conversion shall be irrevocable and binding on the Borrower. (b) On any date on which the aggregate unpaid principal amount of LIBOR Advances composing any Borrowing is reduced, by payment or prepayment or otherwise, to less than $1,000,000, such Advances shall automatically Convert into Reference Rate Advances. Upon the occurrence and during the continuation of any Default, (A) each LIBOR Advance shall automatically, on the last day of the then existing Interest Period therefor, Convert into a -15- Reference Rate Advance, and (B) the obligation of the Lenders to make, or to Convert Advances into, LIBOR Advances shall be suspended. B. LETTERS OF CREDIT Section 2.9 Issuance of Letters of Credit. (a) The Borrower and THQI shall be entitled to request the issuance of Letters of Credit by giving the Issuing Bank a Letter of Credit Request at least 1 Business Day before the requested date of issuance of such Letter of Credit (which shall be a Business Day). Any Letter of Credit Request received by the Issuing Bank later than 3:00 p.m., Los Angeles time, shall be deemed to have been received on the next Business Day. Each Letter of Credit Request shall be delivered by computer, telecopier or other electronic means (subject to the terms and conditions of any agreement with respect thereto entered into by the Issuing Bank with the Borrower or THQI, as applicable), shall be signed by an Authorized Officer of the Borrower or THQI, as applicable, shall be irrevocable, shall be effective upon receipt by the Issuing Bank and shall, if submitted by the Borrower, specify whether it is being submitted in connection with the purchase of Inventory by the Borrower or by THQ/Jakks. Provided that a valid Letter of Credit Request has been received by the Issuing Bank and upon fulfillment of the other applicable conditions set forth in Article 4, the Issuing Bank will issue the requested Letter of Credit. No Letter of Credit shall have an expiration date later than 90 days after the Commitment Termination Date. (b) Immediately upon the issuance of each Letter of Credit, the Issuing Bank shall be deemed to have sold and transferred to each Lender, and each Lender shall be deemed to have purchased and received from the Issuing Bank, in each case irrevocably and without any further action by any party, an undivided interest and participation in such Letter of Credit, each drawing thereunder and the obligations of the Borrower under this Agreement in respect thereof in an amount equal to the product of (i) a fraction the numerator of which is the amount of the Commitment of such Lender and the denominator of which is the aggregate amount of all of the Commitments and (ii) the maximum amount available to be drawn under such Letter of Credit (assuming compliance with all conditions to drawing). (c) The Borrower acknowledges and agrees that (i) the Issuing Bank, the Lenders and the Agent shall be entitled to rely upon Letter of Credit Requests delivered to the Issuing Bank from time to time by Authorized Officers of THQI and (ii) the Borrower shall be obligated under this Agreement and the other Credit Documents for reimbursement of drawings under such Letters of Credit and for all other Obligations in respect of such Letters of Credit. Section 2.10 Drawing and Reimbursement. The payment by the Issuing Bank of a draft drawn under any Letter of Credit shall constitute for all purposes of this Agreement the making by UBOC of a Reference Rate Advance in the amount of such payment (without any requirement of compliance with the conditions set forth in Article 4 or with the limitations contained in Section 2.1(a), but subject to Section 2.3). In the event that any such Advance by UBOC resulting from a drawing under a Letter of Credit is not repaid by the Borrower by the Agent's deduction of the amount of such Advance, for UBOC's account, from the Borrower's -16- Account on the day of such drawing, the Agent will promptly so notify each other Lender. Each such Lender will, on the day of such notification, make a Reference Rate Advance, which shall be used to repay the applicable portion of UBOC's Reference Rate Advance with respect to such Letter of Credit drawing, in an amount equal to the amount of such Lender's participation in such drawing (without any requirement of compliance with the conditions set forth in Article 4 or with the limitations contained in Section 2.1(a), but subject to Section 2.3), and will deliver to the Agent for UBOC's account, on the day of such notification and in immediately available funds, the amount of such Reference Rate Advance. In the event that any Lender fails to make available to the Agent for the account of UBOC the amount of such Reference Rate Advance, UBOC shall be entitled to recover such amount on demand from such Lender, together with interest thereon at the Federal Funds Rate. Section 2.11 Obligations Absolute. The obligations of the Borrower under this Agreement, any Letter of Credit Request and any other Letter of Credit Document shall be absolute, unconditional and irrevocable and shall be paid strictly in accordance with the terms of the aforementioned documents under all circumstances, including the following: (a) any lack of validity or enforceability of any Letter of Credit, this Agreement or any other Credit Document; (b) the existence of any claim, setoff, defense or other right that the Borrower may have at any time against any beneficiary or transferee of any Letter of Credit (or any Person for whom any such beneficiary or transferee may be acting), the Issuing Bank, any Lender (other than the defense of payment in accordance with the terms of this Agreement) or any other Person, whether in connection with this Agreement, any other Credit Document, the transactions contemplated hereby or thereby or any unrelated transaction; (c) any statement or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect, or any statement therein being untrue or inaccurate in any respect whatsoever; (d) payment by the Issuing Bank under any Letter of Credit against presentation of a draft or certificate that does not comply with the terms of such Letter of Credit; (e) any exchange, release or nonperfection of any Collateral or other collateral, or any release, amendment or waiver of or consent to departure from any guaranty, for any of the Obligations of the Borrower in respect of the Letters of Credit; and (f) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. Section 2.12 Limits of Liability of Agent and Lenders. (a) The Borrower agrees to the provisions in the Letter of Credit Documents executed thereby; provided, however, that the terms of this Agreement shall take precedence if -17- there is any inconsistency between the terms of this Agreement and the terms of any such Letter of Credit Document. (b) The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Issuing Bank nor any other Lender nor any of their respective officers or directors shall be liable or responsible for (i) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (ii) the validity, sufficiency or genuineness of documents, or of any endorsement thereof, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (iii) payment by the Issuing Bank against presentation of documents that do not comply with the terms of any Letter of Credit, including failure of any documents to bear any reference or adequate reference to any Letter of Credit; or (iv) any other circumstance whatsoever in making or failing to make payment under any Letter of Credit; provided, however, that the Borrower shall have a claim against the Issuing Bank, and the Issuing Bank shall be liable to the Borrower, to the extent of any direct, but not consequential, damages suffered by the Borrower that the Borrower proves were caused by (A) the Issuing Bank's willful misconduct or gross negligence in determining whether documents presented under any Letter of Credit comply with the terms of such Letter of Credit or (B) the Issuing Bank's willful failure to make lawful payment under any Letter of Credit after the presentation to the Issuing Bank by the beneficiary or transferee of such Letter of Credit of a draft and certificates strictly complying with the terms and conditions of such Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Bank may accept any document that appears on its face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. C. PAYMENT PROVISIONS Section 2.13 Payments. (a) The Borrower will make each payment hereunder and under the Notes not later than 11:00 a.m., Los Angeles time, on the day when due, in U.S. dollars and immediately available funds, to the Agent at its address set forth in Section 9.2. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal, interest or fees ratably (other than amounts payable pursuant to Section 2.2(e) or (g) or Article 3) to the Lenders and like funds relating to the payment of any other amount payable to any Lender to such Lender, in each case to be applied in accordance with the terms of this Agreement. (b) The Borrower hereby authorizes each Lender, if and to the extent that any payment owed to such Lender is not made when due hereunder or under any other Credit Document, to charge from time to time against any or all of the Borrower's accounts with such Lender any amount so due. (c) Unless the Agent receives notice from the Borrower before the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date, and the Agent may, in reliance upon such assumption, cause to be -18- distributed to each Lender on such due date an amount equal to the amount then due to such Lender. If and to the extent that the Borrower has not so made such payment in full to the Agent, each Lender will repay to the Agent forthwith upon demand such amount distributed to such Lender, together with interest thereon, for each day from the date such amount was distributed to such Lender until the date on which such Lender repays such amount to the Agent, at the Federal Funds Rate. Section 2.14 Computation of Interest and Fees. All computations of interest and fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. Section 2.15 Payments on Non-Business Days. Whenever any payment hereunder or under any other Credit Document is stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fee, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of LIBOR Advances to be made in the next succeeding calendar month, such payment shall be made on the next preceding Business Day. Section 2.16 Sharing of Payments, Etc. If any Lender obtains any payment (whether voluntary, involuntary, through the exercise of any right of setoff, or otherwise) on account of the Advances made by it or the Letters of Credit participated in by it (other than pursuant to Section 2.2(e) or (g) or Article 3) in excess of its ratable share of payments on account of the Advances and Letters of Credit obtained by all of the Lenders, then such Lender will forthwith purchase from the other Lenders such participations in the Advances made by them and the Letters of Credit participated in by them as necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that, if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each other Lender shall be rescinded, and each such other Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery, together with an amount equal to such Lender's ratable share (according to the proportion of (a) the amount of such Lender's required repayment to (b) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this section may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of setoff) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. Section 2.17 Evidence of Debt. (a) The indebtedness of the Borrower resulting from all Advances made by each Lender from time to time shall be evidenced by the Notes. -19- (b) The books and accounts of the Agent shall be conclusive evidence, absent manifest error, of all Letter of Credit Amounts and of the amounts of all Advances, drawings under Letters of Credit, reimbursements under Letters of Credit, fees, interest and other charges advanced, due, outstanding or paid pursuant to this Agreement or any other Credit Document. Section 2.18 Extensions of Credit Outstanding under Old Credit Agreement. On the Closing Date, any "Advances" or "Letters of Credit" outstanding under the Old Credit Agreement shall be deemed to be Advances and Letters of Credit, respectively, outstanding under this Agreement. ARTICLE 3. YIELD PROTECTION Section 3.1 Increased LIBOR Advance Costs. If, due to either (a) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements, in the case of LIBOR Advances, included in the LIBOR Reserve Percentage) in or in the interpretation of any Governmental Rule or (b) compliance with any Governmental Rule (whether or not having the force of law), there is an increase in the cost to any Lender of agreeing to make, making, funding or maintaining any LIBOR Advance, then the Borrower will from time to time, promptly upon such Lender's delivery to the Borrower (with a copy to the Agent) of a certificate setting forth any such increased cost and a reasonably detailed explanation thereof, pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost, but only to the extent incurred after the delivery of such certificate or during a period of not more than 90 days before the delivery of such certificate; provided, however, that each Lender will, before submitting any such certificate, use reasonable efforts to mitigate the amount of any such increased cost to the extent that such efforts are consistent with applicable Governmental Rules, are not materially disadvantageous to such Lender's business or operations (in the reasonable judgment of such Lender) and would not cause such Lender to incur additional costs (unless the Borrower agrees to reimburse such Lender for such costs). Any certificate submitted to the Borrower and the Agent by a Lender in accordance with this section shall be conclusive and binding for all purposes, absent manifest error. Section 3.2 Illegality. Notwithstanding any other provision of this Agreement, if the introduction of, or any change in or in the interpretation of, any Governmental Rule makes it unlawful, or any Governmental Person asserts that it is unlawful, for any Lender to perform its obligations hereunder to make LIBOR Advances or to continue to fund or maintain LIBOR Advances hereunder, then, on notice thereof and demand therefor by such Lender to the Borrower through the Agent, (a) the obligation of such Lender to make LIBOR Advances and to Convert Advances into LIBOR Advances shall be suspended until the Agent notifies the Borrower that such Lender has determined that the circumstances causing such suspension no longer exist, and (b) the Borrower will forthwith prepay in full all LIBOR Advances of such Lender then outstanding, together with interest accrued thereon, unless the Borrower, within 5 Business Days of such notice and demand, Converts all LIBOR Advances of all Lenders then outstanding into Reference Rate Advances in accordance with Section 2.8. -20- Section 3.3 Inadequacy of LIBOR. If, with respect to any LIBOR Advances, the Required Lenders notify the Agent that LIBOR determined pursuant to Section 2.6(a)(ii) for any Interest Period for such Advances will not adequately reflect the cost to the Required Lenders of making, funding or maintaining their respective LIBOR Advances for such Interest Period, then the Agent will forthwith so notify the Borrower and the Lenders, whereupon (a) such LIBOR Advances shall automatically, on the last day of the then existing respective Interest Periods therefor, Convert into Reference Rate Advances, and (b) the obligations of the Lenders to make, or to Convert Advances into, LIBOR Advances shall be suspended until the Agent notifies the Borrower and the Lenders that the circumstances causing such suspension no longer exist. Section 3.4 Increased Letter of Credit Costs. If, after the date hereof, any change in any Governmental Rule or in the interpretation thereof by any Governmental Person charged with the administration thereof either (a) imposes, modifies or deems applicable any reserve, special deposit or similar requirement against letters of credit or guaranties issued by or participated in, or assets held by, or deposits in or for the account of, the Issuing Bank or any Lender or (b) imposes on the Issuing Bank or any Lender any other condition regarding this Agreement, the Issuing Bank, such Lender or any Letter of Credit, and the result of any event referred to in the preceding clause (a) or (b) is to increase the cost to the Issuing Bank of issuing or maintaining any Letter of Credit or to any Lender of purchasing or maintaining any participation therein, then the Borrower will from time to time, promptly upon the Issuing Bank's or such Lender's delivery to the Borrower (with a copy to the Agent) of a certificate setting forth any such increased cost and a reasonably detailed explanation thereof, pay to the Agent for the account of the Issuing Bank or such Lender, as applicable, additional amounts sufficient to compensate the Issuing Bank or such Lender for such increased cost, but only to the extent incurred after the delivery of such certificate or during a period of not more than 90 days before the delivery of such certificate; provided, however, that the Issuing Bank and each Lender will, before submitting any such certificate, use reasonable efforts to mitigate the amount of any such increased cost to the extent that such efforts are consistent with applicable Governmental Rules, are not materially disadvantageous to the Issuing Bank's or such Lender's business or operations (in the reasonable judgment of the Issuing Bank or such Lender, as applicable) and would not cause the Issuing Bank or such Lender to incur additional costs (unless the Borrower agrees to reimburse the Issuing Bank or such Lender, as applicable, for such costs). Any certificate submitted to the Borrower and the Agent by the Issuing Bank or a Lender in accordance with this section shall be conclusive and binding for all purposes, absent manifest error. Section 3.5 Capital Adequacy. If any Lender determines that compliance with any Governmental Rule (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type or the commitment to issue or participate in, or the issuance of or participation in, the Letters of Credit (or similar contingent obligations), then the Borrower will from time to time, promptly upon such Lender's delivery to the Borrower (with a copy to the Agent) of a certificate setting forth any such increase in capital and a reasonably detailed explanation thereof, pay to the Agent for -21- the account of such Lender additional amounts sufficient to compensate such Lender for such increase in capital, but only to the extent that (a) such increase in capital is incurred after the delivery of such certificate or was incurred during a period of not more than 90 days before the delivery of such certificate and (b) such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder or commitment to issue or participate in, or the issuance of or participation in, Letters of Credit; provided, however, that each Lender will, before submitting any such certificate, use reasonable efforts to mitigate the amount of any such increase in capital to the extent that such efforts are consistent with applicable Governmental Rules, are not materially disadvantageous to such Lender's business or operations (in the reasonable judgment of such Lender) and would not cause such Lender to incur additional costs (unless the Borrower agrees to reimburse such Lender for such costs). Any certificate submitted to the Borrower and the Agent by a Lender in accordance with this section shall be conclusive and binding for all purposes, absent manifest error. Section 3.6 Funding Losses. If any payment of principal of, or any Conversion of, any LIBOR Advance is made other than on the last day of an Interest Period for such Advance, as a result of a prepayment pursuant to Section 2.3, a payment or Conversion pursuant to Section 3.2 or 3.3 or acceleration of the maturity of the Obligations pursuant to Section 7.1 or for any other reason, the Borrower will, upon demand by any Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion, including any loss (other than loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain such Advance. Section 3.7 Replacement of Lender. If any Lender makes a demand for payment under Section 3.1, 3.4 or 3.5, the Borrower may, within 120 days of such demand if no Default then exists, (a) reduce the aggregate amount of the Commitments by the full amount of such Lender's Commitment by simultaneously repaying all outstanding Advances owed to such Lender, pledging cash collateral to the Agent in the aggregate amount of such Lender's participations in outstanding Letters of Credit and paying all accrued and unpaid interest, fees and other amounts payable to such Lender hereunder through the date of such reduction or (b) replace such Lender with another Person in accordance with the terms of Section 9.8. Whether or not a Lender making a demand for payment under Section 3.1, 3.4 or 3.5 has its Commitment eliminated or is replaced in accordance with the preceding sentence, the Borrower shall be obligated to make any payments to such Lender that are required under Section 3.1, 3.4 or 3.5, as applicable. ARTICLE 4. CONDITIONS OF LENDING Section 4.1 Effectiveness of Agreement. The effectiveness of this Agreement is subject to the conditions precedent that the Borrower has paid all accrued fees and expenses of the Agent (as provided in Sections 2.2 and 9.4 and as otherwise agreed between the Borrower and the Agent), including the accrued fees and disbursements of legal counsel to the Agent, to -22- the extent one or more statements for such fees and expenses have been presented for payment, and the Agent has received the following, each dated the Closing Date unless otherwise specified below, in form and substance satisfactory to the Lenders and in the number of originals required by the Agent: (a) this Agreement, duly executed by the Borrower and the Lenders; (b) the Note in favor of UBOC, duly executed by the Borrower; (c) an amendment to the Security Agreement, duly executed by the Borrower; (d) certificates of the appropriate Governmental Persons of the State of California and of the State of Delaware, dated as of a recent date, listing all effective financing statements filed therewith that name the Borrower as debtor, together with copies of such financing statements; (e) copies of (i) the resolutions of the Board of Directors of the Borrower approving the Credit Documents (excluding any Fee Letter) to which the Borrower is or is to be a party and (ii) all documents evidencing other necessary corporate action and Governmental Action, if any, with respect to such Credit Documents, in each case certified by the Secretary, an Assistant Secretary or another appropriate officer of the Borrower to be correct and complete and in full force and effect as of the date of execution of each such document and as of the Closing Date; (f) a certificate of the Secretary, an Assistant Secretary or another appropriate officer of the Borrower as to the incumbency, and setting forth a specimen signature, of each of the persons (i) who has signed or will sign any Credit Document on behalf of the Borrower and (ii) who will, until replaced by other persons duly authorized for that purpose, act as the representatives of the Borrower for the purpose of signing documents in connection with this Agreement and the transactions contemplated hereby; (g) a certificate of the Borrower, signed on behalf of the Borrower by the President or a Vice President (or another appropriate officer) thereof and the Secretary or an Assistant Secretary (or another appropriate officer) thereof, certifying as to the following: (i) the absence of any amendments to the certificate of incorporation of the Borrower since the date of the certification with respect thereto referred to in Section 4.1(h); (ii) the correctness and completeness of the copy of the bylaws of the Borrower attached to such certificate and that such bylaws are in full force and effect; (iii) the due organization and good standing of the Borrower as a corporation organized under the laws of the State of Delaware and the absence of any proceeding for the dissolution or liquidation of the Borrower; (iv) the truthfulness in all material respects of the representations and warranties of the Borrower contained in the Credit Documents, as though made on and as of the Closing Date; and (v) the absence of any event occurring and continuing, or resulting from the effectiveness of the Credit Documents, that constitutes a Default with respect to the Borrower; -23- (h) certificates of the appropriate Governmental Person(s) of the State of Delaware, dated reasonably near the Closing Date, attaching the articles of incorporation of the Borrower and all amendments thereto and certifying that (A) such amendments are the only amendments to such articles of incorporation on file in such Governmental Person's office, (B) the Borrower has paid all franchise taxes to the date of such certificate and (C) the Borrower is duly organized and in good standing under the laws of the State of Delaware; and (i) good-standing certificates, dated reasonably near the Closing Date, with respect to the good standing of such of the Credit Parties to do business in such jurisdictions as the Agent may reasonably request. Section 4.2 Advances. The obligation of each Lender to make an Advance on the occasion of each Borrowing is subject to the limitations of the Commitments, to the performance by the Borrower of all of its obligations under this Agreement and to the satisfaction of the following further conditions: (a) the Agent has received a Notice of Borrowing with respect to such Advance, if required pursuant to Section 2.4; (b) the following statements are true (and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty by the Borrower that on the date of such Borrowing such statements are true): (i) the representations and warranties contained in each Credit Document are correct in all material respects on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of the proceeds thereof, as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from such Borrowing or from the application of the proceeds thereof, that constitutes a Default; and (c) the Agent has received such other approvals, evidence and documents as any Lender through the Agent may reasonably request. Section 4.3 Letters of Credit. The obligation of the Issuing Bank to issue, and of each Lender to participate in, any Letter of Credit is subject to the limitations of the Commitments, to the performance by the Borrower of all of its obligations under this Agreement and to the satisfaction of the following further conditions: (a) the Agent has received a Letter of Credit Request with respect to such Letter of Credit; (b) the following statements are true (and each delivery of a Letter of Credit Request by the Borrower or THQI shall constitute a representation and warranty by the Borrower that on the date of issuance of the applicable Letter of Credit such statements are true): -24- (i) the representations and warranties contained in each Credit Document are correct in all material respects on and as of the date of issuance of such Letter of Credit, before and after giving effect to the issuance of such Letter of Credit, as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from the issuance of such Letter of Credit, that constitutes a Default; and (c) the Agent has received such other approvals, evidence and documents as any Lender through the Agent may reasonably request. Section 4.4 Determinations under Section 4.1. For purposes of determining compliance with the conditions specified in Section 4.1, each Lender shall be deemed to have consented to, approved or accepted, or to be satisfied with, each document or other matter required under Section 4.1 to be consented to, approved by, accepted or satisfactory to the Lenders unless an officer of the Agent responsible for the transactions contemplated by the Credit Documents and holding the position of Vice President or a more senior position receives notice from such Lender before the earlier of the initial Borrowing hereunder and the issuance of the initial Letter of Credit hereunder specifying such Lender's objection thereto, and such objection is not withdrawn by notice to the Agent to that effect. Section 4.5 Conditions Subsequent. The continuing effectiveness of this Agreement is subject to the conditions subsequent that the Agent has received the following not later than October 31, 2002, in form and substance satisfactory to the Lenders and in the number of originals required by the Agent: (a) copies of (i) the resolutions of the Board of Directors or equivalent body of THQI approving the Credit Documents to which THQI is or is to be a party and (ii) all documents evidencing other necessary corporate action and Governmental Action, if any, with respect to such Credit Documents, in each case certified by the Secretary, an Assistant Secretary or another appropriate officer of THQI to be correct and complete and in full force and effect as of the date of execution of each such document and as of the date of such certification; (b) a certificate of the Secretary, an Assistant Secretary or another appropriate officer of THQI as to the incumbency, and setting forth a specimen signature, of each of the persons (i) who has signed or will sign any Credit Document on behalf of THQI and (ii) who will, until replaced by other persons duly authorized for that purpose, act as the representatives of THQI for the purpose of signing documents in connection with this Agreement and the transactions contemplated hereby; and -25- (c) a certificate of THQI, signed on behalf of THQI by the President or a Vice President (or another appropriate officer) thereof and the Secretary or an Assistant Secretary (or another appropriate officer) thereof, certifying as to the following: (i) the correctness and completeness of the copies of the memorandum of association and articles of association of THQI attached to such certificate and that such documents are in full force and effect; (ii) the due organization and good standing of THQI as a corporation organized under the laws of England and the absence of any proceeding for the dissolution or liquidation of THQI; and (iii) the absence of any event occurring and continuing, or resulting from the effectiveness of the Credit Documents, that constitutes a Default with respect to THQI. ARTICLE 5. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Lenders and the Agent as set forth below. Section 5.1 Corporate Existence and Power. The Borrower (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, (b) is duly qualified or licensed as a foreign corporation, and is in good standing, in California and in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed (except for jurisdictions in which the failure to so qualify or be licensed could not reasonably be expected to have a material and adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower) and (c) has all requisite corporate power and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. Section 5.2 Authorization. The execution, delivery and performance by the Borrower of this Agreement and each other Credit Document to which the Borrower is or is to be a party, and the consummation of the transactions contemplated hereby and thereby, are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action and do not (a) contravene the Borrower's certificate of incorporation or bylaws, (b) violate any Governmental Rule, (c) conflict with or result in the breach of, or constitute a default under, any loan agreement, indenture, mortgage, deed of trust or lease, or any other contract or instrument, binding on or affecting the Borrower or any of its properties, the conflict, breach or default of which could reasonably be expected to have a material and adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower or any Subsidiary on the ability of the Borrower to perform its obligations under any of the Credit Documents, or (d) result in or require the creation or imposition of any Lien upon or with respect to any of the properties of the Borrower, other than in favor of the Agent. The Borrower is not in violation of any such Governmental Rule or in breach of any such loan agreement, indenture, mortgage, deed of trust, lease, contract or instrument, the violation or breach of which could reasonably be expected to have a material and adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower or any Subsidiary. -26- Section 5.3 Governmental Action. No Governmental Action is required for the due execution, delivery or performance by the Borrower of this Agreement or any other Credit Document to which the Borrower is or is to be a party, or for the consummation of the transactions contemplated hereby or thereby. Section 5.4 Binding Effect. This Agreement has been, and each other Credit Document to which the Borrower is or is to be a party when delivered hereunder will be, duly executed and delivered by the Borrower. This Agreement is, and each other Credit Document to which the Borrower is or is to be a party when delivered hereunder will be, the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as the enforceability thereof may be limited to bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally or by equitable principles relating to enforceability. Section 5.5 Financial Information. The consolidated balance sheet of the Borrower and its Subsidiaries as of December 31, 2001, and the related consolidated statements of income and retained earnings of the Borrower and its Subsidiaries for the fiscal year then ended, certified by Deloitte & Touche LLP, independent public accountants, fairly present the consolidated financial condition of the Borrower and its Subsidiaries as of such date and the consolidated results of the operations of the Borrower and its Subsidiaries for the fiscal year ended on such date, all in accordance with GAAP applied on a consistent basis. The unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of June 30, 2002, and the related unaudited consolidated statements of income and retained earnings of the Borrower and its Subsidiaries for the 6-month fiscal period ended on such date, certified (subject to normal year-end audit adjustments and the absence of footnotes) by the Vice President Finance & Administration of the Borrower as having been prepared in accordance with GAAP, fairly present the consolidated financial condition of the Borrower and its Subsidiaries as of such date and the consolidated results of the operations of the Borrower and its Subsidiaries for the 3-month fiscal period ended on such date. Since June 30, 2002 there has been no material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower and its Subsidiaries taken as a whole. The Borrower and its Subsidiaries taken as a whole have no material contingent liabilities except as disclosed in such consolidated balance sheets or the notes thereto. Section 5.6 Other Information. No information, exhibit or report furnished by the Borrower to the Agent or any Lender in connection with the negotiation of the Credit Documents or pursuant to the terms of any of the Credit Documents contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statements contained therein, in light of the circumstances in which made and when the Credit Documents are taken as a whole, not misleading. Section 5.7 Litigation. There is no action, suit, investigation, litigation or proceeding affecting the Borrower or any Subsidiary pending or, to the best knowledge of the Borrower, threatened before any Governmental Person, arbitrator or referee (a) that could reasonably be expected to have a material and adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower and its Subsidiaries taken as a -27- whole or (b) that purports to affect the legality, validity or enforceability of this Agreement or any other Credit Document or the consummation of the transactions contemplated hereby or thereby. Section 5.8 Subsidiaries. The Borrower has no Subsidiaries except as listed in Schedule 2. Each Subsidiary is organized in the jurisdiction specified in Schedule 2, is owned by the Borrower or another Subsidiary as specified in Schedule 2 and is so owned in the percentage specified in Schedule 2. Section 5.9 Intellectual Property. Each of the Borrower and its Significant Subsidiaries possesses all trademarks, trade names, copyrights, patents and licenses necessary to conduct its business as now operated, without any known conflict with the valid trademarks, trade names, copyrights, patents or licenses of others. Section 5.10 Fire, Etc. Neither the business nor the properties of the Borrower or any Subsidiary are affected by any fire, explosion, accident, strike, lockout or other labor dispute, or other casualty (whether or not covered by insurance) that could reasonably be expected to have a material and adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower and its Subsidiaries taken as a whole. Section 5.11 Burdensome Agreements. Neither the Borrower nor any Subsidiary is a party to any indenture, loan agreement, credit agreement, lease or other agreement or instrument, or subject to any charter or corporate restriction, that could reasonably be expected to have a material and adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower and its Subsidiaries taken as a whole or on the ability of the Borrower or any Subsidiary to carry out its obligations under this Agreement or any other Credit Document. Section 5.12 Taxes. Each of the Borrower and its Significant Subsidiaries has filed, or there has been filed on its behalf, all tax returns (federal, state, local and foreign) required to be filed before the date of the making of this representation and warranty, and each of the Borrower and its Subsidiaries has paid all taxes shown thereon to be due, including interest, additions to taxes and penalties, or has provided adequate reserves for the payment thereof. Section 5.13 Title to Property. Each of the Borrower and its Significant Subsidiaries has good and marketable title to all property, real or personal, purported to be owned by it. Section 5.14 Margin Stock. Neither the Borrower nor any Subsidiary is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to another for the purpose of purchasing or carrying any margin stock. Section 5.15 ERISA. No Plan Termination Event has occurred or could reasonably be expected to occur with respect to any Plan of the Borrower or any of its ERISA Affiliates that could reasonably be expected to result in a material liability to the Borrower or any of its ERISA -28- Affiliates. Since the date of the most recent Schedule B (Actuarial Information) to the annual report of each of the Borrower and its ERISA Affiliates (Form 5500 Series), if any, there has been no material adverse change in the funding status of the Plans referred to therein, and no "prohibited transaction" has occurred with respect thereto that could reasonably be expected to result in a material liability to the Borrower or any of its ERISA Affiliates. Neither the Borrower nor any of its ERISA Affiliates has incurred or could reasonably be expected to incur any material withdrawal liability under ERISA to any Multiemployer Plan. Section 5.16 Solvency. The Borrower is, individually and together with its Subsidiaries, Solvent. ARTICLE 6. COVENANTS Section 6.1 Affirmative Covenants. So long as any Commitment is in effect, any Letter of Credit is outstanding or any Obligation remains unpaid, unless compliance has been waived in writing by the Required Lenders, the Borrower will observe the affirmative covenants set forth below. (a) Information. The Borrower will deliver the following directly to each Lender: (i) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, an unaudited balance sheet of the Borrower and its Subsidiaries as of the end of such quarter and unaudited consolidated statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, all in reasonable detail and duly certified (subject to normal year-end audit adjustments and the absence of footnotes) by the chief financial officer or chief accounting officer of the Borrower as having been prepared in accordance with GAAP consistently applied, together with (A) a certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower proposes to take with respect thereto and (B) a schedule in reasonable detail and otherwise in form satisfactory to the Agent showing the computations used by the Borrower in determining, as of the end of such fiscal quarter, compliance with the covenants contained in Sections 6.2(i), (j), (l) and (m); (ii) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, a copy of the annual audit report for such year for the Borrower and its Subsidiaries, including therein a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal year and consolidated statements of income, retained earnings and cash flows of the Borrower and its Subsidiaries for such fiscal year, in each case accompanied by an unqualified opinion in a form acceptable to the Agent by Deloitte & Touche LLP or other independent public accountants of recognized standing acceptable to the -29- Agent, together with (A) a certificate of the chief financial officer or chief accounting officer of the Borrower stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower proposes to take with respect thereto, (B) a schedule in reasonable detail and otherwise in form satisfactory to the Agent showing the computations used by the Borrower in determining, as of the end of such fiscal year, compliance with the covenants contained in Sections 6.2(i), (j), (k), (l) and (m) and (C) projections of the financial performance of the Borrower and its Subsidiaries for the then current fiscal year, in a form reasonably acceptable to the Agent; (iii) together with the information provided pursuant to Section 6.1(a)(ii), in form and scope satisfactory to the Agent, (A) a schedule showing the aging of the accounts receivable of the Borrower and its Subsidiaries for the relevant period, including details of any charges against reserves and of current reserves, (B) a report concerning the inventory of the Borrower and its Subsidiaries for the relevant period, including details as to any write-downs or returns, and (C) a "Royalty and Minimum Guaranty Schedule" in the form customarily delivered to UBOC before the date of this Agreement; (iv) as soon as possible and in any event within 10 days after the Borrower or any Subsidiary thereof knows or has reason to know that any Plan Termination Event has occurred, a statement of the chief financial officer or chief accounting officer of the Borrower describing such Plan Termination Event and the action, if any, that the Borrower proposes to take with respect thereto; (v) promptly and in any event within 2 Business Days after receipt thereof by the Borrower or any of its ERISA Affiliates from the PBGC, copies of each notice received by the Borrower or any such ERISA Affiliate of the PBGC's intention to terminate any Plan or to have a trustee appointed to administer any Plan; (vi) promptly and in any event within 30 days after the filing thereof with the Internal Revenue Service, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Plan to which the Borrower or any of its ERISA Affiliates is a contributing employer; (vii) promptly and in any event within 5 Business Days after receipt thereof by the Borrower or any of its ERISA Affiliates from a Multiemployer Plan sponsor, a copy of each notice received by the Borrower or any such ERISA Affiliate concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA; (viii) promptly after the commencement thereof, notice of all actions, suits and proceedings before any Governmental Person, arbitrator or referee, affecting the Borrower or any Subsidiary, of the type described in Section 5.7; (ix) promptly after the occurrence of any Default, a certificate of the chief financial officer or chief accounting officer of the Borrower setting forth the details thereof and the action that the Borrower is taking or proposes to take with respect thereto; and -30- (x) promptly upon request, such other information respecting the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower or any of its Subsidiaries as any Lender may from time to time reasonably request. (b) Compliance with Governmental Rules. The Borrower will comply, and cause each Subsidiary to comply, in all material respects, with the requirements of all applicable Governmental Rules, including ERISA and all applicable Environmental Laws. (c) Payment of Taxes, Etc. The Borrower will pay and discharge, and cause each Significant Subsidiary to pay and discharge, before the same become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its property; provided, however, that neither the Borrower nor any Significant Subsidiary shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained. (d) Maintenance of Insurance. The Borrower will maintain, and cause each Subsidiary to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates. The Agent shall be named loss payee on all insurance policies of the Borrower providing for the insuring of Collateral, and each insurance policy maintained by the Borrower or any Significant Subsidiary shall require at least 10 days' prior written notice to the Agent before such policy may be modified in any way or cancelled. (e) Preservation of Corporate Existence, Etc. The Borrower will preserve and maintain, and cause each Subsidiary to preserve and maintain, its corporate existence (in the jurisdiction of its incorporation), rights (charter and statutory), franchises, approvals, permits and governmental licenses, except to the extent that the failure to so preserve and maintain the same could not reasonably be expected to have a material and adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower and its Subsidiaries taken as a whole. (f) Visitation Rights. At any reasonable time and from time to time, upon reasonable prior notice to the Borrower, the Borrower will permit the Agent and any of the Lenders, or any consultants, agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit the properties and have access to the assets of, the Borrower and its Subsidiaries and to discuss the affairs, finances and accounts of the Borrower and its Subsidiaries with any of their respective officers, directors and employees and with their independent public accountants, including for the purpose of conducting Asset Based Audits. (g) Keeping of Books. The Borrower will keep, and cause each Subsidiary to keep, proper books of record and account in which full and correct entries shall be made of all financial transactions and of the assets and business of the Borrower and each Subsidiary to the -31- extent necessary to permit the preparation of the financial statements required to be delivered hereunder and under the other Credit Documents. (h) Maintenance of Properties, Etc. The Borrower will maintain and preserve, and cause each Significant Subsidiary to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. (i) Transactions with Affiliates. The Borrower will conduct, and cause each Subsidiary to conduct, all transactions otherwise permitted under the Credit Documents with any Affiliate thereof on terms that are fair and reasonable and not less favorable than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate thereof; provided, however, that the Borrower may (i) pay customary and reasonable directors' fees to its directors, (ii) provide customary and reasonable indemnities to its directors and (iii) comply with the terms of the THQ/Jakks Operating Agreement. Section 6.2 Negative Covenants. So long as any Commitment is in effect, any Letter of Credit is outstanding or any Obligation remains unpaid, unless compliance has been waived in writing by the Required Lenders, the Borrower will observe the negative covenants set forth below. (a) Liens, Etc. The Borrower will not create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any Lien upon or with respect to any of its property of any character (including capital stock, other securities and accounts receivable), whether now owned or hereafter acquired, or sign, or permit any Subsidiary to sign, any security agreement authorizing any secured party thereunder to file a financing statement under the Uniform Commercial Code of any jurisdiction, or assign, or permit any Subsidiary to assign, any accounts receivable; provided, however, that the foregoing restrictions shall not apply to the following: (i) Liens created by any of the Credit Documents; (ii) Liens securing any Debt permitted under Section 6.2(b)(ii), provided that any such Lien is limited to the fixed assets acquired or financed and any subsequent improvements thereto; (iii) Liens created by any Capitalized Leases permitted under Section 6.2(c)(ii); (iv) Permitted Liens; (v) any assignment by the Borrower or any Subsidiary of accounts receivable due from Kmart Corporation or any Subsidiary thereof; (vi) Liens securing obligations of the Borrower under Currency Agreements; and -32- (vii) Liens securing any Debt permitted under Section 6.2(b)(vii). (b) Debt. The Borrower will not create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any Debt other than the following: (i) Debt of the Credit Parties under the Credit Documents; (ii) Debt (commonly known as "purchase-money debt") of the Borrower and its Subsidiaries incurred to purchase, or to finance the purchase of, fixed assets; provided, however, that the aggregate principal amount of such Debt shall not exceed $5,000,000 at any time outstanding; (iii) Capitalized Leases permitted under Section 6.2(c)(ii); (iv) Debt of Subsidiaries permitted pursuant to Section 6.2(f)(vi); and (v) Debt of the Borrower to any Subsidiary; (vi) Debt of the Borrower to ValuSoft in respect of contingent future payments that the Borrower may be required to make to ValuSoft based on the pretax net income of the division of the Borrower that will hold and operate the assets acquired thereby from ValuSoft; and (vii) Debt of the Borrower or any Subsidiary, in addition to that otherwise permitted under this Section 6.2(b), not exceeding $5,000,000 in aggregate principal amount at any time outstanding. (c) Lease Obligations. The Borrower will not create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any obligations as lessee (i) for the rental or hire of real or personal property in connection with any sale-and-leaseback transaction or (ii) for the rental or hire of other real or personal property of any kind under leases or agreements to lease (including Capitalized Leases) having an original term of one year or more that would cause the direct or contingent liabilities of the Borrower and its Subsidiaries, on a consolidated basis, in respect of all of such obligations to exceed $5,000,000 payable in any fiscal year. (d) Mergers, Etc. The Borrower will not merge or consolidate with or into any Person, sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person, acquire all or substantially all of the stock or other equity interests in any Person (except as permitted by Section 6.2(f)) or acquire all or substantially all of the assets of any Person or of any division, branch or other operational unit thereof, or permit any Subsidiary to do any of the foregoing; provided, however, that the Borrower and its Subsidiaries shall be permitted to enter into such a merger or make such an acquisition of assets or equity interests if -33- (A) no Default has occurred and is continuing or would be caused by such merger or acquisition, (B) the Borrower gives the Lenders at least 15 days' (or such shorter period as to which the Required Lenders may agree in writing) prior written notice of such merger or acquisition, (C) the cash consideration paid for all such mergers and acquisitions during any fiscal year does not exceed $15,000,000 in the aggregate, (D) the total consideration paid for all such mergers and acquisitions during any fiscal year does not exceed $50,000,000 in the aggregate, (E) the total consideration paid for any one such merger or acquisition does not exceed $30,000,000 and (F) in the case of any such merger, the Borrower or a Subsidiary, as applicable, is the surviving entity. (e) Sales, Etc. of Assets. The Borrower will not sell, lease, transfer or otherwise dispose of, or permit any Subsidiary to sell, lease, transfer or otherwise dispose of, any substantial part of its assets, including any equity interests in any Subsidiary and substantially all assets constituting the business of a division, branch or other operational unit; provided, however, that the Borrower and its Subsidiaries shall be permitted to sell assets for aggregate consideration of up to $5,000,000 in any fiscal year. (f) Investments in Other Persons. The Borrower will not make, or permit any Subsidiary to make, any loan or advance to any Person, or purchase or otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire, any capital stock, warrants, rights, options, obligations or other equity interests in, make any capital contribution to, or otherwise invest in, any Person; provided, however, that nothing in this section shall prevent any of the following: (i) the Borrower or any Subsidiary from acquiring or holding Cash Equivalents, provided that not more than 50% of the aggregate value of such Cash Equivalents at any time is composed of assets denominated in one or more currencies other than United States dollars; (ii) the Borrower or any Subsidiary from generating and holding accounts receivable in the ordinary course of business; (iii) the Borrower or any Subsidiary from acquiring stock or other equity interests in any Person as permitted by Section 6.2(d); (iv) the Borrower from making equity contributions and loans to THQ/Jakks as required by the terms of the THQ/Jakks Operating Agreement; (v) the Borrower or any Subsidiary from entering into any Currency Agreement; (vi) the Borrower or any Subsidiary from making and/or maintaining loans and other advances to any Subsidiaries in the normal course of business for the normal operating purposes of such Subsidiaries, provided that the aggregate principal amount of such loans and advances does not exceed $30,000,000 at any time outstanding; -34- (vii) the Borrower or any Subsidiary from making equity contributions to any Subsidiaries in the normal course of business for the normal operating purposes of such Subsidiaries, provided that the aggregate amount of such contributions does not exceed $15,000,000 on a cumulative basis after the date of this Agreement; (viii) the Borrower or any Subsidiary from making loans and advances to its officers and employees in the ordinary course of business, provided that the aggregate principal amount of such loans and advances does not exceed $1,000,000 at any time outstanding; (ix) the Borrower from making loans to, or acquiring equity interests in, Minick Holding AG, a Swiss company, provided that the aggregate amount of (A) such loans (excluding a loan of $1,500,000 made before the date hereof) and (B) the consideration paid for such acquisitions does not exceed $5,000,000; and (x) in addition to the foregoing, the Borrower or any Subsidiary from making loans and advances, in an aggregate amount not exceeding $7,500,000 in any fiscal year, to any Persons in businesses related to, ancillary to or complementary to the business of the Borrower. (g) Dividends, Etc. The Borrower will not, and will not permit any Subsidiary to, declare or pay any dividends or other distributions, purchase, redeem, retire, defease or otherwise acquire for value any of its equity interests or any warrants, rights or options to acquire such equity interests, now or hereafter outstanding, return any capital to its stockholders as such, or make any distribution of assets, equity interests, warrants, rights, options, obligations or securities to its equity holders as such; provided, however, that (i) the Borrower may declare and pay dividends payable solely in common stock of the Borrower, (ii) THQ/Jakks may declare and make distributions to Jakks Pacific as required by the terms of the THQ/Jakks Operating Agreement, (iii) any Subsidiary may declare and pay dividends, and declare and make other distributions, to the Borrower, (iv) the Borrower may distribute certificates evidencing, and may redeem, the "Rights" provided for in the Amended and Restated Rights Agreement dated as of August 22, 2001 between the Borrower and Computershare Investor Services, LLC, a Delaware limited liability company, as Rights Agent, on the terms provided in such Agreement as it exists on August 28, 2001 and (v) the Borrower may repurchase its common stock for an aggregate purchase price paid on or after September 10, 2002 of up to $25,000,000. (h) Maintenance of Ownership of Subsidiaries. The Borrower will not sell, encumber or otherwise dispose of any of its equity interests in any Significant Subsidiary or any warrants, rights or options to acquire such equity interests, or permit any Significant Subsidiary to issue, sell or otherwise dispose of any equity interests or any warrants, rights or options to acquire such equity interests, except to the Borrower. (i) Capital Expenditures. The Borrower will not make, or permit any Subsidiary to make, any expenditure for fixed or capital assets that would cause the aggregate of -35- all such expenditures by the Borrower and its Subsidiaries to exceed $14,000,000 for any fiscal year. (j) Maintenance of Ratio of Total Liabilities to Shareholders' Equity. The Borrower will not permit the ratio of (i) the consolidated total liabilities of the Borrower and its Subsidiaries to (ii) the consolidated shareholders' equity of the Borrower and its Subsidiaries to be more than 1.0 to 1.0 as of the end of any fiscal quarter. (k) Maintenance of Net Worth. The Borrower will not permit the consolidated net worth of it and its Subsidiaries as of the end of any fiscal year to be less than the sum of (i) $398,000,000 plus (ii) the greater of (A) 90% of any positive net income of the Borrower and its Subsidiaries on a consolidated basis for such fiscal year and (B) $15,000,000. (l) Maintenance of Quick Ratio. The Borrower will not permit the ratio of (i) the sum of consolidated cash, Cash Equivalents and accounts receivable of the Borrower and its Subsidiaries to (ii) the consolidated current liabilities of the Borrower and its Subsidiaries to be less than 1.0 to 1.0 as of the end of any fiscal quarter. (m) Operating Profit. The Borrower will not permit any fiscal quarter thereof to pass, commencing with the fiscal quarter ending on September 30, 2002, without the Borrower and its Subsidiaries, on a consolidated basis, making an Operating Profit of at least $1 for such fiscal quarter. (n) Cleanup Period. The Borrower will not permit any fiscal year to pass without there being a period of at least 60 consecutive days in such fiscal year during which the Borrower has no Advances outstanding. (o) Use of Advances and Letters of Credit. The Borrower will not use the proceeds of any Advance other than for seasonal working capital, and other general corporate purposes, of the Borrower and its Subsidiaries. The Borrower will not request, or permit THQI to request, the issuance of any Letter of Credit other than for the purchase of inventory from any Sony, Nintendo, Sega or Microsoft Affiliate or from any supplier of packaging. (p) Amendment, Etc. of Material Contracts. The Borrower will not, and will not permit any Subsidiary to, cancel or terminate any Material Contract or consent to or accept any cancellation or termination thereof. The Borrower will not, and will not permit any Subsidiary to, (a) amend or otherwise modify any Material Contract or give any consent, waiver or approval thereunder, (b) waive any default under, or breach of, any Material Contract, (c) agree in any manner to any other amendment, modification or change of any term or condition of any Material Contract or (d) take any other action in connection with any Material Contract, except in each case described in clause (a), (b), (c) or (d) above to the extent that doing so could not reasonably be expected to have a material and adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower or such Subsidiary, as the case may be. -36- (q) Change of Fiscal Year. The Borrower will not, and will not permit any Subsidiary to, change the last day of its fiscal year from December 31 to another date; provided, however, that the Borrower and its Subsidiaries shall be permitted to change their fiscal year-end to March 31, and in such case all of the covenants and other provisions of this Agreement containing references to a fiscal year shall be applied to such new fiscal year (on a full 12-month basis) when it first occurs and each time thereafter. ARTICLE 7. EVENTS OF DEFAULT Section 7.1 Events of Default. If any one or more of the following events (each an "Event of Default") occurs and is continuing: (a) the Borrower fails to pay any Obligation when due; (b) any representation or warranty made by the Borrower or any Subsidiary (or any of their respective officers) in or in connection with any Credit Document proves to have been incorrect in any material respect when made; (c) the Borrower fails to perform or observe any term, covenant or agreement in Section 6.1(a)(ix), 6.1(d), 6.1(e) or 6.2 hereof or in Section 4, 5, 8(a), 9(a) or 11 of the Security Agreement on its part to be performed or observed; or the Borrower fails to perform or observe any other term, covenant or agreement of any Credit Document on its part to be performed or observed, and the same is not remedied within 30 days after written notice thereof has been given to the Borrower by the Agent; (d) the Borrower or any Subsidiary fails to pay any principal of any Debt thereof outstanding in a principal amount of at least $5,000,000 in the aggregate (excluding the Obligations), or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure continues after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; any other event occurs or condition exists under any agreement or instrument relating to any such Debt and continues after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt is declared to be due and payable, or is required to be prepaid, redeemed, purchased or defeased (other than by a regularly scheduled required prepayment, redemption, purchase or defeasance), or an offer to prepay, redeem, purchase or defease such Debt is required to be made, in each case before the stated maturity thereof; (e) the Borrower or any Subsidiary generally does not pay its debts as such debts become due, admits in writing its inability to pay its debts generally or makes a general assignment for the benefit of creditors; any proceeding is instituted by or against the Borrower or any Subsidiary seeking to adjudicate it a bankrupt or insolvent, seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or seeking the -37- entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property; or the Borrower or any Subsidiary takes any corporate or equivalent action to authorize any of the actions set forth above in this Section 7.1(e); (f) any single judgment or order for the payment of money in excess of $5,000,000 is rendered against the Borrower or any Subsidiary, or two or more judgments or orders for the payment of money in excess of $5,000,000 are rendered against the Borrower or any Subsidiary, and either (i) enforcement proceedings are commenced by any creditor upon such judgment(s) or order(s) or (ii) there is any period of 30 consecutive days during which a stay of enforcement of such judgment(s) or order(s), by reason of a pending appeal or otherwise, is not in effect, unless such judgment or order has been vacated, satisfied, dismissed, or bonded pending appeal; (g) any provision of any Credit Document for any reason ceases to be valid and binding on or enforceable against, in any material respect, any Credit Party that is a party thereto, or such Credit Party so states in writing; or (h) for any reason except to the extent permitted by the terms of the Security Agreement, there ceases to be a valid and perfected first-priority security interest in favor of the Agent in any of the Collateral purported to be covered by the Security Agreement; then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the obligation of each Lender to make Advances, and the obligation of the Issuing Bank to issue Letters of Credit, to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Obligations, all interest thereon and all other amounts payable under this Agreement and the other Credit Documents to be forthwith due and payable, whereupon (A) the Obligations, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower, and (B) to the extent any Letters of Credit are then outstanding, the Borrower will deposit with and pledge to the Agent cash collateral in the aggregate Letter of Credit Amount of such Letters of Credit; provided, however, that, in the event of an actual or deemed entry of an order for relief with respect to the Borrower or any Subsidiary under the United States Bankruptcy Code, (x) the obligation of each Lender to make Advances and of the Issuing Bank to issue Letters of Credit shall be terminated automatically, and (y) the Advances, all such interest and all such amounts (including such cash collateral) shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE 8. THE AGENT Section 8.1 Authorization and Action. Each Lender hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this -38- Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by the Credit Documents (including enforcement of and collection under the Credit Documents), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to the Credit Documents or applicable law. Section 8.2 Agent's Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Credit Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent (a) may treat any Lender that has signed this Agreement or an Assignment and Acceptance as the holder of the applicable portion of the Obligations; (b) may consult with legal counsel (including legal counsel for any Credit Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such legal counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with the Credit Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Credit Document on the part of any Credit Party or to inspect the property (including the books and records) of any Credit Party; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Credit Document or any other instrument or document furnished pursuant thereto; and (f) shall incur no liability under or in respect of any Credit Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier or otherwise) believed by it to be genuine and signed or sent by the proper party or parties. Section 8.3 UBOC and Affiliates. With respect to its Commitment, the Advances made by it, the Note issued to it and the Letters of Credit participated in by it, UBOC shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include UBOC in its individual capacity (including in its capacity as Issuing Bank). UBOC and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, any Credit Party, any Subsidiary and any Person that may do business with or own securities of any Credit Party or any Subsidiary, all as if UBOC were not the Agent and without any duty to account therefor to the Lenders. Section 8.4 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance on the Agent or any other Lender and based on the financial statements referred to in Section 5.5 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance on the Agent or any other -39- Lender and based on such documents and information as it deems appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. Section 8.5 Indemnification. The Lenders agree to indemnify the Agent (to the extent not promptly reimbursed by the Borrower), ratably according to the respective principal amounts of the Obligations then held by each of them (or, if no Obligations are at the time outstanding or if any Obligations are then held by Persons that are not Lenders, ratably according to the respective amounts of their Commitments), from and against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of any of the Credit Documents or any action taken or omitted by the Agent under any of the Credit Documents; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any costs and expenses payable by the Borrower under Section 9.4, to the extent that the Agent is not promptly reimbursed for such costs and expenses by the Borrower. Section 8.6 Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause with the written approval of the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent. If no successor Agent has been so appointed by the Required Lenders, and has accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or of any state thereof and having a combined capital and surplus of at least $1,000,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Credit Documents. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article 8 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was agent under this Agreement. Section 8.7 Agent as Collateral Holder. (a) Except for action expressly required of the Agent hereunder or under any other Credit Document as holder of any Collateral, the Agent shall in all cases be fully justified in refusing to act hereunder and thereunder unless it is further indemnified to its satisfaction by the Lenders, proportionately in accordance with the Obligations then due and payable to each of them, against all liability and expense that may be incurred by the Agent by reason of taking or continuing to take any such action. -40- (b) Except as expressly provided herein or in any other Credit Document, the Agent shall have no duty to take any affirmative steps with respect to the collection of amounts payable in respect of the Collateral. The Agent shall incur no liability as a result of any private sale of the Collateral. (c) The Lenders hereby consent, and agree upon written request by the Agent to execute and deliver such instruments and other documents as the Agent may deem desirable to confirm such consent, to the release of the Liens on the Collateral, including any release in connection with any sale, transfer or other disposition of the Collateral or any part thereof, in accordance with the Credit Documents. (d) The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that the Agent accords its own property, it being understood that neither the Agent nor any Lender shall have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Agent or any Lender is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Collateral. Section 8.8 Lenders' Responsibilities. (a) Each Lender represents and warrants to the Agent as follows: (i) such Lender is entitled to receive any payments under this Agreement without the withholding of any tax; (ii) if such Lender is not organized under the laws of the United States of America or a state thereof but is lawfully engaged in the conduct of a trade or business in the United States of America, payments to such Lender under this Agreement are, or are reasonably expected to be, effectively connected with the conduct of such trade or business and are or will be includable in such Lender's gross income; and (iii) if such Lender is not engaged in a trade or business in the United States of America to which payments to such Lender under this Agreement are, or are reasonably expected to be, effectively connected, such Lender is entitled to the benefits of a tax convention that exempts income earned by such Lender in respect of this Agreement from United States withholding tax, and such Lender has satisfied all requirements to qualify for such exemption. Each Lender will reimburse and indemnify the Agent for, and hold the Agent harmless from and against, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever that may be imposed upon, incurred by or asserted against Agent due to its reliance upon the representations of such Lender contained in this section. Unless the Agent receives written notice to the contrary, each Lender shall be deemed to have made the representations contained in this section for the current and each subsequent tax year of such Lender. (b) Each Lender will promptly furnish to the Agent such forms, certifications, statements and other documents as the Agent may reasonably request from time to time to evidence such Lender's exemption from withholding of any tax imposed by any jurisdiction in respect of payments hereunder or to enable the Agent to comply with any applicable Governmental Rules relating thereto. Each Lender agrees that it will, immediately upon request by the Agent, furnish to the Agent such forms of the Internal Revenue Service, or such other forms, certifications, statements and documents, duly executed and completed by such Lender, as -41- required to evidence such Lender's exemption from the withholding of U.S. tax with respect to payments hereunder. If any Lender determines that, as a result of any change in any applicable Governmental Rule or in any application or interpretation thereof by any Governmental Person charged with the administration thereof, it ceases to qualify for exemption from any tax imposed by any jurisdiction with respect to payments hereunder, such Lender will promptly notify the Agent of such fact, and the Agent may, but shall not be obligated to, withhold the amount of any such applicable tax from amounts payable to such Lender hereunder. The Agent shall not be obligated to make any payment to any Lender hereunder, and the Agent may withhold the amount of any applicable tax from amounts payable to such Lender hereunder, until such Lender has furnished to the Agent each form, certification, statement and document required to be delivered by such Lender to the Agent in accordance with this section. ARTICLE 9. MISCELLANEOUS Section 9.1 Amendments, Etc. No amendment or waiver of any provision of this Agreement, or consent to any departure by the Borrower therefrom, shall be effective unless in writing and signed or consented to (in writing) by the Required Lenders and, in the case of amendments, the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed or consented to (in writing) by all of the Lenders, do any of the following: (a) waive any of the conditions specified in Article 4; (b) increase the Commitments of the Lenders or subject the Lenders to any additional obligations; (c) release any Collateral, except in accordance with the terms of the Credit Documents; (d) reduce the principal of, or interest on, the Advances or any fees or other amounts payable hereunder; (e) postpone any date fixed for (i) payment of principal of, or interest on, the Advances, (ii) reimbursement of drawings under Letters of Credit or (iii) payment of fees or other amounts payable hereunder; (f) change the percentage of the Commitments or of the Obligations outstanding, or the number of Lenders, required for the Lenders or any of them to take any action hereunder; or (g) amend this Section 9.1; further provided, however, that no amendment, waiver or consent shall, unless in writing and signed or consented to (in writing) by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement or any other Credit Document. Section 9.2 Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including by telecopier) and shall be mailed, telecopied or delivered, if to the Borrower, to it at 27001 Agoura Road, Suite 325, Calabasas Hills, California 91301, telecopier number 818-871-7420, Attention: Fred Gysi, Senior Vice President, Finance & Administration; if to any Lender, to it at the address or telecopier number set forth below its name on the signature pages hereof or in the Assignment and Acceptance by which it became a party hereto; if to the Agent, to it at 445 South Figueroa Street, Los Angeles, California 90071, telecopier number 213-236-7637, Attention: John Kase, Vice President & Senior Credit Executive; or, as to each party, to it at such other address or telecopier number as designated by such party in a written notice to the other parties. All such notices and communications shall be deemed received, (a) if personally delivered, upon delivery, (b) if sent by first-class mail, on the -42- third Business Day following deposit into the mails and (c) if sent by telecopier, on the Business Day following such sending, except that notices and communications to the Agent pursuant to Article 2 or 8 shall not be effective until received by the Agent. Section 9.3 No Waiver; Remedies. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, and no single or partial exercise of any such right shall preclude any other or further exercise thereof or the exercise of any other right. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. Section 9.4 Costs and Expenses. The Borrower agrees to pay on demand (a) all costs and expenses of the Agent in connection with the preparation, execution, delivery, administration, modification and amendment of this Agreement, the other Credit Documents and the other documents to be delivered hereunder, including (i) the reasonable fees and out-of-pocket expenses of legal counsel for the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities, or the perfection, protection or reservation of rights or interests, under this Agreement, the other Credit Documents and such other documents to be delivered hereunder, and (ii) the fees and expenses of any consultants, auditors or accountants engaged by the Agent pursuant hereto (including for Asset Based Audits), and (b) all costs and expenses of the Agent and the Lenders (including reasonable attorneys' fees and expenses of the Agent and the Lenders) in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement, the other Credit Documents and the other documents to be delivered hereunder, whether in any action, suit or litigation, any bankruptcy, insolvency or similar proceeding or otherwise. Section 9.5 Indemnification. (a) The Borrower hereby agrees to indemnify and hold harmless the Agent and each Lender and each of their respective officers, directors, employees, agents, advisors and Affiliates (each an "Indemnified Person") from and against all claims, damages, losses, liabilities, costs and expenses (including reasonable attorneys' fees and expenses, whether or not such Indemnified Person is named as a party to any proceeding or is otherwise subjected to judicial or legal process arising from any such proceeding) that any of them may incur, or that may be claimed, asserted or awarded against any of them by any Person, in each case arising out of, related to or in connection with, or in connection with the preparation for a defense of any investigation, litigation or proceeding arising out of, related to or in connection with, any Credit Document, any Advance, any Letter of Credit or the consummation of any transaction contemplated hereby or thereby, the transfer of or payment or failure to pay under any Letter of Credit or the use by the Borrower or the beneficiary of any Letter of Credit of the proceeds of any Advance or of any drawing under any Letter of Credit, except to the extent that any such claim, damage, loss, liability, cost or expense is found in a final, nonappealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Person's gross negligence or willful misconduct. (b) The Borrower hereby agrees to indemnify each Indemnified Person from and against any and all claims, demands, actions, damages (including all foreseeable and -43- unforeseeable consequential damages), losses, assessments, liabilities and expenses (including reasonable fees and expenses of counsel) that may be incurred by or awarded against any Indemnified Person, in each case arising out of or in connection with or by reason of, or in connection with the preparation for a defense of, any investigation, litigation or proceeding arising out of, related to or in connection with (i) the actual or alleged presence of any Hazardous Material in, on or under (A) any property owned or operated by the Borrower or any Subsidiary, (B) any property to which any Hazardous Material has migrated from any property owned or operated by the Borrower or any Subsidiary or (C) any property at which the Borrower or any Subsidiary thereof has disposed of any Hazardous Material (whether or not legal at the time of such disposal) or (ii) any Environmental Proceeding relating in any way to the Borrower or any Subsidiary thereof, in any case whether or not such investigation, litigation or proceeding is brought by the Borrower, any Subsidiary thereof, any of their respective directors, shareholders or creditors or an Indemnified Person, whether or not any Indemnified Person is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. Section 9.6 Right of Setoff. Upon (a) the occurrence and during the continuation of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 7.1 to authorize the Agent to declare the Obligations due and payable pursuant to the provisions of Section 7.1, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any or all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any or all of the obligations of the Borrower now or hereafter existing under this Agreement and the other Credit Documents, irrespective of whether such Lender has made any demand under this Agreement or any such other Credit Document and although such obligations may be unmatured. Each Lender agrees to notify the Borrower promptly after any such setoff and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this section are in addition to other rights and remedies (including other rights of setoff) that such Lender may have. Section 9.7 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Borrower, the Agent and the Lenders and their respective successors and assigns, except that (a) the Borrower shall not have the right to assign any of its rights and obligations hereunder without the prior written consent of the Required Lenders and (b) the Lenders shall have the right to assign their respective rights and obligations hereunder only in accordance with Section 9.8. Section 9.8 Assignments and Participations. (a) Each Lender may assign to one or more banks or other entities acceptable to the Agent, in the exercise of its reasonable discretion, all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment, the Advances owing to it and its participations in outstanding Letters of Credit); provided, however, that (i) each such assignment shall be subject to the prior written approval of the Borrower (unless a Default has occurred and is continuing), which approval shall not be unreasonably withheld or delayed, (ii) except in the case of an assignment to a Person that, immediately before such -44- assignment, was a Lender, the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than the lesser of (A) the entire Commitment of such Lender at such time and (B) $5,000,000 and (iii) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with a processing and recording fee of $3,500. Upon such execution, delivery, acceptance and recording (and subject to such approval), from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least 5 Business Days after the date of delivery thereof to the Agent or, if so specified in such Assignment and Acceptance, the date of acceptance thereof by the Agent, (i) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender hereunder and (ii) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto, except that such Lender shall continue to be an "Indemnified Person" under Section 9.5). (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statement, warranty or representation made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Credit Party or any Subsidiary or the performance or observance by any Credit Party of any of its obligations under any Credit Document or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 5.5 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it may deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Documents are required to be performed by it as a Lender. (c) The Agent shall maintain at its address set forth in Section 9.2 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and the principal -45- amount of Obligations owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee, the Agent shall, if such Assignment and Acceptance has been completed and is in proper form and if such assignee is acceptable to the Agent, in the exercise of its reasonable discretion, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. (e) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments, the Advances owing to it and its participations in outstanding Letters of Credit); provided, however, that (i) such Lender's obligations under this Agreement (including its Commitment) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (iv) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Credit Document, or any consent to any departure by any Credit Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Advances, the amount to be reimbursed in respect of any drawing under a Letter of Credit or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the Advances, the amount to be reimbursed in respect of any drawing under a Letter of Credit or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or release all or substantially all of the Collateral, except as provided in the Credit Documents. (f) Any Lender may, in connection with any assignment or participation or proposed assigned or participation pursuant to this Section 9.8, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrower that was furnished to such Lender by or on behalf of the Borrower. Section 9.9 Governing Law. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THE STATE OF CALIFORNIA. Section 9.10 Headings. The section and subsection headings used herein have been inserted for convenience of reference only and do not constitute matters to be considered in interpreting this Agreement. -46- Section 9.11 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Section 9.12 Reference to and Effect on Credit Documents. (a) This Agreement is an amendment and restatement of the Old Credit Agreement. On and after the effective date of this Agreement, each reference in those Credit Documents in effect before the Closing Date and continuing in effect after the Closing Date to "the Credit Agreement," "thereunder," "thereof," "therein" or any other expression of like import referring to the Old Credit Agreement shall mean and be a reference to this Agreement. (b) The Credit Documents in effect before the Closing Date (except to the extent amended and restated or otherwise replaced pursuant to the terms of this Agreement) shall remain in full force and effect and are hereby ratified and confirmed. Without limiting the generality of the foregoing, the Security Agreement and all of the Collateral described therein do and shall continue to secure the payment of all obligations of the Borrower under the Credit Documents, either in their original form or as amended and restated or otherwise replaced pursuant to the terms hereof. (c) The execution, delivery and effectiveness of this Agreement shall not operate as a waiver of any right, power or remedy of the Agent or any Lender under any of the Credit Documents or constitute a waiver of any provision of any of the Credit Documents. -47- Section 9.13 Waiver of Jury Trial. THE BORROWER, THE LENDERS AND THE AGENT HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY OF THE CREDIT DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY. THQ INC. By: /s/ Fred Gysi ------------------------------- Fred Gysi Senior Vice President, Finance & Administration Commitment of Lender $35,000,000 UNION BANK OF CALIFORNIA, N.A., as Administrative Agent, Syndication Agent, Arranger and Lender By: /s/ John Kase -------------------------------- John Kase Vice President & Senior Credit Executive Union Bank of California, N.A. 445 South Figueroa Street Los Angeles, California 90071 Telecopier: 213-236-7637 Attention: John Kase S-1 SCHEDULE 1 FACILITY AMOUNT AND ADVANCE SUBLIMIT I. Facility Amount
Month Amount --------------- ----------- August 2002 $20,000,000 September 2002 $35,000,000 October 2002 $35,000,000 November 2002 $35,000,000 December 2002 $35,000,000 January 2003 $35,000,000 February 2003 $20,000,000 March 2003 $20,000,000 April 2003 $20,000,000 May 2003 $20,000,000 June 2003 $20,000,000 July 2003 $20,000,000 August 2003 $20,000,000 September 2003 $35,000,000 October 2003 $35,000,000 November 2003 $35,000,000 December 2003 $35,000,000 January 2004 $35,000,000 February 2004 $20,000,000 March 2004 $20,000,000 April 2004 $20,000,000 May 2004 $20,000,000 June 2004 $20,000,000 July 2004 $20,000,000 August 2004 $20,000,000
II. Advance Sublimit
Month Amount -------------- ----------- August 2002 $10,000,000 September 2002 $10,000,000 October 2002 $10,000,000 November 2002 $20,000,000 December 2002 $20,000,000 January 2003 $20,000,000 February 2003 $10,000,000 March 2003 $10,000,000 April 2003 $10,000,000 May 2003 $10,000,000 June 2003 $10,000,000 July 2003 $10,000,000 August 2003 $10,000,000 September 2003 $10,000,000 October 2003 $10,000,000 November 2003 $20,000,000 December 2003 $20,000,000 January 2004 $20,000,000 February 2004 $10,000,000 March 2004 $10,000,000 April 2004 $10,000,000 May 2004 $10,000,000 June 2004 $10,000,000 July 2004 $10,000,000 August 2004 $10,000,000
SCHEDULE 2 SUBSIDIARIES
Jurisdiction of Direct Percentage Subsidiary Organization Owner Ownership - ---------- --------------- -------- ----------- Black Pearl Software, THQ Inc. 100% Inc. (in dissolution) Illinois GameFx, Inc. Delaware THQ Inc. 100% (in dissolution) Genetic Anomalies, Inc. Delaware THQ Inc. 100% Pacific Coast Power THQ Inc. 100% and Light Company California Volition, Inc. Delaware THQ Inc. 100% T.HQ Deutschland THQ Inc. 100% GmbH (in liquidation) Germany THQ (Holdings) Ltd. England THQ Inc. 100% T.HQ International, THQ Inc. 100% Ltd. England THQ/Jakks Pacific, THQ Inc. 50% LLC Delaware THQ Entertainment THQ Holdings 100% GmbH Germany THQ Asia Pacific Pty THQ Holdings 100% Ltd. Australia THQ France France THQ Holdings 100% Softgold Computerspiele Germany THQ Entertainment 100% GmbH GmbH

