<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996. Commission File No. 0-27338
__________
GT INTERACTIVE SOFTWARE CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3689915
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
16 East 40th Street, New York, NY 10016
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 726-6500
__________
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
--------- ---------
As of May 1, 1996, there were 59,304,639 shares of the registrant's
Common Stock outstanding.
Page __ of ___
Exhibit index begins on page ____
<PAGE>
GT INTERACTIVE SOFTWARE CORP.
1996 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Part I - Financial Information
Page
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets as of December
31, 1995 (audited) and March 31, 1996 3
Consolidated Statements of Income for the
three months ended March 31, 1995 and 1996 4
Consolidated Statements of Cash Flows for
the three months ended March 31, 1995 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
-------------- -------------
(audited) (unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 82,381 $ 81,661
Short-term investments 9,563 9,660
Receivables, net 76,638 69,449
Inventories, net 45,756 44,195
Royalty advances 28,264 33,449
Due from related party -- 404
Deferred income taxes 12,640 15,819
Prepaid expenses and other current
assets 1,471 2,700
------------ -----------
Total current assets 256,713 257,337
Property and equipment, net 5,111 5,861
Goodwill, net 21,286 21,013
Other assets 994 1,932
------------ -----------
Total assets $ 284,104 $ 286,143
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 85,708 $ 72,131
Accrued liabilities 40,490 45,265
Royalties payable 22,213 21,280
Deferred income 3,410 5,158
Income taxes payable 1,766 8,079
Current portion of long-term
liabilities 969 732
Due to related party 955 --
------------ -----------
Total current liabilities 155,511 152,645
Other long-term liabilities 7,689 7,573
------------ -----------
Total liabilities 163,200 160,218
------------ -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par, 150,000,000
shares authorized, 59,304,639
shares issued and outstanding 593 593
Cumulative translation adjustment 3 (76)
Additional paid-in capital 112,466 112,466
Retained earnings 7,842 12,942
------------ -----------
Total stockholders' equity 120,904 125,925
------------ -----------
Total liabilities and
stockholders' equity $ 284,104 $ 286,143
============ ===========
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
Page 3
<PAGE>
GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months
Ended March 31,
----------------------
1995 1996
---------- ----------
(in thousands, except
per share data)
<S> <C> <C>
Net sales $ 27,181 $ 62,270
Cost of goods sold 16,112 37,530
Selling and distribution expenses 3,587 10,855
General and administrative expenses 2,451 6,140
-------- --------
Operating income 5,031 7,745
Interest and other income, net 114 1,335
-------- --------
Income before income taxes 5,145 9,080
Provision for (benefit from) income taxes (2,051) 3,980
-------- --------
Net income $ 7,196 $ 5,100
======== ========
Pro forma adjustment to income tax
provision 4,263
--------
Pro forma net income $ 2,933
========
Net income per share $ 0.09
Weighted average number of shares
outstanding 59,305
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
Page 4
<PAGE>
GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-----------------------
1995 1996
---------- ----------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 7,196 $ 5,100
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 87 561
Deferred income taxes (4,846) (3,178)
Deferred income 216 1,617
Changes in operating assets and
liabilities:
Receivables, net 13,298 7,190
Inventories, net (466) 1,560
Royalty advances (6,380) (5,185)
Due from related party, net (3,388) (1,359)
Prepaid expenses and other
current assets (1,259) (1,229)
Accounts payable 1,092 (13,577)
Accrued liabilities 4,695 4,775
Royalties payable (1,461) (933)
Income taxes payable 1,150 6,312
Other (119) (1,018)
---------- ---------
Net cash provided by
operating activities 9,815 636
---------- ---------
INVESTING ACTIVITIES:
Purchases of short-term investments, net -- (98)
Purchase of property and equipment (641) (1,037)
---------- ---------
Net cash used in investing
activities (641) (1,135)
---------- ---------
FINANCING ACTIVITIES:
Issuance of Series A preferred stock
and warrants 15 --
Proceeds from issuance of note to a
related party 15,056 --
Distributions to stockholders (6,000) --
Repayment of notes (6,000) --
Long-term liabilities (219) (221)
---------- ---------
Net cash provided by (used
in) financing activities 2,852 (221)
---------- ---------
Net increase (decrease) in cash and
cash equivalents 12,026 (720)
Cash and cash equivalents - beginning
of year 544 82,381
---------- ---------
Cash and cash equivalents - end of period $ 12,570 $ 81,661
========== =========
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
Page 5
<PAGE>
GT INTERACTIVE SOFTWARE CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - Significant Accounting Policies
Basis of Presentation
The accompanying interim consolidated financial statements of GT
Interactive Software Corp. and Subsidiary (the "Company") are unaudited but in
the opinion of management reflect all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the results for the
interim period in accordance with instructions for Form 10-Q. Accordingly, they
do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. These interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in GT
Interactive Software Corp.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
Net Income Per Share For The Three Months Ended March 31, 1996:
Net income per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period.
NOTE 2 - Inventories, net
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
------------- ------------
(in thousands)
<S> <C> <C>
Finished goods $ 50,650 $ 49,466
Raw materials 1,359 1,626
------------ ------------
52,009 51,092
Less: reserve for obsolescence 6,253 6,897
------------ ------------
$ 45,756 $ 44,195
============ ============
</TABLE>
NOTE 3 - Commitments and Contingencies
The Company had an unused letter of credit at March 31, 1996 amounting to
approximately $11.7 million, which is secured by certain assets of the Company.
NOTE 4 - Supplemental Cash Flow Information
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
1995 1996
--------- ---------
(in thousands)
<S> <C> <C>
Cash paid for income taxes $ 1,246 $ 843
Cash paid for interest -- 13
</TABLE>
Page 6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company is a leading publisher, merchandiser and distributor of
consumer software. Since it commenced operations in February 1993, the Company
has experienced rapid revenue growth and its product and customer mix have
changed substantially.
An important element of the Company's financial performance is its
product mix which has varied over time as the Company has built its business.
The Company's product mix has been composed of three broad product categories:
(i) front-line published software; (ii) value-priced software; and (iii) third-
party software. Because each of these product categories has different
associated costs, the Company's margins have depended and will depend, in part,
on the percentage of net sales attributable to each category. In addition, the
Company's margins may vary significantly from quarter to quarter depending on
the timing of its new published product releases. To the extent that mass
merchants require greater proportions of third party software products, some of
which may yield lower margins, the Company's operating results may be impacted
accordingly.
Through February 28, 1995, the Company was an S corporation for
Federal and New York state income tax purposes. The income tax provision for the
three months ended March 31, 1995 includes a deferred tax benefit of
approximately $3.5 million due to the Company's change in tax status.
On June 23, 1995, the Company acquired all of the outstanding stock of
Slash Corporation ("Slash"), a leading publisher, purchaser, repackager and
distributor of value-priced software. Historically, Slash purchased excess
inventory from major publishers and sublicensed catalog titles. It sold these
products at lower price points or repackaged these and other products into
compilation boxes, such as five-packs and ten-packs, for volume sales primarily
to mass merchants. Slash's sales of purchased excess inventory have
traditionally occurred at lower margins than its sales of sublicensed catalog
products. The Company's value-priced software business primarily consists of
sublicensed catalog titles which are sold largely to mass merchant customers.
Slash's financial results have been included in the Company's Consolidated
Financial Statements on a purchase basis for the period since the acquisition.
Sales are recorded net of expected future returns which historically
have been experienced and reserved for at approximately 30% of gross sales.
The consumer software industry is seasonal. Net sales are typically
highest during the fourth calendar quarter and are typically lower during the
second calendar quarter. This seasonality is primarily a result of the increased
demand for consumer software during the year-end holiday buying season.
Page 7
<PAGE>
Results of Operations
The following table sets forth certain consolidated statement of operations
data as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------------
1995 1996
--------- ----------
<S> <C> <C>
Net sales 100.0 % 100.0 %
Cost of goods sold 59.3 60.3
Selling and distribution expenses 13.2 17.4
General and administrative expenses 9.0 9.9
--------- ----------
Operating income 18.5 12.4
Interest and other income, net .4 2.1
--------- ----------
Income before income taxes 18.9 14.6
Provision for (benefit from) income taxes (7.5) 6.4
--------- ----------
Net income 26.4 % 8.2 %
========= ==========
</TABLE>
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Net sales for the three months ended March 31, 1996 ("1996") increased
approximately $35.1 million or 129% as compared to the three months ended March
31, 1995 ("1995"). Additionally, net units increased approximately 143% for 1996
as compared to 1995. This growth in net sales and volume was primarily
attributable to the introduction of newly published front-line titles, such as
Heretic: Shadow of the Serpent Rider, Just Me and My Dad and Vikings: Strategy
of the Ultimate Conquest, the continuing strong sales of Doom and Doom-related
products and the expansion of the Company's value-priced line of software. In
addition, an increase in the number of mass merchant stores supplied and
serviced by the Company, an increase in the shelf space available to the Company
from its existing mass merchant customers and an increase in sales from its
existing mass merchant shelf space contributed to the growth in net sales. The
purchase of Slash by the Company effective June 23, 1995 and the increase in the
distribution of third party software also contributed to the growth in net
sales.
Cost of goods sold primarily includes costs of purchased products and
royalties paid to software developers. Cost of goods sold for 1996 increased
approximately $21.4 million or 133% as compared to 1995. Costs of goods sold as
a percentage of net sales for 1996 increased to 60.3% from 59.3% for 1995. The
percentage increase in cost of goods sold was primarily due to a change in
product mix driven by mass merchants for third-party software products which
yielded the Company lower margins. The percentage increase was partially offset
by a shift in the overall Company mix toward the Company's higher margin
published front-line and value-priced products, which increased to slightly in
excess of 50% of net sales in 1996 compared to approximately 40% in 1995.
Selling and distribution expenses primarily include shipping expenses,
sales and distribution labor expenses, advertising and promotion expenses and
distribution facilities costs. These expenses increased approximately $7.3
million or 203% during 1996 as compared to 1995. The increase was due to the
additional advertising costs of approximately $1.9 million to support the growth
of the Company's published products and an increase of $1.2 million in shipping
costs attributable to the overall increase in sales volume. In addition, costs
associated with the expansion of the Company's sales and distribution staff and
distribution center increased approximately $3.2 million to support its growth.
Selling and distribution expenses as a percentage of net sales for 1996
increased to 17.4% from 13.2% in 1995.
Page 8
<PAGE>
General and administrative expenses primarily include personnel expenses,
facilities costs, professional expenses and other overhead charges. These
expenses for 1996 increased approximately $3.7 million or 151% as compared to
1995. The increase was due primarily to costs of approximately $1.1 million
associated with additional personnel required to support the expansion of the
Company's operations, costs of approximately $.4 million associated with new
facilities (including depreciation) to accommodate the increase in personnel and
other expenses related to the expansion of the Company's operations. General and
administrative expenses as a percentage of net sales for 1996 increased to 9.9%
from 9.0% for 1995.
In the near term, selling and distribution and general and administrative
expenses are expected to rise, reflecting additions to the sales, distribution,
operational and administrative infrastructure associated with the Company's
anticipated growth. These expenses are expected to decline over time as a
percentage of the Company's net sales, though there are no assurances to this
effect.
Interest and other income, net for 1996 increased approximately $1.2
million or 1,018% as compared to 1995. This is attributable to the income earned
on the Company's short-term investments and cash equivalents.
Liquidity and Capital Resources
As of March 31, 1996, the Company's principal sources of liquidity included
cash and short-term investments of approximately $91.3 million. Cash from
operating activities for the three months ended March 31, 1996 amounted to
approximately $.6 million as compared to $9.8 million for the three months ended
March 31, 1995. This decrease is attributable to the internally generated funds
used to support the Company's growth and fluctuations in relative levels of
receivables, inventory, royalty advances, accounts payable and income taxes
payable. The relative level of inventory to accounts payable as of March 31,
1996 increased compared to March 31, 1995 primarily as a result of the timing of
sales and the scheduled payment of the accounts payable.
On February 28, 1995, the Company borrowed $15.0 million from an outside
investor. This loan was repaid in December 1995, with proceeds from the
Company's initial public offering. In addition, during the three months ended
March 31, 1995, the Company repaid a note to a related party for $6.0 million
and made distributions to stockholders of the S Corporation in the amount of
$6.0 million.
As of March 31, 1996, the Company has certain outstanding standby letters
of credit amounting to approximately $11.7 million, which are secured by certain
assets of the Company.
The Company believes that existing cash, cash equivalents and short-term
investments together with cash expected to be generated from operations, will be
sufficient to fund the Company's anticipated operations for the next twelve
months.
Except for historical information contained in this Form 10-Q, the
information set forth herein may include forward looking statements that are
dependent on certain risks and uncertainties. Important factors that could cause
actual results to differ materially from the anticipated results include, but
are not limited to, world-wide business and industry conditions, adoption of new
hardware systems, software development requirements and their impact on product
launches, Company customer relations and other risks detailed, from time to
time, in the Company's SEC filings including, but not limited to, the Report on
Form 10-K for the fiscal year ended December 31, 1995.
Page 9
<PAGE>
Part II. - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
- - --------------
The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit No. Description
- - ----------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation
(incorporated herein by reference to the exhibit with the
corresponding number filed as part of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995).
3.2 Amended and Restated By-laws (incorporated herein by
reference to the exhibit with the corresponding number filed
as part of the Company's Registration Statement on Form S-1
filed on October 20, 1995, and all amendments thereto (File
No. 33-98448)).
10.1 Second Amendment to GTIS Master Option and License Agreement
between the Registrant and Williams Entertainment Group,
dated March 27, 1996.*
10.2 Amendment to GTIS Master Option and License Agreement (Home
Video Games) between the Registrant and Williams
Entertainment Group, dated March 27, 1996.*
10.3 Master Option and License Agreement for Atari PC Games
between the Registrant and WMS Industries Inc., dated March
27, 1996.*
10.4 Master Option and License Agreement for Atari Home Video
Games between the Registrant and WMS Industries Inc., dated
March 27, 1996.*
10.5 Employment Agreement between the Registrant and Andrew
Gregor.
27.1 Financial Data Schedule.
</TABLE>
____________
* Confidential treatment requested.
(b) Reports on Form 8-K
- - -----------------------
No reports on Form 8-K have been filed by the Company during the period
covered by this report.
Page 10
<PAGE>
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.
GT INTERACTIVE SOFTWARE CORP.
By: /s/ RONALD CHAIMOWITZ
---------------------------
Ronald Chaimowitz
Chief Executive Officer and Director
Date: May 14, 1996
By: /s/ ANDREW GREGOR
---------------------------
Andrew Gregor
Chief Financial Officer and Senior
Vice President, Finance and
Administration
Date: May 14, 1996
Page 11
<PAGE>
Exhibits
--------
<TABLE>
<CAPTION>
Exhibit No. Description Page
- - ----------- ----------- ----
<C> <S>
3.1 Amended and Restated Certificate of Incorporation (incorporated
herein by reference to the exhibit with the corresponding number
filed as part of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
3.2 Amended and Restated By-laws (incorporated herein by reference to
the exhibit with the corresponding number filed as part of the
Company's Registration Statement on Form S-1 filed on October 20,
1995, and all amendments thereto (File No. 33-98448)).
10.1 Second Amendment to GTIS Master Option and License Agreement
between the Registrant and Williams Entertainment Group, dated
March 27, 1996.*
10.2 Amendment to GTIS Master Option and License Agreement (Home Video
Games) between the Registrant and Williams Entertainment Group,
dated March 27, 1996.*
10.3 Master Option and License Agreement for Atari PC Games between
the Registrant and WMS Industries Inc., dated March 27, 1996.*
10.4 Master Option and License Agreement for Atari Home Video Games
between the Registrant and WMS Industries Inc., dated March 27,
1996.*
10.5 Employment Agreement between the Registrant and Andrew Gregor.
27.1 Financial Data Schedule.
</TABLE>
- - ------------
* Confidential treatment requested.
Page 12
<PAGE>
EXHIBIT 10.1
CERTAIN INFORMATION HAS BEEN OMITTED UNDER A
CONFIDENTIAL TREATMENT REQUEST MADE PURSUANT TO
RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.
SECOND AMENDMENT TO
-------------------
GTIS MASTER OPTION AND LICENSE AGREEMENT
----------------------------------------
This second amendment agreement (the "Second Amendment") is made and
entered into the 27th day of March, 1996, by and among WMS INDUSTRIES INC.
("WMS"), WILLIAMS ELECTRONICS GAMES, INC. ("WEG"), MIDWAY MANUFACTURING
COMPANY ("Midway") and WILLIAMS ENTERTAINMENT INC. ("WEI"), each being Delaware
corporations with offices at 3401 North California Avenue, Chicago, Illinois
60618, and GT INTERACTIVE SOFTWARE CORP. ("GTIS"), a Delaware corporation with
offices at 16 East 40th Street, New York, New York 10016.
WITNESSETH:
-----------
WHEREAS, on December 28, 1994 WMS, WEG, Midway, WEI and GTIS entered
into the GTIS Master Option and License Agreement (the "GTIS Master PC
Agreement") pursuant to which the WMS Group granted to GTIS certain rights with
respect to the manufacture, distribution and sale of versions of Games for use
on Designated Multipurpose Computer Platforms; and
WHEREAS, on March 31, 1995, WMS, Midway, WEI and GTIS entered into an
Amendment to the GTIS Master PC Agreement (the "First Amendment"); and
WHEREAS, WMS, WEG, Midway, WEI and GTIS desire to further amend the
GTIS Master PC Agreement as provided for in this Second Amendment.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and other good and valuable consideration, the parties hereto
agree as follows:
<PAGE>
1. Capitalized terms used, but not defined or revised herein, shall
have the meaning ascribed to such terms in the GTIS Master PC Agreement or the
form of Home Computer Software Distribution and License Agreement annexed to the
GTIS Master PC Agreement as Exhibit A.
2. This Second Amendment shall become effective on the date WII closes
the acquisition of AGC pursuant to the Stock Purchase Agreement (the "Effective
Date"). WMS will give GTIS prompt written notice of such closing. If such
acquisition does not close by June 30, 1996, this Second Amendment shall be null
and void and of no force and effect. The capitalized terms used in this
paragraph are defined in paragraph 3 of this Second Amendment. GTIS' rights, if
any, under the GTIS Master PC Agreement and form of Home Computer Software
Distribution and License Agreement with respect to any games acquired pursuant
to the Stock Purchase Agreement, and any subsequent sequels, adaptations or
other versions thereof, shall be subject to all third party rights pursuant to
agreements made by the Atari Group existing at the Effective Date. All such
rights, to the extent known by WMS, are set forth on a schedule to a letter
dated the date hereof and signed by WMS and GTIS.
3. Section 1 of the GTIS Master PC Agreement shall be amended to add
or replace definitions as follows:
1.1(a) "AGC" shall mean Atari Games Corporation, a California
corporation, which is currently a wholly-owned subsidiary of Warner
Communications Inc., and which is to be sold to WII pursuant to the
Stock Purchase Agreement.
2
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
1.1(b) "Atari Advance" shall mean the aggregate *
Dollars advance by GTIS to WMS pursuant to the Atari
Agreements.
1.1(c) "Atari Agreements" shall mean the Master Option and
License Agreement for Atari PC Games and the Master Option and License
Agreement for Atari Home Video Games entered into by WMS and GTIS dated
March 27, 1996."
1.l(d) "Atari Game" shall mean (i) any game developed or acquired
by or on behalf of AGC or entities which were affiliates of AGC prior
to AGC being acquired by WII pursuant to the Stock Purchase Agreement,
including, without limitation, those games listed on Schedule I to this
Second Amendment, and any adaptations of such games for other
platforms, and (ii) any game currently in development or developed
subsequent to such acquisition by or on behalf of AGC or a member of
the Atari Group, or developed, in whole or in substantial part, by any
person or persons who were employees of AGC or a member of the Atari
Group as of the closing date of such acquisition and who are employees
of any member of the WMS Group at the time of such development, and any
adaptations of such games for other platforms. For purposes of this
Section, employees shall be deemed to include independent contractors
who work a substantial
3
<PAGE>
portion of their time at the facilities of any member of the WMS Group.
1.1(e) "Atari Group" shall mean AGC, or any entity, a majority of
whose capital stock is owned, directly or indirectly, by AGC or with
respect to which during the term of this Agreement, AGC, directly or
indirectly, has the legal power, without the consent of any third
party, to direct the acquisition of rights to or exploitation of Games
on Designated Multipurpose Computer Platforms.
1.1(f) "Business Day" shall mean any day other than a
Saturday, Sunday or Federal holiday.
1.2(a) "Early Termination Event" shall mean AGC ceasing to be at
least 50.1% owned by a member of the WMS Group, or the Atari Group
transferring a majority of its intellectual property assets and
licenses to a person or entity who is not a member of the WMS Group.
1.4 "Game" shall mean any coin-operated video game (including
kits), any home video game and any on-line game, released or intended
to be released, by any member of the WMS Group for sale in commercial
quantities in the normal course of business; provided, however, that
Game shall not include any Atari Game. Home video games shall include
games designed for play
4
<PAGE>
on dedicated home systems, such as those marketed by Nintendo, Sega,
Atari, Sony, etc. as well as on multipurpose home computers, such as
those marketed by IBM and Apple.
1.7(a) "Milestones" shall mean the defined tasks in the process of
the development of a Technically Acceptable Master Disk as are deemed
sufficiently important such that the achievement of such tasks will
entitle the developer to receive a payment, the amount of such payment,
the standards for approval which will entitle that developer to receive
such payment and the circumstances under which the development
arrangement may be terminated prior to completion.
1.9(a) "PC Option Expiration Date" shall have the meaning ascribed
in Section 2.1 hereof.
1.9(b) "PC Extended Expiration Date" shall have the meaning
ascribed in Section 2.1 hereof.
1.9(c) "Pirate" shall mean an individual or entity which
counterfeits a game or sells counterfeit games.
1.10(a) "Stock Purchase Agreement" shall mean the Stock Purchase
Agreement dated February 23, 1996, between Warner Communications Inc.
and WII pursuant to which Warner Communications Inc. has agreed to sell
and WII has agreed to purchase all of the outstanding stock of AGC.
5
<PAGE>
1.11(a) "WII" shall mean Williams Interactive Inc., a wholly-owned
subsidiary of WMS.
4. The GTIS Master PC Agreement shall be amended to add at the end of
Section 2.1 thereof, the following:
If the Atari Advance has not been fully recouped by the expiration
date (determined after giving effect to all Extension Events) of GTIS'
first option to acquire licenses under this Section 2.1 (the "PC Option
Expiration Date"), such expiration date shall be extended to a date
which is the earlier to occur of (i) two years from the PC Option
Expiration Date, or (ii) the date on which the Atari Advance is fully
recouped. Such new expiration date is hereafter referred to as the "PC
Extended Expiration Date." In determining whether the Atari Advance
has been fully recouped for all purposes under this Agreement, amounts
owed by GTIS but not yet reported, paid or credited to the Licensor
shall be deemed recouped by GTIS. The expiration date may be further
extended under the following circumstances. If (a) an Early
Termination Event occurs more than one year prior to the PC Extended
Expiration Date, and (b) GTIS shall not have fully recouped the Atari
Advance by the PC Extended Expiration Date (as such date may be
extended from time to time by future amendments or extensions of GTIS'
first option other than by reason of this
6
<PAGE>
sentence), then the expiration date shall be further extended to a date
which is the earlier to occur of (x) the date on which the Atari
Advance is fully recouped or (y) the date, to the nearest calendar
quarter end, determined by adding to the PC Option Expiration Date the
number of days between the date of the Early Termination Event and the
PC Option Expiration Date.
5. Section 2.7 of the GTIS Master PC Agreement shall be amended as
follows:
5.1. Section 2.7.1 shall be amended by adding the following to the
first sentence "; provided, that this Section 2.7.1 shall not apply to Accepted
Games as to which GTIS has exercised its rights of review and approval under
Section 2.11 hereof. "
5.2. Section 2.7.2 shall be amended by adding the following to the
first sentence "; provided that this Section 2.7.2 shall not apply to Accepted
Games as to which GTIS has exercised its rights of review and approval under
Section 2.11 hereof."
5.3. Former Section 2.7.3 shall be renumbered as "2.7.4" and any
references within that Section and in the GTIS Master PC Agreement to Section
2.7.3 shall be deemed as amended to read "Section 2.7.4." A new sentence shall
be added after the first sentence of new Section 2.7.4 which shall read as
follows: "If GTIS fails to respond in writing to WMS' notice within ten (10)
Business Days after receipt thereof by GTIS, GTIS shall be deemed to have
consented to WMS' election to terminate development."
5.4. A new Section 2.7.3 shall be added which shall read as
follows:
7
<PAGE>
"2.7.3. Subject to the provisions of 2.11 hereof, GTIS shall
bear 50% of the actual costs of development of any Section 2.4 Game or Section
2.5 Game as to which GTIS has exercised its rights of review and approval under
Section 2.11."
6. The GTIS Master PC Agreement shall be amended to add a new Section
2.11 which shall read as follows:
Anything in Sections 2.4 or 2.5 to the contrary notwithstanding, in
the event that after March 31, 1996 the WMS Group desires to hire a
third party developer to develop a Technically Acceptable Master Disk
for an Accepted Game, GTIS shall have the right to review and approve
(such approval not to be unreasonably withheld) the proposed Milestones
prior to the WMS Group entering into a binding agreement with such
developer (such right of review and approval shall not extend to any
terms of the developer agreement other than the Milestones). The WMS
Group shall notify GTIS in writing of its intention to hire such third
party developer and GTIS shall notify WMS in writing within five (5)
Business Days after receipt of the WMS Group notice that GTIS desires
to exercise its right of review and approval of Milestones. GTIS'
failure to timely notify WMS shall be deemed its election not to
exercise such right of review and approval. If GTIS shall exercise
such right, GTIS and WMS shall negotiate in good faith to reach
agreement with respect to the proposed Milestones as
8
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
promptly as practicable. If such agreement is not reached within ten
(10) Business Days after receipt by WMS of GTIS' aforesaid notice, then
WMS may notify GTIS of Milestones which are acceptable to WMS and GTIS
shall have three (3) Business Days after receipt of such notice to
accept such Milestones. If GTIS does not accept such Milestones within
such three (3) Business Day period, WMS may proceed to enter into an
agreement with such developer as if GTIS had elected not to exercise
its right of review and approval. If a developer agreement is signed
following acceptance by GTIS of the Milestones as aforesaid, upon
approval by GTIS and WMS of the material delivered or other
requirements of each of such Milestones, GTIS shall pay to WMS * % of
the Milestone payment within five (5) Business Days after GTIS receives
WMS' invoice therefor. Such payment shall be credited against the
obligations of GTIS to pay WMS * % of the actual costs of code
development simultaneously with the receipt of a Technically Acceptable
Master Disk set forth in Sections 2.4 and 2.5. With respect to any
Technically Acceptable Master Disk for which GTIS is obligated to
fund * % of the Milestone payments, if WMS exercises its rights in
Section 2.7.4 to terminate development, the following shall apply: (i)
if GTIS consents to such termination, neither WMS nor GTIS shall be
entitled to any
9
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
reimbursement of the Milestone payments previously made by the other,
or (ii) if GTIS withholds its consent to such termination, if permitted
by the developer agreement, GTIS may take over the responsibility for
development of a Technically Acceptable Master Disk with the developer
and fund the balance of the development costs. Upon receipt by WMS of a
notice from GTIS that GTIS has received a Technically Acceptable Master
Disk with respect to the Game, WMS shall pay to GTIS, the amount, if
any, by which * % of the original development budget approved by WMS
exceeds the Milestone payments previously made by WMS. If GTIS has
fully funded its obligations to make Milestone payments theretofore
due, GTIS may elect to terminate its obligations to make Milestone
payments with respect to future Milestones on which the developer has
not yet commenced work; provided that GTIS may not so elect unless the
agreement with the developer permits WMS to terminate its obligations
to the developer by making payments only for Milestones previously
achieved or in work or GTIS agrees to pay * % of any actual costs of
terminating the developer agreement. If GTIS properly elects to
terminate its obligation to make Milestone payments, (i) if WMS agrees
to such termination and also terminates the developer agreement,
neither WMS nor GTIS shall be entitled to any
10
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
reimbursement of the Milestone payments previously made by the other,
or (ii) if WMS elects to continue development of the Technically
Acceptable Master Disk, GTIS shall be entitled to reimbursement of the
Milestone payments previously made by it upon completion by WMS of the
Technically Acceptable Master Disk, but GTIS shall be deemed to have
waived any future rights to distribute or license the version of the
Game embodied in the Technically Acceptable Master Disk. GTIS shall
hold WMS harmless for any claims by developers against the WMS Group by
reason of GTIS' failures to make timely Milestone payments as required
under this Section. WMS shall use all reasonable efforts to cause
agreements with developers entered into after March 31, 1996 which
relate to Technically Acceptable Master Disks for which GTIS is making
* % of the Milestone payments to provide for GTIS to have the right to
assume the rights and obligations under that agreement should WMS elect
to terminate the agreement and GTIS elect to continue it. If both WMS
and GTIS elect to terminate a developer agreement and any proceeds are
subsequently generated from the abandoned project, the proceeds shall
be shared by WMS and GTIS in proportion to their Milestone payments
made with respect to such abandoned project. All ownership and rights
in software, artwork, literary text, designs
11
<PAGE>
and other works, and all intellectual property relating thereto, which
would have vested in a member of the WMS Group but for such termination
shall vest in such member of the WMS Group, not GTIS, even if GTIS
assumes the developer agreement, and the WMS Group shall remain
entitled to all of the benefits of the representations and warranties,
indemnifications, confidentiality provisions, restrictions, covenants
and other obligations of the developer which would survive termination
of such agreement. The provisions of tlus Section 2.11 are in all
cases subject to the provisions of Section 2.12. For developer
agreements in respect of which GTIS has agreed to make Milestone
payments, the WMS Group shall provide GTIS a copy of the final version
of the developer agreement within ten (10) Business Days after the same
is signed; provided, however, that the WMS Group shall have the right
to redact any information in that agreement relating to third parties
which does not affect GTIS' rights or obligations.
7. The GTIS Master PC Agreement shall be amended to add a new Section
2.12 which shall read as follows:
2.12 If permitted under existing agreements with third parties,
WMS agrees to submit its choice of third party developers to be
selected under Sections 2.4 and 2.5 of this Agreement to GTIS for GTIS'
approval, such approval not to be unreasonably
12
<PAGE>
withheld, and, GTIS shall notify WMS of its decision with respect to
such developer within five (5) Business Days after receipt by GTIS of
WMS' notice. If the Technically Acceptable Master Disk being developed
is based upon a coin-operated game which has been released within the
24 month period preceding WMS' request for GTIS' approval of the
developer, or is released after such request for approval but prior to
the release of the home version of such Game, WMS shall have the final
decision in selecting the developer if a representative of WMS' coin-
operated game development group advises GTIS in writing that the
selection of a particular developer is important to such group. In all
other circumstances, if GTIS reasonably disapproves of the developer
suggested by WMS, that developer shall not be used and a new developer
shall be selected by WMS subject to GTIS' right of approval as provided
above in this Section 2.12.
8. The GTIS Master PC Agreement shall be amended to add a new Section
2.13 which shall read as follows:
Royalties payable to WMS pursuant to Schedule B of the Home
Computer Software Distribution and License Agreement are measured by
the wholesale prices of Licensed Product. Accordingly, reasonably in
advance of WMS' decision to enter into a developer contract and
reasonably in advance of GTIS'
13
<PAGE>
initial release of the Licensed Product, GTIS shall advise WMS, at WMS'
request, of GTIS' expected pricing strategy and the reasons therefor.
Nothing herein shall be deemed to restrict GTIS' freedom in selecting
wholesale sales prices it considers appropriate, which shall be in
GTIS' sole discretion.
9. The GTIS Master PC Agreement shall be amended to add a new Section
2.14 which shall read as follows:
If, under Section 2.1 of any Home Computer Software Distribution
and License Agreement entered into under this Agreement, Licensor has
granted written approval (which shall not be unreasonably withheld) to
Licensee of a specific sublicensee for the Licensed Property, such
approval shall apply to the sublicensing by that sublicensee of all
Licensed Properties licensed to Licensee under Home Computer Software
Distribution and License Agreements entered into under this Agreement,
subject to the following: (i) the sublicense agreements shall contain
provisions with respect to quality of Licensed Product, trademarks,
copyrights, materials, other intellectual property rights, rights of
additional sublicensing or assignment, termination rights,
confidentiality, accounting, auditing, reporting and payment procedures
in form agreed to by GTIS and WMS, and the form as so agreed to may be
used by all approved sublicensees described
14
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
in clause (iii) below; provided that if such form is not so used, any
other form to be used shall be subject to prior approval as provided in
this subsection (i); (ii) no such blanket approval shall be deemed
given with respect to Licensed Properties as to which approval
requirements imposed by third parties, such as the NFL and NBA, apply,
(iii) if the sublicense is for a Marketing Area other than those
designated as Key Marketing Areas in such Home Computer Software
Distribution and License Agreement and if the expected sales volume in
such Marketing Area, in GTIS' good faith judgment, is an average of *
units or less per SKU per year, Licensee will not be required to obtain
Licensor's prior written approval of the terms of such license but
Licensee will be required to provide a copy of each sublicense to
Licensor within ten (10) Business Days after GTIS enters into such
sublicense; and (iv) if the Marketing Area is designated as a Key
Marketing Area or if, in GTIS' good faith judgment, the expected sales
volume for such Marketing Area is more than an average of * units per
SKU per year, Licensee will be required to obtain Licensor's prior
written approval, which Licensor will not unreasonably withhold, of the
terms of a sublicense for such Marketing Area even if the identity of
the sublicensee has been previously approved; provided, however, if a
sublicense is for multiple platforms and multiple
15
<PAGE>
games, the approval of the sublicense will be deemed to be approval for
all Games distributed under that sublicense (subject to clause (ii)).
Anything to the contrary notwithstanding, (x) if a previously approved
sublicensee becomes an Exporter (as such term is defined in Exhibit A
to the GTIS Master Option and License Agreement (Home Video) dated
March 31, 1995) or a Pirate, Licensee will immediately upon becoming
aware thereof notify Licensor of the identity of such Exporter or
Pirate and as soon as practicable terminate the sublicense upon request
by Licensor, and (y) Licensor and Licensee will review every two years
the identity of sublicensees, and those sublicensees who previously
received blanket approval as provided in the first sentence of this
Section and who are no longer considered acceptable by Licensor, in the
exercise of Licensor's reasonable judgment, will no longer have such
blanket approval and will be subject to Licensor's prior approval with
respect to all future sublicenses in accordance with the approval
procedures set forth above. Licensee shall use all reasonable efforts
to cause each agreement with its sublicensees to permit Licensee to
terminate such agreement immediately if such sublicensee shall be or
become an Exporter or a Pirate.
16
<PAGE>
10. Section 7 of the GTIS Master PC Agreement shall be amended to add
at the end thereof, the following:
With respect to this Agreement and all Home Computer Software
Distribution and License Agreements entered into in connection
herewith, each of WMS Group and GTIS agree to use reasonable efforts to
ensure that either of them may disclose the proprietary information of
the other (including, without limitation, the software source code and
tools relating to any Game), only to those persons within their
organizations who have a need to know such information in order to
perform its obligations under this Agreement and the Home Computer
Software Distribution and License Agreements and any such disclosure
shall be limited to the information which needs to be known. Further,
neither the WMS Group nor GTIS shall use any such proprietary
information for purposes other than the performance of its obligations
under this Agreement and the Home Computer Software Distribution and
License Agreements.
11. Paragraph 5 of the First Amendment shall be amended to provide that
Section 10.1 of the GTIS Master PC Agreement shall be amended to delete the
parenthetical language "(including its sublicenses and affiliates as one party)"
in the last sentence of such Section and by replacing the words "as long as that
party remains fully liable for its obligations
17
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
hereunder" at the end of the second sentence of such Section 10.1 with the
words "as long as both the assignee and the assignor remain fully liable for
assignor's obligations hereunder."
12. For purposes of the last paragraph of Paragraph 13 of the First
Amendment (i) distribution of a coin-operated video or pinball game by any
member of the Atari Group or a former affiliate of any member of the Atari Group
shall be deemed distribution by Licensor or its affiliates; and (ii) all
references to "Licensor or any of its affiliates" shall be amended to read,
"Licensor or any entity which at any time was or is an affiliate of any member
of the WMS Group or the Atari Group." The following shall be added immediately
preceding such last paragraph:
Anything in the foregoing paragraphs to the contrary
notwithstanding, where the Licensed Property has not been embodied in
a coin-operated video or pinball game, whether distributed by Licensor
or any entity which at any time was an afffliate of any member of the
WMS Group or the Atari Group, Licensee may elect to pay an alternative
royalty therefor. The alternative royalty shall equal the sum of the
royalty percentage payable in accordance with the table set forth in
Schedule B plus the Licensee's share of Third Party Fees and
Royalties, but in no event shall the alternative royalty exceed * % of
the actual Net Wholesale Sales Price of the Licensed Product;
provided, however, that anything in the foregoing paragraphs or this
paragraph to the contrary notwithstanding, under no circumstances
18
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
shall royalties, whether regular royalties, Substitute Royalties or
alternative royalties, be less than * of the Third Party Fees and
Royalties payable with respect to the sale of Licensed Products.
12.1. Section 1 of the Home Computer Software Distribution and
License Agreement shall be amended by adding at the end thereof, the following:
Capitalized terms used, but not defined herein, shall have the
meaning ascribed to such terms in the GTIS Master Agreement.
12.2. Section 3.2 of the Home Computer Software Distribution and
License Agreement shall be amended to add as the first clause thereof, the
following:
After the end of the Japan Territory Period, as defined in the
letter between WMS and GTIS dated March 27, 1996, captioned "Japan
Territory."
13. Schedule B to the Home Computer Software Distribution and License
Agreement shall be amended as follows:
13.1. Paragraph 2 under the heading "Adjustment to Royalties" shall
be amended by adding at the end thereof, the following which shall be deemed a
clarification of the practice currently being followed by Licensee and Licensor:
In cases where Licensed Products are bundled, net proceeds from
bundling shall be treated in the same manner as net proceeds from
sublicensees; provided, however, that if Licensee is also the
19
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
manufacturer of products for bundling, the fee to Licensee shall
equal * % rather than * % of net proceeds.
13.2. A new Paragraph 4 shall be added after paragraph 3 under the
heading "Adjustment to Royalties" which shall read as follows:
4. For purposes of Paragraphs 1 and 2 above, the fees, royalties
or other participations referred to in clause 3 of Section
1.9 shall not be excluded in determining "Third Parties Fees and
Royalties." For avoidance of doubt, advances payable to developers
shall continue to be excluded.
13.3. The paragraph under the heading "Recoupment" shall be amended
to replace the word "paid" on the first line of such paragraph by the words
"applied or accrued" and to insert the words "applied or accrued by Licensee"
between the words "Recoupable Amounts" and "under" on line 6 of such paragraph.
13.4. A new paragraph shall be added at the end of the paragraph
under the heading "Recoupment" which shall read as follows:
"If the Atari Advance has not been fully recouped by GTIS on the
date on which the total of recoupable amounts under this Agreement and
other Home Computer Software Distribution and License Agreements
entered into pursuant to the GTIS Master Agreement equals the *
Dollars Option and Advance Fee and Guaranty paid by the Licensee under
the GTIS Master Agreement, then royalties otherwise payable
20
<PAGE>
under this Agreement shall be recoupable against the Atari Advance in
the manner set forth in this Schedule B until the Atari Advance shall
be fully recouped. In determining whether the Atari Advance has been
fully recouped, amounts owed by GTIS but not yet reported, paid or
credited to the Licensor shall be deemed recouped by GTIS. If in
respect of any royalty payment period royalties are available for
recoupment of the Atari Advance under any one or more of the
distribution and license agreements entered into under the Atari
Agreements, the GTIS Master Agreement and the GTIS Master Option and
License Agreement (Home Video Games) dated March 31, 1995, (the "GTIS
Master Home Video Agreement"), the Atari Advance shall be recouped from
royalties in the following order: (i) royalties payable under
distribution and license agreements entered into under the Atari
Agreements; (ii) royalties payable under distribution and license
agreements entered into under the GTIS Master Agreement; and (iii)
royalties payable under distribution and license agreements entered
into under the GTIS Master Home Video Agreement.
14. WMS hereby confirms to GTIS that it is WMS' present intention that
it will maintain a separate Atari Group games design organization and that any
member of the design teams working for that organization will work solely on the
creation of Atari Games.
