SILICON ENTERTAINMENT INC /CA/, S-1/A, 1999-10-21

SILICON ENTERTAINMENT INC /CA/
S-1/A, 1999-10-21
MISCELLANEOUS AMUSEMENT & RECREATION

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1999

REGISTRATION NO. 333-87019
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

SILICON ENTERTAINMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 7999 77-0389433
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>

210 HACIENDA AVENUE
CAMPBELL, CALIFORNIA 95008
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

DAVID S. MORSE
CHAIRMAN, CEO & PRESIDENT
210 HACIENDA AVENUE
CAMPBELL, CALIFORNIA 95008
(408) 364-6710
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C>
JAMES M. KOSHLAND, ESQ. NORA L. GIBSON, ESQ.
NICOLE D. ALSTON, ESQ. RICHARD R. PLUMRIDGE, ESQ.
LYNN E. FULLERTON, ESQ. JOHN E. HAYES, ESQ.
GRAY CARY WARE & FREIDENRICH LLP BROBECK, PHLEGER & HARRISON LLP
400 HAMILTON AVENUE SPEAR STREET TOWER, ONE MARKET
PALO ALTO, CALIFORNIA, 94301-1825 SAN FRANCISCO, CALIFORNIA 94105
(650) 833-2000 (415) 442-0900
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C> <C> <C>
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TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
- ------------------------------------------------------------------------------------------------------------------------------
Common stock, $0.001 par value 5,175,000 $10.00 $51,750,000 $14,387
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</TABLE>

(1) Includes 675,000 shares which the underwriters have the option to purchase
to cover over-allotments, if any.

(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a) under the Securities Act of 1933.

(3) Includes a fee in the aggregate amount of $12,788 which has previously been
paid. Pursuant to Rule 457(b) of the Securities Act of 1933, such fee is
credited against the registration fee. Accordingly, an additional $1,599 is
being paid in connection with the filing of the Registration Statement.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED OCTOBER 21, 1999

PROSPECTUS

4,500,000 SHARES

[SILICON LOGO]

COMMON STOCK

This is an initial public offering of 4,500,000 shares of common stock of
Silicon Entertainment, Inc. We expect that the public offering price will be
between $8.00 and $10.00 per share.

An application has been submitted for trading and quotation of our common
stock on the Nasdaq National Market under the symbol "SENT."

OUR BUSINESS INVOLVES SIGNIFICANT RISKS. THESE RISKS ARE DESCRIBED UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 8.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

-------------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to Silicon Entertainment......... $ $
</TABLE>

The underwriters may also purchase up to an additional 675,000 shares of
common stock at the public offering price, less the underwriting discounts and
commissions, to cover over-allotments.

The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.

-------------------------
SG COWEN
CIBC WORLD MARKETS
J.C. BRADFORD & CO.
E*OFFERING
, 1999
<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 8
Forward-Looking Statements............ 19
Use of Proceeds....................... 19
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 21
Selected Financial Data............... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.............................. 34
Management............................ 48
Transactions with Related Parties..... 57
Principal Stockholders................ 59
Description of Capital Stock.......... 61
Shares Eligible for Future Sale....... 65
Underwriting.......................... 67
Legal Matters......................... 68
Experts............................... 68
Where to Find Additional
Information......................... 69
Index to Financial Statements......... F-1
</TABLE>

-------------------------

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. WE
ARE OFFERING TO SELL AND SEEKING OFFERS TO BUY SHARES OF OUR COMMON STOCK ONLY
IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS,
REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR
COMMON STOCK.
-------------------------

UNTIL , 1999 (25 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

3
<PAGE> 4

PROSPECTUS SUMMARY

The following is only a summary. You should carefully read the more
detailed information contained in this prospectus, including our financial
statements and related notes. Our business involves significant risks. You
should carefully consider the information under the heading "Risk Factors."

SILICON ENTERTAINMENT, INC.

We own and operate NASCAR Silicon Motor Speedway racing centers. Through
strategic relationships and our proprietary technology, we provide a realistic
racing experience that simulates the motion, sights and sounds of an actual
NASCAR race. Located in high profile, high traffic retail locations, our racing
centers currently have eight, ten, twelve or fourteen race car simulators per
location and sell a variety of premium motorsports merchandise. Under a
licensing agreement with NASCAR, we have the exclusive right to use the NASCAR
name in our simulated racing experience. In addition to our licensing agreement
with NASCAR, we have licensing agreements with several NASCAR drivers including
Dale Earnhardt, Jeff Gordon, Dale Jarrett, Rusty Wallace and others. To extend
our racing experience into the home or office, our Web site, SMSonline.com,
currently provides a range of information and services including reservations,
race results, standings and other racing center information. As of August 1,
1999, our customers had completed over one million races at our racing centers.
In addition we generated revenues of approximately $5.4 million for the fiscal
year ended January 31, 1999 and revenues of approximately $4.2 million for the
twenty-six week period ended August 1, 1999. We also had a net loss of
approximately $11.5 million for the fiscal year ended January 31, 1999 and a net
loss of approximately $6.5 million for the twenty-six week period ended August
1, 1999.

We design our racing centers to provide a fun, interactive entertainment
experience in an environment that is both social and competitive. Each race car
simulator is 80% of the size of an actual NASCAR race car with the same colors,
sponsor logos and numbers. Our race car simulators have motion platforms that
move in a variety of directions, as well as several video screens and speakers
surrounding each driver, all of which simulate the experience of driving an
actual race car. Our racing centers encourage competition by allowing our
customers to race against each other in individual races, leagues and
competitions. Our racing centers also include pit areas and grandstands that
offer drivers and spectators an opportunity to socialize with each other. We
believe the authentic "look and feel" of our race car simulators combined with
the competitive and social aspects of our racing experience create one of the
most realistic and entertaining simulated racing experiences.

Our racing centers typically require 4,000 to 8,000 square feet of space
and are located in high profile retail locations. These locations currently
include Mall of America in Bloomington (Minneapolis), Minnesota; Dallas Galleria
in Dallas, Texas; Woodfield in Schaumburg (Chicago), Illinois; Irvine Spectrum
in Irvine, California; Palisades Center in West Nyack, New York; Concord Mills
in Charlotte, North Carolina; and Arbor Place and Mall of Georgia, both near
Atlanta, Georgia. We expect to open 20 to 30 additional racing centers over the
next 24 months, and have already signed leases for seven of these locations
including Universal CityWalk near Los Angeles, California and Opry Mills in
Nashville, Tennessee.

Motorsports is currently one of the largest and fastest growing spectator
sports in the United States, with more than 80 million people interested in auto
racing according to ESPN. One of the most popular motorsports formats in the
United States is NASCAR, whose televised events reached over 126 million
estimated households in 1998 and are covered by major broadcast and cable
television networks. In addition, more than 80 Fortune 500 companies are NASCAR
sponsors and total motorsports sponsorship is expected to reach $1.2 billion in
1999, or 24% of all sports sponsorship. The popularity of motorsports and NASCAR
has also resulted in a large market for motorsports-related merchandise. Retail
sales of NASCAR-licensed merchandise are expected to increase from $950 million
in 1998 to more than $1.1 billion in 1999. Based on the growing popularity of
motorsports and NASCAR, we believe a significant opportunity exists to provide
simulated NASCAR racing and NASCAR-licensed merchandise throughout retail
locations in the United States.

4
<PAGE> 5

Our objective is to be the leading provider of simulated NASCAR racing. We
intend to achieve this by:

- Expanding the Number of Our Racing Centers -- We plan to accelerate the
roll-out of our racing centers, opening 20 to 30 additional racing
centers over the next 24 months. We expect to open primarily 8-, 10- and
12-simulator racing centers based on customer traffic and the retail
space available at each location. We intend to locate most of our future
racing centers in metropolitan markets that have shown a substantial
interest in NASCAR racing.

- Continuing to Develop SMSonline.com -- We intend to enhance SMSonline.com
and build upon the community of our racing customers by providing online
opportunities to discuss our competitions and racing experiences, and by
offering NASCAR driver testimonials and customer endorsements of our
racing experience. We also intend to offer our customers who purchase our
proprietary software and subscribe to our online services, the ability,
from a personal computer, to: download replays of races, customize their
car set-up, view live racing at our racing centers and race against
customers at the racing centers.

- Continuing to Enhance Our Racing Experience -- We intend to continue to
develop our racing experience by offering additional race tracks,
customized car set-up, real-time racing among our customers who are
located in different racing centers, video recording and sale of
individual races and improved communication during a race between drivers
and racing center spectators.

- Leveraging Strategic and Working Relationships -- We intend to leverage
key relationships with NASCAR, mall developers and others to enhance our
racing experience, enter into sponsorship agreements with selected NASCAR
sponsors, gain entrance into new geographic markets and high profile
retail locations and further promote our racing centers.

We were incorporated in California in November 1994 as LBE Technologies,
Inc. In June 1998, we changed our name to Silicon Entertainment, Inc. We intend
to reincorporate in Delaware prior to the consummation of this offering. Our
principal offices are located at 210 Hacienda Avenue, Campbell, California
95008. Our telephone number is (408) 364-6710. Our Web site address is
www.SMSonline.com. Information contained on our Web site does not constitute
part of this prospectus.

5
<PAGE> 6

THE OFFERING

Common stock we are offering.............. 4,500,000 shares

Common stock to be outstanding after this
offering.................................. 15,203,355 shares (see
"Capitalization")

Underwriters' over-allotment option....... 675,000 shares

Use of proceeds........................... For the expansion of the number of
our racing centers, the
enhancement of our hardware and
software technology and basic
infrastructure, the promotion of
our racing centers, the addition
of online content and services to
our Web site, the repayment of
loans to certain investors and
working capital and general
corporate purposes. See "Use of
Proceeds."

Proposed Nasdaq National Market symbol.... SENT

The number of shares of our common stock to be outstanding immediately
after the offering is based on the number of shares outstanding on August 1,
1999 and includes 7,887,799 shares of common stock assuming the conversion of
convertible preferred stock outstanding on that date. This number excludes:

- 1,105,598 shares of our common stock issuable upon the exercise of
options outstanding at a weighted average exercise price of approximately
$1.92 per share;

- warrants to purchase 813,659 shares of our common stock at a weighted
average exercise price of $4.28 per share;

- 369,444 shares of our common stock assuming the conversion of $5.7
million of subordinated convertible promissory notes issued in June 1999;
and

- 550,000 shares of our common stock assuming the conversion of $5.5
million of subordinated convertible promissory notes issued in September
1999 and warrants issued concurrently to purchase 68,750 shares of our
common stock at an exercise price of $10.80 per share.