ABC Spielspass GmbH Germany THQ Entertainment 100% GmbH Rainbow Multimedia Arizona THQ Inc. 100% Group, Inc.
EX-10.3 5 a85823exv10w3.txt EXHIBIT 10.3 EXHIBIT 10.3 September 27, 2002 Union Bank of California, N.A., as Agent and Lender 445 South Figueroa Street Los Angeles, California 90071 Attention: John Kase Re: Second Amendment to Security Agreement Ladies and Gentlemen: We refer to the Security Agreement dated as of August 31, 2000, as amended by the Seventh Amendment to Revolving Credit Agreement and First Amendment to Security Agreement dated as of January 8, 2002 (said Agreement, as so amended, herein called the "Security Agreement"), made by THQ Inc. (the "Borrower") in favor of Union Bank of California, N.A. ("UBOC"), as administrative agent (in such capacity, the "Agent") for the lenders party from time to time (the "Lenders") to the Credit Agreement (as defined below). In connection herewith, the Borrower, UBOC, as sole Lender, and the Agent are entering into an Amended and Restated Revolving Credit Agreement dated as of September 27, 2002 (the "Credit Agreement"). It is a condition precedent to the Credit Agreement that the Borrower shall have executed and delivered this letter amendment. Terms defined in the Credit Agreement and not otherwise defined herein have the same respective meanings when used herein, and the rules of interpretation set forth in Sections 1.2 and 1.3 of the Credit Agreement are incorporated herein by reference. 1. Effective as of the date of this letter amendment but subject to the terms and conditions hereof, the Borrower, the Lenders and the Agent hereby agree that the Security Agreement is amended as set forth below. (a) Section 4 of the Security Agreement is amended by (i) inserting the parenthetical "(other than any securities accounts and the security entitlements held therein)" immediately after the words "investment property" in the second line of that section and (ii) inserting the words "not held in a securities account" immediately after the words "security entitlement" in clause (d) of that section. (b) Section 5(b) of the Security Agreement is amended by adding the parenthetical "(as defined in Schedule 2)" after the words "Sweep Account" where they first appear in that section. (c) Section 6(f) of the Security Agreement is amended in full to read as follows: Union Bank of California, N.A., as Agent and Lender September 27, 2002 Page 2 "(f) Valid and Perfected First-Priority Security Interest; Control. This Agreement and the UCC-1 financing statement filed against the Borrower in the State of Delaware create a valid and perfected first-priority security interest in the Collateral (other than in any securities accounts owned by the Borrower and the security entitlements held therein). All filings and other actions necessary or desirable to perfect and protect such security interest have been duly made or taken (other than obtaining control over any securities accounts owned by the Borrower and the security entitlements held therein)." (d) Section 8(a) of the Security Agreement is amended in full to read as follows: "(a) The Borrower will keep the Equipment and Inventory (other than Inventory sold in the ordinary course of business) at the places therefor specified in Section 6(a) or at such other place(s) as to which the Borrower has given the Agent at least 30 days' prior written notice." (e) Section 9(a) of the Security Agreement is amended in full to read as follows: "(a) The Borrower will keep its legal name, type of legal entity, jurisdiction of organization and state organizational identification number as they were on August 12, 2002. The Borrower will keep the office where it maintains its records concerning the Collateral and all originals of all chattel paper that evidence Receivables at the location therefor specified in Section 6(a) or at such other location as to which the Borrower has given the Agent at least 30 days' prior written notice. The Borrower will hold and preserve such records and chattel paper and will permit representatives of the Agent at any time during normal business hours, upon reasonable prior notice, to inspect, copy and make abstracts from such records and chattel paper." 2. The Borrower hereby represents and warrants for the benefit of the Lenders and the Agent that (a) the representations and warranties contained in the Credit Documents are correct in all material respects on and as of the date of this letter amendment, before and after giving effect to the same, as if made on and as of such date, and (b) no event has occurred and is continuing, or would result from the effectiveness of this letter amendment, that constitutes a Default. 3. On and after the effective date of this letter amendment, each reference in the Security Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import referring to the Security Agreement, and each reference in the other Credit Documents to Union Bank of California, N.A., as Agent and Lender September 27, 2002 Page 3 "the Security Agreement," "thereunder," "thereof," "therein" or words of like import referring to the Security Agreement, shall mean and be a reference to the Security Agreement as amended by this letter amendment. The Security Agreement, as amended by this letter amendment, is and shall continue to be in full force and effect and is hereby ratified and confirmed in all respects. The execution, delivery and effectiveness of this letter amendment shall not operate as a waiver of any right, power or remedy of the Agent or any Lender under any of the Credit Documents or constitute a waiver of any provision of any of the Credit Documents. 5. This letter amendment may be executed in any number of counterparts and by any combination of the parties hereto in separate counterparts, each of which counterparts shall be an original and all of which taken together shall constitute one and the same letter amendment. 6. THIS LETTER AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REFERENCE TO THE CHOICE-OF-LAW PRINCIPLES THEREOF. Very truly yours, THQ INC. By: /s/ Fred Gysi ------------------------------- Fred Gysi Senior Vice President, Finance & Administration Agreed as of the date first written above: UNION BANK OF CALIFORNIA, N.A., as Agent and Lender By: /s/ John Kase ------------------------------- John Kase Vice President & Senior Credit Executive EX-10.4 6 a85823exv10w4.txt EXHIBIT 10.4 EXHIBIT 10.4 ALL SECTIONS MARKED WITH ASTERISKS REFLECT PORTIONS WHICH HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY THQ INC. AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT. CONFIDENTIAL LICENSE AGREEMENT FOR GAME BOY, GAME BOY COLOR AND GAME BOY POCKET HANDHELD VIDEO GAME SYSTEMS (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: 425-882-3585) ("NINTENDO") and THQ INC., a Delaware Corporation with an address for notice purposes of 5016 N. Parkway Calabasas, Suite 100, Calabasas, CA 91302 (Fax: 818-224-3841), Attention: President ("LICENSEE"). NINTENDO and LICENSEE acknowledge and agree as follows: 1. RECITALS 1.1 NINTENDO markets and sells high-quality video game systems, including without limitation hardware and software, marketed by NINTENDO under its trademarks "Game Boy(R)", "Game Boy(R) pocket" and "Game Boy(R) Color" for playing video games. 1.2 LICENSEE desires to gain access to and a license to use highly proprietary programming specifications, development tools, trademarks and other valuable intellectual property rights owned by NINTENDO, in order to develop video game software and to purchase such video game software from NINTENDO for play on the Game Boy Systems, which systems were developed by NCL (as defined below). 1.3 NINTENDO is willing to grant to LICENSEE a license to use 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 (as defined below) including the Game box, user instruction manual with consumer precautions and warranty, game cartridge label and inserts. 2.2 "Effective Date" shall mean the last date on which all parties shall have signed this Agreement. 2.3 "Game Boy Systems" shall mean individually, collectively or in any combination the 8-bit monochrome Game Boy and Game Boy pocket handheld video game systems and the 8-bit Game Boy Color handheld video game system. 2.4 "Game(s)" shall mean video game software compatible with the Game Boy Systems developed under this Agreement. 2.5 "Guidelines" shall mean the "Game Boy Systems Packaging Guidelines" and the "Game Boy Systems Development Manual" setting forth trademark, copyright and related artwork standards, as provided by NINTENDO. 2.6 "Independent Contractor" shall mean any third party agent, consultant, contractor or independent programmer, other than LICENSEE. GAME BOY COLOR LICENSE AGREEMENT PAGE 1 2.7 "Licensed Copyright(s)" shall mean various copyrights in printed materials, art or logo designs, computer software, electronic circuitry and rights in integrated circuit layout designs employed in the Game Boy Systems. 2.8 "Licensed Intellectual Properties" shall mean individually, collectively or in any combination, the Licensed Inventions, Licensed Proprietary Information, Licensed Copyrights and Licensed Trademarks. 2.9 "Licensed Invention(s)" shall mean improvements and inventions concerning the Game Boy Systems, including inventions which are or may become the subject matter of various patents or patent applications. 2.10 "Licensed Product(s)" shall mean interchangeable plastic cartridges adapted for use with the Game Boy Systems, housing the Game embodied in electronic memory devices (or comparable medium authorized by NINTENDO) and using the Licensed Intellectual Properties. 2.11 "Licensed Proprietary Information" shall mean any of the following information relating to the Game Boy Systems: (a) all current or future information, know-how, techniques, methods, information, tools, emulator hardware or software, software development specifications, and/or trade secrets, (b) any information or patent applications, (c) any business, marketing or sales data or 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, 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 above listed 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. 2.12 "Licensed Trademarks" shall mean registered and unregistered trademarks and trademark applications used in connection with the Game Boy Systems including, but no limited to, "Nintendo(R)", "Game Boy(R)", "Game Boy(R) Color", Game Boy(R)pocket, "Official Nintendo Seal of Quality" and trade dress in the Game Boy Systems. 2.13 "Marketing Materials" shall mean marketing, advertising or promotional materials which incorporate the Licensed Intellectual Properties and which are developed by or for LICENSEE to promote the sale of the Licensed Products. 2.14 "NCL" shall mean NINTENDO's parent company, Nintendo Co., Ltd. of Kyoto, Japan. 2.15 "Product Sample" shall mean a sample of the Game for Game Boy Color as defined in Section 5.2. 2.16 "Other Agreement" shall mean that certain Product Developer Non-Disclosure Agreement for Game Boy and Game Boy Color entered into between NINTENDO and LICENSEE with an effective date PAGE 2 of March 17, 1998. 2.17 "Schedule 1" shall mean the "Nintendo of America Inc. Price Schedule for the Game Boy Licensed Game Paks" attached to this Agreement and incorporated by reference into this Agreement. 2.18 "Schedule 2" shall mean the "Nintendo of America Inc. Price Schedule for the Game Boy Color Licensed Game Paks" attached to this Agreement and incorporated by reference into this Agreement. 2.19 "Term" shall mean three (3) years from the Effective Date. 2.20 "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 develop the Licensed Products. Except as may be permitted under a separate written authorization from NINTENDO or NCL, 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's and NCL'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. This agreement does not grant LICENSEE any ownership interest in the Licensed Intellectual Properties, and LICENSEE's use of the Licensed Intellectual Properties shall not create any right, title or interest therein in LICENSEE's favor beyond the license granted herein. 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 Game Boy Systems and the Licensed Proprietary Information solely for the purpose of developing software which is compatible with the Game Boy Systems 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 Game Boy Systems, including the hardware, software 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; and/or (b) the disassembly, decompilation, decryption, or simulation of object code or executable code, specifically including, but not limited to, any NINTENDO supplied or developed libraries. The limitations set forth in this Section 3.4 shall not preclude 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 PAGE 3 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. During the Term, NINTENDO may 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 Game Boy Systems. 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. 5. DEVELOPMENT; QUALITY STANDARDS; ARTWORK; MANUFACTURING 5.1 Development and Sale of the Game Boy Systems Programs. During the Term and for the Territory, LICENSEE may develop Games and/or sell Licensed Products for the Game Boy Systems in accordance with this Agreement. 5.2 Submission of Product Sample (Game Boy Color Only). Prior to a Game Boy Color Game reaching fifty percent (50%) completion, LICENSEE shall submit to NINTENDO for approval a Product Sample. Such Product Sample must include a demonstration of the manner in which such Game Boy Color dedicated or compatible Game will utilize and exploit the following color criteria: (a) differentiation from monochrome Game Boy software (each Game Boy Color Game must appear significantly more colorful than monochrome Game Boy software when "colorized" by the Game Boy Color hardware); (b) simultaneous colors; (c) appropriate use of color; (d) variety of colors, and (e) contrast and saturation. For the purpose of demonstrating these criteria, the Product Sample shall be either a programmed demo or various ROM images. In addition to these criteria, for Games which have been previously released for the Game Boy monochrome system, LICENSEE must provide a demonstration of the game-play enhancements which have been added to the Game which may include any of the following: (i) additional stages, levels or areas; (ii) new characters; and/or (iii) game-play based on color. Subsequent to acceptance and approval of a Product Sample, LICENSEE shall notify NINTENDO in writing of any material proposed changes in the Product Sample and/or the proposed Licensed Product. No submission samples are required for Games exclusively for play on Game Boy and Game Boy pocket systems. PAGE 4 5.3 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 Game Boy Systems; (b) the suitability of the Game content, taking into account reasonable standards set forth in the Guidelines; and, if applicable, (c) whether the Game achieves the criteria as set forth in Section 5.2 at 50% completion and upon final completion. 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, and that the Game meets the content criteria set forth in NINTENDO's content guidelines. 5.4 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. 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. 5.5 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. NINTENDO shall not unreasonably withhold or delay its approval of any Artwork. 5.6 Appointment of NCL as Manufacturer. LICENSEE hereby appoints NCL, and NINTENDO confirms that NCL accepts such 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. 5.7 Manufacture of Licensed Products. Upon approval of a Game and the Artwork and upon receipt from LICENSEE of an order in accordance with Section 6 herein, NCL will manufacture the Licensed Products for LICENSEE, including the Artwork. 5.8 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. [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 5 6.2 Subsequent Minimum Orders. LICENSEE may subsequently order additional Licensed Product in a minimum quantity of ***** of a Licensed Product. 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 schedules currently set forth in the attached Schedules 1 & 2. 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 and/or Schedule 2 are 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 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 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 Licensed Products. 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, [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 6 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 holder(s) of the copyrightable elements employed 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), Nintendo Power Source(TM) (NINTENDO's on-line version of Nintendo Power(R)) or other media or marketing programs which promote NINTENDO products; and (c) exercise public performance rights of the Licensed Product and use the related trademarks and art in NINTENDO sponsored contests, tours and events which generally promote NINTENDO products, provided that no other third party approvals are required. 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, Artwork and other intellectual property rights used on or in association with the Licensed Products; or (b) the holder of sufficient rights to the trademarks, copyrights, Artwork and other intellectual property rights 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 and NCL harmless from any claims, losses, liabilities, damages, expenses and costs, including, without limitation, reasonable 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, (including, but not limited to, any claim relating to marketing, advertising and/or sale of the Licensed Product), excluding claims based solely upon NINTENDO's Licensed Intellectual Properties; 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 by a recognized insurance company. Such policy of insurance shall be in an amount of not less than **** on a per occurrence basis and shall provide for adequate protection against any suits, claims, loss or damage or any alleged intellectual property infringements by the Licensed Products. Such policy shall name NINTENDO as an additional insured and may not be canceled without thirty (30) days prior written notice to NINTENDO. A Certificate of Insurance 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 Regarding Licensed Intellectual Properties. NINTENDO makes no [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 7 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 **** 10. INFRINGEMENT OF LICENSED INTELLECTUAL PROPERTIES AND LICENSEE'S TRADEMARKS AND COPYRIGHTS 10.1 Reporting. In the event any claim is asserted against LICENSEE alleging that any of the Licensed Intellectual Properties constitute an infringement of another's rights or if a claim is asserted against NINTENDO alleging that the Licensed Products infringe the rights of 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 employed 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 content in a Licensed Product 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 receipt of written notice thereof, then this Agreement shall automatically terminate on the date specified in such notice. 11.2 Bankruptcy/Insolvency. At NINTENDO's option, and for its own convenience, this Agreement can be terminated immediately and without notice in the event that LICENSEE: (a) makes an assignment for the benefit of creditors; (b) becomes insolvent; (c) files a voluntary petition for bankruptcy; (d) acquiesces to [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 8 any involuntary bankruptcy petition; (e) is adjudicated as a bankrupt; or (f) ceases to do business. 11.3 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 **** 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 and proof of such destruction shall be delivered to NINTENDO certified by an officer of LICENSEE. 11.4 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 and proof of such destruction shall be delivered to NINTENDO certified by an officer of LICENSEE. 11.5 Licensed Intellectual Property Rights. Upon expiration and/or termination of this Agreement, LICENSEE will cease all use of the Licensed Intellectual Properties for any purpose, and Sections 4.2 and 4.3 of this Agreement, pertaining to LICENSEE's obligation to not disclose to third parties any Licensed Proprietary Information shall survive the termination of this Agreement. 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 information. 11.6 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 ten percent (10%) 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 [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 9 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 or any appeal therefrom. 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; 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. 12.9 Time is of the Essence. Time is of the essence with regard to this Agreement and the performance of the parties' obligations hereunder. IN WITNESS WHEREOF, NINTENDO and LICENSEE have entered into this Agreement on the dates set forth below. NINTENDO: LICENSEE: NINTENDO OF AMERICA INC. THQ INC. By: John Bauer By: Brian J. Farrell -------------------------------- -------------------------------- Its: Executive Vice President, Its: President Administration ------------------------------- Date: 3/9/99 Date: 3/3/99 ------------------------------ ------------------------------ PAGE 10 SCHEDULE 1 NINTENDO OF AMERICA INC. PRICE SCHEDULE GAME BOY LICENSED GAME PAKS **** [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 11 **** SCHEDULE 2 NINTENDO OF AMERICA INC. PRICE SCHEDULE GAME BOY COLOR LICENSED GAME PAKS **** [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 12 EX-10.5 7 a85823exv10w5.txt EXHIBIT 10.5 EXHIBIT 10.5 FIRST AMENDMENT TO THE CONFIDENTIAL LICENSE AGREEMENT FOR GAME BOY, GAME BOY COLOR AND GAME BOY POCKET HANDHELD VIDEO GAME SYSTEMS THIS FIRST AMENDMENT ("First Amendment") amends that certain Confidential License Agreement for Nintendo Game Boy, Game Boy Color and Game Boy Pocket Handheld Video Game Systems dated March 9, 1999 between Nintendo of America Inc. ("Nintendo") and THQ Inc. ("Licensee") ("Original Agreement"). RECITALS The Original Agreement expires on March 8, 2002, and the parties desire to extend the Term of the Original Agreement for an additional two (2) years. The definitions in the Original Agreement are incorporated by reference into this First Amendment and shall be deemed to have the same meanings and those ascribed to them in the Original Agreement unless otherwise set forth herein. NOW, THEREFORE, the parties agree as follows: 1. The definition of "Term" as set forth in Section 2.19 of the Original Agreement is hereby deleted in its entirety and replaced with the following: "'Term' shall mean five (5) years from the Effective Date." 2. All other terms and conditions of the Original Agreement shall remain in full force and effect. This First Amendment may be signed in counterparts and by facsimile, which together shall constitute one original First Amendment. This First Amendment shall be effective as of March 8, 2002. IN WITNESS WHEREOF, the parties have entered into this First Amendment. NINTENDO: LICENSEE: Nintendo of America Inc. THQ Inc. By: /S/ JOHN BAUER By: /s/ BRIAN J. FARRELL ------------------------------- -------------------------------- JOHN BAUER Its: Evp; Administration Its: Pres & CEO ------------------------------ ------------------------------ Date: 02/27/02 Date: 2-25-02 ----------------------------- ----------------------------- EX-10.6 8 a85823exv10w6.txt EXHIBIT 10.6 ALL SECTIONS MARKED WITH ASTERISKS REFLECT PORTIONS WHICH HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY THQ INC. AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT. EXHIBIT 10.6 CONFIDENTIAL LICENSE AGREEMENT FOR GAME BOY ADVANCE (Western Hemisphere) THIS LICENSE AGREEMENT ("Agreement") is entered into between NINTENDO OF AMERICA INC. ("NOA"), at 4820 150th Avenue N.E., Redmond, WA 98052 Attn: General Counsel (Fax: 425-882-3585) and THQ Inc., ("LICENSEE") at 27001 Agoura Road, Suite 325, Calabasas Hills, CA 91301 Attn: Brian J. Farrell (Fax: (818) 871-7400). NOA and LICENSEE agree as follows: 1. RECITALS 1.1 NOA markets and sells advanced design, high-quality video game systems, including the GAME BOY(R) ADVANCE system. 1.2 LICENSEE desires a license to use highly proprietary programming specifications, development tools, trademarks and other valuable intellectual property rights of NOA and its parent company, Nintendo Co., Ltd. (collectively "Nintendo"), to develop, have developed (subject to Section 4.2 below), have manufactured, advertise, market and sell video game software for play on the GAME BOY ADVANCE system. 1.3 NOA is willing to grant a license to LICENSEE on the terms and conditions set forth in this Agreement. 2. DEFINITIONS 2.1 "Artwork" means the design specifications for the Game Cartridge label and Printed Materials in the format specified by NOA in the Guidelines. 2.2 "Development Tools" means the development kits, programming tools, emulators, and other materials that may be used in the development of Games under this Agreement. 2.3 "Effective Date" means the last date on which all parties shall have signed this Agreement. 2.4 "Finished Product(s)" means the fully assembled and shrink-wrapped Licensed Products, each including a Game Cartridge, Game Cartridge label and Printed Materials. 2.5 "Game Cartridges(s)" means custom cartridges specifically manufactured under the terms of this Agreement for play on the GAME BOY ADVANCE system, incorporating semiconductor components in which a Game has been stored. 2.6 "Game(s)" means interactive video game programs (including source and object/binary code) developed for play on the GAME BOY ADVANCE system. 2.7 "Guidelines" means the current version or any future revision of the "Game Boy Packaging Guidelines", "Nintendo Trademark Guidelines", "Game Boy Advance Development Manual" and related guidelines. 2.8 "Independent Contractor" means any individual or entity that is not an employee of LICENSEE, including any independent programmer, consultant, contractor, board member or advisor. 2.9 "Intellectual Property Rights" means individually, collectively or in any combination, Proprietary Rights owned, licensed or otherwise held by Nintendo that are associated with the development, manufacturing, advertising, marketing or sale of the Licensed Products, including, without limitation, (a) registered and unregistered trademarks and trademark applications used in connection with video games for play on the GAME BOY ADVANCE system including "Nintendo(R)", "GAME BOY(R) [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 1 ADVANCE," "AGB" and the "Official Nintendo Seal of Quality(R)", (b) select trade dress associated with the GAME BOY ADVANCE system and licensed video games for play thereon, (c) Proprietary Rights in the Security Technology incorporated into the Game Cartridges, (d) rights in the Development Tools for use in developing the Games, (e) patents or design registrations associated with the Game Cartridges, (f) copyrights in the Guidelines, and (g) other Proprietary Rights of Nintendo in Confidential Information. 2.10 "Licensed Products" means (a) Finished Products, or (b) Stripped Products when fully assembled and shrink-wrapped with the Printed Materials. 2.11 "Marketing Materials" means marketing, advertising or promotional materials developed by or for LICENSEE (or subject to LICENSEE's approval) to promote the sale of the Licensed Products, including, but not limited to, television, radio and on-line advertising, point-of-sale materials (e.g. posters, counter-cards), package advertising and print media or materials. 2.12 "NDA" means the non-disclosure agreement providing for the protection of Confidential Information related to the GAME BOY ADVANCE system previously entered into between NOA and LICENSEE. 2.13 "Notice" means any notice permitted or required under this Agreement. All notices shall be sufficiently given when (a) personally served or delivered, or (b) transmitted by facsimile, with an original sent concurrently by first class U.S. mail, or (c) deposited, postage prepaid, with a guaranteed air courier service, in each case addressed as stated herein, or addressed to such other person or address either party may designate in a Notice. Notice shall be deemed effective upon the earlier of actual receipt or two (2) business days after transmittal. 2.14 "Price Schedule" means the current version or any future revision of NOA's schedule of purchase prices and minimum order quantities for the Licensed Products. 2.15 "Printed Materials" means the box, user instruction booklet, poster, warranty card and LICENSEE inserts incorporating the Artwork, together with a precautions booklet as specified by NOA. 2.16 "Proprietary Rights" means any rights or applications for rights owned, licensed or otherwise held in patents, trademarks, service marks, copyrights, mask works, trade secrets, trade dress, moral rights and publicity rights, together with all inventions, discoveries, ideas, technology, know-how, data, information, processes, formulas, drawings and designs, licenses, computer programs, software source code and object code, and all amendments, modifications, and improvements thereto for which such patent, trademark, service mark, copyright, mask work, trade secrets, trade dress, moral rights or publicity rights may exist or may be sought and obtained in the future. 2.17 "Reverse Engineer(ing)" means, without limitation, (a) the x-ray, electronic scanning or physical or chemical stripping of semiconductor components, (b) the disassembly, decompilation, decryption or simulation of object code or executable code, or (c) any other technique designed to extract source code or facilitate the duplication of a program or product. 2.18 "Security Technology" means, without limitation, any security signature, bios, data scrambling, password, hardware security apparatus, watermark, hologram, copyright management information system or any feature which facilitates or limits compatibility with other hardware or software outside of the Territory or on a different video game system. 2.19 "Stripped Product(s)" means the Game Cartridges with Game Cartridge labels affixed. 2.20 "Term" means three (3) years from the Effective Date. 2.21 "Territory" means all countries within the Western Hemisphere and their respective territories and possessions. PAGE 2 3. GRANT OF LICENSE; LICENSEE RESTRICTIONS 3.1 Limited License Grant. For the Term and for the Territory, NOA grants to LICENSEE a nonexclusive, nontransferable, limited license to use the Intellectual Property Rights to develop, and have developed (subject to Section 4.2 below), Games for manufacture, advertising, marketing and sale as Licensed Products, subject to the terms and conditions of this Agreement. Except as permitted under a separate written authorization from Nintendo, LICENSEE shall not use the Intellectual Property Rights for any other purpose. 3.2 LICENSEE Acknowledgement. LICENSEE acknowledges (a) the value of the Intellectual Property Rights, (b) the right, title, and interest of Nintendo in and to the Intellectual Property Rights, and (c) the right, title and interest of Nintendo in and to the Proprietary Rights associated with all aspects of the GAME BOY ADVANCE system. LICENSEE recognizes that the Games, Game Cartridges and Licensed Products will embody valuable rights of Nintendo and Nintendo's licensors. LICENSEE represents and warrants that it will not knowingly undertake any act or thing which in any way impairs or is intended to impair any part of the right, title, interest or goodwill of Nintendo in the Intellectual Property Rights. LICENSEE's use of the Intellectual Property Rights shall not create any right, title or interest of LICENSEE therein. ****** 3.3 LICENSEE Restrictions and Prohibitions. LICENSEE represents and warrants that it will not at any time, directly or indirectly, do or cause to be done any of the following: (a) grant access to, distribute, transmit or broadcast a Game by electronic means or by any other means known or hereafter devised, including, without limitation, by wireless, cable, fiber optic, telephone lines, microwave, radiowave, computer or other device network; provided, however, that limited transmissions may be made for the sole purpose of facilitating development under the terms of this Agreement, but no right of retransmission shall attach to any such authorized transmission and, reasonable security measures, customary within the high technology industry, shall be utilized to reduce the risk of unauthorized interception or retransmission of any such authorized transmission, (b) authorize or permit any online activities involving a Game, including, without limitation, multiplayer, peer-to-peer or online play, (c) modify, install or operate a Game on any server or computing device for the purpose of or resulting in the rental, lease, loan or other grant of remote access to the Game, (d) emulate, interoperate, interface or link a Game for operation or use with any hardware or software platform, accessory, computer language, computer environment, chip instruction set, consumer electronics device or device other than the GAME BOY ADVANCE system or the Development Tools, (e) embed, incorporate, or store a Game in any media or format except the cartridge format utilized by the GAME BOY ADVANCE system, except as may be necessary as a part of the Game development process under this Agreement, (f) design, implement or undertake any process, procedure, program or act designed to circumvent the Security Technology, (g) utilize the Intellectual Property Rights to design or develop any interactive video game program, except as authorized under this Agreement, (h) manufacture or reproduce a Game developed under this Agreement, except through Nintendo, or [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 3 (i) Reverse Engineer or assist in the Reverse Engineering of all or any part of the GAME BOY ADVANCE system, including the hardware or software (whether embedded or otherwise), or the Security Technology. ****** 3.4 Development Tools. Nintendo may lease, loan or sell Development Tools to LICENSEE to assist in the development of Games under this Agreement. Ownership and use of any Development Tools provided to LICENSEE by Nintendo shall be subject to the terms of this Agreement. LICENSEE acknowledges the exclusive interest of Nintendo in and to the Proprietary Rights associated with the Development Tools. LICENSEE's use of the Development Tools shall not create any right, title or interest of LICENSEE therein. LICENSEE shall not, directly or indirectly, (a) use the Development Tools for any purpose except the design and development of Games under this Agreement, (b) reproduce or create derivatives of the Development Tools, except in association with the development of Games under this Agreement, (c) Reverse Engineer the Development Tools, or (d) without NOA's prior written approval sell, lease, assign, lend, license, encumber or otherwise transfer the Development Tools. Any tools developed or derived by LICENSEE as a result of a study of the performance, design or operation of the Development Tools shall be considered derivative works of the Intellectual Property Rights, but may be retained and utilized by LICENSEE in connection with this Agreement. In no event shall LICENSEE (i) seek, claim or file for any patent, copyright or other Proprietary Right with regard to any such derivative work, (ii) make available any such derivative work to any third party, or (iii) use any such derivative work except in connection with the design and development of Games under this Agreement. 4. SUBMISSION OF GAME AND ARTWORK FOR APPROVAL 4.1 Development and Sale of the Games. LICENSEE may develop, or have developed (subject to Section 4.2 below), Games and have manufactured, advertise, market and sell Licensed Products for play on the GAME BOY ADVANCE system only in accordance with this Agreement. 4.2 Third Party Developers. LICENSEE shall not disclose the Confidential Information (as defined in Section 8 below), the Guidelines or the Intellectual Property Rights to any Independent Contractor, nor permit any Independent Contractor to perform or assist in development work for a Game, unless and until such Independent Contractor has been approved by NOA and has executed a written confidentiality agreement with NOA relating to the GAME BOY ADVANCE system. Upon request by LICENSEE, NOA shall, within a reasonable period of time, inform LICENSEE whether any such third party is approved by NOA. 4.3 Delivery of Completed Game. Upon completion of a Game, LICENSEE shall deliver a prototype of the Game to NOA in a format specified in the Guidelines, together with written user instructions, a complete description of any security holes, backdoors, time bombs, cheats, "easter eggs" or other hidden features or characters in the Game (of which LICENSEE is aware) and a complete screen text script. NOA shall promptly evaluate the Game with regard to (a) its technical compatibility with and error-free operation on the GAME BOY ADVANCE system, and (b) its compliance with the game content guidelines of the Entertainment Software Ratings Board ("ESRB"). LICENSEE shall provide NOA with a certificate of a rating for the Game from the ESRB other than "AO" or "ADULTS ONLY". 4.4 Approval of Completed Game. NOA shall, within a reasonable period of time after receipt, approve or disapprove each submitted Game in writing. If a Game is disapproved, NOA shall specify in writing the reasons for such disapproval and state what corrections or improvements are necessary to receive approval from NOA. After making the necessary corrections or improvements, [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 4 LICENSEE shall submit a revised Game to NOA for approval. NOA shall not unreasonably withhold or delay its approval of any Game. The approval of a Game by NOA 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 Game or a Licensed Product by NOA. 4.5 Submission of Artwork. Upon submission of a completed Game to NOA, LICENSEE shall prepare and submit to NOA the Artwork for the proposed Licensed Product. Within ten (10) business days of receipt, NOA shall approve or disapprove the Artwork in writing. If any Artwork is disapproved, NOA shall specify in writing the reasons for such disapproval and state what corrections or improvements are necessary to receive approval from NOA. After making the necessary corrections or improvements, LICENSEE shall submit revised Artwork to NOA for approval. NOA shall not unreasonably withhold or delay its approval of any Artwork. The approval of the Artwork by NOA shall not relieve LICENSEE of its sole responsibility for the development and quality of the Artwork or in any way create any warranty for the Artwork or the Licensed product by NOA. 4.6 Artwork for Stripped Product. If LICENSEE submits an order for Stripped Product, all Artwork shall be submitted to NOA in advance of NOA's acceptance of the order and no production of Printed Materials shall occur until such Artwork has been approved by NOA under Section 4.5 herein. 5. ORDER PROCESS, PURCHASE PRICE, PAYMENT AND DELIVERY 5.1 Submission of Orders by LICENSEE. LICENSEE may at any time submit written purchase orders to NOA for any approved Licensed Product title. The purchase order shall specify whether it is for Finished Product or Stripped Product. The terms and conditions of this Agreement shall control over any contrary terms of such purchase order or any other written documents submitted by LICENSEE. All orders are subject to acceptance by NOA in Redmond, WA. 5.2 Purchase Price and Minimum Order Quantities. The purchase price and minimum order quantities for the Licensed Products shall be set forth in NOA's then current written Price Schedule. The purchase price includes the cost of manufacturing together with a royalty for the use of the Intellectual Property Rights. No taxes, duties, import fees or other tariffs related to the development, manufacture, import, marketing or sale of the Licensed Products are included in the purchase price and all such taxes are the responsibility of LICENSEE (except for taxes imposed on NOA's income). The Price Schedule is subject to change by NOA at any time without Notice. ****** 5.3 Payment. Upon placement of an order with NOA, LICENSEE shall pay the full purchase price to NOA either (a) by placement of an irrevocable letter of credit in favor of NOA and payable at sight, issued by a bank acceptable to NOA and confirmed, if requested by NOA, at LICENSEE's expense, or (b) in cash, by wire transfer to NOA's designated account. All associated banking charges shall be for LICENSEE's account. 5.4 Shipment and Delivery. The Licensed Products shall be delivered F.O.B. Japan or such other delivery point specified by NOA, with shipment at LICENSEE's direction and expense. Orders may be delivered by NOA in partial shipments, each directed to not more than two (2) destinations designated by LICENSEE within the Territory. Title to the Licensed Products shall vest in accordance with the terms of the applicable letter of credit or, in the absence thereof, at the point of delivery. 6. MANUFACTURE OF THE LICENSED PRODUCT 6.1 Manufacturing. Nintendo Co., Ltd. shall be the exclusive source for the manufacture of the Game Cartridges, with responsibility for all aspects of the manufacturing process, including the selection of the locations and specifications for any manufacturing facilities, determination of materials and processes, appointment of suppliers and subcontractors and management of all work-in-progress. [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 5 6.2 Manufacture of the Licensed Products. Upon acceptance by NOA of a purchase order for an approved Licensed Product title and payment as provided for under Section 5.3 herein, NOA (through Nintendo Co., Ltd., and/or its subcontractors), will arrange for the manufacture of Finished Product or Stripped Product, as specified in LICENSEE's purchase order. 6.3 Security Features. The final release version of the Game, Game Cartridges and Printed Materials shall include such Security Technology as Nintendo, in its sole discretion, may deem necessary or appropriate. 6.4 Production of Stripped Product Printed Materials. For Stripped Product, LICENSEE shall arrange and pay for the production of the Printed Materials using the Artwork. Upon receipt of an order of Stripped Product, LICENSEE shall assemble the Game Cartridges and Printed Materials into the Licensed Products. Licensed Products may be sold or otherwise distributed by LICENSEE only in fully assembled and shrink-wrapped condition. 6.5 Prior Approval of LICENSEE's Independent Contractor. Prior to the placement of a purchase order for Stripped Product, LICENSEE shall obtain NOA's approval of any Independent Contractors selected to perform the production and assembly operations. LICENSEE shall provide NOA with the names, addresses and all business documentation reasonably requested by NOA for such Independent Contractors. NOA may, prior to approval and at reasonable intervals thereafter, (a) require submission of additional business or financial information regarding the Independent Contractors, (b) inspect the facilities of the Independent Contractors upon prior written notice and provided LICENSEE may be present, at its own expense, at any such inspection, and (c) be present to supervise any work on the Licensed Products to be done by the Independent Contractors. If at any time NOA reasonably deems an Independent Contractor to be unable to meet quality, security or performance standards reasonably established by NOA, NOA may refuse to grant its approval or withdraw its approval upon Notice to LICENSEE. LICENSEE may not proceed with the production of the Printed Materials or assembly of the Licensed Product until NOA's concerns have been resolved to its satisfaction or until LICENSEE has selected and received NOA's approval of another Independent Contractor. 6.6 NOA Inserts for Stripped Product. NOA, at its option ******, may provide LICENSEE with NOA produced promotional materials (as provided for at Section 7.7(a) herein), which LICENSEE agrees to include in the assembly of the Licensed Products. 6.7 Sample Printed Materials and Stripped Product. Within a reasonable period of time after LICENSEE's assembly of the initial order for a Stripped Product title, LICENSEE shall provide NOA with (a) one (1) sample of the fully assembled, shrink-wrapped Licensed Product, and (b) *** samples of LICENSEE produced Printed Materials for such Licensed Product. 6.8 Retention of Sample Licensed Products by Nintendo. Nintendo may, at its own expense, manufacture reasonable quantities of the Game Cartridges or the Licensed Products to be used for archival purposes, legal proceedings against infringers of the Intellectual Property Rights or for other lawful purposes, but not for resale. 7. MARKETING AND ADVERTISING 7.1 Approval of Marketing Materials. LICENSEE represents and warrants that the Marketing Materials shall (a) be of high quality and comply with the Guidelines, (b) comply with all voluntary ESRB advertising, marketing or merchandising guidelines, and (c) ****** comply with all applicable laws and regulations in those jurisdictions in the Territory where they will be used or distributed. Prior to actual use or distribution, LICENSEE shall submit to NOA for review samples of all proposed Marketing Materials. NOA shall, within ten (10) business days of receipt, approve or disapprove the quality of such samples. If any of the samples are disapproved, NOA shall specify the reasons for such disapproval in writing and state what corrections and/or improvements are necessary to receive approval from NOA. After making the necessary corrections and/or improvements, LICENSEE shall submit revised samples for approval by NOA. No Marketing Materials shall be used or distributed by [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 6 LICENSEE without NOA's prior written approval. NOA shall not unreasonably withhold or delay its approval of any proposed Marketing Materials. 7.2 No Bundling. LICENSEE shall not market or distribute any Finished Product or Stripped Product that has been bundled with (a) any peripheral designed for use with the GAME BOY ADVANCE system which has not been licensed or approved in writing by NOA, or (b) any other product or service where NOA's sponsorship, association, approval or endorsement might be suggested by the bundling of the products or services ******. 7.3 Warranty and Repair. LICENSEE shall provide the original consumer with a minimum ninety (90) day limited warranty on all Licensed Products. LICENSEE shall also provide reasonable product service, including out-of-warranty service, for all Licensed Products ******. 7.4 Business Facilities. LICENSEE agrees to develop and maintain (a) suitable office facilities within the United States, adequately staffed to enable LICENSEE to fulfill all responsibilities under this Agreement, (b) reasonably necessary warehouse, distribution, marketing, sales, collection and credit operations to facilitate proper handling of the Licensed Products, and (c) customer service and game counseling, including telephone service, to adequately support the Licensed Products. 7.5 No Sales Outside the Territory. LICENSEE represents and warrants that it shall not knowingly market, sell, offer to sell, import or distribute the Licensed Products outside the Territory, or within the Territory when with actual or constructive knowledge that a subsequent destination of the Licensed Product is outside the Territory. 7.6 Defects and Recall. In the event of a material programming defect in a Licensed Product that would, in NOA's reasonable judgment, significantly impair the ability of a consumer to play the Game, NOA may, after consultation with LICENSEE, require the LICENSEE to recall the Licensed Product and undertake suitable repairs or replacements. 7.7 NOA Promotional Materials, Publications and Events. At its option, NOA may (a) insert in the Printed Materials for the Licensed Products promotional materials concerning Nintendo Power magazine or other NOA products, services or programs, ****** (b) utilize ****** screen shots, Artwork and information regarding the Licensed Products in Nintendo Power, Nintendo Power Source or other advertising, promotional or marketing media which promotes Nintendo products, services or programs, and (c) exercise public performance rights in the Games and use related trademarks and Artwork in connection with NOA sponsored contests, tours, conventions, trade shows, press briefings and similar events which promote the GAME BOY ADVANCE system ******. 7.8 Nintendo Gateway System. To promote and increase demand for games on Nintendo video game systems, NOA licenses a system (the "Nintendo Gateway System") in various non-coin activated commercial settings such as commercial airlines, cruise ships, rail systems and hotels, where customers play games on specially adapted Nintendo video game systems. If NOA identifies a Game for possible license on the Nintendo Gateway System, the parties agree to conduct good faith negotiations toward including the Game in the Nintendo Gateway System. 8. CONFIDENTIAL INFORMATION 8.1 Definition. "Confidential Information" means information provided to LICENSEE by Nintendo or any third party working with Nintendo relating to the hardware and software for the GAME BOY ADVANCE system or the Development Tools, including, but not limited to, (a) all current or future information, know-how, techniques, methods, information, tools, emulator hardware or software, software [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 7 development specifications, and/or trade secrets, (b) any patents or patent applications, (c) any business, marketing or sales data or information, and (d) any other information or data relating to development, design, operation, manufacturing, marketing or sales. Confidential 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 above listed information. Confidential Information shall not include (i) 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, (ii) 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, and (iii) 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. 8.2 Disclosures Required by Law. LICENSEE shall be permitted to disclose Confidential Information if such disclosure is required by an authorized governmental or judicial entity, provided that NOA is given Notice thereof at least ten (10) business days prior to such disclosure. LICENSEE shall use its best commercial efforts to limit the disclosure to the greatest extent possible consistent with LICENSEE's legal obligations, and if required by NOA, shall cooperate in the preparation and entry of appropriate protective orders. 8.3 Disclosure and Use. NOA may provide LICENSEE with highly confidential development information, Guidelines, Development Tools, systems, specifications and related resources and information constituting and incorporating the Confidential Information to assist LICENSEE in the development of Games. LICENSEE agrees to maintain all Confidential Information as strictly confidential and to use such Confidential Information only in accordance with this Agreement. LICENSEE shall limit access to the Confidential 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 Confidential Information pursuant to a written non-disclosure agreement between LICENSEE and such employee. LICENSEE shall use its best commercial efforts to ensure that its employees working with or otherwise having access to Confidential Information shall not disclose or make any unauthorized use of the Confidential Information. 8.4 No Disclosure to Independent Contractors. LICENSEE shall not disclose the Confidential Information to any Independent Contractor without the prior written consent of NOA. Any Independent Contractor seeking access to Confidential Information shall be required to enter into a written non-disclosure agreement with NOA prior to receiving any access to or disclosure of the Confidential Information from either LICENSEE or NOA. 8.5 Agreement Confidentiality. LICENSEE agrees that the terms, conditions and contents of this Agreement shall be treated as Confidential Information. Any public announcement or press release regarding this Agreement or the release dates for Games developed by LICENSEE under this Agreement shall be subject to NOA's prior written approval ******. The parties may disclose this Agreement (a) to accountants, banks, financing sources, lawyers, parent companies and related parties under substantially equivalent confidentiality obligations, (b) in connection with any formal legal proceeding for the enforcement of this Agreement, (c) as required by the regulations of the Securities and Exchange Commission ("SEC"), provided that all Confidential Information regarding NOA shall be redacted from such disclosures to the maximum extent allowed by the SEC, and (d) in response to lawful process, subject to a written protective order approved in advance by NOA. 8.6 Notification Obligations. LICENSEE shall promptly notify NOA of the unauthorized use or disclosure of any Confidential Information ****** and shall promptly [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 8 act to recover any such information and prevent further breach of the obligations herein. The obligations of LICENSEE set forth herein are in addition to and not in lieu of any other legal remedy that may be available to NOA under this Agreement or applicable law. 8.7 Continuing Effect of the NDA. The terms of this Section 8 supplement the terms of the NDA, which shall remain in effect. In the event of a conflict between the terms of the NDA and this Agreement, the terms of this Agreement shall control. 9. REPRESENTATIONS AND WARRANTIES 9.1 LICENSEE's Representations and Warranties. LICENSEE represents and warrants that: (a) it is a duly organized and validly existing corporation and has full authority to enter into this Agreement and to carry out the provisions hereof, (b) the execution, delivery and performance of this Agreement by LICENSEE does not conflict with any agreement or understanding to which LICENSEE may be bound, and (c) excluding the Intellectual Property Rights, LICENSEE is either (i) the sole owner of all right, title and interest in and to the trademarks, copyrights and other intellectual property rights used on or in association with the development, advertising, marketing and sale of the Licensed Products and the Marketing Materials, or (ii) the holder of such rights to the trademarks, copyrights and other intellectual property rights which have been licensed from a third party as are necessary for the development, advertising, marketing and sale of the Licensed Products and the Marketing Materials under this Agreement. 9.2 NOA's Representations and Warranties. NOA represents and warrants that: (a) it is a duly organized and validly existing corporation and has full authority to enter into this Agreement and to carry out the provisions hereof, and (b) the execution, delivery and performance of this Agreement by NOA does not conflict with any agreement or understanding to which NOA may be bound. 9.3 **** 9.4 GENERAL DISCLAIMER BY NOA. NOA DISCLAIMS ANY AND ALL WARRANTIES WITH RESPECT TO THE LICENSED PRODUCTS, INCLUDING, WITHOUT LIMITATION, THE SECURITY TECHNOLOGY. LICENSEE PURCHASES AND ACCEPTS ALL LICENSED PRODUCTS ON AN "AS IS" AND "WHERE IS" BASIS. NOA DISCLAIMS ALL WARRANTIES UNDER THE APPLICABLE LAWS OF ANY COUNTRY, EXPRESS OR IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A GENERAL OR PARTICULAR PURPOSE. 9.5 LIMITATION OF LIABILITY. TO THE MAXIMUM EXTENT PERMITTED BY LAW, NEITHER PARTY (OR THEIR RESPECTIVE AFFILIATES, LICENSORS OR SUPPLIERS) SHALL BE LIABLE FOR LOSS OF PROFITS, OR FOR ANY SPECIAL, PUNITIVE, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF THE OTHER PARTY OR ITS CUSTOMERS ARISING OUT OF OR RELATED TO THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE BREACH OF THIS [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 9 AGREEMENT BY NOA, THE MANUFACTURE OF THE LICENSED PRODUCTS OR THE USE OF THE LICENSED PRODUCTS ON ANY NINTENDO VIDEO GAME SYSTEM BY THE PARTIES OR ANY END USER. 10. INDEMNIFICATION 10.1 LICENSEE's Indemnification. LICENSEE shall indemnify and hold harmless NOA and Nintendo Co., Ltd. (and any of their respective affiliates, subsidiaries, licensors, suppliers, officers, directors, employees or agents) from any claims, losses, liabilities, damages, expenses and costs, including, without limitation, reasonable attorneys' fees and ****** costs and any ****** expenses incurred in the settlement or avoidance of any such claim, which result from or are in connection with: (a) a ****** breach of any of the provisions, representations or warranties undertaken by LICENSEE in this Agreement, (b) any infringement of a third party's Proprietary Rights as a result of ****** design, development, advertising, marketing, sale or use of the Licensed Products or the Marketing Materials, (c) any claims alleging a defect, failure to warn, bodily injury (including death) or other personal or property damage arising out of, or in connection with ****** design, development, advertising, marketing, sale or use of any of the Licensed Products, and (d) any federal, state or foreign civil or criminal actions relating to ****** design, development, advertising, marketing, sale or use of the Licensed Products or the Marketing Materials. NOA and LICENSEE shall give prompt Notice to the other of any indemnified claim under this Section 10.1. With respect to any third party claim subject to this indemnity clause, LICENSEE, as indemnitor, shall have the right to select counsel and to control the defense and/or settlement thereof. NOA may, at its own expense, participate in such action or proceeding with counsel of its own choice. LICENSEE shall not enter into any settlement of any such claim in which (i) NOA or Nintendo Co., Ltd. has been named as a party, or (ii) claims relating to the Intellectual Property Rights have been asserted, without NOA's prior written consent ******. NOA shall provide reasonable assistance to LICENSEE in its defense of any such claim. 10.2 LICENSEE's Insurance. LICENSEE shall, at its own expense, obtain a comprehensive policy of general liability insurance (including coverage for advertising injury and product liability claims) from a recognized insurance company. Such policy of insurance shall be in an amount of not less than ****** on a per occurrence basis and shall provide for adequate protection against any suits, claims, loss or damage by the Licensed Products. Such policy shall name NOA and Nintendo Co., Ltd. as additional insureds and shall specify that it may not be canceled without thirty (30) days' prior written Notice to NOA. A Certificate of Insurance shall be provided to NOA's Licensing Department not later than the date of the initial order of Licensed Products under this Agreement. If LICENSEE fails to maintain such insurance at any time during the Term and for a period of two (2) years thereafter ******, NOA may secure such insurance at LICENSEE's expense. 10.3 Suspension of Production. In the event NOA ****** deems itself at risk with respect to any claim, action or proceeding under this Section 10, NOA may, at its sole option, suspend production, delivery or order acceptance for any Licensed Products, in whole or in part, pending resolution of such claim, action or proceeding. 11. PROTECTION OF PROPRIETARY RIGHTS [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 10 11.1 Joint Actions Against Infringers. LICENSEE and NOA may agree to jointly pursue cases of infringement involving of the Licensed Products, as such Licensed Products will contain Proprietary Rights owned by each of them. Unless the parties otherwise agree, or unless the recovery is expressly allocated between them by the court, in the event of such an action, any recovery shall be used first to reimburse LICENSEE and NOA for their respective reasonable attorneys' fees and costs incurred in bringing such action, pro rata, and any remaining recovery shall be distributed to LICENSEE and NOA, pro rata, based upon the fees and costs incurred in bringing such action. 11.2 Actions by LICENSEE. LICENSEE, without the consent of NOA, may bring any action or proceeding relating to an infringement or potential infringement of LICENSEE's Proprietary Rights in the Licensed Products. LICENSEE shall make reasonable efforts to inform NOA of such actions in a timely manner. LICENSEE will have the right to retain all proceeds it may derive from any recovery in connection with such actions. 11.3 Actions by NOA. NOA, without the consent of LICENSEE, may bring any action or proceeding relating to an infringement or potential infringement of NOA's Intellectual Property Rights in the Licensed Products. NOA shall make reasonable efforts to inform LICENSEE ****** of such actions in a timely manner. NOA will have the right to retain all proceeds it may derive from any recovery in connection with such actions. 12. ASSIGNMENT 12.1 No Assignment by LICENSEE. This Agreement is personal to LICENSEE and may not be sold, assigned, delegated, sublicensed or otherwise transferred or encumbered, in whole or in part, without NOA's prior written consent******. In the event of an assignment or other transfer in violation of this Agreement, NOA shall have the unqualified right to immediately terminate this Agreement without further obligation to LICENSEE. 12.2 Assignment by Operation of Law. In the event of an assignment of this Agreement by operation of law, LICENSEE shall, not later than thirty (30) days thereafter, give Notice and seek consent thereto from NOA. Such Notice shall disclose the name of the assignee, the effective date and the nature and extent of the assignment. An assignment by operation of law includes, but is not limited to (a) a merger of LICENSEE into another business entity, (b) the sale, assignment or transfer of all or substantially all of the assets of LICENSEE to a third party, (c) the sale, assignment or transfer to a third party of any of LICENSEE's intellectual property rights which are used in the development of or are otherwise incorporated into any Licensed Products, or (d) the sale, assignment or transfer of any of LICENSEE's stock resulting in the acquirer having management power over or voting control of LICENSEE. Following the later of (i) such an assignment by operation of law, or (ii) receipt of Notice therefor, NOA shall have the unqualified right for a period of ninety (90) days to immediately terminate this Agreement without further obligation to LICENSEE. 12.3 Non-Disclosure Obligation. In no event shall LICENSEE disclose or allow access to NOA's Confidential Information prior to or upon the occurrence of an assignment, whether by operation of law or otherwise, unless and until NOA gives its written consent to such disclosure. 13. TERM AND TERMINATION 13.1 Term. This Agreement shall commence on the Effective Date and continue for the Term, unless earlier terminated as provided for herein. 13.2 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 Notice thereof, then this Agreement shall automatically terminate on the date specified in such Notice. 13.3 Bankruptcy. At NOA's option, this Agreement may be terminated immediately and without Notice in the event that LICENSEE (a) makes an assignment for the benefit of creditors, [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 11 (b) becomes insolvent, (c) files a voluntary petition for bankruptcy, (d) acquiesces to any involuntary bankruptcy petition, (e) is adjudicated as a bankrupt, or (f) ceases to do business. 13.4 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 ****** to sell any unsold Licensed Products in inventory or in process. All Licensed Products in LICENSEE's control following the expiration of such sell-off period shall be destroyed by LICENSEE within ten (10) days and proof of such destruction (certified by an officer of LICENSEE) shall be provided to NOA. 13.5 Termination by LICENSEE's Breach. If this Agreement is terminated by NOA as a result of a breach of its terms and conditions by LICENSEE, LICENSEE shall immediately cease all distribution, advertising, marketing or sale of any Licensed Products. All Licensed Products in LICENSEE's control as of the date of such termination shall be destroyed by LICENSEE within ten (10) days and proof of such destruction (certified by an officer of LICENSEE) shall be provided to NOA. 13.6 Breach of NDA or Other NOA License Agreements. At NOA's option, any ****** breach by LICENSEE of (a) the NDA, or (b) any other license agreement between NOA and LICENSEE relating to the development of games for any Nintendo video game system which is not cured within the time period for cure allowed under the applicable agreement, shall be considered a material breach of this Agreement entitling NOA to terminate this Agreement in accordance with Section 13.5 herein. 13.7 No Further Use of the Intellectual Property Rights. Upon expiration and/or termination of this Agreement, LICENSEE shall cease all use of the Intellectual Property Rights for any purpose, except as may be required in connection with the sale of Licensed Products authorized under Section 13.4 herein. LICENSEE shall, within thirty (30) days thereafter, return or destroy all Guidelines, writings, drawings, models, data, tools 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 Confidential Information, without making copies or otherwise retaining any such information. Proof of any destruction shall be certified by an officer of LICENSEE and promptly provided to NOA. 13.8 Termination by NOA's Breach. If this Agreement is terminated by LICENSEE as a result of a breach of its terms or conditions by NOA, LICENSEE may ****** continue to sell the Licensed Products in the Territory until the expiration of the Term, at which time the provisions of Section 13.4 shall apply. 14. GENERAL PROVISIONS 14.1 Export Control. LICENSEE agrees to comply with the export laws and regulations of the United States and any other country with jurisdiction over the Licensed Products and/or either party. 14.2 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 materials or production facilities necessary for production of the Licensed Products, NOA reserves the right to allocate such resources among itself and its licensees ******. 14.3 Records and Audit. During the Term and for a period of ******, LICENSEE agrees to keep accurate, complete and detailed records related to the development and sale of the Licensed Products and the Marketing Materials. Upon at least ****** prior written Notice to LICENSEE, NOA may, at its expense, audit LICENSEE's records, reports and other information solely related to LICENSEE's compliance with this Agreement. [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 12 14.4 Waiver, Severability, Integration, and Amendment. The failure of a 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. Together with the NDA, this Agreement constitutes the entire agreement between the parties relating to the subject matter hereof. All prior negotiations, representations, agreements and understandings are merged into, extinguished by and completely expressed by this Agreement and the NDA. Any amendment to this Agreement shall be in writing, signed by both parties. 14.5 Survival. In addition to those rights specified elsewhere in this Agreement, the rights and obligations set forth in Sections 3, 8, 9, 10 and 13 shall survive any expiration or termination of this Agreement to the degree necessary to permit their complete fulfilment or discharge. 14.6 Governing Law and Venue. This Agreement shall be governed by the laws of the State of Washington, without regard to its conflict of laws principles. Any legal action (including judicial and administrative proceedings) with respect to any matter arising under or growing out of this Agreement, shall be brought in a court of competent jurisdiction in King County, Washington. Each party hereby consents to the jurisdiction and venue of such courts for such purposes. 14.7 Equitable Relief. LICENSEE acknowledges that in the event of its breach of this Agreement, no adequate remedy at law may be available to NOA and that NOA shall be entitled to seek injunctive or other equitable relief in addition to any relief available at law. 14.8 Attorneys' Fees. In the event it is necessary for either party to this Agreement to undertake legal action to enforce or defend any action arising out of or relating to this Agreement, the prevailing party in such action shall be entitled to recover from the other party all reasonable attorneys' fees, costs and expenses relating to such legal action or any appeal therefrom. 14.9 Counterparts and 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, the parties have entered into this Agreement on the dates set forth below.
NOA: LICENSEE: NINTENDO OF AMERICA INC. THQ INC. By: /s/ JOHN BAUER By: /s/ BRIAN J. FARRELL -------------------------------- ---------------------------- Title: Executive VP, Administration Title: President & Chief Executive Officer Date: 7/18/01 Date: 7/16/01
PAGE 13 EX-10.7 9 a85823exv10w7.txt EXHIBIT 10.7 EXHIBIT 10.7 ALL SECTIONS MARKED WITH ASTERISKS REFLECT PORTIONS WHICH HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY THQ INC. AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT. CONFIDENTIAL LICENSE AGREEMENT FOR NINTENDO GAMECUBE (Western Hemisphere) THIS LICENSE AGREEMENT ("Agreement") is entered into between NINTENDO OF AMERICA INC. ("NOA") at 4820 150th Avenue N.E., Redmond, WA 98052 Attn: General Counsel (Fax: 425-882-3585) and THQ Inc. ("LICENSEE") at 27001 Agoura Road, Suite 325, Calabasas Hills, CA 91301 Attn: Brian J. Farrell (Fax: (818)-871-7400). NOA and LICENSEE agree as follows: 1. RECITALS 1.1 NOA markets and sells advanced design, high-quality video game systems, including the "NINTENDO GAMECUBE(TM)" system. 1.2 LICENSEE desires use of the highly proprietary programming specifications, unique and valuable security technology, trademarks, copyrights and other valuable intellectual property rights of NOA and its parent company, Nintendo Co., Ltd., which rights are only available for use under the terms of a license agreement, to develop, have developed, have manufactured, advertise, market and sell video game software for play on the NINTENDO GAMECUBE system. 1.3 NOA is willing to grant a license to LICENSEE on the terms and conditions set forth in this Agreement. 2. DEFINITIONS 2.1 "Artwork" means the text and design specifications for the Game Disc label and the Printed Materials in the format specified by NOA in the Guidelines. 2.2 "Bulk Goods" means Game Discs that have been printed with the Game Disc label Artwork for delivery to LICENSEE without Printed Materials or other packaging. 2.3 "Check Disc(s)" means the pre-production Game Discs to be produced by Nintendo. 2.4 "Confidential Information" means the information described in Section 8.1. 2.5 "Development Tools" means the development kits, programming tools, emulators and other materials that may be used in the development of Games under this Agreement. 2.6 "Effective Date" means the last date on which all parties shall have signed this Agreement. 2.7 "Finished Goods" means Game Discs that have been fully assembled with the Printed Materials, cellophane wrapped and boxed for delivery to LICENSEE by NOA 2.8 "Game Discs(s)" means custom optical discs for play on the NINTENDO GAMECUBE system on which a Game has been stored. 2.9 "Game(s)" means interactive video game programs (including source and object/binary code) developed for play on the NINTENDO GAMECUBE system. 2.10 "Guidelines" means the then current version of the "NINTENDO GAMECUBE Development Manual," "NINTENDO GAMECUBE Packaging Guidelines," "Nintendo Trademark Guidelines" and the "Nintendo Game Content Guidelines", together with related guidelines provided by NOA to LICENSEE from time to time. PAGE 1 2.11 "Independent Contractor" means any individual or entity that is not an employee of LICENSEE, including any independent programmer, consultant, contractor, board member or advisor. 2.12 "Intellectual Property Rights" means individually, collectively or in any combination, Proprietary Rights owned, licensed or otherwise held by Nintendo that are associated with the development, manufacturing, advertising, marketing or sale of the Licensed Products, including, without limitation, (a) registered and unregistered trademarks and trademark applications used in connection with the NINTENDO GAMECUBE system including "Nintendo(R)", "NINTENDO GAMECUBE(TM)," "GCN" and "Official Nintendo Seal of Quality(R)", and (b) select trade dress associated with the NINTENDO GAMECUBE system and licensed video games for play thereon, (c) Proprietary Rights in the Security Technology employed in the Games or Game Discs by Nintendo, (d) rights in the Development Tools for use in developing the Games, excluding, however, rights to use, incorporate or duplicate select libraries, protocols and/or sound or graphic files associated with the Development Tools which belong to any third party, without obtaining any necessary licenses or consents, (e) patents, design registrations or copyrights which may be associated with the Game Discs or Printed Materials, (f) copyrights in the Guidelines, and (g) other Proprietary Rights of Nintendo in the Confidential Information. 2.13 "Licensed Products" means (a) Finished Goods, or (b) Bulk Goods after being assembled with the Printed Materials in accordance with the Guidelines by LICENSEE. 2.14 "Marketing Materials" means marketing, advertising or promotional materials developed by or for LICENSEE (or subject to LICENSEE's approval) that promote the sale of the Licensed Products, including but not limited to, television, radio and on-line advertising, point-of-sale materials (e.g., posters, counter-cards), package advertising, print media and all audio or video media other than the Game that is to be included on the Game Disc. 2.15 "NDA" means the non-disclosure agreement related to the NINTENDO GAMECUBE system previously entered into between NOA and LICENSEE. 2.16 "Nintendo" means NOA's parent company, Nintendo Co., Ltd., of Kyoto, Japan, individually or collectively with NOA. 2.17 "Notice" means any notice permitted or required under this Agreement. All notices shall be sufficiently given when (a) personally served or delivered, or (b) transmitted by facsimile, with an original sent concurrently by first class U.S. mail, or (c) deposited, postage prepaid, with a guaranteed air courier service, in each case addressed as stated herein, or addressed to such other person or address either party may designate in a Notice. Notice shall be deemed effective upon the earlier of actual receipt or two (2) business days after transmittal. 2.18 "Price Schedule" means the then current version of NOA's schedule of purchase prices and minimum order quantities for the Licensed Products. 2.19 "Printed Materials" means a plastic disc storage case, title page, instruction booklet, warranty card and poster incorporating the Artwork, together with a precautions booklet in the form specified by NOA. 2.20 "Promotional Disc(s)" means custom optical discs compatible with the NINTENDO GAMECUBE system that incorporate select game promotional or supplemental materials, as may be specified or permitted in the Guidelines. 2.21 "Proprietary Rights" means any rights or applications for rights owned, licensed or otherwise held in patents, trademarks, service marks, copyrights, mask works, trade secrets, trade dress, moral rights and publicity rights, together with all inventions, discoveries, ideas, technology, know-how, data, information, processes, formulas, drawings and designs, licenses, computer programs, software source code and object code, and all amendments, modifications, and improvements thereto for which PAGE 2 such patent, trademark, service mark, copyright mask work, trade secrets, trade dress, moral rights or publicity rights may exist or may be sought and obtained in the future. 2.22 "Rebate Program" means any then current version of NOA's optional rebate program, establishing select terms for price rebates under this Agreement. 2.23 "Reverse Engineer(ing)" means, without limitation, (a) the x-ray, electronic scanning or physical or chemical stripping of semiconductor components, (b) the disassembly, decompilation, decryption or simulation of object code or executable code, or (c) any other technique designed to extract source code or facilitate the duplication of a program or product. 2.24 "Security Technology" means the highly proprietary security features incorporated by Nintendo into the Licensed Products to minimize the risk of unlawful copying and other unauthorized or unsafe usage, including, without limitation, any security signature, bios, data scrambling, password, hardware security apparatus, watermark, hologram, copyright management information system, proprietary manufacturing process or any feature which obstructs piracy, limits unlawful, unsafe or unauthorized use or facilitates or limits compatibility with other hardware or software outside of the Territory or on a different video game system. 2.25 "Term" means three (3) years from the Effective Date. 2.26 "Territory" shall mean all countries within the Western Hemisphere and their respective territories and possessions. 3. GRANT OF LICENSE; LICENSEE RESTRICTIONS 3.1 Limited License Grant. For the Term and for the Territory, NOA grants to LICENSEE a nonexclusive, nontransferable, limited license to use the Intellectual Property Rights to develop (or have developed on their behalf) Games for manufacture, advertising, marketing and sale as Licensed Products, subject to the terms and conditions of this Agreement. Except as permitted under a separate written authorization from Nintendo, LICENSEE shall not use the Intellectual Property Rights for any other purpose. 3.2 LICENSEE Acknowledgement. LICENSEE acknowledges (a) the value of the Intellectual Property Rights, (b) the right, title and interest of Nintendo in and to the Intellectual Property Rights, and (c) the right, title, and interest of Nintendo in and to the Proprietary Rights associated with all aspects of the NINTENDO GAMECUBE system. LICENSEE recognizes that the Games, Game Discs and Licensed Products will embody valuable rights of Nintendo and Nintendo's licensors. LICENSEE represents and warrants that it will not undertake any act or thing which in any way impairs or is intended to impair any part of the right, title, interest or goodwill of Nintendo in the Intellectual Property Rights. LICENSEE's use of the Intellectual Property Rights shall not create any right, title or interest of LICENSEE therein. ****** 3.3 LICENSEE Restrictions and Prohibitions. LICENSEE represents and warrants that it will not at any time, directly or indirectly, do or cause to be done any of the following: (a) grant access to, distribute, transmit or broadcast a Game by electronic means or by any other means known or hereafter devised, including, without limitation, by wireless, cable, fiber optic, telephone lines, microwave, radiowave, computer or other device network; provided, however, that limited transmissions may be made for the sole purpose of facilitating development under the terms of this Agreement, but no right of retransmission shall attach to any such authorized transmission and reasonable security measures, customary within the high technology industry, shall be utilized to reduce the risk of unauthorized interception or retransmission of any such authorized transmission, [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 3 (b) authorize or permit any online activities involving a Game, including, without limitation, multiplayer, peer-to-peer or online play, (c) modify, install or operate a Game on any server or computing device for the purpose of or resulting in the rental, lease, loan or other grant of remote access to the Game, (d) emulate, interoperate, interface or link a Game for operation or use with any hardware or software platform, accessory, computer language, computer environment, chip instruction set, consumer electronics device or device other than the NINTENDO GAMECUBE system or the Development Tools, (e) embed, incorporate, or store a Game in any media or format except the optical disc format utilized by the NINTENDO GAMECUBE system, except as may be necessary as a part of the Game development process under this Agreement, (f) design, implement or undertake any process, procedure, program or act designed to disable, obstruct, circumvent or otherwise diminish the effectiveness or operation of the Security Technology, (g) utilize the Intellectual Property Rights to design or develop any interactive video game program, except as authorized under this Agreement, (h) manufacture or reproduce a Game developed under this Agreement, except through Nintendo, or (i) Reverse Engineer or assist in Reverse Engineering all or any part of the NINTENDO GAMECUBE system, including the hardware, software (embedded or not) or the Security Technology. ****** 3.4 Nintendo Development Tools. NOA and Nintendo Co., Ltd. may lease, loan or sell Development Tools to LICENSEE to assist in the development of Games under this Agreement. LICENSEE acknowledges the exclusive interest of Nintendo in and to the Proprietary Rights associated with the Development Tools. LICENSEE's use of the Development Tools shall not create any right, title or interest of LICENSEE therein. LICENSEE shall not, directly or indirectly, (a) use the Development Tools for any purpose except the design and development of Games under this Agreement, (b) reproduce or create derivatives of the Development Tools, except in association with the development of Games under this Agreement, (c) Reverse Engineer the Development Tools, or (d) without NOA's prior written approval, sell, lease, assign, lend, license, encumber or otherwise transfer the Development Tools. Any tools developed or derived by LICENSEE as a result of a study of the performance, design or operation of the Development Tools shall be considered a derivative work of the Intellectual Property Rights, but may be retained and utilized by LICENSEE in connection with this Agreement. In no event shall LICENSEE (i) seek, claim or file for any patent, copyright or other Proprietary Right with regard to any such derivative work, (ii) make available any such derivative work to any third party, or (iii) use any such derivative work except in connection with the design and development of Games under this Agreement. 3.5 Third Party Development Tools. NOA and Nintendo Co., Ltd. may authorize third parties to develop and market Development Tools to authorized developers of Games. Notwithstanding any referral or information provided or posted regarding such Development Tools, NOA and Nintendo Co., [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 4 Ltd. make no representations or warranties with regard to any such third party Development Tools. Licensee acquires and utilizes such Development Tools at its own risk. LICENSEE shall not, directly or indirectly, use such Development Tools for any purpose except the design and development of Games under this Agreement. All Nintendo Proprietary Rights contained in or derived from such Development Tools shall remain owned by Nintendo. 3.6 Games Developed for Linked Play on Two Systems. In the event the Guidelines permit LICENSEE to develop a Game for simultaneous or linked play on the NINTENDO GAMECUBE system and on another Nintendo video game system, LICENSEE shall be required to acquire and maintain with NOA such additional licenses as are necessary for the use of the Proprietary Rights associated with such other Nintendo video game system. 4. SUBMISSION AND APPROVAL OF GAME AND ARTWORK 4.1 Submission of a Completed Game to NOA. Upon completion of a Game, LICENSEE shall deliver a prototype of the Game to NOA in a format specified in the Guidelines. Delivery shall be made in accordance with the methods approved in the Guidelines. Each Submission shall include such other information or documentation deemed necessary by NOA, including, without limitation, a complete set of written user instructions, a complete description of any security holes, backdoors, time bombs, cheats, "easter eggs" or other hidden features or characters in the Game ****** and a complete screen text script. LICENSEE must establish that the Game and any other content included on the Game Disc complies with the Advertising Code of Conduct of the Entertainment Software Ratings Board ("ESRB") and has been rated EC, E, M or T by the ESRB. 4.2 Testing of a Completed Game. Upon submission of a completed Game, NOA and Nintendo Co, Ltd. shall promptly test the Game with regard to its technical compatibility with and error-free operation on the NINTENDO GAMECUBE system utilizing the lot check process. Within a reasonable period of time after receipt, NOA shall approve or disapprove such Game in writing. If a Game is disapproved, NOA shall specify in writing the reasons for such disapproval and state what corrections are necessary to receive approval from NOA. After making the necessary corrections, LICENSEE shall submit a revised Game to NOA for testing. NOA shall not unreasonably withhold or delay its approval of any Game. Neither the testing nor approval of a Game by NOA or Nintendo Co., Ltd. shall relieve LICENSEE of its sole responsibility for the development, quality and operation of the Game or in any way create any warranty for Licensed Product by NOA or Nintendo Co., Ltd. 4.3 Production of Check Discs. By submission of a completed Game to NOA in accordance with section 4.1, LICENSEE authorizes Nintendo to proceed with production of Check Discs for such Game. If NOA approves a Game, it shall promptly, and without further notification to or instruction from LICENSEE, submit such Game for the production of Check Discs. Unless otherwise advised by LICENSEE, following production of the Check Discs, NOA shall deliver to LICENSEE approximately ten (10) Check Discs for content verification, testing and final approval by LICENSEE. 4.4 Approval or Disapproval of Check Discs by LICENSEE. If, after review and testing, LICENSEE approves the Check Discs, it shall promptly transmit to NOA a signed authorization for production in the form specified in the Guidelines. If LICENSEE does not approve the sample Check Discs for any reason, LICENSEE shall advise NOA in writing and may, after undertaking any necessary changes or corrections, resubmit the Game to NOA for approval in accordance with the procedures set forth in this Section 4. The absence of a signed authorization form from LICENSEE within five (5) days after delivery of the Check Discs to LICENSEE shall be deemed disapproval of such Check Discs. Production of any order for Licensed Product shall not proceed without LICENSEE's signed authorization. 4.5 Cost of Disc Stamper Production. ****** [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 5 The payment will be due upon the earlier of (a) the subsequent submission by LICENSEE of a revised version of the Game to NOA, or (b) six (6) months after the date the Game was first approved by NOA. 4.6 Submission and Approval of Artwork. Prior to submitting a completed Game to NOA under Section 4.1, LICENSEE shall submit to NOA all Artwork for the proposed Licensed Product. Within ten (10) business days of receipt, NOA shall approve or disapprove the Artwork in writing. If any Artwork is disapproved, NOA shall specify in writing the reasons for such disapproval and state what corrections or improvements are necessary to receive approval from NOA. After making the necessary corrections or improvements, LICENSEE shall submit revised Artwork to NOA for approval. NOA shall not unreasonably withhold or delay its approval of any Artwork. The approval of the Artwork by NOA shall not relieve LICENSEE of its sole responsibility for the development and quality of the Artwork or in any way create any warranty for the Artwork or the Licensed Product by NOA. All Artwork must be approved prior to submitting an order for the Licensed Product. 4.7 Artwork for Bulk Goods. If LICENSEE intends to submit an order for Bulk Goods, all Artwork shall be submitted to NOA in accordance with Section 4.6 herein. No Printed Materials shall be produced by LICENSEE until such Artwork has been approved by NOA. 4.8 Promotional Discs. In the event NOA issues Guidelines in the future that permit LICENSEE to develop and distribute Promotional Discs, either separately or as a part of the Licensed Product, the content and specifications of such Promotional Disc shall be subject to all of the terms and conditions of this Agreement, including, without limitation, the Guidelines, the Price Schedule and the submission and approval procedures provided for in this Section 4. 5. ORDER PROCESS, PURCHASE PRICE, PAYMENT AND DELIVERY 5.1 Submission of Orders by LICENSEE. After receipt of NOA's approval for a Game and Artwork, LICENSEE may at any time submit a written purchase order to NOA for such Game. The purchase order shall specify whether the order is for Finished Goods or Bulk Goods. The terms and conditions of this Agreement shall control over any contrary terms of such purchase order or any other written documentation or verbal instruction from LICENSEE. All orders shall be subject to acceptance by NOA in Redmond, WA. 5.2 Purchase Price and Minimum Order Quantities. The purchase price and minimum order quantities for the Licensed Products (both Finished Goods and Bulk Goods) shall be set forth in NOA's then current Price Schedule. Unless otherwise specifically provided for, the purchase price includes the cost of manufacturing a single Game Disc, together with a royalty for the use of the Intellectual Property Rights. No taxes, duties, import fees or other tariffs related to the development, manufacture, import, marketing or sale of the Licensed Products (except for taxes imposed on NOA's income) are included in the Purchase Price and all such taxes are the responsibility of LICENSEE. The Price Schedule is subject to change by NOA at any time without Notice. ****** 5.3 Payment. Upon placement of an order with NOA, LICENSEE shall pay the full purchase price either (a) by tender of an irrevocable letter of credit in favor of NOA (or its designee) and payable at sight, issued by a bank acceptable to NOA and confirmed, if requested by NOA, at LICENSEE's expense, or (b) in cash, by wire transfer to an account designated by NOA. All letters of credit shall comply with NOA's written instructions and all associated banking charges shall be for LICENSEE's account. 5.4 Delivery of Finished Goods. Finished Goods shall be delivered to LICENSEE FCA North Bend, Washington USA, or such other delivery point within the continental United States as may be specified by NOA. Orders may be delivered in partial shipments, at NOA's option. Title to Finished Goods shall vest in LICENSEE ****. [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 6 5.5 Delivery of Bulk Goods. Bulk Goods shall be delivered to LICENSEE FCA Torrance, California USA, or such other delivery point within the continental United States as may be specified by NOA. Orders may be delivered in partial shipments, at NOA's option. Title to Bulk Goods shall vest in LICENSEE ******. 5.6 Rebate Program. NOA, at its sole option, may elect to offer LICENSEE a Rebate Program. The terms and conditions of any rebate program shall be subject to NOA's sole discretion. LICENSEE shall not be entitled to offset any claimed rebate amount against other amounts owing NOA. No interest shall be payable by NOA to LICENSEE on any claimed rebate. The Rebate Program is subject to change or cancellation by NOA at any time without Notice. 6. MANUFACTURE OF THE LICENSED PRODUCT 6.1 Manufacturing. Nintendo Co. Ltd. shall be the exclusive source for the manufacture of the Game Discs, Check Discs and Promotional Discs, with responsibility for all aspects of the manufacturing process, including the selection of the locations and specifications for any manufacturing facilities, determination of materials and processes, appointment of suppliers and subcontractors and management of all work-in-progress. Upon acceptance by NOA of a purchase order from LICENSEE and receipt of payment as provided for at Section 5.3 herein, NOA shall place the order with Nintendo Co., Ltd. who shall (through its suppliers and subcontractors) arrange for the manufacture of the Licensed Product. 6.2 Security Features. The final release version of the Game, the Game Disc and the Printed Materials shall include such Security Technology as Nintendo, in its sole discretion, deems necessary or appropriate to (a) reduce the risk of unlawful copying or other unlawful, unsafe or unauthorized uses, (b) protect the Proprietary Rights of Nintendo and of the LICENSEE, (c) promote consumer confidence, and (d) increase the quality, reliability or operation of the NINTENDO GAMECUBE system. 6.3 Bulk Goods Orders. LICENSEE may elect to order Bulk Goods under the terms of this Agreement, in which event LICENSEE shall arrange and pay for the production of the Printed Materials and the final assembly of the Licensed Product in accordance with the Guidelines. 6.4 Printed Materials for Bulk Goods. Upon delivery to LICENSEE of Bulk Goods, LICENSEE shall assemble the Printed Materials and Game Discs into the Licensed Products in accordance with the Guidelines. No other materials, items, products or packaging may be included in the assembled Bulk Goods without NOA's prior written consent. ****** Bulk Goods may be sold or distributed by LICENSEE only when fully assembled in accordance with the Guidelines. 6.5 Prior Approval of LICENSEE's Independent Contractors. Prior to the placement of a purchase order for Bulk Goods, LICENSEE shall obtain NOA's approval of any Independent Contractors selected to perform the production and assembly operations. LICENSEE shall provide NOA with the names, addresses and all business documentation reasonably requested by NOA for such Independent Contractors. NOA may, prior to approval and at reasonable intervals thereafter, (a) require submission of additional business or financial information regarding the Independent Contractors, (b) inspect applicable facilities of the Independent Contractors ****** and (c) be present to supervise any work on the Licensed Products to be done by the Independent Contractors. If at any time NOA deems the Independent Contractor to be unable to meet quality, security or performance standards reasonably established by NOA, NOA may refuse to grant its approval or withdraw its approval upon Notice to LICENSEE. LICENSEE may not proceed with the production of the Printed Materials or assembly of the Licensed Product until NOA's concerns have been resolved to its satisfaction or until LICENSEE has selected and received NOA's approval of another Independent Contractor. NOA may establish preferred or required supply sources for select components of the Printed Materials, which sources shall be deemed preapproved in accordance with this Section 6.5. LICENSEE shall comply with all sourcing requirements established by NOA. [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 7 6.6 NOA Inserts for Bulk Goods. NOA, at its option, may provide LICENSEE with NOA promotional materials (as provided for at Section 7.7(a) herein) ****** which LICENSEE agrees to include in the assembly of the Bulk Goods. 6.7 Sample Printed Materials for Bulk Goods. Within a reasonable period of time after LICENSEE's assembly of an initial order for a Bulk Goods title, LICENSEE shall provide NOA with (a) six (6) samples of the fully assembled Licensed Product, and (b) seventy (70) samples of the LICENSEE produced Printed Materials (excluding the plastic disc storage case, warranty card, poster and precautions booklet) for such Bulk Goods. 6.8 Retention of Sample Licensed Products by NOA. NOA or Nintendo may, at their own expense, manufacture reasonable quantities of the Game Discs, the Printed Materials or the Licensed Products to be used for archival purposes, legal proceedings against infringers of the Intellectual Property Rights and for other lawful purposes. ****** 7. MARKETING AND ADVERTISING 7.1 Approval of Marketing Materials. LICENSEE represents and warrants that the Printed Materials and the Marketing Materials shall be of high quality and comply with (a) the Guidelines, (b) the Advertising Code of Conduct and the Principles and Guidelines for Responsible Advertising of the ESRB, and (c) ****** all applicable laws and regulations in those jurisdictions in the Territory where they will be used or distributed. All LICENSEE controlled websites featuring the Games shall adopt a privacy policy that ****** comply with the Children's Online Privacy Protection Act. Prior to actual use or distribution, LICENSEE shall submit to NOA for review samples of all proposed Marketing Materials. NOA shall, within ten (10) business days of receipt, approve or disapprove of the quality of such samples. If any of the samples are disapproved, NOA shall specify in writing the reasons for such disapproval and state what corrections and/or improvements are necessary to receive approval from NOA. After making the necessary corrections and/or improvements, LICENSEE shall submit revised samples for approval by NOA. No Marketing Materials shall be used or distributed by LICENSEE without NOA's prior written approval. NOA shall not unreasonably withhold or delay its approval of any proposed Marketing Materials. 7.2 No Bundling. LICENSEE shall not market or distribute any Finished Goods or Bulk Goods that have been bundled with (a) any peripheral designed for use with the NINTENDO GAMECUBE system that has not been licensed or approved in writing by NOA, or (b) any other product or service where NOA's association or endorsement might be suggested by bundling the products or services ******. 7.3 Warranty and Repair. LICENSEE shall provide the original consumer with a minimum ninety (90) day limited warranty on all Licensed Products. LICENSEE shall also provide reasonable product service, including out-of-warranty service, for all Licensed Products. LICENSEE shall make such warranty and repair information available to consumers as required by applicable federal and state law.****** 7.4 Business Facilities. LICENSEE agrees to develop and maintain (a) suitable office facilities within the United States, 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, including telephone service, to adequately support the Licensed Products. 7.5 No Sales Outside the Territory. LICENSEE represents and warrants that it shall not ****** market, sell, offer to sell, import or distribute the Licensed Products outside the Territory, or within the Territory when with actual or constructive knowledge that a subsequent destination of the Licensed Product is outside the Territory. [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 8 7.6 Defects and Recall. In the event of a material programming defect in a Licensed Product that would, in NOA's reasonable judgment, significantly impair the ability of a consumer to play the Game, NOA may, after consultation with LICENSEE, require the LICENSEE to recall the Licensed Product and undertake suitable repairs or replacements. 7.7 NOA Promotional Materials, Publications and Events. At its option, NOA may (a) insert in the Printed Materials for the Licensed Products promotional materials concerning Nintendo Power magazine or other NOA products, services or programs ****** (b) utilize screen shots, Artwork and information regarding the Licensed Products in Nintendo Power, Nintendo Power Source or other advertising, promotional or marketing media, which promotes NOA products, services or programs, and (c) exercise public performance rights in the Games and use related trademarks and Artwork in connection with NOA sponsored contests, tours, conventions, trade shows, press briefings and similar events which promote the NINTENDO GAMECUBE system.****** 7.8 Nintendo Gateway System. To promote and increase demand for games on Nintendo video game systems, NOA licenses select games in various non-coin activated commercial settings such as commercial airlines, cruise ships, rail systems and hotels, where customers play games on specially adapted Nintendo video game hardware referred to as the "Nintendo Gateway System". If NOA identifies a Game for possible license on the Nintendo Gateway System, the parties agree to conduct good faith negotiations to determine commercially reasonable terms for such participation. 8. CONFIDENTIAL INFORMATION 8.1 Definition. Confidential Information means information provided to LICENSEE by Nintendo or any third party working with Nintendo relating to the hardware and software for the NINTENDO GAMECUBE system or the Development Tools, including, but not limited to, (a) all current or future information, know-how, techniques, methods, information, tools, emulator hardware or software, software development specifications, proprietary manufacturing processes and/or trade secrets, (b) any information on patents or patent applications, (c) any business, legal, marketing or sales data or information, and (d) any other information or data relating to development, design, operation, manufacturing, marketing or sales. Confidential 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 above listed information. Confidential Information shall not include (i) 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, (ii) 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, and (iii) 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. 8.2 Disclosures Required by Law. LICENSEE shall be permitted to disclose Confidential Information if such disclosure is required by an authorized governmental or judicial entity, provided that LICENSEE shall notify NOA at least ten (10) business days prior to such disclosure. LICENSEE shall use its best commercial efforts to limit the disclosure to the greatest extent possible consistent with [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 9 LICENSEE's legal obligations, and if required by NOA, shall cooperate in the preparation and entry of appropriate protective orders. 8.3 Disclosure and Use. NOA may provide LICENSEE with highly confidential development information, Guidelines, Development Tools, systems, specifications and related resources and information constituting and incorporating the Confidential Information to assist LICENSEE in the development of Games. LICENSEE agrees to maintain all Confidential Information as strictly confidential and to use such Confidential Information only in accordance with this Agreement. LICENSEE shall limit access to the Confidential 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 Confidential Information pursuant to a written non-disclosure agreement between LICENSEE and such employee. LICENSEE shall use its best commercial efforts to ensure that its employees working with or otherwise having access to Confidential Information shall not disclose or make any unauthorized use of the Confidential Information. 8.4 Independent Contractor Use. LICENSEE shall not disclose the Confidential Information, the Guidelines or the Intellectual Property Rights to any Independent Contractor, nor permit any Independent Contractor to perform or assist in development work for a Game, nor utilize any Development Tools without NOA's prior written consent. Each approved Independent Contractor shall be required to enter into a written non-disclosure agreement with NOA prior to receiving any access to or disclosure of such materials from either LICENSEE or NOA. 8.5 Agreement Confidentiality. LICENSEE agrees that the terms, conditions and contents of this Agreement shall be treated as Confidential Information. Any public announcement or press release regarding this Agreement shall be subject to NOA's prior written approval.****** The parties may disclose this Agreement (a) to accountants, banks, financing sources, lawyers, parent companies and related parties under substantially equivalent confidentiality obligations, (b) in connection with any formal legal proceeding for the enforcement of this Agreement, (c) as required by the regulations of the Securities and Exchange Commission ("SEC"), provided that all Confidential Information regarding NOA shall be redacted from such disclosures to the maximum extent allowed by the SEC, and (d) in response to lawful process, subject to a written protective order approved in advance by NOA. 8.6 Notification Obligations. LICENSEE shall promptly notify NOA of the unauthorized use or disclosure of any Confidential Information ****** and shall promptly act to recover any such information and prevent further breach of the obligations herein. The obligations of LICENSEE set forth herein are in addition to and not in lieu of any other legal remedy that may be available to NOA under this Agreement or applicable law. 8.7 Continuing Effect of the NDA. The terms of this Section 8 supplement the terms of the NDA, which shall remain in effect. In the event of a conflict between the terms of the NDA and this Agreement, the provisions of this Agreement shall control. 9. REPRESENTATIONS AND WARRANTIES 9.1 LICENSEE's Representations and Warranties. LICENSEE represents and warrants that: (a) it is a duly organized and validly existing corporation and has full authority to enter into this Agreement and to carry out the provisions hereof, (b) the execution, delivery and performance of this Agreement by LICENSEE does not conflict with any agreement or understanding to which LICENSEE may be bound, and [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 10 (c) excluding the Intellectual Property Rights, LICENSEE is either (i) the sole owner of all right, title and interest in and to the trademarks, copyrights and all other Proprietary Rights incorporated into the Game or the Artwork or used in the development, advertising, marketing and sale of the Licensed Products or the Marketing Materials, or (ii) the holder of such rights, including trademarks, copyrights and all other Proprietary Rights which belong to any third party but have been licensed from such third party by LICENSEE, as are necessary for incorporation into the Game or the Artwork or as are used in the development, advertising, marketing and sale of the Licensed Products or the Marketing Materials under this Agreement. 9.2 NOA's Representations and Warranties. NOA represents and warrants that: (a) it is a duly organized and validly existing corporation and has full authority to enter into this Agreement and to carry out the provisions hereof, and (b) the execution, delivery and performance of this Agreement by NOA does not conflict with any agreement or understanding to which NOA may be bound. 9.3 INTELLECTUAL PROPERTY RIGHTS DISCLAIMER. NOA (ON ITS OWN BEHALF AND ON BEHALF OF NINTENDO CO., LTD. AND ITS AFFILIATES, LICENSORS, SUPPLIERS AND SUBCONTRACTORS) EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES CONCERNING THE SCOPE OR VALIDITY OF THE INTELLECTUAL PROPERTY RIGHTS. NOA (ON ITS OWN BEHALF AND ON BEHALF OF NINTENDO CO., LTD. AND ITS AFFILIATES, LICENSORS, SUPPLIERS AND SUBCONTRACTORS) EXPRESSLY DISCLAIMS ANY WARRANTY THAT THE DESIGN, DEVELOPMENT, ADVERTISING, MARKETING OR SALE OF THE LICENSED PRODUCTS OR THE USE OF THE INTELLECTUAL PROPERTY RIGHTS BY LICENSEE WILL NOT INFRINGE UPON ANY PATENT, COPYRIGHT, TRADEMARK OR OTHER PROPRIETARY RIGHTS OF A THIRD PARTY. ANY WARRANTY THAT MAY BE PROVIDED IN ANY APPLICABLE PROVISION OF THE UNIFORM COMMERCIAL CODE OR ANY OTHER COMPARABLE LAW OR STATUTE IS EXPRESSLY DISCLAIMED. LICENSEE HEREBY ASSUMES THE RISK OF INFRINGEMENT. 9.4 ****** 9.5 LIMITATION OF LIABILITY. TO THE MAXIMUM EXTENT PERMITTED BY LAW, NEITHER NOA NOR NINTENDO CO., LTD. (NOR THEIR AFFILIATES, LICENSORS, SUPPLIERS OR SUBCONTRACTORS) SHALL BE LIABLE FOR LOSS OF PROFITS, OR FOR ANY SPECIAL, PUNITIVE, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF LICENSEE OR ITS CUSTOMERS ARISING OUT OF OR RELATED TO THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE BREACH OF THIS AGREEMENT BY NOA, THE MANUFACTURE OF THE LICENSED PRODUCTS OR THE USE OF THE LICENSED PRODUCTS ON ANY NINTENDO VIDEO GAME SYSTEM BY LICENSEE OR BY ANY END USER. ****** [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 11 10. INDEMNIFICATION 10.1 LICENSEE's Indemnification. LICENSEE shall indemnify and hold harmless NOA and Nintendo Co., Ltd. (and any of their respective affiliates, subsidiaries, licensors, suppliers, officers, directors, employees or agents) from any claims, losses, liabilities, damages, expenses and costs, including, without limitation, reasonable attorneys' fees and ****** costs and any ****** expenses incurred in the settlement or avoidance of any such claim, which result from or are in connection with: (a) a ****** breach of any of the provisions, representations or warranties undertaken by LICENSEE in this Agreement, (b) any infringement of a third party's Proprietary Rights as a result of the design, development, advertising, marketing, sale or use of any aspect of the Licensed Products, Promotional Materials or the Marketing Materials, ****** (c) any claims alleging a defect, failure to warn, bodily injury (including death) or other personal or property damage arising out of, or in connection with, the design, development, advertising, marketing, sale or use of any of any aspect of the Licensed Products, and (d) any federal, state or foreign civil or criminal actions relating to the design, development, advertising, marketing, sale or use of any aspect of the Licensed Products, Promotional Materials or the Marketing Materials. NOA shall give prompt Notice to LICENSEE of any claim which is or which may be subject to indemnification under this Section 10.1. With respect to any such third party claim, LICENSEE, as indemnitor, shall have the right to select counsel and to control the defense and/or settlement thereof. NOA may, at its own expense, participate in such action or proceeding with counsel of its own choice. LICENSEE shall not enter into any settlement of any matter in which (i) NOA or Nintendo Co., Ltd. has been named as a party, or (ii) claims relating to the Intellectual Property Rights have been asserted, without NOA's prior written consent. NOA shall provide reasonable assistance to LICENSEE in its defense of any such claim. 10.2 LICENSEE's Insurance. LICENSEE shall, at its own expense, obtain a comprehensive policy of general liability insurance (including coverage for advertising injury and product liability claims) from a recognized insurance company. Such policy of insurance shall be in an amount of not less than ***** on a per occurrence basis and shall provide for adequate protection against any suits, claims, loss or damage by the Licensed Products. Such policy shall name NOA and Nintendo Co., Ltd. as additional insureds and shall specify it may not be canceled without thirty (30) days' prior written Notice to NOA. If LICENSEE fails to maintain such insurance at any time during the Term and for a period of two (2) years thereafter ****** NOA may secure such insurance at LICENSEE's expense. 10.3 Suspension of Production. In the event NOA ****** deems itself at risk with respect to any claim, action or proceeding under this Section 10, NOA may, at its sole option, suspend production, delivery or order acceptance for any Licensed Products, in whole or in part, pending resolution of such claim, action or proceeding. 11. PROTECTION OF PROPRIETARY RIGHTS 11.1 Joint Actions against Infringers. LICENSEE and NOA may agree to jointly pursue cases of infringement involving of the Licensed Products, as such Licensed Products will contain Proprietary Rights owned by each of them. Unless the parties otherwise agree, or unless the recovery is expressly allocated between them by the court, in the event of such an action, any recovery shall be used first to [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 12 reimburse LICENSEE and NOA for their respective reasonable attorneys' fees and costs, pro rata, and any remaining recovery shall be distributed to LICENSEE and NOA, pro rata, based upon the fees and costs incurred in bringing such action. 11.2 Actions by LICENSEE. LICENSEE, without the consent of NOA, may bring any action or proceeding relating to an infringement or potential infringement of LICENSEE's Proprietary Rights in the Licensed Products. LICENSEE shall make reasonable good faith efforts to inform NOA of such actions in a timely manner. LICENSEE will have the right to retain all proceeds it may derive from any recovery in connection with such actions. 11.3 Actions by NOA. NOA, without the consent of LICENSEE, may bring any action or proceeding relating to an infringement or potential infringement of NOA's Intellectual Property Rights in the Licensed Products. NOA shall make reasonable, good faith efforts to inform LICENSEE in writing of such actions likely to affect LICENSEE's rights in a timely manner. NOA will have the right to retain all proceeds it may derive from any recovery in connection with such actions. 12. ASSIGNMENT 12.1 No Assignment by LICENSEE. This Agreement is personal to LICENSEE and may not be sold, assigned, delegated, sublicensed or otherwise transferred or encumbered, in whole or in part, without NOA's prior written consent, which consent may be withheld by NOA in its sole discretionIn the event of an assignment or other transfer in violation of this Agreement, NOA shall have the unqualified right to immediately terminate this Agreement without further obligation to LICENSEE. 12.2 Assignment by Operation of Law. In the event of an assignment by operation of law which purports to affect this Agreement, LICENSEE shall, not later than thirty (30) days thereafter, give Notice and seek consent thereto from NOA. Such Notice shall disclose the name of the assignee, the effective date and the nature and extent of the assignment. An assignment by operation of law includes, but is not limited to (a) a merger of LICENSEE into another business entity, (b) the sale, assignment or transfer of all or substantially all of the assets of LICENSEE to a third party, (c) the sale, assignment or transfer to a third party of any of the LICENSEE's intellectual property rights which are used in the development of or are otherwise incorporated into any Licensed Products, or (d) the sale, assignment or transfer of any of LICENSEE's stock resulting in the acquirer having management power over or voting control of LICENSEE. Following the later of (i) an assignment by operation of law, or (ii) receipt of Notice of an assignment by operation of law, NOA shall have the unqualified right for a period of ninety (90) days to immediately terminate this Agreement without further obligation to LICENSEE. 12.3 Non-Disclosure Obligation. In no event shall LICENSEE disclose or allow access to Nintendo's Confidential Information prior to or upon the occurrence of an assignment, whether by operation of law or otherwise, unless and until NOA gives its written consent to such disclosure. 13. TERM AND TERMINATION 13.1 Term. This Agreement shall commence on the Effective Date and continue for the Term, unless earlier terminated as provided for herein. 13.2 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 Notice thereof, then this Agreement shall automatically terminate on the date specified in such Notice. 13.3 Bankruptcy. At NOA's option, this Agreement may be terminated immediately and without Notice in the event that LICENSEE (a) makes an assignment for the benefit of creditors, (b) becomes insolvent, (c) files a voluntary petition for bankruptcy, (d) acquiesces to any involuntary bankruptcy petition, (e) is adjudicated as a bankrupt, or (f) ceases to do business. PAGE 13 13.4 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 ****** to sell any unsold Licensed Products in inventory or in process. All Licensed Products in LICENSEE's control following the expiration of such sell-off period shall be destroyed by LICENSEE within ten (10) days and Notice of such destruction (with proof certified by an officer of LICENSEE) shall be delivered to NOA. 13.5 Termination by LICENSEE's Breach. If this Agreement is terminated by NOA as a result of a breach of its terms and conditions by LICENSEE, LICENSEE shall immediately cease all distribution, advertising, marketing or sale of any Licensed Products. All Licensed Products in LICENSEE's control as of the date of such termination shall be destroyed by LICENSEE within ten (10) days and Notice of such destruction (with proof certified by an officer of LICENSEE) shall be delivered to NOA. 13.6 Breach of NDA. At NOA's option, any breach by LICENSEE of the NDA, which breach is not cured within the time period for cure allowed under the applicable agreement, shall be considered a material breach of this Agreement entitling NOA to terminate this Agreement in accordance with Section 13.5 herein. 13.7 No Further Use of the Intellectual Property Rights. Upon expiration and/or termination of this Agreement, LICENSEE shall cease all use of the Intellectual Property Rights for any purpose, except as may be required in connection with the sale of the Licensed Products authorized under Section 13.4 herein. LICENSEE shall, within thirty (30) days thereafter, (a) return to NOA all Development Tools, and (b) return to NOA or destroy all Guidelines, writings, drawings, models, data, tools 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 Confidential Information, without making copies or otherwise retaining any such information. Proof of such return or destruction shall be certified by an officer of LICENSEE and promptly provided to NOA. 13.8 Termination by NOA's Breach. If this Agreement is terminated by LICENSEE as a result of a breach of its terms or conditions by NOA, LICENSEE may, ****** continue to sell the Licensed Products in the Territory until the expiration of the Term, at which time the provisions of Section 13.4 shall apply. 14. GENERAL PROVISIONS 14.1 Export Control. LICENSEE agrees to comply with the export laws and regulations of the United States and any other country with jurisdiction over the Licensed Products or the Development Tools. 14.2 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 materials or production facilities necessary for production of the Licensed Products, NOA reserves the right to allocate such resources among itself and its licensees, including LICENSEE hereunder. 14.3 Records and Audit. During the Term and for a period of ******, LICENSEE agrees to keep reasonably accurate, complete and detailed records in accordance with LICENSEE's standard business practices, relating to the use of the Confidential Materials, the Development Tools and the Intellectual Property Rights. Upon at least ****** prior written Notice to LICENSEE, NOA may, at its expense, audit LICENSEE's records, reports and other information related solely to LICENSEE's compliance with this Agreement; provided, however, that NOA shall not, during the course of the audit, access LICENSEE's source code, development plans, marketing plans, internal business plans or other items deemed confidential by LICENSEE, except to the extent such [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. PAGE 14 materials incorporate, disclose or reference Nintendo's Confidential Information or Intellectual Property Rights. 14.4 Waiver, Severability, Integration, and Amendment. The failure of a 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. Together with the NDA, this Agreement constitutes the entire agreement between the parties relating to the subject matter hereof. All prior negotiations, representations, agreements and understandings are merged into, extinguished by and completely expressed by this Agreement and the NDA. Any amendment to this Agreement shall be in writing, signed by both parties. 14.5 Survival. In addition to those rights specified elsewhere in this Agreement, the rights and obligations set forth in Sections 3, 8, 9, 10, 11, 12 and 13 shall survive any expiration or termination of this Agreement to the degree necessary to permit their complete fulfilment or discharge. 14.6 Governing Law and Venue. This Agreement shall be governed by the laws of the State of Washington, without regard to its conflict of laws principles. Any legal actions (including judicial and administrative proceedings) with respect to any matter arising under or growing out of this Agreement, shall be brought in a court of competent jurisdiction in King County, Washington. Each party hereby consents to the jurisdiction and venue of such courts for such purposes. 14.7 Equitable Relief. LICENSEE acknowledges that in the event of its breach of this Agreement, no adequate remedy at law may be available to NOA and that NOA shall be entitled to seek injunctive or other equitable relief in addition to any relief available at law. 14.8 Attorneys' Fees. In the event it is necessary for either party to this Agreement to undertake legal action to enforce or defend any action arising out of or relating to this Agreement, the prevailing party in such action shall be entitled to recover from the other party all reasonable attorneys' fees, costs and expenses relating to such legal action or any appeal therefrom. 14.9 Counterparts and 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, the parties have entered into this Agreement on the dates set forth below.
NOA: LICENSEE: NINTENDO OF AMERICA INC. THQ INC. By: /s/ John Bauer By: /s/ Leslie Brown Title: Executive VP, Administration Title: Vice President and Chief Legal Counsel Date: April 5, 2002 Date: April 4, 2002
PAGE 15 EX-10.8 10 a85823exv10w8.txt EXHIBIT 10.8 EXHIBIT 10.8 ALL SECTIONS MARKED WITH ASTERISKS REFLECT PORTIONS WHICH HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY THQ INC. AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT. MICROSOFT CORPORATION XBOX(TM) PUBLISHER LICENSE AGREEMENT This License Agreement (the "Agreement") is entered into and effective as of March 20, 2001 (the "Effective Date") by and between MICROSOFT CORPORATION, a Washington corporation ("Microsoft"), and THQ Inc. ("Licensee"). A. Whereas, Microsoft develops and licenses a computer game system, known as the Xbox(TM)game system; and B. Whereas, Licensee is an experienced publisher of software products that wishes to develop and/or publish one or more software products running on the Xbox game system, and to license proprietary materials from Microsoft, on the terms and conditions set forth herein. Accordingly, for and in consideration of the mutual covenants and conditions contained herein, and for other good and valuable consideration, receipt of which each party hereby acknowledges, Microsoft and Licensee agree as follows: 1. DEFINITIONS. For the purposes of this Agreement, the following terms will have the respective indicated meanings. 1.1 "ART & MARKETING MATERIALS" shall mean art and mechanical formats for a Software Title including the retail packaging, end user instruction manual with end user license agreement and warranties, Finished Product Unit media label, and any promotional inserts and other materials that are to be included in the retail packaging. For purposes of the approval rights set forth in this Agreement, Art & Marketing Materials are all final versions and final draft versions of press releases, marketing, advertising or promotional materials related to the Software Title and/or Finished Product Units (including without limitation web advertising and Licensee's web pages to the extent they refer to the Software Title(s) or the Finished Product Units) which use the Licensed Trademarks in other than a referential manner. 1.2 "AUTHORIZED REPLICATOR" shall mean a software replicator certified and approved by Microsoft for replication of games that run on Xbox. Upon Licensee's written request, Microsoft will provide Licensee with a copy of the then-current list of Authorized Replicators, but the status of a particular replicator and such list may change from time to time in Microsoft's sole and absolute discretion provided that Microsoft shall provide reasonable advance notice of any such change. 1.3 "BRANDING SPECIFICATIONS" shall mean the specifications in Exhibit C, and such other design specifications as Microsoft may hereafter provide from time to time, for using the Licensed Trademarks on a Software Title and/or on related product packaging, documentation, and other materials. 1.4 "COMMERCIAL RELEASE" shall mean (a) with respect to Xbox, the first distribution of an Xbox to the public for payment, and (b) with respect to a Software Title, the earlier of the first distribution of the Software Title for payment or distribution of Finished Product Units that are not designated as beta or prerelease versions. 1.5 "FINISHED PRODUCT UNIT" shall mean a DVD-9 copy, in software object code only, of a Software Title, in whole or in part. 1 Microsoft Confidential 1.6 "LICENSED TRADEMARKS" shall mean the Microsoft trademarks depicted in Exhibit B (which Microsoft unilaterally may modify from time to time during the term of this Agreement upon written notice to Licensee). 1.7 "SOFTWARE TITLE" shall mean the single software product as described in the applicable Exhibit A (i.e., Exhibit A-1, Exhibit A-2, or Exhibit A-n, as the case may be), developed by Licensee, and running on Xbox. A Software Title shall include the improvements and patches thereto (if and to the extent approved by Microsoft), but shall not include any "prequel" or "sequel." If Microsoft approves one or more additional concept(s) for another single software product proposed by Licensee to run on Xbox, pursuant to the procedure set forth in Section 2.1.1 below and the Xbox Guide (as defined in Section 2.1), then upon Microsoft's written approval of such concept, this Agreement, and the term "Software Title," shall be broadened automatically to cover the respective new software product and the parties will prepare, initial and append to this Agreement a new Exhibit A-n for each such additional new software product. 1.8 "CERTIFICATION REQUIREMENTS" shall mean the requirements specified in this Agreement (including without limitation the Xbox Guide) for quality, compatibility, and/or performance of a Software Title, and, to the extent not inconsistent with the foregoing standards, the standards of quality and performance generally accepted in the console game industry. 1.9 "TERRITORY" shall be shall be determined on a Software Title-by-Software Title basis, and shall mean such countries as may be specified in writing by Microsoft when the concept of the applicable Software Title is approved pursuant to Section 2.1.1 below. Nevertheless, this Agreement is intended to be worldwide in scope, meaning that Licensee shall have worldwide publication and distribution rights, although certain Software Titles may only be approved for publication and distribution in certain Territories. 1.10 "XBOX" shall mean the first version (as of the Commercial Release) of Microsoft's Xbox game system, including operating system software and hardware design specifications. 2. DEVELOPMENT; DELIVERY; APPROVAL 2.1 SOFTWARE TITLE DEVELOPMENT. Licensee's development activities with respect to each Software Title shall be in accordance with the development schedule set forth in the applicable Exhibit A-n. Furthermore, Licensee agrees to be bound by all provisions contained in the then-applicable version of the "Xbox Guide", the current version of which Microsoft or its affiliate will deliver to Licensee when it is completed, after the execution of this Agreement. Licensee understands and agrees that Microsoft may, in its discretion, supplement, revise and update the Xbox Guide from time to time and that upon Licensee's receipt of the applicable supplement, revision or updated version, Licensee automatically shall be bound by all provisions of the then-current Xbox Guide; Microsoft will specify in each such supplement, revision or updated version a reasonable effective date of each change if such change or revision is not required to be effective immediately. If Licensee proceeds with the development of a Software Title, Licensee shall deliver each milestone (as described in Sections 2.1.1, 2.1.2, 2.1.3 and 2.1.4) to Microsoft for approval in writing. All certification and playtesting (and reasonable applicable fees therefor, if any) will be in accordance with the then-applicable version of the Xbox Guide. If Microsoft does not approve Licensee's submission for a given milestone then Licensee shall either correct the problems that contributed to the lack of approval or, if Microsoft gives Licensee written notice to cease development, Licensee shall immediately cease all development activities for the applicable Software Title's subsequent milestones. Each successive milestone shall comply in all material respects with the characteristics of previously approved milestones. Each software milestone shall be delivered in compiled object code form. 2.1.1 CONCEPT. Licensee shall deliver to Microsoft a written and completed concept submission form (in the form provided by Microsoft to Licensee), including without limitation: (a) a detailed description of the Software Title, including but not limited to (to the extent applicable) title, theme, plot, characters, play elements, and technical specifications; (b) the identities of any proposed subcontractors, and general information about the principal team of individual developers, and (c) an explanation of the design, technical and marketing suitability of the Software Title. Evaluation of the proposed design will be based on criteria including, but not necessarily limited to, the following: (i) originality; (ii) play breadth and depth; (iii) playability; (iv) replayability and long-term interest; and (v) theme, characters and storyline. Technical evaluation of the concept will be based on criteria including, but not necessarily limited to, feasibility of execution and usage of system capabilities (such as graphics, audio, hard drive, play control, online capabilities and peripherals). Marketing suitability will be evaluated based on criteria including, but not necessarily limited to, the following: (i) market viability; (ii) Licensee's marketing commitment (if any); (iii) suitability to the target demographic; and (iv) overall fit with the Xbox certified software products portfolio. 2.1.2 PRELIMINARY VERSIONS. Licensee may, but will not be required to, deliver to Microsoft certain preliminary versions of the Software Title, as addressed in the Xbox Guide. 2.1.3 FEATURE-COMPLETE VERSION. Licensee shall deliver to Microsoft a feature-complete version of the Software Title (the "Beta Version"), which includes all features of the Software Title and such other content as may be required under the Xbox Guide. Concurrently with delivery of the Beta Version, Licensee will disclose in writing to Microsoft the details about any and all so-called "hidden characters," "cheats," "easter eggs," "bonus video and/or audio," and similar elements of which it is aware included in the Beta Version and/or intended to be included in the final release version of the Software Title. 2.1.4 FINAL RELEASE VERSION. Licensee shall deliver to Microsoft, Licensee's proposed final release version of the applicable Software Title that is complete and ready for manufacture and commercial distribution, with the final content rating certification, with identified program errors corrected, and with any and all changes previously requested by Microsoft implemented. However, nothing herein will be deemed to relieve Licensee of its obligation to correct program bugs and errors (including "easter eggs" or other hidden features described in Section 2.1.3) that adversely affect game play, whenever discovered (including without limitation after Commercial Release), and Licensee agrees to correct such bugs and errors as soon as possible after discovery (provided that, with respect to bugs or errors discovered after Commercial Release of the applicable Software Title, Licensee will use commercially reasonable efforts to correct the bug/error in all Finished Product Units manufactured after discovery). In addition, Licensee will comply with all certification procedures, guidelines and standards set forth in the then-applicable version of the Xbox Guide. Licensee shall not distribute the Software Title, nor manufacture any Finished Product Units intended for distribution, unless and until Microsoft shall have given its final certification and approval of the final release version of the Software Title, and Microsoft shall have provided the code for the final release version to the applicable Authorized Replicator(s). 2.1.5 PLAYTESTING. Microsoft will playtest the Beta Version and proposed final release version of each Software Title; if Licensee delivers preliminary versions of a Software Title, Microsoft may (but will not be obligated to) playtest such versions. Microsoft will provide written comments to Licensee regarding the results of its playtest results, and Licensee shall comply with any requests made by Microsoft to improve the applicable Software Title based on such playtest results. Licensee acknowledges that, notwithstanding its receipt of approvals from Microsoft for prior milestones or versions during the development process, Licensee's proposed final release version of each Software Title must be approved by Microsoft, as set forth in the Xbox Guide. In addition to conforming with the approved concept, with all technical specifications, and with all other requirements set by Microsoft during the development and approval process, each Software Title must achieve a satisfactory rating in final playtesting. Notwithstanding anything to the contrary contained herein, Licensee acknowledges and understands that, in part, the results of playtesting will be subjective, that Microsoft will have the right to deny final approval based on its determination using reasonable business judgment, and that Licensee has and will have no expectation of final approval of any Software Title regardless of any approvals or assessments given or made by Microsoft, informally or formally, at any time. Notwithstanding the foregoing, it is not Microsoft's intent to provide (or to not provide) final approvals based on playtesting results arbitrarily or in bad faith. 3 Microsoft Confidential 2.1.6 ART & MARKETING MATERIALS. Licensee shall deliver to Microsoft for approval all Art & Marketing Materials as provided herein. Licensee shall not distribute any specific Art & Marketing Materials unless and until Microsoft shall have given its final certification and approval of the specific item. 2.2 CONTENT RATING. Licensee understands and agrees that, without limitation, Microsoft will not give final certification and approval of a Software Title unless and until Licensee shall have obtained, at Licensee's sole cost, a rating of no higher than "Mature (17+)" or its equivalent from the appropriate rating bodies for the applicable Territory (such as, ESRB, ELSPA, etc.) and/or any and all other independent content rating authority/authorities reasonably designated by Microsoft. Licensee shall make any changes to the Software Title required to obtain a rating of no higher than "Mature (17+)" (or its equivalent). In no event shall Licensee distribute any Software Title under an "Adults Only" or higher rating (or equivalent rating). Licensee shall include the applicable rating(s) prominently on Finished Product Units, in accordance with the applicable rating body guidelines. 2.3 DEVELOPMENT KIT LICENSE. Microsoft or its affiliate will offer to Licensee the opportunity to enter into one or more development kit license(s) (each an "XDK License") pursuant to which Microsoft would license to Licensee software development tools and hardware to assist Licensee in the development of Software Titles, including without limitation certain sample code and other redistributable code which Licensee could incorporate into Software Titles, on such terms and conditions as are contained in the XDK License. 2.4 SUBCONTRACTORS. Licensee shall not use any subcontractors or any other third parties to perform software development work in connection with a Software Title unless and until (i) the proposed subcontractor or other third party and (ii) Microsoft shall have executed an XDK license unless otherwise permitted by Microsoft; provided that nothing contained herein will be deemed to require Microsoft or its affiliate to execute an XDK License with any particular person or entity if Microsoft or its affiliate determines that it is not appropriate to execute such an XDK License. 2.5 CHANGES OF REQUIREMENTS BY MICROSOFT. Unless otherwise reasonably specified by Microsoft at the respective time: (a) after approval by Microsoft of the Beta Version of a Software Title, Licensee will not be obligated to comply, with respect to such Software Title only, with any subsequent changes made by Microsoft to the technical or content requirements for Software Titles generally in the Xbox Guide; and (b) subject to the immediately preceding clause (a), any changes made by Microsoft in Branding Specifications or other requirements after final certification of a Software Title by Microsoft will be effective as to such Software Title only on a "going forward" basis (i.e., only to such Art & Marketing Materials and/or Finished Product Units as are manufactured after Microsoft notifies Licensee of the change), unless (i) the change can be accommodated by Licensee with insignificant added expense, or (ii) Microsoft pays for Licensee's direct, out-of-pocket expenses necessarily incurred as a result of its retrospective compliance with the change. 3. RIGHTS AND RESTRICTIONS 3.1 TRADEMARKS. 3.1.1 LICENSE. In each Software Title, and on each Finished Product Unit (and the packaging therefor), Licensee shall incorporate the Licensed Trademarks and include credit and acknowledgement to Microsoft as set forth in the Branding Specifications and the Xbox Guide. Microsoft grants to Licensee a non-exclusive, non-transferable, personal license to use the Licensed Trademarks, according to the Branding Specifications and other conditions herein, and solely in connection with marketing, sale, and distribution in the Territory of Finished Product Units that meet the Certification Requirements. Referential use of the Licensed Trademarks, such as in corporate materials and annual reports shall not require a license and shall not be subject to approvals by Microsoft. 4 Microsoft Confidential 3.1.2 LIMITATIONS. Licensee is granted no right, and shall not purport, to permit any third party to use the Licensed Trademarks in any manner without Microsoft's prior written consent except as provided herein. Licensee's license to use Licensed Trademarks in connection with the Software Title and Finished Product Units shall not extend to the merchandising or sale of related or promotional products under the Licensed Trademarks. 3.1.3 BRANDING SPECIFICATIONS. Licensee's use of the Licensed Trademarks (including without limitation in Finished Product Unit and Art & Marketing Materials) shall comply with the Branding Specifications in Exhibit C. Licensee shall not use Licensed Trademarks in association with any third party trademarks in a manner that might suggest co-branding or otherwise create potential confusion as to source or sponsorship of the Software Title or Finished Product Units or ownership of the Licensed Trademarks. Upon notice or other discovery of any non-conformance with the requirements or prohibitions of this section, Licensee shall promptly remedy such non-conformance on a go-forward basis and notify Microsoft of the non-conformance and remedial steps taken. 3.1.4 CERTIFICATION REQUIREMENTS. Licensee may use the Licensed Trademarks only in connection with the copies of the Software Title that meet the Certification Requirements. Licensee shall test the Software Title and Finished Product Units for conformance with the Certification Requirements according to generally accepted and best industry practices, and shall keep written or electronic records of such testing during the Term of this Agreement and for no less than ****** thereafter ("Test Records"). Upon Microsoft's request, Licensee shall provide Microsoft with copies of or reasonable access to inspect the Test Records, Finished Product Units and Software Title (either in pre-release or commercial release versions, as Microsoft may request). Upon notice or other discovery of any non-conformance with the Certification Requirements, Licensee shall promptly remedy such non-conformance in all Finished Product Units (subject to Sections 2.1.4 and 2.5 above), and shall notify Microsoft of the non-conformance and remedial steps taken. 3.1.5 PROTECTION OF LICENSED TRADEMARKS. Licensee shall assist Microsoft at Microsoft's cost in protecting and maintaining Microsoft's rights in the Licensed Trademarks, including preparation and execution of documents necessary to register the Licensed Trademarks or record this Agreement, and giving immediate notice to Microsoft of potential infringement of the Licensed Trademarks. Microsoft shall have the sole right to and in its sole discretion may commence, prosecute or defend, and control any action concerning the Licensed Trademarks, either in its own name or, with Licensee's consent, by joining Licensee as a party thereto. Licensee shall not during the Term of this Agreement contest the validity of, by act or omission jeopardize, or take any action inconsistent with, Microsoft's rights or goodwill in the Licensed Trademarks in any country, including attempted registration of any Licensed Trademark, or use or attempted registration of any mark confusingly similar thereto. 3.1.6 OWNERSHIP. Licensee acknowledges Microsoft's ownership of all Licensed Trademarks, and all goodwill associated with the Licensed Trademarks. Use of the Licensed Trademarks shall not create any right, title or interest therein in Licensee's favor. Licensee's use of the Licensed Trademarks shall inure solely to the benefit of Microsoft. 3.1.7 NO BUNDLING WITH UNAPPROVED PERIPHERALS, PRODUCTS OR SOFTWARE. Licensee shall not market or distribute any Finished Product Unit bundled with any unapproved peripheral product software or other products, nor shall Licensee knowingly permit or assist any third party in such bundling, without Microsoft's prior written consent. 3.2 ****** 3.3 NO ELECTRONIC TRANSMISSION. Licensee shall distribute the Software Title only as embodied in Finished Product Units; specifically, but without limitation, Licensee shall not distribute the Software Title by any means of electronic transmission without the prior written approval of Microsoft, which Microsoft may grant or withhold in its discretion. For the avoidance of doubt, nothing herein is intended to prevent Licensee from taking and filling orders for Finished Product Units over the internet. Furthermore, Licensee will not authorize or permit any online activities involving the Software Title, including without limitation multiplayer, peer-to-peer and/or online play, without the prior written approval of Microsoft, which Microsoft may grant or withhold in its discretion. The parties will enter into an amendment to this Agreement or a separate agreement covering such online activities. 3.4 NO DISTRIBUTION OUTSIDE THE TERRITORY. Licensee shall distribute Finished Product Units only in the Territory. Licensee shall not directly or indirectly export any Finished Product Units from the Territory nor shall Licensee knowingly permit or assist any third party in doing so, nor shall Licensee distribute Finished Product Units to any person or entity that it has reason to believe may re-distribute or sell such Finished Product Units outside the Territory. 3.5 NO REPRODUCTION OF FINISHED PRODUCT UNITS EXCEPT BY MICROSOFT OR AUTHORIZED REPLICATORS. Licensee acknowledges that this Agreement does not grant Licensee the right to reproduce or otherwise manufacture Finished Product Units itself, or on its behalf, other than with Microsoft or an Authorized Replicator. Licensee must use Microsoft or an Authorized Replicator to produce Finished Product Units, pursuant to Section 4. 3.6 NO REVERSE ENGINEERING. Licensee may utilize and study the design, performance and operation of Xbox solely for the purposes of developing the Software Title. Notwithstanding the foregoing, Licensee shall not, directly or indirectly, reverse engineer or aid or assist in the reverse engineering of all or any part of Xbox except and only to the extent that such activity is expressly permitted by applicable law notwithstanding this limitation. Reverse engineering includes, without limitation, decompiling, disassembly, sniffing, peeling semiconductor components, or otherwise deriving source code. In addition to any other rights and remedies that Microsoft may have under the circumstances, Licensee shall be required in all cases to pay royalties to Microsoft in accordance with Section 6 below with respect to any games or other products that are developed, marketed or distributed by Licensee, and derived in whole or in part from the reverse engineering of Xbox or any Microsoft data, code or other material. 3.7 RESERVATION OF RIGHTS. Microsoft reserves all rights not explicitly granted herein. 3.8 OWNERSHIP OF THE SOFTWARE TITLES. Except for the intellectual property supplied by Microsoft to Licensee (including without limitation the licenses in the Licensed Trademarks hereunder and the licenses in certain software and hardware granted by an XDK License), ownership of which is retained by Microsoft, insofar as Microsoft is concerned, Licensee will own all rights in and to the Software Titles. 4. MANUFACTURING 4.1 APPROVED REPLICATORS. Licensee shall retain only an Authorized Replicator to manufacture all Finished Product Units. 4.2 TERMS OF USE OF AUTHORIZED REPLICATOR. Licensee will notify Microsoft in writing of the identity of the applicable Authorized Replicator and unless Microsoft agrees otherwise, the agreement for such manufacturing/ replication services shall be as negotiated by Licensee and the applicable Authorized Replicator, subject to the following requirements: [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. 6 Microsoft Confidential ' 4.2.1 Microsoft, and not Licensee, will provide to the single applicable Authorized Replicator the final release version of the Software Title and all specifications required by Microsoft for the manufacture of the Finished Product Units (including without limitation the Security Technology (as defined in Section 4.4 below); Licensee will be responsible for preparing and delivering to the Authorized Replicator all other items required for manufacturing Finished Product Units; and Licensee agrees that all Finished Product Units must be replicated in conformity with all of the quality standards and manufacturing specifications, policies and procedures that Microsoft requires of its Authorized Replicators, and that all so-called "adders" must be approved by Microsoft prior to packaging (in accordance with Section 2.1.6 above); 4.2.2 Microsoft will have the right, but not the obligation, to be supplied with up to ****** Finished Product Units (including pre-production samples and random units manufactured during production runs) at Licensee's cost but without royalties, for quality assurance and archival purposes; 4.2.3 the initial manufacturing order for Finished Product Units of each Software Title may not be less than a number specified by Microsoft in the Xbox Guide; although such number may change from time to time during the Term of this Agreement, initially it will be ******; 4.2.4 Microsoft shall not be responsible for ensuring that all Finished Product Units are free of all defects (provided that Licensee shall not be in breach of this Agreement as a result of defects in Finished Product Units, although the existence of such defects may give rise to other affirmative obligations of Licensee as set forth elsewhere in this Agreement); 4.2.5 Licensee will use commercially reasonable efforts to cause the Authorized Replicator to deliver to Microsoft true and accurate monthly statements of Finished Product Units manufactured in each calendar month, on a Software Title-by-Software Title basis and in sufficient detail to satisfy Microsoft, within fifteen (15) days after the end of the applicable month, and Microsoft will have reasonable audit rights to examine the records of the Authorized Replicator regarding the number of Finished Product Units manufactured; 4.2.6 In the event that Microsoft would like to have included in the packaging of Finished Product Units such marketing materials for Xbox and/or other Xbox products or services as Microsoft may determine in its reasonable discretion, then Microsoft shall seek written approval from Licensee on a case by case basis. If Licensee grants such approval, Microsoft will be responsible for delivering to the Authorized Replicator all such marketing materials approved for inclusion with Finished Product Units, and any incremental insertion costs relating to such marketing materials will be borne by Microsoft; 4.2.7 Microsoft does not guarantee any level of performance by its Authorized Replicators, and Microsoft will have no liability to Licensee for any Authorized Replicator's failure to perform its obligations under any applicable agreement between Microsoft and such Authorized Replicator and/or between Licensee and such Authorized Replicator. 4.2.8 Prior to placing an order with a replicator/manufacturer for Finished Product Units, Licensee shall confirm with Microsoft that such entity is an Authorized Replicator; Microsoft will endeavor to keep an up-to-date list of Authorized Replicators in the Xbox Guide. Licensee will not place any order for Finished Product Units with any entity that is not at such time an Authorized Replicator. 4.3 APPROVAL OF NEW AUTHORIZED REPLICATOR. If Licensee requests that Microsoft certify and approve a third party replicator that is not then an Authorized Replicator, Microsoft will consider such request in good faith. Licensee acknowledges and agrees that Microsoft may condition certification and approval of such third party on the execution of an agreement in a form satisfactory to Microsoft pursuant to which such third party agrees to strict quality standards, non-disclosure requirements, license fees for use of Microsoft intellectual property and trade secrets, and procedures to protect Microsoft's intellectual property and trade secrets. Notwithstanding anything contained herein, Licensee acknowledges that Microsoft is not required to certify or approve any particular third party as an Authorized Replicator, and that the certification and approval process may be time-consuming. 4.4 SECURITY. Microsoft will have the right to add to the final release version of the Software Title delivered by Licensee to Microsoft, and to all Finished Product Units, such digital signature technology and other security technology and copyright management information (collectively, "Security Technology") as Microsoft may determine to be necessary, and/or Microsoft may modify the signature included in any Security Technology included in the Software Title by Licensee at Microsoft's direction. Additionally, Microsoft may add Security Technology that prohibits the play of Software Titles on Xbox units manufactured in a region or country different from the location of manufacture of the respective Finished Product Units. [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. 8 Microsoft Confidential 5. MARKETING, SALES AND SUPPORT 5.1 LICENSEE RESPONSIBLE. As between Microsoft and Licensee, Licensee shall be solely responsible for marketing and sales of the Software Title, and for providing technical and all other support to the end users of the Finished Product Units. Licensee will provide all end users of Software Titles contact information (including without limitation Licensee's street address and telephone number, and the applicable individual/group responsible for customer support). Such end user support will be consistent with the then-applicable console game industry standards. Licensee acknowledges and agrees that Microsoft will have no support responsibilities whatsoever to end users of the Software Title or with respect to Finished Product Units. 5.2 ART & MARKETING MATERIALS. In accordance with Section 2.1.6 above, Licensee shall submit all Art & Marketing Materials to Microsoft, and Licensee shall not distribute such Art & Marketing Materials unless and until Microsoft has approved them in writing. Prior to publication of any Art & Marketing Materials, Licensee agrees to incorporate all changes relating to use of the Licensed Trademarks that Microsoft may request, and will use its commercially reasonable efforts to incorporate other changes reasonably suggested by Microsoft (provided, however, that Licensee shall at all times comply with the requirements set forth in the Branding Specifications and/or the Xbox Guide). Microsoft further agrees that if it approves any particular Art & Marketing Materials, then subsequent uses of substantially similar Art & Marketing Materials in substantially similar contexts shall require no additional approvals. 5.3 WARRANTY. Licensee shall provide the original end user of any Finished Product Unit a minimum ninety (90) day limited warranty that the Finished Product Unit will perform in accordance with its user documentation or Licensee will provide a replacement Finished Product Unit at no charge. 5.4 RECALL. Notwithstanding anything to the contrary contained in this Agreement (including without limitation Section 2.1.4), in the event of a material defect in a substantial number of Finished Product Units, which defect in the reasonable judgment of Microsoft would significantly impair the ability of an end user to play such Software Title or Finished Product Unit, Microsoft may require Licensee to recall Finished Product Units and undertake prompt repair or replacement of such Software Title and/or Finished Product Units. 5.5 SOFTWARE TITLE LICENSE. Subject to third party rights of which Licensee will inform Microsoft in writing, Licensee hereby grants to Microsoft a fully-paid, royalty-free, non-exclusive license (i) to publicly perform the Software Titles at conventions, events, trade shows, press briefings, and the like; and (ii) to use the title of the Software Title, and screen shots from the Software Title, in advertising and promotional material relating to Xbox and related Microsoft products and services, as Microsoft may reasonably deem appropriate, provided that in such event Microsoft shall provide a credit to THQ in a form mutually agreed to by the parties. In the event that any of the foregoing rights are limited by Licensee's third-party licensing restrictions, then upon request by Microsoft or as otherwise disclosed to Microsoft by Licensee, Licensee shall detail any applicable restrictions on the license grant set forth herein and, where permitted, provide Microsoft with various Licensee marketing materials that may be used by Microsoft without the need for further approvals. The parties further agree to develop a process whereby Software Title(s) and/or screenshots thereof which contain such third-party licensed materials may be pre-approved for use in the manners described herein. Nothing herein shall preclude Microsoft from using screen shots, publicity materials, etc. as permitted by law without a license (for example, pursuant to a right of "fair use" under applicable copyright law or a "referential" use under trademark law). The parties will use good faith efforts to consult on a regular basis about advertising, marketing and promotional events relating to the Software Title; and Microsoft further agrees to consult Licensee in advance of any marketing or advertising that makes significant use of or reference to the Software Title. 6. PAYMENTS 6.1 ROYALTIES. Licensee shall pay Microsoft royalties, on a Software Title-by-Software Title basis, for each Finished Product Unit manufactured, in accordance with the following table: [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. 9 Microsoft Confidential
FINISHED PRODUCT UNITS MANUFACTURED ROYALTY PER APPLICABLE FINISHED PRODUCT UNIT - ----------------------------------- -------------------------------------------- US DOLLARS ---------- YEN ---------- EUROS ---------- Units * - * * * *
[*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. 10 Microsoft Confidential
FINISHED PRODUCT UNITS MANUFACTURED ROYALTY PER APPLICABLE FINISHED PRODUCT UNIT - ----------------------------------- -------------------------------------------- US DOLLARS ---------- YEN ---------- EUROS ---------- Units * - * * * * Units * - * * * * Units * and above * * *
Notwithstanding the foregoing, no royalties will be payable hereunder with respect to any Demo Finished Product Units. For the purposes hereof, a "Demo Finished Product Unit" will mean a Finished Product Unit that (i) contains only a small portion of the applicable Software Title, (ii) is provided to end users only to advertise or promote the applicable Software Title (although it may include demonstration versions of other games for Xbox published by Licensee), (iii) is manufactured in a number of units that has been approved in advance by Microsoft, which approval Microsoft agrees not to unreasonably withhold, and (iv) is distributed free or with a suggested retail price of not more than US$***. 6.2 ROYALTY PAYMENTS. Licensee shall have the option of paying the above royalties in US Dollars, Japanese Yen or Euros, according to the terms of this Section. By designating the appropriate box below, Licensee may choose to pay royalties on either a "Worldwide" or "Regional" basis. Such designation shall be binding throughout the term of this Agreement for all of Licensee's Software Titles. If Licensee elects to pay on a Worldwide basis, it shall pay royalties in US Dollars regardless of where the Finished Product Units are distributed or manufactured. If Licensee elects to pay on a Regional basis, it shall pay royalties in US Dollars, Japanese Yen or Euros in accordance with the table set forth in Section 6.1 but subject to the rest of this Section 6.2: (i) If the Authorized Replicator manufacturing the Finished Product Units is located in Japan, Singapore, Malaysia or Taiwan, Licensee shall pay its royalty denominated in Japanese Yen for such Finished Product Units. (ii) If the Authorized Replicator manufacturing the Finished Product Units is located in a member country of the European Union, Licensee shall pay its royalty denominated in Euros for such Finished Product Units. (iii) If the Authorized Replicator manufacturing the Finished Product Units is located in any other country or region of the world, Licensee shall pay its royalty denominated in US Dollars for such Finished Product Units. Notwithstanding the foregoing, in the event the conversion ratio for either Yen or Euros to Dollars, as described in the US edition of the Wall Street Journal, falls outside the foreign exchange trading range as set forth in the chart below, for a period of time greater than 30 consecutive days, Microsoft may then readjust the royalty amounts set forth in Section 6.1 for that currency. Such readjustments shall be made in Microsoft's good faith discretion according to its normal practices.
YEN/EURO TO US DOLLAR TRADING RANGE ----------------------------------- MINIMUM MAXIMUM ------- ------- Yen * * Euros * *
Worldwide __________(initials) Regional __________(initials) 6.3 PAYMENT PROCESS. After its receipt from the applicable Authorized Replicator(s) of each monthly statement of Finished Product Units manufactured, Microsoft will invoice Licensee for the amount owed to Microsoft pursuant to Section 6.1 above based upon the applicable statement. Licensee shall pay to Microsoft the full amount invoiced within thirty (30) calendar days (or such other time period mutually agreed by the parties) after the date of the respective invoice. Payment will be made by wire transfer, in immediately available funds, to an account, and in accordance with a reasonable procedure, to be specified in writing by Microsoft. 6.4 AUDIT. Licensee shall keep all usual and proper records related to its performance (and any subcontractor's performance) under this Agreement, including support for any cost borne by or income due to Microsoft, for a minimum period of **** from the date they are created. Such records, books of account, and entries shall be kept in accordance with generally accepted accounting principles. Microsoft reserves the right, upon **** notice, to audit Licensee's records and consult with Licensee's accountants for the purpose of verifying Licensee's compliance with the terms of this Agreement and for a period of ****. Any such audit shall be made by Microsoft's internal audit team or any Microsoft designee, and shall be conducted during regular business hours at the Licensee's (or any applicable subcontractor's) offices. Any such audit shall be paid for by Microsoft unless material discrepancies are disclosed. "Material" shall mean **** of the royalties due to Microsoft within the audit period. If material discrepancies are disclosed, Licensee agrees to pay Microsoft for the actual and reasonable out-of-pocket costs associated with the audit, as well as reimburse Microsoft for all underpaid amounts, plus interest at a rate of **** per annum. 6.5 TAXES. 6.5.1 The royalties to be paid by Licensee to Microsoft herein do not include any foreign, U.S. federal, state, local, municipal or other governmental taxes, customs and other duties, levies, fees, excises or tariffs, arising as a result of or in connection with the transactions contemplated under this Agreement including, without limitation, any state or local sales or use taxes or consumption tax or any value added tax or business transfer tax now or hereafter imposed on the provision of goods and services to Licensee by Microsoft under this Agreement, regardless of whether the same are separately stated by Microsoft (all such taxes and other charges being referred to herein as "Taxes"). All Taxes (and any penalties, interest, or other additions to any Taxes), with the exception of taxes imposed on Microsoft's net income or with respect to Microsoft's property ownership, shall be the financial responsibility of Licensee. Licensee agrees to indemnify, defend and hold Microsoft harmless from any such Taxes or claims, causes of action, costs (including, without limitation, reasonable attorneys' fees) and any other liabilities of any nature whatsoever related to such Taxes. 6.5.2 Licensee will pay all applicable value added, sales and use taxes and other taxes levied on it by a duly constituted and authorized taxing authority on the Finished Product Units or any transaction related thereto in each country in which the services and/or property are being provided or in which the transactions contemplated hereunder are otherwise subject to tax, regardless of the method of delivery. Any taxes that are owed by Licensee, (i) as a result of entering into this Agreement and the payment of the fees hereunder, (ii) are required or permitted to be collected from Licensee by Microsoft under applicable law, and (iii) are based upon the amounts payable under this Agreement (such taxes described in (i), (ii), and (iii) above the "Collected Taxes"), shall be remitted by Licensee to Microsoft, whereupon, upon request, Microsoft shall provide to Licensee tax receipts or other evidence indicating that such Collected Taxes have been collected by Microsoft and remitted to the appropriate taxing authority. Licensee may provide to Microsoft an exemption certificate acceptable to Microsoft and to the relevant taxing authority (including without limitation a resale certificate) in which case, after the date upon which such certificate is received in proper form, Microsoft shall not collect the taxes covered by such certificate. 6.5.3 Any taxes are required to be withheld, on payments made by Licensee to Microsoft, Licensee may deduct such taxes from the amount owed Microsoft and pay them to the appropriate taxing authority; provided however, that Licensee shall promptly secure and deliver to Microsoft an official receipt for any such taxes withheld or other documents necessary to enable Microsoft to claim a U.S. Foreign Tax Credit. Licensee will make certain that any taxes withheld are minimized to the extent possible under applicable law. 6.5.4 This tax Section 6.5 shall govern the treatment of all taxes arising as a result of or in connection with this Agreement notwithstanding any other section of this Agreement. 7. NON-DISCLOSURE; ANNOUNCEMENTS 7.1 NON-DISCLOSURE AGREEMENT. The information, materials and software exchanged by the parties hereunder or under an XDK License, including the terms and conditions hereof and of the XDK License, shall be subject to the Non-Disclosure Agreement between the parties attached hereto and incorporated herein by reference as Exhibit D. 7.2 PUBLIC ANNOUNCEMENTS. The parties contemplate that they will coordinate the issuance of initial press releases, or a joint press release, announcing the relationship established by the execution of this Agreement. However, neither party shall issue any such press release or make any such public announcement(s) without the express prior consent of the other party, which consent will not be unreasonably withheld or delayed. Furthermore, the parties agree to use their commercially reasonable efforts to coordinate in the same manner any subsequent press releases and public announcements relating to their relationship hereunder prior to the issuance of the same. Nothing contained in this Section 7.2 will relieve Licensee of any other obligations it may have under this Agreement, including without limitation its obligations to seek and obtain Microsoft approval of Art & Marketing Materials. 7.3 REQUIRED PUBLIC FILINGS. Notwithstanding Sections 7.1 and 7.2, the parties acknowledge that this Agreement, or portions thereof, may be required under applicable law to be disclosed, as part of or an exhibit to a party's required public disclosure documents. If either party is advised by its legal counsel that such disclosure is required, it will notify the other in writing and the parties will jointly seek confidential treatment of this Agreement to the maximum extent reasonably possible, in documents approved by both parties and filed with the applicable governmental or regulatory authorities, and/or Microsoft will prepare a redacted version of this Agreement for filing. 8. TERM AND TERMINATION 8.1 TERM. The term of this Agreement shall commence on the Effective Date and unless terminated earlier as provided herein, shall continue until three (3) years after Commercial Release of Xbox. 8.2 TERMINATION FOR BREACH. In the event either party shall materially fail to perform or comply with this Agreement or any provision thereof, and fail to remedy the default within thirty (30) days after the receipt of notice to that effect, then the other party shall have the right, at its sole option and upon written notice to the defaulting party, to terminate this Agreement upon written notice. Any notice of default hereunder shall be prominently labeled "NOTICE OF DEFAULT" provided, however, that if the default is a material breach of Section 3 or 7.1 above, or an XDK License, then the non-defaulting party may terminate this Agreement immediately upon written notice, without being obligated to provide a thirty -day cure period. The rights and remedies provided in this Section shall not be exclusive and are in addition to any other rights and remedies provided by law or this Agreement. If the uncured default is related to a particular Software Title, then the party not in default will have the right, in its discretion, to terminate this Agreement in its entirety or with respect to the applicable Software Title. 8.3 EFFECT OF TERMINATION; SELL-OFF RIGHTS. Upon termination or expiration of this Agreement, Licensee shall have no further right to exercise the rights licensed hereunder or otherwise acquired in relation to this Agreement and shall promptly return any and all copies of the Licensed Trademarks. Licensee shall have a period of **** following expiration of this Agreement, or termination for a reason other than Licensee's material breach, to sell-off its inventory of Finished Product Units existing as of the date of termination or expiration, after which sell-off period Licensee immediately shall destroy all Finished Product Units then in its possession, in process or under its control. All of Licensee's obligations under this Agreement shall continue to apply during such **** sell-off period. If this Agreement is terminated due to Licensee's material breach, Licensee shall immediately destroy all Finished Product Units not yet distributed to Licensee's distributors, dealers and/or end users. If requested by Microsoft in writing, Licensee will deliver to Microsoft the written certification by an officer of Licensee confirming the destruction of Finished Product Units required hereunder. 8.4 SURVIVAL. The following provisions shall survive termination of this Agreement: 1, 3.6, 5.1, 5.3, , 6, 7, 8.3, 8.4, 9, 10, 11 and 12. 9. WARRANTIES 9.1 LICENSEE. Licensee warrants and represents that: 9.1.1 It has the full power to enter into this Agreement; 9.1.2 It has not previously and will not grant any rights to any third party that are inconsistent with the rights granted to Microsoft herein; and 9.1.3 The Software Title, Finished Product Units, Art & Marketing Materials (excluding those portions that consist of the Licensed Trademarks, and redistributable components of the so-called "XDK" in the form as delivered to Licensee by Microsoft pursuant to an XDK License) do not and will not infringe upon or misappropriate any third party trade secrets, copyrights, trademarks, patents, publicity, privacy or other proprietary rights. 9.2 MICROSOFT. Microsoft warrants and represents that: 9.2.1 It has the full power to enter into this Agreement; and 9.2.2 It has not previously and will not grant any rights to any third party that are inconsistent with the rights granted to Licensee herein. 9.3 **** [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. 14 Microsoft Confidential VIRUSES. WITHOUT LIMITATION, MICROSOFT PROVIDES NO WARRANTY OF NON-INFRINGEMENT. 9.4 LIMITATION OF LIABILITY. THE MAXIMUM LIABILITY OF MICROSOFT TO LICENSEE OR ANY THIRD PARTY ARISING OUT OF THIS AGREEMENT SHALL BE ******. FURTHERMORE, UNDER NO CIRCUMSTANCES SHALL MICROSOFT BE LIABLE TO LICENSEE FOR ANY DAMAGES WHATSOEVER WITH RESPECT TO ANY CLAIMS RELATING TO THE SECURITY TECHNOLOGY AND/OR ITS EFFECT ON ANY SOFTWARE TITLE. 10. INDEMNITY 10.1 INDEMNIFICATION. A claim for which indemnity may be sought hereunder shall be referred to as a "Claim." 10.1.1 MUTUAL INDEMNIFICATION. Each party hereby agrees to indemnify, defend, and hold the other party harmless from any and all claims, demands, costs, liabilities, losses, expenses and damages (including reasonable attorneys' fees, costs, and expert witnesses' fees) arising out of or in connection with any claim that, taking the claimant's allegations to be true, would result in a breach by the indemnifying party of any of its warranties and covenants set forth in Section 9. 10.1.2 ADDITIONAL LICENSEE INDEMNIFICATION OBLIGATION. Licensee further agrees to indemnify, defend, and hold Microsoft harmless from any and all claims, demands, costs, liabilities, losses, expenses and damages (including reasonable attorneys' fees, costs, and expert witnesses' fees) arising out of or in connection with any claim regarding any Software Title or Finished Product Unit, including without limitation any claim relating to quality, performance, safety or conformance with the Certification Requirements, or arising out of Licensee's use of the Licensed Trademarks in breach of this Agreement, but not to the extent arising out of Xbox or the Licensed Trademarks themselves. 10.2 NOTICE AND ASSISTANCE. The indemnified party shall: (i) provide the indemnifying party reasonably prompt notice in writing of any Claim and permit the indemnifying party to answer and defend such Claim through counsel chosen and paid by the indemnifying party; and (ii) provide information, assistance and authority to help the indemnifying party defend such Claim. The indemnified party may participate in the defense of any Claim at its own expense. The indemnifying party will not be responsible for any settlement made by the indemnified party without the indemnifying party's written permission, which will not be unreasonably withheld or delayed. In the event the indemnifying party and the indemnified party agree to settle a Claim, the indemnified party agrees not to publicize the settlement without first obtaining the indemnifying party's written permission. 10.3 INSURANCE. Prior to distribution of any Software Title, Licensee at its sole cost and expense shall have endorsed Microsoft as an additional insured on Licensee's media perils errors and omissions liability policy for claims arising in connection with production, development and distribution of each Software Title in an amount no less than ****** on a per occurrence or per incident basis. Coverage provided to Microsoft under the policy shall be primary to and not contributory with any insurance maintained by Microsoft. Upon request, Licensee agrees to furnish copies of the additional insured endorsement and/or a certificate of insurance evidencing compliance with this requirement. [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. 15 Microsoft Confidential 11. PROTECTION OF PROPRIETARY RIGHTS 11.1 MICROSOFT INTELLECTUAL PROPERTY. In the event Licensee learns of any infringement or imitation of the Licensed Trademarks, the Software Title or the Finished Product Units, or the proprietary rights in or related to any of them, it will promptly notify Microsoft thereof. Microsoft may take such action as it deems advisable for the protection of its rights in and to such proprietary rights, and Licensee shall, if requested by Microsoft, cooperate in all reasonable respects therein at Microsoft's expense. In no event, however, shall Microsoft be required to take any action if it deems it inadvisable to do so. Microsoft will have the right to retain all proceeds it may derive from any recovery in connection with such actions to the extent that it pertains solely to Microsoft's proprietary rights. 11.2 LICENSEE INTELLECTUAL PROPERTY. Licensee, without the express written permission of Microsoft, may bring any action or proceeding relating to this infringement or potential infringement, to the extent such infringement involves any proprietary rights of Licensee (provided that Licensee will not have the right to bring any such action or proceeding involving Microsoft's intellectual property). Licensee shall make reasonable efforts to inform Microsoft regarding such actions in a timely manner. Licensee will have the right to retain all proceeds it may derive from any recovery in connection with such actions. Licensee agrees to use commercially reasonable efforts to protect and enforce its proprietary rights in the Software Title. 11.3 JOINT ACTIONS. Licensee and Microsoft may agree to jointly pursue cases of infringement involving the Software Titles (since such products will contain intellectual property owned by each of them). Unless the parties otherwise agree, or unless the recovery is expressly allocated between them by the court (in which case the terms of Sections 11.1 and 11.2 will apply), in the event Licensee and Microsoft jointly prosecute an infringement lawsuit under this provision, any recovery shall be used first to reimburse Licensee and Microsoft for their respective reasonable attorneys' fees and expenses, pro rata, and any remaining recovery shall also be given to Licensee and Microsoft pro rata based upon the fees and expenses incurred in bringing such action. 12. GENERAL 12.1 GOVERNING LAW; VENUE; ATTORNEYS FEES. This Agreement shall be construed and controlled by the laws of the State of Washington, U.S.A., and Licensee consents to exclusive jurisdiction and venue in the federal courts sitting in King County, Washington, U.S.A., unless no federal jurisdiction exists, in which case Licensee consents to exclusive jurisdiction and venue in the Superior Court of King County, Washington, U.S.A. Licensee waives all defenses of lack of personal jurisdiction and forum non conveniens. Process may be served on either party in the manner authorized by applicable law or court rule. If either party employs attorneys to enforce any rights arising out of or relating to this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees, costs and other expenses. This choice of jurisdiction provision does not prevent Microsoft from seeking injunctive relief with respect to a violation of intellectual property rights or confidentiality obligations in any appropriate jurisdiction. 12.2 NOTICES; REQUESTS. All notices and requests in connection with this Agreement shall be deemed given as of the day they are (i) deposited in the U.S. mails, postage prepaid, certified or registered, return receipt requested; or (ii) sent by overnight courier, charges prepaid, with a confirming fax; and addressed as follows: 16 Microsoft Confidential Licensee: THQ Inc. 27001 Agoura Rd. Suite 325 Calabasas Hills, CA 91301 Attention: President & CEO Fax: 818-871-7400 Phone: 818-871-5000 Copy to: VP & Chief Legal Counsel (at the same address) Microsoft: MICROSOFT CORPORATION One Microsoft Way Redmond, WA 98052-6399 Attention: Xbox Third-Party Account Management Team with a cc to: MICROSOFT CORPORATION One Microsoft Way Redmond, WA 98052-6399 Attention: Law & Corporate Affairs Department Product Development & Marketing Fax: (425) 936-7329