21
<PAGE>
WMS further confirms that it will use all reasonable effort to maintain such
separate organization.
15. In the event of conflicts between the provisions of the GTIS
Master Agreement and the Home Computer Software Distribution and License
Agreement, the provisions of the GTIS Master Agreement shall prevail.
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Second Amendment as
of the day and year first above written.
WMS INDUSTIES INC.
By: /s/ NEIL NICASTRO
----------------------------------------
Neil Nicastro
WILLIAMS ELECTRONICS GAMES, INC.
By: /s/ NEIL NICASTRO
----------------------------------------
Neil Nicastro
MIDWAY MANUFACTURING COMPANY
By: /s/ NEIL NICASTRO
----------------------------------------
Neil Nicastro
WILLIAMS ENTERTAINMENT INC.
By: /s/
----------------------------------------
GT INTERACTIVE SOFTWARE CORP.
By: /s/ RONALD CHAIMOWITZ
----------------------------------------
Ronald Chaimowitz
23
<PAGE>
IN WITNESS WHEREOFF, the parties have executed this Second Amendment as
of the day and year first above written.
WMS INDUSTRIES INC.
By: /s/
----------------------------------------
WILLIAMS ELECTRONICS GAMES, INC.
By: /s/
----------------------------------------
MIDWAY MANUFACTURING COMPANY
By: /s/
----------------------------------------
WILLIAMS ENTERTAINMENT INC.
By: /s/ BRIAN COOK
----------------------------------------
Brian Cook
GT INTERACTIVE SOFTWARE CORP.
By: /s/ RONALD CHAIMOWITZ
----------------------------------------
Ronald Chaimowitz
23
<PAGE>
SCHEDULE 1
----------
ATARI LIBRARY
-------------
(Not including Projects in Process)
-----------------------------------
RELEASED COIN-OP TITLES
DATE PRODUCT
Nov - 72 Pong
Jul - 83 Space Race
Sep - 73 Pong Doubles
Oct - 73 Gotcha Color
Oct - 73 Gotcha
Oct - 73 Elimination (KEE)
Feb - 74 Super Pong
Feb - 74 Rebound
Mar - 74 Spike (Kee)
Mar - 74 Quadrapong
Mar - 74 Gran Track 10
Apr - 74 Formula K (Kee)
Apr - 74 world Cup
Apr - 74 World Cup CKT
May - 74 Pong CKT
Jun - 74 Touch Me
Jul - 74 Twin Racer (Kee)
Jul - 74 Trak 10
Aug - 74 Gran Trak 20
Aug - 74 Puppy Pong
Aug - 74 Trak 20
Sep - 74 Dr. Pong
Oct - 74 Pin Pong
Nov - 74 Tank
Nov - 74 Qwak
Jan - 75 Dodgeball
Jan - 75 Pursuit
Apr - 75 Indy 800 (KEE)
Apr - 75 Highway
May - 75 Crossfire (KEE)
May - 75 Tank II (KEE)
Jun - 75 Anti Aircraft
Jul - 75 Goal IV
Sep - 75 Jaws
Oct - 75 Steeplechase
Oct - 75 Crash N Score
Oct - 75 Jet Fighter
Dec - 75 Jet Fighter CKT
Jan - 76 Stunt Cycle
Mar - 76 Outlaw
Apr - 76 Tank 8 (KEE)
Apr - 76 Quiz Show (KEE)
Apr - 76 Breakout
May - 76 Indy 4
Jul - 76 Breakout CKT
<PAGE>
Jul - 76 Cops N Robbers
Jul - 76 Fly Ball (KEE)
Aug - 76 Lemans
Oct - 76 Night Driver
Nov - 76 Sprint II (KEE)
Nov - 76 F-I
Nov - 76 The Atarians Pin
Jan - 77 Dominos
Feb - 77 Dominos CKT
Apr - 77 Triple Hunt
Apr - 77 Triple Hunt Single
Apr - 77 Night Driver SD
May - 77 Sprint 8 (KEE)
Jun - 77 Time 2000 Pin
Jun - 77 Pool Shark
Jun - 77 Drag Race (KEE)
Jul - 77 Starship
Sep - 77 Super Bug (KEE)
Sep - 77 Two Game Module
Sep - 77 Airborne Avenger Pin
Oct - 77 Destroyer
Nov - 77 Canyon Bomber
Dec - 77 Sprint 4
Jan - 78 Sprint 1
Feb - 78 Ultra Tank (KEE)
Feb - 78 Middle Earth Pin
Mar - 78 Sky Raider
Mar - 78 Tournament Table
Apr - 78 Avalanche
Jun - 78 Fire Truck
Jun - 78 Sky Diver
Jul - 78 Smokey Joe
Sep - 78 Super Breakout
Sep - 78 Space Rider Pin
Oct - 78 Atari Football
Nov - 78 Orbit
Feb - 79 Video Pinball
Mar - 79 Superman Pin
Apr - 79 Hercules Pin
May - 79 Basketball
May - 79 Subs
Jun - 79 Baseball
Aug - 79 Lunar Lander
Apr - 79 4PL Atari Football
Nov - 79 Asteroids
Apr - 80 Asteroids CKT
Apr - 80 Soccer
Apr - 80 Monte Carlo
Jun - 80 Asteroics Cabaret
Jun - 80 Missile Command
<PAGE>
Aug - 80 Missile Command CKT
Sep - 80 Missile Command Cabaret
Sep - 80 Missile Command SD
Nov - 80 Battle Zone
Dec - 80 Battle Zone Cabaret
Apr - 81 Asteroids Deluxe Cabaret
Apr - 81 Warlords
Apr - 81 Warlords CKT
May - 81 Asteroids Deluxe
May - 81 Asteroids Deluxe CKT
May - 81 Red Baron SD
Jun - 81 Centipede
Jun - 81 Red Baron
Jun - 81 Battle Zone Open Face
Jul - 81 Centipede CKT 13"
Jul - 81 Centipede CAB
Sep - 81 Centipede CKT 19"
Oct - 81 Tempest
Dec - 81 Tempest CKT
Dec - 81 Tempest Cabaret
Feb - 82 Space Duel
Apr - 82 Dig Dug
Apr - 82 Space Duel CKT
Jun - 82 Kangaroo
Jun - 82 Dig Dug CKT
Jun - 82 Dig Dug CAB
Jun - 82 Gravitar
Nov - 82 Millipede
Nov - 82 Liberator
Nov - 82 Quantum
Nov - 82 Pole Position
Nov - 82 Pole Position SD
Feb - 83 Xevious
Feb - 83 Black widow
Feb - 83 Milipede CKT
Mar - 83 Food Fight
May - 83 Arabian
May - 83 Star Wars
May - 83 Star Wars SD
May - 83 Food Fight CKT
Jul - 83 Crystal Castles
Nov - 83 Major Havoc
Nov - 83 Pole Position II
Nov - 83 Crystal Castles CKT
Jan - 84 Firefox
Feb - 84 Firefox SD
Mar - 84 TX-1 SD
Jun - 84 I, Robot
Sep - 84 Return of the Jedi
Dec - 84 Marble Madness SYS 1
<PAGE>
Mar - 85 Empire Kit
Apr - 85 Paperboy SYS 2
Jul - 85 Pack Rat SYS 1
Jul - 85 Pack Rat (KIT)
Jul - 85 Temple of Doom SYS 1
Jul - 85 Temple of Doom Kit
Oct - 85 Gauntlet
Apr - 86 Super Sprint
May - 86 Gauntlet 2 Player
Jul - 86 Road Runner SYS 1
Jul - 86 Road Runner Kit
Aug - 86 Gauntlet II
Aug - 86 Guantlet II 4 player kit
Aug - 86 Gauntlet II 2 player kit
Sep - 86 Champ Sprint SYS 2
Sep - 86 Champ Sprint Kit
Dec - 86 720
Feb - 87 Rolling Thunder
Mar - 87 Road Blaster SYS 1
Mar - 87 Road Blaster Kit
Mar - 87 Road Blaster SD
May - 87 Dunk Shot
Jul - 87 A.P.B.
Jul - 87 Dragon Spirit
Sep - 87 RBI Baseball Kit
Nov - 87 Xybots
Dec - 87 Pacmania
Feb - 88 Blasteroids
Apr - 88 Galaga '88
Apr - 88 Galaga '88 Kit
Apr - 88 Vindicators
May - 88 Pot Shot
May - 88 Final Lap SD
Jun - 88 Toobin
Aug - 88 Assault
Sep - 88 Cyberball
Oct - 88 Final Lap UR
Feb - 89 Tetris Kit
Feb - 89 Hard Drivin SD
Feb - 89 Splatterhouse PCB
Feb - 89 Vindicator Kits
Jun - 89 Hard Drivin Compact
Jun - 89 Escape
Jun - 89 Escape Kit
Aug - 89 Cyberball 2072 4 player
Sep - 89 Cyberball 2072 2 player
Sep - 89 Stunrunner
Oct - 89 Cyberball 2072 Conv. Kit
Nov - 89 Cyberball 2 PL Univ. Kit
Nov - 89 Skull & Crossbones
<PAGE>
Nov - 89 Skull & Crossbones Kit
Dec - 89 4 Trax Moving
Jan - 90 Badlands
Jan - 90 Badlands Kit
Jan - 90 Cyberball vs. Kit
Feb - 90 Klax
Feb - 90 Klax Cabaret
Feb - 90 Klax Kits (Incl. Japan)
Apr - 90 4 Trax Stationary
Jun - 90 Gumball Rally
Jun - 90 Hydra
Jun - 90 Hydra Kits
Jul - 90 ThunderJaws Kits
Aug - 90 Pitfighter
Aug - 90 Race Drivin SD
Oct - 90 Race Drivin SD Conv. Kits
Nov - 90 Tetris Cabaret
Nov - 90 Shuuz
Nov - 90 Shuuz Kits
Dec - 90 Race Drivin Compact
Feb - 91 Rampart
Mar - 91 Pitfighter 2 PL Kits
Apr - 91 Batman Kits
Apr - 91 Rampart Kits Incl. Japan
Apr - 91 Race Drivin UR Conv. Kits
Apr - 91 Race Drivin Intl. Kits
May - 91 Race Drivin Panorama
Jun - 91 Road Riot
Sep - 91 Steel Talons
Oct - 91 Off the Wall Kit
Apr - 92 Relief Pitcher Game
May - 92 Relief Pitcher Kit
Jun - 92 Guardians of the Hood
Jul - 92 Guardians of the Hood Kit
Jul - 92 Moto Frenzy Deluxe
Sep - 92 Moto Frenzy Mini
Nov - 92 Space Lords
Mar - 93 Knuckle Bash Kit
Jun - 93 World Rally Kits
Oct - 93 Showcase '33
Jul - 94 T-MEK
Aug - 94 Primal Rage Showcase 33
Sep - 94 Primal Rage Family Cabinet
Oct - 94 Cops
Sep - 95 Hoop It Up
Nov - 95 Area 51 33" Showcase
Nov - 95 Area 51 25"
<PAGE>
RELEASED CONSUMER TITLES
DATE TITLE FORMAT
After Burner NES
Alien Syndrome NES
Fantasy Zone NES
88 Gauntlet NES
Klax NES
Ms. Pacman NES
88 Pacman NES
Pacmania NES
88 RBI Baseball NES
RBI 2 Baseball NES
RBI 3 Baseball NES
Road Runner NES
Rolling Thunder NES
Shinobi NES
Skull & Crossbones NES
Super Sprint NES
May - 89 Tetris NES
Temple of Doom NES
Toobin NES
Vindicators NES
Jun - 95 RBI 95 32X
Oct - 94 Battlecorps Sega CD AFL
Feb - 95 BC Racers Sega CD AFL
<PAGE>
Nov - 94 Lawnmowerman Sega CD AFL
Dec - 94 Soulstar Sega CD AFL
Dec - 95 Wayne Gretsky PC CD ROM
Sep - 95 Primal Rage PC CD ROM
Nov - 94 Rise of the Robots PC CD ROM
Nov - 94 Rise of the Robots PC Floppy Disk
Jun - 95 Striker Europe CD ROM
Nov - 94 Rise of the Robots Europe CD ROM
Sep - 95 Primal Rage Europe CD ROM
Jun - 95 Striker Europe Disk
Jun - 95 Rise of the Robots Europe Disk
Jun - 95 Rise of the Robots Amiga-Europe
PGA Tour Golf Europe Game Gear
KLAX Europe Game Gear
Marble Madness Europe Game Gear
Paperboy Europe Game Gear
Popils Europe Game Gear
Dec - 94 PGA Tour II Europe Game Gear
Jun - 95 Rise of the Robots Europe Game Gear
World Cup Soccer Europe Game Gear
Aug - 95 Primal Rage Gameboy
Mar - 95 Kawasaki Superbike Game Gear AFL
Dec - 93 Desert Strike Game Gear AFL
Dec - 93 Formula 1 Game Gear AFL
Prince of Persia Game Gear AFL
<PAGE>
Super Space Game Gear AFL
Invaders
Mar - 95 Kawasaki Superbike Genesis
Davis Cup Tennis Genesis
Dragon's Fury Genesis
Dick Vitale Genesis
Basketball
Dec - 93 Dragon's Revenge Genesis
Nov - 93 Gauntlet 4 Genesis
Nov - 94 Generations Lost Genesis
Grindstormer Genesis
Hard Drivin Genesis
Klax Genesis
Nov - 94 Lawnmowerman Genesis
Ms. Pacman Genesis
Paperboy 2 Genesis
Paperboy Genesis
Pitfighter Genesis
Pacmania Genesis
Nov - 93 Awesome Possum Genesis
Prince of Persia Genesis
Dec - 93 Race Drivin Genesis
Aug - 95 Primal Rage Genesis
Rampart Genesis
RBI 93 Genesis
RBI 94 Genesis
<PAGE>
RBI 3 Basketball Genesis
RBI 4 Genesis
Road Blasters Genesis
Nov - 94 Red Zone Genesis
Sylvester & Tweety Genesis
Steel Talons Genesis
Jun - 95 Wayne Gretzky Genesis
Bubba N' Stix Genesis AFL
Nov - 93 Formula 1 Genesis AFL
James Bond Genesis AFL
Nov - 4 Marko & His Magic Genesis AFL
Soccer Ball
MIG 29 Genesis AFL
Chuck Rock II Game Gear
Dec - 93 PGA Tour Golf Game Gear
Klax Game Gear
Marble Madness Game Gear
Paperboy 2 Game Gear
Paperboy Game Gear
Nov - 94 PGA Tour II Game Gear
Popils Game Gear
Aug - 95 Primal Rage Game Gear
Nov - 94 RBI 94 Game Gear
Dec - 94 Rise of the Robots Game Gear
World Cup Soccer Game Gear
Oct - 95 Power Drive Rally Jaguar
<PAGE>
Dec 95 Primal Rage Jaguar CD
Davis Cup Tennis Mega Drive-Europe
Dragon's Fury Mega Drive-Europe
Dick Vitale Mega Drive-Europe
Basketball
Dragon's Revenge Mega Drive-Europe
Gauntlet 4 Mega Drive-Europe
Hard Drivin Mega Drive-Europe
Kawasaki Superbike Mega Drive-Europe
Klax Mega Drive-Europe
Lawnmowerman Mega Drive-Europe
Paperboy Mega Drive-Europe
Paperboy 2 Mega Drive-Europe
Pitfighter Mega Drive-Europe
Pacmania Mega Drive-Europe
Rampart Mega Drive-Europe
RBI 94 Mega Drive-Europe
Nov - 94 Red Zone Mega Drive-Europe
Aug - 94 Sylvester & Tweety Mega Drive-Europe
Steel Talons Mega Drive-Europe
Mar - 95 Mega Swiv Mega Drive-Europe
A.C. Adapter Gameboy
A.C. Adapter Genesis
A.C. Adapter SNES
A.C. Adapter Game Gear
Control Pad Genesis
<PAGE>
Control Pad NES
Control Pad SNES
Hi-Freq Control Genesis
Pad
Hi-Freq Control NES
Pad
Hi-Freq Control SNES
Pad
Hi-Freq Magnifier Game Gear
Hi-Freq Night Gameboy
Sight
Hi-Freq Power Clip Gameboy
w/adaptor
Hi-Freq Power Clip Game Gear
R.F. Switch All
Night Sight Gameboy
Power Clip w/A.C. Gameboy
adaptor
Power Clip Gameboy
Wayne Gretzky Kit Rest of World
Wayne Gretzky Mega Drive-Rest of
World
Kawasaki Superbike SNES-Rest of World
Primal Rage Kit Rest of World
Sep - 95 Primal Rage PC CD ROM-Rest of
World
Sep - 95 Primal Rage Gameboy-Rest of
World
Aug - 95 Primal Rage SNES-Rest of World
<PAGE>
Sep - 95 Primal Rage Mega Drive-Rest of
World
Jul - 95 Striker Spindle PC CD ROM-
REST of World
Virtua Racing Saturn-Rest of
World
Dec - 95 Last Gladiators Saturn
Nov - 95 Virtua Racing Saturn
Sep - 93 Robo Aleste Sega CD
PGA Tour Golf Master System-
Europe
Klax Master System-
Europe
Ms. Pacman Master System-
Europe
Rampart Master System-
Europe
Dec - 95 Wayne Gretzky SNES
Dec - 95 Kawasaki Superbike SNES
Aug - 95 Primal Rage SNES
Jun - 95 Super RBI SNES
Blasteroids Computer Software
Rolling Thunder Computer Software
Dec - 95 Primal Rage Sony PSX
Dec - 95 Zero Divide Sony PSX
Klax NEC Turbografix
Return Fire Sony PSX
Constructor Sony PSX
T-MEK Sony PSX
<PAGE>
Area 51 Sony PSX
Wayne Gretzky II Sony PSX
Wheels Sony PSX
<PAGE>
SCHEDULE 1
----------
Projects in Process
-------------------
(Atari PC Games)
----------------
Title Platform
- - ----- --------
Area 51 CD-ROM
Constructor Win '95/Mac-CD
Crisis Win '95
Dark Hermetic Order PC CD-ROM
Gretzky Hockey PC CD-ROM
Gretzky II Win '95
Primal Rage Mac-CD
RBI 96 IBM PC; CD-ROM
Return Fire CD-ROM
T-Mek PC; CD-ROM
<PAGE>
SCHEDULE 2
------------
PROJECTS IN PROCESS
-------------------
(HOME VIDEO GAMES)
------------------
TITLE PLATFORM
- - ----- --------
Area 51 Saturn; PSX
Constructor PSX
Gretzky II PSX
Gretzky Arcade Ultra 64
Last Gladiators Saturn
Power Drive Jaguar
Primal Rage Saturn; PSX
Return Fire PSX; Saturn
T-Mek PSX
Toonfighter PSX
Virtua Racing Saturn
Wheels (Driver) PSX
Zero Divide PSX
<PAGE>
CERTAIN INFORMATION HAS BEEN OMITTED UNDER A
CONFIDENTIAL TREATMENT REQUEST MADE PURSUANT TO
RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.
AMENDMENT TO
------------
GTIS MASTER OPTION AND LICENSE AGREEMENT
----------------------------------------
(HOME VIDEO GAME)
-----------------
This amendment agreement (the "First Amendment") is made and entered
into the 27th day of March, 1996, by and among WMS INDUSTRIES, INC. ("WMS''),
WILLIAMS ELECTRONICS GAMES, INC. ("WEG"), MIDWAY MANUFACTURING COMPANY
("Midway") and WILLIAMS ENTERTAINMENT INC. ("WEI"), each being Delaware
corporations with offices at 3401 North California Avenue, Chicago, Illinois
60618, and GT INTERACTIVE SOFTWARE CORP. ("GTIS"), a Delaware corporation with
offices at 16 East 40th Street, New York, New York 10016.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, on March 31, 1995 WMS, WEG, Midway, WEI and GTIS entered into
the GTIS Master Option and License Agreement (Home Video Games) (the "GTIS
Master Home Video Agreement") pursuant to which the WMS Group granted to GTIS
certain rights with respect to the manufacture, distribution and sale of
versions of Games for use on Designated Consumer Game Platforms; and
WHEREAS, WMS, WEG, Midway, WEI and GTIS desire to amend the GTIS Master
Home Video Agreement as provided for in this First Amendment.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and other good and valuable consideration, the parties hereto
agree as follows:
1. Capitalized terms used, but not defined or revised herein, shall have
the meaning ascribed to such terms in the GTIS Master Home Video Agreement or
the form of
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
Home Video Game Distribution and License Agreement annexed as Exhibit A to the
GTIS Master Home Video Agreement.
2. This First Amendment shall become effective on the date WII closes
the acquisition of AGC pursuant to the Stock Purchase Agreement. WMS will give
GTIS prompt written notice of such closing. If such acquisition does not close
by June 30, 1996, this First Amendment shall be null and void and of no force
and effect. The capitalized terms used in this paragraph are defined in
paragraph 3 of this First Amendment. GTIS' rights, if any, under the GTIS
Master Home Video Agreement and form of Home Video Game Distribution and
License Agreement with respect to any games acquired pursuant to the Stock
Purchase Agreement, and any subsequent sequels, adaptations or other versions
thereof, shall be subject to all third party rights pursuant to agreements made
by the Atari Group existing at the Effective Date. All such rights, to the
extent known by WMS, are set forth on a schedule to a letter dated the date
hereof and signed by WMS and GTIS.
3. Section 1 of the GTIS Master Home Video Game Agreement shall be
amended to add or replace definitions as follows:
1.1(a) "AGC" shall mean Atari Games Corporation, a California
corporation, which is currently a wholly-owned subsidiary of Warner
Communications Inc., and which is to be sold to WII pursuant to the
Stock Purchase Agreement.
1.1(b) "Atari Advance" shall mean the aggregate * Dollars
advance by GTIS to WMS pursuant to the Atari Agreements.
2
<PAGE>
1.1(c) "Atari Agreements" shall mean the Master Option and
License Agreement for Atari PC Games and the Master Option and License
Agreement for Atari Home Video Games entered into by WMS and GTIS dated
March 27, 1996."
1.1(d) "Atari Game" shall mean (i) any game developed or acquired
by or on behalf of AGC or entities which were affiliates of AGC prior
to AGC being acquired by WII pursuant to the Stock Purchase Agreement,
including, without limitation, those games listed on Schedule 1 to this
First Amendment, and any adaptations of such games for other platforms,
and (ii) any game currently in development or developed subsequent to
such acquisition by or on behalf of AGC or a member of the Atari Group,
or developed, in whole or in substantial part, by any person or persons
who were employees of AGC or a member of the Atari Group as of the
closing date of such acquisition and who are employees of any member of
the WMS Group at the time of such development, and any adaptations of
such games for other platforms. For purposes of this Section, employees
shall be deemed to include independent contractors who work a
substantial portion of their time at the facilities of any member of
the WMS Group.
1.1(e) "Atari Group" shall mean AGC, or any entity, a majority of
whose capital stock is owned, directly or indirectly, by
3
<PAGE>
AGC or with respect to which during the term of this Agreement, AGC,
directly or indirectly, has the legal power, without the consent of any
third party, to direct the acquisition of rights to or exploitation of
Games on Designated Consumer Game Platforms.
1.1(f) "Business Day" shall mean any day other than a Saturday,
Sunday or Federal holiday.
1.4(a) "Early Termination Event" shall mean AGC ceasing to be at
least 50.1% owned by a member of the WMS Group, or the Atari Group
transferring a majority of its intellectual property assets and
licenses to a person or entity who is not a member of the WMS Group.
1.7 "Game" shall mean any home video game designed for play on a
specific Designated Consumer Game Platform which has been released for
commercial shipment in the normal course of business by any member of
the WMS Group or by any licensee of the WMS Group on such Designated
Consumer Game Platform for sale in commercial quantities in the United
States in the normal course of business, but excluding (i) any such
home video game with respect to which the WMS Group shall, prior to the
date hereof, have granted rights (or any option, right of first refusal
or negotiation or other ability to obtain rights which may be
subsequently exercised) to any third party, including without
4
<PAGE>
limitation any sublicensee of the WMS Group, to manufacture, distribute
or sell such home video game on such specific Designated Consumer Game
Platform within the Licensed Territory, including any renewals or
extensions thereof resulting from the exercise of previously granted
rights; and (ii) any Atari Game. Set forth on Schedule 1 annexed hereto
is a list of all material agreements pursuant to which the WMS Group,
other than the Atari Group, has, prior to March 31, 1995, granted
rights to manufacture, distribute and sell such home video games on
Designated Consumer Game Platforms within the Licensed Territory, but
excluding any agreements pursuant to which the WMS Group has granted
rights to home video games based on games which have been released for
commercial shipment prior to March 31, 1995 in the normal course of
business by the WMS Group or by any sublicensee of the WMS Group as
coin-operated video or pinball games or on any dedicated home video
game platform or agreements pursuant to which the WMS Group has granted
rights to any derivative or sequel to any such released coin-operated
video, pinball or home video game. A home video game shall be deemed a
separate Game with reference to the specific Designated Consumer Game
Platform on which it has been designed for play.
5
<PAGE>
1.11 "Initial Option Period" shall mean the period commencing on
the date hereof and ending on June 30, 2001; provided, however, if the
Atari Advance has not been fully recouped by June 30, 2001, the Initial
Option Period shall be extended to a date which is the earlier to occur
of (i) June 30, 2003, or (ii) the date on which the Atari Advance is
fully recouped. In determining whether the Atari Advance has been fully
recouped for all purposes under this Agreement, amounts owed by GTIS
but not yet reported, paid or credited to the Licensor shall be deemed
recouped by GTIS. The Initial Option Period may be further extended
under the following circumstances. If (a) an Early Termination Event
occurs prior to June 30, 2000, and (b) GTIS shall not have fully
recouped the Atari Advance by the end of the Initial Option Period as
extended pursuant to the first sentence of this Section 1.11 (as such
date may be further extended from time to time by future amendments or
extensions other than the extensions next referred to in this
sentence), then the Initial Option Period shall be further extended to
a date which is the earlier to occur of (x) the date on which the Atari
Advance is fully recouped or (y) the date, to the nearest calendar
quarter end, determined by adding to the date the Initial Option Period
as
6
<PAGE>
extended would have expired, the number of days between the
occurrence of the Early Termination Event and June 30, 2001.
1.23(a) "Pirate" shall mean an individual or entity which
counterfeits a game or sells counterfeit games.
1.27(a) "Stock Purchase Agreement" shall mean the Stock Purchase
Agreement dated February 23, 1996 between Warner Communications Inc.
and WII pursuant to which Warner Communications Inc. has agreed to sell
and WII has agreed to purchase all of the outstanding stock of AGC.
1.27(b) "WII" shall mean Williams Interactive Inc., a wholly-owned
subsidiary of WMS.
4. The GTIS Master Home Video Agreement shall be amended to add a new
Section 2.8 which shall read as follows:
Royalties payable to WMS pursuant to Schedule B of the Home Video
Game Distribution and License Agreement are measured by the wholesale
price of Licensed Product. Accordingly, reasonably in advance of
WMS' decision to enter into a developer contract and reasonably in
advance of GTIS' initial release of the Licensed Product, GTIS shall
advise WMS, at WMS' request, of GTIS' expected pricing strategy and the
reasons therefor. Nothing herein shall be deemed to restrict GTIS'
7
<PAGE>
freedom in selecting wholesale sales prices it considers appropriate,
which shall be in GTIS' sole discretion.
5. The GTIS Master Home Video Agreement shall be amended to add a new
Section 2.9 which shall read as follows:
If, under Section 2.1 of any Home Video Game Distribution and
License Agreement entered into under this Agreement, Licensor has
granted written approval (which shall not be unreasonably withheld) to
Licensee of a specific sublicensee for the Licensed Property, such
approval shall apply to the sublicensing by that sublicensee of all
Licensed Properties licensed to Licensee under Home Video Game
Distribution and License Agreements entered into under this Agreement,
subject to the following: (i) the sublicense agreements shall contain
provisions with respect to quality of Licensed Product, trademarks,
copyrights, materials, other intellectual property rights, rights of
additional sublicensing or assignment, termination rights,
confidentiality, accounting, auditing, reporting and payment procedures
in form agreed to by GTIS and WMS, and the form as so agreed to may be
used by all approved sublicensees described in clause (iii) below;
provided that if such form is not so used, any other form to be used
shall be subject to prior approval as provided in this subsection (i);
(ii) no such blanket approval shall
8
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
be deemed given with respect to Licensed Properties as to which
approval requirements imposed by third parties, such as the NFL and
NBA, apply; (iii) if the sublicense is for a Marketing Area other than
those designated as Key Marketing Areas in such Home Video Game
Distribution and License Agreement and if the expected sales volume in
such Marketing Area, in GTIS' good faith judgment, is an average of *
units or less per SKU per year, Licensee will not be required to obtain
Licensor's prior written approval of the terms of such license but
Licensee will be required to provide a copy of each sublicense to
Licensor within ten (10) Business Days after GTIS enters into such
sublicense; and (iv) if the Marketing Area is designated as a Key
Marketing Area or if, in GTIS' good faith judgment, the expected sales
volume for such Marketing Area is more than an average of * units per
SKU per year, Licensee will be required to obtain Licensor's prior
written approval, which Licensor will not unreasonably withhold, of the
terms of a sublicense for such Marketing Area even if the identity of
the sublicensee has been previously approved; provided, however, if a
sublicense is for multiple platforms and multiple games, the approval
of the sublicense will be deemed to be approval for all Games
distributed under that sublicense (subject to clause (ii)). Anything to
the contrary notwithstanding, (x) if a
9
<PAGE>
previously approved sublicensee becomes an Exporter or a Pirate,
Licensee will immediately upon becoming aware thereof notify Licensor
of the identity of such Exporter or Pirate and as soon as practicable
terminate the sublicense upon request by Licensor, and (y) Licensor and
Licensee will review every two years the identity of sublicensees, and
those sublicensees who previously received blanket approval as provided
in the first sentence of this Section and who are no longer considered
acceptable by Licensor, in the exercise of Licensor's reasonable
judgment, will no longer have such blanket approval and will be subject
to Licensor's prior approval with respect to all future sublicenses, in
accordance with the approval procedures set forth above. Licensee shall
use all reasonable efforts to cause each agreement with its
sublicensees to permit Licensee to terminate such agreement immediately
if such sublicensee shall be or become an Exporter or a Pirate.
6. Section 7 of the GTIS Master Home Video Agreement and Section 16 of
the form of Home Video Game Distribution Agreement annexed as Exhibit A thereto
shall be amended to add at the end thereof, the following:
With respect to this Agreement and the Home Video Game
Distribution and License Agreements entered into in connection
herewith, each of WMS Group and GTIS agree to use reasonable efforts to
ensure that either of them may disclose the proprietary
10
<PAGE>
information of the other (including, without limitation, the software
source code and tools relating to any Game), only to those persons
within their organizations who have a need to know such information in
order to perform its obligations under this Agreement and the Home
Video Game Distribution and License Agreements and any such disclosure
shall be limited to the information which needs to be known. Further,
neither the WMS Group nor GTIS shall use any such proprietary
information for purposes other than the performance of its obligations
under this Agreement and the Home Video Game Distribution and License
Agreements.
7. Paragraph 12.1 of the GTIS Master Home Video Agreement shall be
amended to delete the parenthetical language "(including its sublicenses and
affiliates as one party)" in the last sentence of such Section and by replacing
the words "as long as that party remains fully liable for its obligations
hereunder" at the end of the second sentence of such Section 12.1 with the words
"as long as both the assignee and the assignor remain fully liable for
assignor's obligations hereunder."
8. Section I of the form of Home Video Game Distribution and License
Agreement, annexed as Exhibit A to the GTIS Master Home Video Agreement, shall
be amended by adding at the end thereof the following:
11
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
Capitalized terms used, but not defined herein, shall have the
meaning ascribed to such terms in the GTIS Master Agreement.
9. Schedule B to the Home Video Game Distribution and License
Agreement shall be amended as follows:
9.1. The paragraph under the heading "Recoupment" shall be amended
to replace the words "earned and otherwise payable" on the first and second
lines of such paragraph by the words "applied or accrued" and to replace the
words "actually paid" in line seven of such paragraph by the words "applied or
accrued."
9.2. A new paragraph shall be added at the end of the last
paragraph under the heading "Recoupment" on Schedule B to the Home Video Game
Distribution and License Agreement which shall read as follows:
"If the Atari Advance has not been fully recouped by GTIS on the
date on which the total of recoupable amounts under this Agreement and
Other Home Video Game Distribution and License Agreements equals the *
Dollars Minimum Guaranteed Royalty and Guaranteed Advance Royalty paid
by the Licensee under the GTIS Master Agreement, then royalties
otherwise payable under this Agreement shall be recoupable against the
Atari Advance in the manner set forth in this Schedule B until the
Atari Advance shall be fully recouped. In determining whether the Atari
Advance has been fully recouped,
12
<PAGE>
amounts owed by GTIS but not yet reported, paid or credited to the
Licensor shall be deemed recouped by GTIS. If in respect of any royalty
payment period royalties are available for recoupment of the Atari
Advance under any one or more of the distribution and license
agreements entered into under the Atari Agreements, the GTIS Master
Agreement and the GTIS Master Option and License Agreement dated
December 28, 1994, as amended (the "GTIS Master PC Agreement"), the
Atari Advance shall be recouped from royalties in the following order
of priority: (i) royalties payable under distribution and license
agreements entered into under the Atari Agreements; (ii) royalties
payable under distribution and license agreements entered into under
the GTIS Master PC Agreement; and (iii) royalties payable under
distribution and license agreements entered into under the GTIS Master
Agreement.
10. WMS hereby confirms to GTIS that it is WMS' present intention that
it will maintain a separate Atari Group games design organization and that any
member of the design teams working for that organization will work solely on the
creation of Atari Games. WMS further confirms that it will use all reasonable
efforts to maintain such separate organization.
13
<PAGE>
11. In the event of conflicts between the provisions of the GTIS
Master Home Video Agreement and the Home Video Game Distribution and License
Agreement, the provisions of the GTIS Master Home Video Agreement shall prevail.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written .
WMS INDUSTRIES INC.
By: /s/ NEIL NICASTRO
-------------------------------------
Neil Nicastro
WILLIAMS ELECTRONICS GAMES, INC.
By: /s/ NEIL NICASTRO
-------------------------------------
Neil Nicastro
MIDWAY MANUFACTURING COMPANY
By: /s/ NEIL NICASTRO
-------------------------------------
Neil Nicastro
WILLIAM ENTERTAINMENT INC.
By: /s/
-------------------------------------
GT INTERACTIVE SOFTWARE CORP.
By: /s/ RONALD CHAIMOWITZ
-------------------------------------
Ronald Chaimowitz
14
<PAGE>
11. In the event of conflicts between the provisions of the GTIS
Master Home Video Agreement and the Home Video Game Distribution and License
Agreement, the provisions of the GTIS Master Home Video Agreement shall prevail.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written .
WMS INDUSTRIES INC.
By:
------------------------------------
WILLIAMS ELECTRONICS GAMES, INC.
By:
------------------------------------
MIDWAY MANUFACTURING COMPANY
By:
------------------------------------
WILLIAMS ENTERTAINMENT INC.
By: /s/ BRIAN COOK
------------------------------------
Brian Cook
GT INTERACTIVE SOFTWARE CORP.
By: /s/ RONALD CHAIMOWITZ
------------------------------------
Ronald Chaimowitz
14
<PAGE>
SCHEDULE 1
----------
ATARI LIBRARY
-------------
(Not including Projects in Process)
-----------------------------------
RELEASED COIN-OP TITLES
DATE PRODUCT
Nov - 72 Pong
Jul - 83 Space Race
Sep - 73 Pong Doubles
Oct - 73 Gotcha color
Oct - 73 Gotcha
Oct - 73 Elimination (KEE)
Feb - 74 Super Pong
Feb - 74 Rebound
Mar - 74 Spike (Kee)
Mar - 74 Quadrapong
Mar - 74 Gran Track 10
Apr - 74 Formula K (Kee)
Apr - 74 World Cup
Apr - 74 World Cup CKT
May - 74 Pong CKT
Jun - 74 Touch Me
Jul - 74 Twin Racer (KEE)
Jul - 74 Trak 10
Aug - 74 Gran Trak 20
Aug - 74 Puppy Pong
Aug - 74 Trak 20
Sep - 74 Dr. Pong
Oct - 74 Pin Pong
Nov - 74 Tank
Nov - 74 Qwak
Jan - 75 Dodgeball
Jan - 75 Pursuit
Apr - 75 Indy 800 (KEE)
Apr - 75 Highway
May - 75 Crossfire (KEE)
May - 75 Tank II (KEE)
Jun - 75 Anti Aircraft
Jul - 75 Goal IV
Sep - 75 Jaws
Oct - 75 Steeplechase
Oct - 75 Crash N Score
Oct - 75 Jet Fighter
Dec - 75 Jet Fighter CKT
Jan - 76 Stunt Cycle
Mar - 76 Outlaw
Apr - 76 Tank 8 (KEE)
Apr - 76 Quiz Show (KEE)
Apr - 76 Breakout
May - 76 Indy 4
Jul - 76 Breakout CKT
Schedule A; Page 2
<PAGE>
Jul - 76 Cops N Robbers
Jul - 76 Fly Ball (KEE)
Aug - 76 Lemans
Oct - 76 Night Driver
Nov - 76 Sprint II (KEE)
Nov - 76 F-1
Nov - 76 The Atarians Pin
Jan - 77 Dominos
Feb - 77 Dominos CKT
Apr - 77 Triple Hunt
Apr - 77 Triple Hunt Single
Apr - 77 Night Driver SD
May - 77 Sprint 8 (KEE)
Jun - 77 Time 2000 Pin
Jun - 77 Pool Shark
Jun - 77 Drag Race (KEE)
Jul - 77 Starship
Sep - 77 Super Bug (KEE)
Sep - 77 Two Game Module
Sep - 77 Airborne Avenger Pin
Oct - 77 Destroyer
Nov - 77 Canyon Bomber
Dec - 77 Sprint 4
Jan 78 Sprint 1
Feb - 78 Ultra Tank (KEE)
Feb - 78 Middle Earth Pin
Mar - 78 Sky Raider
Mar - 78 Tournament Table
Apr - 78 Avalanche
Jun - 78 Fire Truck
Jun - 78 Sky Diver
Jul - 78 Smokey Joe
Sep - 78 Super Breakout
Sep - 78 Space Rider Pin
Oct - 78 Atari Football
Nov - 78 Orbit
Feb - 79 Video Pinball
Mar - 79 Superman Pin
Apr - 79 Hercules Pin
May - 79 Basketball
May - 79 Subs
Jun - 79 Baseball
Aug - 79 Lunar Lander
Apr - 79 4PL Atari Football
Nov - 79 Asteroids
Apr - 80 Asteroids CKT
Apr - 80 Soccer
Apr - 80 Monte Carlo
Jun - 80 Asteroics Cabaret
Jun - 80 Missile Command
Schedule A, Page 3
<PAGE>
Aug - 80 Missile Command CKT
Sep - 80 Missile Command Cabaret
Sep - 80 Missile Command SD
Nov - 80 Battle Zone
Dec - 80 Battle Zone Cabaret
Apr - 81 Asteroids Deluxe Cabaret
Apr - 81 Warlords
Apr - 81 Warlords CKT
May - 81 Asteroids Deluxe
May - 81 Asteroids Deluxe CKT
May - 81 Red Baron SD
Jun - 81 Centipede
Jun - 81 Red Baron
Jun - 81 Battle Zone Open Face
Jul - 81 Centipede CKT 13"
Jul - 81 Centipede CAB
Sep - 81 Centipede CKT 19"
Oct - 81 Tempest
Dec - 81 Tempest CKT
Dec - 81 Tempest Cabaret
Feb - 82 Space Duel
Apr - 82 Dig Dug
Apr - 82 Space Duel CKT
Jun - 82 Kangaroo
Jun - 82 Dig Dug CKT
Jun - 82 Dig Dug CAB
Jun - 82 Gravitar
Nov - 82 Millipede
Nov - 82 Liberator
Nov - 82 Quantum
Nov - 82 Pole Position
Nov - 82 Pole Position SD
Feb - 83 Xevious
Feb - 83 Black Widow
Feb - 83 Milipede CKT
Mar - 83 Food Fight
May - 83 Arabian
May - 83 Star Wars
May - 83 Star Wars SD
May - 83 Food Fight CKT
Jul - 83 Crystal Castles
Nov - 83 Major Havoc
Nov - 83 Pole Position II
Nov - 83 Crystal Castles CKT
Jan - 84 Firefox
Feb - 84 Firefox SD
Mar - 84 TX-1 SD
Jun - 84 I, Robot
Sep - 84 Return of the Jedi
Dec - 84 Marble Madness SYS 1
Schedule A; Page 4
<PAGE>
Mar - 85 Empire Kit
Apr - 85 Paperboy SYS 2
Jul - 85 Pack Rat SYS 1
Jul - 85 Pack Rat (KIT)
Jul - 85 Temple of Doom SYS 1
Jul - 85 Temple of Doom Kit
Oct - 85 Gauntlet
Apr - 86 Super Sprint
May - 86 Gauntlet 2 Player
Jul - 86 Road Runner SYS 1
Jul - 86 Road Runner Kit
Aug - 86 Gauntlet II
Aug - 86 Guantlet II 4 player kit
Aug - 86 Gauntlet II 2 player kit
Sep - 86 Champ Sprint SYS 2
Sep - 86 Champ Sprint Kit
Dec - 86 720
Feb - 87 Rolling Thunder
Mar - 87 Road Blaster SYS 1
Mar - 87 Road Blaster Kit
Mar - 87 Road Blaster SD
May - 87 Dunk Shot
Jul - 87 A.P.B.