------------------------

WE HAVE FILED U.S. TRADEMARK AND SERVICE MARK APPLICATIONS FOR "RACING SO
REAL YOU CAN FEEL IT," SILICON ENTERTAINMENT, INC., SILICON MOTOR SPEEDWAY AND
OUR SILICON MOTOR SPEEDWAY LOGO IN THE UNITED STATES. WE USE THE NASCAR SILICON
MOTOR SPEEDWAY LOGO UNDER A LICENSE AGREEMENT WITH THE NATIONAL ASSOCIATION FOR
STOCK CAR AUTO RACING, INC. (NASCAR). WE HAVE ALSO FILED TRADEMARK AND SERVICE
MARK APPLICATIONS IN CANADA AND THE EUROPEAN UNION FOR SILICON ENTERTAINMENT,
INC. ALL OTHER TRADEMARKS, SERVICE MARKS OR TRADE NAMES REFERRED TO IN THIS
PROSPECTUS ARE THE PROPERTY OF THEIR RESPECTIVE OWNERS.

------------------------

Unless otherwise indicated, all information contained in this prospectus:

- gives effect to the conversion of all outstanding shares of our
mandatorily redeemable convertible preferred stock into common stock upon
the closing of this offering;

- reflects a 1-for-2 reverse stock split to be effected prior to the
completion of this offering;

- assumes our reincorporation in Delaware prior to the consummation of this
offering; and

- assumes the underwriters' over-allotment option is not exercised.

6
<PAGE> 7

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The tables below summarize our financial data set forth in more detail in
the Financial Statements included in this prospectus. The financial data below
is based on the following assumptions:

- The Pro Forma As Adjusted balance sheet data as of August 1, 1999 has
been adjusted to reflect:

- the conversion of mandatorily redeemable convertible preferred stock
into common stock at the closing of this offering;

- the issuance of $5.5 million of subordinated convertible promissory
notes in September 1999; and

- the sale of 4,500,000 shares of our common stock at an assumed initial
public offering price of $9.00 per share and the application of the net
proceeds from such sale. See "Use of Proceeds."

- See Note 2 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing basic and diluted
net loss per common share.

<TABLE>
<CAPTION>
TWENTY-SIX WEEK
FISCAL YEAR ENDED PERIOD ENDED
---------------------------- -----------------
FEB. 2, FEB. 1, JAN. 31, AUG. 2, AUG. 1,
1997 1998 1999 1998 1999
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................................. $ 47 $ 1,052 $ 5,382 $ 1,541 $ 4,169
Total operating expenses........................ 2,664 6,021 16,711 6,888 9,509
Operating loss.................................. (2,617) (4,969) (11,329) (5,347) (5,340)
Net loss........................................ (2,642) (5,192) (11,488) (5,370) (6,512)
Net loss attributable to common stockholders.... $(2,642) $(5,200) $(11,543) $(5,391) $(6,553)
Basic and diluted net loss per share
attributable to common stockholders........... $ (1.65) $ (3.67) $ (5.85) $ (2.95) $ (2.63)
Shares used in computing basic and diluted net
loss per share attributable to common
stockholders.................................. 1,605 1,417 1,973 1,830 2,489
</TABLE>

<TABLE>
<CAPTION>
AS OF AUGUST 1, 1999
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,778 $41,943
Total assets................................................ 16,210 55,375
Long-term portion of capital leases and long-term debt...... 7,023 12,523
Total liabilities........................................... 14,363 16,863
Mandatorily redeemable convertible preferred stock.......... 24,370 --
Total stockholders' equity (deficit)........................ $(22,523) $38,512
</TABLE>

7
<PAGE> 8

RISK FACTORS

You should carefully consider the risks described below before making an
investment decision. You should also refer to the other information in this
prospectus, including our financial statements and the related notes.

If any of the following risks actually occur, our business, results of
operations and financial condition could suffer. In that event, the trading
price of our common stock could decline and you may lose all or part of your
investment in our common stock. The risks discussed below also include those
associated with forward-looking statements, as our actual results may differ
substantially from those discussed in these forward-looking statements.

RISKS RELATED TO THE BUSINESS

OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY

We opened our first racing center in August 1997. We have recognized
limited revenues since our inception. In addition, our senior management team
and other employees have worked together at our company for only a short period
of time. Consequently, we have a limited operating history upon which you can
evaluate our business.

WE HAVE NOT GENERATED SIGNIFICANT REVENUES, WE HAVE A HISTORY OF LOSSES AND WE
MAY NOT BE ABLE TO ACHIEVE PROFITABILITY

Our ability to generate significant revenues is uncertain. We have incurred
substantial costs to develop our technology, open and operate our racing
centers, build brand awareness and expand our marketing efforts through the
Internet. We had a net loss of approximately $11.5 million for the fiscal year
ended January 31, 1999 and a net loss of approximately $6.5 million for the
twenty-six week period ended August 1, 1999. We expect to continue to incur
losses from operations and generate negative cash flows due to significant
expenses that we plan to incur. These plans include:

- increasing the number of our racing centers;

- enhancing our hardware and software technology and basic infrastructure;

- expanding our marketing efforts;

- expanding our online offerings; and

- hiring additional management and other personnel.

If our revenues do not increase to a level sufficient to meet our
substantial costs, we will not be able to achieve profitability. Even if we do
achieve profitability, we may not sustain or increase profitability on a
quarterly or annual basis in the future.

WE RELY ON SIMULATED AUTO RACING FOR SUBSTANTIALLY ALL OF OUR REVENUE, AND IF
DEMAND FOR SIMULATED AUTO RACING DECREASES, OUR BUSINESS WILL SUFFER

Substantially all of our revenues are derived from the sale of tickets for
our race car simulators. The market for retail entertainment like our race car
simulators is characterized by rapidly changing customer preferences and
accordingly, may have a limited life. Among the factors that may influence the
demand for our racing centers are:

- the popularity of motorsports, NASCAR, NASCAR drivers, team owners and
other licensors;

- technological advancements in arcade games and in at-home racing
experiences;

- cultural and demographic trends; and

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<PAGE> 9

- general economic conditions, which may have a disproportionate effect on
consumer entertainment spending.

These factors are neither quantifiable nor predictable. Consequently,
although we believe we offer a realistic and entertaining racing experience, we
cannot predict whether demand will continue. Moreover, even if we experience
great demand when we open a new racing center, we may not be able to sustain the
long-term interest of our customers.

WE RECENTLY REDUCED THE NUMBER OF RACE CAR SIMULATORS IN TWO OF OUR EIGHT RACING
CENTERS DUE TO WEAKER THAN ANTICIPATED DEMAND AND IF WE ARE NOT SUCCESSFUL IN
SELECTING SITES FOR OUR RACING CENTERS, WE MAY NEED TO EFFECT SIMILAR REDUCTIONS
IN OTHER RACING CENTERS

In identifying sites for our racing centers, we analyze many factors such
as mall and area population demographics and retail traffic patterns.
Nevertheless, it is impossible for us to identify and quantify all of the
factors that may determine the suitability of a site; therefore, it is
impossible for us to determine whether a site ultimately will be successful. For
example, we recently reduced the number of race car simulators from fourteen to
eight at our Dallas Galleria racing center and from twelve to eight at our
Irvine Spectrum racing center. Moreover, because we have only eight racing
centers currently in operation, we have limited experience in selecting sites
for our racing centers and there is a limited basis to evaluate our prospects
for future success. If the sites we choose do not generate significant revenue
and cash flow, our business will not be able to grow. If we choose to close or
relocate a racing center, we would incur substantial costs, including costs
relating to the long-term, non-cancelable lease obligations that generally cover
our sites. In addition, closing or downsizing racing centers could damage our
brand image and our relationship with NASCAR, which could affect our future
profitability and our ability to negotiate favorable terms for future leases.

IF WE FAIL TO MAINTAIN OUR LICENSING AGREEMENT WITH NASCAR, WHICH IS EXCLUSIVE
ONLY FOR OUR SIMULATED RACING EXPERIENCE AND WHICH MAY BE TERMINATED IF WE
DEFAULT, OUR ABILITY TO PROVIDE AND ENHANCE OUR RACING EXPERIENCE WILL BE
IMPAIRED

We believe that our licensing agreement with NASCAR is vital to the success
of our business and is crucial to the development and enhancement of the racing
experience offered by our racing centers. Our license agreement with NASCAR for
the use of its image and trademarks extends to December 31, 2005 and is
exclusive for a designated category until December 31, 2002, when NASCAR can
choose to renew the exclusive portion of the agreement. The exclusive category
of the NASCAR license is "operator assisted, location based interactive stockcar
or stock-truck entertainment experiences that consist of no less than five
linked simulator units, with each on a motion-based platform and each allowing a
maximum of two people to participate in each individual simulator unit."
Additionally, under the license each location must be permanent in nature and in
a retail environment. There can be no assurance that NASCAR will not grant
non-exclusive or exclusive licenses for other categories of simulated racing
outside of the category to which our exclusivity applies.

The term of the agreement runs through December 31, 2005 and may be
terminated at the option of NASCAR upon the occurrence of certain events, such
as:

- the closing of five or more of our racing centers;

- the departure of three or more of our current directors;

- the failure by us to operate a total of nine racing centers by January
31, 2000 and a total of thirteen racing centers by August 31, 2000;

- the temporary cessation of operations at any of our racing centers for
reasons other than renovation or repairs; and

- the breach by us of any term in our agreement with NASCAR.

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<PAGE> 10

In addition, under our agreement with NASCAR, we must obtain NASCAR's prior
approval for all advertising and promotional activities as well as Web site
activities utilizing NASCAR's name and for each racing center location. Our
agreement also restricts the types of merchandise and food we may sell, as well
as the layout of our racing centers, and requires that we locate our race car
simulators only in our racing centers. These restrictions may keep us from
adapting to market conditions and taking advantage of other opportunities that
may arise. Also, we may inadvertently breach one or more of the terms of our
agreement with NASCAR and face the possibility that NASCAR would terminate our
agreement.