or to such other address as the party to receive the notice or request so designates by written notice to the other. 12.3 ASSIGNMENT. Licensee may not assign this Agreement or any portion thereof, to any third party unless Microsoft expressly consents to such assignment in writing, not to be unreasonably withheld. Microsoft will have the right to assign this Agreement and/or any portion thereof as Microsoft may deem appropriate. For the purposes of this Agreement, a merger, consolidation, or other corporate reorganization, or a transfer or sale of a controlling interest in a party's stock, or of all or substantially all of its assets shall be deemed to be an assignment. This Agreement will inure to the benefit of and be binding upon the parties, their successors, administrators, heirs, and permitted assigns. 12.4 NO PARTNERSHIP. Microsoft and Licensee are entering into a license pursuant to this Agreement and nothing in this Agreement shall be construed as creating an employer-employee relationship, a partnership, or a joint venture between the parties. 12.5 SEVERABILITY. In the event that any provision of this Agreement is found invalid or unenforceable pursuant to judicial decree or decision, the remainder of this Agreement shall remain valid and enforceable according to its terms. The parties intend that the provisions of this Agreement be enforced to the fullest extent permitted by applicable law. Accordingly, the parties agree that if any provisions are deemed not enforceable, they shall be deemed modified to the extent necessary to make them enforceable. 12.6 INJUNCTIVE RELIEF. The parties agree that Licensee's threatened or actual unauthorized use of the Licensed Trademarks whether in whole or in part, may result in immediate and irreparable damage to Microsoft for which there is no adequate remedy at law, and that either party's threatened or actual breach of the confidentiality provisions may cause like damage to the nonbreaching party, and in such event the nonbreaching party shall be entitled to seek appropriate injunctive relief. 17 Microsoft Confidential 12.7 ENTIRE AGREEMENT; MODIFICATION; NO OFFER. The parties hereto agree that this Agreement (including all Exhibits hereto, and the Microsoft Non-Disclosure Agreement to the extent incorporated herein) and the Xbox Guide (as applicable from time to time) constitute the entire agreement between the parties with respect to the subject matter hereof and merges all prior and contemporaneous communications. It shall not be modified except by a written agreement dated subsequent hereto signed on behalf of Licensee and Microsoft by their duly authorized representatives. Neither this Agreement nor any written or oral statements related hereto constitute an offer, and this Agreement shall not be legally binding until executed by both parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the Effective Date on the dates indicated below. MICROSOFT CORPORATION THQ INC.______________________________ J Allard Alison Locke - ----------------------------- ----------------------------- By (sign) By (sign) J Allard Alison Locke - ----------------------------- ----------------------------- Name (Print) Name (Print) Executive Vice President, Gen Mgr North American Publishing - ----------------------------- ----------------------------- Title Title 3-30-01 3-22-01 - ----------------------------- ----------------------------- Date Date