Jul - 87 Dragon Spirit
Sep - 87 RBI Baseball Kit
Nov - 87 Xybots
Dec - 87 Pacmania
Feb - 88 Blasteroids
Apr - 88 Galaga '88
Apr - 88 Galaga '88 Kit
Apr - 88 Vindicators
May - 88 Pot Shot
May - 88 Final Lap SD
Jun - 88 Toobin
Aug - 88 Assault
Sep - 88 Cyberball
Oct - 88 Final Lap UR
Feb - 89 Tetris Kit
Feb - 89 Hard Drivin SD
Feb - 89 Splatterhouse PCB
Feb - 89 Vindicator Kits
Jun - 89 Hard Drivin Compact
Jun - 89 Escape
Jun - 89 Escape Kit
Aug - 89 Cyberball 2072 4 player
Sep - 89 Cyberball 2072 2 player
Sep - 89 Stunrunner
Oct - 89 Cyberball 2072 Conv. Kit
Nov - 89 Cyberball 2 PL Univ. Kit
Nov - 89 Skull & Crossbones
Schedule A; Page 5
<PAGE>
Nov - 89 Skull & Crossbones Kit
Dec - 89 4 Trax Moving
Jan - 90 Badlands
Jan - 90 Badlands Kit
Jan - 90 Cyberball vs. Kit
Feb - 90 Klax
Feb - 90 Klax Cabaret
Feb - 90 Klax Kits (Incl. Japan)
Apr - 90 4 Trax Stationary
Jun - 90 Gumball Rally
Jun - 90 Hydra
Jun - 90 Hydra Kits
Jul - 90 ThunderJaws Kits
Aug - 90 Pitfighter
Aug - 90 Race Drivin SD
Oct - 90 Race Drivin SD Conv. Kits
Nov - 90 Tetris Cabaret
Nov - 90 Shuuz
Nov - 90 Shuuz Kits
Dec - 90 Race Drivin Compact
Feb - 91 Rampart
Mar - 91 Pitfighter 2 PL Kits
Apr - 91 Batman Kits
Apr - 91 Rampart Kits Incl. Japan
Apr - 91 Race Drivin UR Conv. Kits
Apr - 91 Race Drivin Intl. Kits
May - 91 Race Drivin Panorama
Jun - 91 Road Riot
Sep - 91 Steel Talons
Oct - 91 Off the Wall Kit
Apr - 92 Relief Pitcher Game
May - 92 Relief Pitcher Kit
Jun - 92 Guardians of the Hood
Jul - 92 Guardians of the Hood Kit
Jul - 92 Moto Frenzy Deluxe
Sep - 92 Moto Frenzy Mini
Nov - 92 Space Lords
Mar - 93 Knuckle Bash Kit
Jun - 93 World Rally Kits
Oct - 93 Showcase '33
Jul - 94 T-MEK
Aug - 94 Primal Rage Showcase 33
Sep - 94 Primal Rage Family Cabinet
Oct - 94 Cops
Sep - 95 Hoop It Up
Nov - 95 Area 51 33" Showcase
Nov - 95 Area 51 25"
Schedule A; Page 6
<PAGE>
RELEASED CONSUMER TITLES
DATE TITLE FORMAT
After Burner NES
Alien Syndrome NES
Fantasy Zone NES
88 Gauntlet NES
Klax NES
Ms. Pacman NES
88 Pacman NES
Pacmania NES
88 RBI Baseball NES
RBI 2 Baseball NES
RBI 3 Baseball NES
Road Runner NES
Rolling Thunder NES
Shinobi NES
Skull & Crossbones NES
Super Sprint NES
May - 89 Tetris NES
Temple of Doom NES
Toobin NES
Vindicators NES
Jun - 95 RBI 95 32X
Oct - 94 Battlecorps Sega CD AFL
Feb - 95 BC Racers Sega CD AFL
Schedule A; Page 7
<PAGE>
Nov - 94 Lawnmowerman Sega CD AFL
Dec - 94 Soulstar Sega CD AFL
Dec - 95 Wayne Gretsky PC CD ROM
Sep - 95 Primal Rage PC CD ROM
Nov - 94 Rise of the Robots PC CD ROM
Nov - 94 Rise of the Robots PC Floppy Disk
Jun - 95 Striker Europe CD ROM
Nov - 94 Rise of the Robots Europe CD ROM
Sep - 95 Primal Rage Europe CD ROM
Jun - 95 Striker Europe Disk
Jun - 95 Rise of the Robots Europe Disk
Jun - 95 Rise of the Robots Amiga-Europe
PGA Tour Golf Europe Game Gear
KLAX Europe Game Gear
Marble Madness Europe Game Gear
Paperboy Europe Game Gear
Popils Europe Game Gear
Dec - 94 PGA Tour II Europe Game Gear
Jun - 95 Rise of the Robots Europe Game Gear
World Cup Soccer Europe Game Gear
Aug - 95 Primal Rage Gameboy
Mar - 95 Kawasaki Superbike Game Gear AFL
Dec - 93 Desert Strike Game Gear AFL
Dec - 93 Formula 1 Game Gear AFL
Prince of Persia Game Gear AFL
Schedule A; Page 8
<PAGE>
Super Space Game Gear AFL
Invaders
Mar - 95 Kawasaki Superbike Genesis
Davis Cup Tennis Genesis
Dragon's Fury Genesis
Dick Vitale Genesis
Basketball
Dec - 93 Dragon's Revenge Genesis
Nov - 93 Gauntlet 4 Genesis
Nov - 94 Generations Lost Genesis
Grindstormer Genesis
Hard Drivin Genesis
Klax Genesis
Nov - 94 Lawnmowerman Genesis
Ms. Pacman Genesis
Paperboy 2 Genesis
Paperboy Genesis
Pitfighter Genesis
Pacmania Genesis
Nov - 93 Awesome Possum Genesis
Prince of Persia Genesis
Dec - 93 Race Drivin Genesis
Aug - 95 Primal Rage Genesis
Rampart Genesis
RBI 93 Genesis
RBI 94 Genesis
Schedule A; Page 9
<PAGE>
RBI 3 Basketball Genesis
RBI 4 Genesis
Road Blasters Genesis
Nov - 94 Red Zone Genesis
Sylvester & Tweety Genesis
Steel Talons Genesis
Jun - 95 Wayne Gretzky Genesis
Bubba N' Stix Genesis AFL
Nov - 93 Formula 1 Genesis AFL
James Bond Genesis AFL
Nov - 94 Marko & His Magic Genesis AFL
Soccer Ball
MIG 29 Genesis AFL
Chuck Rock II Game Gear
Dec - 93 PGA Tour Golf Game Gear
Klax Game Gear
Marble Madness Game Gear
Paperboy 2 Game Gear
Paperboy Game Gear
Nov - 94 PGA Tour II Game Gear
Popils Game Gear
Aug - 95 Primal Rage Game Gear
Nov - 94 RBI 94 Game Gear
Dec - 94 Rise of the Robots Game Gear
World Cup Soccer Game Gear
Oct - 95 Power Drive Rally Jaguar
Schedule A; Page 10
<PAGE>
Dec - 95 Primal Rage Jaguar CD
Davis Cup Tennis Mega Drive-Europe
Dragon's Fury Mega Drive-Europe
Dick Vitale Mega Drive-Europe
Basketball
Dragon's Revenge Mega Drive-Europe
Gauntlet 4 Mega Drive-Europe
Hard Drivin Mega Drive-Europe
Kawasaki Superbike Mega Drive-Europe
Klax Mega Drive-Europe
Lawnmowerman Mega Drive-Europe
Paperboy Mega Drive-Europe
Paperboy 2 Mega Drive-Europe
Pitfighter Mega Drive-Europe
Pacmania Mega Drive-Europe
Rampart Mega Drive-Europe
RBI 94 Mega Drive-Europe
Nov - 94 Red Zone Mega Drive-Europe
Aug - 94 Sylvester & Tweety Mega Drive-Europe
Steel Talons Mega Drive-Europe
Mar - 95 Mega Swiv Mega Drive-Europe
A.C. Adapter Gameboy
A.C. Adapter Genesis
A.C. Adapter SNES
A.C. Adapter Game Gear
Control Pad Genesis
Schedule A; Page 11
<PAGE>
Control Pad NES
Control Pad SNES
Hi-Freq Control Genesis
Pad
Hi-Freq Control NES
Pad
Hi-Freq Control SNES
Pad
Hi-Freq Magnifier Game Gear
Hi-Freq Night Gameboy
Sight
Hi-Freq Power Clip Gameboy
w/adaptor
Hi-Freq Power Clip Game Gear
R.F. Switch All
Night Sight Gameboy
Power Clip w/A.C. Gameboy
adaptor
Power Clip Gameboy
Wayne Gretzky Kit Rest of World
Wayne Gretzky Mega Drive-Rest of
World
Kawasaki Superbike SNES-Rest of World
Primal Rage Kit Rest of World
Sep - 95 Primal Rage PC CD ROM-Rest of
World
Sep - 95 Primal Rage Gameboy-Rest of
World
Aug - 95 Primal Rage SNES-Rest of World
Schedule A; Page 12
<PAGE>
Sep - 95 Primal Rage Mega Drive-Rest of
World
Jul - 95 Striker Spindle PC CD ROM-
REST of World
Virtua Racing Saturn-Rest of
World
Dec - 95 Last Gladiators Saturn
Nov - 95 Virtua Racing Saturn
Sep - 93 Robo Aleste Sega CD
PGA Tour Golf Master System-
Europe
Klax Master System-
Europe
Ms. Pacman Master System-
Europe
Rampart Master System-
Europe
Dec - 95 Wayne Gretzky SNES
Dec - 95 Kawasaki Superbike SNES
Aug - 95 Primal Rage SNES
Jun - 95 Super RBI SNES
Blasteroids Computer Software
Rolling Thunder Computer Software
Dec - 95 Primal Rage Sony PSX
Dec - 95 Zero Divide Sony PSX
Klax NEC Turbografix
Return Fire Sony PSX
Constructor Sony PSX
T-MEK Sony PSX
Schedule A; Page 13
<PAGE>
Area 51 Sony PSX
Wayne Gretzky II Sony PSX
Wheels Sony PSX
Schedule A; Page 14
<PAGE>
SCHEDULE 1
---------
PROJECTS IN PROCESS
-------------------
(ATARI PC Games)
---------------
TITLE PLATFORM
Area 51 CD-ROM
Constructor Win '95/Mac-CD
Crisis Win '95
Dark Hermetic Order PC CD-ROM
Gretzky Hockey PC CD-ROM
Gretzky II Win '95
Primal Rage Mac-CD
RBI 96 EBM PC; CD-ROM
Return Fire CD-ROM
T-Mek PC; CD-ROM
<PAGE>
SCHEDULE 2
----------
PROJECTS IN PROCESS
-------------------
(HOME VIDEO GAMES)
------------------
TITLE PLATFORM
- - ----- --------
Area 51 Saturn; PSX
Constructor PSX
Gretzky 11 PSX
Gretzky Arcade Ultra 64
Last Gladiators Saturn
Power Drive Jaguar
Primal Rage Saturn; PSX
Return Fire PSX; Saturn
T-Mek PSX
Toonfighter PSX
Virtua Racing Saturn
Wheels (Driver) PSX
Zero Divide PSX
<PAGE>
EXHIBIT 10.3
CERTAIN INFORMATION HAS BEEN OMITTED UNDER A
CONFIDENTIAL TREATMENT REQUEST MADE PURSUANT TO
RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.
MASTER OPTION AND LICENSE AGREEMENT FOR ATARI PC GAMES
------------------------------------------------------
This Master Option and License Agreement (the "Agreement") is made and
entered into the 27th day of March, 1996, by and among WMS INDUSTRIES INC.
("WMS"), a Delaware corporation with offices at 3401 North California Avenue,
Chicago, Illinois 60618, and GT INTERACTIVE SOFTWARE CORP. ("GTIS"), a Delaware
corporation with offices at 16 East 40th Street, New York, New York 10016.
WITNESSETH:
-----------
WHEREAS, Williams Interactive Inc. ("WII"), a wholly-owned subsidiary
of WMS, has entered into an agreement with Warner Communications Inc. for the
acquisition of the stock of Atari Games Corporation ("AGC"); and
WHEREAS, AGC is engaged in the business of designing, manufacturing and
selling coin-operated amusement games and software products for dedicated home
game systems and multipurpose home computers; and
WHEREAS, GTIS is engaged in the business of publishing, manufacturing
and distributing entertainment software products; and
WHEREAS, GTIS desires to acquire certain rights from WMS and AGC and
other subsidiaries of AGC with respect to Games, as such term is defined herein,
and WMS desires to grant and to cause AGC to grant such rights to GTIS;
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
1. DEFINITIONS.
------------
1.1. "Accepted Game" shall mean any Game with respect to which
GTIS has received a license or has exercised an option to acquire a license
provided for in Section 2 hereof.
1.2. "AGC" shall have the meaning ascribed in the first recital
of this Agreement.
1.3. "Atari Game" shall mean (i) any game developed or acquired
by or on behalf of AGC or entities which were affiliates of AGC prior to AGC
being acquired by WII pursuant to the Stock Purchase Agreement, including,
without limitation, those games listed on Schedule I hereto, and any adaptations
of such games for other platforms, and (ii) any game currently in development or
developed subsequent to such acquisition by or on behalf of AGC or a member of
the Atari Group, or developed, in whole or in substantial part, by any person or
persons who were employees of AGC or a member of the Atari Group as of the
closing date of such acquisition and who are employees of any member of the WMS
Group at the time of such development, and any adaptations of such games for
other platforms. For purposes of this Section, employees shall be deemed to
include independent contractors who work a substantial portion of their time at
the facilities of any member of the WMS Group.
1.4. "Atari Group" shall mean AGC, or any entity, a majority
of whose capital stock is owned directly or indirectly by AGC or with respect to
which during the term of this Agreement, AGC, directly or indirectly, has the
legal power, without the consent of any third party, to direct the acquisition
of rights to or exploitation of Games on Designated Multipurpose Computer
Platforms.
2
<PAGE>
1.5. "Atari Home Computer Software Distribution and License Agreement"
shall mean an agreement for the license of an Accepted Game for use solely on
Designated Multipurpose Computer Platforms in the form of Exhibit A annexed
---------
hereto, as the same may be amended from time to time by written agreement of the
parties thereto.
1.6. "Designated Multipurpose Computer Platforms" shall mean IBM PC or
Apple Macintosh or other compatible multipurpose home computers which utilize
floppy disks or CD-ROMs or other stand alone devices which may hereafter replace
or supplement floppy disks or CD-ROMs in all operating systems now known or
hereafter developed or designed for use on the aforesaid multipurpose home
computers. Designated Multipurpose Computer Platforms shall not for purposes of
this Agreement include dedicated home game systems, such as those marketed by
Nintendo(R), Sega(R), Atari(R), Sony(R), etc.
1.7. "Early Termination Event" shall mean AGC ceasing to be at least
50.1 % owned by a member of the WMS Group, or the Atari Group transferring a
majority of its intellectual property assets and licenses to a person or entity
who is not a member of the WMS Group.
1.8. "Effective Date" shall mean the date WII closes the acquisition
of AGC pursuant to the Stock Purchase Agreement.
1.9. "First Release" or "First Released" shall have the meaning
ascribed in Section 2.4 hereof.
1.10. "Game" shall mean any coin-operated video game (including kits),
any home video game and any on-line game which is an Atari Game and which is
released or intended to be released, by any member of the WMS Group for sale in
commercial quantities
3
<PAGE>
in the normal course of business. Home video games shall include games designed
for play on dedicated home game systems, such as those marketed by Nintendo,
Sega, Atari, Sony, etc. as well as on multipurpose home computers, such as those
marketed by IBM and Apple.
1.11. "Game Version", or version of a Game, or any similar phrase,
whether or not capitalized, shall mean the version of a Game designed to play on
a specific Designated Multipurpose Computer Platform.
1.12. "GTIS" shall mean GTIS or any affiliate of GTIS to whom any
rights to exploit any Accepted Games granted hereunder may be sublicensed. An
affiliate of GTIS shall refer to an entity, a majority of whose capital stock is
owned directly or indirectly by GTIS or with respect to which during the term of
this Agreement, GTIS, directly or indirectly, has the legal power without the
consent of any third party to direct the manufacture, distribution or sale of
Accepted Games.
1.13. "GTIS Master Home Video Agreement" shall mean the GTIS Master
Option and License Agreement (Home Video) dated March 31, 1995, as amended,
among WMS, Williams Electronics Games, Inc., Midway Manufacturing Company,
Williams Entertainment Inc. and GTIS.
1.14. "GTIS Master PC Agreement" shall mean the GTIS Master
Option and License Agreement dated December 28, 1994, as amended, among WMS,
Williams Electronics Games, Inc., Midway Manufacturing Company, Williams
Entertainment Inc. and GTIS.
4
<PAGE>
1.15. "Master Atari Home Video Agreement" shall mean the Master
Option and License Agreement for Atari Home Video Games being executed
simultaneously herewith.
1.16. "Master Disk" shall mean a CD-ROM disk or floppy disk or any
other stand alone devices which may hereafter replace or supplant CD-ROM or
floppy disks, containing the source code utilized by the Atari Group for an
Accepted Game.
1.17. "Milestones" shall mean the defined tasks in the process of the
development of a Technically Acceptable Master Disk as are deemed sufficiently
important such that the achievement of such tasks will entitle the developer to
receive a payment, the amount of such payment, the standards for approval which
will entitle that developer to receive such payment and the circumstances under
which the development arrangement may be terminated prior to completion.
1.18. "Minimum Guaranteed Advance Royalty" shall have the meaning
ascribed in Section 3 hereof.
1.19. "New Game Option Notice Date" shall have the meaning ascribed
in Section 2.4 hereof.
1.20. "Option Period" shall mean the period commencing on the
Effective Date and ending on the earlier to occur of (i) the expiration date,
including any extensions thereof, of GTIS' first option to acquire licenses
pursuant to Section 2.1 of the GTIS Master PC Agreement, or (ii) the first date
after the Effective Date on which an Early Termination Event occurs.
5
<PAGE>
1.21. "Pirate" shall mean an individual or entity which counterfeits a
game or sells counterfeit games.
1.22. "Projects in Process" shall have the meaning ascribed in Section
2.3 hereof.
1.23. "Stock Purchase Agreement" shall mean the Stock Purchase
Agreement dated February 23, 1996 between Warner Communications Inc. and WII
pursuant to which Warner Communications has agreed to sell and WII has agreed
to purchase all of the outstanding stock of AGC.
1.24. "Technically Acceptable Master Disk" shall mean a completed and
functioning Master Disk for the Accepted Game in a format substantially ready to
be reproduced and manufactured for retail distribution and the instruction
manual therefor. The Accepted Game contained in the Technically Acceptable
Master Disk will have been alpha and beta tested and all known material bugs and
defects will have been corrected.
1.25. "WMS Group" shall mean WMS or any subsidiary, affiliate or other
entity, a majority of whose capital stock is owned directly or indirectly by WMS
or with respect to which during the term of this Agreement, WMS, directly or
indirectly, has the legal power, without the consent of any third party, to
direct the acquisition of rights to or exploitation of Games on Designated
Multipurpose Computer Platforms.
2. GRANT AND TERMINATION OF OPTION; EXERCISE OF OPTION.
---------------------------------------------------
2.1. Effective from and after the Effective Date, the Atari Group
hereby grants to GTIS a first option to acquire a license, in the form of the
Atari Home Computer Software Distribution and License Agreement, to manufacture,
distribute and sell versions of the
6
<PAGE>
Games for use solely on Designated Multipurpose Computer Platforms, with respect
to (i) Projects in Process and (ii) other new Games First Released by the Atari
Group during the Option Period.
2.2. The Atari Group shall not grant a license to any third parties to
manufacture, distribute and sell versions of a Game for use on any Designated
Multipurpose Computer Platforms if such Game would be subject to GTIS' first
option right to manufacture, distribute and sell versions of such Game on
Designated Multipurpose Computer Platforms, as specified in Section 2.1 hereof,
until such time as GTIS shall have declined to acquire a license, or the option
periods specified in Sections 2.3, 2.4 and 2.5 hereof, whichever is applicable,
shall have expired, or the applicable Atari Home Computer Software License
Agreement shall otherwise permit. GTIS understands, acknowledges and agrees that
(i) on the Effective Date the Atari Group's library of Games, as well as
Projects in Process and subsequent versions of Games, may be subject to rights
held by third parties, including affiliates of Warner Communications Inc. who
are not members of the Atari Group; any license or rights acquired by GTIS
hereunder shall be subject to such third party rights and the form of Atari Home
Computer Software and License Agreement will be deemed modified to the extent so
required; (ii) with respect to Games manufactured by the Atari Group under
license from third parties, the rights granted by the Atari Group to GTIS cannot
exceed the rights obtained by and will be subject to the limitations imposed on
the Atari Group from such third party and the form of Atari Home Computer
Software Distribution and License Agreement will be deemed modified to the
extent so required; (iii) although the Atari Group is developing Games in the
normal course of business, the Atari Group is under no obligation to develop
Games or to present any
7
<PAGE>
minimum number of Games to GTIS under this Agreement; (iv) under certain
circumstances the ownership of the Atari Group may revert to Warner
Communications Inc. pursuant to the Stock Purchase Agreement and the documents
executed in connection therewith; and (iv) Williams/Nintendo, Inc. (a joint
venture company in formation owned by a wholly owned subsidiary of WMS and
Nintendo of America Inc.) has been granted a first right of negotiation with
respect to the exclusive right to produce and distribute certain coin-operated
games for all formats, including home computers, if those games are implemented
for play upon certain coin-operated hardware systems proprietary to Nintendo and
its licensors.
2.3. Schedule 2 hereto sets forth the titles of multipurpose
home computer games currently under development by the Atari Group for which the
Atari Group has heretofore made development advances and as to which the Atari
Group may have the right to grant licenses to GTIS to manufacture, distribute
and sell versions of the Game for use on one or more Designated Multipurpose
Computer Platforms ("Projects in Process"). Upon request of GTIS, GTIS shall be
provided the opportunity to review all existing third party agreements relating
to Projects in Process, as well as other games in the Atari Group library in
respect of which GTIS may have rights hereunder, subject to any applicable
confidentiality provisions in such agreements. Subject to rights of
distribution and other agreements existing on the date hereof, GTIS shall have a
period of sixty (60) days from the Effective Date to notify AGC in writing that
it elects to exercise its option to license one or more Projects in Process
under this Agreement. The Game versions included in GTIS' notice of election
shall become Accepted Games under this Agreement, except that the Atari Group
shall be under no obligations with respect to the time or method of development
of a Technically Acceptable Master Disk and GTIS
8
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
shall not be required to fund * % of the development costs upon receipt of a
Technically Acceptable Master Disk. GTIS shall be required to pay AGC * % of all
developer royalties payable with respect to sales of such Games without right of
recoupment. GTIS shall have no further rights with respect to Projects in
Process not accepted within said 60 day period. The Atari Group shall have the
right to terminate the development of any Projects in Process at any time for
any reason.
2.4. With respect to Games other than Projects in Process which are
First Released by the Atari Group for the coin-operated, home video or on-line
markets after the Effective Date, including Games which were in the Atari Group
library on the Effective Date but which are re-released with new copyright
notices or other changes after the Effective Date, the Atari Group shall notify
GTIS in writing as to the existence of a Game within thirty (30) days after the
Atari Group has begun to ship the Game for use commercially in the ordinary
course of business (and not merely for the Atari Group's test purposes). The
date of such notice is hereinafter referred to as the "New Game Option Notice
Date." A Game shall be deemed First Released by the Atari Group on the date of
the first commercial shipment in the normal course of business and with respect
to on-line Games when such Games are first commercially sold to subscribers to
the on-line service. If the Atari Group does not actually make a commercial
shipment of a Game notwithstanding its original intention to do so, then the
Atari Group shall notify GTIS of its decision not to make such shipments and the
New Game Option Notice Date for such Game shall be deemed to be the date of such
notice. Each notice given in accordance with this Section 2.4, (i) shall
identify the Game, (ii) shall describe in reasonable detail its characteristics
and method of play, and (iii) shall set forth a proposed budget and time
9
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
frame for developing Technically Acceptable Master Disks for such game for play
on Designated Multipurpose Computer Platforms, and the identity of the proposed
developer or developers. GTIS shall have a reasonable opportunity to consult
with the Atari Group prior to the Atari Group determining the proposed budget,
time frame and developers, but the final decision shall be made by the Atari
Group. Each such notice relating to a Game manufactured by the Atari Group
pursuant to a license from or subject to other agreement with any third party
shall set forth a summary of any material limitations upon the scope of the
license in respect thereof which may be granted to GTIS hereunder, the amount or
method of determining third party royalties payable thereunder and the material
terms of such license or other agreement applicable to platforms other than
Designated Multipurpose Computer Platforms. With respect to each Game as to
which GTIS receives written notice as hereinabove provided, GTIS shall have a
period of ninety (90) days from the New Game Option Notice Date to notify AGC in
writing that it elects to exercise its option to license the Game. Upon receipt
of such notice from GTIS, the Atari Group will proceed to develop or retain a
third party to develop a Technically Acceptable Master Disk for such Game for
play on one or more Designated Multipurpose Computer Platforms as identified in
the budget and will use reasonable efforts to complete or cause the completion
of such development within twelve (12) months of receipt of such notice from
GTIS. In addition to any other payments made hereunder or under any Atari Home
Computer Software Distribution and License Agreement, subject to the provision
of Paragraph 2.7 and Paragraph 2.11 below, GTIS shall pay to AGC * % of the
actual costs of such code development simultaneously with receipt of a
Technically Acceptable Master Disk and a reasonably detailed written summary of
the development costs, none of which payment shall be
10
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
recoupable by GTIS or repayable to GTIS in any manner or for any reason. It is
understood that the development budget shall include a compensation expense of
up to $ * for each Game version if the Atari Group employs a dedicated in-house
producer for the purpose of such development.
2.5. If, by itself, or through use of a third party developer, the
Atari Group determines to develop or acquire a Game for play on multipurpose
home computers that it has not theretofore developed or acquired for the coin-
operated or dedicated home game player market, it shall notify GTIS in writing
as to its intention, which notice shall describe in reasonable detail the
proposed characteristics of the Game and shall set forth an estimated budget and
time frame for developing Technically Acceptable Master Disks for such Game for
play on one or more Designated Multipurpose Computer Platforms and the identity
of the proposed developers. Each such notice relating to a Game the rights to
which are derived from a license or other agreement with a third party shall set
forth a summary of any material limitations upon the scope of the license in
respect thereof which may be granted to GTIS hereunder, the amount or method of
determining third party royalties payable thereunder and the material terms of
such license or other agreement applicable to platforms other than Designated
Multipurpose Computer Platforms. GTIS shall have an opportunity to consult with
the Atari Group prior to the Atari Group determining the proposed budget, time
frame and developers, but the final decision shall be made by AGC. GTIS shall
have a period of fifteen (15) days from the date of such notice to notify AGC in
writing that it elects to exercise its option to license the Game. Upon receipt
of such notice from GTIS, the Atari Group will proceed to develop or retain a
third party to develop a Technically Acceptable Master Disk for such Game for
play on one or more
11
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
Designated Multipurpose Computer Platforms as identified in the budget and will
use reasonable efforts to complete or cause the completion of such development
within the estimated time frame set forth in the notice. In addition to any
other payments made hereunder or under any Atari Home Computer Software
Distribution and License Agreement, subject to the provisions of Paragraphs 2.7
and 2.11 below, GTIS shall pay to AGC * % of the actual costs of such code
development simultaneously with receipt of a Technically Acceptable Master Disk
and a reasonably detailed written summary of the development costs, none of
which payment shall be recoupable by GTIS or repayable to GTIS in any manner or
for any reason. It is understood that the development budget shall include a
compensation expense of up to $ * for each Game version if the Atari Group
employs a dedicated in-house producer for the purpose of such development.
2.6. Any Game as to which GTIS has exercised its option within the
notice periods specified in Sections 2.3, 2.4 and 2.5 above shall become an
Accepted Game for all purposes of this Agreement. With respect to each Accepted
Game, GTIS and the member of the Atari Group which is manufacturing such Game
shall enter into an Atari Home Computer Software Distribution and License
Agreement which shall be dated the earlier of: the date GTIS shall have given
notice of its acceptance thereof, or the date which is sixty (60) days following
the date of the option notice. If either of such parties shall wrongfully refuse
to enter into an Atari Home Computer Software Distribution and License Agreement
with respect to any Accepted Game, then, in addition to any other rights of the
non-defaulting party hereunder, at the option of the non-defaulting party, such
Atari Home Computer Software Distribution and License Agreement shall be deemed
to have been entered into as of the date on which GTIS shall
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THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
have exercised its option to acquire the license of such Accepted Game as
provided herein. GTIS understands and agrees that it will have no rights
whatsoever in respect of any Game which does not become an Accepted Game in
accordance with the terms of this Agreement and for which an Atari Home Computer
Software Distribution and License Agreement is not duly executed (or deemed
executed as provided above), and the Atari Group may exploit its rights in any
Game which does not become an Accepted Game in any manner it sees fit, free and
clear of this Agreement.
2.7. The parties hereto acknowledge that notwithstanding efforts to
produce reliable development budgets under Sections 2.4 and 2.5 hereof, in
certain instances the actual costs of development may exceed the budgeted costs.
In those instances, AGC shall notify GTIS of the projected budget overrun (the
"Overrun Notice") promptly after AGC becomes aware of such overrun.
2.7.1. The following provisions shall apply to budget overruns in
respect of Games which became Accepted Games under Section 2.4 hereof ("Section
2.4 Games"); provided, that this Section 2.7.1 shall not apply to Accepted Games
as to which GTIS has exercised its rights of review and approval under Section
2.11 hereof. If the actual cost of development of a Section 2.4 Game being
developed by a third party developer is not more than * % of the budget approved
by GTIS, GTIS will pay AGC * % of such actual costs as provided in Section 2.4
hereof. If the actual costs of development of a Section 2.4 Game exceed * % of
the budget with respect to a Game being developed by a third party developer or
* % of the budget with respect to a Game being developed in-house by the Atari
Group, whichever is applicable, GTIS shall have the right, by notice to AGC
given within ten (10) days of receipt
13
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
by GTIS of the Overrun Notice, to elect to bear * % of the cost of such overrun
or to decline to do so. A failure by GTIS to give such notice within such ten
(10) days shall be deemed an election to decline to bear such costs. If GTIS so
declines, AGC shall be entitled to elect to (i) abandon the development, in
which event AGC shall bear the entire cost of the development, or (ii) proceed
with the development with GTIS, in which case GTIS shall pay * % of (A) the
actual costs of the development up to * % of the budget with respect to a Game
being developed by a third party developer or (B) * % of the budget with respect
to a Game being developed in-house by the Atari Group, whichever is applicable,
as provided in Section 2.4 and AGC shall bear the balance of the costs of such
development.
2.7.2. The following provisions shall apply to budget overruns in
respect of Games which become Accepted Games under Section 2.5 hereof ("Section
2.5 Games"); provided, that this Section 2.7.2 shall not apply to Accepted Games
as to which GTIS has exercised its rights of review and approval under Section
2. 11 hereof. If the actual cost of development of a Section 2.5 Game being
developed by a third party developer is not more than * % of the budget approved
by GTIS, GTIS will pay AGC * % of such actual costs as provided in Section 2.5
hereof. If the actual costs of development of a Section 2.5 Game exceed * % of
the budget with respect to a Game being developed by a third party developer or
* % of the budget with respect to a Game being developed in-house by the Atari
Group, whichever is applicable, GTIS shall have the right, by notice to AGC
given within ten (10) days of receipt by GTIS of the Overrun Notice, to elect to
bear * % of the cost of such overrun or to decline to do so. A failure by GTIS
to give such notice within such ten (10) days shall be deemed an election to
decline to bear such costs. If GTIS so declines, AGC shall have the right to
abandon
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<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
the development, in which event AGC shall bear the entire cost of the
development, or to elect the options provided below in this Section 2.7.2. AGC
may elect (i) to proceed with the development with GTIS in which case GTIS shall
pay * % of (A) the actual costs of the development up to * % of the budget with
respect to Games being developed by a third party developer or (B) * % of the
budget with respect to Games being developed in-house, whichever is applicable,
and AGC shall bear the balance of the costs of such development; or (ii) in the
case of a Section 2.5 Game being developed by a third party developer who is not
contemporaneously developing the Game for AGC for other platforms, such as coin-
operated or dedicated home games systems, AGC may elect to proceed with the
development without GTIS involvement, in which case AGC shall bear the entire
costs of development, and the Game shall no longer be deemed an Accepted Game
and GTIS shall have no further rights in such Game.
2.7.3. Subject to the provisions of Section 2.11 hereof, GTIS shall
bear * % of the actual costs of development of any Section 2.4 Game or Section
2.5 Game as to which GTIS has exercised its rights of review and approval under
Section 2. 1 1.
2.7.4. Anything herein to the contrary notwithstanding, on notice to
GTIS and with consent of GTIS, which consent may not be unreasonably withheld,
AGC may elect to terminate development at any time prior to delivery to GTIS of
a Technically Acceptable Master Disk, at no cost to GTIS, if AGC determines that
further development work is not technically or economically desirable. If GTIS
fails to respond in writing to WMS' notice within ten (10) Business Days after
receipt thereof by GTIS, GTIS shall be deemed to have consented to AGC's
election to terminate development. If AGC should thereafter determine to
15
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
recommence development work, it will promptly notify GTIS which will have the
option on fifteen (15) days' notice to AGC to participate in such renewed
development on the same terms and conditions as if the original development had
continued uninterrupted. If GTIS withholds its consent to such termination of
development pursuant to this Section 2.7.4, GTIS shall (i) promptly pay to AGC
* % of the costs of development to the date of AGC notice of intent to terminate
(excluding the budgeted compensation expense of the Atari Group's dedicated in-
house producer, if any); (ii) take over responsibility for development of a
Technically Acceptable Master Disk with the developer; and (iii) bear the costs
of development in excess of * % of the budget. Upon receipt by AGC of a notice
from GTIS that GTIS has received a Technically Acceptable Master Disk with
respect to the Game, AGC shall pay to GTIS the amount, if any, by which * % of
the actual costs of development up to * % of the budget exceeds the development
costs theretofore paid by the Atari Group.
2.8. If GTIS has not exercised its option under Sections 2.4
or 2.5 above with respect to a Game and if, before a member of the Atari Group
enters into a binding agreement with a third party for Designated Multipurpose
Computer Platform rights in such Game, there shall be a material change in
design, a material decrease in the development budget or a change in the
identity of the developer from those presented to GTIS before its declination to
exercise its option, the Atari Group will present such changed information to
GTIS who shall have thirty (30) days after receipt of such information to
determine to elect to exercise its option.
2.9. GTIS acknowledges that the Atari Group manufactures and
sells Games for many different entertainment platforms, including coin-operated
games and home games of all types, and that any Games in respect of which GTIS
obtains rights hereunder for
16
<PAGE>
exploitation on Designated Multipurpose Computer Platforms, including rights
under Section 2.5 hereof, may be developed by the Atari Group for other
entertainment platforms and GTIS will have no rights therein.
2.10. AGC agrees to use commercial efforts in its reasonable judgment,
to acquire rights to exploit Games in Designated Multipurpose Computer Platforms
when it acquires rights in Games from third parties or develops rights in Games
internally or through joint ventures. It is understood that with respect to on-
line Games, third parties may require such games to be exclusively offered on-
line, and GTIS shall have no rights hereunder with respect to such exclusive on-
line games.
2.11. Anything in Sections 2.4 or 2.5 to the contrary notwithstanding,
in the event that after March 31, 1996 the WMS Group desires to hire a third
party developer to develop a Technically Acceptable Master Disk for an Accepted
Game, GTIS shall have the right to review and approve (such approval not to be
unreasonably withheld) the proposed Milestones prior to the WMS Group entering
into a binding agreement with such developer (such right of review and approval
shall not extend to any terms of the developer agreement other than the
Milestones). The WMS Group shall notify GTIS in writing of its intention to hire
such third party developer and GTIS shall notify WMS in writing within five (5)
Business Days after receipt of the WMS Group notice that GTIS desires to
exercise its right of review and approval of Milestones. GTIS' failure to timely
notify WMS shall be deemed its election not to exercise such right of review and
approval. If GTIS shall exercise such right, GTIS and WMS shall negotiate in
good faith to reach agreement with respect to the proposed Milestones as
promptly as practicable. If such agreement is not reached within ten (10)
Business Days after receipt by
17
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
WMS of GTIS' aforesaid notice, then WMS may notify GTIS of Milestones which are
acceptable to WMS and GTIS shall have three (3) Business Days after receipt of
such notice to accept such Milestones. If GTIS does not accept such Milestones
within such three (3) Business Day period, WMS may proceed to enter into an
agreement with such developer as if GTIS had elected not to exercise its right
of review and approval. If a developer agreement is signed following acceptance
by GTIS of the Milestones as aforesaid, upon approval by GTIS and WMS of the
material delivered and other requirements of each of such Milestones, GTIS shall
pay to WMS * % of the Milestone payments within five (5) Business Days after
GTIS receives WMS' invoice therefor. Such payment shall be credited against the
obligations of GTIS to pay WMS * % of the actual costs of code development
simultaneously with the receipt of a Technically Acceptable Master Disk set
forth in Sections 2.4 and 2.5. With respect to any Technically Acceptable Master
Disk for which GTIS is obligated to fund * % of the Milestone payments, if WMS
exercises its rights in Section 2.7.4 to terminate development, the following
shall apply: (1) if GTIS consents to such termination, neither WMS nor GTIS
shall be entitled to any reimbursement of the Milestone payments previously made
by the other, or (2) if GTIS withholds its consent to such termination, if
permitted by the developer agreement, GTIS may take over the responsibility for
development of a Technically Acceptable Master Disk with the developer and fund
the balance of the development costs. Upon receipt by WMS of a notice from GTIS
that GTIS has received a Technically Acceptable Master Disk with respect to the
Game, WMS shall pay to GTIS, the amount, if any, by which * % of the original
development budget approved by WMS exceeds the Milestone payments previously
made by WMS. If GTIS has fully funded its obligations to make Milestone payments
theretofore due, GTIS may elect to
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<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
terminate its obligations to make Milestone payments with respect to future
Milestones on which the developer has not yet commenced work; provided that GTIS
may not so elect unless the agreement with the developer permits WMS to
terminate its obligations to the developer by making payments only for
Milestones previously achieved or in work or GTIS agrees to pay * % of any costs
of terminating the developer agreement. If GTIS properly elects to terminate its
obligation to make Milestone payments, (i) if WMS agrees to such termination and
also terminates the developer agreement, neither WMS nor GIIS shall be entitled
to any reimbursement of the Milestone payments previously made by the other, or
(ii) if WMS elects to continue development of the Technically Acceptable Master
Disk, GTIS shall be entitled to reimbursement of the Milestone payments
previously made by it upon completion by WMS of the Technically Acceptable
Master Disk, but GIIS shall be deemed to have waived any future rights to
distribute or license the version of the Game embodied in the Technically
Acceptable Master Disk. GTIS shall hold WMS harmless for any claims by
developers against the WMS Group by reason of GTIS' failures to make Milestone
payments under this Section. WMS shall use its best efforts to cause agreements
with developers entered into after March 31, 1996 which relate to Technically
Acceptable Master Disks for which GTIS is making * % of the Milestone payments
to provide for GTIS to have the right to assume the rights and obligations under
that agreement should WMS elect to terminate the agreement and GTIS elect to
continue it. If both WMS and GTIS elect to terminate a developer agreement and
any proceeds are subsequently generated from the abandoned project, the proceeds
shall be shared by WMS and GTIS in proportion to their Milestone payments made
with respect to such abandoned project. All ownership and rights in software,
artwork, literary text, designs and other works, and all
19
<PAGE>
intellectual property relating thereto, which would have vested in a member of
the WMS Group but for such termination shall vest in such member of the WMS
Group, not GTIS, even if GTIS assumes the developer agreement, and the WMS Group
shall remain entitled to all of the benefits of the representations and
warranties, indemnifications, confidentiality provisions, restrictions,
covenants and other obligations of the developer which would survive termination
of such agreement. The provisions of this Section 2.11 are in all cases
subject to the provisions of Section 2.12. For developer agreements in respect
of which GTIS has agreed to make Milestone payments, the WMS Group shall provide
GTIS a copy of the final version of the developer agreement within ten (10)
Business Days after the same is signed; provided, however, that the WMS Group
shall have the right to redact any information in that agreement relating to
third parties which does not affect GTIS' rights or obligations.