THE EXCLUSIVE PORTION OF OUR NASCAR LICENSING AGREEMENT TERMINATES ON DECEMBER
31, 2002 AND IF WE ARE UNABLE TO RENEW OR EXTEND IT, WE COULD BE SUBJECT TO
INCREASED COMPETITION AND THE POWER OF OUR USE OF THE NASCAR NAME IN OUR
BRANDING CAMPAIGN COULD BE LESSENED

Our licensing agreement with NASCAR is exclusive for our designated
category until December 31, 2002, at which time NASCAR has the sole option to
renew the exclusive portion of the license. There is no assurance that NASCAR
will elect to renew the exclusive portion of our license. If NASCAR elects not
to renew our exclusivity, we could face additional competition if others were
also granted the right to use the NASCAR name in a simulated racing experience
comparable to ours.

OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO EXTEND OUR LICENSING AGREEMENTS
WITH NASCAR DRIVERS, TEAM OWNERS AND RACE TRACK OWNERS, AND THE MAJORITY OF OUR
LICENSES WITH TEAM OWNERS WILL EXPIRE BY MAY 2000

We depend on our licensing arrangements with NASCAR drivers, team owners
and race track owners which vary in scope and duration, but generally authorize
us to incorporate their images and designs into our race car simulators and to
use their names and logos in our marketing. The success of these licensing
arrangements depends on many factors, including the popularity, performance and
public image of the NASCAR drivers and the team owners. Some of these licensing
agreements contain provisions that allow the licensor to terminate the agreement
upon the occurrence of certain events. The majority of our licenses with team
owners will expire before May 31, 2000, unless extended by mutual agreement. For
these reasons, we cannot predict whether we will be able to realize the benefits
of these licensing agreements in the future. Our business could be materially
and adversely affected if our rights under the licensing agreements were
diminished or lost.

OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY WHICH MAY
RESULT IN VOLATILITY OR A DECLINE IN THE PRICE OF OUR STOCK

Our quarterly revenues, expenses and operating results have varied in the
past and may fluctuate significantly in the future due to a variety of factors,
many of which are outside of our control. These factors include, among others:

- the pace of the roll-out of our racing centers;

- the demand for racing simulation and merchandise at our racing centers;

- seasonal fluctuations, particularly those associated with retail shopping
patterns and with the NASCAR racing season;

- our ability to enter into new and maintain existing strategic and working
relationships;

- capital expenditures and costs related to our expansion;

- changes in our operating expenses including, in particular, expenses
related to increased personnel at our headquarters in the areas of human
resources, marketing, finance and information systems, seasonal hiring at
our racing centers and manufacturing support related to the expansion of
our racing center operations;

- the introduction of competitive retail entertainment products;

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<PAGE> 11

- unfavorable changes in the prices of components and merchandise we
purchase; and

- equipment and software-related failures at our sites.

Additionally, because we currently have only eight racing centers in
operation, our operating results are particularly susceptible to fluctuations in
the results from any store. You should not rely on quarter-to-quarter
comparisons of our results of operations as an indication of future performance.
It is possible that in some future periods our results of operations may be
below the expectations of public market analysts and investors.

IF WE FAIL TO EXPAND THE NUMBER OF OUR RACING CENTERS OR TO PROPERLY MANAGE
EXPANSION, OUR REVENUES WILL NOT GROW AND OUR PROFITS MAY SUFFER

Our future growth depends primarily on our ability to increase the number
of our racing centers. We plan to open 20 to 30 racing centers over the next 24
months. To execute our growth plan we must:

- identify appropriate locations;

- negotiate leases on acceptable terms;

- design each racing center;

- build race car simulators according to our expansion schedule, while
maintaining quality;

- depend upon contractors to construct our new racing centers in a timely
manner while controlling costs;

- obtain and install the necessary equipment on a timely basis;

- obtain the timely approval of local regulatory authorities; and

- hire, train, motivate and retain qualified employees to assist in our
expansion, as well as to staff our racing centers.

We have limited experience in building racing centers, particularly in
building multiple racing centers concurrently. Our planned expansion will place
a significant strain on our limited financial and management resources. Our
resources may not be sufficient to adequately manage the opening of the planned
number of racing centers cost effectively and under a compressed time schedule.
Consequently, it may be difficult for us to meet this growth plan on our short
time schedule while controlling costs. In addition, the delay of rolling out our
racing centers from one quarter to the next could slow the anticipated growth of
our revenues.

WE MAY NEED TO OBTAIN ADDITIONAL FUNDS TO EXECUTE OUR BUSINESS PLAN AND IF WE
ARE UNABLE TO OBTAIN THESE FUNDS, WE WILL NOT BE ABLE TO EXPAND OUR BUSINESS AS
PLANNED

The capital resources required to develop each new racing center are
significant. The average initial cost of opening our existing 12-simulator
racing centers, including our Irvine Spectrum racing center which was initially
built as a 12-simulator racing center, was approximately $2.0 million, including
development costs, pre-opening costs and start-up merchandise inventory. We plan
to open 20 to 30 new racing centers over the next 24 months with an estimated
aggregate cost to us of approximately $30.0 to $45.0 million. To date, our cash
flow from operations has been insufficient to cover our expenses and capital
needs. Although we believe our existing capital resources, together with the
proceeds from this offering, will be sufficient to meet our needs for the
foreseeable future, including our planned expansion, the rate at which we use
our available funds will depend on factors which are difficult to predict, such
as our ability to control costs in designing and building our racing centers. In
the future, we may require additional capital and there is no assurance that
additional financing will be available at that time on terms favorable to us, or
at all. If adequate funds are not available on acceptable terms, we may be
forced to curtail or cease our operations. Moreover, even if we are able to
continue our operations, our failure to obtain additional financing could have a
negative impact on our business and financial results and may delay our
expansion.

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<PAGE> 12

For a more detailed discussion of cash used by us in our business, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

WE ARE SUBJECT TO LONG-TERM LEASES FOR OUR FACILITIES, MANY OF WHICH ARE
NON-CANCELABLE AND OTHERS OF WHICH WE MAY CANCEL ONLY UNDER LIMITED
CIRCUMSTANCES, WHICH MAY CAUSE OUR BUSINESS TO SUFFER IF WE ARE UNABLE TO
TERMINATE OR RENEGOTIATE A LEASE FOR A RACING CENTER THAT DOES NOT GENERATE
ADEQUATE REVENUES

The leases we enter into for our racing centers typically have terms
ranging from five to ten years. Approximately half of our existing leases have
limited termination options which generally may only be exercised after a number
of years if our gross receipts do not meet stated thresholds, if no default
exists under the lease, and a cancellation fee is paid. The leases have minimum
annual rents ranging from approximately $180,000 to $395,000, which include
charges for operating expenses, common area maintenance, taxes and utilities,
plus an additional charge if we achieve sales in excess of certain levels. Our
future facilities are likely to be subject to similar non-cancelable long-term
leases or may be subject to limited termination options. In many of our leases,
the landlord agrees to provide an allowance for construction of improvements,
but typically we also make large investments of our own funds to finance tenant
improvements. If an existing or future facility does not perform at a profitable
level, and the decision is made to close that facility without exercising an
option to terminate the lease, we may still be committed to perform our
obligations under the applicable lease. These obligations would include, among
other things, payment of the rent and additional charges as they would have
become due for the balance of the respective lease term. The leases related to
five of our sites are cancelable by the landlord after various dates if we have
not achieved specified sales. If such a termination were to occur at these
locations, we could lose the facility before we are able to receive a return on
our investment.

IF WE FAIL TO RESPOND TO RAPID MARKET CHANGES, WE MAY GENERATE LOWER THAN
ANTICIPATED REVENUES AND EXPERIENCE FLUCTUATIONS IN OUR OPERATING RESULTS

The market for retail entertainment is subject to rapidly changing customer
tastes, a high level of competition, market seasonality and an ongoing need to
identify trends and offer new or enhanced products. Because these factors can
change rapidly, the success of our business may depend on our ability to react
to these factors, to enhance our simulated racing experience or offer new
products at our racing centers. Product development can be time consuming and
expensive and we may not be successful. Our business, operating results and
financial condition could be negatively impacted if we are unable to respond
quickly to market changes.

OUR RESULTS OF OPERATIONS DEPEND ON DISCRETIONARY CONSUMER SPENDING, AND A
DOWNTURN IN CONSUMER SPENDING COULD RESULT IN DECREASED DEMAND FOR OUR SIMULATED
AUTO RACING AND MERCHANDISE

The success of our operations depends to a significant extent upon factors
relating to discretionary consumer spending, including economic conditions
affecting disposable consumer income. These factors include employment, business
conditions, interest rates and taxation. These factors, which may have a
particularly significant impact on the entertainment industry, can impact
attendance at our racing centers. There can be no assurance that consumer
spending will not be adversely affected by economic conditions, thereby
impacting our growth, revenues and profitability.

WE DEPEND ON THIRD-PARTY MANUFACTURERS FOR SIGNIFICANT COMPONENTS OF OUR RACE
CAR SIMULATORS AND THE INABILITY TO PROCURE THESE COMPONENTS WOULD RESULT IN
DELAYS IN THE OPENING OF OUR RACING CENTERS AND INCREASED COSTS

We do not manufacture many of the significant components of our race car
simulators or the merchandise that we sell at our racing centers. Any
difficulties encountered by the third-party manufacturers that result in product
defects, production delays, cost overruns or the inability to fulfill orders on
a timely basis could materially and adversely affect us.

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<PAGE> 13

Our suppliers generally do not have long-term contracts with their
third-party manufacturers. We may not meet the demands and expectations of our
customers and our operations may be adversely affected by:

- the loss of these relationships;

- significant damage to the facilities of one or more of our suppliers or
their third-party manufacturers;

- the disruption or termination of the operations of one or more of our
suppliers or their third-party manufacturers; or

- the disruption or termination of transportation of products from one or
more of our suppliers or their manufacturers.