18 Microsoft Confidential EXHIBIT A-1 DESCRIPTION OF SOFTWARE TITLE **** [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission 19 Microsoft Confidential EXHIBIT B LICENSED TRADEMARKS [insert Xbox design here] **** [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission 20 Microsoft Confidential EXHIBIT C BRANDING SPECIFICATIONS The following guidelines apply whenever Licensee places a copy of any Licensed Trademark on the Software Title, or related collateral materials. - Licensee may use the Licensed Trademarks solely on the retail box, documentation, and Art & Marketing Materials for the Software Title, and in no other manner. - Licensee's name, logo, or trademark must appear on any materials where the Licensed Trademarks are used, and must be larger and more prominent than the Licensed Trademarks. - The Licensed Trademarks may not be used in any manner that expresses or might imply Microsoft's affiliation, sponsorship, endorsement, certification, or approval, other than as contemplated by this Agreement. - The Licensed Trademarks may not be included in any non-Microsoft trade name, business name, domain name, product or service name, logo, trade dress, design, slogan, or other trademark. - Licensee may use the Licensed Trademarks only as provided by Microsoft electronically or in hard copy form. Except for size subject to the restrictions herein, the Licensed Trademarks may not be altered in any manner, including proportions, colors, elements, etc., or animated, morphed, or otherwise distorted in perspective or dimensional appearance. - The Licensed Trademarks may not be combined with any other symbols, including words, logos, icons, graphics, photos, slogans, numbers, or other design elements. - The Licensed Trademarks (including but not limited to Microsoft's logos, logotypes, trade dress, and other elements of product packaging and web sites) may not be imitated. - The Licensed Trademarks may not be used as a design feature in any materials. - The Licensed Trademarks must stand alone. A minimum amount of empty space must surround the Licensed Trademarks separating it from any other object, such as type, photography, borders, edges, and so on. The required area of empty space around the Licensed Trademarks must be 1/2x, where x equals the height of the Licensed Trademarks. - Each use of the Licensed Trademarks must include the notice: "Xbox is a trademark of Microsoft Corporation in the United States and/or other countries and is used under license from Microsoft". ADDITIONAL GUIDELINES FOR PROPER USE OF THE "XBOX" WORD MARK: - Use the trademark symbol ("(TM)") at the upper right corner or baseline immediately following the name "Xbox". This symbol should be used at the first or most prominent mention. Please be sure to spell Xbox as one word, with no hyphen and with no space between "X" and "box". - Include the following notice on materials referencing Xbox: "Xbox is a trademark of Microsoft Corporation." - Trademarks identify a company's goods or services. Xbox is not a generic thing, but rather a brand of game system from Microsoft. A trademark is a proper adjective that modifies the generic name or descriptor of a product or service. The descriptor for Xbox is "game system," i.e., "Xbox(TM) game system." Use the descriptor immediately after mention of "Xbox". You should not combine the Xbox trademark with an improper generic name or descriptor. For example, game programs designed to run on the Xbox game system are not "Xbox games," but rather "games for the Xbox system" or "Xbox certified games." - The Xbox trademark may never be abbreviated. Do not use "X" by itself to represent "Xbox." 21 Microsoft Confidential EXHIBIT D NON-DISCLOSURE AGREEMENT **** [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission 22 Microsoft Confidential EX-10.9 11 a85823exv10w9.txt EXHIBIT 10.9 EXHIBIT 10.9 ALL SECTIONS MARKED WITH ASTERISKS REFLECT PORTIONS WHICH HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY THQ INC. AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT. LICENSED PUBLISHER AGREEMENT LICENSED PUBLISHER AGREEMENT, entered into as of the 28th day of August 2002 (the "Agreement" or "LPA"), by and between SONY COMPUTER ENTERTAINMENT AMERICA INC., with offices at 919 E. Hillsdale Boulevard, Foster City, CA 94404 (hereinafter "SCEA"), and THQ Inc., with offices at 27001 Agoura Road, Suite 325, Calabasas Hills, CA 91301 (hereinafter "Publisher"). WHEREAS, SCEA and/or affiliated companies have developed a CD-based interactive console for playing video games and for other entertainment purposes known as the PlayStation(R) game console (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, Publisher has previously entered into a License Agreement, dated August 28, 1998 ("Original License Agreement") with SCEA, which granted Publisher a non-exclusive license to develop and distribute Licensed Products (as defined below) pursuant to the terms and conditions set forth in such Original License Agreement, and such Original License Agreement will expire four (4) years after the date of such Original License Agreement. WHEREAS, Publisher desires to replace its non-exclusive license to publish, have manufactured, market, distribute and sell Licensed Products as set forth in the Original License Agreement with the licenses set forth in this Agreement. WHEREAS, SCEA is willing, on the terms and subject to the conditions of this Agreement, to renew Publisher's non-exclusive license to publish, have manufactured, market, distribute and sell Licensed Products in accordance with the terms and conditions of this Agreement. 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, Publisher and SCEA hereby agree as follows: 1. DEFINITION OF TERMS. 1.1 "Advertising Materials" means any advertising, marketing, merchandising, promotional, public relations (including press releases) and display materials relating to or concerning the Licensed Products, or any other advertising, merchandising, promotional, public relations (including press releases) and display materials depicting any of the Licensed Trademarks. 1.2 "Affiliate of SCEA" means, as applicable, either Sony Computer Entertainment Inc. in Japan, Sony Computer Entertainment Europe in the United Kingdom or such other Sony Computer Entertainment entity as may be established by Sony Computer Entertainment Inc. from time to time. 1.3 "CD Magazine" means a magazine in PlayStation Disc format to be produced by SCEA, which incorporates first and third party Product Information, in addition to hints and tips, interviews and other SCEA and Player-related information, and which will be sold to subscribers and other consumers or used for other promotional purposes of SCEA. 1.4 "Consumer Promotional Disc Program" shall have the meaning set forth in Section 1.36 hereto. 1.5 "Designated Manufacturing Facility" means a manufacturing facility which is designated by SCEA in its sole discretion to manufacture Licensed Products and/or component parts for the Player, which may include manufacturing facilities owned and operated by affiliated companies of SCEA. 1.6 "Development Tools" means the development tools leased and licensed by SCEA to a Licensed Developer pursuant to a Licensed Developer Agreement for use in the development of Executable Software. 1.7 "Executable Software" means Publisher's object code software which includes Licensed Developer Software and any software (whether in object code or source code form) provided directly or indirectly by SCEA or an Affiliate of SCEA which is intended to be combined with Licensed Developer Software for execution on the Player and has the ability to communicate with the software resident in the Player. 1.8 "Generic Line" shall have the meaning set forth in Section 8.3 hereto. 1.9 "Guidelines" shall mean SCEA's Guidelines with respect to its Intellectual Property Rights, which may be set forth in the SourceBook or in other documentation provided by SCEA to Publisher. 1.10 "Hit Title Rebate" shall have the meaning set forth in Exhibit A, Section C hereto. 1.11 "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, trade dress, 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 -1- CONFIDENTIAL registrations with respect thereto, and all renewals and extensions thereof. 1.12 "Legal Copy" means any legal or contractual information required to be used in connection with a Licensed Product or Product Information, including but not limited to copyright and trademark attributions, contractual credits and developer or distribution credits. 1.13 "Licensed Developer" means any developer which is licensed by SCEA or an Affiliate of SCEA to develop Licensed Products pursuant to a valid and then current Licensed Developer Agreement. 1.14 "Licensed Developer Agreement" or "LDA" means a valid and current agreement or renewal thereof between a Licensed Developer and SCEA, or an equivalent such agreement between a Licensed Developer and an Affiliate of SCEA (e.g., the LDA with SCEE). 1.15 "Licensed Developer Software" means Licensed Developer's application source code and data (including audio and video material) developed by a Licensed Developer in accordance with its LDA, which, either by itself or combined with other Licensed Developer Software, when integrated with any software (whether in object code or source code form) provided by SCEA or an Affiliate of SCEA, creates Executable Software. 1.16 "Licensed Products" means the Executable Software (which may be combined with Executable Software of two or more Licensed Developers), which shall consist of one product developed for the Player per Unit, in final form developed exclusively for the Player. Publisher shall have no right to package or bundle more than one product developed for the Player in a single Unit unless separately agreed with SCEA. 1.17 "Licensed Publisher" means any publisher which is licensed by SCEA to publish, have manufactured, market, distribute and sell Licensed Products pursuant to a valid and then current Licensed Publisher Agreement. 1.18 "Licensed Publisher Agreement" or "LPA" means a valid and current agreement or renewal thereof between a Licensed Publisher and SCEA. 1.19 "Licensed Territory" means the United States (including its possessions and territories), Canada, Mexico, and Latin America as may be modified and/or supplemented by SCEA from time to time pursuant to Section 4.4 below. 1.20 "Licensed Trademarks" means the trademarks, service marks, trade dress and logos designated by SCEA in the SourceBook or other documentation provided by SCEA to Publisher as being licensed to Publisher. Nothing contained in this Agreement shall in any way grant Publisher the right to use the trademark "Sony" in any manner as a trademark, trade name, service mark or logo. SCEA may amend such Licensed Trademarks from time to time in the SourceBook or other documentation provided by SCEA to Publisher or upon written notice to Publisher. 1.21 "Manufacturing Specifications" means specifications setting forth terms relating to the manufacturing and assembly of Licensed Products, Packaging, Printed Materials and their component parts, which shall be set forth in the SourceBook or other documentation provided by SCEA to Publisher. 1.22 "Master Disc" means a gold CD-ROM disc in the form requested by SCEA containing the final pre-production Executable Software for a Licensed Product, which has been approved by SCEA pursuant to Section 5.4 and meets the Manufacturing Specifications. 1.23 "Official Magazine Demo" means a demo disc in PlayStation Disc format, to be produced by SCEA, containing first and third party Product Information, which will be "packed-in" to any official PlayStation magazine of SCEA or used for other promotional purposes of SCEA. 1.24 "Packaging" means, with respect to each Licensed Product, the carton, containers, packaging, edge labels and other proprietary labels, trade dress and wrapping materials, including any jewel case (or other container) or parts thereof (including any portion of the jewel case containing Licensed Trademarks), but excluding Printed Materials and PlayStation Discs. 1.25 "Pack-in Sampler Disc" means a demo disc in PlayStation Disc format to be produced by SCEA, containing first and third party Product Information, which will be "packed-in" to the Player hardware box or used for other promotional purposes of SCEA. 1.26 "PlayStation Discs" means the distinctive black PlayStation interactive software CD-ROM discs compatible with the Player which are manufactured on behalf of Publisher which contain the Licensed Product or SCEA Demo Discs. 1.27 "Printed Materials" means all artwork and mechanicals set forth on the CD label of the PlayStation Disc relating to the Licensed Product and on or inside the jewel case (or other container) and/or if applicable, on or inside the box (or other) Packaging for the Licensed Product, and all instructional manuals, liners, inserts, trade dress and other user information and/or materials to be inserted into the jewel case and/or other Packaging. 1.28 "Product Information" means either (i) object code of a Licensed Product representing a playable portion of such Licensed Product ("Demo"); or (ii) a representative video sample of the Licensed Product; or (iii) other Licensed Product related information, including but not limited to hints and tips, artwork, depictions of Licensed Product cover art, videotaped interviews, etc. With respect -2- CONFIDENTIAL to Product Information provided in Demo form, the Demo delivered shall not consist of a complete game and shall be, at a minimum, an amount sufficient to demonstrate the game's core features and value, without providing too much game play so as to give the consumer a disincentive to purchase the complete Licensed Product, and such Demo shall also include any required Legal Copy on the title screen. 1.29 "Purchase Order" means a written purchase order processed in accordance with SCEA's instructions provided in this Agreement or provided separately by SCEA to Publisher. 1.30 "Retail Sampler Disc" means a demo disc in PlayStation Disc format to be produced by SCEA, which contains first and third party Product Information, which will be sold at retail or used for other promotional purposes of SCEA. 1.31 "SCEA Demo Disc" means the SCEA developed and marketed demo discs, including the CD Magazine, Official Magazine Demo, Pack-in Sampler Disc, Retail Sampler Disc, and any other first party demo disc created by SCEA subsequent to the date of this Agreement in which SCEA invites Licensed Publishers to participate. Unless otherwise agreed in a separate agreement with Publisher, SCEA shall not charge any fees or royalties to Publisher for inclusion in SCEA Demo Discs. 1.32 "SCEA Established Third Party Demo Disc Programs" shall have the meaning set forth in Section 1.36 hereto. 1.33 "SCEA Product Code" shall mean the product identification number assigned to each Licensed Product, which shall consist of separate product identification numbers for multiple disc sets (i.e., SLUS-xxxxx). This SCEA Product Code is used on the Packaging and PlayStation Disc relating to each Licensed Product, as well as on most communications between SCEA and Publisher as a mode of identifying the Licensed Product other than by title. 1.34 "Sony Materials" means any hardware, data, object code, source code, documentation (or any part(s) of any of the foregoing), including without limitation any portion or portions of the Development Tools, which are provided or supplied by SCEA or an Affiliate of SCEA to Publisher or any Licensed Developer and/or other Licensed Publisher. 1.35 "SourceBook" means the SourceBook (or any other reference guide containing information similar to the SourceBook but designated with a different name) prepared by SCEA, which is provided separately to Publisher. The SourceBook is designed to serve as the first point of reference by Publisher in every phase of the development, approval, manufacture and marketing of Licensed Products. 1.36 "Third Party Demo Disc" means any demo disc in PlayStation Disc format which contains Product Information and which SCEA has granted Publisher permission to produce or which complies with the terms of an SCEA Established Third Party Demo Disc Program. For purposes of this Agreement, "SCEA Established Third Party Demo Disc Programs" shall include (i) the Consumer Promotional Disc Program, whereby Publisher produces a sample disc, for promotional use only and not for resale, to promote Licensed Products to consumers by creating a sampler containing Product Information from multiple Licensed Products or Product Information from a single Licensed Product; (ii) the Trade Promotional Disc Program, whereby Publisher produces a sample disc incorporating a beta version of Publisher's Licensed Products which have been concept approved by SCEA, for promotional use only and not for resale, to promote its Licensed Products to retailers, journalists and/or trade partners prior to release of such Licensed Products and (iii) any other third party demo disc program established by SCEA for Licensed Publishers in the future. 1.37 "Trade Promotional Disc Program" shall have the meaning set forth in Section 1.36 hereto. 1.38 "Unit" means a copy of each individual Licensed Product game title regardless of the number of PlayStation Discs constituting such Licensed Product game title. 1.39 "Wholesale Price" or "WSP" shall mean the greater of (i) the published price of the Licensed Product offered to retailers by Publisher as evidenced by a sell sheet or price list issued by Publisher no later than thirty (30) days before first commercial shipment of the Licensed Product, or (ii) the actual price paid by retailers upon the first commercial shipment of a Licensed Product without offsets, rebates or deductions from invoices of any kind. 2. LICENSE GRANT. SCEA hereby grants to Publisher, and Publisher hereby accepts, for the term of this Agreement, within the Licensed Territory, under Intellectual Property Rights owned or licensed by SCEA, a non-exclusive, non-transferable license, without the right to sublicense (except as specifically provided herein), to publish Licensed Products, which right to publish shall be limited to the following rights and other rights set forth in this LPA: (i) to enter into agreements with Licensed Developers and other third parties pursuant to Sections 3 and 17.5 hereto to develop Licensed Products which have been approved by SCEA in accordance with the terms of this LPA; (ii) to have such Licensed Products manufactured in accordance with the terms of this LPA; (iii) to market, distribute and sell such Licensed Products and to authorize others to do so in accordance with the terms of this LPA; (iv) to use the Licensed Trademarks strictly and only in connection with the marketing, packaging, advertising and promotion of the Licensed Products, and subject to SCEA's right of approval -3- CONFIDENTIAL as provided herein; (v) to sublicense to end users the right to use the Licensed Products for noncommercial purposes only and not for public performance; and (vi) from time to time to participate by invitation of SCEA in the "Third Party Greatest Hits" program on terms and conditions to be determined and published by SCEA and separately agreed with Publisher. 3. DEVELOPMENT OF LICENSED PRODUCTS. This LPA grants Publisher the right to publish, have manufactured, market, distribute and sell Licensed Products, and does not authorize Publisher to develop Licensed Products or to lease or license Development Tools from SCEA to assist in such development. In order for Publisher to have Licensed Products developed for the Player or to lease or license Development Tools from SCEA to assist in such development, it must either (i) enter into a Licensed Developer Agreement directly with SCEA or with an Affiliate of SCEA; or (ii) enter into an agreement with a Licensed Developer for the development of Licensed Products. Publisher may also publish, have manufactured, market, distribute and/or sell Licensed Products for a Licensed Developer or another Licensed Publisher pursuant to the terms of this Agreement. Publisher shall notify SCEA in writing of the identity of any third party or Licensed Developer with whom it has contracted to develop, publish, have manufactured, market, distribute and/or sell Licensed Products within thirty (30) days of entering into an agreement or other arrangement with the third party. Publisher shall have the responsibility for determining that any developers or other third parties meet the criteria set forth herein. It shall be considered a material breach of this LPA for Publisher to provide Development Tools or other Sony Materials to an unlicensed developer or other third party. 4. LIMITATIONS ON LICENSES; RESERVATION OF RIGHTS. 4.1 REVERSE ENGINEERING PROHIBITED. Publisher hereby agrees not to directly or indirectly disassemble, decrypt, electronically scan, peel semiconductor components, decompile, or otherwise reverse engineer in any manner 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 Licensed Developer Software), or permit or encourage any third party to do so. Publisher 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 Agreement. Publisher shall be required in all cases to pay royalties in accordance with Section 9 hereto to SCEA on any of Publisher's products utilizing Sony Materials. The burden of proof under this Section shall be on Publisher, and SCEA reserves the right to require Publisher to furnish evidence satisfactory to SCEA that this Section has been complied with. 4.2 RESERVATION OF SCEA'S RIGHTS. The licenses granted in this Agreement from SCEA to Publisher extend only to publishing, manufacturing, marketing, distribution and sale of Licensed Products for use on the Player, in such format as may be designated by SCEA. Without limiting the generality of the foregoing and except as otherwise provided herein, Publisher shall not have the right to distribute or transmit the Executable Software or the Licensed Products (to the extent each includes Sony Materials) 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. Notwithstanding this limitation, Publisher may electronically transmit Executable Software from site to site, or from machine to machine over a computer network, for the sole purpose of facilitating development; provided that no right of retransmission shall attach to any such transmission, and provided further that Publisher shall use reasonable security measures customary within the high technology industry to reduce the risk of unauthorized interception or retransmission of such transmissions. This Agreement does not grant any right or license, under any Intellectual Property Rights of SCEA 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 Agreement or the conduct of the parties hereunder. Publisher shall not make use of any of the Sony Materials and/or any Intellectual Property Rights or Licensed Trademarks related to the Sony Materials and/or Player (or any portion thereof) except as authorized by and in compliance with the provisions of this Agreement or as may be otherwise expressly authorized in writing by SCEA. No right, license or privilege has been granted to Publisher 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. The rights set forth in Section 2(v) hereto are limited to the right to sublicense such rights to end users for non-commercial use; any public performance relating to the Licensed Product or the Player is prohibited unless expressly authorized in writing by SCEA. 4.3 RESERVATION OF PUBLISHER'S RIGHTS. Separate and apart from Sony Materials licensed to Publisher hereunder, Publisher (or a Licensed Developer, as determined between Publisher and such Licensed Developer) retains all rights, title and interest in and to the Licensed Developer Software, including without limitation, Publisher's (or Licensed Developer's) Intellectual Property Rights therein, as well as all of Publisher's (or Licensed Developer's) rights in any source code and other underlying material such as artwork and music related thereto, created by Publisher (or Licensed Developer) and contained therein, and nothing in this Agreement shall be construed to restrict the right of Publisher to develop, distribute or transmit products incorporating the Licensed Developer Software and such underlying material (separate and apart from the Sony Materials) for any hardware platform or service other than the Player or from using the -4- CONFIDENTIAL Printed Materials or any Advertising Materials approved by SCEA as provided herein (provided that such Printed Materials and/or Advertising Materials do not contain any Licensed Trademarks) as Publisher determines for such other platforms. Notwithstanding the foregoing, Publisher shall not distribute or transmit Product Software which is intended to be used with the Player 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 computers or other devices, except as otherwise permitted in Section 4.2 hereto. 4.4 ADDITIONS TO AND DELETIONS FROM LICENSED TERRITORY. SCEA may, from time to time, add one or more countries to the Licensed Territory by providing written notice of such addition to Publisher. SCEA shall also have the right to delete, and intends to delete any country or countries from the Licensed Territory if, in SCEA's reasonable judgment, the laws or enforcement of such laws in such country or countries do not protect SCEA's Intellectual Property Rights. In the event a country is deleted from the Licensed Territory, SCEA shall deliver to Publisher a notice stating the number of days within which Publisher shall cease exercising such licenses in the deleted country or countries. Publisher 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. 5. QUALITY STANDARDS FOR THE LICENSED PRODUCTS. 5.1 QUALITY ASSURANCE GENERALLY. The Licensed Products, including, without limitation, the contents and title of each of the Licensed Products, and/or Publisher's use of any of the Licensed Trademarks, shall be subject to SCEA's prior written approval, which shall not be unreasonably withheld or delayed and which shall be within SCEA's sole discretion as to acceptable standards of quality. SCEA shall have the right at any stage of the development of the Licensed Product to review such Licensed Product to ensure that it meets SCEA's quality assurance standards. Publisher 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, including but not limited to utilizing the software libraries and graphics capabilities of the Player. 5.2 PRODUCT PROPOSALS. 5.2.1 SUBMISSION OF PRODUCT PROPOSAL. Before Publisher contracts with a Licensed Developer for the creation of Licensed Developer Software (or, if Publisher is also a Licensed Developer, before Publisher commences programming of the Licensed Developer Software) for each of the Licensed Products, Publisher shall submit to SCEA, for SCEA's written approval or disapproval (which shall not be unreasonably withheld or delayed), a written proposal (the "Product Proposal") in accordance with the procedures specified in the SourceBook. Such Product Proposal must consist of a complete description of the proposed Licensed Product and such other information specified in the SourceBook, including but not limited to the scheduled and/or anticipated delivery date of final Executable Software, as well as any additional information that SCEA may deem to be useful in evaluating the proposed Licensed Product, which may include samples of past work. 5.2.2 APPROVAL OF PRODUCT PROPOSAL. After SCEA's review of Publisher's Product Proposal, Publisher will receive written notice of the following possible statuses: (i) Approved; (ii) Conditional Approval; (iii) Re-submission Requested; or (iv) Not Approved. Such statuses shall have the meaning ascribed to them in the SourceBook, and may be changed from time to time by SCEA in subsequent versions of the SourceBook. Any requested re-submissions shall be made at Publisher's cost. If a Product Proposal is "Not Approved", then Publisher cannot re-submit such Product Proposal without significant, substantive revisions. In addition, if a Product Proposal as submitted by any Licensed Publisher or Licensed Developer is "Not Approved" by SCEA, it cannot be re-submitted by another Licensed Publisher or Licensed Developer without significant, substantive revisions. Publisher shall notify SCEA promptly in writing in the event of any material proposed change in any portion of the Product Proposal. SCEA's approval of a Product Proposal shall not obligate Publisher to continue with development or production of the proposed Licensed Product, provided that Publisher must immediately notify SCEA in writing if it discontinues, cancels or otherwise delays past the original scheduled delivery date the development of any proposed Licensed Product. If Publisher licenses a Licensed Product from a Licensed Developer, it shall immediately notify SCEA of such license, and SCEA will inform Publisher as to the status of the Product Proposal and Review Process for such Licensed Product and this Agreement shall govern the approval process of such Licensed Product after any such notification. SCEA shall have no obligation to approve any Product Proposal submitted by Publisher, and any development conducted by or at the direction of Publisher shall be at Publisher's own risk. Nothing herein shall restrict SCEA from commercially exploiting any coincidentally similar concept(s) and/or product(s) which have been independently developed by SCEA, an Affiliate of SCEA or any third party without reference to or reliance upon Publisher's work. 5.3 REVIEW OF WORK-IN-PROGRESS. SCEA has the right pursuant to this Agreement to require Publisher to submit to SCEA work-in-progress on the Licensed Product at certain intervals throughout the development of such Licensed Product and, upon written notice to Publisher, at any time during the development process. Upon receipt by Publisher of "Approved" or "Conditional Approval" status of the Licensed Product, Publisher must, within the time frame indicated in the approval letter, communicate with SCEA and mutually agree on a framework for the review of -5- CONFIDENTIAL such Licensed Product throughout the development process ("Review Process"). Once the Review Process has begun, Publisher shall be responsible for submitting work-in-progress to SCEA in accordance with such Review Process. FAILURE TO SUBMIT WORK-IN-PROGRESS IN ACCORDANCE WITH ANY STAGE OF THE REVIEW PROCESS MAY AT SCEA'S DISCRETION, RESULT IN REVOCATION OF APPROVAL OF SUCH LICENSED PRODUCT. SCEA shall have the right to approve, reject or require additional information with respect to each stage of the Review Process, which shall not be unreasonably withheld or delayed by SCEA. SCEA shall specify in writing the reasons for any such rejection or request for additional information and shall state what corrections and/or improvements are necessary. If any stage of the Review Process is not provided to SCEA or, after a reasonable cure period agreed to between SCEA and Publisher, is not successfully met, SCEA shall have the right to revoke the approval of Publisher's Product Proposal. No approval by SCEA of any particular stage of the Review Process shall be deemed an approval of any other stage, nor shall any such approval be deemed to constitute a waiver of any approval requirement with respect to any other stage or any of SCEA's rights under this Agreement. LICENSED PRODUCTS WHICH ARE CANCELED BY PUBLISHER OR ARE LATE IN MEETING THE FINAL EXECUTABLE SOFTWARE STAGE OF THE REVIEW PROCESS BY MORE THAN THREE (3) MONTHS (WITHOUT AGREEING WITH SCEA ON A MODIFIED FINAL EXECUTABLE SOFTWARE DELIVERY DATE) ARE SUBJECT TO RE-SUBMISSION OF PRODUCT PROPOSAL, IN WHICH EVENT SCEA MAY RE-APPROVE OR DISAPPROVE SUCH PRODUCT PROPOSAL. The "Approved" or "Conditional Approval" status of the Product Proposal shall not be construed by Publisher as full approval of all elements of such Licensed Product, or as a commitment by SCEA to grant final approval to the Licensed Product. Failure to make changes required by SCEA to the Licensed Product at any stage of the Review Process, or making material changes to the Licensed Product without SCEA's approval may, in addition to the provisions set forth in this Section, subject Publisher to the termination provisions set forth in Section 15.3 hereto. 5.4 APPROVAL OF EXECUTABLE SOFTWARE. Publisher shall, on or before the date specified in the Product Proposal or as determined by SCEA pursuant to the Review Process, deliver to SCEA for its inspection and evaluation, a final version of the Executable Software for the proposed Licensed Product. SCEA will evaluate such final version of the Executable Software and notify Publisher 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, SCEA 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, Publisher may submit a new version of such Executable Software for approval or disapproval by SCEA. No approval by SCEA 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 SCEA's rights under this Agreement. SCEA shall have the right to disapprove Executable Software if it fails to comply with one or more conditions as set forth in the SourceBook with no obligation to review all elements of such version of Executable Software. All final versions of Executable Software shall be submitted in the format prescribed by SCEA and shall include such number of gold master copies as SCEA may require from time to time. Publisher warrants that all final versions of Executable Software are fully tested and shall use its best efforts to ensure that final versions of Executable Software are fully debugged prior to submission to SCEA. In addition, prior to manufacture of Executable Software, Publisher shall be required to sign an affidavit (in the form of attached Exhibit B) stating that the Executable Software complies or will comply with standards set forth in the SourceBook or other documentation provided by SCEA to Publisher, Publisher approves the release of such Executable Software for manufacture in its current form and Publisher shall be fully responsible for any problems related to such Executable Software. 5.5 PUBLISHER'S ADDITIONAL QUALITY ASSURANCE OBLIGATIONS. If at any time or times subsequent to the approval of the Executable Software pursuant to Section 5.4, SCEA identifies any material bugs (such materiality to be determined by SCEA in its sole discretion) with respect to the Licensed Product or any material bugs are brought to the attention of SCEA or in the event that SCEA identifies any improper use of its Licensed Trademarks or other Sony Materials with respect to the Licensed Product or any such improper use is brought to the attention of SCEA, Publisher shall, at no cost to SCEA, promptly correct any such material bugs, or improper Licensed Trademark or Sony Material use, to SCEA's commercially reasonable satisfaction, which may include, if necessary in SCEA's judgment, the recall and re-release of such Licensed Product. In the event any Units of any of the Licensed Products create any reasonable risk of loss or damage to any property or injury to any person, Publisher shall immediately take effective steps, at Publisher's sole liability and expense, to recall and/or to remove such defective Licensed Product from any affected channels of distribution, provided, however, that if Publisher is not acting as the distributor and/or seller for the Licensed Products, its obligation hereunder shall be to use its best efforts to arrange removal of such Licensed Product from channels of distribution. Publisher shall provide all end-user support for the Licensed Products and SCEA expressly disclaims any obligation to provide end-user support on Publisher's Licensed Products. 5.6 APPROVAL OF PRINTED MATERIALS. For each proposed Licensed Product, Publisher shall be responsible, at Publisher's expense, for creating and developing all Printed Materials. All Printed Materials shall comply with the Guidelines, which may be amended from time to time, provided that Publisher shall, except as otherwise provided herein, only be required to implement any such amended Guidelines in subsequent orders of Printed Materials and shall not be required to recall or destroy previously -6- CONFIDENTIAL manufactured Printed Materials unless such Printed Materials do not comply with the original requirements in the Guidelines or unless explicitly required in writing by SCEA pursuant to a legal requirement involving SCEA's Intellectual Property Rights. Failure to follow the Guidelines and/or to submit or resubmit Printed Materials to SCEA as set forth herein, and in Section 7.1.3.1 hereto shall be a material breach of this Agreement and the provisions of Section 15.3 shall apply. No later than the time final Executable Software for a proposed Licensed Product is submitted to SCEA for inspection and evaluation, Publisher shall also deliver to SCEA, 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. Publisher acknowledges that failure to meet any scheduled release dates for a Licensed Product are solely the risk and responsibility of Publisher, and SCEA assumes no responsibility for Publisher failing to meet such scheduled release dates due to disapproval of Printed Materials relating to such Licensed Product. Publisher agrees that the quality of such Printed Materials shall be of the same quality as that associated with other commercially available high quality consumer products. If any of the Printed Materials are disapproved, SCEA shall specify the reasons for such disapproval and state what corrections are necessary. SCEA shall have no liability to Publisher for costs incurred or irrevocably committed to by Publisher for production of Packaging or Printed Materials that is disapproved by SCEA. After making the necessary corrections to the disapproved Printed Materials, Publisher must submit new proposed Printed Materials for approval by SCEA. SCEA shall not unreasonably withhold or delay its review of the proposed Printed Materials. No approval by SCEA 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 SCEA's rights under this Agreement. In addition, SCEA's approval of any element of Printed Materials shall not release Publisher from any of its representations and warranties in Section 10.2 hereunder. 5.7 APPROVAL OF ADVERTISING MATERIALS. Pre-production samples of all Advertising Materials relating to Licensed Products shall be submitted by Publisher to SCEA, free of cost, for SCEA's evaluation and approval, which shall not be unreasonably withheld or delayed, as to the quality, style, appearance and usage of any of the Licensed Trademarks, appropriate references of any required notices and compliance with the Guidelines, prior to any actual production, use or distribution of any such items by Publisher or on its behalf. No such proposed Advertising Materials shall be produced, used or distributed directly or indirectly by Publisher without first obtaining the written approval of SCEA. If any of the Advertising Materials are disapproved, SCEA shall specify the reasons for such disapproval and state what corrections are necessary. SCEA may require Publisher to immediately withdraw and reprint any Advertising Materials which have been published but have not received the written approval of SCEA. SCEA shall have no liability to Publisher for costs incurred or irrevocably committed to by Publisher for production of Advertising Materials that are disapproved by SCEA. For each Licensed Product, Publisher shall be required to deliver to SCEA an affidavit (in the form of attached Exhibit C) stating that all advertising and promotional materials for the Licensed Product complies or will comply with the Guidelines for use of the Licensed Trademarks. After making the necessary corrections to the disapproved Advertising Materials, Publisher must submit new proposed Advertising Materials for approval by SCEA. SCEA shall not unreasonably withhold or delay its review of the proposed Advertising Materials. Failure to follow the Guidelines and/or to submit or resubmit Advertising Materials to SCEA for review shall be a material breach of this Agreement. PUBLISHERS WHO FAIL TO SUBMIT ADVERTISING MATERIALS TO SCEA FOR REVIEW OR OTHERWISE BROADCAST OR PUBLISH ADVERTISING MATERIALS WITHOUT THE APPROVAL OF SCEA SHALL BE SUBJECT TO THE PROVISIONS OF THE "THREE STRIKES" PROGRAM AS OUTLINED IN THE SOURCEBOOK WHICH COULD RESULT IN TERMINATION OF THIS LPA; TERMINATION OF THE LICENSED PRODUCT; OR COULD SUBJECT PUBLISHER TO THE PROVISIONS OF SECTION 15.4 HERETO. Subject in each instance to the prior written approval of SCEA (not to be unreasonably withheld), Publisher may use such textual and/or pictorial advertising matter (if any) as may be created by SCEA or in its behalf pertaining to the Sony Materials and/or to the Licensed Trademarks on such promotional and advertising materials as may, in Publisher's judgment, promote the sale of the Licensed Products within the Licensed Territory. Publisher shall include, at Publisher's cost and expense, the required consumer advisory rating code(s) on any and all Advertising Materials used in connection with the Licensed Product, which shall be procured in accordance with the provisions of Section 6 below. Publisher acknowledges that failure to meet any scheduled release dates for Advertising Materials is solely the risk and responsibility of Publisher, and SCEA assumes no responsibility for Publisher failing to meet such scheduled release dates due to approval requirements as set forth in this Section. No approval by SCEA of any element of the Advertising 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 SCEA's rights under this Agreement. In addition, SCEA's approval of any element of Advertising Materials shall not release Publisher from any of its representations and warranties in Section 10.2 hereunder. 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 provided in the SourceBook or other documentation provided by SCEA to Publisher, which template may be amended from time to time by SCEA during the term of this Agreement, -7- CONFIDENTIAL following which Publisher will incorporate such Agreement into its next print run for the Licensed Products. Publisher agrees that, if required by SCEA or any governmental entity, it shall submit each Licensed Product to a consumer advisory ratings system designated by SCEA 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 Publisher. Any required consumer advisory rating code(s) procured hereby shall be displayed on the Licensed Product and in the associated Printed Materials and Advertising Materials in accordance with the SourceBook or other documentation provided by SCEA to Publisher, at Publisher's cost and expense. 7. MANUFACTURE OF THE LICENSED PRODUCTS. 7.1 MANUFACTURE BY SCEA. 7.1.1 APPOINTMENT OF SCEA AS MANUFACTURER. Publisher hereby appoints SCEA, and SCEA hereby accepts such appointment, as the manufacturer of PlayStation Discs and, subject to Section 7.1.3 below, the manufacturer and assembler of such PlayStation Discs with Printed Materials and Packaging. Publisher acknowledges and agrees that it shall purchase from SCEA or a Designated Manufacturing Facility all of its requirements for PlayStation Discs, during the term of the Agreement. SCEA shall provide to Publisher written Manufacturing Specifications, which may be amended from time to time upon reasonable notice to Publisher. SCEA shall have the right, but no obligation, to contract or subcontract any phase of production or manufacture of any or all of the Licensed Products, the Packaging, the Printed Materials or any part thereof, subject to Section 14 below. Any Designated Manufacturing Facility shall be a third party beneficiary of this Agreement. 7.1.2 CREATION OF MASTER CD-ROM. Following approval by SCEA of each Licensed Product pursuant to Section 5.4, Publisher shall provide SCEA with the number of Master Discs specified in the SourceBook or in any other documentation separately provided by SCEA to Publisher. SCEA or a Designated Manufacturing Facility shall create from one of the Master Discs provided by Publisher the original master CD-ROM, from which all other copies of the Licensed Product are to be replicated. Publisher shall be responsible for the costs, as set forth in the Manufacturing Specifications, of creating such original master CD-ROM. In order to insure against loss or damage to the copies of the Executable Software furnished to SCEA, Publisher will retain duplicates of all such Master Discs. Neither SCEA nor a Designated Manufacturing Facility shall be liable for loss of or damage to any copies of the Master Discs or Executable Software. 7.1.3 PRINTED MATERIALS, PACKAGING AND ASSEMBLY SERVICES. 7.1.3.1 PRINTED MATERIALS. If Publisher elects to obtain Printed Materials from SCEA, Publisher shall deliver the film for all SCEA approved Printed Materials to SCEA or, if appropriate, at SCEA's option, to a Designated Manufacturing Facility in accordance with the Manufacturing Specifications, at Publisher's sole risk and expense. Publisher may elect, subject to SCEA's approval as provided in Section 5.6 hereto and in this section, to be responsible for manufacturing its own Printed Materials. In the event that Publisher elects to be responsible for manufacturing the Printed Materials (other than any Artwork which may be placed directly upon the PlayStation Disc, which will be supplied to SCEA for placement on the PlayStation Disc), Publisher shall deliver [**] of such Printed Materials to SCEA or at SCEA's option to a Designated Manufacturing Facility, within the time frame specified in the Manufacturing Specifications, in the minimum order quantities set forth in Section 7.2.2 below, at Publisher's sole risk and expense. Publisher shall be required to supply SCEA with [**] of any Printed Materials not produced or supplied by SCEA or a Designated Manufacturing Facility prior to production, at no charge to SCEA or such Designated Manufacturing Facility, for SCEA's approval with respect to the quality thereof. [**] of such sample Printed Materials shall be supplied to SCEA and [**] shall be supplied to a Designated Manufacturing Facility. In the event that such Printed Materials for a Licensed Product are revised by Publisher prior to a reorder of Units of Licensed Products, then Publisher must submit an additional [**] samples to SCEA and a Designated Manufacturing Facility for approval prior to production. Such Printed Materials shall be required to comply with any Manufacturing Specifications established by SCEA for Printed Materials for Licensed Products, and SCEA shall have the right to disapprove any Printed Materials that do not comply with such Manufacturing Specifications. Such Manufacturing Specifications for Printed Materials shall be comparable to the manufacturing specifications applied by SCEA to its own software products for the Player. If Publisher elects to supply its own Printed Materials, neither SCEA nor a Designated Manufacturing Facility shall bear any responsibility for any delays. 7.1.3.2 PACKAGING. Publisher may either obtain Packaging from SCEA or from an alternate source. If Publisher elects to be responsible for manufacturing its own Packaging (other than any edge labels or other proprietary labels and any portion of the jewel case containing Licensed Trademarks, which Publisher will be required to purchase from SCEA or a Designated Manufacturing Facility), Publisher shall assume all responsibility for the creation of such Packaging, at Publisher's sole risk and expense. Publisher shall be responsible for encoding and printing edge labels provided by SCEA or a Designated Manufacturing Facility with information reasonably specified by SCEA from time to time and will apply such labels to each Unit of the Licensed Product as reasonably specified by SCEA. Publisher shall be required to supply SCEA with [**] samples of any Packaging not produced or supplied by SCEA or a [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. -8- CONFIDENTIAL Designated Manufacturing Facility, at no charge to SCEA or Designated Manufacturing Facility, prior to production for SCEA's approval with respect to the quality thereof. [**] of such sample Packaging shall be supplied to SCEA and [**] shall be supplied to a Designated Manufacturing Facility. In the event that Packaging for any Licensed Product is changed in any way after SCEA and a Designated Manufacturing Facility have already approved such Packaging, then Publisher must resubmit an additional [**] samples to SCEA and such Designated Manufacturing Facility for approval. Failure to submit or resubmit Packaging to SCEA and a Designated Manufacturing Facility shall constitute a material breach of this Agreement, and the provisions of Section 15.3 shall apply. Such Packaging shall be required to comply with any Manufacturing Specifications established by SCEA for Packaging for Licensed Products, and SCEA shall have the right to disapprove any Packaging that does not comply with such Manufacturing Specifications. Such Manufacturing Specifications for Packaging shall be comparable to the manufacturing specifications applied by SCEA to its own software products for the Player. If Publisher procures Packaging from an alternate source, then it must also procure assembly services from an alternate source; neither SCEA nor a Designated Manufacturing Facility shall be required to assemble such Licensed Product if Packaging is obtained from an alternate source. If Publisher elects to supply its own Packaging and assembly services, neither SCEA nor a Designated Manufacturing Facility shall bear any responsibility for any delays. 7.1.3.3 ASSEMBLY SERVICES. Publisher may either procure assembly services from SCEA or from an alternate source. If Publisher elects to be responsible for assembling the Licensed Products, then SCEA shall ship the component parts of the Licensed Product to a destination provided by Publisher, at Publisher's sole risk and expense. Assembly of Licensed Products shall be required to comply with any Manufacturing Specifications established by SCEA for such assembly services, and SCEA shall have the right to inspect any assembly facilities utilized by Publisher in order to determine if the component parts of the Licensed Products are being assembled in accordance with the Manufacturing Specifications. SCEA shall have the right to require that Publisher recall any Licensed Products that do not contain proprietary labels or other material component parts or that otherwise fail to comply with the Manufacturing Specifications. If Publisher elects to assemble its own Licensed Products, neither SCEA nor a Designated Manufacturing Facility shall bear any responsibility for any delays or missing component parts. Failure to comply with Manufacturing Specifications regarding assembly services shall constitute a material breach of this Agreement, and the provisions of Section 15.3 shall apply. 7.1.4 MANUFACTURE OF UNITS. Upon approval, pursuant to Section 5 and subject to Section 7.1.3, of such pre-production samples of the Executable Software and the associated Printed Materials, Packaging and assembly services, SCEA or a Designated Manufacturing Facility will, in accordance with the terms and conditions set forth in this Section 7, and at Publisher's expense (a) manufacture PlayStation Discs for Publisher; (b) manufacture Publisher's Packaging and/or Printed Materials; and/or (c) assemble the PlayStation Discs with the Printed Materials and the Packaging. SCEA reserves the right to insert, or to require Publisher to insert, certain Printed Materials relating to the Player or Licensed Trademarks into each Unit of Licensed Products. 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 provided to Publisher in the Manufacturing Specifications prior to manufacture of the Licensed Products. Purchase price(s) shall be stated in United States dollars and are subject to change by SCEA at any time upon reasonable notice to Publisher; provided, however, that the applicable price shall not be changed with respect to any Units of Licensed Products which are the subject of an effective Purchase Order but which have not yet been delivered by SCEA to Publisher at the designated F.O.B. point. Prices for finished Units of 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 SCEA may be required to collect or pay as a consequence of the sale or delivery of any Units of the Licensed Products to Publisher. Publisher 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. Publisher shall issue to SCEA written Purchase Order(s) in accordance with the Manufacturing Specifications. All Purchase Orders to SCEA shall reference this Agreement, give a Publisher 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 Manufacturing Specifications. All Purchase Orders to SCEA shall be subject to acceptance by SCEA which shall not be unreasonably withheld or delayed. Purchase Orders issued by Publisher to SCEA for each of the Licensed Products approved by SCEA shall be non-cancelable and be for at least [*] Units of such Licensed Product. In the event that SCEA or a Designated Manufacturing Facility manufactures the Printed Materials for the Publisher pursuant to Section 7.1.3 above, Publisher may, at Publisher's option, allow SCEA or such Designated Manufacturing Facility to manufacture an additional [*] of such Printed Materials at Publisher's expense in anticipation of reorders. Publisher agrees that such Printed Materials will be stored by a Designated Manufacturing Facility for a period of no more than one hundred and eighty (180) days, after which time such Printed Materials will, at Publisher's option, either be returned to Publisher at Publisher's cost and expense or be destroyed. Such Designated Manufacturing Facility may also store a reasonable quantity of Printed Materials procured from an alternate source for up to one hundred and eighty (180) days, subject to a reasonable storage fee, after which time such Printed Materials [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. -9- CONFIDENTIAL will, at Publisher's option, either be returned to Publisher at Publisher's cost and expense or be destroyed. Publisher 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 determined the status of such Purchase Order in the manufacturing process and reached mutual agreement as to Publisher'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. Purchase Orders will be invoiced on a pro forma basis (a pro forma invoice is issued in advance of the official invoice) as soon as reasonably practical after receipt of Purchase Order and will include both manufacturing price and royalties payable pursuant to Section 9 hereto for each Unit of Licensed Products ordered. Each invoice will be payable either on a cash-in-advance basis or pursuant to a letter of credit. If the cash in advance option is selected, then upon issuance of a pro forma invoice to Publisher by SCEA, Publisher shall immediately forward to a Designated Manufacturing Facility the invoice amount. Such amount shall be payable in United States dollars and remitted by wire transfer to such bank account as shall be designated by SCEA or a Designated Manufacturing Facility for such purpose. Upon receipt of such amount by a Designated Manufacturing Facility, SCEA shall release the Publisher's Purchase Order to a Designated Manufacturing Facility for production. If the letter of credit option is selected, then at the time a Purchase Order is placed with SCEA, Publisher shall provide to SCEA an irrevocable letter of credit in favor of SCEA and payable at sight. The letter of credit must either be issued by a bank acceptable to SCEA or confirmed, at Publisher's expense, if so requested by SCEA. The letter of credit shall be in United States dollars in an amount equal to the manufacturing price determined pursuant to Section 7.2.1 and the royalty determined pursuant to Section 9 for each Unit of the Licensed Product ordered. All associated banking charges with respect to payments of manufacturing costs and royalties (including but not limited to the costs of obtaining a letter of credit) shall be borne solely by Publisher. If permitted by SCEA, SCEA may at its sole discretion extend credit terms and limits to Publisher. SCEA may also at any time revoke such credit terms and limits as extended. If Publisher qualifies for such credit terms, then orders will be invoiced upon shipment and each invoice will be paid within thirty (30) days of the date of the invoice. [**]. Publisher shall be additionally liable for all of SCEA's costs and expenses of collection, including, without limitation, reasonable fees for attorneys and court costs. No deduction may be made from remittances unless an approved credit memo has been issued by SCEA. No claim for credit due to shortage or breakage will be allowed unless it is made within seven (7) days after Publisher receives the Licensed Product, and SCEA assumes no responsibility for shortage or breakage if Packaging and assembly services are obtained from alternate sources. Each shipment of Licensed Products to Publisher shall constitute a separate sale to Publisher, whether said shipment be whole or partial fulfillment of any order. Notwithstanding the foregoing, nothing in this Section shall excuse or be construed as a waiver of Publisher's obligation to timely provide any and all payments owed to SCEA hereunder. 7.3 DELIVERY OF LICENSED PRODUCTS. Neither SCEA nor any Designated Manufacturing Facility shall have an obligation to store completed Units of Licensed Products. Delivery of Licensed Products shall be in accordance with the Manufacturing Specifications, provided that Publisher may either specify the carrier to be used or allow SCEA or a Designated Manufacturing Facility to use the best way of getting the Licensed Products delivered. [**]. 7.4 TECHNOLOGY EXCHANGE AND QUALITY ASSURANCE. There will be no technology exchange between SCEA or any Designated Manufacturing Facility and Publisher under this Agreement. Due to the proprietary nature of the mastering process, SCEA or a Designated Manufacturing Facility will not under any circumstances release any original master CD-ROM, Master Discs or other in-process materials to the Publisher. All such physical master discs, stampers, etc. shall be and remain the sole property of SCEA or a Designated Manufacturing Facility. SCEA recognizes that the Intellectual Property Rights contained in Licensed Developer Software (separate and apart from any Sony Materials licensed to Publisher by SCEA hereunder) which is contained in physical master discs, stampers and other in-process materials is, as between SCEA and Publisher, the sole and exclusive property of Publisher or its licensors. 8. MARKETING AND DISTRIBUTION. 8.1 MARKETING GENERALLY. In accordance with the provisions of this Agreement, at no expense to SCEA, Publisher shall, and shall direct its distributors to, diligently market, sell and distribute the Licensed Products, and shall use its commercially reasonable best efforts to stimulate demand for such Licensed Products in the Licensed Territory and to supply any resulting demand. Publisher shall use its reasonable best efforts to protect the [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. -10- CONFIDENTIAL 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. 8.2 SAMPLES. Subject to availability, Publisher shall sell to SCEA quantities of the Licensed Products at as low a price and on terms as favorable as Publisher sells similar quantities of the Licensed Products to the general trade. In addition, Publisher shall provide to SCEA at no additional cost, for SCEA's internal use and general marketing purposes, sample copies of each Licensed Product, which shall not exceed [**] Units of each Licensed Product. Publisher shall be obligated to pay the manufacturing costs to the Designated Manufacturing Facility in accordance with Section 7.2.1, but not the royalty charges in accordance with Section 9, in connection with such sample Units of Licensed Products. In the event that Publisher assembles any Licensed Product using an alternate source, Publisher shall be responsible for shipping such sample Units to SCEA at Publisher's cost and expense. SCEA shall not directly or indirectly resell any such sample Units of the Licensed Products without Publisher's prior written consent. 8.3 MARKETING PROGRAMS OF SCEA. From time to time, SCEA may invite Publisher to participate in promotional or advertising opportunities which may feature one or more Licensed Products from one or more Publishers. Participation shall be voluntary and subject to terms to be determined at the time of the opportunity. In the event Publisher elects to participate, all materials submitted by Publisher to SCEA shall be submitted subject to Section 11.2 hereunder and delivery to SCEA shall constitute acceptance by Publisher of the terms of the offer. Moreover, all materials, if featured with one or more software products of SCEA or Licensed Products of other Publishers, may be used by SCEA, unless otherwise agreed in writing, with the following generic Legal Copy line: "Game copyright and trademarks are the property of the respective publisher or their licensors" ("Generic Line"). 8.4 DEMONSTRATION DISC PROGRAMS. SCEA may, from time to time, provide opportunities for Publisher to participate in SCEA Demo Disc programs by providing Product Information to SCEA. In addition, SCEA may, from time to time, grant to Publisher the right to create Third Party Demo Discs pursuant to SCEA Established Third Party Demo Disc Programs. The specifications with respect to the approval, creation, manufacture, marketing, distribution and sale of any such demo disc programs shall be set forth in the SourceBook or in other documentation to be provided by SCEA to Publisher when published. Except as otherwise specifically set forth herein, in the SourceBook or in other documentation provided by SCEA to Publisher, Third Party Demo Discs shall be considered "Licensed Products" and shall be subject in all respects to the terms and conditions of this Agreement. In addition, the following procedures shall also apply to SCEA Demo Discs and Third Party Demo Discs: 8.4.1 SCEA DEMO DISCS. 8.4.1.1 LICENSE. If Publisher wishes to participate in an SCEA Demo Disc program and provides Product Information to SCEA in connection thereto, Publisher shall thereby grant to SCEA a royalty-free license during the term of this Agreement in the Licensed Territory to manufacture, use, sell, distribute, market, advertise and otherwise promote Publisher's Product Information as part of such SCEA Demo Disc program. In addition, Publisher shall grant SCEA the right to feature Publisher and Licensed Product names in advertisements and promotional materials (including but not limited to in-store displays) and to make, copy, and distribute in packaging, advertising and promotional materials, copies of screen displays generated by the code, representative video samples or other Product Information provided to SCEA for use in such SCEA Demo Disc. Publisher agrees that all decisions relating to the selection of first and third party Product Information, marketing, advertisement, promotion, distribution or sale of the SCEA Demo Discs as a whole, including but not limited to SCEA Demo Discs title, trade name, logo and/or other identification, sales presentation, or retail and wholesale prices, shall be in the sole discretion of SCEA. 8.4.1.2 SUBMISSION AND APPROVAL OF PRODUCT INFORMATION. Upon receipt of a letter or other correspondence, the form of which is attached hereto as Exhibit D, notifying Publisher that SCEA has tentatively chosen Publisher's Product Information for inclusion in an SCEA Demo Disc, Publisher shall deliver to SCEA such requested Product Information no later than the deadline set forth in such letter or other correspondence. A separate letter will be sent for each SCEA Demo Disc, and Publisher must sign each letter prior to inclusion in such SCEA Demo Disc. Any Product Information provided by Publisher shall include Legal Copy on the title screen or elsewhere in the Product Information submitted to SCEA. The only Legal Copy provided by SCEA shall be the Generic Line as provided in Section 8.3 above, which shall appear on the SCEA Demo Disc title screen and packaging. Publisher acknowledges that SCEA shall have no responsibility to provide any Legal Copy beyond the Generic Line. Such Product Information shall comply with technical specifications provided to Publisher by SCEA. SCEA reserves the right to review and test the Product Information provided and request revisions prior to inclusion on the SCEA Demo Disc. In the event that SCEA requests changes to the Product Information and Publisher elects to continue to participate in such Demo Disc, Publisher shall make such changes as soon as possible after receipt of written notice of such requested changes from SCEA, but not later than the deadline for receipt of Product Information. Failure to make such changes and provide the modified Product Information to SCEA in accordance with such deadline shall result in the Product Information being [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. -11- CONFIDENTIAL removed from consideration for the SCEA Demo Disc. Costs associated with preparation of Product Information for inclusion in the SCEA Demo Disc shall be borne by Publisher. Except as otherwise provided in this Section, SCEA shall not edit or modify Product Information provided to SCEA by Publisher without Publisher's consent, not to be unreasonably withheld. SCEA shall have the right to use subcontractors to assist in the creation or development of any SCEA Demo Disc. 8.4.1.3 NO OBLIGATION TO PUBLISH. Acceptance of Product Information for test and review shall not be deemed confirmation that SCEA shall include the Product Information on an SCEA Demo Disc. SCEA reserves the right to choose from products submitted from other Licensed Publishers and first party products to determine the products to be included in SCEA Demo Discs, and will not guarantee to Publisher Licensed Product prominence with regards to screen shots or title treatment on the packaging or in SCEA Demo Discs. Nothing herein shall be construed as creating an obligation of SCEA to publish Product Information submitted by Publisher in any SCEA Demo Disc, nor shall SCEA be obligated to publish, advertise or promote any SCEA Demo Disc. 8.4.1.4 RETAIL SAMPLER DISCS. Publisher is aware and acknowledges that the Retail Sampler Disc will be distributed and sold by SCEA in the retail market. If Publisher elects to participate in any Retail Sampler Disc program, Publisher acknowledges that it is aware of no limitations regarding any Licensed Product or any portion thereof provided to SCEA pursuant to the terms of this Agreement which would in any way restrict SCEA's ability to distribute or sell the Retail Sampler Disc at retail, nor does Publisher or its licensors have any anticipation of receiving any compensation from such retail sales. In the event that SCEA institutes a SCEA Demo Disc in which a fee and/or royalty is charged to Publisher, SCEA and Publisher will enter into a separate agreement for such SCEA Demo Disc. 8.4.2 THIRD PARTY DEMO DISCS. 8.4.2.1 LICENSE. If Publisher wishes to participate in a Third Party Demo Disc program by notifying SCEA of its intention thereto, SCEA shall grant to Publisher the right and license to use Licensed Products in Third Party Demo Discs and to use, distribute, market, advertise and otherwise promote (and, if permitted in accordance with the terms of any SCEA Established Third Party Program or otherwise permitted by SCEA, to sell) such Third Party Demo Discs in accordance with the specifications provided separately to Publisher by SCEA, which may be modified from time to time by SCEA. In addition, SCEA hereby consents to the use of the Licensed Trademarks in connection with Third Party Demo Discs, provided that SCEA's approval must be obtained prior to any use in accordance with the terms of Section 8.4.2.2 hereto. If any SCEA Established Third Party Demo Disc Program is specified by SCEA to be for promotional use only and not for resale, and such Third Party Demo Disc is subsequently discovered to be for sale, the right to produce Third Party Demo Discs under such SCEA Established Third Party Demo Disc Program shall thereupon be revoked, and SCEA shall have the right to terminate any related Third Party Demo Discs in accordance with the terms of Section 15.3 hereto. 8.4.2.2 SUBMISSION AND APPROVAL OF THIRD PARTY DEMO DISCS. Publisher shall deliver to SCEA, for SCEA's prior approval, a final version of each Third Party Demo Disc in a format prescribed by SCEA. Such Third Party Demo Disc shall comply with technical specifications and any other requirements provided to Publisher by SCEA in the SourceBook or otherwise. In addition, SCEA shall evaluate the Third Party Demo Disc in accordance with the approval provisions for Executable Software and Printed Materials set forth in Sections 5.4 and 5.6, respectively. Furthermore, Publisher shall obtain the approval of SCEA in connection with any Advertising Materials relating to the Third Party Demo Discs in accordance with the approval provisions set forth in Section 5.7. Costs associated with preparation of product code for inclusion on Third Party Demo Discs shall be borne by Publisher. With respect to the Trade Promotional Disc Program, Publisher acknowledges that Product Information provided in connection with such program is in beta form and is not final approved code, nor should Publisher assume that final approval for mass production has been given at the time of manufacture. Publisher agrees to use the generic packaging and printed materials pursuant to the Trade Promotional Disc Program and the Consumer Promotional Disc Program to clearly and conspicuously state that the Trade Promotional Disc Program and the Consumer Promotional Disc Program are for promotional purposes only and not for resale. 8.4.2.3 MANUFACTURE AND ROYALTY OF THIRD PARTY DEMO DISCS. Publisher shall comply with any Manufacturing Specifications provided separately by SCEA to Publisher with respect to the manufacture and payment for the costs of manufacture of Third Party Demo Discs, and Publisher shall also comply with all terms and conditions of Section 7 hereto. No costs incurred in the development, manufacture, licensing, production, marketing and/or distribution (and if permitted by SCEA, sale) of the Third Party Demo Disc shall be deducted from any amounts payable to SCEA hereunder. Royalties on Third Party Demo Discs shall be as provided in Exhibit A. 8.5 CONTESTS AND SWEEPSTAKES OF PUBLISHER. SCEA acknowledges that, from time to time, Publisher may conduct contests and sweepstakes to promote Licensed Products. SCEA agrees to permit Publisher to include contest and sweepstakes materials in Printed Materials and Advertising Materials, subject to compliance with the approval provisions of Section 5.6 and 5.7 hereunder, compliance with the provisions of Section 10.2 and 11.2 hereunder, and subject to the following additional terms -12- CONFIDENTIAL and conditions: (i) Publisher represents that it has retained the services of a fulfillment house to administer the contest or sweepstakes and if it has not retained the services of a fulfillment house, Publisher represents and warrants that it has the expertise to conduct such contests or sweepstakes, and in any event, Publisher assumes full responsibility for such contest or sweepstakes; (ii) Publisher represents and warrants that it has obtained the consent of all holders of intellectual property rights required to be obtained in connection with the contest or sweepstakes including, but not limited to, the consent of any holder of copyrights or trademarks relating to any advertisement or any promotional materials publicizing the contest or sweepstakes, or the prizes being awarded to winners of the contest or sweepstakes; and (iii) Publisher shall make available to SCEA all contest and sweepstakes material prior to publication in accordance with the approval process set forth in Section 5.6 or 5.7. Approval by SCEA of contest or sweepstakes materials for use in the Printed Materials or Advertising Materials (or any use of the Player or Licensed Products as prizes in such contest or sweepstakes) shall not constitute an endorsement by SCEA of such contest or sweepstakes, nor shall such acceptance be construed as SCEA having reviewed and approved such materials for compliance with any federal or state law, statute, regulations, order or the like, which shall be Publisher's sole responsibility. 8.6 DISTRIBUTION CHANNELS. Publisher may use such distribution channels as Publisher deems appropriate, including the use of third party distributors, resellers, dealers and sales representatives. In the event that Publisher elects to have one of its Licensed Products distributed and sold by another Licensed Publisher, Publisher must provide SCEA with written notice of such election, the name of the Licensed Publisher and any additional information requested by SCEA regarding the nature of the distribution services provided by such Licensed Publisher prior to manufacture of any Units of such Licensed Product. 8.7 LIMITATIONS ON DISTRIBUTION. Notwithstanding any other provisions in this Agreement, Publisher 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 Publisher 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 Publisher knows or reasonably should know that such Licensed Products may be exported or resold outside of the Licensed Territory. 8.8 PLAYSTATION WEBSITE. All Licensed Publishers shall be required to provide Product Information for a web page for each of its Licensed Products for display on the PlayStation promotional website, or other website or websites as may be operated by SCEA from time to time in connection with the promotion of the PlayStation brand. Specifications for Product Information for such web pages shall be as provided in the SourceBook. Publisher shall provide SCEA with such Product Information for each Licensed Product upon submission of Printed Materials to SCEA for approval in accordance with Section 5.6 hereto. Publisher shall also provide updates to such web page in a timely manner as required by SCEA in updates to the SourceBook. In addition, Publisher shall use its best efforts to provide Product Information for web pages for Publisher's Licensed Products released from the launch of the Player to the date of execution hereof within sixty (60) days of either execution of this Agreement or receipt of specifications provided separately by SCEA for the integration of such web page, whichever occurs later. In the event that Publisher is unable to provide Product Information for previously released Licensed Products within the time frame set forth above, then SCEA may create Product Information relating to such previously released Licensed Products and provide it to Publisher for approval. Failure of Publisher to approve such web pages within ten (10) days after receipt thereof will be deemed approval. 9. ROYALTIES. Publisher shall pay SCEA a per Unit royalty in United States dollars, as set forth on Exhibit A hereto, for each Unit of the Licensed Products manufactured. Royalties may be subject to change in SCEA's discretion upon sixty (60) days notice to Publisher. Upon receipt of such notice, Publisher shall have the option to terminate this Agreement upon written notice to SCEA rather than having such revised royalty structure go into effect. Payment of such royalties shall be made to SCEA in conjunction with the payment to SCEA's Designated Manufacturing Facility 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 SCEA hereunder. Similarly, there shall be no deduction from the royalties otherwise owed to SCEA hereunder as a result of any uncollectible accounts owed to Publisher, or for any credits, discounts, allowances or returns which Publisher 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 Publisher 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 SCEA hereunder, Publisher shall be solely responsible for and bear any cost relating to any withholding taxes and/or other such assessments which may be imposed by any governmental authority with respect to the royalties paid to SCEA hereunder; provided, however, that SCEA shall not manufacture Licensed Products outside of the United States without the prior consent of Publisher. Publisher shall provide SCEA 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. -13- CONFIDENTIAL 10. REPRESENTATIONS AND WARRANTIES. 10.1 REPRESENTATIONS AND WARRANTIES OF SCEA. SCEA represents and warrants solely for the benefit of Publisher that SCEA has the right, power and authority to enter into this Agreement and to fully perform its obligations hereunder. 10.2 REPRESENTATIONS AND WARRANTIES OF PUBLISHER. Publisher represents and warrants that: (i) There is no threatened or pending action, suit, claim or proceeding alleging that the use by Publisher of all or any part of the Licensed Developer Software, Product Proposals, Product Information, Printed Materials, Advertising Materials 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 Publisher in or to the Licensed Developer Software or any underlying work or content embodied therein, or any name, designation or trademark used in conjunction with the Licensed Products; (ii) The Licensed Developer Software, Product Proposals, Product Information, Printed Materials and Advertising Materials and their contemplated use under this Agreement does not and shall not infringe any person's or entity's rights including without limitation, patents, copyrights including rights in a joint work, trademarks, trade dress, trade secret, rights of publicity, privacy, performance, moral rights, literary rights and any other third party right; (iii) Publisher has the right, power and authority to enter into this Agreement, to grant SCEA the rights granted hereunder and to fully perform its obligations hereunder; (iv) The making of this Agreement by Publisher does not violate any separate agreement, rights or obligations existing between Publisher and any other person or entity, and, throughout the term of this Agreement, Publisher shall not make any separate agreement with any person or entity that is inconsistent with any of the provisions of this Agreement; (v) Publisher has not sold, assigned, leased, licensed or in any other way disposed of or encumbered the rights granted to Publisher hereunder, and Publisher will not sell, assign, lease, license or in any other way dispose of or encumber any of such rights; (vi) Publisher has obtained the consent of all holders of intellectual property rights required to be obtained in connection with use of any Product Information by SCEA as licensed hereunder, and Product Information provided to SCEA may be published, marketed, distributed and sold by SCEA in accordance with the terms and conditions of this Agreement and without SCEA incurring any royalty, residual, union, guild or other fees; (vii) Publisher shall not make any representation or give any warranty to any person or entity expressly or implicitly on SCEA's behalf, or to the effect that the Licensed Products are connected in any way with SCEA (other than that the Licensed Products have been developed, marketed, sold and/or distributed under license from SCEA); (viii) The Executable Software shall be distributed by Publisher solely in object code form; (ix) The Executable Software and any Product Information delivered to SCEA shall be in a commercially acceptable form, free of significant bugs, defects, time bombs or viruses, such that use of the software or Player would be disrupted, delayed, destroyed or rendered less than fully useful, and shall be fully compatible with the Player and any peripherals listed on the Printed Materials as compatible with the Licensed Product; (x) Each of the Licensed Products, Executable Software, Printed Materials and Advertising Materials shall be developed, marketed, sold and distributed by or at the direction of Publisher in an ethical manner and in full compliance with all applicable federal, state, provincial, local and foreign laws and any regulations and standards promulgated thereunder (including but not limited to federal and state lottery laws as currently interpreted and enforced) and will not contain any obscene or defamatory matter; (xi) Publisher'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 SCEA; and (xii) Publisher shall make no false, misleading or inconsistent representations or claims with respect to any Licensed Products, the Player or SCEA. 11. INDEMNITIES; LIMITED LIABILITY. 11.1 INDEMNIFICATION BY SCEA. SCEA shall indemnify and hold Publisher harmless from and against any and all third party 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 SCEA herein; provided, however, that Publisher shall give prompt written notice to SCEA of the assertion of any such claim, and provided, further, that SCEA shall have the right to select counsel and control the defense and/or settlement thereof, subject to the right of Publisher to participate in any such action or proceeding at its own expense with counsel of its -14- CONFIDENTIAL own choosing. SCEA 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 SCEA. Publisher agrees to provide SCEA, at no expense to Publisher, reasonable assistance and cooperation concerning any such matter; and Publisher shall not agree to the settlement of any such claim, action or proceeding without SCEA's prior written consent. 11.2 INDEMNIFICATION BY PUBLISHER. Publisher shall indemnify and hold SCEA harmless from and against any and all third party 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 Publisher herein, including without limitation claims resulting from Publisher's failure to timely pay any withholding taxes or other assessments as set forth in Section 9 hereto, any breach of Publisher's confidentiality obligations as set forth in Section 14 hereto or any breach of any representations, warranties or covenants relating to contests or sweepstakes as set forth in Sections 8.5 and 10.2 hereto; or (ii) any claim of infringement or alleged infringement of any third party's Intellectual Property Rights with respect to the Licensed Developer Software or any Product Information of Publisher; or (iii) any claims of or in connection with any personal or bodily injury (including death) or property damage, by whomsoever such claim is made, arising out of, in whole or in part, the marketing, sale, distribution and/or use of any of the Licensed Products (including but not limited to any damages or personal injury resulting from the awarding or failure to award contest or sweepstakes prizes), unless due directly to the breach of SCEA in performing any of the specific duties and/or providing any of the specific services required of it hereunder; or (iv) any federal, state or foreign civil or criminal actions relating to the marketing, sale and/or distribution of Licensed Products; provided, however, that SCEA shall give prompt written notice to Publisher of the assertion of any such claim, and provided, further, that Publisher shall have the right to select counsel and control the defense and/or settlement thereof, subject to the right of SCEA to participate in any such action or proceeding at its own expense with counsel of its own choosing. Publisher 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 Publisher. SCEA shall retain the right to approve any settlement. SCEA shall provide Publisher, at no expense to SCEA, reasonable assistance and cooperation concerning any such matter; and SCEA shall not agree to the settlement of any such claim, action or proceeding without Publisher's prior written consent. 11.3 LIMITATION OF LIABILITY. 11.3.1 LIMITATION OF SCEA'S LIABILITY. IN NO EVENT SHALL SCEA OR ITS AFFILIATES OR OTHER COMPANIES AFFILIATED WITH SCEA AND ITS AFFILIATES, SUPPLIERS, OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS BE LIABLE FOR PROSPECTIVE PROFITS, OR ANY SPECIAL, PUNITIVE, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, INCLUDING WITHOUT LIMITATION THE BREACH OF THIS AGREEMENT BY SCEA, THE MANUFACTURE OF THE LICENSED PRODUCTS AND THE USE OF THE LICENSED PRODUCTS, EXECUTABLE SOFTWARE AND/OR THE PLAYER BY PUBLISHER OR ANY END-USER, WHETHER UNDER THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE), INDEMNITY, PRODUCT LIABILITY OR OTHERWISE. IT IS THE RESPONSIBILITY OF PUBLISHER TO REVIEW THE ACCURACY OF THE DATA ON THE UNITS MANUFACTURED BY SCEA FOR PUBLISHER. IN NO EVENT SHALL SCEA'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 [**]. EXCEPT AS EXPRESSLY SET FORTH HEREIN, NEITHER SCEA 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 PUBLISHER OR TO ANY THIRD PARTIES WITH RESPECT TO THE QUALITY, OPERATION AND/OR PERFORMANCE OF ANY PORTION OF THE SONY MATERIALS, THE PLAYER OR ANY LICENSED PRODUCT. 11.3.2 LIMITATION OF PUBLISHER'S LIABILITY. IN NO EVENT SHALL PUBLISHER OR COMPANIES AFFILIATED WITH PUBLISHER, SUPPLIERS, OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS BE LIABLE TO SCEA FOR ANY PROSPECTIVE PROFITS, OR SPECIAL, PUNITIVE, 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 CODE PROVIDED BY SCEA, IN WHOLE OR IN PART, OR ANY LICENSED DEVELOPER SOFTWARE BY PUBLISHER OR ANY THIRD PARTY, WHETHER UNDER THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE), INDEMNITY, PRODUCT LIABILITY OR OTHERWISE, PROVIDED THAT PUBLISHER EXPRESSLY AGREES THAT SUCH LIMITATIONS SHALL NOT APPLY TO DAMAGES RESULTING FROM PUBLISHER'S BREACH OF SECTIONS 2, 4, 11.2, 12.2 OR 14 OF THIS [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. -15- CONFIDENTIAL AGREEMENT, AND PROVIDED FURTHER THAT SUCH LIMITATIONS SHALL NOT APPLY TO AMOUNTS WHICH PUBLISHER MAY BE REQUIRED TO PAY TO THIRD PARTIES UNDER SECTIONS 11.2 OR 17.9. 11.4 WARRANTIES; DISCLAIMER OF WARRANTIES. 11.4.1 MANUFACTURING WARRANTY. SCEA warrants that the Units or any component parts thereto that are manufactured by SCEA or a Designated Manufacturing Facility for Publisher shall, at time of delivery to Publisher, be free from defects in material and workmanship. The sole obligation of SCEA and a Designated Manufacturing Facility under this warranty shall be, for a period of one year from the date of shipment of Units of Licensed Products or component parts thereto to Publisher, at SCEA's election, either to replace the defective Units or component parts or to issue credit to Publisher for the purchase price and any royalties paid to SCEA and/or a Designated Manufacturing Facility for any such defective Units or component parts. Such warranty is the only warranty applicable to the Licensed Product manufactured by a Designated Manufacturing Facility for Publisher pursuant to Section 7 of this Agreement. This warranty shall not apply to damage resulting from accident, alteration, negligence, normal wear and tear, willful damage, abnormal conditions of use, failure to follow directions for use (whether given in instruction manuals or otherwise) or misuse of the Licensed Products, or to damage to or defects in any materials provided by Publisher to SCEA or a Designated Manufacturing Facility. If, during the aforesaid period, a defective Unit is received by Publisher, Publisher shall notify SCEA within the warranty period set forth above and, upon request by SCEA, provide SCEA with the returned Unit(s) or component part(s) and a written description of the defect claimed or, if requested by SCEA in its sole discretion, Publisher shall destroy any such defective discs. SCEA and any Designated Manufacturing Facility shall not accept the return of any Unit(s) or component part(s) except factory defective Unit(s) or component part(s) (i.e., those Units or component parts that are not free from defects in material and/or workmanship), and all such returns must be authorized by SCEA in writing and in advance. All Units or component parts which are returned in accordance with this Section 11.4.1 will be sent to a place designated by SCEA at SCEA's expense. If the defect did not arise from causes placing liability on SCEA or a Designated Manufacturing Facility under the above warranty, Publisher shall reimburse SCEA and any Designated Manufacturing Facility for expenses incurred in shipping, processing and analyzing the Units or component parts. SCEA's and any Designated Manufacturing Facility's reasonable judgment as to the origin of the defect shall be final and binding. Notwithstanding the foregoing, nothing herein shall be construed by Publisher to extend or create any stated limited warranty to consumers beyond the terms of such warranty. NOTWITHSTANDING THE FOREGOING, ANY COMPONENT PARTS OF LICENSED PRODUCTS NOT MANUFACTURED BY SCEA OR A DESIGNATED MANUFACTURING FACILITY ARE NOT UNDER WARRANTY HEREUNDER. 11.4.2 [**]. 12. COPYRIGHT, TRADEMARK AND TRADE SECRET RIGHTS. 12.1 PUBLISHER RIGHTS. The Licensed Developer Software and all Product Information, Product Proposals, Printed Materials and Advertising Materials related thereto (exclusive of the rights licensed from SCEA hereunder) and the Intellectual Property Rights therein and any names or other designations used as titles for the Licensed Products and any other trademarks used by Publisher and/or its affiliates are and shall be the exclusive property of Publisher or of any third party from which Publisher has been granted, or to whom Publisher has granted, the license and related rights to develop and otherwise exploit any such Licensed Developer Software and related materials or any such names or other designations. SCEA shall not do or cause to be done any act or thing in any way impairing or tending to impair or dilute any of Publisher's rights, title and/or interests in or to Publisher's Intellectual Property Rights. 12.2 SCEA RIGHTS. 12.2.1 LICENSED TRADEMARKS. The Licensed Trademarks and the goodwill associated therewith are and shall be the exclusive property of SCEA or [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. -16- CONFIDENTIAL Affiliates of SCEA. Nothing herein shall give Publisher 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 Agreement. Publisher shall not do or cause to be done any act or thing in any way impairing or tending to impair or dilute any of SCEA's rights, title and/or interests in or to any of the Licensed Trademarks, nor shall Publisher register any trademark in its own name or in the name of any other person or entity, or obtain rights to employ Internet domain names or addresses, which are similar to or are likely to be confused with any of the Licensed Trademarks. 12.2.2 LICENSE OF SONY MATERIALS AND PLAYER. All rights with respect to the Sony Materials and Player, including, without limitation, all of SCEA's Intellectual Property Rights therein, are and shall be the exclusive property of SCEA or Affiliates of SCEA. Nothing herein shall give Publisher any right, title or interest in or to the Sony Materials or the Player (or any portion thereof), other than the non-exclusive license during the term hereof to use the Sony Materials and Player for the manufacturing, marketing, distribution and sale of the Licensed Products solely in accordance with the provisions of this Agreement. Publisher shall not do or cause to be done any act or thing in any way impairing or tending to impair any of SCEA's rights, title and/or interests in or to the Sony Materials or the Player (or any portion thereof). 13. INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS BY THIRD PARTIES. In the event that either Publisher or SCEA discovers or otherwise becomes aware that any of the Intellectual Property Rights of the other 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. SCEA shall have the sole right, in its discretion, to institute and prosecute lawsuits against Third Parties for such infringement of SCEA's Intellectual Property Rights. Publisher shall have the right, in its discretion, to institute and prosecute lawsuits against third persons for such infringement of Publisher's Intellectual Property Rights which are distinct from SCEA's Intellectual Property Rights. If Publisher does not institute an infringement suit within thirty (30) days after SCEA's written request that it do so, SCEA may institute and prosecute such lawsuit. Any lawsuit shall be prosecuted solely at the cost and expense of the party bringing suit and all sums recovered in any such lawsuits, whether by judgment, settlement or otherwise, in excess of the amount of reasonable attorneys' fees and other out of pocket expenses of such suit, shall belong solely to the party bringing the suit. Upon request of the party bringing the lawsuit, the other party shall execute all papers, testify on all matters and otherwise cooperate in every way necessary and desirable for the prosecution of any such lawsuit. The party bringing suit shall reimburse the other party for the reasonable expenses incurred as a result of such cooperation, but unless authorized by other provisions of this Agreement, not costs and expenses attributable to the conduct of a cross-claim or third party action. 14. CONFIDENTIALITY. 14.1 PRIOR NONDISCLOSURE AGREEMENT. Publisher hereby reaffirms and ratifies the Nondisclosure Agreement dated November 30, 1993 between SCEA and Publisher ("Nondisclosure Agreement") which, as amended by Section 14.2 below, will remain in full force and effect with respect to the Confidential Information of SCEA throughout the term of this Agreement. 14.2 ADDITIONAL REQUIREMENTS REGARDING CONFIDENTIAL INFORMATION OF SCEA. 14.2.1 CONFIDENTIAL INFORMATION OF SCEA. "Confidential Information" of SCEA (as defined in the Nondisclosure Agreement and amended hereby) shall also include (i) the Sony Materials and information regarding SCEA'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), (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 SCEA to Publisher, and (iv) this Agreement and the terms and conditions thereof. If at any time Publisher becomes aware of any unauthorized duplication, access, use, possession or knowledge of any Confidential Information of SCEA, it shall notify SCEA as soon as reasonably practicable, and shall promptly act to recover any such information and/or prevent further breach of the confidentiality obligations herein. Publisher shall take all reasonable steps requested by SCEA to prevent the recurrence of any unauthorized duplication, access, use, possession or knowledge of the Confidential Information of SCEA. 14.2.2 CONFIDENTIALITY OF AGREEMENT. As provided above, the terms and conditions of this Agreement shall be treated as Confidential Information of SCEA; provided that each party may disclose the terms and conditions of this 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 Agreement or rights under this Agreement; and (iv) if Publisher shall be required, in the opinion of counsel, to file publicly or otherwise disclose the terms of this Agreement under applicable federal and/or state securities laws, Publisher shall be required to promptly notify SCEA such that SCEA has a reasonable opportunity to contest or limit the scope of such required disclosure, and Publisher shall request, and shall use its -17- CONFIDENTIAL best efforts to obtain, confidential treatment for such sections of this Agreement as SCEA may designate. Any failure to notify SCEA under clause (iv) of this Section 14.2.2 shall be deemed a material breach of this Agreement. Unless otherwise permitted by SCEA, both parties shall treat the fact that they have entered into this Agreement as Confidential Information of the other party until a public announcement regarding the execution of this Agreement is released by SCEA, at its sole discretion, announcing that Publisher has become a licensee of SCEA. 14.3 REQUIREMENTS REGARDING CONFIDENTIAL INFORMATION OF PUBLISHER. 14.3.1 CONFIDENTIAL INFORMATION OF PUBLISHER. "Confidential Information of Publisher" shall mean (i) the Licensed Developer Software as provided to SCEA pursuant to this Agreement and all documentation and information relating thereto, including Product Proposals, Printed Materials and Advertising Materials (other than documentation and information expressly intended for use by and release to end users, the general public or the trade), and (ii) information relating to Publishers' or its affiliates' or licensors' finances, business, marketing and technical plans, that is disclosed in writing or in any other form by Publisher to SCEA. 14.3.2 PRESERVATION OF CONFIDENTIAL INFORMATION OF PUBLISHER. SCEA shall hold all Confidential Information of Publisher in confidence, and shall take all reasonable steps necessary to preserve the confidentiality of the Confidential Information of Publisher, 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 SCEA takes to protect the confidentiality of its own most highly confidential information. Except as may be expressly authorized by Publisher in writing, SCEA shall not at any time, either before or after any termination of this Agreement, directly or indirectly: (i) disclose any Confidential Information to any person other than an SCEA employee or subcontractor who needs to know or have access to such Confidential Information for the purposes of this Agreement, and only to the extent necessary for such purposes; (ii) except as otherwise provided in this Agreement, duplicate the Confidential Information of Publisher for any purpose whatsoever; (iii) use the Confidential Information for any reason or purpose other than as expressly permitted in this Agreement; or (iv) except as otherwise provided in Section 8.3, remove any copyright notice, trademark notice and/or other proprietary legend set forth on or contained within any of the Confidential Information of Publisher. 14.3.3 OBLIGATIONS UPON UNAUTHORIZED DISCLOSURE. If at any time SCEA becomes aware of any unauthorized duplication, access, use, possession or knowledge of any Confidential Information of Publisher, it shall notify the Publisher as soon as is reasonably practicable. SCEA shall provide any and all reasonable assistance to Publisher to protect Publisher's proprietary rights in any Confidential Information of Publisher that it 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 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, costs and expenses incurred by Publisher to protect its proprietary rights in the Confidential Information of Publisher. SCEA shall take all reasonable steps requested by Publisher to prevent the recurrence of any unauthorized duplication, access, use, possession or knowledge of the Confidential Information of Publisher. 14.3.4 EXCEPTIONS. The foregoing restrictions will not apply to information that could be deemed to be Confidential Information of Publisher to the extent that such information: (i) was known to SCEA at the time of disclosure to it; (ii) becomes part of information in the public domain through no fault of SCEA; (iii) has been rightfully received from a third party authorized by Publisher to make such disclosure without restriction; (iv) has been approved for release by prior written authorization of Publisher; 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 SCEA has notified the disclosing party immediately upon learning of the possibility of any such court order or legal requirement and has given Publisher a reasonable opportunity to contest or limit the scope of such required disclosure. 15. TERM AND TERMINATION. 15.1 EFFECTIVE DATE; TERM. This 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 term of this Agreement shall be for four (4) years from the Effective Date. Any Licensed Products approved by SCEA or otherwise qualified to proceed with development under the Original License Agreement shall, upon full execution of this LPA by Publisher and SCEA, be considered Licensed Products under this LPA, and the terms and conditions of this LPA shall apply to such Licensed Products as if they were licensed hereunder. 15.2 TERMINATION BY SCEA. SCEA shall have the right to terminate this Agreement immediately, by providing written notice of such election to Publisher, upon the occurrence of any of the following events or circumstances: -18- CONFIDENTIAL (i) If Publisher breaches (A) any of its material obligations provided for in this Agreement (including but not limited to Publisher's failure to pay any amounts due hereunder), which materiality shall be determined by SCEA in its sole discretion; (B) some of its obligations provided for in this Agreement, the combined effect of which has a material effect hereunder; or (C) any other agreement entered into between SCEA or Affiliates of SCEA and Publisher. In the event of each such breach, Publisher shall have an opportunity to correct or cure such breach within thirty (30) days after receipt of written notice of such breach by SCEA, provided that, if after such thirty (30) day period, such breach is not corrected or cured to SCEA's satisfaction, this Agreement shall be terminated. (ii) Publisher'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. (iii) Publisher'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 Publisher's property, whether tangible or intangible, wherever located. (iv) The making by Publisher of a general assignment for the benefit of creditors. (v) The commencing by Publisher or Publisher's intention to commence a voluntary case under any applicable bankruptcy laws (as now or hereafter may be in effect). (vi) Publisher is bankrupt or insolvent. (vii) The filing by Publisher or the intent to file by Publisher of a petition seeking to take advantage of any other law providing for the relief of debtors. (viii)Publisher'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. (ix) The liquidation or dissolution of Publisher, or a statement of intent by Publisher to no longer exercise any of the rights granted by SCEA to Publisher hereunder. (x) If during the term of this Agreement a controlling interest in Publisher or a controlling interest in an entity which has, directly or indirectly, a controlling interest in Publisher is transferred to a party that (A) is in breach of any agreement with SCEA or an Affiliate of SCEA, and such agreement has been terminated as a result of such breach; (B) directly or indirectly holds or acquires an interest in a third party which develops any interactive hardware device or product which is directly or indirectly competitive with the Player; (C) is in litigation with SCEA or Affiliates of SCEA concerning any proprietary technology, trade secrets or other Intellectual Property Rights or Confidential Information of SCEA. As used in this Section 15.2, "controlling interest" means, with respect to any form of entity, sufficient power, whether by holding shares of stock, management power, voting power or power conferred on such person by the Certificate of Incorporation, Bylaws, Partnership Agreement or other documents regulating the form and powers of such entity, to control the decisions of such entity. (xi) If during the term of this Agreement Publisher, or an entity that has, directly or indirectly, a controlling interest in Publisher, enters into a business relationship with a third party with whom Publisher materially contributes to develop core components to an interactive hardware device or product which is directly or indirectly competitive with the Player. Publisher shall be obligated to immediately notify SCEA in the event that any of the events or circumstances specified in subsections (ii) - (xi) occur, and any failure to so notify SCEA shall constitute a material breach with no opportunity to cure such breach. 15.3 PRODUCT-BY-PRODUCT TERMINATION BY SCEA. In addition to the events of termination described in Section 15.2, above, SCEA, at its option, shall be entitled to terminate, on a product-by-product basis, the licenses and related rights herein granted to Publisher in the event that (a) Publisher fails to notify SCEA promptly in writing of any material change to any materials previously approved by SCEA in accordance with Section 5 or Section 7.1.3 hereto, and such breach is not corrected or cured prior to the earlier of (i) thirty (30) days after receipt of written notice of such breach or (ii) commercial release of the product; or (b) any third party with whom Publisher has contracted for the development of Executable Software breaches any of its material obligations to SCEA pursuant to such third party's agreement with SCEA with respect to such Executable Software; or (c) Publisher cancels a Licensed Product or fails to provide SCEA in accordance with the provisions of Section 5.4 above, with the final version of the Executable Software for any Licensed Product within three (3) months of the scheduled release date according to the Product Proposal, or fails to provide work in progress to SCEA in accordance with the Review Process in Section 5.3. 15.4 OPTIONS OF SCEA IN LIEU OF TERMINATION. As alternatives to terminating this Agreement or a particular Licensed Product as set forth in Sections 15.2 and 15.3 above, SCEA may, at its option and upon written notice to Publisher, take the following actions in lieu of terminating this Agreement. In the event that SCEA elects either of these options, Publisher may terminate this Agreement upon written notice to SCEA rather than allowing SCEA to exercise these options.Election of these options by SCEA shall not constitute a waiver of or compromise with respect to any of SCEA's rights under this Agreement and SCEA may elect to terminate this Agreement with respect to any breach. -19- CONFIDENTIAL 15.4.1 SUSPENSION OF AGREEMENT. SCEA may suspend this Agreement, entirely or with respect to a particular Licensed Product or program, for a set period of time which shall be specified in writing to Publisher upon the occurrence of any breach of this Agreement. 15.4.2 LIQUIDATED DAMAGES. Whereas a minor breach of any of the events set out below may not warrant termination of this Agreement, but will cause SCEA damages in amounts difficult to quantify, SCEA may require Publisher to pay liquidated damages of [**] per event, as follows: (i) Failure to submit Advertising Materials to SCEA for approval (including any required resubmissions); (ii) Broadcasting or publishing Advertising Materials without receiving the final approval or consent of SCEA; (iii) Failure to make SCEA's requested revisions to Advertising Materials; or (iv) Failure to comply with the SourceBook, Manufacturing Specifications or Guidelines which relates in any way to use of Licensed Trademarks. Liquidated damages shall be invoiced separately or on Publisher's next invoice for Licensed Products. SCEA reserves the right to terminate this Agreement for breach in lieu of seeking liquidated damages or in the event that liquidated damages are unpaid. 15.5 NO REFUNDS. In the event of the termination of this Agreement in accordance with any of the provisions of Sections 15.2 through 15.4 above, no portion of any payments of any kind whatsoever previously provided to SCEA hereunder shall be owed or be repayable to Publisher. 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 and/or all Licensed Products, Publisher shall provide SCEA with an itemized statement, certified to be accurate by an officer of Publisher, 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. SCEA shall be entitled to conduct at its expense a physical inspection of Publisher's inventory and work in process upon reasonable written notice during normal business hours in order to ascertain or verify such inventory and/or statement. 16.2 REVERSION OF RIGHTS. Upon expiration or termination and subject to Section 16.3 below, the licenses and related rights herein granted to Publisher shall immediately revert to SCEA, and Publisher shall cease and desist from any further use of Confidential Information of SCEA, the Licensed Trademarks and the Sony Materials and any Intellectual Property Rights therein, and, subject to the provisions of Section 16.3 below, Publisher shall have no further right to continue the publication, manufacture, marketing, sale and/or distribution of any Units of the Licensed Products, nor to continue to use the Licensed Trademarks; provided, however, that for a period of one year after termination, and subject to all the terms of Section 14, and provided this Agreement is not terminated due to a breach or default of Publisher, Publisher may retain such portions of Sony Materials as SCEA in its sole discretion agrees are required to support end users of Licensed Products but must return these materials at the end of such one year period. 16.3 DISPOSAL OF UNSOLD UNITS. Provided that this Agreement is not terminated due to a breach or default of Publisher, Publisher may, upon expiration or termination of this Agreement, sell off existing inventories of Licensed Products, on a non-exclusive basis, for a period of [**] from the date of expiration or termination of this Agreement, and provided such inventories have not been manufactured solely or principally for sale during such period. Subsequent to the expiration of such [**] period, or in the event this Agreement is terminated as a result of any breach or default of Publisher, any and all Units of the Licensed Products remaining in Publisher's inventory shall be destroyed by Publisher within [**] of such expiration or termination. Within five (5) business days after such destruction, Publisher shall provide SCEA with an itemized statement, certified to be accurate by an officer of Publisher, 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 SONY MATERIALS AND CONFIDENTIAL INFORMATION. Upon the expiration or earlier termination of this Agreement, Publisher shall immediately deliver to SCEA, or if and to the extent requested by SCEA destroy, all Sony Materials and any and all copies thereof, and Publisher and SCEA shall immediately deliver to the other party, or if and to the extent requested by such party destroy, 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 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 Agreement. Within five (5) working days after any such destruction, Publisher shall provide SCEA with an itemized statement certified to be accurate by an officer of Publisher, indicating the number of copies and/or units of the Sony Materials and/or [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission -20- CONFIDENTIAL Confidential Information which have been destroyed, the location and date of such destruction and the disposition of the remains of such destroyed materials. 16.5 RENEWAL OR EXTENSION OF THIS AGREEMENT; TERMINATION WITHOUT PREJUDICE. SCEA shall be under no obligation to renew or extend this Agreement notwithstanding any actions taken by either of the parties prior to the expiration of this Agreement. Upon the expiration of this 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 been sustained or to have arisen out of such expiration. However, the expiration of this Agreement shall not excuse either party from its previous breach of any of the provisions of this Agreement or from any obligations surviving the expiration of this Agreement, and full legal and equitable remedies shall remain available for any breach or threatened breach of this Agreement or any obligations arising therefrom. The expiration or termination of this Agreement 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. The address for all notices or other communications required to be sent to SCEA or Publisher, 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, as confirmed by the sending party. 17.2 FORCE MAJEURE. Neither SCEA nor Publisher shall be liable for any loss or damage or be deemed to be in breach of this Agreement if its failure to perform or failure to cure any of its obligations under this 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; shutdown or delay in power, telephone or other essential service due to the failure of computer or communications equipment or otherwise; 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 Publisher'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) business 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 SCEA prior to, during or after any such Force Majeure condition. In the event that the Force Majeure condition continues for more than one hundred and twenty (120) days, SCEA may terminate this Agreement for cause by providing written notice to Publisher to such effect. 17.3 NO PARTNERSHIP OR JOINT VENTURE. The relationship between SCEA and Publisher, respectively, is that of licensor and licensee. Both parties are independent contractors and are not the legal representative, agent, joint venturer, partner or employee of the other party 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. SCEA has entered into this Agreement based upon the particular reputation, capabilities and experience of Publisher and its officers, directors and employees. Accordingly, Publisher may not assign this 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 SCEA shall first be obtained. This Agreement shall not be assigned in contravention of Section 15.2 (x). Any attempted or purported assignment, delegation or other such transfer, directly or indirectly, without the required consent of SCEA shall be void and a material breach of this Agreement. Subject to the foregoing, this Agreement shall inure to the benefit of the parties and their respective successors (other than under the conditions set forth in Section 15.2 (x)) and permitted assigns. SCEA 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. 17.5 SUBCONTRACTORS. Publisher shall not sell, assign, delegate, subcontract, sublicense or otherwise transfer or encumber all or any portion of the licenses herein granted; provided, however, that Publisher may retain those subcontractor(s) to assist with the development of Licensed Products which: (i) have signed a Nondisclosure Agreement and a Developer Agreement with SCEA (the "PlayStation Agreements") in full force and effect throughout the term of such development; or (ii) have signed an SCEA-approved subcontractor agreement between Publisher and subcontractor, which subcontractor agreement shall contain substantially identical terms to the Nondisclosure Agreement and the confidentiality provisions of this Agreement ("Subcontractor Agreement"). If a subcontractor will use Development Tools provided by Publisher, it must also comply with the requirements set -21- CONFIDENTIAL forth in Section 16.5 of an LDA with respect to usage of such Development Tools. Such Subcontractor Agreement shall provide that SCEA is a third party beneficiary of such Subcontractor Agreement, 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. Publisher agrees to provide a copy of any such Subcontractor Agreement to SCEA prior to and following execution thereof. Publisher shall not disclose to any subcontractor any Confidential Information of SCEA (as defined herein and in the Nondisclosure Agreement), including, without limitation, any Sony Materials, unless and until either the PlayStation Agreements or a Subcontractor Agreement have been executed. Notwithstanding any consent which may be granted by SCEA for Publisher to employ any such permitted subcontractor(s), or any such separate agreement(s) that may be entered into by Publisher with any such permitted subcontractor, Publisher shall remain fully liable for its compliance with all of the provisions of this 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. Publisher shall use its best efforts to cause its subcontractors employed hereby to comply in all respects with the terms and conditions of this 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 Agreement and the performance by the parties of this 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 Agreement binding, including, without limitation, the recording of this Agreement with any appropriate governmental authorities (if required). 17.7 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be governed by and interpreted in accordance with the laws of the State of California, 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 Agreement or to adjudicate any dispute arising hereunder shall be brought in the courts of the County of San Mateo, State of California (if under State law) or the Northern District of California (if under Federal law or pursuant to diversity jurisdiction). 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. In addition, each party hereby waives the right to a jury trial in any action or proceeding brought to enforce the terms of this Agreement or to adjudicate any dispute arising hereunder. 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 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 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, 3, 4, 5, 6, 7.1, 12 and 14 of this Agreement would cause irreparable harm to SCEA, the extent of which would be difficult to ascertain. Accordingly, Publisher agrees that, in addition to any other remedies to which SCEA may be entitled, in the event of a breach by Publisher or any of its employees or permitted subcontractors of any such Sections of this Agreement, SCEA shall be entitled to the immediate issuance without bond of ex parte injunctive relief enjoining any breach or threatened breach of any or all of such provisions. In addition, Publisher shall indemnify SCEA for all losses, damages, liabilities, costs and expenses (including reasonable attorneys' fees and all reasonable related costs) which SCEA may sustain or incur as a result of such breach. 17.10 SEVERABILITY. In the event that any provision of this 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 Agreement, while the remainder of this 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 Agreement for any reason: 4, 5.5, 6, 7.2, 7.4, 9, 10, 11, 12, 14, 15.5, 16, 17.4, 17.5, 17.6,17.7, 17.8, 17.9 and 17.10. 17.12 WAIVER. No failure or delay by either party in exercising any right, power or remedy under this Agreement shall operate as a waiver of any such right, power or remedy. No waiver of any provision of this Agreement shall be effective unless in writing and signed by the party against whom such waiver is sought to be enforced. Any waiver by either party of any provision of -22- CONFIDENTIAL this Agreement shall not be construed as a waiver of any other provision of this 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 Agreement shall be effective unless in writing and signed by both of the parties. 17.14 HEADINGS. The section headings used in this Agreement are intended primarily for reference and shall not by themselves determine the construction or interpretation of this Agreement or any portion hereof. 17.15 INTEGRATION. This Agreement (together with the Exhibits attached hereto) constitutes the entire agreement between SCEA and Publisher and supersedes all prior or contemporaneous agreements, proposals, understandings and communications between SCEA and Publisher, 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 counterparts, each of which shall be deemed an original, and together shall constitute one and the same instrument. 17.17 CONSTRUCTION. This Agreement shall be fairly interpreted in accordance with its terms and without any strict construction in favor of or against either of the parties. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first written above. SONY COMPUTER ENTERTAINMENT AMERICA INC. THQ INC. By: Andrew House By: Alison Locke ------------------------------- ---------------------------------- Print Name: Andrew House Print Name: Alison Locke ----------------------- -------------------------- Title: Title: Executive Vice President, ---------------------------- North America Publishing ------------------------------ Date: 11-7-2002 Date: 10-31-02 ----------------------------- --------------------------------