2.12. If permitted under existing agreements with third
parties, AGC agrees to submit its choice of each proposed third party developer
to be selected under Sections 2.4 and 2.5 of this Agreement to GTIS for GTIS'
approval, such approval not to be unreasonably withheld, and GTIS shall notify
AGC of its decision with respect to such developers within five (5) Business
Days after receipt by GTIS of AGC's notice. If the Technically Acceptable
Master Disk being developed is based upon a coin-operated Game which has been
released within the 24 month period preceding AGC's request for GTIS' approval
of the developer, or is released after such request for approval but prior to
the release of the home version of such Game, AGC shall have the final decision
in selecting the developer if a representative of AGC's coin-operated game
development group advises GTIS in writing that the selection of a particular
developer is important to such group. In all other circumstances, if
20
<PAGE>
GTIS reasonably disapproves of the developer suggested by AGC, then that
developer shall not be used and a new developer shall be selected by AGC,
subject to GTIS' right of approval as provided above in this Section 2.12.
2.13. Royalties payable to AGC pursuant to Schedule B of the
Atari Home Computer Software Distribution and License Agreement are measured by
the wholesale price of Licensed Product. Accordingly, reasonably in advance of
WMS' decision to enter into a developer contract and reasonably in advance of
GTIS' initial release of the Licensed Product, GTIS shall advise WMS, at WMS'
request, of GTIS' expected pricing strategy and the reasons therefor. Nothing
herein shall be deemed to restrict GTIS' freedom in selecting wholesale sales
prices it considers appropriate, which shall be in GTIS' sole discretion.
2.14. If, under Section 2.1 of any Atari Home Computer Software
Distribution and License Agreement entered into under this Agreement, Licensor
has granted written approval (which shall not be unreasonably withheld) to
Licensee of a sublicensee for the Licensed Property, such approval shall apply
to the sublicensing by that sublicensee of all Licensed Properties licensed to
Licensee under Atari Home Computer Software Distribution and License Agreements
entered into under this Agreement, subject to the following: (i) the sublicense
agreements shall contain provisions with respect to quality of Licensed Product,
trademarks, copyrights, materials, other intellectual property rights, rights of
additional sublicensing or assignment, termination rights, confidentiality,
accounting, auditing, reporting and payment procedures in form agreed to by GTIS
and WMS, and the form as so agreed to may be used by all approved sublicensees
described in clause (iii) below; provided that if such form is not so used, any
other form to be used shall be subject to prior approval as provided in
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<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
this subsection (i); (ii) no such blanket approval shall be deemed given with
respect to Licensed Properties as to which approval requirements imposed by
third parties, such as the NFL and NBA, apply, (iii) if the sublicense is for a
Marketing Area other than those designated as Key Marketing Areas in such Atari
Home Computer Software Distribution and License Agreement and if the expected
sales volume in such Marketing Area, in GTIS' good faith judgment, is an average
of * units or less per SKU per year, Licensee will not be required to obtain
Licensor's prior written approval of the terms of such license but Licensee will
be required to provide a copy of each sublicense to Licensor within ten (10)
Business Days after GTIS enters into such sublicense; and (iv) if the Marketing
Area is designated as a Key Marketing Area or if, in GTIS' good faith judgment,
the expected sales volume for such Marketing Area is more than an average of *
units per SKU per year, Licensee will be required to obtain Licensor's prior
written approval, which Licensor will not unreasonably withhold, of the terms of
a sublicense for such Marketing Area even if the identity of the sublicensee has
been previously approved; provided, however, if a sublicense is for multiple
platforms and multiple games, the approval of the sublicense will be deemed to
be approval for all Games distributed under that sublicense (subject to clause
(ii)). Anything to the contrary notwithstanding, (x) if a previously approved
sublicensee becomes an Exporter (as such term is defined in Exhibit A to the
GTIS Master Home Video Agreement) or a Pirate, Licensee will immediately upon
becoming aware thereof notify Licensor of the identity of such Exporter or
Pirate and as soon as practicable terminate the sublicense upon request by
Licensor, and (y) Licensor and Licensee will review every two years the identity
of sublicensees, and those sublicensees who previously received blanket approval
as provided in the first sentence of this Section and who are no longer
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<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
considered acceptable by Licensor, in the exercise of Licensors' reasonable
judgment, will no longer have such blanket approval and will be subject to
Licensor's prior approval with respect to all future sublicenses in accordance
with the approval procedures set forth above. Licensee shall use all reasonable
efforts to cause each agreement with its subucensees to permit Licensee to
terminate such agreement immediately if such sublicensee shall be or become an
Exporter or a Pirate.
2.15. Within 60 days from the Effective Date, GUS shall have
the right to propose to AGC five multipurpose home computer game projects
involving up to a maximum of 13 titles from the existing library of Atari Group
games listed on Schedule 2 hereto. AGC shall have the right to veto up to three
of the titles selected and GTIS may replace any title so vetoed by selecting
another available title from the aforesaid library. If GTIS has not proposed
all five game projects within such 60 days, it may propose the remaining
projects thereafter, but such later projects may involve only such titles as AGC
has not exploited itself or through third parties. GTIS will pay all costs of
such projects, including Third Party Fees and Royalties, advertising and all
manufacturing and development costs. AGC will own all copyrights, trademarks,
intellectual property and code developed in connection with such projects. GTIS
will pay AGC a royalty of * % of Net Wholesale Sales Price, as such term is
defined in Schedule B to the Atari Home Computer Software Distribution and
License Agreement, of such games. Sublicensing revenues shall be treated in the
same manner as sublicensing revenues from Accepted Games except that AGC's share
shall be * % of such revenues instead of * %. Bundling revenues will be treated
the same as sublicensing revenues. Royalties payable to AGC will be recoupable
against the Minimum Guaranteed Advance Royalty. AGC will have rights
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<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
to approve product and packaging quality and advertising and promotional
materials as provided in the distribution and license agreements to be entered
into with respect to each such project. Such distribution and licensing
agreement shall be substantially in the form of the Atari Home Computer
Distribution and License Agreement, with such changes therein as are required to
reflect the provisions of this Section 2.15.
3. MINIMUN GUARANTEED ADVANCE ROYALTY. In consideration for both the
------------------------------------
option granted herein and in the Master Atari Home Video Agreement and as a
guaranteed advance royalty, GTIS is paying to WMS the aggregate sum of * Dollars
("Minimum Guaranteed Advance Royalty") in installments as follows:
* Dollars shall be paid by wire transfer to WMS in immediately available funds
on the Effective Date and * Dollars shall be paid in immediately available
funds on or before one year after the Effective Date. It is understood that
under no circumstances shall the WMS Group or the Atari Group be required to
repay any portion of such amounts nor shall GTIS be entitled to any set off or
to claim the right not to pay any portion of such amounts for any reason;
provided that GTIS shall be entitled to recoup such payments out of royalties,
to the extent provided in the Atari Home Computer Software Distribution and
License Agreements entered into pursuant to this Agreement and the Atari Home
Video Distribution and License Agreements entered into pursuant to the Master
Atari Home Video Agreement, and to the extent not so recouped from those
agreements, GTIS shall be entitled to recoup such payments out of royalties to
the extent provided in the GTIS Master PC Agreement and GTIS Master Home Video
Agreement and related license agreements.
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<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF WMS. WMS represents and
-------------------------------------
warrants that this Agreement has been duly authorized, executed and delivered by
WMS; WMS has the full power and authority to enter into this Agreement and to
perform its obligations hereunder and this Agreement constitutes the valid and
binding obligation of WMS, enforceable in accordance with its terms, and the
making of this Agreement by WMS does not violate or conflict with any agreement,
right or obligation existing between WMS and any other person, firm or
corporation.
5. REPRESENTATIONS AND WARRANTIES OF GTIS. GTIS represents and
----------------------------------------
warrants that this Agreement has been duly authorized, executed and delivered by
GTIS; GTIS has the full power and authority to enter into this Agreement and to
perform its obligations hereunder and this Agreement constitutes the valid and
binding obligation of GTIS enforceable in accordance with its terms; and the
making of this Agreement by GTIS does not violate or conflict with any
agreement, right or obligation existing between GTIS and any other person, firm
or corporation.
6. CONFIDENTIAL INFORMATION. GTIS shall keep in confidence and not
--------------------------
disclose to any third party, without the written permission of AGC, the terms of
this Agreement and the proprietary information of the Atari Group made known to
it under this Agreement. Likewise, WMS and the Atari Group shall keep in
confidence and not disclose to any third party, without the written permission
of GTIS, the terms of this Agreement and the proprietary information of GTIS
made known to them under this Agreement. This requirement of confidentiality
shall not apply to information that is (a) permitted to be disclosed under an
Atari Home Computer Software Distribution and License Agreement; (b) in the
public domain through no wrongful act
25
<PAGE>
of the receiving party; (c) rightfully received by the receiving party from a
third party who is not bound by a restriction of nondisclosure; (d) already in
the receiving party's possession without restriction as to disclosure; or (e) is
required to be disclosed by applicable rules and regulations of government
agencies or judicial bodies. WMS or GTIS shall not issue any press release or
other public or trade announcement with respect to the transactions contemplated
by this Agreement unless the issuing party shall have first consulted with the
other with respect thereto and obtained the other's prior written approval
therefor, which approval will not be unreasonably withheld or delayed. The
obligations of confidentiality under this Section 6 shall survive termination of
this Agreement. With respect to this Agreement and all Atari Home Computer
Software Distribution and License Agreements entered into in connection
therewith, each of the AGC Group and GTIS agree to use reasonable efforts to
ensure that either of them may disclose the proprietary information of the other
(including, without limitation, the software source code and tools relating to
any Game) only to those persons within their organizations who have a need to
know such information in order to perform its obligations under this Agreement
and the Atari Home Computer Software Distribution and License Agreements and any
such disclosure shall be limited to the information which needs to be known.
Further, neither the AGC Group nor GTIS shall use any such proprietary
information for purposes other than the performance of its obligations under
this Agreement and the Atari Home Computer Software Distribution and License
Agreements.
7. NOTICES. Any notice, consent, approval, request, waiver or
statement to be given, made or provided for under this Agreement shall be in
writing and deemed to have been duly given (i) by its delivery personally or by
express mail; or (ii) five (5) days after its
26
<PAGE>
being mailed, air express, registered or certified, return receipt requested, in
a U.S. Post office addressed as follows:
To GTIS:
GT Interactive Software Corp.
16 East 40th Street
New York, New York 10016
Attention: Mr. Ron Chaimowitz,
Telephone Number: (212) 726-6508
Facsimile Number: (212) 679-6850
With a copy to:
GT Interactive Software Corp.
16 East 40th Street
New York, New York 10016
Attention: Mr. Harry Rubin
Telephone Number: (212) 726-6523
Facsimile Number: (212) 679-6850
With a copy to:
GT Interactive Software Corp.
16 East 40th Street
New York, New York 10016
Attention: Alan Behr, Esq.
Telephone Number: (212) 726-6500
Facsimile Number: (212) 679-6850
To WMS:
WMS Industries Inc.
3401 North California Avenue
Chicago, Illinois 60618
Attention: Mr. Neil D. Nicastro, President
Telephone Number: (312) 728-2300
Facsimile Number: (312) 539-2099
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<PAGE>
With a copy to:
Williams Entertainment Inc.
1800 South Business 45
Corsicana, TX 75110
Attention: Mr. Byron Cook
Telephone Number: (903) 874-2683
Facsimile Number: (903) 872-8000
With a copy to:
Jeffrey N. Siegel, Esq.
Shack & Siegel, P.C.
530 Fifth Avenue
New York, New York 10036
Telephone Number: (212) 782-0700
Facsimile Number: (212) 782-1964
or such other address as either party may designate by notice given as
aforesaid.
8. DEFAULT. In the event that GTIS shall default in any of its
---------
obligations to make payment in full hereunder or under any Atari Home Computer
Software Distribution and License Agreement and the Atari Group or WMS has
provided notice of such default in accordance with the provisions of Section 7
hereof, if GTIS has not cured such default in making payments hereunder within
fifteen (15) days of such notice, or within the grace periods provided in the
Atari Home Computer Software Distribution and License Agreement in respect of
payments thereunder, then, in addition to all other rights and remedies of the
Atari Group or WMS at law or in equity, at the option of the Atari Group or WMS,
all rights granted to GTIS under Section 2 of this Agreement shall be deemed
terminated and shall revert to the Atari Group, provided it is understood that
notwithstanding such termination, the Atari Home Computer Software Distribution
and License Agreements entered or deemed entered into prior to such termination
which are not in default shall remain in full force and effect. No such
28
<PAGE>
termination shall in any way affect or diminish WMS' or AGC's rights hereunder,
including the right of WMS to receive the Minimum Guaranteed Advance Royalty.
Anything herein to the contrary notwithstanding, the rights granted to GTIS
under Section 2 of this Agreement shall not be affected by an alleged default by
Licensee under an Atari Home Computer Software Distribution and License
Agreement resulting from a bona fide dispute between Licensor and Licensee
provided that Licensee pays all undisputed amounts to Licensor and all disputed
amounts are paid into a bona fide third party escrow account.
9. STOCK PURCHASE AGREEMENT CONDITIONS. This Agreement shall
-------------------------------------
become effective on the Effective Date and shall be null and void and of no
further force and effect if the Effective Date shall not have occurred by June
30, 1996. On the Effective Date, WMS shall cause AGC to execute an agreement of
assumption, whereby AGC shall assume all of the obligations of AGC and the Atari
Group referred to in this Agreement. Notwithstanding such assumption by AGC,
WMS shall remain liable for the obligations of AGC under this Agreement so long
as an Early Termination Event shall not have occurred.
10. MISCELLANEOUS.
--------------
10.1. This Agreement is personal to GTIS as one party and
WMS as the other party. Neither this Agreement nor any party's rights under it
may be assigned, in whole or in part, nor may its obligations be delegated, in
whole or in part, to any person or party without the prior written consent of
the other party, except that any party may assign its rights and delegate
obligations to any of its direct or indirect wholly-owned subsidiaries or
affiliates or to any person, firm or corporation owning or acquiring all or
substantially all of the stock or assets of that party, as long as both the
assignee and the assignor remain fully liable for
29
<PAGE>
assignor's obligations hereunder. After the Effective Date, in connection with
any Early Termination Event WMS and AGC shall obtain the assumption by the
purchaser or transferee of all covenants, obligations and duties undertaken by
the seller pursuant to the terms of this Agreement, including its obligations
with respect to Games and the intellectual property from which they are derived.
This Agreement shall bind the parties, their successors and permitted assignees
and delegees. WMS, as one party, and GTIS, as the other party, are each jointly
and severally liable for their respective obligations under the terms of this
Agreement.
10.2. The entire understanding between the parties hereto
relating to the subject matter hereof is contained herein. This Agreement
cannot be changed, modified, amended or terminated except by an instrument in
writing executed by the parties hereto.
10.3. No waiver, modification or cancellation of any term or
condition of this Agreement shall be effective unless executed in writing by the
party charged therewith. No written waiver shall excuse the performance of any
act other than those specifically referred to therein and no waiver shall be
deemed or construed to be a waiver of such terms or conditions for the future or
any subsequent breach thereof.
10.4. This Agreement does not constitute and shall not be
construed as constituting a partnership or joint venture between WMS and GTIS,
and neither WMS nor GTIS shall have any right to obligate or bind the other in
any manner whatsoever, and nothing herein contained shall give or is intended to
give any rights of any kind to any third persons.
10.5. This Agreement shall be governed by the laws of the
State of Illinois applicable to contracts made and to be wholly performed in the
State of Illinois.
30
<PAGE>
10.6. If any provision of this Agreement is or becomes or is
deemed invalid, illegal or unenforceable under the applicable laws or
regulations of any jurisdiction, either such provision will be deemed amended to
conform to such laws or regulations without materially altering the intention of
the parties or it shall be stricken and the remainder of this Agreement shall
remain in full force and effect.
10.7. This Agreement may be executed in counterparts each of
which shall be deemed an original and when taken together shall be deemed one
and the same document.
10.8. In the event of conflicts between the provisions of
this Agreement and the Atari Home Computer Software Distribution and License
Agreement, the provisions of this Agreement shall prevail.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
WMS INDUSTRIES INC.
By:/s/ NEIL NICASTRO
-----------------------------
Neil Nicastro
GT INTERACTIVE SOFTWARE CORP.
By:/s/ RONALD CHAIMOWITZ
-----------------------------
Ronald Chaimowitz
31
<PAGE>
SCHEDULE 1
----------
PROJECTS IN PROCESS
-------------------
(ATARI PC GAMES)
----------------
TITLE PLATFORM
- - ----- --------
Area 51 CD-ROM
Constructor Win '95/Mac-CD
Crisis Win '95
Dark Hermetic Order PC CD-ROM
Gretzky Hockey PC CD-ROM
Gretzky II Win '95
Primal Rage Mac-CD
RBI 96 IBM PC; CD-ROM
Return Fire CD-ROM
T-Mek PC; CD-ROM
<PAGE>
EXHIBIT A
---------
HOME COMPUTER SOFTWARE
----------------------
DISTRIBUTION AND LICENSE AGREEMENT FOR ATARI GAMES
--------------------------------------------------
AGREEMENT made this _____________ day of ______________ , 199 __ , by
and between GT INTERACTIVE SOFTWARE CORP., a Delaware corporation with offices
at 16 East 40th Street, New York, New York 10016 (herein called "Licensee") and
ATARI GAMES CORPORATION, a California corporation with offices at
____________________ (herein called "Licensor").
WITNESSETH:
-----------
WHEREAS, Licensor owns or controls the rights in and to the Licensed
Property (which Licensed Property is hereinafter defined on Schedule "A"
attached hereto);
WHEREAS, Licensee is engaged in the business of manufacturing, distributing
and selling Computer Games (as hereinafter defined; such Computer Games
embodying the Licensed Property shall be hereinafter referred to as the
"Licensed Product"); and
WHEREAS, Licensee desires to use the Licensed Property in connection with
the manufacture, distribution and sale of the Licensed Product;
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS.
------------
1.1. The term "Computer Game" is herein defined as any Computer
Software designed to operate on IBM PC or Apple Macintosh or other compatible
multipurpose home computers, using floppy disks or CD-ROM or other stand alone
devices in all operating
<PAGE>
systems now known or hereafter developed or designated for use on the aforesaid
multipurpose home computers. Computer Games shall not include, among other
things, Computer Software designed to operate on dedicated home game systems
(e.g. Nintendo, Sega, Atari, Sony, etc. game platforms).
1.2. The term "Computer Software" or "Software" shall mean
any computer software containing substantially full and complete computer game
code, including the source code, the assembly code, the object code and such
data files and other files as are deemed necessary for the Licensed Product to
achieve its functional purpose, whereby data and visual images, with or without
sound, can be manipulated, communicated, reproduced or perceived with the aid of
a computer.
1.3. The term "Master Atari PC Agreement" shall mean the
Master Option and License Agreement for Atari PC Games dated March 27, 1996,
between Licensee and WMS Industries Inc.
1.4. The term "Licensed Product" shall have the meaning
ascribed in the second Whereas clause of this Agreement and, as the context may
require, shall also include books which communicate game playing tactics and/or
strategies ("hint books") specifically prepared for Computer Games which shall
also be deemed Licensed Products hereunder and shall be subject to all of the
terms and conditions, including without limitation the royalty provisions,
hereof.
1.5. The term "Licensed Territory" shall have the meaning
ascribed in Section 3 of this Agreement.
2
<PAGE>
1.6. The term "Other Atari Home Computer Software Distribution and
License Agreements" shall have the meaning ascribed in Schedule B.
1.7. The term "Projects in Process" shall have the meaning ascribed
in Section 1. 18 of the Master Atari PC Agreement.
1.8. The words "term of this Agreement" or "period of this Agreement"
or "term hereof" or "so long as this Agreement remains in force" or words of
similar connotation shall include the initial period of this Agreement and the
period of all renewals, extensions, substitutions or replacements of this
Agreement.
1.9. The term "Third Party Fees and Royalties" shall mean all fees,
royalties and other participations of any kind or nature payable by Licensor to
any third party, including developers, licensors and others having rights in
connection with the exploitation of the Licensed Products. There shall be
excluded from the term "Third Party Fees and Royalties" as used herein (1) any
recoupable advances which have already been included in any development budget
or acquisition costs with respect to the Licensed Product which are to be shared
by Licensor and Licensee, in accordance with the terms of the Master Atari PC
Agreement and which have not yet been recouped; and (2) any fees or royalties
payable to employees or consultants by Licensor or its affiliates with respect
to the development of Licensed Product in house. If, with respect to Games other
than Projects in Process, Licensor or its affiliates acquires from a third party
in one transaction the rights to exploit a Game on multiple platforms, unless
Licensee shall otherwise agree, Licensor shall fund advances, if any, paid to
such third party, and any such advances shall be excluded from the term Third
Party Fees and Royalties; provided, however, that if such advances are
recoupable by Licensor or its
3
<PAGE>
affiliates from future royalties payable to such third party, then Third Party
Fees and Royalties shall include such royalties which would otherwise be payable
to such third party were it not for such right of recoupment.
Capitalized terms used, but not defined herein, shall have the meaning
ascribed to such terms in the Master Atari PC Agreement.
2. GRANT OF LICENSE.
-----------------
2.1. Licensor hereby grants and Licensee hereby accepts, for
the term of this Agreement and subject to the terms hereinafter set forth, the
exclusive license to utilize the Licensed Property solely in connection with the
manufacture, distribution and sale of the Licensed Products in the Licensed
Territory. Licensee shall have the right to sublicense any of the rights
granted to Licensee hereunder with Licensor's prior written consent, which
consent shall not be unreasonably withheld or delayed. Without limiting the
generality of the foregoing, (a) Licensor shall not unreasonably withhold or
delay its consent to proposals by Licensee to sublicense its rights hereunder to
third party personal computer hardware or computer peripheral device
manufacturers for the purpose of bundling the Licensed Products together with
such hardware products for distribution only within the Licensed Territory and
(b) Licensee shall not have the right to sublicense its rights hereunder (and
Licensor may withhold its consent to any proposed sublicense) to any third party
for the purpose of distributing Licensed Products to mass market retailers in
the United States. It is understood that the term Licensed Products does not
include Computer Software designed for play on dedicated home video game
systems, such as those manufactured by Nintendo, Sega, Sony or Atari, or any
other medium of exploitation, including handheld games, over the air, cable or
fiber-optic transmission or any ancillary rights
4
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
related thereto, all of which remain the sole property of Licensor except as
otherwise specifically provided below. No license is granted hereunder for the
manufacture, sale or distribution of Licensed Products to be used as premiums,
in combination sales, as giveaways or to be disposed of under similar methods of
merchandising, except only that Licensee shall have the right, subject to rights
of third parties in the Licensed Property, to distribute Licensed Products as
premiums, combination sales or giveaways solely (a) subject to Licensor's
consent, which shall not unreasonably be withheld or delayed, in connection with
the sale and distribution of other Computer Games licensed to Licensee by
Licensor or its affiliates under Other Atari Home Computer Software Distribution
and License Agreements, and (b) with respect to free or promotional goods in the
quantities set forth on Schedule B. [If Licensee's rights in Licensed Products
are derived under Section 2.5 of the Master Atari PC Agreement and relate to
rights acquired from third parties (as compared to rights to product developed
in-house by Licensor or its affiliates), add the following: Upon payment of the
* % of the costs of the development as provided in Section 2.5 of the Master
Atari PC Agreement, Licensee shall be entitled to share in * % of the net
profits derived by Licensee from the exploitation of ancillary merchandising
rights to the Licensed Product and Licensee shall be entitled to direct the
exploitation of such ancillary merchandising rights (but not hand held games)
after consultation and subject to Licensor's consent, which shall not
unreasonably be withheld or delayed. Licensee shall not be entitled to exploit
or share in the profits derived from any exploitation of games whether or not
having the same or similar title or play characteristics or using similar
Computer Software, in other game platforms, such as coin-operated games or
dedicated home game systems, or in any ancillary rights relating thereto. If
ancillary merchandising rights apply to or are derived from
5
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
the exploitation of games which are designed to operate on multiple platforms
(irrespective of the chronological order in which such games are released for
such platforms), then the Licensor and Licensee will consult with each other to
determine a fair and appropriate method of exploiting the ancillary
merchandising rights and the respective participations of Licensor and Licensee
therein. For the purposes hereof, "net profits" shall be calculated by
subtracting from the actual monies received by Licensor or Licensee, as the case
may be, from the exploitation of the ancillary merchandising rights to the
Licensed Product (i) an amount equal to * % of such receipts, representing
Licensor's or Licensee's allocation of overhead expenses, and (ii) all Third
Party Fees and Royalties payable by Licensor in connection therewith. Licensor
shall account to Licensee not less frequently than quarterly with respect to the
calculation and payment of its share of net profits as provided above.]
2.2. This license does not include any rights to subsequent
versions of the Licensed Property (so-called "sequels" or "derivatives"), such
rights being retained by Licensor, except as the same are otherwise required to
be offered to Licensee under the Master Atari PC Agreement or as provided in the
following sentence. If any member of the Atari Group, as that term is defined
in the Master Atari PC Agreement, shall, within a period beginning not later
than six (6) months after Licensee has ceased selling a Licensed Product
acquired under Section 2.5 of the Master Atari PC Agreement in reasonable
commercial quantities, begin the development, in-house or through third-party
developers, of a sequel or derivative of such Licensed Product which utilizes
more than * % of the same source code as such Licensed Product or substantially
the same name as such Licensed Product, then such sequel or derivative shall be
offered to Licensee on the same terms and conditions as a Game
6
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
would have been offered to Licensee during the Option Period as that term is
defined in the Master Atari PC Agreement.
3. Territory.
---------
3.1. Licensee shall be entitled to manufacture, distribute and sell
the Licensed Products in all countries throughout the world, except (a) Japan
and (b) countries or locations which are excluded under the terms of any license
agreement between Licensor and any third party having rights to the Licensed
Property. The territory in which Licensee shall be entitled to manufacture, sell
and distribute the Licensed Products as specified above is herein referred to as
the "Licensed Territory."
[If this is a game license for T-Mek for PC; or Return Fire for PC; or
Constructor for PC and Mac, then Licensee shall have rights to a share of the
profits from the distribution of these games in Market Areas excluded under (b)
above, but for which Licensor will receive income under distribution agreements
existing as of the Effective Date. For these agreements, Licensor shall pay to
Licensee an amount equal to * of the proceeds received by Licensor from such
sublicensee after deducting (i) an amount equal to all Third Party Fees and
Royalties; (ii) an amount equal to the payment required to Warner Communications
Inc. as a result of this income; and (iii) in the case of sublicensees to whom
Licensor supplies the Licensed Product, Licensor's direct manufacturing and
shipping costs. The remaining income shall remain with Licensor and not be paid
to Licensee as Recoupable Amounts.]
3.2. After the end of the Japan Territory Period, as defined in the
letter between WMS Industries Inc. and Licensee dated March 27, 1996 captioned,
"Japan Territory,"
7
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
Licensor shall have the exclusive right to license any of its rights in Japan to
third parties, subject to Licensee's prior written consent, which consent shall
not be unreasonably withheld or delayed. With respect to the exploitation by
Licensor of the Licensed Property in Japan, Licensee shall be entitled to share
in * % of the net profits (as calculated in Section 2.1 above) derived by
Licensor from its sale of Licensed Products in Japan. Licensor shall account and
pay over to Licensee, not less frequently than quarterly, Licensee's share of
net profits from the sale by Licensor of Licensed Products in Japan.
4. Term.
----
[Note: For Licenses granted under Section 2.3 of the Master Atari
PC Agreement, insert the following:
The license granted hereunder shall be effective on the date hereof
[which date, for Projects in Process, shall be the earlier of the actual release
date or 60 days after delivery of the Technically Acceptable Master Disk, as
that term is defined in the Master Atari PC Agreement, to Licensee] and shall
terminate on the earlier of (a) three years from the date hereof, or (b) upon
termination of Licensor's rights obtained from third parties, unless sooner
terminated in accordance with the terms and conditions hereof; provided,
however, that (a) the license term shall be deemed extended for an additional
one year if Licensee has paid royalties hereunder amounting to $ * or more
in excess of * % of the amount of all Third Party Fees and Royalties
payable
8
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
in respect of the exploitation of Licensed Products during the third license
year, and (b) the license term shall be deemed further extended for a final
additional one year if Licensee has paid royalties hereunder amounting to $ *
or more in excess of * % of the amount of all Third Party Fees and Royalties
payable in respect of the sale or other exploitation of Licensed Products during
the fourth license year. For purposes hereof, royalties and Third Party Fees
and Royalties payable in respect of the sale or other exploitation of Licensed
Products during a license year shall include amounts paid subsequent to the
license year on account of Licensed Products sold or otherwise exploited during
such license year, and shall not include amounts paid during a license year on
account of the sale or other exploitation of Licensed Products during the prior
license year. Licensee shall be entitled, one time only, to make a voluntary
payment to Licensor in order to reach either (but not both) of the $ *
thresholds referred to above.]
[Note: For licenses granted under Section 2.4 of the Master Atari
PC Agreement, insert the following:
The license granted hereunder shall be effective on the date hereof
and terminate on the termination of Licensor's rights obtained from third
parties, provided however, that at any time prior to five years from the earlier
of the actual release date or 60
9
<PAGE>
days after delivery of the Technically Acceptable Master Disk, as that term is
defined in the Master Atari PC Agreement, to Licensee, Licensor may notify
Licensee of its election to terminate the license, effective on expiration of
such five-year period, and in such event Licensor shall pay to Licensee the
portion of the development costs paid by Licensee under Section 2.4 of the
Master Atari PC Agreement.]
[Note: For licenses granted under Section 2.5 of the Master Atari PC
Agreement, insert the following:
The license granted hereunder shall be effective on the date hereof
and terminate on the termination of Licensor's rights obtained from third
parties.]
5. CONSIDERATION.
--------------
Licensee shall pay Licensor, with respect to the sale throughout the
Licensed Territory of the Licensed Products, a royalty as specified in Schedule
"B" annexed hereto on each unit of Licensed Product sold.
6. ACCOUNTINGS.
-------------
6.1. Licensee agrees to forward to Licensor, within forty-five
(45) days after the end of each calendar quarter ("Royalty Period"), commencing
with the first calendar quarter during which any unit of the Licensed Product is
sold, a report, in reasonable detail and reported separately, by Marketing Area,
of the number of units and average wholesale price (by sales bracket, as
provided in Schedule B hereof) of the Licensed Products sold within such
10
<PAGE>
Royalty Period and the royalty amount due for the sale of such units calculated
in accordance with Section 6.3 below and any recoupment claimed in accordance
with Schedule B annexed hereto, and Section 3 of the Master Atari PC Agreement.
For purposes hereof, the term "Marketing Area" shall include North America (as
such term is defined in the Master Option and License Agreement for Atari Home
Video Games between WMS Industries Inc. and Licensee, dated March 27, 1996 (the
"Master Atari Home Video Agreement"), and each of the other Marketing Areas
designated on Schedule C to Exhibit A of the Master Atari Home Video Agreement.
Such report shall also include a cumulative reconciliation of the number of
units of Licensed Products produced by Licensee to the number of units on hand.
Licensee agrees that accompanying each such report shall be payment, in U.S.
funds, of the amounts due to Licensor, if any, in respect of such Royalty Period
in excess of any permitted recoupment. Royalties calculated in foreign
currencies shall be converted to U.S. currency at the spot rate of exchange
published in the Wall Street Journal as of the last day of the Royalty Period.
-------------------
Such reports shall be required to be submitted with respect to sales and
distributions of the Licensed Product whether or not any amounts are due under
the terms hereof.
6.2. Licensee agrees to keep accurate books of account and
records with respect to the Licensed Products, covering all sales, purchases and
inventories of Licensed Products and all royalty fees due under this Agreement
at Licensee's offices (or the offices of Licensee's affiliates) and to permit
(or procure the right for) Licensor at its own expense to have accounting
professionals (which may include Licensor's employees who have accounting
degrees) inspect such books of account and records of Licensee or its
sublicensees during reasonable business hours (but not during the first three
weeks of a calendar quarter), upon prior
11
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
reasonable written notice, for the sole purpose of verifying the reports to be
provided hereunder. Such inspections, together with inspections of Licensee's
books of account and records pertaining to other Computer Games licensed to
Licensee by Licensor or its affiliates under Other Atari Home Computer Software
Distribution and License Agreements, shall occur no more frequently than twice
during any twelve (12) month period for each of the Licensee's offices.
Licensor's inspectors shall not be physically present in a specific office of
Licensee for more than 10 consecutive business days in connection with any such
inspection, provided that Licensee shall have supplied all requested information
and documentation and responded to questions on a reasonably prompt basis.
Licensee shall promptly furnish to Licensor copies of any report which Licensee
may produce as the result of any audit by Licensee of the books of account and
records of any sublicensee of Licensee. Licensor shall keep any information
obtained from any such inspections in confidence and shall require that its
accounting professionals do so as well. Licensee's books relating to any
particular royalty statement may be examined as aforesaid only within two (2)
years after the date rendered and Licensee shall have no obligation to permit
Licensor to so examine such books relating to any particular royalty statement
more than once for any one statement, unless in connection with a civil action
filed by Licensor against Licensee in connection with such statement. In the
event that any audit by Licensor's accounting professionals reveals that
Licensee has underpaid Licensor by an aggregate of * or more with respect to the
specific royalty statements which are the subject of such audit, Licensee agrees
that it shall also reimburse Licensor for the reasonable documented costs for
any such audit (including traveling costs) up to the amount of the shortfall.
12
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
6.3. Royalties shall be paid on * % of products sold by Licensee's
point of sale ("POS") customers, less actual returns. With respect to shipments
to non-POS customers, not less than * % of the shipment shall be deemed a sale
for royalty purposes on the date of shipment. Not less than * of the balance of
the shipment, less actual returns, shall be deemed a sale for royalty purposes
six (6) months following the date of shipment, and the balance of such shipment,
less actual returns not already counted, shall be deemed a sale for royalty
purposes twelve (12) months following the date of shipment. As used herein,
point of sale customers mean those customers who report actual sales by
selection number to Licensee via computer and scan their sales by UPC codes at
cash registers.
6.4. Licensor shall permit Licensee, at Licensee's own expense, to
have an independent certified public accountant inspect Licensor's books and
records with respect to the payment by Licensor of Third Party Fees and
Royalties in connection with the Licensed Products, during reasonable hours,
upon prior reasonable written notice and subject to such confidentiality
requirements (including the execution of appropriate confidentiality agreements)
as Licensor may require, for the sole purpose of verifying payment and
calculation by Licensor of such Party Fees and Royalties. Licensor's books and
records may be examined by Licensee's representatives not more frequently than
twice in any twelve-month period and Licensee shall otherwise have substantially
the same rights as provided to Licensor under Section 6.2 above.
6.5. In circumstances where either party is obligated under
this Agreement to account to the other party in respect of any entitlement to
the other party's share in net profits from the exploitation of the Licensed
Product, such party shall account
13
<PAGE>
substantially in the same manner and in the same time frame as provided in this
Paragraph 6 above. The party to which such accounting is made shall also have
substantially the same rights as provided to Licensor in Section 6.2.
6.6. Licensee recognizes that the timely submission of all
reports required to be submitted to Licensor pursuant to Section 6.1 hereof is
critical for Licensor to maintain good relations with its third party licensors
as well as for Licensor's own financial reporting requirements. Therefore, in
addition to any other rights and remedies of Licensor, if Licensee shall be late
by more than five (5) business days with respect to any report and/or royalty
payment required to be submitted to Licensor pursuant to Section 6.1 hereof (a
"Late Report"), then Licensee shall pay to Licensor a late charge ("Late
Charge") at a rate equal to the prime rate designated by Citibank N.A. on any
royalties covered by such Late Report that are actually payable to Licensor as
provided in Schedule B. Such Late Charge shall be computed from the 46th day
following the last day of the calendar quarter for which such Late Report is due
until the date actually paid. Licensor may elect to waive payment of any such
Late Charge if Licensee shall have provided a reasonable estimate of royalties
due within fifteen (15) days following the end of the calendar quarter covered
by such Late Report.
6.7 At the time that the Licensor shall provide to Licensee
notice of availability of a Game pursuant to Section 2.4 or 2.5 of the Master
Atari PC Agreement, Licensor shall provide to Licensee sufficient data to enable
Licensee to calculate Third Party Fees and Royalties payable with respect to
each Licensed Product (without regard to any advances which may have been made
by Licensor). If Licensee is unable to calculate specific Third Party Fees and
Royalties from the data provided, Licensee may request assistance from
14
<PAGE>
Licensor with respect thereto, and Licensor shall use its best efforts to
respond within seven (7) days from the date of such request, but Licensee shall
provide all sales and other data in its possession which are necessary for such
calculations.
7. QUALITY OF LICENSED PRODUCT.
----------------------------
7.1. The Licensed Products as manufactured, advertised, sold,
distributed or otherwise disposed of by Licensee under this Agreement shall be
of a high quality and shall be sold and distributed in packaging prescribed by
Licensor bearing Licensor's trademarks and trade names. Such packaging may
indicate that the Licensed Products are distributed by Licensee. Licensor shall
have the right to determine in its reasonable discretion whether the Licensed
Product meets Licensor's high standards of merchantability. Licensee agrees to
furnish Licensor free of cost for Licensor's written approval as to quality and
style (which approval shall not be unreasonably withheld), samples of the
Licensed Product, together with its proposed advertising, packaging and wrapping
materials, before its manufacture, sale or distribution (whichever first occurs)
and the Licensed Product shall not be sold or distributed by Licensee without
such written approval.
7.2. If Licensor shall disapprove of any item submitted by
Licensee for approval hereunder, Licensor shall furnish at the time notice of
disapproval is given to Licensee an explanation of the reason(s) for such
disapproval and recommendations for suggested changes and Licensee shall
resubmit such item after changes have been made for Licensor's approval. 7.3. In
the event that the quality of any Licensed Product approved by Licensor shall
become less than that approved by Licensor and Licensee shall fail to raise the
quality to the approved level within thirty (30) days after receiving written
notice from Licensor,
15
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
the license granted under this Agreement for such Licensed Product shall
automatically terminate and shall remain terminated until Licensor shall
subsequently renew its approval of the Licensed product.
7.4. If disapproval is not received by Licensee within five
(5) business days after Licensor's receipt of the item submitted for approval,
Licensor's approval shall be deemed to have been given. Subsequent to final
approval, Licensor may request the Licensee once each quarter to send, without
charge, a reasonable number of production samples (but in any event not less
than two (2) copies of each language version) without payment of any royalty
hereunder to Licensor to ensure quality control. Should Licensor require
additional samples for any reason other than resale or any other commercial
exploitation by Licensor, Licensee shall be required to sell such samples to
Licensor at its cost (but without payment of any Third Party Fees and Royalties
or other royalty hereunder), but not more than * units of each Licensed Product.