Neither we, nor any of our suppliers, maintain an inventory of sufficient
size to protect us against any material interruption of supply of merchandise or
of components for our race car simulators. We also may be subject to variations
in the prices that we or our suppliers pay to third-party manufacturers for
merchandise and race car simulator components if raw materials, labor and other
costs increase. We may not be able to pass along price increases to our
customers.

EQUIPMENT AND SERVICE FAILURES OR INTERRUPTIONS COULD REDUCE THE APPEAL OF OUR
SIMULATED RACING EXPERIENCE AND RESULT IN LOWER THAN ANTICIPATED REVENUES

Any sustained or repeated failure or interruption in our equipment, our
simulators or our computer systems could reduce the appeal of our racing centers
to our customers. Unanticipated problems affecting our equipment and systems
would cause us to lose revenues at our racing centers. Interruptions or failures
could result if we fail to maintain our equipment or our computer systems in
effective working order.

Our race car simulators are subject to extensive wear and tear. We expect
to allocate a significant amount of resources to maintaining the equipment and
computer systems at our racing centers. To the extent we are unable to
adequately maintain our equipment and computer systems and interruptions or
failures result, customers may stop visiting our racing centers. Additionally,
if maintenance is more costly than we predict, our profitability will suffer.

IF WE CANNOT ESTABLISH AND MAINTAIN A HIGH-QUALITY INTERACTIVE WEB SITE, THE
SUCCESS OF OUR MARKETING CAMPAIGN AND OUR BRAND IMAGE COULD BE NEGATIVELY
IMPACTED

We believe that the marketing of our product and our brand image will be
substantially enhanced if we are able to provide an interactive Web community
for our customers. We intend to enhance SMSonline.com and build upon the
community of our racing customers by providing online opportunities to discuss
our competitions and racing experiences and by offering NASCAR driver
testimonials and customer endorsements of our racing experience. We also intend
to offer our customers who purchase our proprietary software and subscribe to
our online services, the ability, from a personal computer, to:

- download replays of races;

- customize their car set-up;

- view live racing at the racing centers; and

- race against customers at the racing centers.

Our failure to develop, introduce and maintain these online products could
diminish the effectiveness of our Web site and possibly reflect negatively on
our racing centers. Additionally, we may use new technologies ineffectively and
may incur substantial costs if we need to modify our services or infrastructure.
Also, growth in the number of users accessing our Web site may strain or exceed
the capacity of our computer systems and lead to impaired performance or system
failures. If this occurs, customer service and satisfaction may suffer, which
could lead to dissatisfied users, reduced traffic and a decline in any business
we generate over the Internet.

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<PAGE> 14

IF WE LOSE MANAGEMENT OR OTHER KEY PERSONNEL, OUR BUSINESS MAY NOT BE SUCCESSFUL

The development of our operations depends upon the efforts and abilities of
our senior management, particularly David Morse, Rick Moncrief and Christopher
Morse. The loss of services of one or more of our key employees could have a
material adverse effect on our business. To date, we have not entered into
employment agreements with any of these key personnel and we have not purchased
insurance to protect us against the loss of the life of any of these or other
key personnel.

Our success also depends on our ability to continue to attract, retain and
motivate skilled employees. We may be unable to retain our key employees or
attract, motivate or retain other qualified employees in the future. Any failure
to attract and retain key employees could make it difficult for us to manage our
business and meet key objectives, such as timely openings of racing centers.

WE HAVE LIMITED PROTECTION FOR OUR INTELLECTUAL PROPERTY AND ANY INFRINGEMENT OR
MISAPPROPRIATION OF OUR RIGHTS COULD ADVERSELY IMPACT OUR BUSINESS

Although we believe that our success is more dependent upon our technical
expertise than our proprietary rights, our future success and ability to compete
is dependent in part upon our proprietary technology. We rely on a combination
of contractual rights and copyright, patent, trademarks and trade secret laws to
establish and protect our proprietary technology. Currently, we have two U.S.
patent applications pending. We generally enter into confidentiality agreements
with our employees and consultants. We also strictly limit access to and
distribution of the language in which our computer programs are written and
further limit the disclosure and use of other proprietary information. We cannot
assure you that the steps taken by us in this regard will be adequate to prevent
misappropriation of our technology or that our competitors will not
independently develop technologies that are substantially equivalent or superior
to our technology. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain or use our products
or technology. In addition, the laws of some foreign countries do not protect
our proprietary rights to the same extent as do the laws of the United States.

We are also subject to the risk of adverse claims and litigation alleging
infringement of the intellectual property rights of others. Third parties may
assert infringement claims in the future with respect to our current or future
products. Any assertion, regardless of its merit, could require us to pay
damages or settlement amounts and could require us to develop non-infringing
technology or pay for a license to the technology that is the subject of
asserted infringement.

For example, we have been served with a civil summons and complaint for the
alleged infringement of a third party's patents in connection with our
reservation method. The complaint sought an injunction, damages and treble
damages. This litigation or any other potential litigation could result in
product delays, increased costs or both. In addition, the cost of any litigation
and the resulting distraction of our management resources could adversely affect
our results of operations. We also cannot assure you that any licenses of
technology necessary for our business will be available or that, if available,
such licenses can be obtained on commercially reasonably terms. Our failure to
obtain such licenses, or to protect our proprietary technology, could harm our
business and cause our results of operations to fluctuate. For more information
regarding our legal proceedings, see "Business -- Legal Proceedings."

We have filed U.S. trademark and service mark applications for "RACING SO
REAL YOU CAN FEEL IT," SILICON ENTERTAINMENT, INC., SILICON MOTOR SPEEDWAY and
our SILICON MOTOR SPEEDWAY logo in the United States. We have also filed
trademark and service mark applications in Canada and the European Union for
SILICON ENTERTAINMENT, INC. However, we cannot assure you we will be successful
in obtaining registrations for the above marks. Our inability to obtain
trademark protection for our marks could allow others to use our trade or
service marks and dilute our brand identity.

We also have licensed from third parties portions of our hardware and
software technology related to our mathematical formula used to simulate our
race car handling characteristics and the electromechanical

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<PAGE> 15

device that creates variable amounts of steering wheel resistance and force to
simulate actual race car steering wheel performance in our race car simulators.
We believe that there are alternative sources for each of the material
components of technology we license from these third parties. However, the
termination of any of these licenses could have a material adverse effect on our
business. None of our license agreements currently provides exclusive rights to
these technologies. Therefore we cannot prohibit competitors or potential
competitors from obtaining licenses to these technologies and incorporating them
into products that may be used to compete with us.

IF WE, OR THIRD PARTIES ON WHICH WE RELY, FAIL TO ACHIEVE YEAR 2000 COMPLIANCE,
OUR BUSINESS COULD BE HARMED

We depend upon complex computer software and systems for certain aspects of
our operations. The failure of any of our software or systems to be Year 2000
compliant could disrupt the operation of our racing centers, our financial and
management controls and reporting systems.

In addition to the systems and software that we use directly, our
operations also depend on the performance of software and systems of our
third-party vendors and service providers. These include providers of the
components for our race car simulators, financial, telecommunications and parcel
delivery services. We cannot assure you that our service providers have, or will
have, operating software and systems that are Year 2000 compliant.

We have begun conducting an analysis of our material operating software and
systems to assess and assure Year 2000 compliance. We also have been
communicating with our third-party vendors and service providers and others with
whom we do business to coordinate Year 2000 readiness. The responses we have
received to date have indicated that steps are currently being undertaken by our
third-party vendors and service providers to address this concern. However, any
failure of our computer software and systems or the software and systems of
third parties to achieve timely Year 2000 compliance could harm our business,
operating results and financial position. For more detail regarding our Year
2000 compliance, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Compliance."

RISKS RELATED TO OUR INDUSTRY

A SUBSTANTIAL DECLINE IN THE POPULARITY OF MOTORSPORTS IN GENERAL, AND IN NASCAR
RACING IN PARTICULAR, COULD HARM OUR BUSINESS

Substantially all of our revenues are derived from the sale of tickets for
our race car simulators. Although motorsports and NASCAR racing have enjoyed
substantial growth in popularity during the 1990s, we cannot predict whether
this growth will continue, particularly in light of the substantial competition
for consumer spending in the sports, entertainment and recreation industries. A
downturn in the popularity of motorsports or NASCAR racing could reduce interest
in simulated racing at our racing centers, as well as diminish sales of
motorsports merchandise, and hamper our ability to enter into strategic
relationships, all of which could materially harm our business and financial
results.

SEASONAL FLUCTUATIONS IN SALES MAY AFFECT OUR EARNINGS, MAKING IT DIFFICULT TO
PREDICT OUR QUARTERLY RESULTS, WHICH COULD CAUSE OUR EARNINGS TO BE
UNPREDICTABLE AND THE TRADING PRICE OF OUR COMMON STOCK TO VARY SIGNIFICANTLY

We are subject to seasonal fluctuations in our revenues associated with the
retail shopping season, which affects the level of mall traffic near our racing
centers. We may also be subject to seasonal fluctuations in our revenues due to
the effect of the auto racing season on the demand for tickets for our race car
simulators or merchandise sold at our racing centers. Seasonal and cyclical
patterns that emerge in the number of visitors to our racing centers or consumer
purchasing could result in unfavorable quarterly earnings comparisons. As a
result, it is difficult to predict our future revenues. Any shortfall in
revenues may materially and adversely affect our business and stock price. You
should not rely on quarter-
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<PAGE> 16

to-quarter comparisons of our operating results as an indication of future
performance. It is possible that our operating results in some future periods
may fall below the expectations of analysts and investors. In that event, the
price of our common stock may decline.

WE FACE DIRECT AND INDIRECT COMPETITION WHICH COULD REDUCE OUR ABILITY TO RETAIN
EXISTING CUSTOMERS, OBTAIN NEW ONES AND EXPAND OUR BUSINESS

Competition among providers of other types of simulated racing and
providers of retail entertainment is significant. Illusion, Inc. and Penske
Racing Centers each operates or provides equipment to one racing facility using
simulated "open wheel" (Formula One or Indy type race cars) racing. While
neither of these competitors has expanded beyond a single facility, if they do
expand in the future we could face direct competition from them. Additionally,
we may experience competition from others who enter the simulated racing market.
We also face indirect competition from other providers of retail entertainment,
such as movie theaters, video arcades, interactive games and theme restaurants.
Although we believe that our entertainment experience competes favorably with
respect to the quality of the simulated racing experience, strong appeal, price
and facility location, many of these competitors have greater resources and
greater name recognition than we do and they may appeal to a broader
demographic. For more detail regarding our competition, see
"Business -- Competition."