NOT AN AGREEMENT UNTIL EXECUTED BY BOTH PARTIES -23- CONFIDENTIAL EXHIBIT A ROYALTIES LICENSED PRODUCT PER UNIT ROYALTY. A. APPLICABLE ROYALTIES ON LICENSED PRODUCTS. 1. INITIAL ORDERS. Publisher shall pay SCEA, either directly or through its designee, a per title royalty in United States dollars for each Unit of the Licensed Products initially released after execution of this Agreement based on the initial Wholesale Price of the Licensed Product, as follows:
Wholesale Price Per Title Royalty - ----------------- ----------------- ----------------- [**] [**] [**] - ----------------- ----------------- ----------------- [**] [**] [**] - ----------------- ----------------- ----------------- [**] [**] [**] - ----------------- ----------------- ----------------- [**] [**] [**] - ----------------- ----------------- ----------------- [**] [**] [**] - ----------------- ----------------- -----------------
In the absence of satisfactory evidence to support the WSP, the royalty rate that shall apply will be [**] per Unit. For purposes of this Agreement, Units of Licensed Products shall be considered "released" when Units first begin to ship from a Designated Manufacturing Facility. 2. REORDERS AND OTHER PROGRAMS. Royalties on Licensed Products initially released prior to execution of this Agreement shall be the royalty in effect as the time such Licensed Product was released. Royalties on additional orders to manufacture a specific Licensed Product shall be the royalty determined by the initial Wholesale Price as reported by Publisher for that Licensed Product regardless of the wholesale price of the Licensed Product at the time of reorder, except in the event that the Wholesale Price increases for such Licensed Product, in which case the royalty shall be adjusted upwards to reflect the higher Wholesale Price. Licensed Products qualifying for SCEA's "Greatest Hits" programs or other programs offered by SCEA shall be subject to the royalties applicable for such programs. 3. PAYMENT. At the time of placing an order to manufacture a Licensed Product, Publisher shall submit to SCEA an accurate accounting statement setting out the number of Units of Licensed Product to be manufactured, projected initial wholesale price, applicable royalty, and total amount due SCEA. In addition, Publisher shall submit to SCEA prior to placing the initial order for each Licensed Product a separate certification, in the form provided by SCEA in the SourceBook, signed by officers of Publisher that certifies that the Wholesale Price provided to SCEA is accurate and attaching such documentation supporting the WSP as requested by SCEA. The accounting statement due hereunder shall be subject to the audit and accounting provisions set forth below. 4. AUDIT PROVISIONS. Publisher shall keep full, complete, and accurate books of account and records covering all transactions relating to this Agreement. Publisher shall preserve such books of account, records, documents, and material for a period of [**]. Acceptance by SCEA of an accounting statement, purchase order, or payment hereunder will not preclude SCEA from challenging or questioning the accuracy thereof at a later time. In the event that SCEA reasonably believes that the Wholesale Price provided by Publisher with respect to any Licensed Product is not accurate, SCEA shall be entitled to request additional documentation from Publisher to support the listed Wholesale Price for such Licensed Product. In addition, during the Term and for a period of [**] upon the giving of reasonable written notice to Publisher, representatives of SCEA shall have access to, and the right to make copies and summaries of, such portions of all of Publisher's books and records as pertain to the Licensed Products and any payments due or credits received hereunder. In the event that such inspection reveals an under-reporting of any payment due to SCEA, Publisher shall immediately pay SCEA such amount. In the event that any audit conducted by SCEA reveals that Publisher has under-reported any payment due to SCEA hereunder by [**] or more for that audit period, then in addition to the [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. -24- CONFIDENTIAL payment of the appropriate amount due to SCEA, Publisher shall reimburse SCEA for all reasonable audit costs for that audit and any and all collection costs to recover the unpaid amount. B. SCEA ESTABLISHED THIRD PARTY DEMO DISC PROGRAM ROYALTIES: Publisher shall pay SCEA a per Unit royalty in United States dollars of [**] for each Unit of the Consumer Promotional Disc Program and the Trade Promotional Disc Program manufactured. The quantity of Units ordered shall comply with the terms of such SCEA Established Third Party Demo Disc Program. Payment of such royalties shall be made to SCEA in conjunction with the payment to SCEA of the manufacturing costs for each Unit and pursuant to the terms and conditions set forth in Sections 7.2.3 and 9 hereto and in such SCEA Established Third Party Demo Disc Program. C. ADJUSTMENTS TO LICENSED PRODUCT ROYALTY - HIT TITLE REBATE 1. In the event that the total purchases by Publisher from SCEA with respect to any Licensed Product exceed the following numbers of Units during the first three (3) years after first commercial shipment of such Licensed Product, Publisher shall be entitled to a rebate with respect to royalties paid by Publisher to SCEA pursuant to Section 9 of the Agreement ("Hit Title Rebate") which shall be credited to Publisher's account as provided below, as follows:
VOLUME ROYALTY REBATE - ------ -------------- ~~[**] [**] [**] [**] [**] [**] [**] [**]~~
2. SCEA shall credit Publisher's account for the Hit Title Rebates as follows:(i) if Publisher's initial order for a Licensed Product is less than the Hit Title Rebate threshold provided in C.1.a above, then SCEA shall credit Publisher's account sixty (60) days following the date that Publisher notifies SCEA that sales of a Licensed Product exceed the Hit Title Rebate threshold, subject to SCEA's right to confirm such information; (ii) if Publisher's initial order for a Licensed Product reaches or exceeds the Hit Title Rebate threshold provided in C.1.a above, then Publisher may credit the Hit Title Rebate amount set forth above as a separate line item on the Purchase Order with respect to such Licensed Product. It is Publisher's responsibility to inform SCEA when it reaches a Hit Title Rebate threshold, and Publisher shall not take a Hit Title Rebate as a separate line item on a Purchase Order without discussing first with SCEA. 3. The Hit Title Rebate may not be used in conjunction with any royalty reduction program of SCEA in effect from time to time, including but not limited to any "Greatest Hits" program, nor shall a Hit Title Rebate be taken on a Third Party Demo Disc program or any promotional program of SCEA or on Licensed Products that qualify for the Band 1 royalty. 4. Each Licensed Product shall be considered independently for purposes of calculating the Hit Title Rebate and the Webates shall be cumulative. By way of example: a. If Publisher's aggregate shipments for a single Licensed Product are less than [**], no rebate is available. b. If Publisher's aggregate shipments for a single Licensed Product exceed [**] but are less than [**] Units, Publisher will be entitled to receive [**] of the Royalty paid as a rebate with respect to the first [**] Units, at the time Publisher is invoiced for such excess order, and shall thereafter be charged a per Unit royalty of [**] less [**], until Units of the Licensed Product shipped exceed [**] Units. c. If Publisher's aggregate orders for a single Licensed Product exceed [**], but are less than [**] Units, Publisher will receive [**] of the Royalty paid as a rebate with respect to the first [**] Units, at the time Publisher is invoiced for such excess order, and shall thereafter be charged a per Unit royalty of [**] less[**], until Units of the Licensed Product shipped exceed [**]. Please note that in this case Publisher will [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. -25- CONFIDENTIAL only receive a [**] additional rebate with respect to the first [**] because it has already received a [**] rebate on such Units. [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. -26- CONFIDENTIAL EXHIBIT B [**] [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. -27- CONFIDENTIAL EXHIBIT C [**] [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission -28- CONFIDENTIAL EXHIBIT D [FORM OF LETTER REGARDING SCEA DEMO DISCS] VIA FAX [Date] [Name] [Third Party Name] [Address] Re: [Specify SCEA Demo Disc Program] Dear ________________: This letter confirms that Sony Computer Entertainment America ("SCEA") would like to include the Product Information (listed below) of your PlayStation game (listed below) in the following Demo Disc: Game Title: Type of Product Information Required: Demo Disc program: Deadline: Date of Licensed Publisher Agreement: Please return a signed copy of this letter to _________________ by fax at _______________ and submit the Product Information directly to SCEA's consultant, _______________________________________, no later than the Deadline set forth above. Failure to provide this acknowledged letter and the code, by this date, will result in removal of your Product Information from the Demo Disc. The inclusion of your Product Information is subject to the terms and conditions of the Licensed Publisher Agreement between SCEA and you. Very truly yours, AGREED AND ACKNOWLEDGED BY: [PUBLISHER] By:_____________________________________ Title:__________________________________ Date:___________________________________ cc: Legal Department -29- CONFIDENTIAL EX-10.10 12 a85823exv10w10.txt EXHIBIT 10.10 * ALL SECTIONS MARKED WITH ASTERISKS REFLECT PORTIONS WHICH HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY THQ INC. AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT. EXHIBIT 10.10 SONY COMPUTER ENTERTAINMENT AMERICA INC. AND THQ INC. [SONY PLAYSTATION LOGO] PLAYSTATION(R)2 CD-ROM/DVD-ROM LICENSED PUBLISHER AGREEMENT TABLE OF CONTENTS
SECTION: PAGE: - -------- ----- 1. DEFINITION OF TERMS 1 ------------------------------------------------------------------------------------- 2. LICENSE GRANT 3 ------------------------------------------------------------------------------------- 3. DEVELOPMENT OF LICENSED PRODUCTS 3 ------------------------------------------------------------------------------------- 4. LIMITATIONS ON LICENSES; RESERVATION OF RIGHTS 4 ------------------------------------------------------------------------------------- 5. QUALITY STANDARDS FOR THE LICENSED PRODUCTS 5 ------------------------------------------------------------------------------------- 6. MANUFACTURE OF THE LICENSED PRODUCTS 7 ------------------------------------------------------------------------------------- 7. MARKETING AND DISTRIBUTION 10 -------------------------------------------------------------------------------------- 8. ROYALTIES 12 -------------------------------------------------------------------------------------- 9. REPRESENTATIONS AND WARRANTIES 15 -------------------------------------------------------------------------------------- 10. INDEMNITIES; LIMITED LIABILITY 16 -------------------------------------------------------------------------------------- 11. SCEA INTELLECTUAL PROPERTY RIGHTS 17 -------------------------------------------------------------------------------------- 12. INFRINGEMENT OF SCEA INTELLECTUAL PROPERTY RIGHTS BY THIRD PARTIES 18 -------------------------------------------------------------------------------------- 13. CONFIDENTIALITY 18 -------------------------------------------------------------------------------------- 14. TERM AND TERMINATION 20 -------------------------------------------------------------------------------------- 15. EFFECT OF EXPIRATION OR TERMINATION 22 -------------------------------------------------------------------------------------- 16. MISCELLANEOUS PROVISIONS 23 --------------------------------------------------------------------------------------
PLAYSTATION(R) 2 CD-ROM/DVD-ROM LICENSED PUBLISHER AGREEMENT This LICENSED PUBLISHER AGREEMENT (the "Agreement" or "LPA"), entered into as of the 1st day of April, 2000 (the "Effective Date"), by and between SONY COMPUTER ENTERTAINMENT AMERICA INC., with offices at 919 E. Hillsdale Boulevard, Foster City, CA 94404 (hereinafter "SCEA"), and THQ Inc., with offices at 27001 Agoura Road, Suite 325, Calabasas Hills, CA 91301 (hereinafter Publisher"). WHEREAS, SCEA, its parent company, Sony Computer Entertainment Inc., and/or certain of their affiliates and companies within the group of companies of which any of them form a part (collectively referred to herein as "Sony") are designing and developing, and licensing core components of, a computer entertainment system known as the PlayStation(R)2 computer entertainment system (hereinafter referred to as the "System"). WHEREAS, SCEA has the right to grant licenses to certain SCEA Intellectual Property Rights (as defined below) in connection with the System. WHEREAS, Publisher desires to be granted a non-exclusive license to publish, develop, have manufactured, market, distribute and sell Licensed Products (as defined below) pursuant to the terms and conditions set forth in this Agreement; and SCEA is willing, on the terms and subject to the conditions of this Agreement, to grant Publisher such a license. 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, Publisher and SCEA hereby agree as follows: 1. DEFINITION OF TERMS. 1.1 "Advertising Materials" means any advertising, marketing, merchandising, promotional, public relations (including press releases) and display materials relating to or concerning Licensed Products or proposed Licensed Products, or any other advertising, merchandising, promotional, public relations (including press releases) and display materials depicting any of the Licensed Trademarks. For purposes of this Agreement, Advertising Materials include any advertisements in which the System is referred to or used in any way, including but not limited to giving the System away as prizes in contests or sweepstakes and the public display of the System in product placement opportunities. 1.2 "Affiliate of SCEA" means, as applicable, either Sony Computer Entertainment Inc. in Japan, Sony Computer Entertainment Europe Ltd. in the United Kingdom or such other Sony Computer Entertainment entity as may be established from time to time. 1.3 "Designated Manufacturing Facility" means a manufacturing facility or facilities which is designated by SCEA in its sole discretion to manufacture Licensed Products and/or their component parts, which may include manufacturing facilities owned and operated by affiliated companies of SCEA. 1.4 "Development System Agreement" means an agreement entered into between SCEA and a Licensed Publisher, Licensed Developer or other licensee for the sale or license of Development Tools. 1.5 "Development Tools" means the PlayStation 2 development tools sold or licensed by SCEA to a Licensed Publisher or Licensed Developer for use in the development of Executable Software for the System. 1.6 "Executable Software" means software which includes Product Software and any software provided directly or indirectly by SCEA or an Affiliate of SCEA designed for execution exclusively on the System and which has the ability to communicate with the software resident in the System. 1.7 "Fiscal Year" means a year measured from April 1 to March 31. 1.8 "Generic Line" means the generic legal attribution line used on SCEA marketing or other materials, which shall be or be substantially similar to the following: "Product copyright and trademarks are the property of the respective publisher or their licensors". 1.9 "Guidelines" shall mean any guidelines of SCEA or an Affiliate of SCEA with respect to SCEA Intellectual Property Rights, which may be set forth in the SourceBook 2 or in other documentation provided by SCEA or an Affiliate of SCEA to Publisher. 1.10 "Legal Copy" means any legal or contractual information required to be used in connection with a Licensed Product or Product Information, including but not limited to copyright and trademark attributions, contractual credits and developer or distribution credits. 1.11 "Level 1 Rebate" shall have the meaning set forth in Section 8.4 hereto. 1.12 "Level 2 Rebate" shall have the meaning set forth in Section 8.4 hereto. 1 CONFIDENTIAL 1.13 "Licensed Developer" means any developer that has signed a valid and then current Licensed Developer Agreement. 1.14 "Licensed Developer Agreement" or "LDA" means a valid and current license agreement for the development of Licensed Products for the System, fully executed between a Licensed Developer and SCEA or an Affiliate of SCEA. 1.15 "Licensed Products" means the Executable Software (which may be combined with Executable Software of other Licensed Publishers or Licensed Developers), which shall consist of one product developed for the System or for the original PlayStation game console per Unit, in final form developed exclusively for the System. Publisher shall have no right to package or bundle more than one product developed for the System or for the original PlayStation game console in a single Unit unless separately agreed with SCEA. 1.16 "Licensed Publisher" means any publisher that has signed a valid and then current Licensed Publisher Agreement. 1.17 "Licensed Publisher Agreement" or "LPA" means a valid and current license agreement for the publication, development, manufacture, marketing, distribution and sale of Licensed Products for the System, fully executed between a Licensed Publisher and SCEA or an Affiliate of SCEA. 1.18 "Licensed Territory" means the United States (including its possessions and territories) and Canada. The Licensed Territory may be modified and/or supplemented by SCEA from time to time pursuant to Section 4.4 below. 1.19 "Licensed Trademarks" means the trademarks, service marks, trade dress, logos and other icons or indicia designated by SCEA in the SourceBook 2 or other Guidelines for use on or in connection with Licensed Products. Nothing contained in this Agreement shall in any way grant Publisher the right to use the trademark "Sony" in any manner. SCEA may amend such Licensed Trademarks from time to time in the SourceBook 2 or other Guidelines or upon written notice to Publisher. 1.20 "Manufacturing Specifications" means specifications setting forth terms relating to the manufacture and assembly of PlayStation 2 Format Discs, Packaging, Printed Materials and each of their component parts, which shall be set forth in the SourceBook 2 or other documentation provided by SCEA or a Designated Manufacturing Facility to Publisher and which may be amended from time to time upon reasonable notice to Publisher. 1.21 "Master Disc" means a recordable CD-ROM or DVD-ROM disc in the form requested by SCEA containing final pre-production Executable Software for a Licensed Product. 1.22 "Packaging" means, with respect to each Licensed Product, the carton, containers, packaging, edge labels and other proprietary labels, trade dress and wrapping materials, including any jewel case (or other CD-ROM or DVD-ROM container) or parts thereof, but excluding Printed Materials and PlayStation 2 Format Discs. 1.23 "PlayStation 2 Format Discs" means the uniquely marked or colored CD-ROM or DVD-ROM discs formatted for use with the System which, for purposes of this Agreement, are manufactured on behalf of Publisher and contain Licensed Products or SCEA Demo Discs. 1.24 "Printed Materials" means all artwork and mechanicals set forth on the disc label of the PlayStation Disc relating to any of the Licensed Products and on or inside any Packaging for the Licensed Product, and all instructional manuals, liners, inserts, trade dress and other user information to be inserted into the Packaging. 1.25 "Product Information" means any information owned or licensed by Publisher relating in any way to Licensed Products, including but not limited to demos, videos, hints and tips, artwork, depictions of Licensed Product cover art and videotaped interviews. 1.26 "Product Proposal" shall have the meaning set forth in Section 5.2.1 hereto. 1.27 "Product Software" means any software including audio and video material developed by a Licensed Publisher or Licensed Developer, which, either by itself or combined with Product Software of other licensees, when integrated with software provided by SCEA or an Affiliate of SCEA, creates Executable Software. It is understood that Product Software contains no proprietary information of Sony or any other rights of SCEA. 1.28 "Publisher Intellectual Property Rights" means those intellectual property rights, including but not limited to patents and other patent rights, copyrights, trademarks, service marks, trade names, trade dress, mask work rights, utility model 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, which pertain to Product Software, Product Information, Printed Materials, Advertising Materials or other rights of Publisher required or necessary under this Agreement. 1.29 "Purchase Order" means a written purchase order processed in accordance with the terms of Section 6.2.2 hereto, the Manufacturing Specifications or other 2 CONFIDENTIAL terms provided separately by SCEA or a Designated Manufacturing Facility to Publisher. 1.30 "SCEA Demo Disc" means any demonstration disc developed and distributed by SCEA. 1.31 "SCEA Established Third Party Demo Disc Programs" means (i) any consumer or trade demonstration disc program specified in the SourceBook 2, and (ii) any other third party demo disc program established by SCEA for Licensed Publishers. 1.32 "SCEA Intellectual Property Rights" means those intellectual property rights, including but not limited to patents and other patent rights, copyrights, trademarks, service marks, trade names, trade dress, mask work rights, utility model 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, which are required to ensure compatibility with the System or which pertain to the Licensed Trademarks. 1.33 "SCEA Product Code" means the product identification number assigned to each Licensed Product, which shall consist of separate product identification numbers for multiple disc sets (i.e., SLUS-xxxxx). This SCEA Product Code is used on the Packaging and PlayStation Disc relating to each Licensed Product, as well as on most communications between SCEA and Publisher as a mode of identifying the Licensed Product other than by title. 1.34 "Sony Materials" means any data, object code, source code, firmware, documentation (or any part(s) of any of the foregoing), related to the System, selected in the sole judgment of SCEA, which are provided or supplied by SCEA or an Affiliate of SCEA to Publisher or any Licensed Developer and/or other Licensed Publisher. For purposes of this Agreement, Sony Materials shall not include any hardware portions of the Development Tools, but shall include firmware in such hardware. 1.35 "SourceBook 2" means the PlayStation 2 SourceBook (or any other reference guide containing information similar to the SourceBook 2 but designated with a different name) prepared by SCEA, which is provided separately to Publisher. The SourceBook 2 is designed to serve as the first point of reference by Publisher in every phase of the development, approval, manufacture and marketing of Licensed Products. 1.36 "Standard Rebate" shall mean the rebate offered by SCEA on titles of Licensed Products that achieve specified sales volumes as set forth in Section 8.4 of this Agreement. 1.37 "Third Party Demo Disc" means any demo disc developed and marketed by a Licensed Publisher, which complies with the terms of an SCEA Established Third Party Demo Disc Program. 1.38 "Unit" means an individual copy of a Licensed Product title regardless of the number of PlayStation 2 Format Discs constituting such Licensed Product title. 1.39 "Wholesale Price" or "WSP" shall mean the greater of (i) the first published price of the Licensed Product offered to retailers by Publisher as evidenced by a sell sheet or price list issued by Publisher, or (ii) the actual price paid by retailers upon the first commercial shipment of a Licensed Product without offsets, rebates or deductions from invoices of any kind. 2. LICENSE. 2.1 LICENSE GRANT. SCEA grants to Publisher, and Publisher hereby accepts, for the term of this Agreement, within the Licensed Territory, under SCEA Intellectual Property Rights owned, controlled or licensed by SCEA, a non-exclusive, non-transferable license, without the right to sublicense (except as specifically provided herein), to publish Licensed Products using Sony Materials, which right shall be limited to the following rights and other rights set forth in, and in accordance with the terms of, this LPA: (i) to produce or develop Licensed Products and to enter into agreements with Licensed Developers and other third parties to develop Licensed Products; (ii) to have such Licensed Products manufactured; (iii) to market, distribute and sell such Licensed Products and to authorize others to do so; (iv) to use the Licensed Trademarks strictly and only in connection with the development, manufacturing, marketing, packaging, advertising and promotion of the Licensed Products, and subject to SCEA's right of approval as provided herein; and (v) to sublicense to end users the right to use the Licensed Products for noncommercial purposes in conjunction with the System only, and not with other devices or for public performance. 2.2 SEPARATE PLAYSTATION AGREEMENTS. Unless specifically set forth in this Agreement, all terms used herein are specific to the System and the third party licensing program related thereto and not to the original PlayStation game console or third party licensing program related thereto. Licenses relating to the original PlayStation game console are subject to separate agreements with SCEA, and any license of rights to Publisher under such separate agreements shall not confer on Publisher any rights under the System and vice versa. 3. DEVELOPMENT OF LICENSED PRODUCTS. 3.1 RIGHT TO DEVELOP. This LPA grants Publisher the right to develop Licensed Products. It also gives Publisher the right to purchase and/or license Development Tools, as is appropriate, from SCEA or its designated agent, pursuant to a separate Development System Agreement with SCEA, to assist in such development. In developing Executable Software (or portions thereof), 3 CONFIDENTIAL Publisher and its agents shall fully comply in all respects with any and all technical specifications which may from time to time be issued by SCEA. In the event that Publisher uses third party tools to develop Executable Software, Publisher shall be responsible for ensuring that it has obtained appropriate licenses for such use. 3.2 DEVELOPMENT BY THIRD PARTIES. Except as otherwise set forth herein, Publisher shall not provide Sony Materials or SCEA's Confidential Information to any third party. Publisher shall be responsible for determining that third parties meet the criteria set forth herein. Publisher may contract with a third party for development of Licensed Products, provided that such third party is: (i) a Licensed Publisher, (ii) a Licensed Developer, or (iii) an SCEA-authorized subcontractor in compliance with the provisions of Section 16.6. Publisher shall notify SCEA in writing of the identity of any such third party within thirty (30) days of entering into an agreement or other arrangement with the third party. 4. LIMITATIONS ON LICENSES; RESERVATION OF RIGHTS. 4.1 REVERSE ENGINEERING PROHIBITED. Other than as expressly permitted by SCEA in writing, Publisher shall not directly or indirectly disassemble, decrypt, electronically scan, peel semiconductor components, decompile, or otherwise reverse engineer in any manner or attempt to reverse engineer or derive source code from, all or any portion of the Sony Materials, or permit, assist or encourage any third party to do so. Other than as expressly permitted by SCEA in writing, Publisher 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 SCEA. SCEA shall permit Publisher to study the performance, design and operation of the Development Tools solely for the limited purposes of developing and testing Publisher's software applications, or to build tools to assist Publisher with the development and testing of software applications for Licensed Products. Any tools developed or derived by Publisher resulting from the study of the performance, design or operation of the Development Tools shall be considered as derivative products of the Sony Materials for copyright purposes, but may be treated as trade secrets of Publisher. In no event shall Publisher patent any tools created, developed or derived from Sony Materials. Publisher shall not make available to any third party any tools developed or derived from the study of the Development Tools without the express written permission of SCEA. Use of such tools shall be strictly limited to the creation or testing of Licensed Products and any other use, direct or indirect of such tools is strictly prohibited. Publisher shall be required in all cases to pay royalties in accordance with Section 8 hereto to SCEA on any of Publisher's products utilizing any Sony Materials or derivative works made therefrom. Moreover, Publisher shall bear all risks arising from incompatibility of its Licensed Product and the System resulting from use of Publisher-created tools. The burden of proof under this Section shall be on Publisher, and SCEA reserves the right to require Publisher to furnish evidence satisfactory to SCEA that Publisher has complied with this Section. 4.2 RESERVATION OF SCEA'S RIGHTS. 4.2.1 LIMITATION OF RIGHTS TO LICENSES GRANTED. The licenses granted in this Agreement extend only to the publication, development, manufacture, marketing, distribution and sale of Licensed Products for use on the System, in such formats as may be designated by SCEA. Without limiting the generality of the foregoing and except as otherwise provided herein, Publisher shall not 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 computers or other devices. Notwithstanding this limitation, Publisher may electronically transmit Executable Software from site to site, or from machine to machine over a computer network, for the sole purpose of facilitating development; provided that no right of retransmission shall attach to any such transmission, and provided further that Publisher shall use reasonable security measures customary within the high technology industry to reduce the risk of unauthorized interception or retransmission of such transmissions. This Agreement does not grant any right or license, under any SCEA Intellectual Property Rights 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 Agreement or the conduct of the parties hereunder. 4.2.2 OTHER USE OF SONY MATERIALS AND SCEA INTELLECTUAL PROPERTY RIGHTS. Publisher shall not make use of any Sony Materials or any SCEA Intellectual Property Rights (or any portion thereof) except as authorized by and in compliance with the provisions of this Agreement. Publisher shall not use the Executable Software, Sony Materials or SCEA's Confidential Information in connection with the development of any software for any emulator or other computer hardware or software system. No right, license or privilege has been granted to Publisher 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. The rights set forth in Section 2.1(v) hereto are limited to the right to sublicense such rights to end users for non-commercial use; any public performance relating to the Licensed Product or the System is prohibited unless expressly authorized in writing by SCEA. 4.3 RESERVATION OF PUBLISHER'S RIGHTS. Separate and apart from Sony Materials and other rights licensed to Publisher by SCEA hereunder, as between Publisher and SCEA, Publisher retains all rights, title and interest in and to the Product Software, and the Product Proposals and Product Information related thereto, including without limitation Publisher Intellectual Property Rights therein, as 4 CONFIDENTIAL well as Publisher's rights in any source code and other underlying material such as artwork and music related thereto and any names used as titles for Licensed Products and other trademarks used by Publisher. Nothing in this Agreement shall be construed to restrict the right of Publisher to develop, distribute or transmit products incorporating the Product Software and such underlying material (separate and apart from the Sony Materials) for any hardware platform or service other than the System, or to use Printed Materials or Advertising Materials approved by SCEA as provided herein (provided that such Printed Materials and/or Advertising Materials do not contain any Licensed Trademarks) as Publisher determines for such other platforms. SCEA shall not do or cause to be done any act or thing in any way impairing or tending to impair or dilute any of Publisher's rights, title or interests hereunder. Notwithstanding the foregoing, Publisher shall not distribute or transmit Product Software which is intended to be used with the System 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 other a network of computers or other devices, except as otherwise permitted in Section 4.2.1 hereto. 4.4 ADDITIONS TO AND DELETIONS FROM LICENSED TERRITORY. SCEA may, from time to time, add one or more countries to the Licensed Territory by providing written notice of such addition to Publisher. SCEA shall also have the right to delete, and intends to delete any countries from the Licensed Territory if, in SCEA's reasonable judgment, the laws or enforcement of such laws in such countries do not protect SCEA Intellectual Property Rights. In the event a country is deleted from the Licensed Territory, SCEA shall deliver to Publisher a notice stating the number of days within which Publisher shall cease distributing Licensed Products, and retrieve any Development Tools located, in any such deleted country. Publisher shall cease distributing Licensed Products, and retrieve any Development Tools, directly or through subcontractors, by the end of the period stated in such notice. 4.5 SOURCEBOOK 2 REQUIREMENT. Publisher shall be required to comply with all the provisions of the SourceBook 2, including without limitation the Technical Requirements Checklist therein, when published, or within a commercially reasonable time following its publication to incorporate such provisions, as if such provisions were set forth in this Agreement. 5. QUALITY STANDARDS FOR THE LICENSED PRODUCTS. 5.1 QUALITY ASSURANCE GENERALLY. The Licensed Products (and all portions thereof) and Publisher's use of any Licensed Trademarks shall be subject to SCEA's prior written approval, which shall not be unreasonably withheld or delayed and which shall be within SCEA's sole discretion as to acceptable standards of quality. SCEA shall have the right at any stage of the development of a Licensed Product to review such Licensed Product to ensure that it meets SCEA's quality assurance standards. All Licensed Products will be developed to substantially utilize the particular capabilities of the System's proprietary hardware, software and graphics. No approval by SCEA of any element or stage of development of any Licensed Product shall be deemed an approval of any other element or stage of such Licensed Product, nor shall any such approval be deemed to constitute a waiver of any of SCEA's rights under this Agreement. In addition, SCEA's approval of any element or any stage of development of any Licensed Product shall not release Publisher from any of its representations and warranties in Section 9.2 hereunder. 5.2 PRODUCT PROPOSALS. 5.2.1 SUBMISSION OF PRODUCT PROPOSAL. Publisher shall submit to SCEA for SCEA's written approval or disapproval, which shall not be unreasonably withheld or delayed, a written proposal (the "Product Proposal"). Such Product Proposal must contain all information specified in the SourceBook 2, as well as any additional information that SCEA may deem to be useful in evaluating the proposed Licensed Product. 5.2.2 APPROVAL OF PRODUCT PROPOSAL. After SCEA's review of Publisher's Product Proposal, Publisher will receive written notice from SCEA of the status of the Product Proposal, which may range from "Approved" to "Not Approved." Such conditions shall have the meanings ascribed to them in the SourceBook 2, and may be changed from time to time by SCEA. If a Product Proposal is "Not Approved", then neither Publisher nor any other Licensed Developer or Licensed Publisher may re-submit such Product Proposal without significant, substantive revisions. SCEA shall have no obligation to approve any Product Proposal submitted by Publisher. Any development conducted by or at the direction of Publisher and any legal commitment relating to development work shall be at Publisher's own financial and commercial risk. Publisher shall not construe approval of a Product Proposal as a commitment by SCEA to grant final approval to such Licensed Product. Nothing herein shall restrict SCEA from commercially exploiting any coincidentally similar concept(s) and/or product(s), which have been independently developed by SCEA, an Affiliate of SCEA or any third party. 5.2.3 CHANGES TO PRODUCT PROPOSAL. Publisher shall notify SCEA promptly in writing in the event of any material proposed change in any portion of the Product Proposal. SCEA's approval of a Product Proposal shall not obligate Publisher to continue with development or production of the proposed Licensed Product, provided that Publisher must immediately notify SCEA in writing if it discontinues, cancels or otherwise delays past the original scheduled delivery date the development of any proposed Licensed Product. In the event that Publisher licenses a proposed Licensed Product from another Licensed Publisher or a Licensed Developer, it shall immediately 5 CONFIDENTIAL notify SCEA of such change and must re-submit such Licensed Product to SCEA for approval in accordance with the provisions of Section 5.2.1 above. 5.3 WORK-IN-PROGRESS. 5.3.1 SUBMISSION AND REVIEW OF WORK-IN-PROGRESS. SCEA shall require Publisher to submit to SCEA work-in-progress on Licensed Products at certain intervals throughout their development and, upon written notice to Publisher, at any time during the development process. Upon approval of the Product Proposal, Publisher must, within the time frame indicated in the approval letter, communicate with SCEA and mutually agree on a framework for the review of such Licensed Product throughout the development process ("Review Process"). Once the Review Process has begun, Publisher shall be responsible for submitting work-in-progress to SCEA in accordance with such Review Process. Failure to submit work-in-progress in accordance with any stage of the Review Process may, at SCEA's discretion, result in revocation of approval of such Product Proposal. 5.3.2 APPROVAL OF WORK IN PROGRESS. SCEA shall have the right to approve, reject or require additional information with respect to each stage of the Review Process. SCEA shall specify in writing the reasons for any such rejection or request for additional information and shall state what corrections and/or improvements are necessary. If any stage of the Review Process is not provided to SCEA or is not successfully met after a reasonable cure period agreed to between SCEA and Publisher, SCEA shall have the right to revoke the approval of Publisher's Product Proposal. 5.3.3 CANCELLATION OR DELAY; CONDITIONS OF APPROVAL. Licensed Products which are canceled by Publisher or are late in meeting the final Executable Software delivery date by more than three (3) months (without agreeing with SCEA on a modified final delivery date) shall be subject to the termination provisions set forth in Section 14.3 hereto. In addition, failure to make changes required by SCEA to the Licensed Product at any stage of the Review Process, or making material changes to the Licensed Product without SCEA's approval, may subject Publisher to the termination provisions set forth in Section 14.3 hereto. 5.4 APPROVAL OF EXECUTABLE SOFTWARE. On or before the date specified in the Product Proposal or as determined by SCEA pursuant to the Review Process, Publisher shall deliver to SCEA for its inspection and evaluation, a final version of the Executable Software for the proposed Licensed Product. SCEA will evaluate such Executable Software and notify Publisher in writing of its approval or disapproval, which shall not be unreasonably withheld or delayed. If such Executable Software is disapproved, SCEA shall specify in writing the reasons for such disapproval and state what corrections and improvements are necessary. After making the necessary corrections and improvements, Publisher shall submit a new version of such Executable Software for SCEA's approval. SCEA shall have the right to disapprove Executable Software if it fails to comply with SCEA's corrections or improvements or one or more conditions as set forth in the SourceBook 2 with no obligation to review all elements of any version of Executable Software. All final versions of Executable Software shall be submitted in the format prescribed by SCEA and shall include such number of Master Discs as SCEA may require from time to time. Publisher hereby (i) warrants that all final versions of Executable Software are fully tested; (ii) shall use its best efforts to ensure such Executable Software is fully debugged prior to submission to SCEA; and (iii) warrants that all versions of Executable Software comply or will comply with standards set forth in the SourceBook 2 or other documentation provided by SCEA to Publisher. In addition, prior to manufacture of Executable Software, Publisher must sign an accountability form stating that (x) Publisher approves the release of such Executable Software for manufacture in its current form and (y) Publisher shall be fully responsible for any problems related to such Executable Software. 5.5 PRINTED MATERIALS. 5.5.1 COMPLIANCE WITH GUIDELINES. For each proposed Licensed Product, Publisher shall be responsible, at Publisher's expense, for creating and developing Printed Materials. All Printed Materials shall comply with the Guidelines, which may be amended from time to time, provided that Publisher shall, except as otherwise provided herein, only be required to implement amended Guidelines in subsequent orders of Printed Materials and shall not be required to recall or destroy previously manufactured Printed Materials, unless such Printed Materials do not comply with the original requirements in the Guidelines or unless explicitly required to do so in writing by SCEA. 5.5.2 SUBMISSION AND APPROVAL OF PRINTED MATERIALS. No later than submission of final Executable Software for a proposed Licensed Product, Publisher shall also deliver to SCEA, for review and evaluation, the proposed final Printed Materials and a form of limited warranty for the proposed Licensed Product. Failure to meet any scheduled release dates for a Licensed Product is solely the risk and responsibility of Publisher, and SCEA assumes no responsibility for Publisher failing to meet such scheduled release dates due to this submission process. The quality of such Printed Materials shall be of the same quality as that associated with other commercially available high quality software products. If any of the Printed Materials are disapproved, SCEA shall specify the reasons for such disapproval and state what corrections are necessary. SCEA shall have no liability to Publisher for costs incurred or irrevocably committed to by Publisher for production of Printed Materials that are disapproved by SCEA. After making the necessary corrections to any disapproved Printed Materials, Publisher must submit new Printed Materials for approval by SCEA. SCEA shall not 6 CONFIDENTIAL unreasonably withhold or delay its review of Printed Materials. 5.6 ADVERTISING MATERIALS. 5.6.1 SUBMISSION AND APPROVAL OF ADVERTISING MATERIALS. Pre-production samples of all Advertising Materials shall be submitted by Publisher to SCEA, at Publisher's expense, prior to any actual production, use or distribution of any such items by Publisher or on its behalf. SCEA shall evaluate and approve such Advertising Materials, which approval shall not be unreasonably withheld or delayed, as to the following standards: (i) the content, quality, and style of the overall advertisement; (ii) the quality, style, appearance and usage of any of the Licensed Trademarks; (iii) appropriate references of any required notices; and (iv) compliance with the Guidelines. If any of the Advertising Materials are disapproved, SCEA shall specify the reasons for such disapproval and state what corrections are necessary. SCEA may require Publisher to immediately withdraw and reprint any Advertising Materials that have been published but have not received the written approval of SCEA. SCEA shall have no liability to Publisher for costs incurred or irrevocably committed to by Publisher for production of Advertising Materials that are disapproved by SCEA. For each Licensed Product, Publisher shall be required to deliver to SCEA an accountability form stating that all Advertising Materials for such Licensed Product comply or will comply with the Guidelines for use of the Licensed Trademarks. After making the necessary corrections to any disapproved Advertising Materials, Publisher must submit new proposed Advertising Materials for approval by SCEA. 5.6.2 FAILURE TO COMPLY; THREE STRIKES PROGRAM. Publishers who fail to obtain SCEA's approval of Advertising Materials prior to broadcast or publication shall be subject to the provisions of the "Three Strikes" program outlined in the SourceBook 2. Failure to obtain SCEA's approval of Advertising Materials could result in termination of this LPA or termination of approval of the Licensed Product, or could subject Publisher to the provisions of Section 14.4 hereto. Failure to meet any scheduled release dates for Advertising Materials is solely the risk and responsibility of Publisher, and SCEA assumes no responsibility for Publisher failing to meet such scheduled release dates due to approval requirements as set forth in this Section. 5.6.3 SCEA MATERIALS. Subject in each instance to the prior written approval of SCEA, Publisher may use advertising materials owned by SCEA pertaining to the System or to the Licensed Trademarks on such Advertising Materials as may, in Publisher's judgment, promote the sale of Licensed Products. 5.7 RATING REQUIREMENTS. If required by SCEA or any governmental entity, Publisher shall submit each Licensed Product to a consumer advisory ratings system designated by SCEA 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 Publisher. Any required consumer advisory rating code(s) procured hereby shall be displayed on the Licensed Product and in the associated Printed Materials and Advertising Materials, at Publisher's cost and expense, in accordance with the SourceBook 2 or other documentation provided by SCEA to Publisher. 5.8 PUBLISHER'S ADDITIONAL QUALITY ASSURANCE OBLIGATIONS. If at any time or times subsequent to the approval of Executable Software and Printed Materials, SCEA identifies any material defects (such materiality to be determined by SCEA in its sole discretion) with respect to the Licensed Product, or in the event that SCEA identifies any improper use of its Licensed Trademarks or Sony Materials with respect to the Licensed Product, or any such material defects or improper use are brought to the attention of SCEA, Publisher shall, at no cost to SCEA, promptly correct any such material defects, or improper use of Licensed Trademarks or Sony Materials, to SCEA's commercially reasonable satisfaction, which may include, if necessary in SCEA's judgment, the recall and re-release of such Licensed Product. In the event any Units of Licensed Products create any risk of loss or damage to any property or injury to any person, Publisher shall immediately take effective steps, at Publisher's sole liability and expense, to recall and/or to remove such defective Units from any affected channels of distribution, provided, however, that if Publisher is not acting as the distributor and/or seller for the Licensed Products, its obligation hereunder shall be to use its best efforts to arrange removal of such Licensed Product from channels of distribution. Publisher shall provide all end-user support for the Licensed Products and SCEA expressly disclaims any obligation to provide end-user support on Publisher's Licensed Products. 6. MANUFACTURE OF THE LICENSED PRODUCTS. 6.1 MANUFACTURE OF UNITS. Upon approval of Executable Software and associated Printed Materials pursuant to Section 5, and subject to Sections 6.1.2, 6.1.3 and 6.1.4 below, the Designated Manufacturing Facility will, in accordance with the terms and conditions set forth in this Section 6, and at Publisher's expense (a) manufacture PlayStation 2 Format Discs for Publisher; (b) manufacture Publisher's Packaging and/or Printed Materials; and/or (c) assemble the PlayStation 2 Format Discs with the Printed Materials and the Packaging. Publisher shall comply with all Manufacturing Specifications related to the particular terms set forth herein. SCEA reserves the right to insert or require the Publisher to insert certain Printed Materials relating to the System or Licensed Trademarks into each Unit. 6.1.1 MANUFACTURE OF PLAYSTATION 2 FORMAT DISCS. 7 CONFIDENTIAL 6.1.1.1 DESIGNATED MANUFACTURING FACILITIES. To insure compatibility of the PlayStation 2 Format Discs with the System, consistent quality of the Licensed Product and incorporation of anti-piracy security systems, SCEA shall designate and license a Designated Manufacturing Facility to reproduce PlayStation 2 Format Discs. Publisher shall purchase [**] of its requirements for PlayStation 2 Format Discs from such Designated Manufacturing Facility during the term of the Agreement. Any Designated Manufacturing Facility shall be a third party beneficiary of this Agreement. 6.1.1.2 CREATION OF MASTER CD-ROM OR DVD-ROM. Pursuant to Section 5.4 in connection with final testing of Executable Software, Publisher shall provide SCEA with the number of Master Discs specified in the SourceBook 2. A Designated Manufacturing Facility shall create from one of the fully approved Master Discs provided by Publisher the original master CD-ROM or DVD-ROM, from which all other copies of the Licensed Product are to be replicated. Publisher shall be responsible for the costs, as determined by the Designated Manufacturing Facility, of producing such original master. In order to insure against loss or damage to the copies of the Executable Software furnished to SCEA, Publisher will retain duplicates of all Master Discs, and neither SCEA nor any Designated Manufacturing Facility shall be liable for loss of or damage to any Master Discs or Executable Software. 6.1.2 MANUFACTURE OF PRINTED MATERIALS. 6.1.2.1 MANUFACTURE BY DESIGNATED MANUFACTURING FACILITY. If Publisher elects to obtain Printed Materials from a Designated Manufacturing Facility, Publisher shall deliver all SCEA-approved Printed Materials to that Designated Manufacturing Facility, at Publisher's sole risk and expense, and the Designated Manufacturing Facility will manufacture such Printed Materials in accordance with this Section 6. In order to insure against loss or damage to the copies of the Printed Materials furnished to SCEA, Publisher will retain duplicates of all Printed Materials, and neither SCEA nor any Designated Manufacturing Facility shall be liable for loss of or damage to any such Printed Materials. 6.1.2.2 MANUFACTURE BY ALTERNATE SOURCE. Subject to SCEA's approval as provided in Section 5.5.2 hereto and in this Section, Publisher may elect to be responsible for manufacturing its own Printed Materials (other than any Artwork which may be placed directly upon the PlayStation Disc, which Publisher will supply to the Designated Manufacturing Facility for placement), at Publisher's sole risk and expense. Prior to production of each order, Publisher shall be required to supply SCEA with samples of any Printed Materials not produced or supplied by a Designated Manufacturing Facility, at no charge to SCEA or Designated Manufacturing Facility, for SCEA's approval with respect to the quality thereof. SCEA shall have the right to disapprove any Printed Materials that do not comply with the Manufacturing Specifications. Manufacturing Specifications for Printed Materials shall be comparable to manufacturing specifications applied by SCEA to its own software products for the System. If Publisher elects to supply its own Printed Materials, neither SCEA nor any Designated Manufacturing Facility shall be responsible for any delays arising from use of Publisher's own Printed Materials. 6.1.3 MANUFACTURE OF PACKAGING. 6.1.3.1 MANUFACTURE BY DESIGNATED MANUFACTURING FACILITY. To ensure consistent quality of the Licensed Products, SCEA may designate and license a Designated Manufacturing Facility to reproduce proprietary Packaging for the System. If SCEA creates proprietary Packaging for the System, then Publisher shall purchase [**] of its requirements for such proprietary Packaging from a Designated Manufacturing Facility during the term of the Agreement, and the Designated Manufacturing Facility will manufacture such Packaging in accordance with this Section 6. 6.1.3.2 MANUFACTURE BY ALTERNATE SOURCE. If SCEA elects to use standard, non-proprietary Packaging for the System, then Publisher may elect to be responsible for manufacturing its own Packaging (other than any proprietary labels and any portion of a container containing Licensed Trademarks, which Publisher must purchase from a Designated Manufacturing Facility). Publisher shall assume all responsibility for the creation of such Packaging at Publisher's sole risk and expense. Publisher shall be responsible for encoding and printing proprietary edge labels provided by a Designated Manufacturing Facility with information reasonably specified by SCEA from time to time and will apply such labels to each Unit of the Licensed Product as reasonably specified by SCEA. Prior to production of each order, Publisher shall be required to supply SCEA with samples of any Packaging not produced or supplied by a Designated Manufacturing Facility, at no charge to SCEA or Designated Manufacturing Facility, for SCEA's approval with respect to the quality thereof. SCEA shall have the right to disapprove any Packaging that does not comply with the Manufacturing Specifications. Manufacturing Specifications for Packaging shall be comparable to manufacturing specifications applied by SCEA to its own software products for the System. If Publisher procures Packaging from an alternate source, then it must also procure assembly services from an alternate source. If Publisher elects to supply its own Packaging, neither SCEA nor any Designated Manufacturing Facility shall be responsible for any delays arising from use of Publisher's own Packaging. 6.1.4 ASSEMBLY SERVICES. Publisher may either procure assembly services from a Designated Manufacturing Facility or from an alternate source. If Publisher elects to be responsible for assembling the Licensed Products, then the Designated Manufacturing Facility shall ship the component parts of the Licensed [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. 8 CONFIDENTIAL Product to a destination provided by Publisher, at Publisher's sole risk and expense. SCEA shall have the right to inspect any assembly facilities utilized by Publisher in order to determine if the component parts of the Licensed Products are being assembled in accordance with SCEA's quality standards. SCEA may require that Publisher recall any Licensed Products that do not contain proprietary labels or other material component parts or that otherwise fail to comply with the Manufacturing Specifications. If Publisher elects to use alternate assembly facilities, neither SCEA nor any Designated Manufacturing Facility shall be responsible for any delays or missing component parts arising from use of alternate assembly facilities. 6.2 PRICE, PAYMENT AND TERMS. 6.2.1 PRICE. The applicable price for manufacture of any Units of Licensed Products ordered hereunder shall be provided to Publisher by the Designated Manufacturing Facility. Purchase shall be subject to the terms and conditions set out in any purchase order form supplied to Publisher by the Designated Manufacturing Facility. 6.2.2 ORDERS. Publisher shall issue to a Designated Manufacturing Facility a written Purchase Order(s) in the form set forth and containing the information required in the Manufacturing Specifications, with a copy to SCEA. All orders shall be subject to approval by SCEA, which shall not be unreasonably withheld or delayed. Purchase Orders issued by Publisher to a Designated Manufacturing Facility for each Licensed Product approved by SCEA shall be non-cancelable and be subject to the order requirements of the Designated Manufacturing Facility. 6.2.3 PAYMENT TERMS. Purchase Orders will be invoiced as soon as reasonably practical after receipt, and such invoice will include both manufacturing price and royalties payable pursuant to Section 8.1 or 8.2 hereto for each Unit of Licensed Products ordered. Each invoice will be payable either on a cash-in-advance basis or pursuant to a letter of credit, or, at SCEA's sole discretion, on credit terms. Terms for cash-in-advance and letter of credit payments shall be as set forth in the SourceBook 2. All amounts hereunder shall be payable in United States dollars. All associated banking charges with respect to payments of manufacturing costs and royalties shall be borne solely by Publisher. 6.2.3.1 CREDIT TERMS. SCEA may at its sole discretion extend credit terms and limits to Publisher. SCEA may also revoke such credit terms and limits at its sole discretion. If Publisher qualifies for credit terms, then orders will be invoiced upon shipment of Licensed Products and each invoice will be payable within thirty (30) days of the date of the invoice. [**] Publisher shall be additionally liable for all costs and expenses of collection, including without limitation, reasonable fees for attorneys and court costs. 6.2.3.2 GENERAL TERMS. No deduction may be made from remittances unless an approved credit memo has been issued by a Designated Manufacturing Facility. Neither SCEA nor a Designated Manufacturing Facility shall be responsible for shortage or breakage with respect to any order if component parts and/or assembly services are obtained from alternate sources. Each shipment to Publisher shall constitute a separate sale, whether said shipment be whole or partial fulfillment of any order. Nothing in this Agreement shall excuse or be construed as a waiver of Publisher's obligation to timely provide any and all payments owed to SCEA and Designated Manufacturing Facility. 6.3 DELIVERY OF LICENSED PRODUCTS. Neither SCEA nor any Designated Manufacturing Facility shall have an obligation to store completed Units of Licensed Products. Publisher may either specify a mode of delivery or allow Designated Manufacturing Facility to select a mode of delivery. 6.4 OWNERSHIP OF MASTER DISCS. Due to the proprietary nature of the mastering process, neither SCEA nor a Designated Manufacturing Facility shall under any circumstances release any original master CD-ROM, Master Discs or other in-process materials to Publisher. All such materials shall be and remain the sole property of SCEA or Designated Manufacturing Facility. Notwithstanding the foregoing, Publisher Intellectual Property Rights contained in Product Software that is contained in such in-process materials is, as between SCEA and Publisher, the sole and exclusive property of Publisher or its licensors (other than SCEA and/or its affiliates). 7. MARKETING AND DISTRIBUTION. 7.1 MARKETING GENERALLY. In accordance with the provisions of this Agreement and at no expense to SCEA, Publisher shall, and shall direct its distributors to, diligently market, sell and distribute the Licensed Products, and shall use commercially reasonable efforts to stimulate demand for such Licensed Products in the Licensed Territory and to supply any resulting demand. Publisher 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. 7.2 SAMPLES. Publisher shall provide to SCEA, at no additional cost, for SCEA's internal use, [**] sample copies of each Licensed Product. Publisher shall pay any manufacturing costs to the Designated Manufacturing Facility in accordance with Section 6.2, but shall not be obligated to pay royalties, in connection with such sample [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. 9 CONFIDENTIAL Units. In the event that Publisher assembles any Licensed Product using an alternate source, Publisher shall be responsible for shipping such sample Units to SCEA at Publisher's cost and expense. SCEA shall not directly or indirectly resell any such sample copies of the Licensed Products without Publisher's prior written consent. SCEA may give sample copies to its employees, provided that it uses its reasonable efforts to ensure that such copies are not sold into the retail market. In addition, subject to availability, Publisher shall sell to SCEA additional quantities of Licensed Products at the Wholesale Price for such Licensed Product. Any changes to SCEA's policy regarding sample Units shall be set forth in the SourceBook 2. 7.3 MARKETING PROGRAMS OF SCEA. From time to time, SCEA may invite Publisher to participate in promotional or advertising opportunities that may feature one or more Licensed Products from one or more Licensed Publishers. Participation shall be voluntary and subject to terms to be determined at the time of the opportunity. In the event Publisher elects to participate, all materials submitted by Publisher to SCEA shall be submitted subject to Section 10.2 hereunder and delivery of such materials to SCEA shall constitute acceptance by Publisher of the terms of the offer. Moreover, SCEA may use the Generic Line on all multi-product marketing materials, unless otherwise agreed in writing. 7.4 DEMONSTRATION DISC PROGRAMS. SCEA may, from time to time, provide opportunities for Publisher to participate in SCEA Demo Disc programs. In addition, SCEA may, from time to time, grant to Publisher the right to create Third Party Demo Discs pursuant to SCEA Established Third Party Demo Disc Programs. The specifications with respect to the approval, creation, manufacture, marketing, distribution and sale of any such demo disc programs shall be set forth in the SourceBook 2 or in other documentation to be provided by SCEA to Publisher. Except as otherwise specifically set forth herein, in the SourceBook 2 or in other documentation, Third Party Demo Discs shall be considered "Licensed Products" and shall be subject in all respects to the terms and conditions of this Agreement pertaining to Licensed Products. In addition, the following procedures shall also apply to SCEA Demo Discs and Third Party Demo Discs: 7.4.1 SCEA DEMO DISCS. 7.4.1.1 LICENSE. SCEA may, but shall not be obligated to, invite Licensed Publishers to participate in any SCEA Demo Disc program. Participation by Publisher in an SCEA Demo Disc program shall be optional. If Publisher elects to participate in an SCEA Demo Disc program and provides Product Information to SCEA in connection thereto, Publisher shall thereby grant to SCEA a royalty-free license during the term of this Agreement in the Licensed Territory to manufacture, use, sell, distribute, market, advertise and otherwise promote Publisher's Product Information as part of such SCEA Demo Disc program. In addition, Publisher shall grant SCEA the right to feature Publisher and Licensed Product names in SCEA Demo Disc Advertising Materials and to use copies of screen displays generated by the code, representative video samples or other Product Information in such SCEA Demo Disc Advertising Materials. All decisions relating to the selection of first and third party Product Information and all other aspects of SCEA Demo Discs shall be in the sole discretion of SCEA. 7.4.1.2 SUBMISSION AND APPROVAL OF PRODUCT INFORMATION. Upon receipt of written notice that SCEA has tentatively chosen Publisher's Product Information for inclusion in an SCEA Demo Disc, Publisher shall deliver to SCEA such requested Product Information by no later than the deadline set forth in such notice. Separate notice will be sent for each SCEA Demo Disc, and Publisher must sign each notice prior to inclusion in such SCEA Demo Disc. Publisher shall include its own Legal Copy on the title screen or elsewhere in the Product Information submitted to SCEA. SCEA shall only provide the Generic Line on the SCEA Demo Disc title screen and packaging. Publisher's Product Information shall comply with SCEA's technical specifications provided to Publisher. SCEA reserves the right to review and test the Product Information provided and request revisions prior to inclusion on the SCEA Demo Disc. If SCEA requests changes to the Product Information and Publisher elects to continue to participate in such Demo Disc, Publisher shall make such changes as soon as possible after receipt of written notice of such requested changes from SCEA, but not later than the deadline for receipt of Product Information. Failure to make such changes and provide the modified Product Information to SCEA by the deadline shall result in the Product Information being removed from the SCEA Demo Disc. Costs associated with preparation of Product Information supplied to SCEA shall be borne solely by Publisher. Except as otherwise provided in this Section, SCEA shall not edit or modify Product Information provided to SCEA by Publisher without Publisher's consent, not to be unreasonably withheld. SCEA shall have the right to use subcontractors to assist in the development of any SCEA Demo Disc. With respect to Product Information provided by Publisher in demo form, the demo delivered to SCEA shall not constitute the complete Licensed Product and shall be, at a minimum, an amount sufficient to demonstrate the Licensed Product's core features and value, without providing too much information so as to give consumers a disincentive to purchase the complete Licensed Product. 7.4.1.3 NO OBLIGATION TO PUBLISH. Acceptance of Product Information for test and review shall not be deemed confirmation that SCEA shall include the Product Information on an SCEA Demo Disc, nor shall it constitute approval of any other element of the Licensed Product. SCEA reserves the right to choose from products submitted from other Licensed Publishers and first party products to determine the products to be included in SCEA Demo Discs, and Publisher's Licensed Products will not be guaranteed prominence or preferential treatment on any 10 CONFIDENTIAL SCEA Demo Disc. Nothing herein shall be construed as creating an obligation of SCEA to publish Product Information submitted by Publisher in any SCEA Demo Disc, nor shall SCEA be obligated to publish, advertise or promote any SCEA Demo Disc. 7.4.1.4 SCEA DEMO DISCS SOLD AT RETAIL. Publisher is aware and acknowledges that certain SCEA Demo Discs may be distributed and sold by SCEA in the retail market. If Publisher elects to participate in any SCEA Demo Disc program which is sold in the retail market, as notified by SCEA to Publisher, Publisher acknowledges prior to participation in any such SCEA Demo Disc that it is aware of no limitations regarding Product Information provided to SCEA pursuant to the terms of this Agreement which would in any way restrict SCEA's ability to distribute or sell such SCEA Demo Disc at retail, nor does Publisher or its licensors (other than SCEA and/or its affiliates) have any anticipation of receiving any compensation from such retail sales. In the event that SCEA institutes a SCEA Demo Disc in which a fee and/or royalty is charged to Publisher, SCEA and Publisher will enter into a separate agreement regarding such SCEA Demo Disc. 7.4.2 THIRD PARTY DEMO DISCS. 7.4.2.1 LICENSE. Publisher may participate in any SCEA Established Third Party Demo Disc Program. Publisher shall notify SCEA of its intention to participate in any such program, and upon receipt of such notice, SCEA shall grant to Publisher the right and license to use Licensed Products in Third Party Demo Discs and to use, distribute, market, advertise and otherwise promote (and, if permitted in accordance with the terms of any SCEA Established Third Party Program or otherwise permitted by SCEA, to sell) such Third Party Demo Discs in accordance with the SourceBook 2, which may be modified from time to time at the sole discretion of SCEA. Unless separately agreed in writing with SCEA, Third Party Demo Discs shall not be used, distributed, promoted, bundled or sold in conjunction with other products. In addition, SCEA hereby consents to the use of the Licensed Trademarks in connection with Third Party Demo Discs, subject to the approval procedures set forth in this Agreement. If any SCEA Established Third Party Demo Disc Program is specified by SCEA to be for promotional use only and not for resale, and such Third Party Demo Disc is subsequently discovered to be for sale, Publisher's right to produce Third Party Demo Discs shall thereupon be automatically revoked, and SCEA shall have the right to terminate any related Third Party Demo Discs in accordance with the terms of Section 14.3 or 14.4 hereto. 7.4.2.2 SUBMISSION AND APPROVAL OF THIRD PARTY DEMO DISCS. Publisher shall deliver to SCEA, for SCEA's prior approval, a final version of each Third Party Demo Disc in a format prescribed by SCEA. Such Third Party Demo Disc shall comply with all requirements provided to Publisher by SCEA in the SourceBook 2 or otherwise. In addition, SCEA shall evaluate the Third Party Demo Disc in accordance with the approval provisions for Executable Software and Printed Materials set forth in Sections 5.4 and 5.5, respectively. Furthermore, Publisher shall obtain the approval of SCEA in connection with any Advertising Materials relating to the Third Party Demo Discs in accordance with the approval provisions set forth in Section 5.6. Costs associated with Third Party Demo Discs shall be borne solely by Publisher. No approval by SCEA of any element of any Third Party Demo Disc shall be deemed an approval of any other element thereto, nor does any such approval constitute final approval for the related Licensed Product. Unless otherwise permitted by SCEA, Publisher shall clearly and conspicuously state on all Third Party Demo Disc Packaging and Printed Materials that the Third Party Demo Disc is for promotional purposes only and not for resale. 7.4.2.3 MANUFACTURE AND ROYALTY OF THIRD PARTY DEMO DISCS. Publisher shall comply with all Manufacturing Specifications with respect to the manufacture and payment for manufacturing costs of Third Party Demo Discs, and Publisher shall also comply with all terms and conditions of Section 6 hereto. No costs incurred in the development, manufacture, licensing, production, marketing and/or distribution (and if permitted by SCEA, sale) of the Third Party Demo Disc shall be deducted from any amounts payable to SCEA hereunder. Royalties on Third Party Demo Discs shall be as provided in Section 8.2. 7.5 CONTESTS AND SWEEPSTAKES OF PUBLISHER. SCEA acknowledges that, from time to time, Publisher may conduct contests and sweepstakes to promote Licensed Products. SCEA shall permit Publisher to include contest or sweepstakes materials in Printed Materials and Advertising Materials, subject to compliance with the approval provisions of Section 5.5 and 5.6 hereunder, compliance with the provisions of Section 9.2 and 10.2 hereunder, and subject to the following additional terms and conditions: (i) Publisher represents that it has retained the services of a fulfillment house to administer the contest or sweepstakes and if it has not retained the services of a fulfillment house, Publisher represents and warrants that it has the expertise to conduct such contests or sweepstakes, and in any event, Publisher shall assume full responsibility for all aspects of such contest or sweepstakes; (ii) Publisher warrants that each contest, sweepstakes, and promotion, comply with local, state and federal laws or regulations; (iii) Publisher represents and warrants that it has obtained the consent of all holders of intellectual property rights required to be obtained in connection with each contest or sweepstakes including, but not limited to, the consent of any holder of copyrights or trademarks relating to any Advertising Materials publicizing the contest or 11 CONFIDENTIAL sweepstakes, or the prizes being awarded to winners of the contest or sweepstakes; and (iv) Publisher shall make available to SCEA all contest and sweepstakes material prior to publication in accordance with the approval process set forth in Section 5.5 or 5.6. Approval by SCEA of contest or sweepstakes materials for use in the Printed Materials or Advertising Materials (or any use of the System or Licensed Products as prizes in such contest or sweepstakes) shall not constitute an endorsement by SCEA of such contest or sweepstakes, nor shall such acceptance be construed as SCEA having reviewed and approved such materials for compliance with any federal or state law, statute, regulations, order or the like, which shall be Publisher's sole responsibility. 7.6 PLAYSTATION WEBSITE. All Licensed Publishers shall be required to provide Product Information for a web page for each of its Licensed Products for display on the PlayStation promotional website, or other website or websites as may be operated by SCEA from time to time in connection with the promotion of the PlayStation brand. Specifications for Product Information for such web pages shall be as provided in the SourceBook 2. Publisher shall provide SCEA with such Product Information for each Licensed Product upon submission of Printed Materials to SCEA for approval in accordance with Section 5.5.2 hereto. Publisher shall also provide updates to such web page in a timely manner as required by SCEA in updates to the SourceBook 2. 7.7 DISTRIBUTION. 7.7.1 DISTRIBUTION CHANNELS. Publisher may use such distribution channels as Publisher deems appropriate, including the use of third party distributors, resellers, dealers and sales representatives. In the event that Publisher elects to have one of its Licensed Products distributed and sold by another Licensed Publisher, Publisher must provide SCEA with advance written notice of such election, the name of the Licensed Publisher and any additional information requested by SCEA regarding the nature of the distribution services provided by such Licensed Publisher prior to manufacture of such Licensed Product. 7.7.2 LIMITATIONS ON DISTRIBUTION. Notwithstanding any other provisions in this Agreement, Publisher shall not, directly or indirectly, solicit orders from or sell any Units of the Licensed Products to any person or entity outside of the Licensed Territory. In addition, Publisher shall not directly or indirectly solicit orders for or sell any Units of the Licensed Products in any situation where Publisher knows or reasonably should know that such Licensed Products may be exported or resold outside of the Licensed Territory. 8. ROYALTIES. 8.1 APPLICABLE ROYALTIES ON LICENSED PRODUCTS. 8.1.1 INITIAL ORDERS. Publisher shall pay SCEA, either directly or through its designee, a per title royalty in United States dollars for each Unit of the Licensed Products manufactured based on the initial Wholesale Price of the Licensed Product, as follows:
Wholesale Price Per Title Royalty --------------- ----------------- [**] $[**] to $[**] $[**] [**] $[**] to $[**] $[**] [**] $[**] to $[**] $[**] [**] $[**] to $[**] $[**] [**] $[**] + [**] % of WSP + $[**] -------------- ---------------------
In the absence of satisfactory evidence to support the WSP, the royalty rate that shall apply will be [**] per Unit. 8.1.2 REORDERS AND OTHER PROGRAMS. Royalties on additional orders to manufacture a specific Licensed Product shall be the royalty determined by the initial Wholesale Price as reported by Publisher for that Licensed Product regardless of the wholesale price of the Licensed Product at the time of reorder, except in the event that the Wholesale Price increases for such Licensed Product, in which case the royalty shall be adjusted upwards to reflect the higher Wholesale Price. Licensed Products qualifying for SCEA's "Greatest Hits" programs or other programs offered by SCEA shall be subject to the royalties applicable for such programs. Publisher acknowledges that as of the date of execution of this Agreement no "Greatest Hits" program exists for the PlayStation 2 Third Party licensing program. 8.2 THIRD PARTY DEMO DISC PROGRAM ROYALTIES: Publisher shall pay SCEA a per Unit royalty in United States dollars of [**] for each Third Party Demo Disc Unit manufactured. The quantity of Units ordered shall comply with the terms of such SCEA Established Third Party Demo Disc Program. 8.3 PAYMENT. Payment of royalties under Sections 8.1 and 8.2 shall be made to SCEA through its Designated Manufacturing Facility concurrent with the placement of an order to manufacture Licensed Product and payment of manufacturing costs in accordance with the terms and conditions set forth in Sections 6.2.3, unless otherwise agreed in writing with SCEA. At the time of placing an order to manufacture a Licensed Product, Publisher shall submit to SCEA an accurate accounting statement setting out the number of units of Licensed Product to be manufactured, projected initial wholesale price, applicable royalty, and total amount due SCEA. In addition, Publisher shall submit to SCEA prior to placing the initial order for each Licensed Product a separate certification, in [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. 12 CONFIDENTIAL the form provided by SCEA in the SourceBook 2, signed by officers of Publisher that certifies that the Wholesale Price provided to SCEA is accurate and attaching such documentation supporting the WSP as requested by SCEA. Payment shall be made prior to manufacture unless SCEA has agreed to extend credit terms to Publisher in writing pursuant to Section 6.2.3.3. Nothing herein shall be construed as requiring SCEA to extend credit terms to Publisher. The accounting statement due hereunder shall be subject to the audit and accounting provisions set forth in paragraph 16.2 below. No costs incurred in the development, manufacture, marketing, sale and/or distribution of the Licensed Products shall be deducted from any royalties payable to SCEA hereunder. Similarly, there shall be no deduction from the royalties otherwise owed to SCEA hereunder as a result of any uncollectible accounts owed to Publisher, or for any credits, discounts, allowances or returns which Publisher 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 Publisher in connection with its sale or distribution of any Units of the Licensed Products or arising with respect to the payment of royalties hereunder. In addition to the royalty payments provided to SCEA hereunder, Publisher shall be solely responsible for and bear any cost relating to any withholding taxes or other such assessments which may be imposed by any governmental authority with respect to the royalties paid to SCEA hereunder; provided, however, that SCEA shall not manufacture Licensed Products outside of the United States without the prior consent of Publisher. Publisher shall provide SCEA with official tax receipts or other such documentary evidence issued by the applicable tax authorities sufficient to substantiate that any such taxes or assessments have in fact been paid. 8.4 REBATE PROGRAMS. Publisher shall be eligible to participate in one of three rebate programs offered by SCEA: the Standard Rebate program, the Level 1 Rebate program, or the Level 2 Rebate program. If Publisher qualifies for such rebates as set forth herein, rebates shall be credited to Publisher's account as provided below:
Units Ordered Standard Level 1 Level 2 - ------------- -------- ------- ------- [**] - [**] [**] [**] [**] [**] - [**] [**] [**] [**] [**] - [**] [**] [**] [**] [**] - [**] [**] [**] [**] [**] - [**] [**] [**] [**] [**] - [**] [**] [**] [**] [**] - [**] [**] [**] [**] - ------------- -------- ------- -------
8.4.1 STANDARD REBATE PROGRAM. All Publishers qualify for the Standard Rebate program. Rebates will be offered on an individual title basis. Rebates will be given to any individual Licensed Product that exceeds the above numbers of Units during the first year after first commercial shipment of such Licensed Product. The rebate in effect at the end of such year for the Licensed Product will remain in effect for as long as Publisher continues to sell such Licensed Product, but Publisher will not receive further rebates if sales of such Licensed Product hit additional thresholds as specified above after such year. The Standard Rebate may not be used in conjunction with a Third Party Demo Disc program or any promotional program of SCEA, with Licensed Products that qualify for any "Greatest Hits" program of SCEA or with Licensed Products that qualify for the [**]. 8.4.2 LEVEL 1 REBATE PROGRAM: To be eligible for the Level 1 Rebate program, Publisher must ship over [**] Units of certain Licensed Products in a single Fiscal Year. Level 1 Rebates shall be credited to Publisher on an individual title basis. Other terms of the Level 1 Rebate are as follows: (i) Only Publisher's titles (as determined below) that meet the following conditions shall count toward the [**] Unit threshold: Publisher must order at least [**] Units of the Licensed Product both within the first year of commercial release of such Licensed Product and during the qualifying Fiscal Year. (ii) Any Licensed Products, including "Greatest Hits" titles and products for the original PlayStation game console, but excluding all demo discs, shall count toward the [**] Unit threshold (provided they meet the conditions set forth in Section 8.4.2(i) above). For purposes of determining Level 1 Rebate thresholds and the conditions set forth in Section 8.4.2(i), full priced Licensed Products and "Greatest Hits" Licensed Products shall be considered separate Licensed Products, with separate Unit minimums and release dates. (iii) Level 1 Rebates shall apply only to Licensed Products (not including "Greatest Hits" titles, Licensed Products qualifying for the [**] and products for the original PlayStation game console) ordered in the Fiscal Year following the Fiscal Year in which the [**] Unit threshold is met. Units of Licensed Products that qualified Publisher for inclusion in the Level 1 Rebate program in the previous Fiscal Year shall not be entitled to receive the Level 1 Rebate. (iv) Publisher must re-qualify for the Level 1 Rebate Program each Fiscal Year. If a Publisher fails to requalify for any Fiscal Year, then the Standard Rebate shall apply in such Fiscal Year. The first Fiscal Year for which a Publisher may qualify for the Level 1 Rebate shall be the Fiscal Year ending [**] and if the Publisher qualifies for the Level 1 Rebate, it will apply to Licensed [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. 13 CONFIDENTIAL Products ordered in the Fiscal Year commencing [**]. (v) Licensed Products eligible for the Level 1 Rebate program shall not be eligible for Standard Rebates, and Level 1 Rebates shall supersede Standard Rebates with respect to any individual Licensed Product. If a Licensed Product qualifies for the Standard Rebate in one Fiscal Year, and Publisher qualifies for the Level 1 Rebate in the next Fiscal Year, Units of such Licensed Product ordered in the next Fiscal Year will receive the Level 1 Rebate commencing on April 1 of the next Fiscal Year going forward, but such Level 1 Rebate will not be credited retroactively to Units of the Licensed Product ordered in the previous Fiscal Year. For example, Publisher orders [**] Units of Product X in Fiscal Year 2001, receiving a Standard Rebate of [**]. Publisher qualifies for the Level 1 Rebate in Fiscal Year 2002. Publisher will receive the Level 1 Rebate of [**] commencing with Units ordered on April 1, 2001, but will not receive a retroactive credit for Units ordered prior to April 1, 2001. When Publisher reaches the [**] Unit threshold, it will receive a retroactive credit of [**] on all Level 1 Rebate Units ordered, as well as a retroactive credit of [ ] on Standard Rebate Units ordered in the previous Fiscal Year, and Publisher will receive the Level 1 Rebate of [**] going forward. 8.4.3 LEVEL 2 REBATE PROGRAM: To be eligible for the Level 2 Rebate program, Publisher must ship over [**] Units of certain Licensed Products in any Fiscal Year. Level 2 Rebates shall be credited to Publisher on an individual title basis. Other terms of the Level 2 Rebate are as follows: (i) Only Publisher's titles (as determined below) that meet the following conditions shall count toward the [**] Unit threshold: Publisher must order at least [**] Units of the Licensed Product both within the first year of commercial release of such Licensed Product and during the qualifying Fiscal Year. (ii) Any Licensed Products, including "Greatest Hits" titles and products for the original PlayStation game console, but excluding all demo discs, shall count toward the [**] Unit threshold (provided they meet the conditions set forth in Section 8.4.3(i) above). For purposes of determining Level 2 Rebate thresholds and the conditions set forth in Section 8.4.2(i), full priced Licensed Products and "Greatest Hits" Licensed Products shall be considered separate Licensed Products, with separate Unit minimums and release dates. (iii) Level 2 Rebates shall apply only to Licensed Products (not including "Greatest Hits" titles, Licensed Products qualifying for the [**] and products for the original PlayStation game console) ordered in the Fiscal Year following the Fiscal Year in which the [**] Unit threshold is met. Units of Licensed Products that qualified Publisher for inclusion in the Level 2 Rebate program in the previous Fiscal Year shall not be entitled to receive the Level 2 Rebate. (iv) Publisher must re-qualify for the Level 2 Rebate Program each Fiscal Year. If Publisher fails to requalify for any Fiscal Year then the Standard Rebate or Level 1 Rebate, as the case may be, shall apply in such Fiscal Year. The first Fiscal Year for which a Publisher may qualify for the Level 2 Rebate shall be the Fiscal Year ending [**] and if the Publisher qualifies for the Level 2 Rebate, it will apply to Licensed Products ordered in the Fiscal Year commencing [**]. (v) Licensed Products eligible for the Level 2 Rebate program shall not be eligible for Standard Rebates or Level 1 Rebates, and Level 2 Rebates shall supersede Standard Rebates and Level 1 Rebates with respect to any individual Licensed Product. If a Licensed Product qualifies for the Standard Rebate or Level 1 Rebate in one Fiscal Year, and Publisher qualifies for the Level 2 Rebate in the next Fiscal Year, Units of such Licensed Product ordered in the next Fiscal Year will receive the Level 2 Rebate going forward, but such Level 2 Rebate will not be credited retroactively to Units of the Licensed Product ordered in the previous Fiscal Year. See Section 8.4.2(v) for an example. 8.5 CALCULATION AND USE OF REBATES. Rebate percentages for all rebate programs shall be credited against royalties owed SCEA and shall have no other monetary value. All rebates, whether under the Standard Rebate, Level 1 Rebate or Level 2 Rebate Programs shall be issued by SCEA as a credit to Publisher for use against future royalty payments. It is Publisher's responsibility to inform SCEA when it reaches any rebate threshold. In no event shall Publisher take a deduction off royalties owed SCEA or deduction off an invoice payable to SCEA on current production unless and until SCEA issues a credit to Publisher in writing or unless otherwise agreed in writing. From time to time SCEA may allow Publisher to use credits in other manners on terms and conditions to be determined by SCEA. Publisher may use rebate credits to procure Development Tools. Units of Licensed Products shall be considered "ordered" when Units first begin to ship from a Designated Manufacturing Facility. 8.6 REBATE CREDITS. Subject to Sections 8.4.2(v) and 8.4.3(v), all rebate programs are [**], such that Publisher receives a credit for each rebate percentage against [**] Units when it reaches the Unit threshold for the next rebate percentage. SCEA shall credit Publisher's account with respect to [**] rebates as follows: (A) if Publisher's initial order for a Licensed Product is less than any rebate threshold provided above, then SCEA shall [**] credit Publisher's account sixty (60) days following the date that Publisher notifies SCEA that orders of a Licensed Product exceed any rebate threshold, subject to SCEA's right to confirm such information; and (B) if Publisher's initial order for a Licensed Product reaches or exceeds any rebate threshold provided above, then Publisher may credit the rebate amount set forth above as a separate line item on [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. 14 CONFIDENTIAL the Purchase Order with respect to such Licensed Product, subject to SCEA's confirmation right. 9. REPRESENTATIONS AND WARRANTIES. 9.1 REPRESENTATIONS AND WARRANTIES OF SCEA. SCEA represents and warrants solely for the benefit of Publisher that SCEA has the right, power and authority to enter into this Agreement and to fully perform its obligations hereunder. 9.2 REPRESENTATIONS AND WARRANTIES OF PUBLISHER. Publisher represents and warrants that: (i) There is no threatened or pending action, suit, claim or proceeding alleging that the use by Publisher of all or any part of the Product Software, Product Proposals, Product Information, Printed Materials, Advertising Materials 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 Publisher in or to the Product Software, Product Proposals, Product Information, Printed Materials, Advertising Materials or any underlying work or content embodied therein, or any name, designation or trademark used in conjunction with the Licensed Products; (ii) The Product Software, Product Proposals, Product Information, Printed Materials and Advertising Materials and their contemplated use under this Agreement do not and shall not infringe any person's or entity's rights including without limitation, patents, copyrights (including rights in a joint work), trademarks, trade dress, trade secret, rights of publicity, privacy, performance, moral rights, literary rights and any other third party right; (iii) Publisher has the right, power and authority to enter into this Agreement, to grant SCEA the rights granted hereunder and to fully perform its obligations hereunder; (iv) The making of this Agreement by Publisher does not violate any separate agreement, rights or obligations existing between Publisher and any other person or entity, and, throughout the term of this Agreement, Publisher shall not make any separate agreement with any person or entity that is inconsistent with any of the provisions of this Agreement; (v) Publisher has not sold, assigned, leased, licensed or in any other way disposed of or encumbered the rights granted to Publisher hereunder, and Publisher will not sell, assign, lease, license or in any other way dispose of or encumber any of such rights except as expressly permitted hereunder or as consented to by SCEA in writing; (vi) Publisher has obtained the consent of all holders of intellectual property rights required to be obtained in connection with use of any Product Information by SCEA as licensed hereunder, and Product Information when provided to SCEA in accordance with the terms of this Agreement may be published, marketed, distributed and sold by SCEA in accordance with the terms and conditions of this Agreement and without SCEA incurring any royalty, residual, union, guild or other fees; (vii) Publisher shall not make any representation or give any warranty to any person or entity expressly or implicitly on SCEA's behalf, or to the effect that the Licensed Products are connected in any way with SCEA (other than that the Executable Software and/or Licensed Products have been developed, marketed, sold and/or distributed under license from SCEA); (viii) In the event that Executable Software is delivered to other Licensed Publishers or Licensed Developers by Publisher in source code form, Publisher will take all precautions consistent with the protection of valuable trade secrets by companies in high technology industries to ensure the confidentiality of such source code; (ix) The Executable Software and any Product Information delivered to SCEA shall be in a commercially acceptable form, free of significant bugs, defects, time bombs or viruses which could disrupt, delay, destroy the Executable Software or System or render either of them less than fully useful, and shall be fully compatible with the System and any peripherals listed on the Printed Materials as compatible with the Licensed Product; (x) Each of the Licensed Products, Executable Software, Printed Materials and Advertising Materials shall be developed, marketed, sold and distributed by or at the direction of Publisher in an ethical manner and in full compliance with all applicable federal, state, provincial, local and foreign laws and any regulations and standards promulgated thereunder (including but not limited to federal and state lottery laws as currently interpreted and enforced) and will not contain any obscene or defamatory matter; (xi) Publisher's policies and practices with respect to the development, marketing, sale, and/or distribution of the Licensed Products shall in no manner reflect adversely upon the name, reputation or goodwill of SCEA; (xii) Publisher has, or will contract with a Licensed Developer for, the technical expertise and resources necessary to fulfill its obligations under this Agreement; and (xiii) Publisher shall make no false, misleading or inconsistent representations or claims with respect to any Licensed Products, the System or SCEA. 10. INDEMNITIES; LIMITED LIABILITY. 15 CONFIDENTIAL 10.1 INDEMNIFICATION BY SCEA. SCEA shall indemnify and hold Publisher harmless from and against any and all third party 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 SCEA herein; provided, however, that Publisher shall give prompt written notice to SCEA of the assertion of any such claim, and provided, further, that SCEA shall have the right to select counsel and control the defense and settlement thereof. SCEA 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 SCEA. Publisher shall provide SCEA, at no expense to Publisher, reasonable assistance and cooperation concerning any such matter; and Publisher shall not agree to the settlement of any such claim, action or proceeding without SCEA's prior written consent. 10.2 INDEMNIFICATION BY PUBLISHER. Publisher shall indemnify and hold SCEA 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 provisions of this Agreement; or (ii) infringement of a third party's intellectual property rights by Publisher; or (iii) any claims of or in connection with any personal or bodily injury (including death) or property damage, by whomever such claim is made, arising out of, in whole or in part, the development, marketing, sale, distribution and/or use of any of the Licensed Products (or portions thereof) unless due directly to the breach of SCEA in performing any of the specific duties and/or providing any of the specific services required of it hereunder; or (iv) any federal, state or foreign civil or criminal actions relating to the development, marketing, sale and/or distribution of Licensed Products. SCEA shall give prompt written notice to Publisher of the assertion of any such indemnified claim, and, with respect to third party claims, actions or proceedings against SCEA, SCEA shall have the right to select counsel for SCEA and reasonably control the defense and/or settlement thereof. Subject to the above, Publisher shall have the right, at its discretion, to select its own counsel, to commence and prosecute at its own expense any lawsuit, to reasonably control the defense and/or settlement thereof or to take such other action with respect to claims, actions or proceedings by or against Publisher. SCEA shall retain the right to approve any settlement. SCEA shall provide Publisher, at no expense to SCEA, reasonable assistance and cooperation concerning any such matter; and SCEA shall not agree to the settlement of any such claim, action or proceeding (other than third party claims, actions or proceedings against SCEA) without Publisher's prior written consent. 10.3 LIMITATION OF LIABILITY. 10.3.1 LIMITATION OF SCEA'S LIABILITY. IN NO EVENT SHALL SCEA OR OTHER SONY AFFILIATES AND THEIR SUPPLIERS, OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS BE LIABLE FOR LOSS OF PROFITS, OR ANY SPECIAL, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES ARISING OUT OF, RELATING TO OR IN CONNECTION WITH THIS AGREEMENT, INCLUDING WITHOUT LIMITATION THE BREACH OF THIS AGREEMENT BY SCEA, THE MANUFACTURE OF THE LICENSED PRODUCTS AND THE USE OF THE LICENSED PRODUCTS, EXECUTABLE SOFTWARE AND/OR THE SYSTEM BY PUBLISHER OR ANY END-USER, WHETHER UNDER THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE), INDEMNITY, PRODUCT LIABILITY OR OTHERWISE. IN NO EVENT SHALL SCEA'S LIABILITY ARISING UNDER, RELATING TO OR IN CONNECTION WITH THIS AGREEMENT, INCLUDING WITHOUT LIMITATION ANY LIABILITY FOR DIRECT OR INDIRECT DAMAGES, AND INCLUDING WITHOUT LIMITATION ANY LIABILITY UNDER SECTION 10.1 HERETO, EXCEED [**]. EXCEPT AS EXPRESSLY SET FORTH HEREIN, NEITHER SCEA NOR ANY SONY 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 PUBLISHER OR TO ANY THIRD PARTIES WITH RESPECT TO THE QUALITY, OPERATION AND/OR PERFORMANCE OF ANY PORTION OF THE SONY MATERIALS, THE SYSTEM OR ANY LICENSED PRODUCT. 10.3.2 LIMITATION OF PUBLISHER'S LIABILITY. IN NO EVENT SHALL PUBLISHER OR ITS AFFILIATED COMPANIES AND THEIR SUPPLIERS, OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS BE LIABLE TO SCEA FOR ANY LOSS OF PROFITS, OR ANY SPECIAL, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES ARISING OUT OF, RELATED TO 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 CODE PROVIDED BY SCEA, IN WHOLE OR IN PART, WHETHER UNDER THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE), INDEMNITY, PRODUCT LIABILITY OR OTHERWISE, PROVIDED THAT SUCH LIMITATIONS SHALL NOT APPLY TO DAMAGES RESULTING FROM PUBLISHER'S BREACH OF SECTIONS 4, 10.2, 11 OR 13 OF THIS AGREEMENT, AND PROVIDED FURTHER THAT SUCH [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. 16 CONFIDENTIAL LIMITATIONS SHALL NOT APPLY TO AMOUNTS WHICH PUBLISHER MAY BE REQUIRED TO PAY TO THIRD PARTIES UNDER SECTIONS 10.2 OR 16.10. 10.4 [**]. 11. SCEA INTELLECTUAL PROPERTY RIGHTS. 11.1 LICENSED TRADEMARKS. The Licensed Trademarks and the goodwill associated therewith are and shall be the exclusive property of SCEA or Affiliates of SCEA. Nothing herein shall give Publisher any right, title or interest in or to any of the Licensed Trademarks or any other trademarks of SCEA, other than the non-exclusive license provided herein. Publisher shall not do or cause to be done any act or thing in any way impairing or tending to impair or dilute any of SCEA's rights, title or interests in or to any of the Licensed Trademarks or any other trademarks of SCEA, nor shall Publisher register any trademark in its own name or in the name of any other person or entity, or obtain rights to employ Internet domain names or addresses, which are similar to or are likely to be confused with any of the Licensed Trademarks or any other trademarks of SCEA. 11.2 LICENSE OF SONY MATERIALS AND SYSTEM. All rights with respect to the Sony Materials and System, including, without limitation, all of SCEA Intellectual Property Rights therein, are and shall be the exclusive property of SCEA or Affiliates of SCEA. Nothing herein shall give Publisher any right, title or interest in or to the Sony Materials or the System (or any portion thereof), other than the non-exclusive license provided herein. Publisher shall not do or cause to be done any act or thing in any way impairing or tending to impair any of SCEA's rights, title or interests in or to the Sony Materials or the System (or any portion thereof). 12. INFRINGEMENT OF SCEA INTELLECTUAL PROPERTY RIGHTS BY THIRD PARTIES. In the event that Publisher discovers or otherwise becomes aware that any of the SCEA Intellectual Property Rights have been or are being infringed upon by any third party, then Publisher shall promptly notify SCEA. SCEA shall have the sole right, in its discretion, to institute and prosecute lawsuits against third parties for such infringement of SCEA Intellectual Property Rights. Any lawsuit shall be prosecuted solely at the cost and expense of SCEA and all sums recovered in any such lawsuits, whether by judgment, settlement or otherwise shall belong solely to SCEA. Upon request of SCEA, Publisher shall execute all papers, testify on all matters and otherwise cooperate in every way necessary and desirable for the prosecution of any such lawsuit. SCEA shall reimburse Publisher for the reasonable expenses incurred as a result of such cooperation, but unless authorized by other provisions of this Agreement, not costs and expenses attributable to the conduct of a cross-claim or third party action. 13. CONFIDENTIALITY. 13.1 SCEA'S CONFIDENTIAL INFORMATION. 13.1.1 DEFINITION OF SCEA'S CONFIDENTIAL INFORMATION. "SCEA's Confidential Information" shall mean: (i) the System, Sony Materials and Development Tools; (ii) other documents and materials developed, owned, licensed or under the control of Sony, including all processes, data, hardware, software, inventions, trade secrets, ideas, creations, improvements, designs, discoveries, developments, research and know-how, including without limitation the SourceBook 2 and SCEA Intellectual Property Rights relating to the System, Sony Materials or Development Tools; and [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. 17 CONFIDENTIAL (iii) information and documents regarding SCEA's finances, business, marketing and technical plans, business methods and production plans. SCEA's Confidential Information may consist of information in any medium, whether oral, printed, in machine-readable form or otherwise, including information apprised to Publisher and reduced to tangible or written form at any time during the term of this Agreement. In addition, the existence of a relationship between Publisher and SCEA for the purposes set forth herein shall be deemed to be SCEA's Confidential Information unless otherwise agreed to in writing by the parties or until publicly announced by SCEA. 13.1.2 TERM OF PROTECTION OF SCEA'S CONFIDENTIAL INFORMATION. The term for the protection of SCEA's Confidential Information shall commence on the Effective Date first above written and shall continue in full force and effect as long as any of SCEA's Confidential Information continues to be maintained as confidential and proprietary by SCEA and/or Sony. During such term, Publisher shall, pursuant to Section 13.1.3 below, safeguard and hold in trust and confidence and not disclose or use (except for the purposes herein specified) any and all of SCEA's Confidential Information. 13.1.3 PRESERVATION OF SCEA'S CONFIDENTIAL INFORMATION. Publisher shall, with respect to SCEA's Confidential Information: (i) not disclose SCEA's Confidential Information to any person or entity, other than those employees or directors of the Publisher whose duties justify a "need-to-know" and who have executed a confidentiality agreement in which such employees or directors have agreed not to disclose and to hold confidential all confidential information and materials (inclusive of those of third parties) which may be disclosed to them or to which they may have access during the course of their duties. At SCEA's request, Publisher shall provide SCEA with a copy of such confidentiality agreement between Publisher and its employees or directors, and shall also provide SCEA with a list of employee and director signatories. Publisher shall not disclose any of SCEA's Confidential Information to third parties, including without limitation to consultants or agents. Any employees or directors who obtain access to SCEA's Confidential Information shall be advised by Publisher of the confidential nature of SCEA's Confidential Information, and Publisher shall be responsible for any breach of this Agreement by its employees or directors. (ii) take all measures necessary to safeguard SCEA's Confidential Information in order to avoid disclosure, publication, or dissemination, using as high a degree of care and scrutiny, but at least reasonable care, as is consistent with the protection of valuable trade secrets by companies in high technology industries. (iii) ensure that all written materials relating to or containing SCEA's Confidential Information be maintained in a restricted access area and plainly marked to indicate the secret and confidential nature thereof. (iv) at SCEA's request, return promptly to SCEA any and all portions of SCEA's Confidential Information, together with all copies thereof. (v) not use, modify, reproduce, sublicense, copy, distribute, create derivative works from, or otherwise provide to third parties, SCEA's Confidential Information, or any portion thereof, except as provided herein, nor shall Publisher remove any proprietary legend set forth on or contained within any of SCEA's Confidential Information. 13.1.4 EXCEPTIONS. The foregoing restrictions shall not apply to any portion of SCEA's Confidential Information which: (i) was previously known to Publisher without restriction on disclosure or use, as proven by written documentation of Publisher; or (ii) is or legitimately becomes part of the public domain through no fault of Publisher or its employees; or (iii) is independently developed by Publisher's employees who have not had access to SCEA's Confidential Information, as proven by written documentation of Publisher; or (iv) is required to be disclosed by administrative or judicial action; provided that Publisher must attempt to maintain the confidentiality of SCEA's Confidential Information by asserting in such action the restrictions set forth in this Agreement, and, immediately after receiving notice of such action or any notice of any threatened action, Publisher must notify SCEA to give SCEA the maximum opportunity to seek any other legal remedies to maintain such SCEA's Confidential Information in confidence as herein provided; or (v) is approved for release by written authorization of SCEA. 13.1.5 NO OBLIGATION TO LICENSE. Disclosure of SCEA's Confidential Information to Publisher shall not constitute any option, grant or license from SCEA to Publisher under any patent or other SCEA Intellectual Property Rights now or hereinafter held by SCEA. The disclosure by SCEA to Publisher of SCEA's Confidential Information hereunder shall not result in any obligation on the part of SCEA to approve any materials of Publisher hereunder or otherwise, nor shall such disclosure by SCEA give Publisher any right to, directly or indirectly, develop, manufacture or sell any product derived from or which uses any of SCEA's Confidential Information, other than as expressly set forth in this Agreement. 18 CONFIDENTIAL 13.1.6 PUBLISHER'S OBLIGATIONS UPON UNAUTHORIZED DISCLOSURE. If at any time Publisher becomes aware of any unauthorized duplication, access, use, possession or knowledge of any SCEA's Confidential Information, it shall notify SCEA as soon as reasonably practicable, and shall promptly act to recover any such information and prevent further breach of the confidentiality obligations herein. Publisher shall provide any and all reasonable assistance to SCEA to protect SCEA's proprietary rights in any of SCEA's Confidential Information that it 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 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, costs and expenses incurred by SCEA to protect its proprietary rights in SCEA's Confidential Information. Publisher shall take all steps requested by SCEA to prevent the recurrence of any unauthorized duplication, access, use, possession or knowledge of SCEA's Confidential Information. In addition, SCEA shall have the right to pursue any actions at law or in equity, including without limitation the remedies set forth in Section 16.10 hereto. 13.2 PUBLISHER'S CONFIDENTIAL INFORMATION. 13.2.1 DEFINITION OF PUBLISHER'S CONFIDENTIAL INFORMATION. "Publisher's Confidential Information" shall mean: (i) any Product Software as provided to SCEA pursuant to this Agreement and all documentation and information relating thereto, including Product Proposals, Printed Materials and Advertising Materials (other than documentation and information intended for use by and release to end users, the general public or the trade); (ii) other documents and materials developed, owned, licensed or under the control of Publisher, including all processes, data, hardware, software, inventions, trade secrets, ideas, creations, improvements, designs, discoveries, developments, research and know-how; and (iii) information and documents regarding Publisher's finances, business, marketing and technical plans, business methods and production plans. Publisher's Confidential Information may consist of information in any medium, whether oral, printed, in machine-readable form or otherwise, including information apprised to SCEA and reduced to tangible or written form at any time during the term of this Agreement. 13.2.2 TERM OF PROTECTION OF PUBLISHER'S CONFIDENTIAL INFORMATION. The term for the protection of Publisher's Confidential Information shall commence on the Effective Date first above written and shall continue in full force and effect as long as any of Publisher's Confidential Information continues to be maintained as confidential and proprietary by Publisher. 13.2.3 PRESERVATION OF CONFIDENTIAL INFORMATION OF PUBLISHER. SCEA shall, with respect to Publisher's Confidential Information: (i) hold all Publisher's Confidential Information in confidence, and shall take all reasonable steps to preserve the confidentiality of Publisher's Confidential Information, 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. (ii) not disclose Publisher's Confidential Information to any person other than an SCEA employee or subcontractor who needs to know or have access to such Confidential Information for the purposes of this Agreement, and only to the extent necessary for such purposes. (iii) ensure that all written materials relating to or containing Publisher's Confidential Information be maintained in a secure area and plainly marked to indicate the secret and confidential nature thereof. (iv) at Publisher's request, return promptly to Publisher any and all portions of Publisher's Confidential Information, together with all copies thereof. (v) not use Publisher's Confidential Information, or any portion thereof, except as provided herein, nor shall SCEA remove any proprietary legend set forth on or contained within any of Publisher's Confidential Information. 13.2.4 EXCEPTIONS. The foregoing restrictions will not apply to any portion of Publisher's Confidential Information which: (i) was previously known to SCEA without restriction on disclosure or use, as proven by written documentation of SCEA; or (ii) is or legitimately becomes part of information in the public domain through no fault of SCEA, its employees or its subcontractors; or (iii) is independently developed by SCEA's employees or affiliates who have not had access to Publisher's Confidential Information, as proven by written documentation of SCEA; or (iv) is required to be disclosed by administrative or judicial action; provided that SCEA attempted to maintain the confidentiality of Publisher's Confidential Information by asserting in such action the restrictions set forth in this Agreement, and immediately after receiving notice of such action, notified Publisher of such action to give Publisher 19 CONFIDENTIAL the opportunity to seek any other legal remedies to maintain such Publisher's Confidential Information in confidence as herein provided; or (vi) is approved for release by written authorization of Publisher. 13.2.5 SCEA'S OBLIGATIONS UPON UNAUTHORIZED DISCLOSURE. If at any time SCEA becomes aware of any unauthorized duplication, access, use, possession or knowledge of any of Publisher's Confidential Information, it shall notify Publisher as soon as is reasonably practicable. SCEA shall provide any and all reasonable assistance to Publisher to protect Publisher's proprietary rights in any of Publisher's Confidential Information that it 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 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, costs and expenses incurred by Publisher to protect its proprietary rights in Publisher's Confidential Information. SCEA shall take all reasonable steps requested by Publisher to prevent the recurrence of any unauthorized duplication, access, use, possession or knowledge of Publisher's Confidential Information. 13.3 CONFIDENTIALITY OF AGREEMENT. The terms and conditions of this Agreement shall be treated as SCEA's Confidential Information and Publisher's Confidential Information; provided that each party may disclose the terms and conditions of this Agreement: (i) to legal counsel; (ii) in confidence, to accountants, banks and financing sources and their advisors; (iii) in confidence, in connection with the enforcement of this Agreement or rights arising under or relating to this Agreement; and (iv) if required, in the opinion of counsel, to file publicly or otherwise disclose the terms of this Agreement under applicable federal and/or state securities or other laws, the disclosing party shall be required to promptly notify the other party such that the other party has a reasonable opportunity to contest or limit the scope of such required disclosure, and the disclosing party shall request, and shall use its best efforts to obtain, confidential treatment for such sections of this Agreement as the other party may designate. 14. TERM AND TERMINATION. 14.1 EFFECTIVE DATE; TERM. This Agreement shall not be binding on the parties until it has been signed by each party, in which event it shall be effective from the Effective Date until March 31, 2003, unless earlier terminated pursuant to Section 14.2. The term shall be automatically extended for additional one-year terms thereafter, unless either party provides the other with written notice of its election not to so extend on or before January 31 of the applicable year. Notwithstanding the foregoing the term for the protection of SCEA's Confidential Information and Publisher's Confidential Information shall be as set forth in Sections 13.1.2 and 13.2.2 respectively. 14.2 TERMINATION BY SCEA. SCEA shall have the right to terminate this Agreement immediately, by providing written notice of such election to Publisher, upon the occurrence of any of the following: (i) If Publisher breaches (A) any of its obligations hereunder; or (B) any other agreement entered into between SCEA or Affiliates of SCEA and Publisher. (ii) The liquidation or dissolution of Publisher or a statement of intent by Publisher to no longer exercise any of the rights granted by SCEA to Publisher hereunder. (iii) If during the term of this Agreement, a controlling interest in Publisher or in an entity which directly or indirectly has a controlling interest in Publisher is transferred to a party that (A) is in breach of any agreement with SCEA or an Affiliate of SCEA; (B) directly or indirectly holds or acquires a controlling interest in a third party which develops any interactive device or product which is directly or indirectly competitive with the System; or (C) is in litigation with SCEA or Affiliates of SCEA concerning any proprietary technology, trade secrets or other SCEA Intellectual Property Rights or SCEA's Confidential Information. As used in this Section 14.2, "controlling interest" means, with respect to any form of entity, sufficient power to control the decisions of such entity. (iv) If during the term of this Agreement, Publisher or an entity that directly or indirectly has a controlling interest in Publisher enters into a business relationship with a third party with whom Publisher materially contributes to develop core components to an interactive device or product which is directly or indirectly competitive with the System. Publisher shall immediately notify SCEA in writing in the event that any of the events or circumstances specified in this Section occur. 14.3 PRODUCT-BY-PRODUCT TERMINATION BY SCEA. In addition to the events of termination described in Section 14.2, above, SCEA, at its option, shall be entitled to terminate, on a product-by-product basis, the licenses and related rights herein granted to Publisher in the event that (a) Publisher fails to notify SCEA promptly in writing of any material change to any materials previously 20 CONFIDENTIAL approved by SCEA in accordance with Section 5 or Section 6.1 hereto, and such breach is not corrected or cured within thirty (30) days after receipt of written notice of such breach; (b) Publisher uses a third party that fails to comply with the requirements of Section 3 in connection with the development of any Licensed Product; (c) any third party with whom Publisher has contracted for the development of Executable Software breaches any of its material obligations to SCEA pursuant to such third party's agreement with SCEA with respect to such Licensed Product; or (d) Publisher cancels a Licensed Product or fails to provide SCEA in accordance with the provisions of Section 5 above, with the final version of the Executable Software for any Licensed Product within three (3) months of the scheduled release date according to the Product Proposal (unless a modified final delivery date has been agreed to by the parties), or fails to provide work in progress to SCEA in strict accordance with the Review Process in Section 5.3. 14.4 OPTIONS OF SCEA IN LIEU OF TERMINATION. As alternatives to terminating this Agreement or a particular Licensed Product as set forth in Sections 14.2 and 14.3 above, SCEA may, at its option and upon written notice to Publisher, take the following actions in lieu of terminating this Agreement. In the event that SCEA elects either of these options, Publisher may terminate this Agreement upon written notice to SCEA rather than allowing SCEA to exercise these options. Election of these options by SCEA shall not constitute a waiver of or compromise with respect to any of SCEA's rights under this Agreement and SCEA may elect to terminate this Agreement with respect to any breach. 14.4.1 SUSPENSION OF AGREEMENT. SCEA may suspend this Agreement, entirely or with respect to a particular Licensed Product or program, for a set period of time which shall be specified in writing to Publisher upon the occurrence of any breach of this Agreement. 14.4.2 LIQUIDATED DAMAGES. Whereas a minor breach of any of the events set out below may not warrant termination of this Agreement, but will cause SCEA damages in amounts difficult to quantify, SCEA may require Publisher to pay liquidated damages of [**] per event as follows: (i) Failure to submit Advertising Materials to SCEA for approval (including any required resubmissions); (ii) Broadcasting or publishing Advertising Materials without receiving the final approval or consent of SCEA; (iii) Failure to make SCEA's requested revisions to Advertising Materials; or (iv) Failure to comply with the SourceBook 2, Manufacturing Specifications or Guidelines which relates in any way to use of Licensed Trademarks. Liquidated damages shall be invoiced separately or on Publisher's next invoice for Licensed Products. SCEA reserves the right to terminate this Agreement for breach in lieu of seeking liquidated damages or in the event that liquidated damages are unpaid. 14.5 NO REFUNDS. In the event of the termination of this Agreement in accordance with any of the provisions of Sections 14.2 through 14.4 above, no portion of any payments of any kind whatsoever previously provided to SCEA hereunder shall be owed or be repayable to Publisher. 15. EFFECT OF EXPIRATION OR TERMINATION. 15.1 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 or this Agreement, Publisher shall provide SCEA with an itemized statement, certified to be accurate by an officer of Publisher, 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. SCEA shall be entitled to conduct at its expense a physical inspection of Publisher's inventory and work in process upon reasonable written notice during normal business hours in order to ascertain or verify such inventory and inventory statement. 15.2 REVERSION OF RIGHTS. Upon expiration or termination and subject to Section 15.3 below, the licenses and related rights herein granted to Publisher shall immediately revert to SCEA, and Publisher shall cease from any further use of SCEA's Confidential Information, Licensed Trademarks and Sony Materials and any SCEA Intellectual Property Rights therein, and, subject to the provisions of Section 15.3 below, Publisher shall have no further right to continue the development, publication, manufacture, marketing, sale or distribution of any Units of the Licensed Products, or to continue to use any Licensed Trademarks; provided, however, that for a period of one year after termination, and subject to all the terms of Section 13, and provided this Agreement is not terminated due to a breach or default of Publisher, Publisher may retain such portions of Sony Materials and SCEA's Confidential Information as SCEA in its sole discretion agrees are required to support end users of Licensed Products but must return these materials at the end of such one year period. Upon expiration or termination, the licenses and related rights herein granted to SCEA by Publisher shall immediately revert to Publisher, and SCEA shall cease from any further use of Product Information and any Publisher Intellectual Property Rights therein; provided that SCEA may continue the manufacture, marketing, sale or distribution of any SCEA Demo Discs containing Publisher's Product Information which Publisher had approved prior to termination. [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. 21 CONFIDENTIAL 15.3 DISPOSAL OF UNSOLD UNITS. Provided that this Agreement is not terminated due to a breach or default of Publisher, Publisher may, upon expiration or termination of this Agreement, sell off existing inventories of Licensed Products, on a non-exclusive basis, for a period of [**] from the date of expiration or termination of this Agreement, and provided such inventories have not been manufactured solely or principally for sale during such period. Subsequent to the expiration of such [**] period, or in the event this Agreement is terminated as a result of any breach or default of Publisher, any and all Units of the Licensed Products remaining in Publisher's inventory shall be destroyed by Publisher within [**] of such expiration or termination. Within [**] after such destruction, Publisher shall provide SCEA with an itemized statement, certified to be accurate by an officer of Publisher, 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. 15.4 RETURN OF SONY MATERIALS AND CONFIDENTIAL INFORMATION. Upon the expiration or earlier termination of this Agreement, Publisher shall immediately deliver to SCEA, or if and to the extent requested by SCEA destroy, all Sony Materials and any and all copies thereof, and Publisher and SCEA shall, upon the request of the other party, immediately deliver to the other party, or if and to the extent requested by such party destroy, 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 Agreement. Within five (5) working days after any such destruction, Publisher and/or SCEA, as appropriate, shall provide the other party with an affidavit of destruction and an itemized statement, each certified to be accurate by an officer of Publisher, indicating the number of copies and/or units of the Sony Materials and/or Confidential Information which have been destroyed, the location and date of such destruction and the disposition of the remains of such destroyed materials. In the event that Publisher fails to return the Sony Materials or Confidential Information and SCEA must resort to legal means (including without limitation any use of attorneys) to recover the Sony Materials or Confidential Information or the value thereof, all costs, including SCEA's reasonable attorney's fees, shall be borne by Publisher, and SCEA may, in addition to SCEA's other remedies, withhold such amounts from any payment otherwise due from SCEA to Publisher under any agreement between SCEA and Publisher. 15.5 EXTENSION OF THIS AGREEMENT; TERMINATION WITHOUT PREJUDICE. SCEA shall be under no obligation to extend this Agreement notwithstanding any actions taken by either of the parties prior to the expiration of this Agreement. Upon the expiration of this Agreement, neither party shall be liable to the other for any damages (whether direct, indirect, consequential or incidental, and including, without limitation, any expenditures, loss of profits or prospective profits) sustained or arising out of or alleged to have been sustained or to have arisen out of such expiration. The expiration or termination of this Agreement shall be without prejudice to any rights or remedies which one party may otherwise have against the other party, and shall not excuse either party from any such expiration or termination. 16. MISCELLANEOUS PROVISIONS. 16.1 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, or sent by recognized international courier service, telegram or facsimile, with charges prepaid. The address for all notices or other communications required to be sent to SCEA or Publisher, 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 actual or tendered delivery, as confirmed by the sending party. 16.2 AUDIT PROVISIONS. Publisher shall keep full, complete, and accurate books of account and records covering all transactions relating to this Agreement. Publisher shall preserve such books of account, records, documents, and material for a period of [**] after the expiration or earlier termination of this Agreement. Acceptance by SCEA of an accounting statement, purchase order, or payment hereunder will not preclude SCEA from challenging or questioning the accuracy thereof at a later time. In the event that SCEA reasonably believes that the Wholesale Price provided by Publisher with respect to any Licensed Product is not accurate, SCEA shall be entitled to request additional documentation from Publisher to support the listed Wholesale Price for such Licensed Product. In addition, during the Term and for a period of [**] thereafter and upon the giving of reasonable written notice to Publisher, representatives of SCEA shall have access to, and the right to make copies and summaries of, such portions of all of Publisher's books and records as pertain to the Licensed Products and any payments due or credits received hereunder. In the event that such inspection reveals an under-reporting of any payment due to SCEA, Publisher shall immediately pay SCEA such amount. In the event that any audit conducted by SCEA reveals that Publisher has under-reported any payment due to SCEA hereunder by [**] or more for that audit period, then in addition to the payment of the appropriate amount due to SCEA, Publisher shall reimburse SCEA for all reasonable audit costs for that audit and any and all collection costs to recover the unpaid amount. 16.3 FORCE MAJEURE. Neither SCEA nor Publisher shall be liable for any loss or damage or be deemed to be in breach of this Agreement if its failure to perform or failure to cure any of its obligations under this Agreement results from any event or circumstance beyond its reasonable [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. 22 CONFIDENTIAL 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; shutdown or delay in power, telephone or other essential service due to the failure of computer or communications equipment or otherwise; provided, however, that the party interfered with gives the other party written notice thereof promptly, and, in any event, within fifteen (15) business 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 SCEA prior to, during or after any such Force Majeure condition. In the event that the Force Majeure condition continues for more than sixty (60) days, SCEA may terminate this Agreement for cause by providing written notice to Publisher to such effect. 16.4 NO AGENCY, PARTNERSHIP OR JOINT VENTURE. The relationship between SCEA and Publisher, respectively, is that of licensor and licensee. Both parties are independent contractors and are not the legal representative, agent, joint venturer, partner or employee of the other party 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. 16.5 ASSIGNMENT. SCEA has entered into this Agreement based upon the particular reputation, capabilities and experience of Publisher and its officers, directors and employees. Accordingly, Publisher may not assign this 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 SCEA shall first be obtained. This Agreement shall not be assigned in contravention of Section 14.2 (iii). Any attempted or purported assignment, delegation or other such transfer, directly or indirectly, without the required consent of SCEA shall be void. Subject to the foregoing, this Agreement shall inure to the benefit of the parties and their respective successors and permitted assigns (other than under the conditions set forth in Section 14.2 (iii). SCEA shall have the right to assign any and all of its rights and obligations hereunder to any Sony affiliate(s). 16.6 SUBCONTRACTORS. Publisher shall not sell, assign, delegate, subcontract, sublicense or otherwise transfer or encumber all or any portion of the licenses herein granted without the prior written approval of SCEA, provided, however, that Publisher may retain those subcontractors who provide services which do not require access to Sony Materials or SCEA's Confidential Information without such prior approval. Publisher may retain those subcontractor(s) to assist with the development, publication and marketing of Licensed Products (or portions thereof) which have signed (i) an LPA or LDA with SCEA (the "PlayStation 2 Agreement") in full force and effect throughout the term of such development and marketing; or (ii) an SCEA-approved subcontractor agreement ("Subcontractor Agreement"); and SCEA has approved such subcontractor in writing, which approval shall be in SCEA's sole discretion. Such Subcontractor Agreement shall provide that SCEA is a third-party beneficiary of such Subcontractor Agreement 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. Publisher shall provide a copy of any such Subcontractor Agreement to SCEA prior to and following execution thereof. Publisher shall not disclose to any subcontractor any of SCEA's Confidential Information, including, without limitation, any Sony Materials, unless and until either a PlayStation 2 Agreement or a Subcontractor Agreement has been executed and approved by SCEA. Notwithstanding any consent which may be granted by SCEA for Publisher to employ any such permitted subcontractor(s), or any such separate agreement(s) that may be entered into by Publisher with any such permitted subcontractor, Publisher shall remain fully liable for its compliance with all of the provisions of this 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. Publisher shall use its best efforts to cause its subcontractors retained in furtherance of this Agreement to comply in all respects with the terms and conditions of this Agreement, and hereby unconditionally guarantees all obligations of its subcontractors. SCEA may subcontract any of its rights or obligations hereunder. 16.7 COMPLIANCE WITH APPLICABLE LAWS. The parties shall at all times comply with all applicable regulations and orders of their respective countries and other controlling jurisdictions and all conventions and treaties to which their countries are a party or relating to or in any way affecting this Agreement and the performance by the parties of this 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 Agreement binding, including, without limitation, the recording of this Agreement with any appropriate governmental authorities (if required). 16.8 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be governed by and interpreted in accordance with the laws of the State of California, 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 Agreement or to adjudicate any dispute arising hereunder shall be brought in the Superior Court of the County of San Mateo, State of California or the United States District Court for the Northern District of California. 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 23 CONFIDENTIAL 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 16.1 above. In addition, each party hereby waives the right to a jury trial in any action or proceeding related to this Agreement. 16.9 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 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. 16.10 REMEDIES. Unless expressly set forth to the contrary, either party's election of any remedies provided for in this Agreement shall not be exclusive of any other remedies, and all such remedies shall be deemed to be cumulative. Any breach of Sections 3, 4, 5, 6.1, 11 and 13 of this Agreement would cause significant and irreparable harm to SCEA, the extent of which would be difficult to ascertain. Accordingly, in addition to any other remedies including without limitation equitable relief to which SCEA may be entitled, in the event of a breach by Publisher or any of its employees or permitted subcontractors of any such Sections of this Agreement, SCEA shall be entitled to the immediate issuance without bond of ex parte injunctive relief or, if a bond is required under applicable law, on the posting of a bond in an amount not to exceed [**], enjoining any breach or threatened breach of any or all of such provisions. In addition, if Publisher fails to comply with any of its obligations as set forth herein, SCEA shall be entitled to an accounting and repayment of all forms of compensation, commissions, remuneration or benefits which Publisher directly or indirectly realizes as a result of or arising in connection with any such failure to comply. Such remedy shall be in addition to and not in limitation of any injunctive relief or other remedies to which SCEA may be entitled under this Agreement or otherwise at law or in equity. In addition, Publisher shall indemnify SCEA for all losses, damages, liabilities, costs and expenses (including reasonable attorneys' fees and all reasonable related costs) which SCEA may sustain or incur as a result of any breach under this Agreement. 16.11 SEVERABILITY. In the event that any provision of this Agreement (or portion thereof) is determined by a court of competent jurisdiction to be invalid or otherwise unenforceable, such provision (or portion thereof) shall be enforced to the extent possible consistent with the stated intention of the parties, or, if incapable of such enforcement, shall be deemed to be deleted from this Agreement, while the remainder of this Agreement shall continue in full force and remain in effect according to its stated terms and conditions. 16.12 SECTIONS SURVIVING EXPIRATION OR TERMINATION. The following sections shall survive the expiration or earlier termination of this Agreement for any reason: 4, 5.8, 6.2, 6.4, 8, 9, 10, 11, 13, 14.5, 15, and 16. 16.13 WAIVER. No failure or delay by either party in exercising any right, power or remedy under this Agreement shall operate as a waiver of any such right, power or remedy. No waiver of any provision of this Agreement shall be effective unless in writing and signed by the party against whom such waiver is sought to be enforced. Any waiver by either party of any provision of this Agreement shall not be construed as a waiver of any other provision of this Agreement, nor shall such waiver operate or be construed as a waiver of such provision respecting any future event or circumstance. 16.14 MODIFICATION AND AMENDMENT. No modification or amendment of any provision of this Agreement shall be effective unless in writing and signed by both of the parties. Notwithstanding the foregoing, SCEA reserves the right to modify the SourceBook 2 from time to time upon reasonable notice to Publisher. 16.15 HEADINGS. The section headings used in this Agreement are intended primarily for reference and shall not by themselves determine the construction or interpretation of this Agreement or any portion hereof. 16.16 INTEGRATION. This Agreement, together with the SourceBook 2, constitutes the entire agreement between SCEA and Publisher and supersedes all prior or contemporaneous agreements, proposals, understandings and communications between SCEA and Publisher, whether oral or written, with respect to the subject matter hereof including any PlayStation 2 Confidentiality and Nondisclosure Agreement and Materials Loan Agreement between SCEA and Publisher. 16.17 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, and together shall constitute one and the same instrument. 16.18 CONSTRUCTION. This Agreement shall be fairly interpreted in accordance with its terms and without any strict construction in favor of or against either of the parties. [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. 24 CONFIDENTIAL IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first written above.
SONY COMPUTER ENTERTAINMENT AMERICA THQ INC. By: /s/ Kaz Hiraj By: /s/ Jeffrey C. Lapin ------------------------------- --------------------------------- Print Name: Kaz Hiraj Print Name: Jeffrey C. Lapin ----------------------- ------------------------- Title: President and COO Title: Vice Chairman ---------------------------- ------------------------------ Date: June 9, 2000 Date: June 7, 2000 ----------------------------- -------------------------------
NOT AN AGREEMENT UNTIL EXECUTED BY BOTH PARTIES 25 CONFIDENTIAL EX-10.11 13 a85823exv10w11.txt EXHIBIT 10.11 EXHIBIT 10.11 ALL SECTIONS MARKED WITH ASTERISKS REFLECT PORTIONS WHICH HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY THQ INC. AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT. PLAYSTATION(R) LICENSED PUBLISHER AGREEMENT THIS AGREEMENT is entered into the 25th day of June 1998 by and between SONY COMPUTER ENTERTAINMENT EUROPE (a Division of SONY COMPUTER ENTERTAINMENT UK LIMITED) of 25 Golden Square, London W1R 6LU (hereinafter referred to as "SCEE") - and - THQ INTERNATIONAL LIMITED of Dukes Court, Duke Street, Woking, Surrey GU21 5BH (hereinafter referred to as "Publisher") PUBLISHER AUTHORISATION #: 138 WHEREAS (A) SCEE, Sony Corporation, and/or certain of their affiliates and companies within the group of companies of which any of them form part (hereinafter jointly and severally referred to as "Sony") have developed a CD-based interactive console for playing video games and for other entertainment purposes (hereinafter referred to as "the PlayStation", which is a registered trademark of Sony Computer Entertainment Inc.) and are the owners of, or have the right to grant licences of, certain proprietary information and intellectual property rights pertaining to the PlayStation. (B) Publisher desires to be granted a non-exclusive licence to market, distribute and sell Licensed Products (as defined below), and for such Licensed Products and associated materials to be manufactured by an authorised manufacturing facility licensed by SCEE, on the terms and subject to the conditions set forth in this Agreement. (C) SCEE is willing, on the terms and subject to the conditions of this Agreement, to grant Publisher the desired non-exclusive licence. NOW THEREFORE, in consideration of the undertakings, representations and warranties given herein, and of other good and valuable consideration the receipt and sufficiency of which is acknowledged, PUBLISHER AND SCEE HEREBY AGREE AS FOLLOWS: 1. DEFINITIONS 1.1 "Licensed Products" means PlayStation Software product(s) in the form of proprietary black PlayStation interactive software discs (hereinafter referred to as "PlayStation Discs"). 1.2 "Licensed Territory" means the countries specified in Schedule 1. 1.3 "Sony Intellectual Property Rights" means all current and future patents worldwide, pending patent applications and other patent rights (under licence or otherwise), copyrights, trademarks, service marks, trade names, semi-conductor topography rights, trade secret rights, technical information and know-how (and the equivalents of each of the foregoing under the laws of any jurisdiction) of Sony pertaining to Sony Materials and/or the PlayStation, and all other proprietary or intellectual property rights worldwide (including, without limitation, all applications and registrations with respect thereto) of Sony pertaining to Sony Materials and/or the PlayStation, and all renewals and extensions thereof. - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 1 PlayStation Licensed Publisher(x) CONFIDENTIAL 1.4 "PlayStation Software" means Publisher's object code software, which includes Licensed Developer Software and any software (whether in object code or source code form) which is provided by SCEE and intended to be combined with Licensed Developer Software for execution on the PlayStation and has the ability to communicate with the software resident in the PlayStation. 1.5 "Term" means the period from the date hereof until 31 December 2005 and continuing thereafter unless and until terminated by not less than 1 (one) month's notice on either side given to expire on such date or any subsequent 31 December. 1.6 "Affiliate of SCEE" means, as applicable, either Sony Computer Entertainment Inc in Japan, Sony Computer Entertainment America (a division of Sony Interactive Entertainment Inc) in the USA or such other Sony Computer Entertainment entity as may be established by Sony from time to time. 1.7 "LDA" means the PlayStation Licensed Developer Agreement between Licensed Developer of the applicable PlayStation Software and SCEE (or an equivalent such agreement between Licensed Developer and an Affiliate of SCEE). 1.8 "Licensed Trademarks" means the "PlayStation" trademark and logo and all other trademarks, service marks and logos designated by Sony. Nothing contained in this Agreement shall in any way grant Publisher the right to use the trademark "Sony" in any manner as (or as part of) 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 Publisher. 1.9 "Licensed Developer" means Publisher or such other third party as shall have developed Licensed Developer Software and PlayStation Software pursuant to a then current LDA. 1.10 "Sony Materials" means any hardware, data, object code, source code, documentation (or any part(s) of any of the foregoing) provided to the Licensed Developer of any PlayStation Software pursuant to the LDA applicable for such PlayStation Software. 1.11 "Licensed Developer Software" means Licensed Developer's application source code and data (including audio and visual material) developed by Licensed Developer in accordance with its LDA which, when integrated with any software (whether in object code or source code form) provided by SCEE, creates PlayStation Software. 1.12 "Printed Materials" means all artwork and mechanicals to be set forth on the Licensed Product itself, and on the jewel case (or other container) and, if applicable, the box (or other) packaging for the Licensed Product and all instruction manuals, liners and other user information and/or materials to be inserted in such jewel case and/or packaging. 1.13 "Advertising Materials" means all advertising, merchandising, promotional and display materials of or concerning the Licensed Products. 1.14 "Manufactured Materials" means all units of the Licensed Products, of the Printed Materials to be set forth on the Licensed Products themselves and of the jewel cases for such Licensed Products (which expression shall include any alternative form of container for Licensed Products subsequently introduced by SCEE). 1.15 "Specifications" means such technical specifications relating to the manufacture of Licensed Products, Printed Materials and/or related matters or materials as may be issued by Sony, which specifications (and/or the procedures relating to approvals and/or to the ordering and manufacture of Licensed Products and associated materials) may be amended from time to time upon reasonable notice to Publisher. 1.16 "NDA" means the Non-Disclosure Agreement between Publisher and SCEE or an Affiliate of SCEE relating to the PlayStation and to Sony's Confidential Information thereunder. 1.17 "Confidential Information of Sony" means the content of this Agreement (including the Schedules hereto and the Specifications) and any and all confidential and/or proprietary information and related materials of whatever nature comprised in Sony Materials or otherwise disclosed by whatever means (whether direct or indirect) by or on behalf of Sony to Publisher at any time - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 2 PlayStation Licensed Publisher(x) CONFIDENTIAL (whether disclosed orally, in writing or in machine-readable or other form), or otherwise discovered by Publisher as a result of any information or materials provided (whether direct or indirect) by or on behalf of Sony to Publisher, concerning Sony's technology, know-how, products and potential products, services, business models and finances, marketing and technical plans and other business information, but excluding any such information and/or related materials expressly intended for use by and released by Sony to end users or the general public. 1.18 "Confidential Information of Publisher" means the content of this Agreement (including the Schedules hereto) and any and all confidential and/or proprietary information and related materials of whatever nature comprised in Licensed Developer Software and disclosed by whatever means (whether direct or indirect) by or on behalf of Publisher to SCEE at any time (whether disclosed orally, in writing or in machine-readable or other form), or otherwise discovered by SCEE as a result of any information or materials provided (whether direct or indirect) by or on behalf of Publisher to SCEE, which information is designated by Publisher as, or becomes known to SCEE under circumstances indicating that such information is, confidential or proprietary. 1.19 "Third Party Intellectual Property Rights" means all current and future patents worldwide, pending patent applications and other patent rights (under licence or otherwise), copyrights, trademarks, service marks, trade names, semi-conductor topography rights, trade secret rights, technical information and know-how (and the equivalents of each of the foregoing under the laws of any jurisdiction) of any third party other than Publisher or Sony and all other proprietary or intellectual property rights worldwide (including, without limitation, all applications and registrations with respect thereto), and all renewals and extensions thereof. 2. GRANT OF LICENCE SCEE hereby grants to Publisher, and Publisher hereby accepts, within the Licensed Territory only and under the Sony Intellectual Property Rights, a non-exclusive non-transferable licence, without the right to sub-license (except as specifically provided herein), to publish PlayStation Software the development of which shall have been approved prior to or during the Term hereof by SCEE (or by an Affiliate of SCEE) pursuant to the applicable LDA, and to use the Licensed Trademarks strictly, only and directly in connection with such publication. For these purposes, to "publish" shall mean any or all of the following: (i) produce Advertising Materials and Printed Materials; (ii) to issue to SCEE purchase orders for Manufactured Materials as prescribed in Clause 6; (iii) to market, distribute and sell Licensed Products (and to authorise others so to do); and (iv) to sub-license to end users the right to use Licensed Products for non-commercial purposes only and not for public performance. 3. LIMITATIONS 3.1 Publisher shall publish PlayStation Software only if developed by a Licensed Developer strictly in accordance with all the terms and conditions of such Licensed Developer's LDA and shall not publish or attempt to publish any other software whatsoever intended for or capable of execution on the PlayStation. The onus of evidencing that PlayStation Software satisfies the foregoing criteria shall rest on Publisher and SCEE reserves the right to require Publisher to furnish evidence satisfactory to SCEE that the foregoing criteria are satisfied. 3.2 Publisher shall not publish outside the Licensed Territory PlayStation Software unless and until Publisher shall be authorised and licensed so to do pursuant to a current licence agreement with the applicable Affiliate of SCEE. Further, Publisher shall not sub-publish such PlayStation Software through a third party either within or outside the Licensed Territory unless and until such sub-publisher shall be authorised and licensed so to do either pursuant to a current PlayStation Licensed Publisher Agreement with SCEE or a current licence agreement with the applicable Affiliate of SCEE. 3.3 Publisher and, if applicable, its sub-publishers shall at all times and in all territories be strictly prohibited from undertaking or authorising any renting or lending of PlayStation Software except as specifically authorised in writing by SCEE in each case or from undertaking or authorising the - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 3 PlayStation Licensed Publisher(x) CONFIDENTIAL distribution or transmission of PlayStation Software or Licensed Products through any electronic or other media, whether now known or hereafter devised, including without limitation via wireless, cable, fibre optic, telephone lines, microwave and/or radio waves or a network of interconnected computers or other devices. 3.4 Publisher and, if applicable, its sub-publishers shall, to the extent permitted by law, at all times be strictly prohibited from disassembling or decompiling software, peeling semiconductor components or otherwise reverse engineering or attempting to reverse engineer or derive source code or create derivative works from PlayStation Software, from permitting or encouraging any third party so to do, and from acquiring or using any materials from any third party who does so. The foregoing notwithstanding, Publisher shall in all cases be primarily liable for the payment of Purchase Price to SCEE in accordance with Clause 7 hereof in respect of any product published by Publisher or, if applicable, any of its sub-publishers which utilises Sony Materials or which is in any way derived from the disassembly, decompilation or reverse engineering of, or the use of source code derived from or derivative works created from, PlayStation Software. 3.5 Publisher shall inform all such sub-publishers of the obligations imposed by this Agreement and shall obtain their commitment to abide by the same. 3.6 Any breach of the provisions of this Clause 3 shall be a material breach of this Agreement not capable of remedy. 4. RESERVATIONS 4.1 This Agreement does not grant any right or licence, under any Sony Intellectual Property Rights or otherwise, except as expressly provided herein, and no other right or licence is to be implied by or inferred from any provision of this Agreement or the conduct of the parties hereunder. Subject only to the rights of Publisher under this Agreement, all right, title and interest in and to the Sony Materials and the Sony Intellectual Property Rights are and shall be the exclusive property of Sony, and Publisher shall not make use of, or do or cause to be done any act or thing contesting or in any way impairing or tending to impair any of Sony's right, title or interest in or to, any of the Sony Materials and/or the PlayStation or any Sony Intellectual Property Rights except as authorised by and in compliance with the provisions of this Agreement or as may otherwise expressly be authorised in writing by Sony. No right, licence or privilege has been granted to Publisher 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. No promotional or novelty items or premium products (including, by way of illustration but without limitation, T-shirts, posters, stickers, etc) displaying or depicting any of the Licensed Trademarks shall be developed, manufactured, marketed, sold and/or distributed by, with the authority of or on behalf of, Publisher without the prior written consent and authorisation of SCEE in each case. 4.2 The Licensed Trademarks and the goodwill associated therewith are and shall be the exclusive property of Sony. Nothing herein shall give Publisher any right, title or interest in or to any of the Licensed Trademarks, other than the non-exclusive licence and privilege to display and use the Licensed Trademarks solely in accordance with the provisions of this Agreement. Publisher 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 right, title or interest in or to any of the Licensed Trademarks, nor shall Publisher register or apply to 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. 4.3 Publisher or Licensed Developer (as applicable) retains all right, title and interest in and to Licensed Developer Software, including Licensed Developer's intellectual property rights therein and any names or other designations used as titles therefor, and nothing in this Agreement shall be construed to restrict the right of Licensed Developer to develop and/or the right of Publisher to publish products incorporating Licensed Developer Software (separate and apart from Sony Materials), and/or under such names or other designations, for any hardware platform or service other than the PlayStation. - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 4 PlayStation Licensed Publisher(x) CONFIDENTIAL 4.4 Publisher shall, at the expense of SCEE, take all such steps as SCEE may reasonably require, including the execution of licences and registrations, to assist SCEE in maintaining the validity and enforceability of Sony Intellectual Property Rights. 4.5 Without prejudice to Clause 11, Publisher or SCEE (as applicable) shall promptly and fully notify the other in writing in the event that it discovers or otherwise becomes aware of any actual, threatened or suspected infringement of any of the intellectual property or trademark rights of the other embodied in any of the Licensed Products, and of any claim of infringement or alleged infringement by the other of any Third Party Intellectual Property Rights, and shall at the request and expense of the other do all such things as may reasonably be required to assist the other in taking or resisting any proceedings in relation to any such infringement or claim. 5. QUALITY STANDARDS 5.1 Each Licensed Product, including without limitation the title and content thereof, and/or Publisher's use of any of the Licensed Trademarks, shall be required to achieve such standards of functionality and quality as to style, appearance and playability as shall be determined by Sony from time to time in its sole but reasonable discretion and shall not, except as specifically authorised in writing by SCEE in each case, incorporate (in whole or in part) more than 1 (one) game product. 5.2 Publisher shall submit to SCEE for its inspection and evaluation the following materials relating to the PlayStation Software for each Licensed Product: (i) a completed PlayStation Disc Master Approval Form, in such form as shall be prescribed and supplied by SCEE; (ii) a minimum of [**] CDs containing finished game code and conforming to the Specifications; (iii) such other information and/or materials as shall be detailed in the Specifications. Unless all procedures required to ensure compliance with quality standards in respect of PlayStation Software intended to be published by Publisher shall have been completed by the Licensed Developer thereof as specified in such Licensed Developer's LDA, such procedures shall be completed by Publisher. 5.3 For each Licensed Product, Publisher shall be responsible, at Publisher's expense, for the origination of all Printed Materials and for the manufacture and delivery to an authorised manufacturing facility licensed by SCEE of all Printed Materials other than those to be set forth on the Licensed Product itself, all of which Printed Materials shall: (i) conform in all material respects with all standards and specifications of or relating to the PlayStation, PlayStation Software and/or Licensed Products as may from time to time be promulgated by SCEE and communicated to Publisher; (ii) include such other materials (including by way of illustration but not limitation, consumer health warnings in relation to epilepsy) and such consumer advisory rating code(s) as may from time to time be required by any governmental entity or in compliance with any voluntary code of practice operated by members of the interactive software development and publishing community. The standards and specifications referred to in (i) above shall be comparable with the standards and specifications applied by Sony with respect to its own PlayStation software products comparable with the Licensed Products. SCEE acknowledges and agrees that such standards and specifications shall be of prospective application only and shall not be applied to any inventory units of the Licensed Products manufactured prior to, or in the active process of manufacture at the date of, such promulgation. Simultaneous with the submission to SCEE of the materials specified in Clause 5.2, Publisher shall also submit to SCEE(i) a completed PlayStation Printed Materials Approval Form, in such form as shall be prescribed and supplied by SCEE, (ii) the proposed final Printed Materials for the applicable Licensed Product for review, and (iii) a printed copy of the text of a form of limited consumer warranty for such Licensed Product. Such delivery shall be by such electronic means and in such form as shall be prescribed by SCEE, or in the form of final film and colour proofs, in accordance with the Specifications and at Publisher's sole risk and expense. Publisher undertakes that the quality of such Printed Materials shall be of the same quality as that associated with high quality consumer products. 5.4 SCEE will promptly evaluate all materials submitted by Publisher pursuant to Clause 5.2 and review all materials submitted by Publisher pursuant to Clause 5.3. SCEE shall advise Publisher of [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 5 PlayStation Licensed Publisher(x) CONFIDENTIAL the results of such evaluation within 30 (thirty) days following receipt of materials submitted by Publisher as aforesaid. If any of such materials (or any element(s) thereof) are disapproved by reason either of defects or errors in program function or associated materials or of failure to achieve the standards of quality referred to in Clause 5.1, SCEE shall specify the reasons for such disapproval and state what revisions and/or improvements are required. After making the required revisions and/or improvements, Publisher may resubmit such materials in such revised and/or improved form for approval or disapproval by SCEE. The procedures described in this Clause 5.4 shall if necessary be repeated until all such materials for each Licensed Product shall expressly have been approved in writing by SCEE, which approval shall be evidenced solely by the return of the applicable of the Approval Forms referred to in Clauses 5.2 and 5.3 signed by SCEE's President (or such other Sony representative as shall from time to time be designated by SCEE). SCEE shall have no liability to Publisher in respect of costs incurred or irrevocably committed by Publisher in relation to, or to the use of, Printed Materials which shall be disapproved by SCEE. No production units of any Licensed Product shall be manufactured, marketed, distributed or sold by, with the authority of or on behalf of, Publisher unless and until such written approval of such Licensed Product shall first have been granted by SCEE. No approval by SCEE of any element of the materials so submitted or resubmitted shall be deemed an approval of any other element of such materials, nor shall any such approval be deemed to constitute a waiver of any of SCEE's rights under this Agreement. 5.5 Publisher shall not, without the prior written consent of SCEE in each case, change in any material respect any of the materials approved by SCEE pursuant to Clause 5.4 (or, if applicable, pursuant to Clause 5.7). If any of the Licensed Products and/or related materials published by, with the authority of or on behalf of, Publisher fail to conform with the standards and specifications theretofor promulgated by SCEE and the materials from time to time approved by SCEE, then the provisions of Clause 13.2 shall apply. 5.6 Publisher undertakes that the opening title screen of the PlayStation Software and of all inventory units of the Licensed Products manufactured therefrom shall contain the following items only: (i) the PlayStation logo in a form prescribed and supplied by SCEE from time to time; (ii) Publisher's name and the title of the PlayStation Software, together with Publisher's trademark and copyright notices; and (iii) the following legend "Licensed by Sony Computer Entertainment Europe", which shall appear beneath Publisher's name. 5.7 SCEE reserves the right to require that pre-production samples of all Advertising Materials shall be submitted by Publisher to SCEE, free of charge and in accordance with such procedure as SCEE shall designate, for SCEE's evaluation and approval as to quality, style, appearance, usage of any of the Licensed Trademarks, prior to any actual production, use or distribution of any such items by, with the authority or on behalf of, Publisher. No such proposed Advertising Materials shall be produced, used or distributed directly or indirectly by Publisher without first obtaining the written approval of SCEE. SCEE shall advise Publisher of the results of such evaluation within 30 (thirty) days following receipt of materials submitted by Publisher as aforesaid. If any Advertising Materials (or any element(s) thereof) are disapproved, SCEE shall specify the reasons for such disapproval and state what revisions and/or improvements are required. After making the required revisions and/or improvements, Publisher may resubmit such Advertising Materials in such revised and/or improved form for approval or disapproval by SCEE. The procedures described in this Clause 5.7 shall if necessary be repeated until all such Advertising Materials for each Licensed Product shall expressly have been approved in writing by SCEE, which approval shall be evidenced solely by the return to Publisher of a form of approval signed by SCEE's President (or such other Sony representative as shall from time to time be designated by SCEE). SCEE shall have no liability to Publisher in respect of costs incurred or irrevocably committed by Publisher in relation to, or to the use of, Advertising Materials which shall be disapproved by SCEE. Subject in each instance to the prior written approval of SCEE, Publisher may use such textual and/or pictorial advertising matter (if any) as may be created by, with the authority or on behalf of, Sony pertaining to the Sony Materials and/or to the Licensed Trademarks on such Advertising Materials as may, in - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 6 PlayStation Licensed Publisher(x) CONFIDENTIAL ' Publisher's judgment, promote the sale of Licensed Products within the Licensed Territory. Sony shall have the right to use Licensed Products and/or other materials relating to Publisher's PlayStation Software titles in any advertising or promotion for the PlayStation at Sony's expense, subject to giving Publisher reasonable prior notice of such advertisement or promotion. Sony shall confer with Publisher regarding the text of any such advertisement. If required by Sony and/or any governmental entity or in compliance with any voluntary code of practice operated by members of the interactive software development and publishing community, Publisher shall, at Publisher's cost and expense, also include consumer advisory rating code(s) and, if required, other materials (including by way of illustration but not limitation, consumer health warnings in relation to epilepsy) on any and all Advertising Materials used in connection with Licensed Products. Such consumer advisory rating code(s) shall be procured in accordance with the provisions of Clause 5.8. 5.8 All Printed Materials for each unit of Licensed Product shall have conspicuously, legibly and irremovably affixed thereto the notices set forth in the template detailed in the Specifications. Publisher agrees that, if required by SCEE or any governmental entity, it shall submit each Licensed Product to a consumer advisory ratings system designated by SCEE 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 Publisher. Any required consumer advisory rating code(s) thereby procured shall be displayed on Licensed Products and associated Printed Materials in accordance with the standards and specifications referred to in Clause 5.3 above, at Publisher's cost and expense. 5.9 In the event Publisher fails to comply with its obligations in relation thereto as specified in Clauses 5.3 and 5.8, SCEE reserves the right in its sole discretion, at Publisher's sole cost and expense: (i) to display, or to require the display, on Licensed Products and/or associated Printed Materials and/or associated Advertising Materials (as may be required) materials (including by way of illustration but not limitation, consumer health warnings in relation to epilepsy) and/or to procure and to display, or to require the display of, consumer advisory rating code(s); or (ii) to require non-complying Licensed Products and/or associated Printed Materials and/or associated Advertising Materials forthwith to be withdrawn from the market. 6. MANUFACTURE OF LICENSED PRODUCTS & ASSOCIATED MATERIALS 6.1 Publisher acknowledges and agrees that it shall purchase exclusively from SCEE, or from an authorised manufacturing facility licensed by SCEE, 100% (one hundred percent) of its requirements for Manufactured Materials. SCEE shall have the right, but no obligation, to subcontract the whole or any part or phase of the production of any or all of the Manufactured Materials or any part(s) thereof. 6.2 Following approval by SCEE of each Licensed Product pursuant to Clause 5.2, SCEE shall create (from one of the CD copies of the finally approved version of the PlayStation Software as submitted by Publisher pursuant to Clause 5.2) the original master PlayStation Disc ("Master PlayStation Disc") from which all other copies of the Licensed Product are to be replicated in compliance with specifications effective at the time of replication. Publisher shall be responsible for the costs, as set forth in Schedule 2, of creating such Master PlayStation Disc. Publisher will retain duplicates of all such PlayStation Software. SCEE shall not be liable for loss of or damage to any copies of the PlayStation Software furnished to SCEE hereunder. There will be no technology exchange between Sony and Publisher under this Agreement. The mastering process being of a proprietary and commercially confidential nature, neither SCEE nor any manufacturing subcontractor of SCEE will under any circumstances release any Master PlayStation Discs or other in-process materials to Publisher. All such physical materials shall be and remain the sole property of Sony. 6.3 Publisher shall be solely responsible for the delivery, direct to an authorised manufacturing facility licensed by SCEE and in accordance with Clause 6.4, [**] of the number of units of the Printed Materials (other than those set forth on the applicable Licensed [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 7 PlayStation Licensed Publisher(x) CONFIDENTIAL Product itself) required to fulfill Publisher's purchase order for Manufactured Materials of each PlayStation Software title, which Printed Materials shall be in strict compliance with the Specifications. SCEE shall, at Publisher's request, give Publisher all reasonable assistance in arranging the manufacture of Printed Materials through SCEE's authorised manufacturing facility (if a Sony company), but SCEE shall have no responsibility with respect to pricing, delivery or any other related matter whatsoever in connection with such manufacture. 6.4 Subject to approval of the applicable PlayStation Software and Printed Materials pursuant to Clause 5, to the delivery to SCEE (or at SCEE's option to an authorised manufacturing facility licensed by SCEE) of the materials required to be delivered under Clause 6.2, and to the delivery to such a manufacturing facility of the materials to be delivered under Clause 6.3, as so-called "clean components - ready for production" or as finished units of Printed Materials (as the case may be), SCEE will, at Publisher's expense and as applicable, manufacture, assemble, package and deliver the Manufactured Materials and the Printed Materials in accordance with the terms and conditions set forth in this Clause 6. The delivery of the materials specified in Clause 6.2 shall not in any event be made less than [**] prior to Publisher's requested ex-factory delivery date; and the delivery of the materials specified in Clause 6.3 shall not in any event be made less than [**] nor more than [**] nor more than [[**] in the case of reorders] prior to Publisher's requested ex-factory delivery date. 6.5 Not less than [**] [[**] in the case of reorders] prior to Publisher's requested ex-factory delivery date, Publisher shall issue to SCEE written purchase order(s) in such form as shall be prescribed and supplied by SCEE. No such order shall be issued unless and until all necessary approvals shall have been granted pursuant to Clause 5. Each such order shall reference this Agreement, give Publisher authorisation number and purchase order reference number, specify quantities by PlayStation Software title (in multiples of the minimum box shipment detailed in the Specifications), state requested ex-factory delivery date and all packaging information together with such other information as SCEE shall reasonably require and shall be for a minimum quantity of [**] units per PlayStation Software title. All purchase orders shall be subject to acceptance by SCEE, which acceptance (together with confirmation of anticipated ex-factory delivery date) will be advised to Publisher not more than [**] following delivery in accordance with Clause 6.4 of the materials required to be delivered under Clauses 6.2 and 6.3. SCEE shall use all reasonable endeavours, subject to available manufacturing capacity, to fulfill Publisher's purchase orders by Publisher's requested ex-factory delivery date but does not in any event guarantee so to do. For purchase orders issued between 1 August and 30 November each year, adding at least [**] to the minimum number of working days in advance specified above is strongly recommended by SCEE. Publisher may order additional units of the Manufactured Materials for any Licensed Product in the minimum reorder quantity of not less than [**] per order. Publisher shall have no right to cancel or reschedule any purchase order or reorder (or any portion thereof) for any Licensed Product unless the parties shall first have reached mutual agreement as to Publisher's financial liability with respect to any desired cancellation or rescheduling of any such purchase order or reorder (or any portion thereof). 6.6 Subject only to the provisions of Clause 6.5 in relation to Printed Materials, neither SCEE nor any manufacturing subcontractor of SCEE shall be under any obligation to store finished units of Manufactured Materials or of associated Printed Materials beyond the actual ex-factory delivery date thereof. Delivery of Manufactured Materials shall be made ex-factory the applicable authorised manufacturing facility licensed by SCEE in the Licensed Territory. All risk of loss or damage in transit to any and all Manufactured Materials manufactured by SCEE pursuant to Publisher's orders shall pass to Publisher [**]. 6.7 Publisher may inspect and test any units of Manufactured Materials at Publisher's receiving destination. Any finished units of Manufactured Materials which fail to conform to the Specifications and/or any description(s) contained in this Agreement may be rejected by Publisher [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 8 PlayStation Licensed Publisher(x) CONFIDENTIAL by providing written notice of rejection to SCEE within 30 (thirty) days of receipt of such units of Manufactured Materials at Publisher's receiving destination. In such event, the provisions of Clause 10.2 shall apply with respect to any such rejected units of Manufactured Materials. Notwithstanding the provisions of Clause 10.2, if Publisher fails to reject any units of Manufactured Materials in the manner and within the 30 (thirty) day period prescribed above, such units of Manufactured Materials shall irrevocably be deemed accepted by Publisher and shall not subsequently be rejected. 7. PURCHASE PRICE 7.1 The all-in Purchase Price for finished units of Manufactured Materials in respect of which SCEE accepts Publisher's purchase order in accordance with Clause 6.5 shall be as specified in Schedule 2 (but subject to adjustment as therein provided). Such Purchase Price shall be subject to change by SCEE at any time upon reasonable notice to Publisher; provided, however, that such Purchase Price shall not be changed with respect to any units of Manufactured Materials which are the subject of an effective purchase order or reorder but which have not yet been delivered by SCEE. Such Purchase Price for finished units of Manufactured Materials is exclusive of any value-added or similar sales tax, customs and excise duties and other similar taxes or duties, which SCEE may be required to collect or pay as a consequence of the sale or delivery of finished units of Manufactured Materials. Publisher shall be solely responsible for the payment or reimbursement of any such taxes or duties, and other such charges or assessments applicable to the sale and/or purchase of finished units of Manufactured Materials. 7.2 No costs incurred in the development, manufacture, marketing, sale and/or distribution of Licensed Products and/or associated materials shall be deducted from any Purchase Price payable to SCEE hereunder. Similarly, there shall be no deduction from the Purchase Price otherwise payable to SCEE hereunder as a result of any uncollectable accounts owed to Publisher, or for any credits, discounts, allowances or returns which Publisher may credit or otherwise grant to any third party customer in respect of any units of Licensed Products and/or associated materials, or for any taxes, fees, assessments, or expenses of any kind which may be incurred by Publisher in connection with its sale and/or distribution of any units of Licensed Products and/or associated materials, and/or arising with respect to the payment of Purchase Price hereunder. Publisher shall furnish SCEE official tax receipts or other such documentary evidence issued by the applicable tax authorities sufficient to substantiate the fact of the deduction of any withholding taxes and/or other such assessments which may be imposed by any governmental authority with respect to such payments of Purchase Price hereunder and the amount of each such deduction. 7.3 Simultaneously with the issuing of each purchase order pursuant to Clause 6.5, Publisher shall open and deliver to SCEE at Publisher's expense an irrevocable and unconditional Letter of Credit drawn in favour of SCEE and payable "at sight" in an amount equal to [**] of the Purchase Price specified in Clause 7.1 for the finished units of Manufactured Materials the subject matter of such purchase order. Each such Letter of Credit shall be issued by a bank acceptable to SCEE and, if so requested by SCEE in writing, shall be confirmed at Publisher's expense. The selected bank and the terms and conditions of the agreement establishing each such Letter of Credit shall be subject to SCEE's prior written approval (not unreasonably to be withheld). All charges associated with each such Letter of Credit shall be borne solely by Publisher. Each delivery of Manufactured Materials to Publisher shall constitute a separate sale obligating Publisher to pay therefor, whether said delivery be whole or partial fulfilment of any order. When partial deliveries are made, payment shall become due upon SCEE's submission of the documentation required in the applicable Letter of Credit with respect to such partial delivery. No claim for credit due to shortage of Manufactured Materials as delivered to carrier will be allowed unless it is made within [**] from the date of receipt at Publisher's receiving destination. Title to Manufactured Materials the subject of each such purchase order shall pass to Publisher [**]. The receipt and deposit by SCEE of any payment of Purchase Price tendered by or on behalf of Publisher as aforesaid shall be without prejudice to any [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 9 PlayStation Licensed Publisher(x) CONFIDENTIAL rights or remedies of SCEE and shall not restrict or prevent SCEE from thereafter successfully challenging the basis for calculation and/or the accuracy of such payment. Alternatively, Publisher may pay Purchase Price by such other payment-with-order method (for example, bankers draft or telegraphic transfer to SCEE's designated bank account) as shall be acceptable to SCEE. SCEE reserves the right, upon reasonable notice to Publisher, to require that such payments of Purchase Price shall be made to such other Sony entity as SCEE may designate from time to time. 7.4 [**] 8. MARKETING & DISTRIBUTION Publisher shall, at no expense to SCEE, diligently market, distribute and sell Licensed Products throughout (but only in) the Licensed Territory, and shall use all reasonable efforts consistent with its best business judgment to stimulate demand therefor in the Licensed Territory and to supply any resulting demand. Publisher shall not market, distribute or sell Licensed Products outside the Licensed Territory or to any person, firm, corporation or entity having its place of business, or to any purchasing agency located, outside the Licensed Territory. Publisher shall use all reasonable efforts consistent with its best business judgment to protect 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 as may be specified in the Specifications. SCEE shall be entitled, at SCEE's sole cost and expense, to manufacture up to [**] additional units of Manufactured Materials (or, if greater, a number of additional units equal to [**] of Publisher's initial purchase order) for each PlayStation Software title (and to purchase from Publisher, at a price equal to [**], a corresponding number of units of Printed Materials for each such PlayStation Software title), for the purposes of or in connection with the marketing and promotion of the PlayStation; provided however that SCEE shall not directly or indirectly resell any such units of Manufactured Materials (and, if applicable, of Printed Materials) within the Licensed Territory without Publisher's prior written consent. Further, SCEE shall be entitled to utilise Publisher's name and/or logo and the on-screen content of, and/or the Printed Materials for, PlayStation Software titles (not to exclude the likenesses of any recognisable talent) for the purposes of or in connection with such marketing and promotion. 9. CONFIDENTIALITY 9.1 All the terms and provisions of the NDA shall apply to Confidential Information of Sony. 9.2 SCEE shall hold all Confidential Information of Publisher in confidence and shall take all reasonable steps necessary to preserve such confidentiality. Except as may expressly be authorised by Publisher, SCEE shall not at any time, directly or indirectly: (i) disclose any Confidential Information of Publisher to any person other than a Sony employee who needs to know or have access to such information for the purposes of this Agreement, and only to the extent necessary for such purposes; (ii) except for the purposes of this Agreement, duplicate or use the Confidential Information of Publisher for any other purpose whatsoever; or (iii) remove any copyright notice, trademark notice and/or other proprietary legend set forth on or contained within any of the Confidential Information of Publisher. 9.3 The provisions of Clause 9.2 hereof shall not apply to any Confidential Information of Publisher which: (i) has become part of information in the public domain through no fault of SCEE; (ii) was known to SCEE prior to the disclosure thereof by Publisher; (iii) properly comes into the possession of SCEE from a third party which is not under any obligation to maintain the confidentiality of such information. SCEE may disclose Confidential Information of Publisher pursuant to a judicial or governmental order provided that SCEE promptly advises Publisher in writing prior to any such disclosure so that Publisher may seek other legal remedies to maintain the confidentiality of such Confidential Information of Publisher, and SCEE shall comply with any applicable protective order or equivalent. [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 10 PlayStation Licensed Publisher(x) CONFIDENTIAL 9.4 Unless and until a public announcement regarding this Agreement shall have been made by Sony (or SCEE shall otherwise have agreed in writing), the fact that the parties have entered into this Agreement shall be Confidential Information of Sony and shall be treated in all respects accordingly. The content of, and the timing and method of the making of, any such public announcement shall be determined by SCEE in its best business judgment. However, SCEE will give reasonable consideration to any notice from Publisher requesting that no such public announcement be made, at or prior to a particular time or at all. 10. WARRANTIES 10.1 SCEE represents and warrants solely for the benefit of Publisher that SCEE has the right, power and authority to enter into, and fully to perform its obligations under, this Agreement. 10.2 [**] 10.3 Publisher represents, warrants, covenants and agrees that: (i) Publisher has the right, power and authority to enter into, and fully to perform its obligations under, this Agreement; (ii) the making of this Agreement by Publisher does not violate any separate agreement, rights or obligations existing between Publisher and any other person, firm, corporation or entity, and, throughout the Term, Publisher shall not make any separate agreement with any person or entity which is inconsistent with any of the provisions hereof; (iii) both Licensed Developer Software and PlayStation Software, and any name, designation or title used in conjunction therewith, shall be free from any valid third party claim of infringement of any Third Party Intellectual Property Rights; (iv) there is no litigation, proceeding or claim pending or threatened against Publisher or any subsidiary or affiliate of Publisher which may materially affect Publisher's rights in and to Licensed Developer Software, the names, designations or titles used in conjunction therewith, the works and performances embodied therein and/or the copyrights pertaining thereto; (v) Publisher shall have made or shall make any and all payments required to be made to any person, firm, corporation or other entity, or to any body or group representing authors or participants in the production of the works or performances embodied in Licensed Developer Software and PlayStation Software, or to publishers or other persons having legal or contractual rights of any kind to participate in any income arising in respect of the exploitation of such works or performances; (vi) neither Publisher nor any subsidiary or affiliate of Publisher shall make any representation or give any warranty to any person or entity [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 11 PlayStation Licensed Publisher(x) CONFIDENTIAL expressly or impliedly on Sony's behalf, or to the effect that Licensed Products are connected in any way with Sony (other than that Licensed Products have been developed, marketed, manufactured, sold and/or distributed under licence from Sony); (vii) PlayStation Software shall be distributed by Publisher solely in the form of Licensed Product; (viii) each Licensed Product shall be marketed, sold and distributed in an ethical manner and in accordance with all applicable laws and regulations; and (ix) Publisher's policies and practices with respect to the marketing, sale and/or distribution of Licensed Products shall in no manner reflect adversely upon the name, reputation or goodwill of Sony. 10.4 [**] 11. INDEMNITIES 11.1 SCEE shall indemnify and hold Publisher harmless from and against any and all claims, losses, liabilities, damages, expenses and costs, including without limitation reasonable fees for lawyers, 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 warranties provided by SCEE herein; provided however that Publisher shall give prompt written notice to SCEE of the assertion of any such claim, and provided further that SCEE shall have the right to select counsel and control the defence and/or settlement thereof, subject to the right of Publisher to participate in any such action or proceeding at its own expense with counsel of its own choosing. SCEE 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 SCEE. Publisher shall provide SCEE, at no expense to Publisher, reasonable assistance and cooperation concerning any such matter. Publisher shall not agree to the compromise, settlement or abandonment of any such claim, action or proceeding without SCEE's prior written consent. 11.2 Publisher shall indemnify and hold SCEE harmless from and against any and all claims, losses, liabilities, damages, expenses and costs, including without limitation reasonable fees for lawyers, 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 warranties provided by Publisher herein or any breach of Publisher's confidentiality obligations as referred to in Clause 9.1 hereof, or (ii) any claim of infringement or alleged infringement of any Third Party Intellectual Property Rights with respect to Licensed Developer Software, or (iii) any claim of or in connection with any injury (including death) or property damage, by whomsoever such claim is made, arising (in whole or in part) out of the manufacture, sale and/or use of any of the Manufactured Materials unless resulting from the proven negligence of Sony; provided however that SCEE shall give prompt written notice to Publisher of the assertion of any such claim, and provided further that Publisher shall have the right to select counsel and control the defence and/or settlement thereof, subject to the right of SCEE to participate in any such action or proceeding at its own expense with counsel of its own choosing. Publisher 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 [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 12 PlayStation Licensed Publisher(x) CONFIDENTIAL with respect to such matter as shall be deemed appropriate by Publisher. SCEE shall provide Publisher, at no expense to SCEE, reasonable assistance and cooperation concerning any such matter. SCEE shall not agree to the compromise, settlement or abandonment of any such claim, action or proceeding without Publisher's prior written consent. 12. LIMITATIONS OF LIABILITY 12.1 IN NO EVENT SHALL SONY OR ITS SUPPLIERS BE LIABLE FOR PROSPECTIVE PROFITS, OR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT (INCLUDING WITHOUT LIMITATION THE BREACH OF THIS AGREEMENT BY SCEE), WHETHER UNDER THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE), INDEMNITY, PRODUCT LIABILITY OR OTHERWISE. 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 CLAUSE 11.1, EXCEED [**]. EXCEPT AS EXPRESSLY SET FORTH HEREIN, NO SONY ENTITY, NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, SHALL BEAR ANY RISK, OR HAVE ANY RESPONSIBILITY OR LIABILITY, OF ANY KIND TO PUBLISHER OR TO ANY THIRD PARTIES WITH RESPECT TO THE FUNCTIONALITY AND/OR PERFORMANCE OF LICENSED PRODUCTS. 12.2 IN NO EVENT SHALL PUBLISHER BE LIABLE TO SCEE FOR PROSPECTIVE PROFITS, OR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT (INCLUDING WITHOUT LIMITATION THE BREACH OF THIS AGREEMENT BY PUBLISHER), WHETHER UNDER THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE), INDEMNITY, PRODUCT LIABILITY OR OTHERWISE, PROVIDED THAT PUBLISHER EXPRESSLY AGREES THAT SUCH LIMITATIONS SHALL NOT APPLY TO DAMAGES RESULTING FROM PUBLISHER'S BREACH OF CLAUSES 2, 3, 4, 9 OR 11.2 OF THIS AGREEMENT. 12.3 [**] 13. TERMINATION BY SCEE 13.1 SCEE shall have the right forthwith to terminate this Agreement by written notice to Publisher at any time after the occurrence of any of the following events or circumstances: (i) any material breach of Publisher's obligations under this Agreement (or, if Publisher shall also have executed a PlayStation licensed publisher agreement with an Affiliate of SCEE, and/or a LDA, thereunder) which breach, if capable of remedy, shall not have been corrected or cured in full within 30 (thirty) days following notice from SCEE (or the applicable Affiliate of SCEE as the case may be) specifying and requiring the correction or cure of such breach, or any repetition of a prior material breach of any such obligation, whether or not capable of remedy; (ii) any refusal or failure by Publisher to open a Letter of Credit or otherwise to effect payment of Purchase Price, promptly in accordance with Clauses 7.1 or 7.3 or at all, or a statement that Publisher is or will be unable to pay, any sum(s) due hereunder, or Publisher being unable to pay its debts generally as the same fall due; (iii) Publisher's filing of an application for, or consenting to or directing the appointment of, or the [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 13 PlayStation Licensed Publisher(x) CONFIDENTIAL taking of possession by, a receiver, custodian, trustee or liquidator (or the equivalent of any of the foregoing under the laws of any jurisdiction) of any of Publisher's property (whether tangible or intangible and wherever located), assets and/or undertaking; (iv) the making by Publisher of a general assignment for the benefit of creditors; (v) an adjudication in any jurisdiction that Publisher is a bankrupt or insolvent; (vi) the commencing by Publisher of, or Publisher's intention to commence, a voluntary case under applicable bankruptcy laws of any jurisdiction; (vii) the filing by Publisher of, or Publisher's intention to file, a petition seeking to take advantage of any other law(s) of any jurisdiction providing for the relief of debtors; (viii) Publisher's acquiescence in, intention to acquiesce in, or failure to have dismissed within 90 (ninety) days, any petition filed against it in any involuntary case brought pursuant to the bankruptcy or other law(s) of any jurisdiction referred to in (vi) and (vii) above; (ix) a controlling partnership or equity interest [or any such interest (other than an acquisition of less than an aggregate of 5% (five percent) of the issued share capital of Publisher, as quoted on a recognised investments exchange), in the case of a transfer to any party which (a) shall previously have executed a NDA which shall have been breached by such party, or a LDA or PlayStation Licensed Publisher Agreement or an equivalent licensed publisher agreement with an Affiliate of SCEE which shall have been terminated for breach by such party, or (b) is, or which directly or indirectly holds or acquires a partnership or equity interest in, the developer of (or other owner of intellectual property rights in) any interactive hardware device or product which is or will be directly or indirectly competitive with the PlayStation, or (c) is in litigation with Sony concerning any proprietary technology, trade secrets and/or intellectual property matter(s)] in Publisher or in all or substantially all of Publisher's property (whether tangible or intangible), assets and/or undertaking, being acquired, directly or indirectly, by any person, firm, corporation or other entity; or (x) Publisher enters into any third party business relationship pursuant to which Publisher makes a material contribution to the development of the core components of any interactive hardware device or product which is or will be directly or indirectly competitive with the PlayStation, or if Publisher directly or indirectly holds or acquires a partnership or equity interest (other than a holding or acquisition of less than an aggregate of 5% (five percent) of the issued share capital, as quoted on a recognised investments exchange) in, or otherwise forms a strategic commercial relationship with, any third party firm, corporation or other entity which has developed or during the Term develops (or which owns or during the Term acquires ownership of intellectual property rights in) any such device or product; or (xi) [**]. As used in this Clause 13.1, "controlling interest" means (i) in relation to a body corporate, the power of the holder of such interest to secure - (a) by means of the holding of shares or the possession of voting power in, or in relation to, that or any other body corporate or (b) by virtue of any powers conferred by the Articles of Association or other document regulating that or any other body corporate - that the affairs of such body corporate be conducted in accordance with the wishes of the holder of such interest, and (ii) in relation to a partnership, the right to a share of more than 50% (fifty percent) of the assets or of the income of the partnership. Forthwith upon such occurrence, Publisher shall notify SCEE of the occurrence of any of the events or circumstances specified in (ii) to (x) above; and Publisher's failure so to do shall be a material breach of this Agreement not capable of remedy. 13.2 Further, SCEE shall have the right by written notice to Publisher forthwith to terminate the licences and related rights herein granted to Publisher in relation to any PlayStation Software at any time after the occurrence of any of the following events: (i) any failure by Publisher to submit to SCEE the materials required to be submitted under Clauses 5.2 and 5.3 (or, if applicable, under Clause 5.7) in the form and manner and in conformity with the standards and specifications therein prescribed; and (ii) any failure by Publisher promptly to notify SCEE in writing of any material change to any of the materials approved by SCEE pursuant to Clause 5.4 (or, if applicable, pursuant to Clause 5.7); provided however that SCEE shall not be entitled to exercise such right of termination if Publisher's failure under (i) above is directly caused by SCEE's failure to comply with any of its material obligations expressly set forth herein. [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 14 PlayStation Licensed Publisher(x) CONFIDENTIAL 14. EFFECT OF EXPIRATION OR TERMINATION 14.1 Notwithstanding the expiration of the Term, Publisher shall be entitled to continue to publish PlayStation Software the development of which shall have been approved prior to or during the Term hereof by SCEE (or by an Affiliate of SCEE) pursuant to the applicable LDA, and to use the Licensed Trademarks strictly, only and directly in connection with such publication, until the expiration of the Term or, if later, until the [**]. Upon expiration of the Term or, if applicable, such extended period for publishing PlayStation Software, Publisher may sell off existing inventories of the applicable PlayStation Software titles, on a non-exclusive basis, for a period of [**] from the applicable expiration date; provided always that such inventory thereof shall not have been manufactured solely or principally for sale within such sell-off period. 14.2 However, upon the exercising by SCEE of its right of termination, either of this Agreement pursuant to Clause 13.1(i) to (viii) or in relation to any PlayStation Software pursuant to Clause 13.2, all rights, licences and privileges licensed or otherwise granted to Publisher hereunder, either generally or in relation to such PlayStation Software (as applicable), shall forthwith and without further formality revert absolutely to SCEE and Publisher shall forthwith cease and desist from any further use of the Sony Materials, any Sony Intellectual Property Rights related thereto and the Licensed Trademarks, and, subject to Clause 14.3, shall have no further right to continue the marketing, sale and/or distribution of any units of Licensed Product or of any units of Licensed Product derived from such PlayStation Software (as applicable). 14.3 In the event of termination by SCEE pursuant to Clause 13.1(ix), (x) or (xi) or by Publisher pursuant to Clause 25, Publisher may sell off then unsold units of Licensed Product(s), for a period of [**] from the effective date of termination; provided always that such inventory thereof shall not have been manufactured solely or principally for sale within such sell-off period. Subsequent to the expiry of such [**] or [**] sell-off period, or in the event of termination by SCEE pursuant to Clause 13.1(i) to (viii) or Clause 13.2, any and all units of Licensed Products or the applicable Licensed Products (as the case may be) remaining in Publisher's inventory and/or under its control shall be destroyed by Publisher within [**] following such expiry or effective date of termination. Within [**] following such destruction, Publisher shall furnish SCEE an itemised statement, certified accurate by a duly authorised officer, partner or other representative (as applicable) of Publisher, specifying the number of then unsold units of Licensed Product(s) to which such termination applies, on a PlayStation Software title-by-title basis, which remain in its inventory and/or under its control at such date, confirming the number of units of Licensed Products destroyed, on a PlayStation Software title-by-title basis, and indicating the location and date of such destruction and the disposition of the remains of such destroyed materials. SCEE shall be entitled to conduct a physical inspection of Publisher's inventory during normal business hours in order to ascertain or verify such inventory and/or statement. 14.4 Upon termination of the Term by SCEE pursuant to Clause 13.1, Publisher shall forthwith deliver up to SCEE (or, if so requested by SCEE in writing, destroy and promptly furnish SCEE a certificate of such destruction signed by a duly authorised officer, partner or other representative (as applicable) of Publisher) all Sony Materials, and any Confidential Information of Sony of which Publisher shall have become apprised and which has been reduced to tangible or written form, and any and all copies thereof then in the possession, custody or control of Publisher. 14.5 SCEE shall be under no obligation to renew or extend this Agreement notwithstanding any actions taken by either of the parties prior to its expiration or earlier termination. In the event of termination pursuant to Clauses 13.1 or 13.2, no part of any payment(s) whatsoever theretofor made to SCEE hereunder (or, if Publisher shall also have executed a LDA, thereunder) shall be owed or repayable to Publisher, and nor shall either party be liable to the other for any damages (whether direct, consequential or incidental, and including without limitation any expenditures, loss of profits [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 15 PlayStation Licensed Publisher(x) CONFIDENTIAL or prospective profits) sustained or arising out of, or alleged to have been sustained or to have arisen out of, such expiration or earlier termination. However, the expiration or earlier termination of this Agreement shall not excuse either party from any prior breach of any of the terms and provisions of this Agreement or from any obligations surviving such expiration or earlier termination, and full legal and equitable remedies shall remain available for any breach or threatened breach of this Agreement or of any obligations arising therefrom. 14.6 The expiration or earlier termination of this Agreement (whether by SCEE pursuant to Clause 13 or otherwise howsoever) shall be without prejudice to any and all rights and remedies which either party may then or subsequently have against the other party. 15. NOTICES 15.1 All notices under this Agreement shall be in writing and shall be given by courier or other personal delivery, by registered or certified mail, by recognised international courier service or by facsimile transmission (with an immediate confirmation copy by regular mail or any of the methods specified above) at the appropriate address hereinbefore specified or at a substitute address designated by notice by the party concerned (and in the case of notices to SCEE shall be directed to its Director of Business Affairs (or such other Sony representative as shall from time to time be designated by notice by SCEE). Notices given other than by facsimile transmission shall be deemed given and effective when delivered. Notices given by facsimile transmission shall be deemed given only upon receipt of confirmation copy as aforesaid but, upon such receipt, shall be deemed effective as of the date of transmission. 15.2 Whenever Publisher is required to obtain the authorisation, consent or approval of SCEE, Publisher shall request the same by notice to SCEE as aforesaid, and with a copy under separate cover to its General Manager of Product Development or such other Sony representative as shall from time to time be designated by notice to Publisher. Such authorisation, consent or approval shall not be deemed to be granted unless and until SCEE shall have given a written affirmative response to each request therefor and shall in no event be implied or inferred from any delay or failure of SCEE to give such or any response. 16. FORCE MAJEURE Neither SCEE nor Publisher shall be liable for any loss or damage or be deemed to be in breach of this Agreement if its failure to perform, or failure to cure any breach of, its obligations under this Agreement results from any events or circumstances beyond its reasonable control, including without limitation any natural disaster, fire, flood, earthquake or other act of God, inevitable accidents, lockout, strike or other labour dispute, riot or civil commotion, act of public enemy, enactment, rule, order or act of any government or governmental authority, failure of technical facilities, or failure or delay of transportation facilities. 17. RELATIONSHIP OF THE PARTIES The relationship hereunder between SCEE and Publisher respectively is that of licensor and licensee. Publisher is an independent contractor and shall not in any respect act as or be deemed to be the legal representative, agent, joint venturer, partner or employee of SCEE for any purpose whatsoever. Neither party shall have any right or authority to assume or create any obligations of any kind or to make any representation or warranty (express or implied) on behalf of the other party or to bind the other party in any respect whatsoever. 18. ASSIGNABILITY SCEE has entered into this Agreement based on the particular reputation, capabilities and experience of Publisher and of its officers, directors and employees. Accordingly, Publisher may not assign, pledge or otherwise dispose of this Agreement or of 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 SCEE shall first - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 16 PlayStation Licensed Publisher(x) CONFIDENTIAL have been obtained in each case. Any attempted or purported assignment, pledge, delegation or other disposition in contravention of this Clause 18 shall be null and void and a material breach of this Agreement not capable of remedy. SCEE shall be entitled, without the consent of Publisher, to assign its rights and obligations hereunder to any corporation or other entity in which Sony Corporation (or any successor in interest thereto) holds a controlling interest, whether directly or indirectly. Subject to the foregoing, this Agreement shall enure to the benefit of the parties and their respective successors and permitted assigns. 19. 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 party or relating to or in any way affecting this Agreement and the performance by the parties of this Agreement. Each party, at its own expense, shall negotiate and obtain any approval, licence or permit required for the performance of its obligations hereunder, and shall declare, record or take such steps as may be necessary to render this Agreement binding, including without limitation any required filing of this Agreement with any appropriate governmental authorities. 20. GOVERNING LAW This Agreement shall be governed by, construed and interpreted in accordance with English Law, without giving effect to the conflict of laws principles thereof. The parties irrevocably agree for the exclusive benefit of SCEE that the English Courts shall have jurisdiction to adjudicate any proceeding, suit or action arising out of or in connection with this Agreement. However, nothing contained in this Clause 20 shall limit the right of SCEE to take any such proceeding, suit or action against Publisher in any other court of competent jurisdiction, nor shall the taking of any such proceeding, suit or action in one or more jurisdictions preclude the taking of any other such proceeding, suit or action in any other jurisdiction, whether concurrently or not, to the extent permitted by the law of such other jurisdiction. Publisher shall have the right to take any such proceeding, suit or action against SCEE only in the English Courts. 21. REMEDIES Publisher acknowledges and agrees that any breach by Publisher of this Agreement may cause Sony irreparable harm and damage which may not be capable of remedy by damages alone and therefore that in the event of any such breach SCEE may seek equitable (including injunctive) relief against Publisher in addition to damages and/or any other remedy available to SCEE at law or in equity. Either party's election to avail itself of any of the remedies provided for in this Agreement shall not be exclusive of any other remedies available hereunder or otherwise at law or in equity, and all such remedies shall be cumulative. Publisher shall indemnify SCEE for all losses, liabilities, damages, expenses and costs, including without limitation reasonable fees for lawyers, expert witnesses and litigation costs, which SCEE may sustain or incur as a result of any breach or threatened breach by Publisher of this Agreement. 22. SEVERABILITY In the event that any provision of this Agreement (or any part(s) thereof), other than a provision in respect of which SCEE gives a notice of amendment pursuant to Clause 25, is determined by a court of competent jurisdiction to be invalid or otherwise unenforceable, such provision (or part(s) thereof) shall be enforced to the extent possible consistent with the stated intention of the parties or, if incapable of such enforcement, shall be deemed to be deleted from this Agreement, but not in any way so as to affect the validity or enforceability of any other provisions of this Agreement which shall continue in full force and effect. - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 17 PlayStation Licensed Publisher(x) CONFIDENTIAL 23. PROVISIONS SURVIVING EXPIRATION OR TERMINATION The following provisions of this Agreement shall survive and continue in full force and effect notwithstanding its expiration or earlier termination (whether by SCEE pursuant to Clause 13 hereof or otherwise howsoever): Clause 3 Sub-Publishers Clause 4 Reservations Clause 5.8 + 5.9 Notices & Consumer Advisory Ratings Clause 6 Manufacture of Licensed Products Clause 7 Purchase Price Clause 9 Confidentiality Clause 10.2 to 10.4 Warranties Clause 11 Indemnities Clause 12 Limitations of Liability Clause 14 Effect of Expiration or Termination Clause 18 Assignability Clause 20 Governing Law Clause 21 Remedies Clause 22 Severability