8. TRADEMARK AND COPYRIGHT, ETC.
-----------------------------
8.1. "Notice" as used in this Section shall mean the following
statutory copyright notice and notice of registration or application for
registration of the licensed trademark:
_ _ _ _ (TM) or (R)
All Rights Reserved
C _ _ _ _ Licensed from [Atari(R) Games Corporation]
or such other copyright notices and notices of registration as may be required
by any third party licensors. Licensor shall advise Licensee prior to use
whether (TM) or (R) shall follow the "words _ _ _ _."
16
<PAGE>
8.2. Licensee shall furnish to Licensor samples of all packaging in
which the Licensed Products are sold by Licensee and Licensor shall cause the
copyright in the packaging to be registered with the U.S. Copyright Office and
recorded with the U.S. Customs Dept. at Licensor's expense. Licensee shall
print, stamp or mold the Notice on all Licensed Products and on the front of
each package or container used in connection therewith, and Licensee shall print
the Notice on each label, advertisement and promotional release concerning any
Licensed Products, all in accordance with instructions from Licensor, providing,
however, that such notice shall be imprinted on the back of the package or
container used in connection therewith, displayed on the title screen of the
Licensed Product, and in the instruction booklet, if any, packaged with the
Licensed Product. Licensee agrees to execute and deliver to Licensor in such
form as Licensor may reasonably request all instruments necessary to effectuate
trademark protection or to record Licensee as a registered user of any
trademarks or to cancel such registration and if Licensee fails to execute such
instruments, Licensee hereby appoints Licensor Licensee's attorney-in-fact to do
so on Licensee's behalf. Licensee shall also furnish Licensor samples of all
advertising or promotional materials bearing the Notice for Licensor's approval.
8.3. Subject to the terms of this Agreement, Licensee
acknowledges and agrees that: All copyrights, trademarks and service marks and
rights to same referred to in this Section 8 in the name of and/or owned by
Licensor shall be and remain the sole and complete property of Licensor; that
all such copyrights, trademarks and service marks and rights to same in the name
of or owned by any copyright proprietor other than Licensor or Licensee shall be
and remain the sole and complete property of such copyright proprietor; that all
trademarks and
17
<PAGE>
service marks which, and/or the right to use which, arise out of the license
hereby granted to use the Licensed Property shall be and remain the sole and
complete property of Licensor; that Licensee shall not at any time acquire or
claim any right, title or interest of any nature whatsoever in any such
trademark or service mark by virtue of this Agreement or of Licensee's uses
thereof in connection with the Licensed Products; and that any right, title or
interest in or relating to any such trademark or service mark, which comes into
existence as a result of, or during the term of, the exercise by Licensee of any
right granted to it hereunder shall immediately vest in Licensor.
8.4. Licensee agrees to assist Licensor at Licensor's expense
to the extent necessary in the procurement of any protection or to protect any
of Licensor's rights to the Licensed Property. Licensee shall notify Licensor
in writing of any infringements or imitations by others of the Licensed Property
on articles similar to those covered in this Agreement which may come to the
Licensee's attention. Licensor shall have the right to commence action to
enforce its proprietary rights and prosecute any such infringements, and
Licensee agrees to fully cooperate, at Licensor's expense, in any such action.
However, Licensee shall not incur any such expense reimbursable by Licensor
without Licensor's express written approval and all recoveries resulting from
any such action shall belong solely to Licensor. In the event Licensor declines
to pursue any such action, Licensee may, with Licensor's written permission, and
subject to the consent of any third party having rights in the Licensed
Property, institute such an action, and Licensor, at Licensee's expense, shall
cooperate in such action instituted by Licensee and all recoveries resulting
from any such action shall belong solely to Licensee. Licensor shall not
unreasonably withhold or delay its permission to
18
<PAGE>
enable Licensee to pursue an action (if Licensor shall decline to pursue such
action) against persons or entities reasonably believed by Licensee to be
counterfeiting or pirating Licensee's Licensed Products. Licensor shall not
unreasonably withhold or delay its permission to grant to any sublicensee who
requires it, at the time of entering into a sublicense, reasonable rights
(without Licensor's prior consent in each instance) to pursue persons reasonably
believed to be engaged in counterfeiting or piracy of the Licensee Product.
8.5. During the term of this Agreement and thereafter, Licensee:
(a) will not challenge the ownership or rights of Licensor in and to
the Licensed Property or any copyright or trademark pertaining thereto developed
by or for Licensor, nor attack the validity of the license granted hereunder or
participate in any challenge thereto;
(b) will manufacture, sell and distribute the Licensed Products in
compliance with all applicable laws and governmental regulations in accordance
with the terms of this Agreement;
(c) will not except as set forth in this Agreement, either directly or
indirectly, use or display or authorize others to use or display, the
trademarks, copyrights or proprietary rights of Licensor in connection with any
advertising, assembly, manufacture, distribution, use, sale or lease of any
goods, other than in connection with the manufacture and sale of the Licensed
Products; and
(d) subject to Licensee's best business judgment Licensee will
exercise reasonable efforts to: (i) manufacture sufficient quantities of the
Licensed Product to meet the market demand for same; (ii) conduct advertising
activities to promote the sale of
19
<PAGE>
Licensed Product; and (iii) make any and all arrangements necessary to
accomplish such undertakings.
9. Materials.
---------
9.1. Notwithstanding anything contained herein to the contrary
and subject to the terms of this Agreement, all artwork, designs and computer
software embodying the Licensed Property, or any reproduction thereof, which are
designed, developed and/or created by Licensee hereunder (or any of its
sublicensees, affiliates or subsidiaries), shall be, and remain Licensor's sole
and exclusive property, inclusive of all copyrights and right to copyright
therein and thereto for the life of the copyright therein; provided that during
the term of this Agreement, Licensee shall have the exclusive right, license and
privilege (without any compensation to Licensor except as provided in Section 5)
to use all such above described materials in connection with its exploitation,
sale and distribution of the Licensed Products.
9.2. Licensor shall make available to Licensee, at Licensor's
actual out of pocket cost, any artwork relating to the Licensed Property which
Licensor owns and which is reasonably available to Licensor for Licensee's use
in connection with the exploitation of the Licensed Property.
10. TRANSLATIONS.
-------------
In the event that Licensee shall reasonably require the text associated with any
Licensed Product to be translated into a language other than English, Licensor
shall, upon request, provide to Licensee the text files and the text that
appears in bit map files and printed copies of the script used for audio
components of the Licensed Product and Licensee shall furnish, at its own
expense, to Licensor a translation text thereof. Licensor shall then cause a
20
<PAGE>
new Technically Acceptable Master Disk (as that term is defined in the Master
Atari PC Agreement) containing such translation to be encoded, at Licensor's own
expense, and delivered to Licensee.
11. REPRESENTATIONS AND WARRANTIES.
-------------------------------
11.1. Licensor hereby represents and warrants that this
Agreement has been duly authorized, executed and delivered by Licensor; Licensor
has the full power and authority to enter into this Agreement and perform its
obligations hereunder; this Agreement constitutes the valid and binding
obligation of Licensor, enforceable in accordance with its terms; the making of
this Agreement does not violate any agreement, right or obligation existing
between Licensor and any other person, firm or corporation; and the Licensed
Property, if used pursuant to the license granted herein, will not infringe upon
or violate any rights of any third party.
11.2. Licensee hereby represents and warrants that this
Agreement has been duly authorized, executed and delivered by Licensee; Licensee
has the full power and authority to enter into and perform its obligations
hereunder; this Agreement constitutes the valid and binding obligation of
Licensee, enforceable in accordance with its terms; the making of this Agreement
does not violate any agreement, right or obligation existing between Licensee
and any other person, firm or corporation; and its manufacture, advertisement,
distribution and sale of the Licensed Products will be in accordance with the
terms of this Agreement so as not to infringe upon or violate any rights of any
third party.
21
<PAGE>
12. INDEMNIFICATION.
----------------
12.1. Each party agrees to indemnify and hold the other
(including officers, directors, agents and employees of such party or its
subsidiaries, affiliates and sublicensees) harmless against any loss, damage,
expense or cost (including reasonable attorneys' fees) arising out of any claim,
demand or suit or judgment resulting from any breach of any warranty or
representation set forth in Section 11 above. Each party shall promptly inform
the other of any such claim, demand, suit or judgment.
12.2. In connection with any such claim, demand or suit
referred to above, the party so indemnifying (the "Indemnitor") agrees to
defend, contest or otherwise protect the indemnified party (the "Indemnitee")
against any such suit, action, investigation, claim or proceeding at the
Indemnitor's own cost and expense. The Indemnitee shall have the right, but not
the obligation to participate, at its own expense, in the defense thereof by
counsel of its own choice. In the event that the Indemnitor fails timely to
defend, contest or otherwise protect against any such suit, action,
investigation, claim or proceeding, the Indemnitee shall have the right to
defend, contest or otherwise protect against the same, and, upon ten (10) days'
written notice to the Indemnitor, make any compromise or settlement thereof and
recover the entire cost thereof from the Indemnitor, including without
limitation, reasonable attorneys' fees, disbursements and all reasonable amounts
applied as a result of such suit, action, investigation, claim or proceeding or
compromise or settlement thereof. The obligations hereunder shall survive the
termination or expiration of this Agreement.
12.3. Neither Licensor nor Licensee shall be liable for any
incidental, consequential or punitive damages to the other.
22
<PAGE>
13. EVENTS OF DEFAULT AND TERMINATION.
----------------------------------
Licensee shall be deemed to be in default of this Agreement in the event
either of the following occurs:
(a) Licensee fails to make any payment or furnish any statement in
accordance herewith, provided that Licensee shall have been given a first
written notice of such default and a period of at least 15 days in which to cure
such default and, if such default shall not have been cured within such period,
Licensee shall have been given a second written notice of such default and a
further period of at least 10 days in which to cure such default; or
(b) Licensee fails after thirty (30) days' written notice to Licensee
to comply with any other of Licensee's obligations hereunder.
14. EXPIRATION OR TERMINATION OF AGREEMENT.
---------------------------------------
Upon expiration or termination of this Agreement, all rights granted to Licensee
herein shall forthwith revert to Licensor with the following consequences:
(a) All unpaid royalties shall be due and payable in accordance
with Section 6.1 hereof.
(b) Licensor shall thereafter be free to license others to use the
Licensed Property in connection with the manufacture, advertisement,
distribution and sale of items identical or similar to the Licensed Products in
the Licensed Territory.
(c) In the event of termination or expiration of this Agreement, other
than a termination by Licensor as a result of a material breach of this
Agreement by Licensee, Licensee may continue to sell for a period of one hundred
eighty (180) days after the
23
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
effective date of termination all approved copies of the units of the Licensed
Product produced
prior thereto.
Notwithstanding the expiration or termination of this Agreement,
Licensor will continue to account and pay over to Licensee, on a periodic basis
not less frequently than quarterly, * % of the net profits (as calculated in
Section 2. 1 above) derived by Licensor from the exploitation of any ancillary
merchandising rights to the Licensed Products (as provided in Section 2.1 above)
and * % of the net profits derived by Licensor from the exploitation of Licensed
Products in Japan, as provided in Section 3.2 above.
15. Confidential Information.
------------------------
Each of the parties shall keep in confidence and not disclose to any third
party, without the written permission of the other party, the terms of this
Agreement and the proprietary information of the other party made known to it
under this Agreement. This requirement of confidentiality shall not apply to
information that is (a) in the public domain through no wrongful act of the
disclosing party; (b) rightfully received by the disclosing party from a third
party who is not bound by a restriction of nondisclosure; (c) already in the
disclosing party's possession without restriction as to disclosure; or (d) is
required to be disclosed by applicable rules and regulations of government
agencies or judicial bodies. This obligation of confidentiality: (i) shall
survive termination of this Agreement and (ii) shall extend to any subcontractor
of either party and each party agrees to obtain from each such subcontractor a
written agreement to abide by the foregoing confidentiality requirements. Each
of the parties
24
<PAGE>
shall be entitled to seek injunctive or equitable relief to prevent the breach
or threatened breach by the other of the provisions of this Section and to
secure its enforcement.
16. NOTICES.
--------
Any notice, consent, approval, request, waiver or statement to be given,
made or provided for under this Agreement shall be in writing and deemed to have
been duly given (i) by its delivery personally or by express mail; or (ii) five
(5) days after its being mailed, air express, registered or certified, return
receipt requested in a U.S. Post Office addressed as follows:
TO LICENSEE: GT Interactive Software Corp.
16 East 40th Street
New York, New York 10016
Attention: Mr. Ron Chaimowitz,
Telephone Number: (212) 726-6508
Facsimile Number: (212) 679-6850
WITH A COPY TO: GT Interactive Software Corp.
16 East 40th Street
New York, New York 10016
Attention: Mr. Harry Rubin
Telephone Number: (212) 726-6523
Facsimile Number: (212) 679-6850
25
<PAGE>
WITH A COPY TO: GT Interactive Software Corp. 16
East 40th Street
New York, New York 10016 Attention: Alan Behr, Esq.
Telephone Number: (212) 726-6500
Facsimile Number: (212) 679-6850
TO LICENSOR: Atari Games Corporation
c/o WMS Industries Inc.
3401 North California Avenue
Chicago, Illinois 60618
Attention: Mr. Neil D. Nicastro, President
Telephone Number: (312) 728-2300
Facsimile Number: (312) 539-2099
WITH A COPY TO: Williams Entertainment Inc.
1800 South Business 45
Corsicana, Texas 75110
Attention: Mr. Byron Cook
Telephone Number: (903) 874-2683
Facsimile Number: (903) 872-8000
WITH A COPY TO: Jeffrey N. Siegel, Esq.
Shack & Siegel, P.C.
530 Fifth Avenue
New York, New York 10036
Telephone Number: (212) 782-0700
Facsimile Number: (212) 782-1964
or such other address as either party may designate by notice given as
aforesaid.
17. MISCELLANEOUS.
--------------
17.1. This Agreement is personal to Licensee as one party and Licensor
as the other party. Neither this Agreement nor any party's rights under it may
be assigned, in whole or in part, nor may Licensee's or Licensor's rights or
obligations hereunder be delegated, in whole or in part, to any person or party
without the prior written consent of the other party, except that any party may
assign its rights and delegate obligations to any of its direct or indirect
26
<PAGE>
wholly-owned subsidiaries or affiliates or to any person, firm or corporation
owning or acquiring all or substantially all of the stock or assets of that
party, as long as that party remains fully liable for its obligations hereunder.
Any sale of not less than 50.1% of the stock or assets of Licensor shall
include a requirement for the assumption by the purchaser of all covenants,
obligations and duties undertaken by the seller pursuant to the terms of this
Agreement, including its obligations with respect to Games and the intellectual
property from which they are derived. This Agreement shall bind the parties,
their successors and permitted assignees and delegees. Licensor as one party,
and Licensee as the other party, are each liable for their respective
obligations under the terms of this Agreement.
17.2. The entire understanding between the parties hereto relating to
the subject matter hereof is contained herein. This Agreement cannot be
changed, modified, amended or terminated except by an instrument in writing
executed by the parties hereto.
17.3. No waiver, modification or cancellation of any term or condition
of this Agreement shall be effective unless executed in writing by the party
charged therewith. No written waiver shall excuse the performance of any act
other than those specifically referred to therein and no waiver shall be deemed
or construed to be a waiver of such terms or conditions for the future or any
subsequent breach thereof.
17.4. This Agreement does not constitute and shall not be construed as
constituting a partnership or joint venture between Licensor and Licensee, and
neither Licensor nor Licensee shall have any right to obligate or bind the other
in any manner whatsoever, and nothing herein contained shall give or is intended
to give any rights of any kind to any third persons.
27
<PAGE>
17.5. This Agreement shall be governed by the laws of the
State of Illinois applicable to contracts made and to be wholly performed in the
State of Illinois.
17.6. If any provision of this Agreement is or becomes or is
deemed invalid, illegal or unenforceable under the applicable laws or
regulations of any jurisdiction, either such provision will be deemed amended to
conform to such laws or regulations without materially altering the intention of
the parties or it shall be stricken and the remainder of this Agreement shall
remain in full force and effect.
17.7. This Agreement may be executed in counterparts each of
which shall be deemed an original and when taken together shall be deemed one
and the same document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
ATARI GAMES CORPORATION
By:______________________________
GT INTERACTIVE SOFTWARE CORP.
By:______________________________
28
<PAGE>
SCHEDULE A
----------
[Insert description of Licensed Property]
29
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
SCHEDULE B
----------
ROYALTIES
---------
Licensee shall pay royalties in an amount equal to the following
percentages of the net wholesale sales price of a Unit sold and not returned:
Net Wholesale Sales Price Royalty %
- - ------------------------- ---------
$ * or greater * %
* * %
* * %
* * %
* * %
* * %
* * %
* * %
At Net Wholesale Sales Prices, as hereafter defined, between $0.01 and $ *
the above percentages shall be prorated based upon the next highest and next
lowest royalty percentage. For example, at a Net Wholesale Sales Price of
$26.00, the royalty percentage shall be * %. Notwithstanding the above, if the
Licensed Products cost $ * or more to develop or acquire ("Premium Products"),
the minimum per unit royalty for such Premium Products shall be calculated as
follows: the minimum per unit royalty during the six-month period commencing on
the date on which the Premium Product was First Released shall be an amount
equal to * % of the product of (1) the Net Wholesale Sales Price of such Premium
Product as of the date of release multiplied by (2) the royalty percentage which
corresponds to such Net Wholesale Sales Price on the table set forth above
(prorated as appropriate). Thereafter, there shall be no further minimum per
unit royalty. The foregoing minimum per unit royalty provision shall not apply
to so-called "hint books" as to which there shall be no minimum royalty.
"Net Wholesale Sales Price" shall be that price invoiced by Licensee to its
customers, less any price discounts, rebates or credits granted at the time of
sale and taxes invoiced to customers (including VAT). No deduction shall be
made for bad debts or other uncollected amounts, advertising allowances,
including cooperative advertising, or any other costs incurred in manufacturing,
selling or distributing the Licensed Products. In the event that Licensee's
experience with respect to bad debts and uncollectible amounts during any
calendar year in
30
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
respect of sales of Licensed Products under this Agreement and all Other Atari
Home Computer Software Distribution and License Agreements entered into between
Licensor and its affiliates and Licensee under the Master Atari PC Agreement,
shall exceed * % of Licensee's aggregate net sales of Licensed Products under
this Agreement and all such Other Atari Home Computer Software Distribution and
License Agreements during such calendar year ("Excess Bad Debts"), then Licensee
shall be entitled to receive a credit against royalties payable under this
Agreement or any Other Atari Home Computer Software Distribution and License
Agreement determined as follows: the average of the weighted Net Wholesale Sales
Prices of all Licensed Products sold under this Agreement and all Other Atari
Home Computer Software Distribution and License Agreements during such calendar
year shall be determined, and the royalty percentage which corresponds thereto
in the table above (prorated as appropriate) shall be multiplied by the amount
of Excess Bad Debts for such calendar year to determine the amount of such
credit.
Royalties for "direct response sales" shall be calculated by multiplying * of
the royalty percentages set forth above (prorated as appropriate) times
Licensor's net receipts from such sales and, for purposes of determining the
applicable royalty percentages in the table set forth above, the amount of such
net receipts shall be * substituted for "Net Wholesale Sales Price. The minimum
per unit royalty shall be of the minimum per unit royalty applicable to sales
other than "direct response sales." Direct response sales shall refer to sales
made directly to consumers other than from a fixed retail location and shall
include catalogue sales, direct mail, print and television sales. Licensee's
net receipts from direct response sales shall be based upon actual monies
received, less amounts separately paid by purchasers as sales taxes and shipping
and handling charges.
Where Licensor has acquired from a third party a Licensed Property in connection
with which Third Party Fees and Royalties amounting to * % or more of Licensee's
estimated Net Wholesale Sales Price are payable, Licensee may elect, at the time
it elects to accept the Licensed Product under the Master Atari PC Agreement, to
pay a substitute royalty ("Substitute Royalty") therefor, which will reduce only
the highest royalty based upon the Net Wholesale Sales Price of the Licensed
Product otherwise payable pursuant to the royalty table included in this
Schedule "B." For example, if the Substitute Royalty for a Licensed Product is
* % , this would apply to units sold at Net Wholesale Sales Prices of $ * and
above; for lower Net Wholesale Sales Prices, the royalty percentages and
corresponding Net Wholesale Sales Prices reflected in the royalty table would
not be changed, except that the royalty percentage may not exceed the amount of
the Substitute Royalty.
The Substitute Royalty shall be computed by comparing the gross profit of
Licensor (i. e., royalty earned, less * Third Party Fees and Royalties, less *
of Shared Institutional Advertising, as such term is hereinafter defined) to the
gross profit of Licensee (i.e., Net Wholesale Sales Price, less royalty payable
to Licensor, less * Third Party Fees and Royalties, less product manufacturing
cost, less * of Shared Institutional Advertising, less * % of Net Wholesale
Sales Price (equivalent to Licensee's operating costs, excluding overhead)); and
determining the royalty percentage that would yield the same gross profit for
both Licensor and Licensee. The computation of the Substitute Royalty for any
year shall be adjusted following the end of such
31
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
year for the prior year to reflect changes in all of the components set forth
above, except for the * % figure referenced above, during such prior year and
any increase or decrease in the Substitute Royalty resulting from such
adjustment shall be reflected on the royalty statement for the first Royalty
Period of the following year.
Where the Licensed Property (whether acquired from a third party or developed by
Licensor or any of its affiliates in house) has not been embodied in a coin-
operated video or pinball game, whether distributed by Licensor or any entity
which at any time was an affiliate or a member of the Atari Group, or will not
be embodied in a coin-operated video or pinball game distributed within 60 days
from the release of the Licensed Product, institutional advertising costs (i.e.,
radio, television and print advertising to the general public), will be shared
equally ("Shared Institutional Advertising") by Licensee and Licensor, provided
that (a) the portion of the Shared Institutional Advertising costs to be borne
by Licensor shall not exceed * % of the Net Wholesale Sales Price of the
Licensed Product, and shall only be payable in that portion of the Licensed
Territory in which Licensee itself (and not its sublicensees) actually pays for
institutional advertising costs and (b) all such Shared Institutional
Advertising costs and budgets therefor shall have been previously approved in
writing by Licensor. Licensee at its own cost and expense shall be solely
responsible for all in-store and cooperative advertising costs associated with
the sale of Licensed Products in the Licensed Territory.
Anything in the foregoing paragraphs to the contrary notwithstanding, where the
Licensed Property has not been embodied in a coin-operated video or pinball
game, whether distributed by Licensor or any entity which at any time was or is
an affiliate of any member of the WMS Group or the Atari Group, Licensee may
elect to pay an alternative royalty therefor. The alternative royalty shall
equal the sum of the royalty percentage payable in accordance with the table set
forth in Schedule B plus the Licensee's share of Third Party Fees and Royalties,
but in no event shall the alternative royalty exceed * % of the actual Net
Wholesale Sales Price of the Licensed Product; provided, however, that anything
in the foregoing paragraphs or this paragraph to the contrary notwithstanding,
under no circumstances shall royalties, whether regular royalties, Substitute
Royalties or alternative royalties, be less than * % of the Third Party Fees and
Royalties payable with respect to the sale of Licensed Products.
See Section 2.15 of the Master Atari PC Agreement with respect to the amounts of
royalties payable for Licensed Products described therein.
ADJUSTMENTS TO ROYALTIES
- - ------------------------
Anything above to the contrary notwithstanding:
1. If Licensor is obligated to pay any Third Party Fees and Royalties
with respect to the sale of Licensed Products, the per unit royalties to be paid
by Licensee to Licensor with respect to such Licensed Products shall be equal to
* % of all such Third Party Fees and Royalties, plus the greater of (a) the
royalty otherwise payable to Licensor as provided above and (b) the other * % of
such Third Party Fees and Royalties. In no event shall the per unit
32
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS
BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
royalty on the sale of Licensed Products be less than * % of such Third Party
Fees and Royalties.
2. In cases where Licensed Products are sold by sublicensees under
sublicensees granted by Licensee in accordance with the provisions of the Master
Atari PC Agreement, royalties shall be payable by Licensee to Licensor hereunder
equal to the sum of (a) an amount equal to all Third Party Fees and Royalties
payable with respect to the sale of such Licensed Products, plus (b) * % of the
net proceeds received by Licensee from such non-affiliated third party
sublicensee after deducting (i) a fee to Licensee equal to * % of such net
proceeds, (ii) an amount equal to all Third Party Fees and Royalties, and, (iii)
in the case of non-affiliated third party sublicensees to whom Licensee supplies
the Licensed Product, Licensee's direct manufacturing and shipping costs.
Revenues from bundling shall be shared in the same manner as revenues from
sublicenses; provided, however, that if Licensee is also the manufacturer of
products for bundling, the fee to Licensee shall equal * % rather than * % of
net proceeds. In no event shall the per unit royalty be less than * % of such
Third Party Fees and Royalties.
3. Until Licensee shall have fully recouped the $ * Minimum Guaranteed
Advance Royalty, as provided below, Licensor shall pay over to Licensee
Licensor's share of net profits from the exploitation of the Licensed Product in
Japan and in any other territories in which Licensor is entitled to exploit the
* Licensed Products or ancillary merchandising rights thereto under this
Agreement except for territories not available to Licensee by reason of third
party agreements existing on the Effective Date, and all amounts so paid over to
Licensee shall be deemed to constitute additional Recoupable Amounts (as that
term is used below) under this Agreement.
RECOUPMENT.
- - -----------
Licensee shall be entitled to apply the aggregate amount by which (a) Royalties
applied or accrued under this Agreement exceed (b) * % of the amount of any
Third Party Fees and Royalties payable by Licensor to parties having rights with
respect to the sale of Licensed Products (the "Recoupable Amount") to recoup the
* Dollars Minimum Guaranteed Advance Royalty paid by Licensee to WMS Industries
Inc. pursuant to Section 3 of the Master Atari PC Agreement and the Master Atari
Home Video Agreement (as that term is defined in the Master Atari PC Agreement),
until such Recoupable Amount together with Recoupable Amounts applied or accrued
by Licensee under any Other Atari Home Computer Software Distribution and
License Agreement entered into by Licensee pursuant to the Master Atari PC
Agreement ("Other Home Software Distribution and License Agreements") and under
any Atari Home Video Distribution and License Agreement entered into by Licensee
pursuant to the Master Atari Home Video Agreement (and to the extent applicable
amounts which may be recouped against such Minimum Guaranteed Advance Royalty
pursuant to the GTIS Master Home Video Agreement and the GTIS Master PC
Agreement) equal * Dollars; provided, however, that (a) to the extent that the
aggregate of all Recoupable Amounts applied or accrued under this Agreement and
the Other Atari Home Computer Software Distribution and License Agreements and
under any Atari Home Video Distribution and License
33
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
Agreement entered into pursuant to the Master Atari Home Video Agreement between
the Effective Date and one year after the Effective Date exceed the installment
of the Minimum Guaranteed Advance Royalty paid on the Effective Date, such
excess shall be paid to WMS Industries Inc. and applied in reduction of the
installment of the Minimum Guaranteed Advance Royalty payable on one year after
the Effective Date under the Master Atari PC Agreement and Master Atari Home
Video Agreement.
LIMITATIONS ON FREE AND PROMOTIONAL GOODS; CLOSE-OUTS.
- - ------------------------------------------------------
Licensee shall be permitted to distribute free and promotional goods without the
payment of any Third Party Fees and Royalties or other royalties thereon,
subject to the provisions of Section I above and within the following
territorial and quantity limits:
United States and Canada: * units in the aggregate
United Kingdom,
Germany, Scandanavia,
Benelux, Italy, Spain,
Australia, and Japan: * units per country
Other Countries: * units per country
No royalties shall be payable by Licensee to Licensor in excess of any Third
Party Fees and Royalties in connection with the sale by Licensee of "close-
outs". For purposes hereof, "close-outs" shall mean any Licensed Products that
are sold for a price no greater than the sum of direct manufacturing and
shipping costs plus any Third Party Fees and Royalties.
34
<PAGE>
ANNEX
WMS Industries Inc.
3401 North California Avenue
Chicago, IL 60618
March 27, 1996
GT Interactive Software Corp.
16 East 40th Street
New York, NY 10016
Re: Japan Territory
---------------
Gentlemen:
Reference is made to the GTIS Master Option and License Agreement dated
December 28, 1994, as amended (the "GTIS Master PC Agreement"), the GTIS Master
Option and License Agreement (Home Video Games) dated March 31, 1995, as amended
(the "GTIS Master Home Video Agreement"), the Master Option and License
Agreement for Atari PC Games dated March 27, 1996 (the "Master Atari PC
Agreement") and the Master Option and License Agreement for Atari Home Video
Games dated March 27, 1996 )(the "Master Atari Home Video Agreement"). The GTIS
Master PC Agreement, the GTIS Master Home Video Agreement, the Master Atari PC
Agreement and the Master Atari Home Video Agreement are collectively referred to
herein as the "Master Agreements."
This will confirm our agreement that during the "Japan Territory
Period," as that term is defined below, the Licensed Territory, as that term is
defined in the license and distribution agreements annexed as Exhibit A to the
Master Agreements, shall not exclude Japan. The Japan Territory Period shall
mean the period beginning on the Effective Date, as that term is defined in the
Master Atari Home Video Agreement, and ending on the date which is the later to
occur of (i) two years after the Effective Date, or (ii) one year after either
GTIS or WMS gives written notice to the other of its decision to terminate the
Japan Territory Period; provided, however, that if such notice is given by WMS,
the termination shall not be effective unless on the designated termination date
WMS directly or indirectly owns not less than 49 % of an entity which (i) is or
intends to become a distributor of home video or personal computer games in
Japan, and (ii) conducts or intends to conduct meaningful business in Japan. If
such entity does not intend to distribute both home video and personal computer
games in Japan, then the aforesaid termination shall be effective only as to the
category of games (home video games or
<PAGE>
GT Interactive Software Corp. -2- March 27, 1996
personal computer games) which such entity does intend to distribute. During
the Japan Territory Period, Japan shall be deemed added to Schedule C to the
Master Atari Home Video Agreement and the GTIS Master Home Video Agreement and
shall be deemed designated as a Key Marketing Area as such term is defined
therein. In addition, anything in this letter, the Master Agreements or
licenses issued pursuant to the Master Agreements to the contrary
notwithstanding, GTIS shall pay to the WMS Group and shall have no right to
recoup any Royalties attributable to Licensed Products sold in Japan during the
Japan Territory Period pursuant to the licenses issued under the GTIS Master
Home Video Agreement.
After termination of the Japan Territory Period, (i) licenses entered
into during the Japan Territory Period and still in effect on the date of
termination of such period shall continue for their term, and (ii) with respect
to licenses entered into after the Japan Territory Period, the Licensed
Territory shall exclude Japan, and the terms of applicable Master Agreements and
related license agreements shall apply.
Please indicate your agreement to the foregoing by signing this letter
in the place provided below.
Very truly yours,
WMS INDUSTIRES INC.
By:/s/ NEIL NICASTRO
________________________
Neil Nicastro
Accepted and Agreed To:
GT INTERACTIVE SOFTWARE CORP.
By:/s/ RONALD CHAIMOWITZ
_______________________________
Ronald Chaimowitz
<PAGE>
EXHIBIT 10.4
CERTAIN INFORMATION HAS BEEN OMITTED UNDER A
CONFIDENTIAL TREATMENT REQUEST MADE PURSUANT
TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
MASTER OPTION AND LICENSE AGREEMENT
-----------------------------------
FOR ATARI HOME VIDEO GAMES
--------------------------
This Master Option and License Agreement ("Agreement") is made and
entered into the 27th day of March, 1996, by and between WMS INDUSTRIES INC.
("WMS"), a Delaware corporation with offices at 3401 North California Avenue,
Chicago, Illinois 60618, and GT INTERACTIVE SOFTWARE CORP. ("GTIS"), a Delaware
corporation with offices at 16 East 40th Street, New York, New York 10016.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Williams Inter-active Inc. ("WII") a wholly-owned subsidiary
of WMS, has entered into an agreement with Warner Communications Inc. for the
acquisition of the stock of Atari Games Corporation, a California corporation
("AGC"); and
WHEREAS, AGC is engaged in the business of designing, manufacturing
and selling coin-operated amusement games and software products for dedicated
home video game systems and multipurpose home computers; and
WHEREAS, GTIS is engaged in the business of publishing, manufacturing
and distributing entertainment software products; and
WHEREAS, GTIS desires to acquire certain rights from WMS and AGC and
other subsidiaries of AGC with respect to Games, as such term is defined herein,
and WMS desires to grant and to cause AGC to grant such rights to GTIS;
<PAGE>
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions.
-----------
1.1. "Accepted Game" shall mean any Game with respect to which
GTIS has received a license or has exercised an option to acquire a license
provided for in Section 2 hereof.
1.2. "AGC" shall have the meaning ascribed in the first recital
of this Agreement.
1.3. "Alternative Royalty" shall have the meaning ascribed in
Schedule "B" of the Atari Home Video Game Distribution and License Agreement.
1.4. "Atari Game" shall mean (i) any game developed or
acquired by or on behalf of AGC or entities which were affiliates of AGC prior
to AGC being acquired by WII pursuant to the Stock Purchase Agreement,
including, without limitation, those games listed on Schedule 1 hereto, and any
adaptations of such games for other platforms, and (ii) any game currently in
development or developed subsequent to such acquisition by or on behalf of AGC
or a member of the Atari Group, or developed, in whole or in substantial part,
by any person or persons who were employees of AGC or a member of the Atari
Group as of the closing date of such acquisition and who are employees of any
member of the WMS Group at the time of such development, and any adaptations of
such games for other platforms. For purposes of this Section, employees shall be
deemed to include independent contractors who work a substantial portion of
their time at the facilities of any member of the WMS Group.
1.5. "Atari Group" shall mean AGC, or any entity, a majority
of whose capital stock is owned directly or indirectly by AGC or with respect to
which during the term
2
<PAGE>
of this Agreement, AGC, directly or indirectly, has the legal power, without the
consent of any third party, to direct the acquisition of rights to or
exploitation of Games on Designated Consumer Game Platforms.
1.6. "Atari Home Video Game Distribution and License
Agreement" shall mean an agreement for the license of an Accepted Game for use
solely on a specific Designated Consumer Game Platform in the form of Exhibit A
annexed hereto, as the same may be amended from time to time by written
agreement of the parties thereto.
1.7. "Delivery Date" shall have the meaning ascribed in
Section 2.7 hereof.
1.8. "Designated Consumer Game Platforms" shall mean any of
the Sony(R), Nintendo(R) or Sega(R) dedicated home video game hardware platforms
or other dedicated home video game hardware platforms having a microprocessor
with a 32 bit or higher capacity (excluding SNES and Sega Genesis), on which
Game software can be played utilizing cartridges, CD-ROM disks or other devices
which may hereafter replace or supplement cartridges or CD-ROM disks in
operating systems now known or hereafter developed for use on dedicated home
video game hardware platforms. Designated Consumer Game Platforms shall not,
for purposes of this Agreement, include (a) any of the Atari Jaguar(R) system,
the 3D-06(R) system, or their respective successors (including any enhancements,
improvements or updates), except only to the extent that the Atari Group shall
itself (and not through any licensee or sublicensee) actually release for
commercial shipment in the normal course of business any Games on such hardware
platforms in the United States, or (b) any hand held games, or any multipurpose
home or
3
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
personal computer system or any electronic distribution or on-line interactive
computer game systems or platforms.
1.9. "Early Termination Event" shall mean AGC ceasing to be at
least 50.1% owned by a member of the WMS Group, or the Atari Group transferring
a majority of its intellectual property assets and licenses to a person or
entity who is not a member of the WMS Group.
1.10. "Effective Date" shall mean the date WII closes the
acquisition of AGC pursuant to the Stock Purchase Agreement.
1.11. "First Release" or "First Released" shall mean the
date of the first commercial shipment of a Game in the normal course of business
(and not merely for test purposes).
1.12. "Full Price" shall mean the price of Games which
have not been marked down or discounted by more than * from the original
list price of the Game. Markdowns or discounts shall include rebates
or credits (other than the cooperative advertising allowances which are
unrelated to price protection) granted within one year of the date of
the First Release of the Game).
1.13. "Game" shall mean any home video game designed for
play on a specific Designated Consumer Game Platform which is an Atari Game and
which has been released for commercial shipment in the normal course of business
by (i) any member of the WMS Group, or (ii) by any licensee of the WMS Group on
such Designated Consumer Game Platform in each case for sale in commercial
quantities in the United States in the normal course of business, but excluding
any such home video game with respect to which the Atari Group
4
<PAGE>
shall, prior to the date hereof, have granted rights (or any option, right of
first refusal or negotiation or other ability to obtain rights which may be
subsequently exercised) to any third party, including without limitation any
sublicensee of the Atari Group, to manufacture, distribute or sell such home
video game on such specific Designated Consumer Game Platform within the
Licensed Territory, including any renewals or extensions thereof resulting from
the exercise of previously granted rights. For purposes of this section,
employees shall be deemed to include independent contractors who work a
substantial portion of their time at the facilities of any member of the WMS
Group. Set forth on a schedule to a letter dated the date hereof and signed by
WMS and GTIS is a list of all material agreements known to WMS pursuant to
which the Atari Group has, prior to the date hereof, granted rights to
manufacture, distribute and sell such home video games on Designated Consumer
Game Platforms within the Licensed Territory, but excluding any agreements
pursuant to which the Atari Group has granted rights to home video games based
on games which have heretofore been released for commercial shipment in the
normal course of business by the Atari Group or by any sublicensee of the Atari
Group as coin-operated video or pinball games or on any dedicated home video
game platform or agreements pursuant to which the Atari Group has granted rights
to any derivative or sequel to any such previously released coin-operated video,
pinball or home video game. A home video game shall be deemed a separate Game
with reference to the specific Designated Consumer Game Platform on which it has
been designed for play.
1.14. "Game Version", or version of a Game, or any similar
phrase, whether or not capitalized, shall mean the version of a Game designed to
play on a specific Designated Consumer Platform.
5
<PAGE>
1.15. "GTIS" shall mean GTIS or any affiliate of GTIS to whom
any rights to exploit any Games granted hereunder may be sublicensed. An
affiliate of GTIS shall refer to an entity, a majority of whose capital stock is
owned directly or indirectly by GTIS or with respect to which during the term of
this Agreement, GTIS, directly or indirectly, has the legal power without the
consent of any third party to direct the manufacture, distribution or sale of
Games.
1.16. "GTIS Master Home Video Agreement" shall mean the GTIS
Master Option and License Agreement (Home Video Games) dated March 31, 1995, as
amended, among WMS, Williams Electronics Games, Inc., Midway Manufacturing
Company, Williams Entertainment Inc. and GTIS.
1.17. "GTIS Master PC Agreement" shall mean the GTIS Master
Option and License Agreement dated December 28, 1994, as amended, among WMS,
Williams Electronics Games, Inc., Midway Manufacturing Company, Williams
Entertainment Inc. and GTIS.
1.18. "Licensed Territory" shall have the meaning ascribed
in Section 3.1 of the Atari Home Video Game Distribution and License Agreement.
1.19. "Marketing Area" shall have the meaning ascribed in
Section 3.3 of the Atari Home Video Game Distribution and License Agreement.
1.20. "Master Atari PC Agreement" shall mean the Master
Option and License Agreement for Atari PC Games being executed simultaneously
herewith.
1.21. "Master Disk" shall mean a CD-ROM disk or floppy disk,
or any other stand alone device which may hereafter replace or supplant CD-ROM
or floppy disks,
6
<PAGE>
containing the source code utilized by the Atari Group for an Accepted Game
released or intended to be released in the United States.
1.22. "Minimum Guaranteed Advance Royalty" shall have the
meaning ascribed in Section 3 hereof.
1.23. "New Game Acceptance Notice" shall have the meaning
ascribed in Section 2.3 hereof.
1.24. "New Game Option Notice" shall have the meaning
ascribed in Section 2.3 hereof.
1.25. "New Game Option Notice Date" shall have the meaning
ascribed in Section 2.3 hereof.
1.26. "North America" shall mean (a) the United States of
America, its territories, possessions, and United States military installations
worldwide, (b) Canada and (c) Mexico.
1.27. "Notice of Election" shall have the meaning ascribed in
Section 9 hereof.
1.28. "Option Period" shall mean the period commencing on the
Effective Date and ending on the earlier to occur of (i) the expiration date,
including any extensions thereof, of GTIS' first option to acquire licenses
pursuant to Section 2.1 of the GTIS Master Home Video Agreement, or (ii) the
first date after the Effective Date on which an Early Termination Event occurs.
1.29. "Pirate" shall mean an individual or entity which
counterfeits a game or sells counterfeit games.