INCREASING GOVERNMENT REGULATION OF CORPORATE SPONSORSHIP COULD NEGATIVELY
IMPACT THE MOTORSPORTS INDUSTRY, REDUCE EXPOSURE TO THE NASCAR BRAND NAME AND
LIMIT THE DEMAND FOR OUR RACING EXPERIENCE

Tobacco and alcohol companies provide a significant amount of advertising
and promotional support to racing events, race car drivers and race car owners.
In 1996, the U.S. Food and Drug Administration published regulations that would
substantially restrict tobacco industry sponsorship of sporting events,
including motorsports. The FDA regulations, if ever approved, and any other
legislation, regulations or other initiatives that limit or prohibit
advertisements of tobacco or alcohol products at racing events could adversely
affect the popularity of motorsports, which could reduce exposure to the NASCAR
brand name, decrease demand for our racing experience and negatively affect our
operating results.

The terms of a November 1998 settlement between certain major manufacturers
of cigarettes and smokeless tobacco products and the attorneys general of 46
states, among other things, limit sponsorship of racing events by the
participating manufacturers and substantially eliminate outdoor advertising of
tobacco products and any marketing or distribution of tobacco brand name
merchandise. Domestic and international tobacco advertisers heavily subsidize
certain NASCAR and other racing series and teams and those series and teams may
not find similar sponsorships. The limitations on tobacco company sponsorship
imposed by the settlement and any further limitations imposed on tobacco or
alcohol sponsorship of racing events also could ultimately affect the popularity
of motorsports and the prominence of the NASCAR brand name, which could decrease
demand for our racing experience and negatively affect our operating results.

RISKS RELATED TO THE OFFERING

VOLATILITY IN THE MARKET PRICE OF OUR COMMON STOCK MAY LEAD TO LOSSES BY
INVESTORS AND SECURITIES LITIGATION

There has been no public market for our shares prior to this offering, and
after the offering, an active public market for our shares may not develop. The
trading price of our common stock could be subject to wide fluctuations in
response to a number of factors, including the following:

- quarterly variations in our operating results;

- actual or anticipated announcements of new openings of locations,
products or services by us or other business partners or competitors;

- announcements of technological and other innovations by us or our
competitors;
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- investor perception of our business prospects or the motorsports and
retail entertainment industries in general;

- changes in analysts' estimates of our financial performance;

- general conditions in the retail entertainment and other markets in which
we compete; and

- worldwide economic and financial conditions.

The stock market also has experienced extreme price and volume fluctuations
that have affected the market prices for many rapidly expanding companies. These
fluctuations often have been unrelated to the operating performance of those
companies. Broad market fluctuations and other factors may adversely affect the
market price of our common stock. If the market price of our common stock
experiences significant market volatility, some stockholders may file a class
action lawsuit. We could incur substantial legal costs and our management's
attention could be diverted to defend this type of litigation, even if we are
ultimately successful in our defense. Declines in the market price of our common
stock also could adversely affect employee morale, our ability to attract and
retain qualified employees and our access to additional capital. All of these
factors could negatively impact our business, operating results and financial
condition.

ABSENCE OF DIVIDENDS COULD REDUCE OUR ATTRACTIVENESS TO INVESTORS

Some investors favor companies that pay dividends, particularly in market
downturns. For the foreseeable future, we intend to retain future earnings, if
any, to finance our business operations and do not anticipate paying any cash
dividends with respect to our common stock. Because we may not pay dividends, a
return on this investment likely depends on your ability to sell our stock at a
profit.

INVESTORS WILL SUFFER IMMEDIATE DILUTION

The initial public offering price per share will exceed our net tangible
book value per share. Accordingly, investors purchasing shares in this offering
will incur immediate and substantial dilution of approximately $6.47 in the book
value per share of the common stock from the assumed offering price of $9.00 per
share. Any exercises of outstanding options to purchase common stock will
further dilute existing stockholders.

OUR MANAGEMENT HAS BROAD DISCRETION AS TO THE NET PROCEEDS WE RECEIVE FROM THIS
OFFERING AND, IF WE DO NOT USE THESE PROCEEDS WISELY, INVESTORS IN OUR STOCK
COULD EXPERIENCE A DECREASED RETURN

We intend to use the net proceeds as indicated in "Use of Proceeds."
However, we have not yet determined the actual expenditures and may not be able
to accurately estimate the amounts we will use for each specified purpose. The
actual amounts and timing of these expenditures may vary significantly depending
on a number of factors, including the amount of cash generated by sales of
tickets and merchandise at our racing centers. Depending on future developments
and circumstances, we may use some of the proceeds for uses other than as
described in "Use of Proceeds." Our management will therefore have significant
flexibility in applying the net proceeds of this offering and you will not have
the opportunity, as part of your investment decision, to assess whether the
proceeds are being used appropriately. If we do not use the proceeds in a manner
beneficial to us, our business could suffer and our stock price could decline.

SUBSTANTIAL SALES OF OUR COMMON STOCK IN THE OPEN MARKET BY OUR EXISTING
STOCKHOLDERS COULD DEPRESS THE MARKET PRICE OF OUR COMMON STOCK

A substantial number of shares of our common stock are eligible for resale
in the public market after this offering immediately upon the expiration of
180-day lock-up agreements, subject in many cases to the volume limitations and
other restrictions of Rule 144 under the Securities Act. Sales of our common
stock in the public market following this offering could adversely affect the
market price of our common stock.

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<PAGE> 18

For more detail regarding the number of shares eligible for future sale and the
restrictions on those sales, see "Shares Eligible for Future Sale."

DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE
OR PREVENT A POTENTIAL TAKEOVER, EVEN IF SUCH A TRANSACTION WOULD BE BENEFICIAL
TO OUR STOCKHOLDERS

Provisions of Delaware law and our certificate of incorporation and bylaws
could make more difficult the acquisition of us by means of a tender offer, a
proxy contest, or otherwise. These provisions might discourage our potential
acquisition at a premium over the market price of our common stock and adversely
affect the trading price of our common stock. These provisions also make the
removal of incumbent directors and officers more difficult. For a more detailed
discussion of these anti-takeover provisions, see "Description of Capital
Stock."

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "potential," "predicts," "should" or "will" or the negative of such
terms or other comparable terminology. These statements are only predictions and
involve known and unknown risks, uncertainties and other factors, including the
risks outlined under "Risk Factors," that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In
addition, this prospectus contains forward-looking statements attributed to
third party industry sources relating to their estimates regarding the growth of
motorsports, NASCAR racing and Internet use. You should not place undue reliance
on these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform such statements to actual results, unless required
by law.

USE OF PROCEEDS

The net proceeds to us from the sale of the 4,500,000 shares of common
stock we are offering will be approximately $36,665,000, at an assumed initial
public offering price of $9.00 per share after deducting estimated underwriting
discounts and commissions and estimated offering expenses. The net proceeds to
us would increase to $42,314,750 if the underwriters were to exercise their
over-allotment option in full.

We intend to use the net proceeds of this offering for:

- expansion of the number of our racing centers;

- enhancement of our hardware and software technology and basic
infrastructure;

- promotion of our racing centers;

- additional online content and services to our Web site;

- repayment of $3.0 million of loans to certain investors at a weighted
average interest rate of 10.3% per annum with maturity dates in December
1999 and January 2000; and

- working capital and other general corporate purposes.

Pending this usage, we will invest the net proceeds in short-term,
interest-bearing, investment grade securities.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock and
do not anticipate paying such cash dividends in the foreseeable future. We
currently anticipate that we will retain all of our future earnings for use in
the development and expansion of our business and for general corporate
purposes. Any determination to pay dividends in the future will be at the
discretion of our board of directors and will depend upon our results of
operation, financial condition and other factors as the board of directors, in
its discretion, deems relevant.

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CAPITALIZATION

The following table sets forth our capitalization as of August 1, 1999. The
Pro Forma column gives effect to the conversion of each outstanding share of
mandatorily redeemable convertible preferred stock into a share of common stock
upon the closing of this offering. The Pro Forma As Adjusted column gives effect
to the receipt of the net proceeds from the sale of 4,500,000 shares of common
stock at an initial public offering price of $9.00 per share, the application of
$3.0 million of such net proceeds to repay loans to certain investors and our
issuance of $5.5 million of subordinated convertible promissory notes in
September 1999. This table should be read in conjunction with our Financial
Statements and the related notes included elsewhere in this prospectus. Also see
"Use of Proceeds" and "Transactions with Related Parties" for additional
information.