24. WAIVER No failure or delay by either party in exercising any right, power or remedy under this Agreement shall operate as a waiver of any such right, power or remedy. No waiver of any provision of this Agreement shall be effective unless in writing and signed by the party against whom it is sought to enforce such waiver. Any waiver by either party of any provision of this Agreement shall not be construed as a waiver of any other provision of this Agreement, nor shall such waiver operate or be construed as a waiver of such provision in relation to any future event or circumstance. 25. AMENDMENTS [**] Subject to the foregoing and except as otherwise provided herein, this Agreement shall not be subject to amendment, change or modification other than by another written instrument duly executed by both of the parties hereto. 26. HEADINGS The clause and other headings contained in this Agreement are intended primarily for reference purposes only and shall not alone determine the construction or interpretation of this Agreement or any provision(s) hereof. [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 18 PlayStation Licensed Publisher(x) CONFIDENTIAL 27. INTEGRATION This document (including the Schedules hereto) constitutes the entire agreement between the parties with respect to the subject matter contained herein, and supersedes all prior or contemporaneous agreements, proposals, understandings and communications between Sony and Publisher, whether oral or written, with respect to the subject matter hereof. However, the generality of the foregoing notwithstanding, the NDA and, if applicable, the LDA executed by Publisher shall continue in full force and effect. 28. COUNTERPARTS This Agreement may be executed in 2 (two) counterparts, each of which shall be deemed an original, and both of which together shall constitute one and the same instrument. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed as of the date first above written. SONY COMPUTER ENTERTAINMENT EUROPE THQ INTERNATIONAL LIMITED (a Division of SONY COMPUTER ENTERTAINMENT UK LIMITED) /s/ CHRISTOPHER DEERING /s/ TIM WALSH - ---------------------------------- ------------------------------------ Signature Signature CHRISTOPHER DEERING TIM WALSH - ---------------------------------- ------------------------------------ Name Signatory's Name (please print) President V.P. International - ---------------------------------- ------------------------------------ Title Title - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 19 PlayStation Licensed Publisher(x) CONFIDENTIAL SCHEDULE 1 to the PlayStation Licensed Publisher Agreement dated the 25th day of June 1998 between Sony Computer Entertainment Europe (a Division of Sony Computer Entertainment UK Limited) and THQ International Limited LICENSED TERRITORY (CLAUSE 1.2) (1) Australia Iceland Poland Austria Ireland Portugal Azerbaijan Israel Qatar Bahrain Italy Russian Federation Belgium Kazakhstan Saudi Arabia Botswana Kenya Slovakia Bulgaria Kuwait Slovenia Croatia Latvia South Africa & Namibia Cyprus Lebanon Spain Czech Republic Lichtenstein Sweden Denmark Lithuania Switzerland Djibouti Luxembourg Syria Egypt Madagascar Tanzania Estonia Malta Tunisia Ethiopia Mauritius Turkey Finland Morocco Ukraine France Netherlands United Arab Emirates Germany New Zealand United Kingdom Gibraltar Nigeria Uzbekhistan Greece Norway Yemen Hungary Oman Zimbabwe