7
<PAGE>
1.30. "Proposed Game" shall have the meaning ascribed in
Section 2.3 hereof.
1.31. "Renewal Option Period" shall have the meaning ascribed
in Section 2.1 hereof.
1.32. "Renewal Option Year" shall have the meaning ascribed in
Section 2.1 hereof.
1.33. "Stock Purchase Agreement" shall mean the Stock
Purchase Agreement dated February 23, 1996 between Warner Communications Inc.
and WII pursuant to which Warner Communications Inc. has agreed to sell and WII
has agreed to purchase all of the outstanding stock of AGC.
1.34. "Weighted Average Gross Profits" shall have the meaning
ascribed in Schedule "B" of the Atari Home Video Game Distribution and License
Agreement.
1.35. "WII" shall have the meaning ascribed in the first
recital of this Agreement.
1.36. "WMS Group" shall mean WMS, or any subsidiary, affiliate
or other entity, a majority of whose capital stock is owned directly or
indirectly by WMS or with respect to which during the term of this Agreement,
WMS, directly or indirectly, has the legal power, without the consent of any
third party, to direct the acquisition of rights to or exploitation of Games on
Designated Consumer Game Platforms.
8
<PAGE>
2. GRANT AND TERMINATION OF OPTION; Exercise of OPTION.
---------------------------------------------------
2.1. Effective from and after the Effective Date, the Atari
Group hereby grants to GTIS a first option to acquire a license, in the form of
the Atari Home Video Game Distribution and License Agreement, to manufacture,
distribute, sell, sublicense and subdistribute versions of the Games for use
solely on specific Designated Consumer Game Platforms, with respect to Games
which become Accepted Games during the Option Period, provided that such Games
are actually released by the Atari Group or its licensees in the United States
within twelve (12) months following the expiration of the Option Period.
Royalties payable on sales of Accepted Games with respect to which GTIS
has received a license or exercised an option to acquire a license during the
Renewal Option Period shall be subject to increase, as of the commencement of
the Renewal Option Period or any subsequent Renewal Option Year, to reflect
increases in GTIS' Weighted Average Gross Profits as a percentage of GTIS' sales
of Accepted Games during the Option Period or during the prior Renewal Option
Year as provided in Schedule "B" to the Atari Home Video Game Distribution and
License Agreement. Renewal Option Period and Renewal Option Year shall have the
meanings ascribed to such terms in Section 2.1 of the GTIS Master Home Video
Agreement.
2.2. The Atari Group shall not grant a license to any third
parties to manufacture, distribute and sell versions of a Game for use on any
Designated Consumer Game Platform if such Game would be subject to GTIS' first
option right to manufacture, distribute and sell versions of such Game on such
Designated Consumer Game Platform, as specified in Section 2.1 hereof, until
such time as GTIS shall have declined to acquire a license, or the option period
specified in Sections 2.3 and 2.4 hereof, whichever is applicable, shall have
9
<PAGE>
expired, or the applicable Atari Home Video Game Distribution and License
Agreement shall otherwise permit. GTIS understands, acknowledges and agrees
that (a) on the Effective Date, the Atari Group's library of Games, projects in
development and subsequent versions of Games may be subject to rights held by
third parties, including affiliates of Warner Communications Inc. who are not
members of the Atari Group; any license acquired by GTIS hereunder shall be
subject to such third party rights, and the form of Atari Home Video
Distribution and License Agreement will be deemed modified to the extent so
required; (b) with respect to Games manufactured by the Atari Group under
license from third parties, the rights granted by the Atari Group to GTIS (i)
cannot exceed the rights obtained by the Atari Group with respect to such Games,
(ii) will be limited to the Licensed Territory, and (iii) are subject to all
limitations imposed on the Atari Group by such third party licensors, including
limitations on the Atari Group's right to sublicense or subdistribute, and the
form of Atari Home Video Game Distribution and License Agreement will be deemed
modified to the extent so required, (c) under certain circumstances the
ownership of the Atari Group may revert to Warner Communications Inc. pursuant
to the Stock Purchase Agreement and documents executed in connection therewith;
and (d) although the Atari Group is developing Games in the normal course of
business, the Atari Group is under no obligation to develop Games or to present
any minimum number of Games to GTIS under this Agreement. GTIS shall be
provided the opportunity to review all third party agreements existing on the
Effective Date relating to Games with respect to which GTIS may acquire rights
hereunder, subject to any applicable confidentiality provisions in such
agreements.
10
<PAGE>
2.3. If the Atari Group has determined or shall determine to
develop or acquire rights in a Game for play on a Designated Consumer Game
Platform which the Atari Group intends to release in the United States during
the Option Period or within twelve (12) months thereafter, including Games which
were in the Atari Group library on the Effective Date but which are re-released
with new copyright notices or other changes after the Effective Date, (a
"Proposed Game"), the Atari Group shall notify GTIS in writing, as soon as
practicable, with respect to such determination and shall furnish to GTIS any
tentative development schedule for such Proposed Game. Such tentative
development schedule shall be subject to change at any time and from time to
time and the Atari Group reserves the right to abandon, suspend, or otherwise
delay the development of such Proposed Game in its sole and absolute discretion,
provided, however, that the Atari Group shall use reasonable efforts to keep
GTIS apprised of material scheduling changes and/or the achievement of
milestones in connection with the development of such Proposed Game. The Atari
Group shall, as soon as practicable, notify GTIS in writing with respect to (a)
the characteristics and method of play of such Proposed Game, (b) any material
limitations or other terms and conditions which may affect the scope of the
license which may be granted to GTIS (including copies of relevant contractual
provisions where permitted), (c) the amount or method of determining third party
fees and royalties payable in connection therewith, and (d) the date on which
the Atari Group proposes to First Release the Proposed Game in the United States
(the "New Game Option Notice"). The Atari Group shall use reasonable efforts to
advise GTIS with respect to all of the information required to be included in
the New Game Option Notice, as provided above, at least one hundred and twenty
(120) days prior to the proposed release date of the Proposed Game by the Atari
Group in the
11
<PAGE>
United States, provided, however, that GTIS acknowledges and agrees that such
information may not then be available to the Atari Group and the Atari Group may
not have fully determined or negotiated all material limitations or other terms
and conditions which may affect the scope of the license or Third Party Fees and
Royalties payable with respect thereto. The date of such New Game Option Notice
is hereinafter referred to as the "New Game Option Notice Date." With respect to
each Proposed Game as to which GTIS receives a New Game Option Notice, as
hereinabove provided, GTIS shall have a period of sixty (60) days in which to
notify AGC in writing that it either elects or declines to exercise its option
to license the Proposed Game. A notice that GTIS elects to exercise its option
to have the Proposed Game is referred to as a "New Game Acceptance Notice." Any
New Game Acceptance Notice given by GTIS shall in all events be conditioned upon
and subject to (i) the actual release of the Game by the Atari Group in the
United States within twelve (12) months following the end of the Initial Option
Period or any Renewal Option Year as those terms are defined in the GTIS Master
Home Video Agreement and (ii) the prior release of coin-operated versions of the
Game, if any, by the Atari Group no later than the end of the corresponding
Initial Option Period or Renewal Option Year. As soon as practicable following
receipt of (a) the New Game Acceptance Notice, and (b) notice from the
Designated Consumer Game Platform manufacturer of its acceptance of the Proposed
Game for sale in the United States, the Atari Group shall promptly furnish to
GTIS a Master Disk with respect to such Game as well as one NTSC and one PAL
version of such Master Disk. The Atari Group shall also furnish to GTIS, as
soon as reasonably available, (i) the beta version of the Game, (ii) text files
and the text that appears in bit map files, and printed copies of scripts used
for audio components of CD-ROM versions of the Proposed Game, for purposes
12
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
of translating the Proposed Games into languages other than English (as
contemplated in the Atari Home Video Game Distribution and License Agreement),
and (iii) copies of artwork, instruction manuals, and other packaging, labeling
and promotional materials to be used by the Atari Group with respect to such
Proposed Game substantially in commercially reproducible form. Except as
otherwise specifically provided below, GTIS shall be solely responsible for all
costs and out of pocket expenses required to reprogram a Master Disk for use in
connection with the sale of Accepted Games, including, without limitation,
editorial changes or adaptions to local markets, changes required by all
manufacturers of Designated Consumer Game Platforms and local rating boards or
similar governmental agencies in the Licensed Territory. The Atari Group shall
bear costs up to * Dollars for editorial changes per Accepted Game required by
any German or European approval boards for modifications to Accepted Games,
subject in all events to a maximum total required expenditure by the Atari Group
during the Initial Option Period of * Dollars and * Dollars during each Renewal
Option Year. GTIS and the Atari Group shall otherwise discuss in good faith any
sharing of costs of other editorial changes, but the Atari Group shall in no
event have any obligation to bear any additional costs of such editorial changes
unless it shall specifically agree in writing with respect thereto. Although the
Atari Group shall make reasonable efforts to advise GTIS with respect to the
development schedule of a Proposed Game and the intended First Release date of
such Proposed Game by the Atari Group in the United States, nothing herein shall
be deemed to require the Atari Group to alter, amend, delay, or suspend its
development schedule with respect to such Proposed Game, or its First Release
date in the United States.
13
<PAGE>
2.4. Any Proposed Game or Game as to which GTIS has exercised
its option and furnished to the Atari Group a New Game Acceptance Notice within
the notice period specified in Section 2.3 above shall become an "Accepted Game"
for purposes of this Agreement, provided that such Game shall have actually been
released by the Atari Group in the United States within twelve (12) months
following expiration of the Option Period, and provided further that coin-
operated versions of the Game, if any, shall have previously been released by
the Atari Group during the Option Period. With respect to each Accepted Game,
GTIS and the member of the Atari Group which has released such Game shall enter
into an Atari Home Video Game Distribution and License Agreement which shall be
dated as of the date of the New Game Acceptance Notice. If either of such
parties shall delay or wrongfully refuse to enter into an Atari Home Video Game
Distribution and License Agreement with respect to any Accepted Game, then, in
addition to any other rights of the non-defaulting party hereunder, at the
option of the non-defaulting party, such Atari Home Video Game Distribution and
License Agreement shall be deemed to have been entered into as of the date on
which GTIS shall have exercised its option to acquire the license of such
Accepted Game as provided herein. GTIS understands and agrees that it will have
no rights whatsoever in respect of any Game which does not become an Accepted
Game in accordance with the terms of this Agreement and for which an Atari Home
Video Game Distribution and License Agreement is not duly executed (or deemed
executed as provided above), and the Atari Group may exploit its rights in any
Game which does not become an Accepted Game in any manner it sees fit, free and
clear of this Agreement provided, however, that if GTIS shall fail or decline to
accept a Proposed Game as provided in Section 2.3 above, and the Atari Group
shall thereafter make material changes in
14
<PAGE>
the programming of the Game or in the amount of any Third Party Fees and
Royalties payable with respect thereto, then the Atari Group shall furnish to
GIIS a new New Game Option Notice with respect to such Game as so changed and
GTIS shall thereafter have the right to accept such Game as changed in the
manner provided in Section 2.3 above. The Atari Group shall also be entitled to
exploit its rights with respect to any Game and to sell and distribute such
Game, free and clear of this Agreement, in any Marketing Area with respect to
which GTIS' right to sell and distribute such Game has been suspended or revoked
(or has become non-exclusive) as provided in Section 2.7 below and Section 3.3
of any Atari Home Video Game Distribution and License Agreement, provided
however, that if the Atari Group shall thereafter make material changes in the
programming of such Game or in the amount of any Third Party Fees and Royalties
payable with respect thereto, then the Atari Group shall furnish to GTIS a new
New Game Option Notice with respect to such Game as so changed and GTIS shall
thereafter have the right to accept such Game as changed in the manner provided
in Section 2.3 above.
2.5. GTIS acknowledges that the Atari Group manufactures and
sells Games for many different entertainment platforms, including coin-operated
games and home games of all types, and that any Games in respect of which GTIS
obtains rights hereunder for exploitation on a specific Designated Consumer Game
Platform may be developed by the Atari Group for other entertainment platforms,
including other Designated Consumer Game Platforms, or for territories not
included in the Licensed Territory and GTIS will have no rights therein.
2.6. The Atari Group agrees to use commercial efforts, in its
reasonable judgment, to acquire rights to exploit Games on Designated Consumer
Game Platforms throughout the Licensed Territory when it acquires rights to
exploit such Games in the United
15
<PAGE>
States. Except to the extent that the Atari Group has heretofore granted rights
(or any option, right of first refusal or negotiations or other ability to
obtain rights which may be subsequently exercised) to manufacture, distribute or
sell home video games on Designated Consumer Game Platforms within the Licensed
Territory to any third party (including any renewals or extensions thereof
resulting from the exercise of previously granted rights), if the Atari Group
develops internally any coin-operated or home video game, then the Atari Group
shall not license the right to use its computer software source code or object
code for such coin-operated or home video game to any third party for the
purpose of developing and/or marketing a Game for play on a Designated Consumer
Game Platform in the Licensed Territory, unless the Atari Group shall have first
offered to license such Game to GTIS as provided in this Agreement. With
respect to Games in which the Atari Group acquires or intends to acquire from a
third party rights to exploit such Games on Designated Consumer Game Platforms
in the United States, but with respect to which the Atari Group is unable or
unwilling to acquire rights to exploit such Games on Designated Consumer Game
Platforms in the Licensed Territory based on the Atari Group's reasonable
judgment that such rights are not available on commercially acceptable terms, or
on terms which, in the Atari Group's judgment, would make it uneconomical for
the Atari Group to acquire and license such rights to GTIS on the terms and
conditions set forth herein and in the Atari Home Video Game Distribution and
License Agreement, the Atari Group shall so advise GTIS and GTIS shall have the
reasonable opportunity to consult with the Atari Group (and, in GTIS'
discretion, to propose other licensing or cost sharing arrangements with respect
to such Game) prior to the Atari Group's determination whether to accept or
decline to accept such rights which shall be made in good faith.
16
<PAGE>
2.7. GTIS or its sublicensees shall actively commence
marketing and selling an Accepted Game in reasonable commercial quantities in
all Marketing Areas within the Licensed Territory within six (6) months
following the date upon which the Atari Group shall have First Released such
Accepted Game in the United States (the "Delivery Date"), provided however, that
such six (6) month period shall be extended for a period of sixty (60) days in
Marketing Areas, other than those designated as "Key Marketing Areas" on
Schedule C annexed to the Atari Home Video Game Distribution and License
Agreement, if GTIS shall have proposed a sublicensee to distribute Licensed
Products in such Marketing Area and the Atari Group shall have withheld its
approval of the sublicensee. If GTIS or its sublicensees shall have failed to
commence actively marketing and selling an Accepted Game in any Marketing Area
within the Licensed Territory within six (6) months following the Delivery Date
with respect thereto, then the Atari Group shall have the right, in addition to
any other rights which the Atari Group may have hereunder or under any Atari
Home Video Game Distribution and License Agreement, upon thirty (30) days
written notice to GTIS, to suspend and revoke GTIS' or its sublicensees' right
to sell such Accepted Game in such Marketing Area or to declare such right
henceforth to be non-exclusive, as the Atari Group shall determine. If GTIS or
its sublicensees shall have failed to commence actively marketing and selling
three (3) or more Accepted Games which have been designed for play on the same
Designated Consumer Game Platform, in each case within six (6) months following
the Delivery Date with respect thereto, in any Marketing Area within the
Licensed Territory, then the Atari Group shall have the right, upon thirty (30)
days written notice to GTIS, permanently to suspend and revoke GTIS' right to
distribute and sell all future Accepted Games which have been designed for play
on the same Designated
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<PAGE>
Consumer Game Platform in such Marketing Area and to exclude such Marketing Area
from the Licensed Territory under all future Atari Home Video Game Distribution
and License Agreements for Games which have been designed for play on such
Designated Consumer Game Platforms. Notwithstanding the foregoing, however,
GTIS or its sublicensees shall not be required to have actively commenced
marketing and selling an Accepted Game in any Marketing Area if the specific
Designated Consumer Game Platform on which such Accepted Game has been designed
for play shall not regularly be sold at retail or otherwise not be generally
available to consumers in such Marketing Area or if such Accepted Game is banned
in the entire Marketing Area.
For purposes of documenting compliance with this Section 2.7, GTIS
shall submit a report, as of the date six (6) months following the Delivery
Date, listing the Marketing Areas in which GTIS has not commenced actively
marketing and selling an Accepted Game. Such report shall be sent to the Atari
Group within forty-five (45) days after the end of said six (6) month period,
and shall indicate the status for each Marketing Area listed (indicating the
date of expected First Release and whether a sublicensee has been appointed).
Such summary report shall be made in good faith, using the best available
information as of the date the report is submitted.
2.8. Royalties payable to AGC pursuant to Schedule B of the
Atari Home Video Game Distribution and License Agreement are measured by the
wholesale prices of Licensed Product. Accordingly, reasonably in advance of
AGC's decision to enter into a developer contract and reasonably in advance of
GTIS' initial release of the Licensed Product, GTIS shall advise AGC, at AGC's
request, of GTIS' expected pricing strategy and the reasons
18
<PAGE>
therefor. Nothing herein shall be deemed to restrict GTIS' freedom in selecting
wholesale sales prices it considers appropriate, which shall be in GTIS' sole
discretion.
2.9. Anything in this Agreement to the contrary
notwithstanding, with respect to any Games currently under development by the
Atari Group for which the Atari Group has heretofore made development advances
and as to which the Atari Group has the right to grant licenses to GTIS to
manufacture, distribute and sell versions of the Game for use on one or more
Designated Consumer Game Platforms, if GTIS does not exercise its first option
within the time periods or in the manner set forth in Section 2.3 of this
Agreement, GTIS shall not have any subsequent rights with respect to such Game,
including rights under Section 2.4, even if the Atari Group makes material
changes in programming of the Game or in the amount of any Third Parties Fees
and Royalties.
2.10. If, under Section 2.1 of any Atari Home Video Game
Distribution and License Agreement entered into under this Agreement, Licensor
has granted written approval (which shall not be unreasonably withheld) to
Licensee of a sublicensee for the Licensed Property, such approval shall apply
to the sublicensing by that sublicensee of all Licensed Properties licensed to
Licensee under Atari Home Video Game Distribution and License Agreements entered
into under this Agreement, subject to the following: (i) the sublicense
agreements shall contain provisions with respect to quality of Licensed Product,
trademarks, copyrights, materials, other intellectual property rights, rights of
additional sublicensing or assignment, termination rights, confidentiality,
accounting, auditing, reporting and payment procedures in form agreed to by GTIS
and WMS, and the form as so agreed to may be used by all approved sublicensees
described in clause (iii) below; provided that if such
19
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
form is not so used, any other form to be used shall be subject to prior
approval as provided in this subsection (i); (ii) no such blanket approval shall
be deemed given with respect to Licensed Properties as to which approval
requirements imposed by third parties, such as the NFL and NBA, apply, (iii) if
the sublicense is for a Marketing Area other than those designated as Key
Marketing Areas in such Atari Home Video Game Distribution and License Agreement
and if the expected sales volume in such Marketing Area, in GTIS, good
faith judgment, is an average of * units or less per SKU per year, Licensee will
not be required to obtain Licensor's prior written approval of the terms of such
license but Licensee will be required to provide a copy of each sublicense to
Licensor within ten (10) Business Days after GTIS enters into such sublicense;
and (iv) if the Marketing Area is designated as a Key Marketing Area or if, in
GTIS' good faith judgment, the expected sales volume for such Marketing Area is
more than an average of * units per SKU per year, Licensee will be required to
obtain Licensor's prior written approval, which Licensor will not unreasonably
withhold, of the terms of a sublicense for such Marketing Area even if the
identity of the sublicensee has been previously approved; provided, however, if
a sublicense is for multiple platforms and multiple games, the approval of the
sublicense will be deemed to be approval for all Games distributed under that
sublicense (subject to clause (ii)). Anything to the contrary notwithstanding,
(x) if a previously approved sublicensee becomes an Exporter (as such term is
defined in Exhibit A to the Atari Home Video Game Distribution Agreement) or a
Pirate, Licensee will immediately upon becoming aware thereof notify Licensor of
the identity of such Exporter or Pirate and as soon as practicable terminate the
sublicense upon request by Licensor, and (y) Licensor and Licensee will review
every two years the identity of sublicensees, and those sublicensees who
previously received
20
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
blanket approval as provided in the first sentence of this Section and who are
no longer considered acceptable by Licensor, in the exercise of Licensors'
reasonable judgment, will no longer have such blanket approval and will be
subject to Licensor's prior approval with respect to all future sublicenses in
accordance with the approval procedures set forth above. Licensee shall use all
reasonable efforts to cause each agreement with its sublicensees to permit
Licensee to terminate such agreement immediately if such sublicensee shall be or
become an Exporter or a Pirate.
3. MINIMUM GUARANTEED ADVANCE ROYALTY. In consideration for both the
----------------------------------
option granted herein and in the Master Atari PC Agreement and as a guaranteed
advance royalty, GTIS is paying to WMS the aggregate sum of * Dollars ("Minimum
Guaranteed Advance Royalty") in the manner provided in the Master Atari PC
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF WMS. WMS represents and
-------------------------------------
warrants that this Agreement has been duly authorized, executed and delivered by
WMS; WMS has the full power and authority to enter into this Agreement and to
perform its obligations hereunder and this Agreement constitutes the valid and
binding obligation of WMS, enforceable in accordance with its terms, and the
making of this Agreement by WMS does not violate or conflict with any agreement,
right or obligation existing between WMS and any other person, firm or
corporation.
5. REPRESENTATIONS-AND WARRANTIES OF GTIS. GTIS represents and
--------------------------------------
warrants that this Agreement has been duly authorized, executed and delivered by
GIIS; GTIS has the full power and authority to enter into this Agreement and to
perform its obligations
21
<PAGE>
hereunder and this Agreement constitutes the valid and binding obligation of
GTIS enforceable in accordance with its terms; and the making of this Agreement
by GTIS does not violate or conflict with any agreement, right or obligation
existing between GTIS and any other person, firm or corporation.
6. CONFIDENTIAL INFORMATION. GTIS shall keep in confidence and not
------------------------
disclose or make available to any third party, without the written permission of
AGC, the terms of this Agreement and the proprietary information of the Atari
Group made known to it under this Agreement, including without limitation any
information with respect to Proposed Games prior to the date on which they are
First Released and any Master Disk or version thereof. Likewise, WMS and the
Atari Group shall keep in confidence and not disclose to any third party,
without the written permission of GTIS, the terms of this Agreement and the
proprietary information of GTIS made known to it under this Agreement. This
requirement of confidentiality shall not apply to information that is (a)
permitted to be disclosed under an Atari Home Video Game Distribution and
License Agreement; (b) in the public domain through no wrongful act of the
receiving party; (c) rightfully received by the receiving party from a third
party who is not bound by a restriction of nondisclosure; (d) already in the
receiving party's possession without restriction as to disclosure; or (e) is
required to be disclosed by applicable rules and regulations of government
agencies or judicial bodies. WMS or GTIS shall not issue any press release or
other public or trade announcement with respect to the transactions contemplated
by this Agreement unless the issuing party shall have first consulted with the
other with respect thereto and obtained the other's prior written approval
therefor, which approval will not be unreasonably withheld or delayed. The
obligations of confidentiality under this Section 6 shall survive
22
<PAGE>
termination of this Agreement and either party shall be entitled to seek
injunctive or equitable relief to prevent the breach or threatened breach by the
other of the provisions of this Section and to secure its enforcement. With
respect to this Agreement and all Atari Home Computer Software Distribution and
License Agreements entered into in connection therewith, each of the AGC Group
and GTIS agree to use reasonable efforts to ensure that either of them may
disclose the proprietary information of the other (including, without
limitation, the software source code and tools relating to any Game) only to
those persons within their organizations who have a need to know such
information in order to perform its obligations under this Agreement and the
Home Video Game Distribution and License Agreements and any such disclosure
shall be limited to the information which needs to be known. Further, neither
the AGC Group nor GTIS shall use any such proprietary information for purposes
other than the performance of its obligations under this Agreement and the Home
Video Game Distribution and License Agreements.
7. NOTICES. Any notice, consent, approval, request, waiver or
-------
statement to be given, made or provided for under this Agreement shall be in
writing and deemed to have been duly given (a) by its delivery personally or by
express mail; or (b) five (5) days after its being mailed, air express,
registered or certified, return receipt requested, in a U.S. Post office
addressed as follows:
To GTIS:
GT Interactive Software Corp.
16 East 40th Street
New York, New York 10016
Attention: Mr. Ron Chaimowitz, President
Telephone Number: (212) 726-6508
Facsimile Number: (212) 679-6850
23
<PAGE>
With a copy to:
GT Interactive Software Corp.
16 East 40th Street
New York, New York 10016
Attention: Mr. Harry Rubin
Telephone Number: (212) 726-6523
Facsimile Number: (212) 679-6850
With a copy to:
GT Interactive Software Corp.
16 East 40th Street
New York, New York 10016
Attention: Alan Behr, Esq.
Telephone Number: (212) 726-6500
Facsimile Number: (212) 679-6850
To WMS:
WMS Industries Inc.
3401 North California Avenue
Chicago, Illinois 60618
Attention: Mr. Neil D. Nicastro, President
Telephone Number: (312) 728-2300
Facsimile Number: (312) 539-2099
With a copy to:
Williams Entertainment Inc.
1800 South Business 45
Corsicana, Texas 75110
Attention: Mr. Byron Cook
Telephone Number: (903) 874-2683
Facsimile Number: (903) 872-8000
24
<PAGE>
With a copy to:
Jeffrey N. Siegel, Esq.
Shack & Siegel, P.C.
530 Fifth Avenue
New York, New York 10036
Telephone Number: (212) 782-0700
Facsimile Number: (212) 730-1964
or such other address as either party may designate by notice given as
aforesaid.
8. DEFAULT. In the event that GTIS shall default in any of its
-------
material obligations hereunder or under any Atari Home Video Game Distribution
and License Agreement and the Atari Group or WMS has provided notice of such
default in accordance with the provisions of Section 7 hereof, if GTIS has not
cured such default within fifteen (15) days of such notice, or within the grace
periods provided in the Atari Home Video Game Distribution and License Agreement
in respect of payments thereunder, then, in addition to all other rights and
remedies of the Atari Group or WMS at law or in equity, at the option of the
Atari Group or WMS, all rights granted to GTIS under Section 2 of this Agreement
shall be deemed terminated and shall revert to the Atari Group, provided it is
understood that notwithstanding such termination, the Atari Home Video Game
Distribution and License Agreements with respect to Accepted Games which were
deemed entered into prior to such termination, and which are not in default,
shall remain in full force and effect. No such termination shall in any way
affect or diminish WMS' rights hereunder, including the right of WMS to receive
the Minimum Guaranteed Advance Royalty. Anything herein to the contrary
notwithstanding, the rights granted to GTIS under Section 2 of this Agreement
shall not be affected by an alleged default by Licensee under an Atari Home
Video Game Distribution and License Agreement resulting
25
<PAGE>
from a bona fide dispute between Licensor and Licensee provided that Licensee
pays all undisputed amounts to Licensor and all disputed amounts are paid into a
bona fide third party escrow account.
9. OTHER TERMINATION. Anything in this Agreement to the contrary
-----------------
notwithstanding, if pursuant to Section 10 of the GTIS Master Home Video
Agreement, WMS elects to terminate all rights granted to GIIS under Section 2 of
the GTIS Master Home Video Agreement (a "Notice of Election"), WMS must also
terminate all rights granted to GTIS under Section 2 of this Agreement; provided
that, notwithstanding such termination, all Atari Home Video Game Distribution
and License Agreements with respect to Accepted Games which were deemed entered
into prior to such termination, and which are not in default, shall remain in
full force and effect. Within thirty (30) days following the date on which WMS
shall issue a Notice of Election, WMS shall pay to GTIS an amount equal to any
then unrecouped portion of the Minimum Guaranteed Advance Royalty which has
theretofore been paid to WMS under this Agreement and the Master Atari PC
Agreement, together with interest thereon at the prime rate designated by
Citibank, N.A. calculated from the date paid. No termination by WMS of GTIS'
rights to continue to acquire licenses with respect to Games pursuant to the
provisions hereof shall in any way affect or diminish any rights of WMS or the
Atari Group hereunder, or the Atari Group's right to continue to receive
Royalties under any Atari Home Video Game Distribution and License Agreement
which remains in effect, except that GTIS shall not be entitled to any further
recoupment of the Minimum Guaranteed Advance Royalty.
10. NON-SOLICITATION.
----------------
26
<PAGE>
During the Option Period and for a further period of two (2) years thereafter,
neither GTIS nor the Atari Group shall, for itself or on behalf of any other
person, partnership, corporation or entity, directly or indirectly, or by action
in concert with others (a) solicit, induce, or encourage any person to terminate
his or her employment or other contractual relationship with the other party or
any of its affiliates, or (b) solicit, induce, or encourage any designer,
developer, salesperson or other person known to have a contractual relationship
with the other party to discontinue, terminate, cancel or refrain from entering
into any design, development, sales or other contractual relationship with the
other party or any of its affiliates. Each party agrees that the parties hereto
shall be entitled to injunctive or other equitable relief to prevent the breach
or threatened breach by it of the provisions of this section and to secure its
enforcement.
11. STOCK PURCHASE AGREEMENT CONDITIONS. This Agreement shall
-----------------------------------
become effective on the Effective Date and shall be null and void and of no
force and effect if the Effective Date shall not have occurred by June 30, 1996.
On the Effective Date, WMS shall cause AGC to execute an instrument of
assumption, whereby AGC shall assume all of the obligations of AGC and the Atari
Group referred to in this Agreement. Notwithstanding such assumption by AGC,
WMS shall remain liable for the obligations of AGC under this Agreement so long
as an Early Termination Event shall not have occurred.
12. MISCELLANEOUS.
-------------
12.1. This Agreement is personal to GTIS as one party and
WMS as the other party. Neither this Agreement nor any party's rights under it
may be assigned, in whole or in part, nor may its obligations be delegated, in
whole or in part, to any person or party
27
<PAGE>
without the prior written consent of the other party, except that any party may
assign its rights and delegate obligations to any of its direct or indirect
wholly-owned subsidiaries or affiliates or to any person, firm or corporation
owning or acquiring all or substantially all of the stock or assets of that
party, as long as both the assignee and the assignor remain fully liable for
assignor's obligations hereunder. After the Effective Date, in connection with
any Early Termination Event, WMS and AGC shall obtain the assumption by the
purchaser or transferee of all covenants, obligations and duties undertaken by
the seller pursuant to the terms of this Agreement, including its obligations
with respect to Games and the intellectual property from which they are derived.
This Agreement shall bind the parties, their successors and permitted assignees
and delegees. WMS, as one party, and GTIS, as the other party, are each jointly
and severally liable for their respective obligations under the terms of this
Agreement.
12.2. The entire understanding between the parties hereto
relating to the subject matter hereof is contained herein. This Agreement
cannot be changed, modified, amended or terminated except by an instrument in
writing executed by the parties hereto.
12.3. No waiver, modification or cancellation of any term or
condition of this Agreement shall be effective unless executed in writing by the
party charged therewith. No written waiver shall excuse the performance of any
act other than those specifically referred to therein and no waiver shall be
deemed or construed to be a waiver of such terms or conditions for the future or
any subsequent breach thereof.
12.4. This Agreement does not constitute and shall not be
construed as constituting a partnership or joint venture between WMS and GTIS,
and neither WMS nor GTIS
28
<PAGE>
shall have any right to obligate or bind the other in any manner whatsoever, and
nothing herein contained shall give or is intended to give any rights of any
kind to any third persons.
12.5. This Agreement shall be governed by the laws of the
State of Illinois applicable to contracts made and to be wholly performed in the
State of Illinois.
12.6. If any provision of this Agreement is or becomes or is
deemed invalid, illegal or unenforceable under the applicable laws or
regulations of any jurisdiction, either such provision will be deemed amended to
conform to such laws or regulations without materially altering the intention of
the parties, or it shall be stricken and the remainder of this Agreement shall
remain in full force and effect.
12.7. This Agreement may be executed in counterparts each of
which shall be deemed an original and when taken together shall be deemed one
and the same document.
12.8. In the event of conflicts between the provisions of
this Agreement and the Atari Home Video Game Distribution and License Agreement,
the provisions of this Agreement shall prevail.
IN WITNESS OF, the parties have executed this Agreement as of the day
and year first above written.
WMS INDUSTRIES INC.
By: /s/ NEIL NICASTRO
---------------------------------
Neil Nicastro
GT INTERACTIVE SOFTWARE CORP.
By: /s/ RONALD CHAIMOWITZ
---------------------------------
Ronald Chaimowitz
29
<PAGE>
EXHIBIT A
---------
HOME VIDEO GAME
---------------
DISTRIBUTION AND LICENSE AGREEMENT FOR ATARI GAMES
--------------------------------------------------
AGREEMENT made this _____________ day of ______________ 199__, by and
between GT INTERACTIVE SOFTWARE CORP., a Delaware corporation with offices at
16 East 40th Street, New York, New York 10016 (herein called "Licensee") and
ATARI GAMES CORPORATION, a California corporation with offices at _____________
(herein called "Licensor").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Licensor owns or controls the right to manufacture, sell and
distribute Home Video Games (as hereinafter defined) containing the Licensed
Property (as hereinafter defined) in the Licensed Territory (as hereinafter
defined); and
WHEREAS, WMS industries Inc., the parent of Licensor, and Licensee are
parties to the Master Atari Home Video Agreement (as hereinafter defined)
pursuant to which Licensee has exercised its right and option to acquire a
license to manufacture, distribute and sell Home Video Games embodying the
Licensed Property in the Licensed Territory;
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS.
------------
1.1. "Alternative Royalty" shall have the meaning ascribed in
Schedule "B" annexed hereto.
1.2. "Cartridge-Based Product" shall have the meaning
ascribed in Schedule "B" annexed hereto.
1.3. "Cartridge Margin" shall have the meaning ascribed in
Schedule "B" annexed hereto.
<PAGE>
1.4. "Computer Software" or "Software" shall mean computer
software in the form of a cartridge, CD-ROM disk or other device containing
substantially full and complete computer game code, including the source code,
the assembly code, the object code and such data files and other files as are
necessary for the Licensed Product to achieve its functional purpose, whereby
data and visual images, with or without sound, can be manipulated, communicated,
reproduced or perceived with the aid of a Designated Consumer Game Platform.
1.5. "Delivery Date" shall have the meaning ascribed in
Section 1.7 of the Master Atari Home Video Agreement.
1.6. "Designated Consumer Game Platform" shall have the
meaning ascribed in Section 1.8 of the Master Atari Home Video Agreement.
1.7. "Exporter" shall have the meaning ascribed in Section 3.3
hereof.
1.8. "First Foreign Sale" shall have the meaning ascribed in
Schedule "B" annexed hereto.
1.9. "First Release" or "First Released" shall have the
meaning ascribed in Section 1.11 of the Master Atari Home Video Agreement.
1.10. "Front-line" shall have the meaning ascribed in Schedule
"B" annexed hereto.
1.11. "Full Price" shall have the meaning ascribed in Section
1.12 of the Master Atari Home Video Agreement.
1.12. "Game" shall have the meaning ascribed in Section 1.13
of the Master Atari Home Video Agreement.
1.13. "Home Video Game" shall mean Computer Software
designed to operate solely on a specific Designated Consumer Game Platform.
1.14. "Late Charge" shall have the meaning ascribed in
Section 6.5 hereof.
2
<PAGE>
1.15. "Late Report" shall have the meaning ascribed in
Section 6.5 hereof.
1.16. "Licensed Products" shall mean Home Video Games
embodying the Licensed Property.
1.17. "Licensed Property" shall mean the intellectual
property, game concepts, descriptions, characteristics and method of play
described in the New Game Option Notice and/or on Schedule A and embodied in the
"Licensed Products."
1.18. "Licensed Territory" shall have the meaning ascribed in
Section 3.1 hereof.
1.19. "Marketing Area" shall have the meaning ascribed in
Section 3.4 hereof.
1.20. "Master Atari Home Video Agreement" shall mean the
Master Option and License Agreement for Atari Home Video Games dated March 27,
1996, between Licensee and WMS Industries Inc.
1.21. "Master Disk" shall have the meaning ascribed in
Section 1.21 of the Master Atari Home Video Agreement.
1.22. "Minimum Guaranteed Advance Royalty" shall have the
meaning ascribed in Section 3 of the Master Atari Home Video Agreement.
1.23. "Net Wholesale Sales Price" shall have the meaning
ascribed in Schedule "B" annexed hereto.
1.24. "New Game Option Notice" shall have the meaning
ascribed in Section 2.3 of the Master Atari Home Video Agreement.
1.25. "Option Period" shall have the meaning ascribed in
Section 1.28 of the Master Atari Home Video Agreement.
3
<PAGE>
1.26. "Other Atari Home Video Game Distribution and License
Agreements" shall have the meaning ascribed in Schedule "B" annexed hereto.
1.27. "Recoupable Amount" shall have the meaning ascribed
in Schedule "B" annexed hereto.
1.28. "Renewal Option Period" shall have the meaning ascribed
in Section 2.1 of the Master Atari Home Video Agreement.
1.29. "Renewal Option Year" shall have the meaning ascribed in
Section 2.1 of the Master, Atari Home Video Agreement.
1.30. "Royalty" shall have the meaning ascribed in Schedule "B"
annexed hereto.
1.31. "Royalty Period" shall have the meaning ascribed in Section
6.1 hereof.
1.32. "Term of this Agreement" or "period of this Agreement" or
"term hereof" or "so long as this Agreement remains in force" or words of
similar connotation shall include the initial period of this Agreement and the
period of all renewals, extensions, substitutions or replacements of this
Agreement.
1.33. "Third Party Fees and Royalties" shall mean all
fees, royalties and other participations of any kind or nature payable by
Licensor to any third party, including developers, licensors and others having
rights in connection with the exploitation of the Licensed Products. There
shall be excluded from the term "Third Party Fees and Royalties" as used herein
(a) any fees or royalties payable to employees or consultants by Licensor or its
affiliates with respect to the development of the Licensed Product in house; and
(b) advances paid to any third party having rights in connection with the
exploitation of the Licensed Products (other than persons referred to in clause
(a)), provided, however, that if such advances are recoupable by Licensor or its
affiliates from future royalties payable to such third party, then Third Party
Fees
4
<PAGE>
and Royalties shall include such royalties which would otherwise be payable to
such third party were it not for such right of recoupment.
1.34. "Weighted Average Gross Profits" shall have the meaning
ascribed in Schedule "B" annexed hereto.
Capitalized terms used, but not defined herein, shall have the meaning
ascribed to such terms in the Master Atari Home Video Agreement.
2. GRANT OF LICENSE.
----------------
2.1. Licensor hereby grants and Licensee hereby accepts, for
the term of this Agreement and subject to the terms hereinafter set forth, the
exclusive license to manufacture, distribute, subdistribute and sell the
Licensed Products in the Licensed Territory. Licensee shall have the right to
sublicense any of the rights granted to Licensee hereunder to affiliates of
GTIS, as such term is defined in Section 1.15 of the Master Atari Home Video
Agreement, and, with Licensor's prior written consent, which consent shall not
be unreasonably withheld or delayed, to unaffiliated third parties. Without
limiting the generality of the foregoing, Licensor shall not unreasonably
withhold or delay its consent to proposals by Licensee to sublicense its rights
hereunder to third party dedicated home video game hardware platform
manufacturers for the purpose of "bundling" the Licensed Products together with
such hardware products for distribution only within the Licensed Territory.