<TABLE>
<CAPTION>
(UNAUDITED)
AS OF AUGUST 1, 1999
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C> <C>
Long-term portion of capital leases...................... $ 1,969 $ 1,969 $ 1,969
Long-term debt........................................... 5,054 5,054 10,554
Mandatorily redeemable convertible preferred stock,
$0.001 par value: 20,000,000 shares authorized;
7,887,799 shares issued and outstanding, actual; no
shares issued and outstanding, pro forma and as
adjusted............................................... 24,370 -- --
-------- -------- -------
Stockholders' equity (deficit):
Preferred stock, $.001 par value: 500,000 shares
authorized and no shares issued and outstanding, pro
forma and pro forma as adjusted..................... -- -- --
Common stock, $.001 par value: 40,000,000 shares
authorized and 2,815,556 shares issued and
outstanding actual; 10,703,355 shares issued and
outstanding pro forma; 100,000,000 shares authorized
and 15,203,355 shares issued and outstanding as
adjusted............................................ 3 11 15
Additional paid-in capital............................. 3,698 28,060 64,721
Notes receivable from stockholders..................... (247) (247) (247)
Warrants............................................... 2,493 2,493 2,493
Deferred stock compensation............................ (1,121) (1,121) (1,121)
Accumulated deficit.................................... (27,349) (27,349) (27,349)
-------- -------- -------
Total stockholders' equity (deficit)........... (22,523) 1,847 38,512
-------- -------- -------
Total capitalization........................... $ 8,870 $ 8,870 $51,035
======== ======== =======
</TABLE>

This table excludes:

- 1,105,598 shares of our common stock issuable upon the exercise of
options outstanding at a weighted average exercise price of approximately
$1.92 per share;

- warrants to purchase 813,659 shares of our common stock at a weighted
average exercise price of $4.28 per share;

- 369,444 shares of our common stock assuming the conversion of $5.7
million of subordinated convertible promissory notes issued in June 1999;
and

20
<PAGE> 21

DILUTION

Our pro forma net tangible book value as of August 1, 1999 was
approximately $1.8 million or $0.17 per share of common stock. "Net tangible
book value" per share represents the amount of our total tangible assets reduced
by the amount of our total liabilities, divided by the total number of shares of
common stock outstanding, assuming conversion of our outstanding mandatorily
redeemable convertible preferred stock into common stock. After giving effect to
the sale of the 4,500,000 shares of common stock offered by us at an initial
public offering price of $9.00 per share and after deducting underwriting
discounts and commissions and estimated offering expenses, and the adjustments
set forth above, our pro forma net tangible book value as of August 1, 1999
would have been $38.5 million or $2.53 per share of common stock. This
represents an immediate increase in net tangible book value of $2.36 per share
to existing stockholders and an immediate dilution of $6.47 per share to new
investors. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 9.00
Pro forma net tangible book value per share before this
offering............................................... $0.17
Increase attributable to new investors.................... $2.36
-----
Pro forma net tangible book value after this offering....... 2.53
------
Dilution per share to new investors......................... $ 6.47
======
</TABLE>

The following table summarizes on a pro forma basis, as of August 1, 1999,
the differences between the existing stockholders and new investors with respect
to the number of shares of common stock purchased from us, the total
consideration paid to us, and the average price per share paid.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 10,703,355 70.4% $26,522,200 39.7% $ 2.48
New investors.................... 4,500,000 29.6% 40,500,000 60.3% $ 9.00
---------- ----- ----------- ------
Totals........................... 15,203,355 100.0% 67,022,200 100.0%
========== ===== =========== ======
</TABLE>

The information presented with respect to existing stockholders excludes:

- 1,105,598 shares of our common stock issuable upon the exercise of
options outstanding at a weighted average exercise price of approximately
$1.92 per share;

- warrants to purchase 813,659 shares of our common stock at a weighted
average exercise price of $4.28 per share;

- 369,444 shares of our common stock assuming the conversion of $5.7
million of subordinated convertible promissory notes issued in June 1999;
and

To the extent that any of these options, warrants or subordinated
convertible debt are exercised, there will be further dilution to investors.

21
<PAGE> 22

SELECTED FINANCIAL DATA

Our selected financial data set forth below contains only a portion of our
financial statements and should be read in conjunction with the Financial
Statements and related Notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus. In particular, see Notes to Financial Statements for an explanation
of the calculations of earnings per share and per share amounts.

Our statement of operations data for the years ended February 2, 1997,
February 1, 1998 and January 31, 1999, and our balance sheet data as of February
1, 1998 and January 31, 1999, are derived from and are qualified in their
entirety by our Financial Statements that have been audited by
PricewaterhouseCoopers LLP, independent accountants, which are included
elsewhere in this prospectus. Our statement of operations data for the date of
inception to February 4, 1996, the twenty-six week periods ended August 2, 1998
and August 1, 1999 and our balance sheet data as of August 1, 1999 are derived
from our unaudited financial statements. In the opinion of management, the
unaudited consolidated financial statements include all adjustments, consisting
only of normal recurring adjustments that we consider necessary for a fair
presentation of the financial position and results of operations for the period.
The historical results presented below are not necessarily indicative of the
results to be expected for any future fiscal year.

We were incorporated in 1994, but did not begin meaningful operations until
the opening of our first racing center in August 1997. Therefore, we have
combined our selected financial data presented for the period ended January 29,
1995 and our fiscal year ended February 4, 1996.

<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
NOV. 1, 1994 FISCAL YEARS ENDED ENDED
(DATE OF ---------------------------- -----------------
INCEPTION) TO FEB. 2, FEB. 1, JAN. 31, AUG. 2, AUG. 1,
FEB. 4, 1996 1997 1998 1999 1998 1999
------------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Simulator races.............................. -- $ 47 $ 892 $ 4,357 $ 1,218 $ 3,532
Merchandise.................................. -- -- 104 620 148 462
Other........................................ -- -- 56 405 175 175
------- ------- ------- -------- ------- -------
Total revenues....................... -- 47 1,052 5,382 1,541 4,169
Operating expenses:
Cost of revenue.............................. -- -- 359 1,907 496 1,599
Direct expense............................... -- -- 264 1,875 478 1,580
Marketing and licensing...................... -- -- 484 999 456 827
Research and development..................... -- 1,142 1,767 3,043 1,726 703
General and administration................... 1,502 1,476 2,322 5,770 2,478 2,811
Depreciation and amortization................ -- 46 232 957 215 850
Pre-opening expense.......................... -- -- 571 1,571 915 66
Stock-based compensation expense............. -- -- 22 589 124 1,073
------- ------- ------- -------- ------- -------
Total operating expense.............. 1,502 2,664 6,021 16,711 6,888 9,509
------- ------- ------- -------- ------- -------
Operating loss................................. (1,502) (2,617) (4,969) (11,329) (5,347) (5,340)
Interest expense, net.......................... 13 25 223 159 23 1,172
------- ------- ------- -------- ------- -------
Net loss............................. (1,515) (2,642) (5,192) (11,488) (5,370) (6,512)
Accretion of mandatorily redeemable convertible
preferred stock.............................. -- -- (8) (55) (21) (41)
------- ------- ------- -------- ------- -------
Net loss attributable to common
stockholders....................... $(1,515) $(2,642) $(5,200) $(11,543) $(5,391) $(6,553)
======= ======= ======= ======== ======= =======
Basic and diluted net loss per share
attributable to common stockholders.......... $ (8.51) $ (1.65) $ (3.67) $ (5.85) $ (2.95) $ (2.63)
Shares used in computing basic and diluted net
loss per share attributable to common
stockholders................................. 178 1,605 1,417 1,973 1,830 2,489
Pro forma basic and diluted net loss per share
attributable to common stockholders
(unaudited).................................. $ (1.36) $ (0.65)
Shares used in computing pro forma basic and
diluted net loss per share attributable to
common stockholders (unaudited).............. 8,459 10,071
</TABLE>

22
<PAGE> 23

<TABLE>
<CAPTION>
AS OF
----------------------------------------------------
FEB. 4, FEB. 2, FEB. 1, JAN. 31, AUG. 1,
1996 1997 1998 1999 1999
------- ------- ------- -------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 135 $ 879 $ 129 $ 606 $ 2,778
Total assets........................................... 212 1,325 2,765 13,087 16,210
Long-term portion of capital leases and long-term
debt................................................. -- 212 434 2,088 7,023
Total liabilities...................................... 1,724 542 1,691 9,893 14,363
Mandatorily redeemable convertible preferred stock..... -- 4,937 9,200 21,952 24,370
Total stockholders' deficit............................ (1,512) (4,154) (8,126) (18,758) (22,523)
</TABLE>

23
<PAGE> 24

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial
statements and related notes which appear elsewhere in this prospectus. The
following discussion contains forward-looking statements.

OVERVIEW

Prior to 1997, we had minimal revenues, and our operations consisted
primarily of research and development activities. In August 1997, we opened our
first racing center at Mall of America, near Minneapolis, Minnesota. We now have
eight racing centers in operation, which are summarized in the following table:

<TABLE>
<CAPTION>
NUMBER OF
EXISTING SQUARE RACE CAR
LOCATIONS CITY FOOTAGE SIMULATORS OPENING DATE
--------- ---- ------- ---------- --------------
<S> <C> <C> <C> <C>
Mall of America........ Bloomington (Minneapolis), MN 5,899 12 August 1997
Woodfield.............. Schaumburg (Chicago), IL 6,111 12 June 1998
Dallas Galleria........ Dallas, TX 6,651 8 August 1998
Irvine Spectrum........ Irvine, CA 5,218 8 August 1998
Palisades Center....... West Nyack, NY 5,700 12 November 1998
Concord Mills.......... Charlotte, NC 7,865 14 September 1999
Arbor Place............ Douglasville (Atlanta), GA 5,055 10 October 1999
Mall of Georgia........ Buford (Atlanta), GA 5,895 12 October 1999
</TABLE>

We recently reduced the number of race car simulators from fourteen to
eight at our Dallas Galleria racing center and from twelve to eight at our
Irvine Spectrum racing center. These reductions are intended to better match the
number of simulators at each location with the level of mall traffic. In the
future, we plan to open approximately equal numbers of 8-, 10- and 12-simulator
racing centers. As market opportunities arise, we plan to open 14-simulator
racing centers in selected locations, as we did in Concord Mills, North
Carolina. See also, "Business -- Unit Economics" for more information regarding
the unit economics of our racing centers.

Our fiscal year is based on a 52 or 53 week year ending on the Sunday
closest to February 1. When we use the term "fiscal year," it refers to the year
that encompasses the majority of months within the twelve month period. For
example, the fiscal year ended January 31, 1999 is referred to as fiscal year
1998.

Revenues are generated primarily from the sale of tickets for our race car
simulators. The price of a ticket for one of our race car simulators ranges from
$7.00 to $8.00 for members of our drivers club and from $7.50 to $8.50 for
non-members. For an additional $2.50 per race, a person may ride in the
passenger seat. We also sell racing-related merchandise at our racing centers.
Other revenue historically has consisted of group sales, such as parties and
corporate events, and accounts for the balance of total revenues. In the future,
we expect other revenue to also reflect revenues related to our Web site.

24
<PAGE> 25

Revenues from the sale of tickets for our race car simulators and group
sales are recognized when the customer completes a race. Revenues from the sale
of merchandise are recognized at the point of sale.

Cost of revenue includes the cost of merchandise sold and direct racing
center labor and benefits. Cost of revenue also includes a nominal amount of
Internet-related expenses, including development, design and technical support.