and all other countries which from time to time are members of the European Union or have otherwise implemented the Treaty on a European Economic Area or where Articles 85 & 86 of the Treaty of Rome (or provisions similar thereto) have been implemented or are otherwise directly effective. (2) Such countries in addition to those specified in (1) above in which the PAL television standard obtains and which SCEE, in its sole discretion as representative of Sony Computer Entertainment worldwide, determines from time to time to include within the Licensed Territory by notice to Publisher. Without limiting the generality of the foregoing, SCEE shall have the right not to include within the Licensed Territory or, having included, subsequently to exclude from the Licensed Territory by reasonable notice to Publisher (and intends so to exclude) any such country or countries in which, in SCEE's best business judgment, the laws or enforcement of such laws do not protect Sony Intellectual Property Rights. By not later than the expiry of any such notice of exclusion, Publisher shall cease and desist, in the country or countries concerned, from any further use of the Sony Materials, any Sony Intellectual Property Rights related thereto and the Licensed Trademarks and shall have no further right to continue or authorise the marketing, sale and/or distribution of any units of PlayStation Software. - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 20 PlayStation Licensed Publisher(x) CONFIDENTIAL SCHEDULE 2 to the PlayStation Licensed Publisher Agreement dated the 25th day of June 1998 between Sony Computer Entertainment Europe (a Division of Sony Computer Entertainment UK Limited) and THQ International Limited PURCHASE PRICE (CLAUSE 7.1) for "standard" 1-Disc PlayStation Software product unit comprising: - - 1 (one) black PlayStation interactive software Disc - - 2-colour standard Disc Label - - single-tray PlayStation jewelcase, including assembly [**] per unit for "standard" Multi-Disc PlayStation Software product unit (up to 6 Discs) comprising: - - applicable number of black PlayStation interactive software Discs - - applicable number of 2-colour standard Disc Labels - - applicable multi-tray PlayStation jewelcase [**] (+ [**] per additional Disc) per unit For more than 6-Disc PlayStation Software product units - [**] PlayStation Disc mastering NO CHARGE The Purchase Price and minimum order and reorder quantities for "non-standard" Manufactured Materials shall be as detailed in the Specifications or, where not so detailed, and subject to availability, [**]. -------------- [ ** ] Initialed by Initialed by [CD] [TW] Sony Computer Entertainment Europe THQ International Ltd [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- Sony Computer Entertainment Europe Page 21 PlayStation Licensed Publisher(x) CONFIDENTIAL EX-10.12 14 a85823exv10w12.txt EXHIBIT 10.12 EXHIBIT 10.12 ALL SECTIONS MARKED WITH ASTERISKS REFLECT PORTIONS WHICH HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY THQ INC. AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT. PLAYSTATION(R) LICENSED PUBLISHER - SUPPLEMENTAL AGREEMENT This Agreement is entered into the 25 day of June 1998 and is supplemental to the Licensed Publisher Agreement ("LPA") of even date herewith by and between SONY COMPUTER ENTERTAINMENT EUROPE (a Division of SONY COMPUTER ENTERTAINMENT UK LIMITED) of 25 Golden Square, London W1R 6LU (hereinafter referred to as "SCEE") -and- THQ INTERNATIONAL LIMITED of Dukes Court, Duke Street, Woking, Surrey GU21 5BH (hereinafter referred to as "Publisher") PUBLISHER AUTHORISATION #:138 In consideration of the undertakings, representations and warranties given herein, and of other good and valuable consideration the receipt and sufficiency of which is acknowledged, Publisher and SCEE hereby agree as follows: Rental (1) The provisions of LPA Clause 3.3 shall be modified to the effect that Publisher shall be entitled to undertake or authorise the rental or lending of PlayStation Software products within the Licensed Territory. (2) If the Master Disc content of the Rental version of any product varies from that of the retail version (if any) of the same product, then the Rental version will be allocated a different SCEE Product Code. (3) Subject to (2) above, all Rental products (and associated materials) shall be subject to the Specifications (as defined in the LPA and set forth in the SCEE's Specifications & Procedures manual, as amended from time to time), and to the Procedures (specifically including, but without limitation, those relating to submissions, evaluation and approvals) also set forth in such manual, including specifically but without limitation any such Specifications and/or Procedures which relate specifically to Rental products. (4) The Manufacture of Licensed Products & Associated Materials provisions of LPA Clause 6, and the Purchase Price provisions of LPA Clauses 7.1 to 7.3 (but not the Returns provisions of LPA Clause 7.4) and of LPA Schedule 2 (but not Schedule 2[R]), shall apply to all Rental products. (5) Publisher warrants and represents that it shall obtain all necessary consents and clearances from, and make all necessary payments to, third parties whose rights in respect of Rental products are protected under the European Council Rental Rights Directive and the corresponding national implementing legislation of European Union member states (and any similar legislation in any other country of the Licensed Territory); [**] [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. Page 1 (6) The undertaking or authorising of any renting or lending of PlayStation Software except as authorised herein and subject to Specifications and/or Procedures (as referred to in (3) above) shall continue to be a breach of the LPA. The provisions of LPA Clause 13.2 will apply to any such breach and the repetition of prior material breach provisions of LPA Clause 13.1(i) will apply to the repetition of any such breach. Demonstration & Promotion Discs (1) The production of Demo Discs (for use as magazine covermounts and similar or related purposes) and of Promo Discs (for use as salesman's samples and similar or related purposes) will be available on a not-for-retail basis. (2) All Demo & Promo Discs (and associated materials) shall be subject to the Specifications (as defined in the LPA and set forth in SCEE's Specifications & Procedures manual, as amended from time to time), and to the Procedures (specifically including, but without limitation, those relating to submissions, evaluation and approvals) also set forth in such manual, including specifically but without limitation any such Specifications and/or Procedures which relate specifically to Demo and/or Promo Discs. (3) The Manufacture of Licensed Products & Associated Materials provisions of LPA Clause 6, and, subject as provided below, the Purchase Price provisions of LPA Clauses 7.1 to 7.3 (but not the Returns provisions of LPA Clause 7.4 and Schedule 2([R]), shall apply to all Demo & Promo Discs. However, the Purchase Price for Demo & Promo Discs will be as set forth in Exhibits A and B hereto respectively (and not as set forth in LPA Schedule 2). PlayStation Platinum (1) The production of inventory in the PlayStation Platinum range will be available for qualifying PlayStation Software products. (2) The qualifying criteria for admission to the PlayStation Platinum range is [**] units or more of aggregate Purchase Orders (excluding for Rental inventory and Demo & Promo Discs) in [**]. SCEE reserves the right to review and adjust the qualifying criterion by reference to the then installed base of PlayStation consoles in the PAL territories from time to time. (3) The initial Purchase Order for PlayStation Platinum inventory of any given PlayStation Software product may not normally be placed less than [**] following the placing of the first Purchase Order for the same product. (4) All PlayStation Platinum inventory (and associated materials) shall be subject to the Specifications (as defined in the LPA and set forth in SCEE's Specifications & Procedures manual, as amended from time to time), and to the Procedures (specifically including, but without limitation, those relating to submissions, evaluation and approvals) also set forth in such manual, including specifically but without limitation any such Specifications and/or Procedures which relate specifically to the PlayStation Platinum range. (5) The Manufacture of Licensed Products & Associated Materials provisions of LPA Clause 6, and, subject as provided below, the Purchase Price provisions of LPA Clauses 7.1 to 7.3 (but not the Returns provisions of LPA Clause 7.4 and Schedule 2[R]), shall apply to all PlayStation Platinum Page 2 [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. inventory. However, the Purchase Price for all PlayStation Platinum inventory will be as set forth in Exhibit C hereto (and not as set forth in LPA Schedule 2). SUBJECT only to the foregoing, all the terms and conditions of the LPA shall apply to Rental, Demo & Promo Discs and shall continue in full force and effect. IN WITNESS WHEREOF the parties hereto have caused this Supplemental Agreement to be executed as of the date first above written. SONY COMPUTER ENTERTAINMENT EUROPE THQ INTERNATIONAL LIMITED (a Division of SONY COMPUTER ENTERTAINMENT UK LIMITED) /s/ CHRISTOPHER DEERING /s/ TIM WALSH - ---------------------------------- ---------------------------------- Signature Signature Christopher Deering Tim Walsh - ---------------------------------- ---------------------------------- Name Signatory's Name (please print) President V P International - ---------------------------------- ---------------------------------- Title Title Exhibit A PURCHASE PRICE - DEMO DISC For Demo Disc product unit comprising: - - 1 (one) black PlayStation interactive software Disc - - standard Demo Disc Label - - optional maxicase (audio CD Single jewel case) or plain paper pochette, including assembly [**] - - PlayStation Disc mastering (initial order only) [**] Minimum order quantity - initial order [**] - reorders [**] For multi-colour Disc Label and/or White Base Underlay, the following charges (in addition to the per unit Purchase Price for standard 2-colour Disc Label) will apply: Multi-Colour Disc Label 3-colour [**] 4-colour [**] 5-colour [**] 6-colour [**] White Base Underlay [**] Page 3 [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. Exhibit B PURCHASE PRICE - PROMO DISC For Promo Disc product unit comprising: - - 1 (one) black PlayStation interactive software Disc - - standard Promo Disc Label - - maxicase (audio CD Single jewel case), including assembly [**] - - PlayStation Disc mastering [**] - - For each additional Disc in a Multi-Disc Promo [**] Minimum order quantity - Initial order [**] - reorders [**] Maximum order quantity (single order or aggregate) [**] Exhibit C PURCHASE PRICE - PLAYSTATION PLATINUM For 1-Disc PlayStation Platinum product unit comprising: - - 1 (one) black PlayStation interactive software Disc - - 1 x PlayStation Platinum Disc Label - - standard PlayStation jewel case, including assembly - Purchase Orders placed [**] [**] - Purchase Orders placed [**] [**] For Multi-Disc PlayStation Platinum product unit (up to 6 Discs) comprising: - - applicable number of black PlayStation interactive software Discs - - applicable number of PlayStation Platinum Disc Labels - - applicable multi-tray PlayStation jewel case, including assembly - Purchase Orders placed [**] [**] - Purchase Orders placed [**] [**] - - PlayStation Disc Mastering [**] Minimum order quantity - initial order and reorders [**] For more than 6-Disc PlayStation Platinum product units - [**] L. equal pounds sterling [*] Confidential portion omitted and filed separately with the Securities and Exchange Commission. Page 4 EX-99.1 15 a85823exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of THQ Inc. (the "Company") for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I Brian J. Farrell, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Brian J. Farrell ------------------------------- Brian J. Farrell Chief Executive Officer November 14, 2002 EX-99.2 16 a85823exv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of THQ Inc. (the "Company") for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I Fred A. Gysi, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Fred A. Gysi ------------------------------- Fred A. Gysi Chief Financial Officer November 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----