Licensee shall not have the right to sublicense its rights hereunder (and
Licensor may withhold its consent to any proposed sublicense) to any third party
for the purpose of distributing, or to any third party who Licensee knows or
could reasonably expect intends to sell or distribute, the Licensed Products
outside of the Licensed Territory. Licensor may also withhold its consent to
any proposed sublicense arrangement, if as a result thereof, it can be
reasonably anticipated that Royalties which may become payable to Licensor on
account of sales of Licensed Products in the Marketing Areas designated as "Key
Marketing Areas" on Schedule C will be less than if such
5
<PAGE>
Licensed Products were sold directly by Licensee. It is understood that the
term "Licensed Products" does not include Computer Software designed for play on
(a) the Atari Jaguar(R) system, the 3D-08(R) system, and their respective
successors (including any enhancements, improvements or updates), except only to
the extent that Licensor or any of its affiliates shall itself (and not through
any Licensee or sublicensee) actually release the Licensed Products for
commercial sale in the ordinary course of business on such hardware platforms in
the United States; (b) any multipurpose home or personal computer systems; or
(c) any other medium of exploitation, including handheld games, Computer
Software playable on dedicated home video game hardware having a microprocessor
of less than 32 bit capacity (excluding SNES and Sega Genesis), over the air,
cable or fiber optic transmission, other than Designated Consumer Game
Platforms; all of which remain the sole property of Licensor. No license is
granted hereunder for the manufacture, sale or distribution of Licensed Products
to be used as premiums, in combination sales, as giveaways or to be disposed of
under similar methods of merchandising, except only that Licensee shall have the
right, subject to rights of third parties in the Licensed Property, to
distribute Licensed Products as premiums, combination sales or giveaways solely
(i) subject to Licensor's consent, which shall not unreasonably be withheld or
delayed, in connection with the sale and distribution of other Home Video Games
licensed to Licensee by Licensor or its affiliates under Other Atari Home Video
Game Distribution and License Agreements, and (ii) with respect to free or
promotional goods in the quantities set forth on Schedule "B" annexed hereto.
2.2. This license does not include any rights to subsequent
versions of the Licensed Property (so-called "sequels" or "derivatives"), such
rights being retained by Licensor, except as the same are otherwise required to
be offered to Licensee under the Master Atari Home Video Agreement.
6
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
3. Licensed Territory.
------------------
3.1. Licensee shall be entitled to manufacture, distribute
and sell the Licensed Products in all countries throughout the world, except (a)
the United States of America, its territories, possessions and United States
military installations worldwide; Canada; Mexico; and Japan; and (b) countries
or locations which are excluded under the terms of any license agreement between
Licensor and any third party having rights to the Licensed Property. The
territory in which Licensee shall be entitled to manufacture, sell and
distribute the Licensed Products as specified above is herein referred to as the
"Licensed Territory."
[If this is a game license for T-Mek for Sony PSX; Primal Rage for
Sega Saturn; or Return Fire for Sony PSX or Sega Saturn, then Licensee shall
have rights to a share of the profits from the distribution of these games in
Market Areas excluded under (b) above, but for which Licensor will receive
income under distribution agreements existing as of the Effective Date. For
these agreements, Licensor shall pay to Licensee an amount equal to * of the
proceeds received by Licensor from such sublicensee after deducting (i) an
amount equal to all Third Party Fees and Royalties, (ii) an amount equal to the
payment required to Warner Communications Inc. as a result of this income, and
(iii) in the case of sublicencees to whom Licensor supplies the Licensed
Product, Licensor's direct manufacturing and shipping costs. The remaining
income shall remain with Licensor and not be paid to Licensee as Recoupable
Amounts.]
3.2. After the end of the Japan Territory Period, as defined
in the letter between WMS Industries Inc. and Licensee dated March 27, 1996
captioned, "Japan Territory," Licensor shall have the exclusive right to
license any of its rights in Japan to third parties, subject to Licensee's prior
written consent, which consent shall not be unreasonably withheld or delayed.
With respect to the exploitation by Licensor of the Licensed Property in Japan,
Licensee shall be entitled to share in * of the net profits (as calculated in
Section 2.1 of
7
<PAGE>
Exhibit A attached to the Master Option and License Agreement for Atari PC Games
dated March 27, 1996) derived by Licensor from its sale of Licensed Products in
Japan. Licensor shall account and pay over to Licensee, not less frequently
than quarterly, Licensee's share of net profits from the sale by Licensor of
Licensed Products in Japan.
3.3. Licensor shall have the exclusive right to license to
third parties or otherwise exploit for its own account any of its rights with
respect to the Licensed Property outside of the Licensed Territory (and in any
portion of the Licensed Territory in which Licensee's right to distribute
Licensed Products have been revoked, suspended, or declared nonexclusive in
accordance with Section 3.4 below), and Licensee shall not manufacture,
distribute or sell any Licensed Products or otherwise exploit the Licensed
Property directly or indirectly in any area other than the Licensed Territory.
Without limiting the generality of the foregoing, Licensee shall not at any time
sublicense, distribute or sell any Licensed Products to any distributor or
customer who Licensee knows or could reasonably expect, based on objective
evidence, intends to resell or export the Licensed Products outside of the
Licensed Territory. Licensor shall similarly not at any time license,
distribute or sell any Licensed Products to any licensee, distributor or
customer who Licensor knows or could reasonably expect, based on objective
evidence, intends to resell or export the Licensed Products within the Licensed
Territory. A licensee, sublicensee, distributor or customer who wrongfully
resells or exports Licensed Products from the Licensed Territory to North
America or Japan, or from North America or Japan to the Licensed Territory, is
referred to as an "Exporter." Licensor and Licensee shall have the right, in
addition to any other rights which they may have hereunder, to require the other
to terminate any license, distribution agreement or arrangement with any such
Exporter who is wrongfully distributing Licensed Products in violation of the
rights of the other party. Licensor shall also have the right to delay for a
period up to three (3) months the
8
<PAGE>
introduction of any new Licensed Products into any country in which such
Exporter may be located or is operating.
3.4. Licensee shall actively commence marketing and selling
the Licensed Products within the Licensed Territory in reasonable commercial
quantities within six (6) months following the Delivery Date, provided however,
that such six (6) month period shall be extended for a period of sixty (60) days
in Marketing Areas, other than those designated as "Key Marketing Areas" on
Schedule C annexed hereto if (a) Licensee shall have proposed a sublicensee to
distribute Licensed Products in such Marketing Area and the Licensor shall have
withheld its approval of the sublicensee or (b) if Licensee shall have exercised
its right, pursuant to Section 3.3 above, to delay the introduction of new
Licensed Products into any country within the Marketing Area by reason of the
location or operation of an Exporter in such Marketing Area. If Licensee shall
fail to have commenced actively marketing and selling the Licensed Products in
any country or in any related group of countries as described on Schedule "C"
annexed hereto, (a "Marketing Area") within the Licensed Territory within six
(6) months following the Delivery Date with respect thereto, then the Licensor
shall have the right, in addition to any other rights which Licensor may have
hereunder, upon thirty (30) days prior written notice to Licensee, to suspend or
revoke Licensee's right to sell the Licensed Products in such Marketing Area or
to declare such right henceforth to be nonexclusive, as Licensor shall
determine. Notwithstanding the foregoing, however, Licensee shall not be
required to have actively commenced marketing and selling a Licensed Product in
any Marketing Area if the specific Designated Consumer Game Platform on which
such Licensed Product has been designed for play shall not regularly be sold at
retail or otherwise not be generally available to consumers in such Marketing
Area or if the Licensed Product is banned in the entire Marketing Area.
9
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
3.5. For purposes of documenting compliance with Section 3.4
above, Licensee shall submit a report, as of the date six (6) months following
the Delivery Date, listing the Marketing Areas in which Licensee has not
commenced actively marketing and selling an Accepted Game. Such report shall be
sent to Licensor within forty-five (45) days after the end of said six (6) month
period, and shall indicate the status for each Marketing Area listed (indicating
the date that marketing and selling is expected to begin and whether a
sublicensee has been appointed or will be replaced). Such summary report shall
be made in good faith, using the best available information as of the date the
report is submitted.
4. TERM.
-----
The license granted hereunder shall be effective on the date
hereof and shall terminate on the earlier of (a) five (5) years from the date
hereof, or (b) upon termination of Licensor's rights obtained from third
parties, unless sooner terminated in accordance with the terms and conditions
hereof; provided, however, that subject to the earlier termination of Licensor's
-------- -------
rights obtained from third parties, the license term shall be deemed extended
for up to two (2) additional one (1) year renewal terms, if during the
immediately preceding year, sales of Licensed Products in the Licensed Territory
shall have amounted to at least * units. If Licensee's sales of Licensed
Products in the Licensed Territory during the first of such additional one-year
renewal term shall be less than * units, Licensee may pay to Licensor an amount
equal to * Dollars per unit multiplied by the number of units less than * sold
by Licensee during such year to make up the shortfall and the license term shall
then be extended for the remaining renewal year.
5. CONSIDERATION.
-------------
Licensee shall pay Licensor, with respect to sales throughout the
Licensed Territory of the Licensed Products, a Royalty as specified in Schedule
"B" annexed hereto on each unit of Licensed Product sold.
10
<PAGE>
6. ACCOUNTINGS.
-----------
6.1. Licensee agrees to forward to Licensor at Licensor's
address set forth in Section 17, within forty-five (45) days after the end of
each calendar quarter (a "Royalty Period"), commencing with the first calendar
quarter during which any unit of the Licensed Product is sold, a report of the
number of units of the Licensed Products sold within such Royalty Period and a
calculation, in reasonable detail and reported separately by Marketing Area, of
the Royalty, including any Alternative Royalty, due on account of the sale of
such units in accordance with Section 6.3 below and Schedule "B" annexed hereto,
and any recoupment of the Minimum Guaranteed Advance Royalty claimed in
accordance with Schedule "B" annexed hereto and Section 3 of the Master Atari
Home Video Agreement. Such report shall also include a cumulative
reconciliation of the number of units of Licensed Products produced by Licensee
to the number of units on hand. Licensee agrees that accompanying each such
report shall be payment, in United States funds, of the Royalties due to
Licensor, if any, in respect of such Royalty Period in excess of any permitted
recoupment. Royalties calculated in foreign currencies shall be converted to
United States currency at the spot rate of exchange published in the Wall Street
Journal as of the last day of the Royalty Period. Such reports shall be
required to be submitted with respect to sales and distributions of the Licensed
Product whether or not any amounts are due under the terms hereof.
6.2. Licensee agrees to keep accurate books of account and
records with respect to the Licensed Products, covering all sales, purchases and
inventories of Licensed Products and all Royalties due under this Agreement, at
Licensee's offices (or the offices of Licensee's affiliates) and to permit (or
procure the right for) Licensor at its own expense to have accounting
professionals (which may include Licensor's employees who have accounting
degrees) inspect such books of account and records of Licensee or its
sublicensees during reasonable business hours (but not during the first three
(3) weeks of a calendar quarter), upon
11
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
prior reasonable written notice, for the sole purpose of verifying the reports
to be provided hereunder. Such inspections, together with inspections of
Licensee's books of account and records pertaining to other Home Video Games
licensed to Licensee by Licensor or its affiliates under Other Atari Home Video
Game Distribution and License Agreements, shall occur no more frequently than
twice during any twelve (12) month period for each of the Licensee's offices.
Licensor's inspectors shall not be physically present in a specific office of
Licensee for more than ten (10) consecutive business days in connection with any
such inspection, provided that Licensee shall have supplied all requested
information and documentation and responded to questions on a reasonably prompt
basis. Licensee shall promptly furnish to Licensor copies of any report which
Licensee may produce as the result of any audit by Licensee of the books of
account and records of any sublicensee of Licensee. Licensor shall keep any
information obtained from any such inspections in confidence and shall require
that its accounting professionals do so as well. Licensee's books relating to
any particular Royalty statement may be examined as aforesaid only within two
(2) years after the date rendered and Licensee shall have no obligation to
permit Licensor to so examine such books relating to any particular Royalty
statement more than once for any one statement, unless in connection with a
civil action filed by Licensor against Licensee in connection with such
statement. In the event that any audit by Licensor's accounting professionals
reveals that Licensee has underpaid Licensor by an aggregate of * or more with
respect to the specific Royalty statements which are the subject of such audit,
Licensee agrees that it shall also reimburse Licensor for the reasonable
documented costs for any such audit (including traveling costs) up to the amount
of the shortfall.
6.3. Royalties shall be paid on * of products sold by Licensee's
point of sale ("POS") customers, less actual returns. With respect to shipments
to non-POS customers, not less than * of the shipment shall be
12
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
deemed a sale for Royalty purposes on the date of shipment. Not less than * of
the balance of the shipment, less actual returns, shall be deemed a sale for
Royalty purposes six (6) months following the date of shipment, and the balance
of such shipment, less actual returns not already counted, shall be deemed a
sale for Royalty purposes twelve (12) months following the date of shipment. As
used herein, POS customers mean those customers who report actual sales by
selection number to Licensee via computer and scan their sales by UPC codes at
cash registers.
6.4. Licensor shall permit Licensee, at Licensee's own
expense, to have an independent certified public accountant inspect Licensor's
books and records with respect to the payment by Licensor of Third Party Fees
and Royalties in connection with the Licensed Products, during reasonable hours,
upon prior reasonable written notice and subject to such confidentiality
requirements (including the execution of appropriate confidentiality agreements)
as Licensor may require, for the sole purpose of verifying payment and
calculation by Licensor of such Third Party Fees and Royalties. Licensor's
books and records may be examined by Licensee's representatives not more
frequently than twice in any twelve-month period and Licensee and Licensor shall
otherwise have substantially the same rights as provided to the other under
Section 6.2 above.
6.5. Licensee recognizes that the timely submission of all
reports required to be submitted to Licensor pursuant to Section 6.1 hereof is
critical for Licensor to maintain good relations with its third party licensors
as well as for Licensor's own financial reporting requirements. Therefore, in
addition to any other rights and remedies of Licensor, if Licensee shall be late
by more than five (5) business days with respect to any report and/or Royalty
payment required to be submitted to Licensor pursuant to Section 6.1 hereof (a
"Late Report"), then Licensee shall pay to Licensor a late charge ("Late
Charge") at a rate equal to the prime rate designated by Citibank N.A. on any
Royalties covered by such Late Report that
13
<PAGE>
are actually payable to Licensor as provided in Schedule B. Such Late Charge
shall be computed from the 46th day following the last day of the calendar
quarter for which such Late Report is due until the date actually paid.
Licensor may elect to waive payment of any such Late Charge if Licensee shall
have provided a reasonable estimate of Royalties due within fifteen
(15) days following the end of the calendar quarter covered by such Late Report.
6.6. At the time that the Licensor shall provide to Licensee
notice of availability of a Game pursuant to Section 2.4 or 2.5 of the Master
Atari Home Video Agreement, Licensor shall provide to Licensee sufficient data
to enable Licensee to calculate Third Party Fees and Royalties payable with
respect to each Licensed Product (without regard to any advances which may have
been made by Licensor). If Licensee is unable to calculate specific Third Party
Fees and Royalties from the data provided, Licensee may request assistance from
Licensor with respect thereto, and Licensor shall use its best efforts to
respond within seven (7) days from the date of such request, but Licensee shall
provide all sales and other data in its possession which are necessary for such
calculations.
7. QUALITY OF LICENSED PRODUCT.
---------------------------
7.1. The Licensed Products as manufactured, advertised, sold,
distributed or otherwise disposed of by Licensee under this Agreement shall be
of a high quality and shall be sold and distributed in packaging prescribed by
Licensor bearing Licensor's trademarks and trade names. Such packaging may
indicate that the Licensed Products are distributed by Licensee. Licensor shall
have the right to determine in its reasonable discretion whether the Licensed
Product meets Licensor's high standards of merchantability. Licensee agrees to
furnish Licensor free of cost for Licensor's written approval as to quality and
style (which approval shall not be unreasonably withheld), samples of the
Licensed Product, together with its proposed advertising, packaging and wrapping
materials, before its manufacture, sale
14
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT
or distribution (whichever first occurs) and the Licensed Product shall not be
sold or distributed by Licensee without such written approval.
7.2. If Licensor shall disapprove of any item submitted by
Licensee for approval hereunder, Licensor shall furnish at the time notice of
disapproval is given to Licensee an explanation of the reason(s) for such
disapproval and recommendations for suggested changes and Licensee shall
resubmit such item after changes have been made for Licensor's approval.
7.3. In the event that the quality of any Licensed Product
approved by Licensor shall become less than that approved by Licensor and
Licensee shall fail to raise the quality to the approved level within thirty
(30) days after received written notice from Licensor, the license granted under
this Agreement for such Licensed Product shall automatically terminate and shall
remain terminated until Licensor shall subsequently renew its approval of the
Licensed Product.
7.4. If disapproval is not given by Licensee within five (5)
business days after Licensor's receipt of the item submitted for approval,
Licensor's approval shall be deemed to have been given. Subsequent to final
approval, Licensor may request the Licensee once each quarter to send, without
charge, a reasonable number of production samples (but in any event not less
than two (2) copies of each language version) without payment of any Royalty
hereunder to Licensor to ensure quality control. Should Licensor require
additional samples for any reason other than resale or any other commercial
exploitation by Licensor, Licensee shall be required to sell such samples to
Licensor at its cost (but without payment of any Royalties hereunder), but not
more than * units of each Licensed Product.
8. ADVERTISING.
-----------
Licensee, at its own cost and expense, shall be solely responsible
for all advertising costs, including all in store and institutional advertising
costs, associated with the sale of Licensed Products in the Licensed Territory.
15
<PAGE>
9. TRADEMARK AND COPYRIGHT, ETC.
-----------------------------
9.1. "Notice" as used in this Section shall mean the following
statutory copyright notice and notice of registration or application for
registration of the licensed trademark:
_ _ _ _ /TM/ or /(R)/
All Rights Reserved
C _ _ _ _ Licensed from [Atari/(R)/ Games Corporation]
or such other copyright notices and notices of registration as may be required
by any third party licensors. Licensor shall advise Licensee prior to use
whether /TM/ or /(R)/ shall follow the words "_ _ _ _ ."
9.2. Licensee shall furnish to Licensor samples of all
packaging in which the Licensed Products are sold by Licensee and Licensor shall
cause the copyright in the packaging to be registered with the United States
Copyright Office and recorded with the United States Customs Department at
Licensor's expense. Licensee shall print, stamp or mold the Notice on all
Licensed Products and on the front of each package or container used in
connection therewith, and Licensee shall print the Notice on each label,
advertisement and promotional release concerning any Licensed Products, all in
accordance with instructions from Licensor, providing, however, that such notice
shall be imprinted on the back of the package or container used in connection
therewith, displayed on the title screen of the Licensed Product, and in the
instruction booklet, if any, packaged with the Licensed Product. Licensee
agrees to execute and deliver to Licensor in such form as Licensor may
reasonably request all instruments necessary to effectuate trademark protection
or to record Licensee as a registered user of any trademarks or to cancel such
registration and if Licensee fails to execute such instruments, Licensee hereby
16
<PAGE>
appoints Licensor Licensee's attorney-in-fact to do so on Licensee's behalf.
Licensee shall also furnish Licensor samples of all advertising or promotional
materials bearing the Notice for Licensor's approval.
9.3. Subject to the terms of this Agreement, Licensee
acknowledges and agrees that: All copyrights, trademarks and service marks and
rights to same referred to in this Section 9 in the name of and/or owned by
Licensor shall be and remain the sole and complete property of Licensor; that
all such copyrights, trademarks and service marks and rights to same in the name
of or owned by any copyright proprietor other than Licensor or Licensee shall be
and remain the sole and complete property of such copyright proprietor; that all
trademarks and service marks which, and/or the right to use which, arise out of
the license hereby granted to use the Licensed Property shall be and remain the
sole and complete property of Licensor; that Licensee shall not at any time
acquire or claim any right, title or interest of any nature whatsoever in any
such trademark or service mark by virtue of this Agreement or of Licensee's uses
thereof in connection with the Licensed Products; and that any right, title or
interest in or relating to any such trademark or service mark, which comes into
existence as a result of, or during the term of, the exercise by Licensee of any
right granted to it hereunder shall immediately vest in Licensor.
9.4. Licensee agrees to assist Licensor at Licensor's expense
to the extent necessary in the procurement of any protection or to protect any
of Licensor's right to the Licensed Property. Licensee shall notify Licensor in
writing of any infringements or imitations by others of the Licensed Property on
articles similar to those covered in this Agreement which may come to the
Licensee's attention. Licensor shall have the right to
17
<PAGE>
commence action to enforce its proprietary rights and prosecute any such
infringements, and Licensee agrees to fully cooperate, at Licensor's expense,
in any such action. However, Licensee shall not incur any such expense
reimbursable by Licensor without Licensor's express written approval and all
recoveries resulting from any such action shall belong solely to Licensor. In
the event Licensor declines to pursue any such action, Licensee may, with
Licensor's written permission, and subject to the consent of any third party
having rights in the Licensed Property, institute such an action, and Licensor,
at Licensee's expense, shall cooperate in such action instituted by Licensee and
all recoveries resulting from any such action shall belong solely to Licensee.
Licensor shall not unreasonably withhold or delay its permission to enable
Licensee to pursue an action (if Licensor shall decline to pursue such action)
against persons or entities reasonably believed by Licensee to be counterfeiting
or pirating Licensee's Licensed Products. Licensor shall not unreasonably
withhold or delay its permission to grant to any sublicensee who requires it, at
the time of entering into a sublicense, reasonable rights (without Licensor's
prior consent in each instance) to pursue persons reasonably believed to be
engaged in counterfeiting or piracy of the Licensee Product.
9.5. During the term of this Agreement and thereafter, Licensee:
(a) will not challenge the ownership or rights of Licensor
in and to the Licensed Property or any copyright or trademark pertaining thereto
developed by or for Licensor, nor attack the validity of the license granted
hereunder or participate in any challenge thereto;
18
<PAGE>
(b) will manufacture, sell and distribute the Licensed
Products in compliance with all applicable laws and governmental regulations in
accordance with the terms of this Agreement;
(c) will not except as set forth in this Agreement, either
directly or indirectly, use or display or authorize others to use or display,
the trademarks, copyrights or proprietary rights of Licensor in connection with
any advertising, assembly, manufacture, distribution, use, sale or lease of any
goods, other than in connection with the manufacture and sale of the Licensed
Products; and
(d) subject to Licensee's best business judgment Licensee
will exercise reasonable efforts to: (i) manufacture sufficient quantities of
the Licensed Product to meet the market demand for same; (ii) conduct
advertising activities to promote the sale of Licensed Product; and (iii) make
any and all arrangements necessary to accomplish such undertakings.
10. MATERIALS.
---------
10.1. Notwithstanding anything contained herein to the
contrary and subject to the terms of this Agreement, all artwork, designs and
computer software embodying the Licensed Property, or any reproduction thereof,
or any packaging or advertising materials, which are designed, developed and/or
created by Licensee hereunder (or any of its sublicencees, affiliates or
subsidiaries), shall be, and remain Licensor's sole and exclusive property,
inclusive of all copyrights and right to copyright therein and thereto for the
life of the copyright therein; provided that during the term of this Agreement,
Licensee shall have the exclusive right, license and privilege (without any
compensation to Licensor except as provided in Section 5) to use all
19
<PAGE>
such above described materials in connection with its exploitation, sale and
distribution of the Licensed Products.
10.2. Licensor shall make available to Licensee, at Licensor's
actual out of pocket cost, any artwork relating to the Licensed Property which
Licensor owns and which is reasonably available to Licensor for Licensee's use
in connection with the exploitation of the Licensed Property.
11. TRANSLATIONS.
------------
In the event that Licensee shall reasonably require the text
associated with any Licensed Product to be translated into a language other than
English, Licensor shall, upon request, provide to Licensee the text files and
the text that appears in bit map files and printed copies of the script used for
audio components of CD-ROM and cartridge versions only of the Licensed Product
and Licensee shall produce, at its own expense, a translation text thereof and
audio track therefor. Licensor shall then cause a new Master Disk containing
such translation and audio track to be encoded and delivered to Licensee, at
Licensor's own expense with respect to the CD-ROM version only and at Licensee's
expense with respect to the cartridge version, provided, however, that Licensee
shall bear the cost of encoding new Master Disks containing translations into
languages other than French, German, Chinese, Portuguese, Spanish and Italian.
Licensee shall also bear the cost of inserting audio tracks on Home Video Game
cartridges.
12. REPRESENTATIONS AND WARRANTIES.
------------------------------
12.1. Licensor hereby represents and warrants that this
Agreement has been duly authorized, executed and delivered by Licensor; Licensor
has the full power and authority to enter into this Agreement and perform its
obligations hereunder; this Agreement
20
<PAGE>
constitutes the valid and binding obligation of Licensor, enforceable in
accordance with its terms; the making of this Agreement does not violate any
agreement, right or obligation existing between Licensor and any other person,
firm or corporation; and the Licensed Property, if used pursuant to the license
granted herein, will not infringe upon or violate any rights of any third party-
12.2. Licensee hereby represents and warrants that this
Agreement has been duly authorized, executed and delivered by Licensee; Licensee
has the full power and authority to enter into and perform its obligations
hereunder; this Agreement constitutes the valid and binding obligation of
Licensee, enforceable in accordance with its terms; the making of this Agreement
does not violate any agreement, right or obligation existing between Licensee
and any other person, firm or corporation; its manufacture, advertisement,
distribution and sale of the Licensed Products will be in accordance with the
terms of this Agreement and will not infringe upon or violate any rights of any
third party. Licensee shall have obtained all necessary licenses for the sale
of the Licensed Products within the Licensed Territory from Nintendo(R),
Sega(R), Sony(R) or any other manufacturer of Designated Consumer Game
Platforms.
13. INDEMNIFICATION.
---------------
13.1. Each party agrees to indemnify and hold the other
(including officers, directors, agents and employees of such party or its
subsidiaries, affiliates and sublicensees) harmless against any loss, damage,
expense or cost (including reasonable attorneys' fees) arising out of any claim,
demand or suit or judgment resulting from any breach of any
21
<PAGE>
warranty or representation set forth in Section 12 above. Each party shall
promptly inform the other of any such claim, demand, suit or judgment.
13.2. In connection with any such claim, demand or suit
referred to above, the party so indemnifying (the "Indemnitor") agrees to
defend, contest or otherwise protect the indemnified party (the "Indemnitee")
against any such suit, action, investigation, claim or proceeding at the
Indemnitor's own cost and expense. The Indemnitee shall have the right, but not
the obligation to participate, at its own expense, in the defense thereof by
counsel of its own choice. In the event that the Indemnitor fails timely to
defend, contest or otherwise protect against any such suit, action,
investigation, claim or proceeding, the Indemnitee shall have the right to
defend, contest or otherwise protect against the same, and, upon ten (10) days'
written notice to the Indemnitor, make any compromise or settlement thereof and
recover the entire cost thereof from the Indemnitor, including without
limitation, reasonable attorneys' fees, disbursements and all reasonable amount
applied as a result of such suit, action, investigation, claim or proceeding or
compromise or settlement thereof. The obligations hereunder shall survive the
termination or expiration of this Agreement.
13.3. Neither Licensor nor Licensee shall be liable for any
incidental, consequential or punitive damages to the other.
14. EVENTS OF DEFAULT AND TERMINATION.
---------------------------------
Licensee shall be deemed to be in default of this Agreement in the
event either of the following occurs:
22
<PAGE>
(a) Licensee fails to make any payment or furnish any
statement in accordance herewith, provided that Licensee shall have been given a
first written notice of such default and a period of at least fifteen (15) days
in which to cure such default and, if such default shall not have been cured
within such period, Licensee shall have been given a second written notice of
such default and a further period of at least ten (10) days in which to cure
such default; or
(b) Licensee fails after thirty (30) days' written notice
to Licensee to comply with any other of Licensee's obligations hereunder.
15. EXPIRATION OR TERMINATION OF AGREEMENT.
--------------------------------------
Upon expiration or termination of this Agreement, all rights
granted to Licensee herein shall forthwith revert to Licensor with the following
consequences:
(a) All unpaid Royalties shall be due and payable in
accordance with Section 6.1 hereof.
(b) Licensor shall thereafter be free to license others to
use the Licensed Property in connection with the manufacture, advertisement,
distribution and sale of items identical or similar to the Licensed Products in
the Licensed Territory.
(c) In the event of termination or expiration of this
Agreement, other than a termination by Licensor as a result of a material breach
of this Agreement by Licensee, Licensee may continue to sell for a period of one
hundred eighty (180) days after the effective date of termination all approved
copies of the units of the Licensed Product produced prior thereto.
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<PAGE>
16. CONFIDENTIAL INFORMATION.
------------------------
Each of the parties shall keep in confidence and not disclose or
make available to any third party, without the written permission of the other
party, the terms of this Agreement and the proprietary information of the other
party made known to it under this Agreement, including without limitation any
information with respect to proposed Games prior to the date on which they are
First Released and any Master Disk or version thereof. This requirement of
confidentiality shall not apply to information that is (a) in the public domain
through no wrongful act of the disclosing party; (b) rightfully received by the
disclosing party from a third party who is not bound by a restriction of
nondisclosure; (c) already in the disclosing party's possession without
restriction as to disclosure; or (d) is required to be disclosed by applicable
rules and regulations of government agencies or judicial bodies. This
obligation of confidentiality: (i) shall survive termination of this Agreement
and (ii) shall extend to any subcontractor of either party and each party agrees
to obtain from each such subcontractor a written agreement to abide by the
foregoing confidentiality requirements. Each of the parties shall be entitled to
seek injunctive or equitable relief to prevent the breach or threatened breach
by the other of the provisions of this Section and to secure its enforcement.
17. NOTICES.
-------
Any notice, consent, approval, request, waiver or statement to be
given, made or provided for under this Agreement shall be in writing and deemed
to have been duly given (i) by its delivery personally or by express mail; or
(ii) five (5) days after its being mailed, air express, registered or certified,
return receipt requested in a United States Post Office addressed as follows:
24
<PAGE>
TO LICENSEE: GT Interactive Software Corp.
16 East 40th Street
New York, New York 10016
Attention: Mr. Ron Chaimowitz,
Telephone Number: (212) 726-6508
Facsimile Number: (212) 679-6850
WITH A COPY TO: GT Interactive Software Corp.
16 East 40th Street
New York, New York 10016
Attention: Mr. Harry Rubin
Telephone Number: (212) 726-6523
Facsimile Number: (212) 679-6850
WITH A COPY TO: GT Interactive Software Corp.
16 East 40th Street
New York, New York 10016
Attention: Alan Behr, Esq.
Telephone Number: (212) 726-6500
Facsimile Number: (212) 679-6850
TO LICENSOR: Atari Games Corporation
c/o WMS Industries Inc.
3401 North California Avenue
Chicago, Illinois 60618
Attention: Mr. Neil D. Nicastro, President
Telephone Number: (312) 728-2300
Facsimile Number: (312) 539-2099
WITH A COPY TO: Williams Entertainment Inc.
1800 South Business 45
Corsicana, Texas 75110
Attention: Mr. Byron Cook
Telephone Number: (903) 874-2683
Facsimile Number: (903) 872-8000
WITH A COPY TO: Jeffrey N. Siegel, Esq.
Shack & Siegel, P.C.
530 Fifth Avenue
New York, New York 10036
Telephone Number: (212) 782-0700
Facsimile Number: (212) 730-1964
or such other address as either party may designate by notice given as
aforesaid.
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<PAGE>
18. MISCELLANEOUS.
-------------
18.1. This Agreement is personal to Licensee as one party
and Licensor as the other party. Neither this Agreement nor any party's rights
under it may be assigned, in whole or in part, nor may Licensee's or Licensor's
rights or obligations hereunder be delegated, in whole or in part, to any person
or party without the prior written consent of the other party, except that any
party may assign its rights and delegate obligations to any of its direct or
indirect wholly-owned subsidiaries or affiliates or to any person, FIRM or
corporation owning or acquiring all or substantially all of the stock or assets
of that party, as long as that party remains fully liable for its obligations
hereunder. Any sale of all or substantially all of the assets or stock of
Licensor shall include a requirement for the assumption by the purchaser of all
covenants, obligations and duties undertaken by the seller pursuant to the terms
of this Agreement, including its obligations with respect to Games and the
intellectual property from which they are derived. This Agreement shall bind
the parties, their successors and permitted assignees and delegees. Licensor as
one party, and Licensee as the other party, are each liable for their respective
obligations under the terms of this Agreement.
18.2. The entire understanding between the parties hereto
relating to the subject matter hereof is contained herein. This Agreement
cannot be changed, modified, amended or terminated except by an instrument in
writing executed by the parties hereto.
18.3. No waiver, modification or cancellation of any term or
condition of this Agreement shall be effective unless executed in writing by the
party charged therewith. No written waiver shall excuse the performance of any
act other than those specifically referred
26
<PAGE>
to therein and no waiver shall be deemed or construed to be a waiver of such
terms or conditions for the future or any subsequent breach thereof.
18.4. This Agreement does not constitute and shall not be
construed as constituting a partnership or joint venture between Licensor and
Licensee, and neither Licensor nor Licensee shall have any right to obligate or
bind the other in any manner whatsoever, and nothing herein contained shall give
or is intended to give any rights of any kind to any third persons.
18.5. This Agreement shall be governed by the laws of the
State of Illinois applicable to contracts made and to be wholly performed in the
State of Illinois.
18.6. If any provision of this Agreement is or becomes or is
deemed invalid, illegal or unenforceable under the applicable laws or
regulations of any jurisdiction, either such provision will be deemed amended to
conform to such laws or regulations without materially altering the intention of
the parties or it shall be stricken and the remainder of this Agreement shall
remain in full force and effect.
18.7. This Agreement may be executed in counterparts each of
which shall be deemed an original and when taken together shall be deemed one
and the same document.
27
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
ATARI GAMES CORPORATION
By:
-------------------------------
GT INTERACTIVE SOFTWARE CORP.
By:
-------------------------------
28
<PAGE>
SCHEDULE A
----------
[Description of Licensed Property as Set Forth in New Game Option Notice]
29
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
SCHEDULE B
----------
ROYALTIES
---------
Licensee shall pay to Licensor royalties ("Royalties") computed as follows:
(a) with respect to Licensed Products which are subject to any Third Party Fees
---
and Royalties, an amount equal to the greater of (i) * of the actual Net
Wholesale Sales Price for each unit sold and not returned, or (ii) * of
Licensee's average Net Wholesale Sales Price for Front-line Home Video Games
designed for play on the same Designated Consumer Game Platform sold at Full
Price and not returned during the relevant Royalty Period; and (b) with respect
to Licensed Products which are not subject to any Third Party Fees and
-------
Royalties, an amount equal to the greater of (i) * of the actual Net Wholesale
Sales Price for each unit sold and not returned, or (ii) * of Licensee's average
Net Wholesale Sales Price for Front-line Home Video Games designed for play on
the same Designated Consumer Game Platform sold at Full Price and not returned
during the relevant Royalty Period. The Royalty computed in accordance with
clauses (a)(ii) and (b)(ii) of the preceding sentence shall apply (A) for a
period of one year from the date of First Release of the Licensed Product by
Licensee or its affiliates in each Marketing Area with respect to Home Video
Games released during the first two (2) years of the Option Period, and (B) for
a period of six (6) months from the date of First Release of the Licensed
Product by Licensee or its affiliates in each Marketing Area with respect to
Home Video Games released after the first two (2) years of the Option Period.
For purposes of this paragraph, a Licensed Product shall be deemed "Front-line"
if it is substantially equivalent to a Home Video Game which has been released
at a premium price by Licensor or its licensees in the United States. Royalties
for Licensed Products which are not deemed Front-line products shall be
calculated as provided in clauses (a)(i) or (b)(i) of the first sentence of this
paragraph. Solely for purposes of computing Royalties in accordance with the
first sentence of this paragraph, Licensed Products shall not be deemed to be
subject to any Third Party Fees and Royalties if they are subject only to (x) de
minimis Third Party Fees and Royalties excluding developer royalties amounting
to less than * in the aggregate of the Net Wholesale Sales Price, or (y)
royalties and other participations payable to developers for services rendered
in connection with the Licensed Product. In no event shall the Royalty with
respect to the sale of a Licensed Product at any time be less than the Third
Party Fees and Royalties (including royalties and other participations payable
to developers) payable with respect to such Licensed Product.
Notwithstanding the foregoing, if at least twelve (12) months after the date
of the initial release by Licensee (the "First Foreign Sale") of a Licensed
Product subject to Third Party Fees and Royalties in each Marketing Area, the
Net Wholesale Sales Price of such Licensed Product has been reduced from the
original list price to the equivalent of (U.S.) $ * or less, then Licensee may
elect to pay to Licensor in lieu of the Royalty payable in accordance with the
first sentence of this Schedule B, an alternative royalty (the "Alternative
Royalty") equal to the greater of (i) * of the Net Wholesale Sales Price of such
Licensed Product, plus
30
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A PURSUANT FOR CONFIDENTIAL
TREATMENT.
an amount equal to * of all Third Party Fees and Royalties payable with respect
to the sale of such Licensed Product or (ii) * of the Net Wholesale Sales Price
of such Licensed Product.
If at any time after March 31, 1996 or, with respect to new Designated
Consumer Game Platforms which are introduced subsequent to the date hereof, the
date on which such new Designated Consumer Game Platform is introduced, there
shall occur (a) a reduction in the standard platform royalties payable by
Licensee to Nintendo(R), Sega(R), Sony(R), or any other Designated Consumer Game
Platform manufacturer with respect to the Licensed Products, or (b) a reduction
in landed unit manufacturing costs payable by Licensee to any Game manufacturer,
including, without limitation, any such reductions in platform royalties or unit
manufacturing costs which may result from reaching applicable volume discount
levels established by the Designated Consumer Game Platform manufacturer or
other Game manufacturer, then, in either or both such cases, Licensee shall pay
to Licensor, in addition to any Royalty otherwise payable hereunder, an amount
equal to * of the amount by which such platform royalty and landed manufacturing
costs have been reduced for each unit of Licensed Product sold by Licensee. Such
additional amounts shall be payable by Licensee to Licensor at the time and in
the manner specified in Section 6 above. Notwithstanding the foregoing, however,
Licensee shall not be required to pay to Licensor any such additional amounts
based on reductions in platform royalties and landed unit manufacturing costs
payable in respect of Licensed Products for the Sega Saturn and Sony PSX
Platforms unless and until such platform royalties and landed unit manufacturing
costs shall fall below * per unit, and, in such cases, Licensee shall only be
required to pay * of the reduction in costs below * Dollars, as provided above.
All payments of Royalties by Licensee to Licensor hereunder shall either
be paid from Licensee's office in the United States or from Licensee's office in
the United Kingdom. Licensee shall be solely responsible for payment of, and
shall timely file and remit, any foreign taxes (including any foreign taxes on
Royalties required to be withheld at the source) related to this Agreement.
Licensee shall promptly assist Licensor as necessary in obtaining a United
Kingdom royalty tax withholding exemption, or with any other documentation
required concerning Licensee's operations outside the United States. If taxes on
Royalties payable hereunder imposed by any foreign jurisdiction are required to
be withheld at the source, Licensee shall remit such Royalties net of any
withholding taxes together with ALL appropriate documentation and reporting
forms.
The "Net Wholesale Sales Price" of Licensed Products shall be the price
invoiced to customers, less any price discounts, rebates or credits granted at
the time of sale and taxes invoiced to customers (including VAT). No deduction
shall be made for bad debts or other uncollected amounts, advertising
allowances, including cooperative advertising, or any other costs incurred in
manufacturing, selling or distributing the Licensed Products.
31
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
ADJUSTMENTS TO ROYALTIES
- - ------------------------
Anything above to the contrary notwithstanding:
1. In cases where Licensed Products are sold by non-affiliated third
party sublicensees under sublicenses granted by Licensee in accordance with the
provisions of the Master Atari Home Video Agreement, Royalties shall be payable
by Licensee to Licensor hereunder equal to the sum of (a) an amount equal to all
Third Party Fees and Royalties payable with respect to the sale of such Licensed
Products, plus (b) * of the proceeds received by Licensee from such sublicensee
after deducting (i) a fee to Licensee equal to * of such net proceeds, (ii) an
amount equal to all Third Party Fees and Royalties, and, (iii) in the case of
non-affiliated third party sublicensees to whom Licensee supplies the Licensed
Product, Licensee's direct manufacturing and shipping costs. In no event shall
the Royalty per unit be less than * of such Third Party Fees and Royalties.