Direct expense includes all other expenses incurred directly by a racing
center, such as supplies, racing center marketing, maintenance and repair and
occupancy. Racing center marketing expense includes the costs of implementing
programs such as local media advertising and printing expense.

Marketing and licensing expense reflects corporate marketing expenses and
corporate licensing costs. Corporate marketing expenses include the cost of
developing programs that build our brand as well as customer acquisition and
retention programs. The major components of corporate marketing expenses are
compensation, market research, database support and supplies. Corporate
licensing costs include the amortization of licensing fees for NASCAR, NASCAR
drivers, team owners and race track owners.

Research and development is expensed as incurred. Research and development
expenses consist of racing systems software and hardware development,
compensation and consulting.

General and administration expenses include compensation, travel, supplies,
consulting and occupancy expenses related to our corporate office.

Depreciation and amortization expenses primarily reflect the depreciation
of our race car simulators and our network systems and the amortization of
leasehold improvements in our racing centers. Other components of depreciation
and amortization expenses are corporate headquarters' information systems,
leasehold improvements and equipment.

Pre-opening expense includes the start-up expenses and other expenses
typically incurred during the two-month period prior to the opening of one of
our racing centers. Pre-opening expenses include compensation, training,
recruiting, relocation, travel, occupancy, supplies and marketing.

Historically, we have periodically granted stock options to employees,
consultants, non-employee directors and others and expect to continue to do so
in the future. We use the intrinsic value method of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for our
employee stock options and present disclosure of pro forma information required
under Financial Accounting Standards Board Statement No. 123 or SFAS 123,
"Accounting for Stock-Based Compensation." As of August 1, 1999, we have
recorded stock-based compensation expense related to these options in the total
amount of $2.5 million. This amount represents the difference between the deemed
fair market value of our common stock, as determined for accounting purposes,
and the exercise price of the option at the date of grant. Of this amount,
$22,000 had been amortized in fiscal 1997, $589,000 in fiscal 1998 and
$1,073,000 through the first six months of fiscal 1999. Future stock-based
compensation expense arising out of options granted through August 1, 1999 is
estimated to be $300,000 for the remaining six months of fiscal 1999, $400,000
for fiscal 2000, $200,000 for fiscal 2001, and $100,000 for fiscal 2002. We
amortize the deferred compensation charge monthly over the vesting period of the
underlying option.

Interest expense includes interest on equipment lease lines, as well as
interest from our convertible debt. We have equipment leases, or commitments to
provide equipment leases, of approximately $1.0 million for each existing racing
center, as well as a smaller lease line for corporate furniture and equipment.

We recorded net losses of $2.6 million, $5.2 million, $11.5 million and
$6.5 million in fiscal year 1996, fiscal year 1997, fiscal year 1998 and the
twenty-six week period ended August 1, 1999, respectively. Accordingly, no
provision for income taxes was recorded in any of these periods. The resulting
deferred tax asset, representing such net operating loss carry-forwards, has
been reduced in full by a valuation allowance in accordance with SFAS 109,
"Accounting for Income Taxes."

25
<PAGE> 26

Accretion of mandatorily redeemable preferred stock represents the
amortization of the financing costs associated with the placement of our Series
C preferred stock.

The following table sets forth selected financial data for the periods
indicated as a percentage of total revenues.

<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
FISCAL YEARS ENDED ENDED
------------------- -------------------
FEB. 1, JAN. 31, AUG. 2, AUG. 1,
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Simulator races................................... 84.8% 81.0% 79.0% 84.7%
Merchandise....................................... 9.9 11.5 9.6 11.1
Other............................................. 5.3 7.5 11.4 4.2
-------- -------- -------- --------
Total revenues................................. 100.0 100.0 100.0 100.0
Operating expenses
Cost of revenue................................... 34.1 35.4 32.2 38.3
Direct expense.................................... 25.1 34.8 31.0 37.9
Marketing and licensing........................... 46.0 18.6 29.6 19.8
Research and development.......................... 168.0 56.5 112.0 16.9
General and administration........................ 220.7 107.2 160.8 67.4
Depreciation and amortization..................... 22.0 17.8 14.0 20.4
Pre-operating expense............................. 54.3 29.2 59.4 1.6
Stock-based compensation expense.................. 2.1 11.0 8.0 25.7
-------- -------- -------- --------
Total operating expenses....................... 572.3 310.5 447.0 228.1
-------- -------- -------- --------
Operating loss...................................... (472.3) (210.5) (347.0) (128.1)
Interest expense, net............................... 21.2 3.0 1.5 28.1
-------- -------- -------- --------
Net loss....................................... (493.5) (213.5) (348.5) (156.2)
Net loss attributable to common stockholders... (494.3)% (214.5)% (349.8)% (157.2)%
======== ======== ======== ========
</TABLE>

COMPARISON OF THE TWENTY-SIX WEEK PERIOD ENDED AUGUST 2, 1998 WITH THE
TWENTY-SIX WEEK PERIOD ENDED AUGUST 1, 1999

Revenues. Our revenues increased from $1.5 million in the twenty-six week
period ended August 1, 1998 to $4.2 million in the twenty-six week period ended
August 1, 1999. Simulator races revenues increased from $1.2 million to $3.5
million and merchandise revenues increased from $148,000 to $462,000 due to the
opening of four racing centers in fiscal year 1998. Other revenue, which
consisted entirely of group sales, was approximately equal in the twenty-six
week period ended August 2, 1998 to the twenty-six week period ended August 1,
1999. We recently hired additional personnel to focus on increasing group sales
at each racing center.

Cost of Revenue. Cost of revenue increased from $496,000 in the twenty-six
week period ended August 2, 1998 to $1.6 million in the twenty-six week period
ended August 1, 1999. The increase in cost of revenue was primarily due to the
impact of opening four racing centers in fiscal year 1998. The increase in such
expenses as a percentage of total revenues from 32.2% to 38.3% was primarily due
to a higher ratio of labor costs to total revenues at our Dallas Galleria and
Irvine Spectrum racing centers.

Direct Expense. Direct expense increased from $478,000 in the twenty-six
week period ended August 2, 1998 to $1.6 million in the twenty-six week period
ended August 1, 1999. The increase in direct

26
<PAGE> 27

expense was primarily due to the impact of opening four racing centers in fiscal
year 1998. The increase in such expenses as a percentage of total revenues from
31.0% to 37.9% was primarily due to a higher ratio of occupancy costs to total
revenues at our Dallas Galleria and Irvine Spectrum racing centers.

Marketing and Licensing. Marketing and licensing expense increased from
$456,000 in the twenty-six week period ended August 2, 1998 to $827,000 in the
twenty-six week period ended August 1, 1999. The increase was primarily due to
an increase in licensing fees paid to NASCAR.

Research and Development. Research and development expense decreased from
$1.7 million in the twenty-six week period ended August 2, 1998 to $703,000 in
the twenty-six week period ended August 1, 1999. The decrease was due to a
reassignment of certain research and development personnel to systems support
and maintenance.

General and Administration. General and administration expense increased
from $2.5 million in the twenty-six week period ended August 2, 1998 to $2.8
million in the twenty-six week period ended August 1, 1999. The increase was due
to higher facilities costs resulting from our relocation to a new corporate
headquarters and the continued addition of personnel and systems to support our
infrastructure.

Depreciation and Amortization. Depreciation and amortization expense
increased from $215,000 in the twenty-six week period ended August 2, 1998 to
$850,000 in the twenty-six week period ended August 1, 1999. The increase was
primarily due to the opening of four racing centers in fiscal year 1998 and to
the addition of corporate leasehold improvements and system costs incurred
during the last half of fiscal year 1998 and the first half of fiscal year 1999.

Pre-Opening Expense. Pre-opening expense decreased from $915,000 in the
twenty-six week period ended August 2, 1998 to $66,000 in the twenty-six week
period ended August 1, 1999. The decrease was primarily due to the development
of three racing centers in the twenty-six week period ended August 2, 1998,
compared to none in the twenty-six week period ended August 1, 1999.

Interest Expense. Interest expense increased from $23,000 in the twenty-six
week period ended August 2, 1998 to $1.2 million in the twenty-six week period
ended August 1, 1999. This increase resulted primarily from interest expense
related to the issuance of common stock warrants in connection with short-term
promissory notes.

COMPARISON OF FISCAL YEAR ENDED FEBRUARY 1, 1998 WITH FISCAL YEAR ENDED JANUARY
31, 1999

Revenues. Our revenues increased from $1.1 million in the fiscal year 1997
to $5.4 million in the fiscal year 1998. Simulator races revenues increased from
$892,000 to $4.4 million, merchandise revenues increased from $104,000 to
$620,000 and other revenue increased from $56,000 to $405,000. The increases
were due to opening four racing centers in fiscal year 1998.

Cost of Revenue. Cost of revenue increased from $359,000 in fiscal year
1997 to $1.9 million in fiscal year 1998. The increase was due to opening four
racing centers in fiscal year 1998. The increase in cost of revenue as a
percentage of total revenues from 34.1% to 35.4% was primarily due to a higher
ratio of labor costs to total revenues at our Dallas Galleria and Irvine
Spectrum racing centers.

Direct Expense. Direct expense increased from $264,000 in fiscal year 1997
to $1.9 million in fiscal year 1998. The increase was due to opening four racing
centers in fiscal year 1998. The increase in such expenses as a percentage of
total revenue from 25.1% to 34.8% was primarily due to a higher ratio of
occupancy costs to total revenues at our Dallas Galleria and Irvine Spectrum
racing centers.

Marketing and Licensing. Marketing and licensing expense increased from
$484,000 in fiscal year 1997 to $1.0 million in fiscal year 1998. The increase
was due to additional marketing personnel and an increase in the number of
licensing agreements with NASCAR drivers, team owners and race track owners.

27
<PAGE> 28

Research and Development. Research and development expense increased from
$1.8 million in fiscal year 1997 to $3.0 million in fiscal year 1998. The
increase was due to additional personnel engaged in research and development
activities.

General and Administration. General and administration expense increased
from $2.3 million in fiscal year 1997 to $5.8 million in fiscal year 1998. The
increase was due to higher facilities costs resulting from our relocation to a
new corporate headquarters and the continued addition of personnel and systems
to support our infrastructure.