[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Delaware		13-3541686
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

27001 Agoura Road
Calabasas Hills, CA		91301
(Address of principal executive offices)		(Zip Code)


		PAGE

Part I — Financial Information
Item 1.	Consolidated Financial Statements:
	Consolidated Balance Sheets — September 30, 2002 and December 31, 2001		3
	Consolidated Statements of Operations — for the Three Months and Nine Months Ended September 30, 2002 and 2001		4
	Consolidated Statements of Stockholders’ Equity — for the Year Ended December 31, 2001 and the Nine Months Ended September 30, 2002		5
	Consolidated Statements of Cash Flows — for the Nine Months Ended September 30, 2002 and 2001		6
	Notes to Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		23
Item 4.	Disclosure Controls and Procedures		23

Part II — Other Information
Item 1.	Legal Proceedings		24
Item 2.	Changes in Securities and Use of Proceeds		25
Item 6.	Exhibits and Reports on Form 8-K		26
Signatures			28
Certifications			29


(1)	The renewal for this agreement is in negotiation; terms to be determined.

(2)	In negotiation; terms to be determined.

(3)	The territory is determined on a title-by-title basis.

	•		The release of Disney/Pixar’s Monsters, Inc. Scream Arena, Scooby-Doo! Night of 100 Frights and Rocket Power Beach Bandits for the GameCube.

	•		The release of three PlayStation 2 titles: Rocket Power Beach Bandits, Summoner® 2 and Jimmy Neutron Boy Genius.

	•		The release of five Game Boy Advance titles including SpongeBob SquarePants: Revenge of the Flying Dutchman, Sega Smash Pack and Jimmy Neutron vs. Jimmy Negatron.

	•		The release of nine PC CD-ROM titles including Jimmy Neutron vs. Jimmy Negatron, SpongeBob SquarePants: Employee of the Month and Rugrats Munchin Land.

	•		The release of 19 Game Boy Advance titles including SpongeBob SquarePants: Revenge of the Flying Dutchman and continued strong sales of Sonic Advance, Star Wars Episode 2: Attack of the Clones and Disney/Pixar’s Monsters, Inc. (which was released in October 2001).

	•		The release of WWE Wrestlemania X8 for GameCube.

	•		The release of WWF Raw for Xbox.


Dated: November 14, 2002	THQ INC.

	By:	/s/ Brian J. Farrell

		Brian J. Farrell Chairman of the Board, President and Chief Executive Officer


	THQ INC.

	By:	/s/ Fred A. Gysi

		Fred A. Gysi Senior Vice President — Finance and Administration, Chief Financial Officer and Secretary (Principal Financial Officer and Principal Accounting Officer)


Date: November 14, 2002

	By:	/s/ Brian J. Farrell

		Brian J. Farrell Chief Executive Officer


Date: November 14, 2002

	By:	/s/ Fred A. Gysi

		Fred A. Gysi Chief Financial Officer