2. If Licensee's Weighted Average Gross Profits as a percentage of
sales of Accepted Games under this Agreement and all Other Atari Home Video Game
Distribution and License Agreements other than Games with respect to which an
Alternative Royalty is payable, for the twelve (12) months ending June 30, 1997
are less than Licensee's Weighted Average Gross Profits as a percentage of sales
of Accepted Games under this Agreement and all Other Atari Home Video Game
Distribution and License Agreements other than Games with respect to which an
Alternative Royalty is payable, for the twelve (12) months ending December 31,
2000, then the Royalties otherwise payable by Licensee under this Agreement and
all Other Atari Home Video Game Distribution and License Agreements for the
first Renewal Option Year (ending June 30, 2002), if any, shall be increased, as
a percentage of Net Wholesale Sales Price, for each unit sold and not returned,
by an amount equal to one-half of the difference. If Licensee's Weighted
Average Gross Profits as a percentage of sales of Accepted Games under this
Agreement and all Other Atari Home Video Game Distribution and License
Agreements during the 12 months ended December 31, 2001, or any subsequent 12-
month period during the Renewal Option Period, shall be greater or less than
Licensee's Weighted Average Gross Profits as a percentage of sales of Accepted
Games during the preceding 12-month period, then the Royalties otherwise payable
by Licensee under this Agreement and all Other Atari Home Video Game
Distribution and License Agreements shall be similarly increased or decreased
for the next Renewal Option Year by an amount equal to * of the difference, but
in no event shall Royalties payable by Licensor under this Agreement and all
Other Atari Home Video Game Distribution and License Agreements be reduced at
any time to an amount less than the amounts set forth in the first sentence of
this Schedule B. For purposes hereof, Licensee's "Weighted Average Gross
Profits" with respect to the sale of Accepted Games under this Agreement and all
Other Atari Home Video Game License Agreements shall mean the weighted average,
computed on a platform by platform basis, of (a) aggregate sales of Accepted
Games other than Games with respect to which an Alternative Royalty is payable,
less (b) landed manufacturing costs and platform royalties paid or payable with
respect to such Accepted Games. Any amounts actually paid or payable to Licensor
by Licensee as additional Royalties hereunder by reason of a reduction in
platform royalties or landed unit manufacturing costs, as provided above
32
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
(including without limitation any such amounts paid or payable by reason of a
reduction in platform royalties or landed unit manufacturing costs of Licensed
Products for the Sega Saturn or Sony PSX platforms below * Dollars per unit),
shall be added back in determining Weighted Average Gross Profits hereunder. For
example, if Licensee's Weighted Average Gross Profits as a percentage of sales
of Accepted Games during the twelve (12) months ended by June 30, 1997 are *
percent, and Licensee's Weighted Average Gross Profits during the twelve months
ending December 31, 2000 are * of sales of Accepted Games, then the Royalty
otherwise payable by Licensee to Licensor as a percentage of Net Wholesale Sales
Price during the first Renewal Option Year (ending June 30, 2002) shall be
increased by * of the difference, or
3. If the Licensed Product shall incorporate Computer Software in the
form of a cartridge, as opposed to a CD-ROM disk or other device containing the
computer game code (a "Cartridge-Based Product"), Licensee may elect to adjust
the Royalties otherwise payable with respect to sales of such Cartridge-Based
Product in a Marketing Area as follows: The "Cartridge Margin" for such
Cartridge-Based Product shall be calculated by subtracting from * the sum of (i)
the applicable percentage Royalty with respect to sales of such Cartridge-Based
Product, determined in accordance with the first sentence of this Schedule B
above, and (ii) the landed unit cost of such Cartridge-Based Product, stated as
a percentage of the Net Wholesale Sales Price therefor. If the Cartridge Margin
is less than the applicable percentage Royalty otherwise payable on sales of
such Cartridge-Based Products, the applicable percentage Royalty shall be
reduced by an amount equal to * of the difference between such percentage
Royalty and the Cartridge Margin, provided, however, that in no event shall the
Royalty payable with respect to sales of Cartridge-Based Products be less than
the Third Party Fees and Royalties payable with respect thereto.
For example, if the Royalty percentage rate determined in
accordance with the first sentence of this Schedule B is * for a Cartridge-Based
Product having a Net Wholesale Sales Price in a given Marketing Area of *
Dollars and a landed unit cost of * Dollars (i.e., * of Net Wholesale Sales
Price), the Cartridge Margin for such Cartridge-Based Product would be * . Since
the Cartridge Margin * is less than the applicable percentage Royalty * , the
applicable percentage Royalty shall be reduced by * of the difference, or *
( * %), such that the adjusted Royalty percentage payable on sales of such
Cartridge-Based Product in the Marketing Area will be * .
RECOUPMENT
- - ----------
1. Licensee shall be entitled to apply the Royalties applied or
accrued under this Agreement (the "Recoupable Amount"), to recoup the * Dollar
Minimum Guaranteed Advance Royalty paid by Licensee to WMS Industries Inc.
pursuant to Section 3 of the Master Atari Home Video Agreement and the Master
Atari PC Agreement (as that term is defined in the Master Atari Home Video
Agreement), until such Recoupable Amount
33
<PAGE>
THE INFORMATION BELOW MARKED BY * HAS BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.
together with the Recoupable Amounts applied or accrued by Licensee under any
other Atari Home Video Game Distribution and License Agreement entered into by
Licensee pursuant to the Master Atari Home Video Agreement ("Other Atari Home
Video Game Distribution and License Agreements") and under any Atari Home
Computer Software License Agreement entered into by Licensee pursuant to the
Master Atari PC Agreement (and to the extent applicable amounts which may be
recouped against such Minimum Guaranteed Advance Royalty pursuant to the GTIS
Master Home Video Agreement and the GTIS Master PC Agreement) equal *
Dollars; provided, however, that (i) to the extent that the aggregate of all
Recoupable Amounts applied or accrued under this Agreement and the Other Atari
Home Video Game Distribution and License Agreements and under any Atari Home
Computer Software License Agreement entered into pursuant to the Master Atari PC
Agreement between the Effective Date and one year after the Effective Date
exceed the installment of the Minimum Guaranteed Advance Royalty paid on the
Effective Date, such excess shall be paid to WMS Industries Inc. and applied in
reduction of the installment of the Minimum Guaranteed Advance Royalty payable
one year after the Effective Date under the Master Atari Home Video Agreement
and the Master Atari PC Agreement.
2. Until Licensee shall have fully recouped the * Minimum
Guaranteed Advanced Royalty, Licensor shall pay over to Licensee,
Licensor's share of net profits from the exploitation of the Licensed Products
in Japan, and all amounts so paid over to Licensee shall be deemed to constitute
additional Recoupable Amounts (as that term is used above) under this Agreement.
LIMITATIONS ON FREE AND PROMOTIONAL GOODS: CLOSE-OUTS.
- - -----------------------------------------------------
Licensee shall be permitted to distribute free and promotional
goods without the payment of any Royalties or other royalties thereon, subject
to the provisions of Section 1 above and within the following territorial and
quantity limits:
United Kingdom,
Germany, Scandinavia,
Benelux, Italy, Spain, and
Australia: * units per country
Other Countries: * units per country
No Royalties shall be payable by Licensee to Licensor in excess of any
Third Party Fees and Royalties in connection with the sale by Licensee of
"close-outs." For purposes hereof, "close-outs" shall mean any Licensed
Products that are sold for a price no greater than the sum of direct
manufacturing and shipping costs plus platform royalties and any Third Party
Fees and Royalties.
34
<PAGE>
SCHEDULE C
---------
MARKETING AREAS
---------------
The following countries or related groups of countries shall each be
deemed a single Marketing Area:
United Kingdom and Ireland*
France*
Germany, Switzerland and Austria*
Benelux*
Spain and Portugal*
Italy*
Scandinavia
Former Eastern Bloc and the Baltic States (Latvia, Lithuania, Estonia)
Russia and Rest of the CIS
Rest of Europe (including Turkey)
Africa
Middle East
India and Pakistan
China (PRC excluding Hong Kong and Macao)*
Rest of Asia
Australia and New Zealand
Brazil
Rest of South and Central America and the Caribbean
- - ---------------
* Denotes Key Marketing Area
35
<PAGE>
ANNEX
WMS Industries Inc.
3401 North California Avenue
Chicago, EL 60618
March 27, 1996
GT Interactive Software Corp.
16 East 40th Street
New York, NY 10016
Re: Japan Territory
---------------
Gentlemen:
Reference is made to the GTIS Master Option and License Agreement dated
December 28, 1994, as amended (the "GTIS Master PC Agreement"), the GTIS Master
Option and License Agreement (Home Video Games) dated March 31, 1995, as amended
(the "GTIS Master Home Video Agreement"), the Master Option and License
Agreement for Atari PC Games dated March 27, 1996 (the "Master Atari PC
Agreement") and the Master Option and License Agreement for Atari Home Video
Games dated March 27, 1996)(the "Master Atari Home Video Agreement"). The GTIS
Master PC Agreement, the GTIS Master Home Video Agreement, the Master Atari PC
Agreement and the Master Atari Home Video Agreement are collectively referred to
herein as the "Master Agreements."
This will confirm our agreement that during the "Japan Territory
Period," as that term is defined below, the Licensed Territory, as that term is
defined in the license and distribution agreements annexed as Exhibit A to the
Master Agreements, shall not exclude Japan. The Japan Territory Period shall
mean the period beginning on the Effective Date, as that term is defined in the
Master Atari Home Video Agreement, and ending on the date which is the later to
occur of (i) two years after the Effective Date, or (ii) one year after either
GTIS or WMS gives written notice to the other of its decision to terminate the
Japan Territory Period; provided, however, that if such notice is given by WMS,
the termination shall not be effective unless on the designated termination date
WMS directly or indirectly owns not less than 49% of an entity which (i) is or
intends to become a distributor of home video or personal computer games in
Japan, and (ii) conducts or intends to conduct meaningful business in Japan. If
such entity does not intend to distribute both home video and personal computer
games in Japan, then the aforesaid termination shall be effective only as to the
category of games (home video games or
<PAGE>
GT Interactive Software Corp. -2-
March 27, 1996
personal computer games) which such entity does intend to distribute. During
the Japan Territory Period, Japan shall be deemed added to Schedule C to the
Master Atari Home Video Agreement and the GTIS Master Home Video Agreement and
shall be deemed designated as a Key Marketing Area as such term is defined
therein. In addition, anything in this letter, the Master Agreements or
licenses issued pursuant to the Master Agreements to the contrary
notwithstanding, GTIS shall pay to the WMS Group and shall have no right to
recoup any Royalties attributable to Licensed Products sold in Japan during the
Japan Territory Period pursuant to the licenses issued under the GTIS Master
Home Video Agreement.
After termination of the Japan Territory Period, (i) licenses entered
into during the Japan Territory Period and still in effect on the date of
termination of such period shall continue for their term, and (ii) with respect
to licenses entered into after the Japan Territory Period, the Licensed
Territory shall exclude Japan, and the terms of applicable Master Agreements and
related license agreements shall apply.
Please indicate your agreement to the foregoing by signing this letter
in the place provided below.
Very truly yours,
WMS INDUSTRIES INC.
By: /s/ NEIL NICASTRO
--------------------------------
Neil Nicastro
Accepted and Agreed To:
GT INTERACTIVE SOFTWARE CORP.
By: /s/ RONALD CHAIMOWITZ
------------------------------
Ronald Chaimowitz
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT (together with all exhibits hereto, the "Agreement"),
made in New York, New York as of the 19th day of April, 1996, between GT
Interactive Software Corp., a Delaware corporation having its executive offices
and principal place of business in New York, New York (the "Company"), and
Andrew Gregor, the undersigned individual ("Executive").
IN CONSIDERATION of the mutual covenants and agreements hereinafter set
forth, the Company and Executive agree as follows:
1. Agreement Term.
---------------
The term of this Agreement shall be the three-year period
commencing on August 18, 1995 (the "Employment Date") and ending on August 18,
1998 (the "Agreement Term").
2. Employment.
-----------
(a) Employment by the Company. Executive agrees to be employed by the
-------------------------
Company for the Agreement Term upon the terms and subject to the conditions set
forth in this Agreement. Executive shall serve as an executive of the Company
and shall have such duties as may be prescribed by the Company and shall serve
in such other and/or additional position(s) as the Company may determine from
time to time.
(b) Performance of Duties. Throughout the Agreement Term, Executive
---------------------
shall faithfully and diligently perform Executive's duties in conformity with
the directions of the Company and serve the Company to the best of Executive's
ability. Executive shall devote Executive's entire working time, attention and
energies to the business and affairs of the Company, subject to sick leave and
up to three weeks of vacation per year in accordance with Company policy.
Executive shall have the title and shall report to the persons set forth on
Schedule A hereto. The Company acknowledges that Executive shall be permitted
to devote a reasonable amount of time, consistent with his duties to the
Company, to the management of personal and family businesses and investments.
Executive acknowledges and agrees that, in the event that the Chief Executive
Officer determines, in his reasonable discretion, that the management of such
businesses and investments is conflicting with the performance by Executive of
his duties, upon the request of the Chief Executive Officer, the performance of
such activities during Executive's working time shall be immediately
discontinued.
<PAGE>
(c) Place of Performance. During the Agreement Term, Executive shall
--------------------
be based at the Company's principal executive offices which shall be in New
York, New York or within a FIFTY (50) mile radius thereof, and Executive shall
maintain Executive's personal residence in such city or such other location(s)
within reasonable access to Executive's place of employment.
3. Compensation and Benefits.
--------------------------
(a) Base Salary. The Company agrees to pay to Executive for
-----------
employment hereunder a base salary ("Base Salary") at the annual rate of
$220,000 for the year commencing on August 18, 1995 and ending August 17, 1996.
Executive's base salary shall be increased to $235,000 upon the earliest to
occur of (i) the effective date of an increase in the base salary of the
Company's Vice President - Operations; (ii) the date of the consummation of the
Company's initial public offering or (iii) the first anniversary of the date
hereof. Executive shall be eligible for an annual increase to the Base Salary
on each anniversary of the Employment Date during the Agreement Term, in such
amount as shall be determined at the discretion of the President, Chief
Executive Officer and Board of Directors of the Company; provided, however, that
-------- -------
in no event shall Executive's Base Salary, during the Agreement Term, be less
than $220,000 . The Base Salary shall be payable in installments consistent with
the Company's payroll practices.
(b) Benefits and Perquisites; Bonus. Executive shall be entitled to
-------------------------------
participate in, to the extent Executive is otherwise eligible under the terms
thereof, the benefit plans and programs, including medical and vacation plans,
and receive the benefits and perquisites, generally provided to executives of
the same level and responsibility as Executive. Nothing in this Agreement shall
preclude the Company from terminating or amending from time to time any employee
benefit plan or program. Executive shall be eligible for an annual bonus, not
to exceed an amount equal to fifty percent (50%) of Executive's Base Salary, at
such times and in such amounts as shall be determined at the discretion of the
President, Chief Executive Officer and Board of Directors of the Company based
on their assessment of Executive's performance of his duties and on the
financial performance of the Company; provided, however, that Executive shall
-------- -------
receive a bonus for calendar year 1995 in an amount not less than $45,000.
(c) Travel and Business Expenses; Car Allowance. Upon submission of
-------------------------------------------
itemized expense statements in the manner specified by the Company, Executive
shall be entitled to reimbursement for reasonable travel and other reasonable
business expenses duly incurred by Executive in the performance of Executive's
duties under this Agreement in accordance with the policies and procedures
established by the Company from time to time for executives of the same level
and responsibility as Executive. In addition, Executive shall receive a car
allowance for the reimbursement of automobile lease payments, auto insurance and
related expenses, which allowance shall be sufficient to permit Executive to
lease and operate a 5-Series BMW Sedan.
-2-
<PAGE>
(d) Grant of Option and Terms Thereof. The Company hereby confirms
---------------------------------
that, on June 30, 1995, it granted to Executive, subject to his beginning
employment with the Company on or prior to August 20, 1995, an option (the
"Option"), pursuant to the Company's Stock Incentive Plan, to purchase, one
hundred twenty thousand (120,000) shares of the Company's Class B common stock,
or such other class of stock which is sold by the Company to the public in
connection with its initial public offering, (the "Option Shares"). The
exercise price for each Option Share is eleven dollars and twenty-five cents
($11.25) per share, before giving effect to the 6-for-5 stock split effective
upon the Company's initial public offering. The terms (including
exercisability) of the Option shall be governed by the Company's Stock Incentive
Plan, as well as the applicable option agreement entered into pursuant to the
terms of such plan.
(e) No Other Compensation or Benefits; Payment. The compensation and
-------------------------------------------
benefits specified in Sections 3 and 5 of this Agreement shall be in lieu of any
and all other compensation and benefits. Payment of all compensation and
benefits to Executive hereunder shall be made in accordance with the relevant
Company policies in effect from time to time, including normal payroll
practices, and shall be subject to all applicable employment and withholding
taxes.
(f) Cessation of Employment. In the event Executive shall cease to be
-----------------------
employed by the Company for any reason, then Executive's compensation and
benefits shall cease on the date of such event, except as otherwise provided
herein or in any applicable employee benefit plan or program.
4. Exclusive Employment, Noncompetition.
-------------------------------------
(a) No Conflict, No Other Employment. During the period of
--------------------------------
Executive's employment with the Company, Executive shall not: (i) engage in any
activity which conflicts or interferes with or derogates from the performance of
Executive's duties hereunder nor shall Executive engage in any other business
activity, whether or not such business activity is pursued for gain or profit,
except as approved in advance in writing by the Chief Executive Officer or the
Board of Directors of the Company, and except as set forth in Section 2(b)
above; or (ii) accept any other full-time or substantially full-time employment,
whether as an executive or consultant or in any other capacity, and whether or
not compensated therefor.
(b) No Competition. Without limiting the generality of the provisions
--------------
of Sections 2(b) or 4(a), during the Agreement Term, Executive shall not,
directly or indirectly, own, manage, operate, join, control, participate in,
invest in or otherwise be connected or associated with, in any manner, including
as an officer, director, employee, partner, consultant, advisor, agent,
proprietor, trustee or investor, any Competing Business located in the United
States; provided, however, that if Executive's employment hereunder is
terminated by the Company under Section 5(d), then the provisions of this
Section 4(b) and Section 4(d) shall remain in effect only so long as the Company
continues to pay to Executive amounts as severance pursuant to Section 5(d).
-3-
<PAGE>
For purposes of this Section 4(b), the term "Competing
Business" shall mean any business or venture which develops,
manufactures, publishes, licenses, sells, distributes or supplies
computer software or video games (or any related books or other
intellectual property or merchandise relating thereto) to any retail
outlet or by direct marketing; or any other business which is
substantially similar to the whole or any significant part of the
business conducted by the Company.
(ii) For purposes of this Section 4(b), the term "invest" shall
not preclude an investment in not more than one percent (1%) of the
outstanding capital stock of a corporation whose capital stock is
listed on a national securities exchange or included in the NASDAQ
Stock Market, so long as Executive does not have the power to control
or direct the management of, or is not otherwise associated with, such
corporation.
(c) No Solicitation of Employment. During the Agreement Term and for
-----------------------------
a period of two years thereafter, Executive shall not solicit or encourage any
other employee to leave the Company for any reason, nor employ such an employee
in a Competing Business or any other business.
(d) Company Customers. Subject to Section 4(b) above, Executive shall
-----------------
not, during the Agreement Term, directly or indirectly, contact, solicit or do
business with (i) Walmart Corporation, Target Stores, Caldor, Phar-mor, or any
of their respective affiliated operations, for the purpose of selling computer
software, video games or any other product then sold by the Company to such
customers or proposed to be sold to such customers at the time of termination of
Executive's employment hereunder; (ii) any " customers" (as defined below) of
the Company for the purpose of selling computer software, video games or any
other product then sold by the Company to such customers or proposed to be sold
to such customers at the time of termination of Executive's employment
hereunder; or (iii) any supplier, licensor or licensee of the Company (or any
such supplier, licensor or licensee solicited by the Company within eight months
of the expiration or termination of this Agreement) with respect to licensing
computer software, video games or other intellectual property from such person.
For the purposes of the provisions of this Section 4(d), "customer" shall
include any entity that purchased computer software or any other product from
the Company within eight months of the termination of Executive's employment
hereunder, without regard to the reason for such termination. The term
"customer" also includes any former customer or potential customer of the
Company which the Company has solicited within eight months of such termination,
for the purpose of selling computer software, video games or any other product
then sold by the Company.
-4-
<PAGE>
5. Termination of Employment.
--------------------------
(a) Termination. The Company may terminate Executive's employment for
-----------
Cause (as defined below), in which case the provisions of Section 5(b) shall
apply. The Company may also terminate Executive's employment in the event of
Executive's Disability (as defined below), in which case the provisions of
Section 5(c) shall apply. The Company may also terminate the Executive's
employment for any other reason by written notice to Executive, in which case
the provisions of Section 5(d) shall apply. If Executive's employment is
terminated by reason of Executive's death, retirement or voluntary resignation,
the provisions of Section 5(b) shall apply.
(b) Termination for Cause, Termination by Reason of Death or
--------------------------------------------------------
Retirement or Voluntary Resignation. In the event that Executive's employment
- - -----------------------------------
hereunder is terminated during the Agreement Term (x) by the Company for Cause
(as defined below), (y) by reason of Executive's death or retirement or (z) by
reason of Executive's voluntary resignation, then the Company shall pay to
Executive, within thirty (30) days of the date of such termination, only the
Base Salary through such date of termination. For purposes of this Agreement,
"Cause" shall mean (i) conviction of any crime (whether or not involving the
Company) constituting a felony in the jurisdiction involved; (ii) willful or
repeated failure or refusal to perform such duties as may be delegated to
Executive commensurate with Executive's position, which continues for 10 days
following notice from the Company setting forth in reasonable detail the nature
of the alleged failure or refusal to perform duties; or (iii) material breach of
any material provision of this Agreement by Executive (which, in the case of a
breach that is capable of being cured, continues for 10 days following notice
from the Company setting forth in reasonable detail the nature or such breach);
provided, however, that Executive's incompetence in the performance of his
- - -------- -------
duties shall not be included in the definition of "Cause" as defined herein.
(c) Disability. If, as a result of Executive's incapacity due to
----------
physical or mental illness, Executive shall have been absent from Executive's
duties hereunder on a full time basis for either (i) one hundred twenty (120)
days within any three hundred sixty-five (365) day period, or (ii) ninety (90)
consecutive days, and within thirty (30) days after written notice of
termination is given shall not have returned to the performance of Executive's
duties hereunder on a full time basis, the Company may terminate Executive's
employment hereunder for "Disability". In that event, the Company shall pay to
Executive, on the date of such termination, only the Base Salary through such
date of termination. During any period that Executive fails to perform
Executive's duties hereunder as a result of incapacity due to physical or mental
illness (a "Disability Period"), Executive shall continue to receive the
compensation and benefits provided by Section 3 hereof until Executive's
employment hereunder is terminated; provided, however, that the amount of
-------- -------
compensation and benefits received by Executive during the Disability Period
shall be reduced by the aggregate amounts, if any, payable to Executive under
disability benefit plans and programs of the Company or under the Social
Security disability insurance program.
-5-
<PAGE>
(d) Termination By Company For An Other Reason.
-------------------------------------------
(i) In the event that Executive's employment hereunder is terminated
by the Company during the Agreement Term for any reason other than as
provided in Sections 5(b) or 5(c) hereof, then the Company shall pay to
Executive, within thirty (30) days of the date of such termination, the Base
Salary through such date of termination and, in lieu of any further compensation
and benefits for the balance of the Agreement Term, severance pay equal to the
Base Salary (and, with respect to 1995, the required minimum bonus as set forth
in Section 3(b) (the "Bonus")) that Executive would have otherwise received
during the period equal to the lesser of (i) the remainder of the Agreement Term
and (ii) two years from the effective date of such termination, commencing with
such date of termination at the times and in the amounts such Base Salary and
Bonus would have been paid. Under such circumstances, except as set forth
below, for the balance of such period, Executive shall also continue to
participate in and receive the benefits and perquisites provided for in Sections
3(b) and 3(c) hereof (excluding any bonus and stock options) to the same extent
as if Executive's employment hereunder had not been terminated; provided,
however, that in the event that Executive shall breach Sections 4 or 6 hereof,
breaches this Agreement, the Company's obligation pursuant to this Section 5(d)
to continue such payments of salary, Bonus and such benefits and perquisites
shall cease and Executive's rights thereto shall terminate and shall be
forfeited.
(ii) If, within one year following a Change of Control, as hereafter
defined, neither Joseph Cayre nor Ron Chaimowitz is the Chairman of the Board of
Directors or the President of the Company or its successor, or, if either such
person does hold one of such offices, the Executive does not report directly to
one of such persons, then, at the time of such event, all options previously
granted to Executive pursuant to the Company's 1995 Stock Incentive Plan or
otherwise, including options assumed, or substituted therefor, by the Company or
its successor, shall immediately vest and be exercisable by Executive in full,
and Executive shall thereafter be entitled to exercise such options for the
balance of their respective terms. For purposes hereof, Change of Control shall
mean any of the following occurrences:
(1) any "Person" as such term is used in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934 ("Exchange Act") (other than the
Company or any trustee or other fiduciary holding securities under an
employee benefit plan of the Company and other than Joseph Cayre,
Stanley Cayre, Kenneth Cayre and their respective spouses or children
or trusts for such children), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing 50% or more of the combined
voting power of the Company's then outstanding securities (other than
as a result of a merger or consolidation covered by clause (3)(i) below
in connection with a merger involving the Company which would result in
voting securities of the Company outstanding immediately prior thereto
continuing to represent more than 50% of the combined voting power of
the voting securities of such "person" outstanding immediately after
such merger or consolidation);
-6-
<PAGE>
(2) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the
Company, and any new director (other than a director designated by a
person who has entered into an agreement with the Company to effect a
transaction described in clause (1), (3) or (4) of this definition)
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute at least
a majority thereof;
(3) the stockholders of the Company approve a merger or consolidation
of the Company with any other entity, other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or
(ii) a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no "person" (as
hereinabove defined) acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or
(4) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
(e) No Further Liability, Release. Payment made and performance by
------------------------------
the Company in accordance with this Section 5 shall operate to fully discharge
and release the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives from
any further obligation or liability with respect to Executive's employment and
termination of employment. Other than paying Executive's Base Salary through
the date of termination of Executive's employment and making any severance
payment and continuing benefits and perquisites pursuant to and in accordance
with this Section 5 (as applicable), the Company and its directors, officers,
employees, subsidiaries, affiliates, stockholders, successors, assigns, agents
and representatives shall have no further obligation or liability to Executive
or any other person under this Agreement. The Company shall have the right to
condition the payment of any severance or other amounts pursuant to Sections
5(c) or 5(d) hereof upon the delivery by Executive to the Company of a release
in form and substance reasonably satisfactory to the Company of any and all
claims Executive may have against the Company and its directors, officers,
employees, subsidiaries, affiliates, stockholders, successors, assigns, agents
and representatives arising out of or related to Executive's employment by the
Company and termination of such employment.
-7-
<PAGE>
6. Confidential Information.
-------------------------
(a) Existence of Confidential Information. The Company owns and has
-------------------------------------
developed and compiled, and will develop and compile, certain proprietary
techniques and confidential information which have great value to its business
(referred to in this Agreement, collectively, as "Confidential Information").
Confidential Information includes not only information disclosed by the Company
to Executive, but also information developed or learned by Executive during the
course or as a result of employment with the Company, which information shall be
the property of the Company. Confidential Information includes all information
that has or could have commercial value or other utility in the business in
which the Company is engaged or contemplates engaging, and all information of
which the unauthorized disclosure could be detrimental to the interests of the
Company, whether or not such information is specifically labelled as
Confidential Information by the Company. By way of example and without
limitation, Confidential information includes any and all information developed,
obtained, licensed by or to or owned by the Company concerning trade secrets,
techniques, know-how (including designs, plans, procedures, merchandising,
marketing, distribution and warehousing know-how, processes, and research
records), software, computer programs, and any other intellectual property
created, used or sold (through a license or otherwise) by the Company,
Electronic Data Information know-how and processes, innovations, discoveries,
improvements, research, development, test results, reports, specifications,
data, formats, marketing data and plans, business plans, strategies, forecasts,
unpublished financial information, orders, agreements and other forms of
documents, price and cost information, merchandising opportunities, expansion
plans, store plans, budgets, projections, customer, supplier, licensee, licensor
and subcontractor identities, characteristics, agreements and operating
procedures, and salary, staffing and employment information.
(b) Protection of Confidential Information. Executive acknowledges
--------------------------------------
and agrees that in the performance of duties hereunder the Company discloses to
and entrusts Executive with Confidential Information which is the exclusive
property of the Company and which Executive may possess or use only in the
performance of duties for the Company. Executive also acknowledges that
Executive is aware that the unauthorized disclosure of Confidential Information,
among other things, may be prejudicial to the Company's interests, an invasion
of privacy and an improper disclosure of trade secrets. Executive shall not,
directly or indirectly, use, make available, sell, disclose or otherwise
communicate to any corporation, partnership, individual or other third party,
other than in the course of Executive's assigned duties and for the benefit of
the Company, any Confidential Information, during the Agreement Term and for a
period of 1 year thereafter. In the event Executive desires to publish the
results of Executive's work for or experiences with the Company through
literature, interviews or speeches, Executive will submit requests for such
interviews or such literature or speeches to the Chief Executive Officer of the
Company at least fourteen (14) days before any anticipated dissemination of such
information for a determination of whether such disclosure is in the best
interests of the Company, including whether such disclosure may impair trade
secret status or constitute an invasion of privacy. Executive agrees not to
publish, disclose or otherwise disseminate such information without the prior
written approval of the Chief Executive Officer of the Company; provided,
-8-
<PAGE>
however, that Executive shall be permitted to disclose such information if
- - -------
required by law to do so; provided, further, that Executive shall provide the
-------- -------
Company with prompt notice of such legal requirement so it may seek a protective
order or other appropriate remedy and/or waive compliance with the terms of this
Agreement. Executive shall also consult with the Company and its counsel on the
advisability of taking legally available steps to resist or narrow any request
for disclosure of Confidential Information.
(c) Delivery of Records. Etc. In the event Executive's employment with
------------------------
the Company ceases for any reason, Executive will not remove from the Company's
premises without its prior written consent any records, files, drawings,
documents, equipment, materials and writings received from, created for or
belonging to the Company, including those which relate to or contain
Confidential Information, or any copies thereof. Upon request or when
employment with the Company terminates, Executive will immediately deliver the
same to the Company.
7. Assignment and Transfer.
------------------------
(a) Company. This Agreement shall inure to the benefit of and be
-------
enforceable by, and may be assigned by the Company to, any purchaser of all or
substantially all of the Company's business or assets, any successor to the
Company or any assignee thereof (whether direct or indirect, by purchase,
merger, consolidation or otherwise(a "Transaction"). The Company will require
any such purchaser, successor or assignee to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such purchase, succession or
assignment had taken place. If, (i) at the time of such purchase, succession or
assignment, the Company has a class of equity securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and (ii) such purchaser, successor or assignee does not, within 30 days
of the date of consummation of such Transaction (the "Offer Period"), offer
Executive the position and title of Chief Financial Officer of such purchaser,
successor, or assignee or an affiliate thereof, which entity has a class of
equity securities registered pursuant to Section 12 of the Exchange Act,
Executive shall have the right, during a 30 day period beginning on the last day
of the Offer Period, to voluntarily terminate his employment. Anything to the
contrary contained herein notwithstanding, in the event of such voluntary
termination by Executive, Executive shall be entitled to receive, as his sole
and exclusive remedy under this Agreement and in lieu of any further
compensation or benefits, severance pay equal to his Base Salary in effect at
the time of such termination, and in the event the Transaction occurs in 1995,
plus the bonus, for a period of one (1) year from the date of such termination
(the "payment"). In the event of such termination, the Payment shall be made as
follows: (i) Executive shall receive, within 5 business days of the date of such
termination, a cash payment in an amount equal to the Base Salary and Bonus, if
applicable, that would be payable during a six month period and (ii) the
remainder of the Payment shall be paid over the six month period beginning on
the date of such termination, at the times in the amounts such Base Salary and
Bonus, if applicable, would have been paid had such termination not occurred.
-9-
<PAGE>
(b) Executive. Executive's rights and obligations under this
---------
Agreement shall not be transferable by Executive by assignment or otherwise, and
any purported assignment, transfer or delegation thereof shall be void;
provided, however, that if Executive shall die, all amounts then payable to
- - -------- -------
Executive hereunder shall be paid in accordance with the terms of this Agreement
to Executive's devisee, legatee or other designee or, if there be no such
designee, to Executive's estate.
8. Miscellaneous.
--------------
(a) Other Obligations. Executive represents and warrants that (i)
-----------------
except as previously disclosed to the Company in writing, he is not a party to
any other employment agreement and (ii) neither Executive's employment with the
Company nor Executive's performance of Executive's obligations hereunder will
conflict with or violate or otherwise are inconsistent with any other agreements
to which Executive is or has been a party or with any other obligations, legal
or otherwise, which Executive may have.
(b) Nondisclosure: Other Employers. Executive will not disclose to
------------------------------
the Company, or use, or induce the Company to use, any proprietary information,
trade secrets or confidential business information of others. Executive
represents and warrants that Executive has returned all property, proprietary
information, trade secrets and confidential business information belonging to
all prior employers.
(c) No Duty to Mitigate. Executive shall be under no duty to mitigate
-------------------
with respect to any severance or other amounts payable pursuant to Sections 5(c)
or 5(d) hereof.
(d) Governing Law. This Agreement, including the validity,
-------------
interpretation, construction and performance of this Agreement, shall be
governed by and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed in such state without regard
to such state's conflicts of law principles. All actions and proceedings
relating directly or indirectly to this Agreement shall be litigated in any
state court or federal court located in New York, New York. The prevailing
party in any such action or proceeding shall be entitled to reimbursement of all
costs and expenses incurred by it in such action or proceeding, including
reasonable attorneys' fees; provided, however, that in the event of a
-------- -------
settlement of any litigation, no party shall be deemed the prevailing party for
the purposes of this sentence. The parties hereto expressly consent to the
jurisdiction of any such court and to venue therein and consent to the service
of process in any such action or proceeding by certified or registered mailing
of the summons and complaint therein directed to Executive at the address as
provided in Section 8(m) hereof and to the Company's designated agent for
service of process (which initially shall be GT Interactive Software Corp., 16
East 40th Street, New York, New York 10016, Attention: Secretary, which agent
may be changed by the Company upon thirty (30) days' prior written notice to
Executive).
-10-
<PAGE>
(e) Entire Agreement. This Agreement (including the Exhibits hereto)
----------------
contains the entire agreement and understanding between the parties hereto in
respect of the subject matter hereof and supersedes, cancels and annuls any
prior or contemporaneous written or oral agreements, understandings, commitments
and practices between them respecting the subject matter hereof, including all
prior employment agreements, if any, between the Company and Executive, which
agreement(s) hereby are terminated and shall be of no further force or effect.
(f) Amendment. This Agreement may be amended only by a writing which
---------
makes express reference to this Agreement as the subject of such amendment and
which is signed by Executive and, on behalf of the Company, by its duly
authorized officer.
(g) Severability. If any term, provision, covenant or condition of
------------
this Agreement or part thereof, or the application thereof to any person, place
or circumstance, shall be held to be invalid, unenforceable or void, the
remainder of this Agreement and such term, provision, covenant or condition
shall remain in full force and effect, and any such invalid, unenforceable or
void term, provision, covenant or condition shall be deemed, without further
action on the part of the parties hereto, modified, amended and limited to the
extent necessary to render the same and the remainder of this Agreement valid,
enforceable and lawful. In this regard, Executive acknowledges that the
provisions of Sections 4 and 6 are reasonable and necessary for the protection
of the Company.
(h) Construction. The headings and captions of this Agreement are
------------
provided for convenience only and are intended to have no effect in construing
or interpreting this Agreement. The language in all parts of this Agreement
shall be in all cases construed according to its fair meaning and not strictly
for or against the Company or Executive. The use herein of the word
"including," when following any general provision, sentence, clause, statement,
term or matter, shall be deemed to mean "including, without limitation". As
used herein, "Company" shall mean the Company and its subsidiaries and any
purchaser of, successor to or assignee (whether direct or indirect, by purchase,
merger, consolidation or otherwise) of all or substantially all of the Company's
business or assets which is obligated to perform this Agreement by operation of
law, agreement pursuant to Section 7 hereof or otherwise. As used herein, the
words "day" or "days" shall mean a calendar day or days.
(i) Nonwaiver. Neither any course of dealing nor any failure or
---------
neglect of either party hereto in any instance to exercise any right, power or
privilege hereunder or under law shall constitute a waiver of any other right,
power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
(j) Remedies for Breach. The parties hereto agree that
-------------------
Executive is obligated under this Agreement to render personal services during
the Agreement Term of a special, unique, unusual, extraordinary and intellectual
character, thereby giving this
-11-
<PAGE>
Agreement peculiar value, and, in the event of a breach or threatened breach of
any covenant of Executive herein, the injury or imminent injury to the value and
the goodwill of the Company's business could not be reasonably or adequately
compensated in damages in an action at law. Accordingly, Executive expressly
acknowledges that the Company shall be entitled to specific performance,
injunctive relief or any other equitable remedy against Executive, without the
posting of a bond, in the event of any breach or threatened breach of any
provision of this Agreement by Executive (including Sections 4 and 6 hereof).
Without limiting the generality of the foregoing, if Executive breaches Sections
4 or 6 hereof, such breach will entitle the Company to enjoin Executive from
further breaches of this Agreement. The rights and remedies of the parties
hereto are cumulative and shall not be exclusive, and each such party shall be
entitled to pursue all legal and equitable rights and remedies and to secure
performance of the obligations and duties of the other under this Agreement, and
the enforcement of one or more of such rights and remedies by a party shall in
no way preclude such party from pursuing, at the same time or subsequently, any
and all other rights and remedies available to it.
(k) Notices. Any notice, request, consent or approval required or
-------
permitted to be given under this Agreement or pursuant to law shall be
sufficient if in writing, and if and when sent by certified or registered mail,
return receipt requested, with postage prepaid, to Executive's residence (as
reflected in the Company's records or as otherwise designated by Executive on
(30) days' prior written notice to the Company) or to the Company's principal
executive office, attention: President (with copies to the General Counsel), as
the case may be. All such notices, requests, consents and approvals shall be
effective upon being deposited in the United States mail. However, the time
period in which a response thereto must be given shall commence to run from the
date of receipt on the return receipt of the notice, request, consent or
approval by the addressee thereof. Rejection or other refusal to accept, or the
inability to deliver because of changed address of which no notice was given as
provided herein, shall be deemed to be receipt of the notice, request, consent
or approval sent.
(1) Assistance in Proceedings, Etc. Executive shall, without
------------------------------
additional compensation, during the Agreement Term and after the expiration of
Executive's employment hereunder, render such assistance to the Company as it
reasonable may request in connection with any legal or quasi-legal proceeding,
including any external or internal investigation, involving the Company or any
or its affiliates or in which any of them is, or may become, a party. After the
expiration of Executive's employment hereunder, any such request for cooperation
shall be subject to Executive's other business and personal commitments, and
Executive shall not be required to expend any funds in connection with such
assistance.
(m) Survival. Cessation or termination of Executive's employment with
--------
the Company shall not result in termination of this Agreement. The respective
obligations of Executive and rights and benefits afforded to the Company as
provided in this Agreement shall survive cessation or termination of Executive's
employment hereunder for a period of 2 years, except with respect to Section
6(b) above. This Agreement shall not terminate upon, and shall remain in full
force and effect following, expiration of the
-12-
<PAGE>
Agreement Term and all rights and obligations of the parties hereto as and to
the extent provided herein shall survive such expiration.
(n) Counterparts. This Agreement may be executed by the parties in
------------
one or more separate counterparts, each of which when so executed and delivered
shall be an original for all purposes, but all such counterparts shall together
constitute but one and the same instrument.
-13-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf by an officer thereunto duly authorized and Executive has
duly executed this Agreement, all as of the date and year first written above.
GT Interactive Software Corp. EXECUTIVE:
By: /s/ RONALD CHAIMOWITZ /s/ ANDREW GREGOR
-------------------------------- --------------------------
Name: Ronald Chaimowitz Andrew Gregor
Title: President
-14-
<PAGE>
SCHEDULE A
----------
Title:
Vice President of Finance and Chief Financial Officer
Persons to Whom Executive Shall Report:
President and Chief Executive Officer
- 15 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 81,661
<SECURITIES> 9,660
<RECEIVABLES> 69,449
<ALLOWANCES> 3,014
<INVENTORY> 44,195
<CURRENT-ASSETS> 257,337
<PP&E> 7,144
<DEPRECIATION> 1,283
<TOTAL-ASSETS> 286,143
<CURRENT-LIABILITIES> 152,645
<BONDS> 0
0
0
<COMMON> 593
<OTHER-SE> 125,332
<TOTAL-LIABILITY-AND-EQUITY> 286,143
<SALES> 62,270
<TOTAL-REVENUES> 62,270
<CGS> 37,530
<TOTAL-COSTS> 37,530
<OTHER-EXPENSES> 16,995
<LOSS-PROVISION> 1,270
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,080
<INCOME-TAX> 3,980
<INCOME-CONTINUING> 5,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,100
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