Depreciation and Amortization. Depreciation and amortization expense
increased from $232,000 in fiscal year 1997 to $1.0 million in fiscal year 1998.
The increase was primarily due to opening four racing centers in fiscal year
1998 and additional leasehold improvements and system costs incurred during
fiscal year 1998.

Pre-Opening Expense. Pre-opening expense increased from $571,000 in fiscal
year 1997 to $1.6 million in fiscal year 1998. The increase resulted primarily
from more racing centers being opened in fiscal year 1998 than in the preceding
fiscal year.

Interest Expense. Interest expense decreased from $223,000 in fiscal year
1997 to $159,000 in fiscal year 1998. This decrease resulted primarily from a
lesser amount of short-term promissory notes outstanding in fiscal year 1998
when compared to fiscal year 1997.

COMPARISON OF FISCAL YEAR ENDED FEBRUARY 2, 1997 WITH FISCAL YEAR ENDED FEBRUARY
1, 1998

We have not included a comparison of fiscal year ended February 2, 1997
with the fiscal year ended February 1, 1998 because the results of the fiscal
year ended February 2, 1997 represent a relatively limited amount of operating
activity.

SEASONALITY

28
<PAGE> 29

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth selected statement of operations data for
the quarters indicated below in dollars and as a percentage of revenues. This
data has been derived from our unaudited financial statements and is not
necessarily indicative of the results that may be expected for future periods.
In our opinion, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of our financial position and results of
operations for such period have been included.

<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------
MAY 3, AUGUST 2, NOVEMBER 1, JANUARY 31, MAY 2, AUGUST 1,
1998 1998 1998 1999 1999 1999
------- --------- ----------- ----------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Simulator races................ $ 578 $ 640 $ 1,362 $ 1,777 $ 1,893 $ 1,639
Merchandise.................... 49 99 166 306 226 236
Other.......................... 78 97 110 120 95 80
------- ------- ------- ------- ------- -------
Total revenues......... 705 836 1,638 2,203 2,214 1,955
Operating expenses
Cost of revenue................ 181 315 662 749 783 816
Direct expense................. 161 317 612 785 809 771
Marketing and licensing........ 202 254 300 243 375 452
Research and development....... 643 1,083 669 648 379 324
General and administration..... 873 1,605 1,574 1,718 1,511 1,300
Depreciation and
amortization................ 96 119 308 434 423 427
Pre-opening expense............ 196 719 490 166 -- 66
Stock-based compensation
expense..................... 27 97 267 198 388 685
------- ------- ------- ------- ------- -------
Total operating
expenses............. 2,379 4,509 4,882 4,941 4,668 4,841
------- ------- ------- ------- ------- -------
Operating loss................... (1,674) (3,673) (3,244) (2,738) (2,454) (2,886)
Interest expense, net............ 12 11 40 96 188 984
------- ------- ------- ------- ------- -------
Net loss....................... (1,686) (3,684) (3,284) (2,834) (2,642) (3,870)
Net loss attributable to common
stockholders................ $(1,693) $(3,698) $(3,300) $(2,852) $(2,662) $(3,891)
======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL
REVENUES:
Revenues
Simulator races................ 82.0% 76.6% 83.2% 80.7% 85.5% 83.8%
Merchandise.................... 7.0 11.8 10.1 13.9 10.2 12.1
Other.......................... 11.1 11.6 6.7 5.4 4.3 4.1
------- ------- ------- ------- ------- -------
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0
Operating expenses
Cost of revenue................ 25.7 37.7 40.4 34.0 35.4 41.7
Direct expense................. 22.8 37.9 37.4 35.6 36.5 39.4
Marketing and licensing........ 28.7 30.4 18.3 11.0 16.9 23.1
Research and development 91.2 129.5 40.8 29.4 17.1 16.6
General and administration..... 123.8 192.0 96.1 78.0 68.2 66.5
Depreciation and
amortization................ 13.6 14.2 18.9 19.7 19.1 21.8
Pre-operating expense.......... 27.8 86.0 29.9 7.5 0.0 3.4
Stock-based compensation
expense..................... 3.8 11.6 16.3 9.0 17.5 35.0
------- ------- ------- ------- ------- -------
Total operating
expense.............. 337.4 539.4 298.0 224.3 210.9 247.6
======= ======= ======= ======= ======= =======
Operating loss................... (237.4) (439.4) (198.0) (124.3) (110.09) (147.6)
Interest expense, net............ 1.7 1.3 2.4 4.4 8.5 50.3
------- ------- ------- ------- ------- -------
Net loss....................... (239.1) (440.7) (200.5) (128.6) (119.4) (197.9)
Net loss attributable to common
stockholders................ (240.1)% (442.3)% (201.5)% (129.5)% (120.2)% (199.0)%
======= ======= ======= ======= ======= =======
</TABLE>

29
<PAGE> 30

Simulator race revenues increased during the quarters ended August 2, 1998,
November 1, 1998 and January 31, 1999 primarily due to the opening of our
Woodfield racing center in June 1998, our Dallas Galleria and Irvine Spectrum
racing centers in August 1998, and our Palisades racing center in November 1998.
Simulator races revenues increased in the quarter ended May 2, 1999 primarily
due to our Palisades racing center being in operation for the full three months
of the quarter versus only two months in the preceding quarter. Simulator races
revenues declined in the quarter ended August 1, 1999 due to a seasonal decrease
in mall traffic.

Merchandise revenues increased in each of the quarters through the quarter
ended January 31, 1999 primarily due to the opening of our racing centers at
Woodfield in June 1998, Dallas Galleria and Irvine Spectrum in August 1998 and
Palisades in late November 1998. Merchandise revenues also increased in the
quarter ended January 31, 1999 due to a seasonal increase in mall traffic during
the holiday period. Merchandise revenues declined in the quarters ended May 2,
1999 and August 1, 1999 primarily due to seasonal decreases in mall traffic
during the first half of our fiscal year.

Other revenues increased in each of the quarters through the quarter ended
January 31, 1999 primarily due to increases in group sales as we opened
additional racing centers during these periods. Other revenues declined in the
quarters ended May 2, 1999 and August 1, 1999 due to seasonal decreases in mall
traffic during the first half of our fiscal year.

The following is a quarterly comparison of Mall of America's revenues for
the last full fiscal quarters, our only racing center that has been open for a
substantial period of time. Our revenues for the Mall of America racing center
decreased by 1.2% for the quarter ended January 1999 compared to the quarter
ended January 1998. Our revenues decreased by 15.0% for the quarter ended April
1999 compared to the quarter ended April 1998. However, included in our revenues
for the quarter ended April 1998 was the impact on Mall of America's foot
traffic from a state championship sporting event in March 1998. Our revenues
decreased by 1.1% for the quarter ended July 1999 to the quarter ended July
1998. We have not included the change in our revenues for the quarter ended
October 1998 in comparison to the quarter ended October 1997 since Mall of
America was not open for the full quarter ended October 1997. This information
for Mall of America is based on a limited history of operations. Accordingly,
these results may not be indicative of future results. Moreover, because each
retail mall may experience different traffic patterns and seasonal fluctuations,
these results may not be indicative of the results we experience at any other
racing center.

Cost of revenue as a percentage of total revenues increased in the quarter
ended August 2, 1998 primarily due to increased labor costs related to the
opening of our Woodfield racing center. Cost of revenue decreased as a
percentage of total revenues in the quarter ended January 31, 1999 primarily due
to a lower ratio of labor costs to total revenues and the sale of higher margin
merchandise. Cost of revenue increased in absolute dollars and as a percentage
of revenues in the quarter ended August 1, 1999 due to expenses related to the
development of our Web site.

Direct expense as a percentage of total revenues increased in the quarter
ended August 2, 1998 primarily due to increased occupancy costs related to the
opening of our Woodfield racing center.

Marketing and licensing expense has varied from quarter to quarter due to
the timing of various media and other incentive programs. The increase in the
first quarter of 1999 is due to the increase in license payments under our
agreement with NASCAR.

Research and development expense increased in the quarter ended August 2,
1998 due to a one-time technology license expenditure. The decrease in the
quarter ended May 2, 1999 is due to a reassignment of certain research and
development personnel to systems support and maintenance.

General and administration expense increased in the quarter ended August 2,
1998 primarily due to the expenses for management information systems and the
production of customer training videos. The decrease in the quarters ended May
2, 1999 and August 1, 1999 resulted primarily from better management of our
labor costs.

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LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations primarily from the private
placement of debt and equity securities. In the period from November 1, 1994,
our date of inception, through fiscal year 1996, we received net proceeds of
$1.6 million from the issuance of mandatorily redeemable convertible preferred
stock. During fiscal year 1997, we received net proceeds of $107,000 from the
issuance of additional series of mandatorily redeemable convertible preferred
stock. These proceeds were partially offset by the repayment of capital leases,
from working capital uses and from the capital needed to open our first racing
center. During fiscal year 1998, we received net proceeds of $12.9 million from
the issuance of mandatorily redeemable convertible preferred stock, $1.2 million
from the issuance of notes payable and $82,000 from the issuance of common
stock. These proceeds were partially offset by repayments of notes payable and
capital leases, working capital uses and from the capital needed to open four
additional racing centers. During the first half of fiscal year 1999, we have
received $9.9 million from the issuance of notes payable, $2.4 million from the
issuance of mandatorily redeemable convertible preferred stock and $77,000 from
the issuance of common stock. These proceeds have been used for the repayment of
notes payable and capital leases, working capital uses and the investment
necessary for the development of racing centers we currently have in process. As
of August 1, 1999, we had $2.8 million of cash and cash equivalents.

Our operating activities used cash of $4.3 million, $6.7 million and $6.6
million in fiscal year 1997, fiscal year 1998 and the twenty-six weeks ended
August 1, 1999, respectively. Cash used in operations during fiscal year 1997,
fiscal year 1998 and the twenty-six week period ended August 1, 1999 was
primarily a result of our net loss, partially offset by depreciation and
amortization, stock-based compensation charges, changes in working capital and
warrant amortization.

Cash used in investing activities in fiscal year 1997, fiscal year 1998 and
the twenty-six weeks ended August 1, 1999 was $1.6 million, $6.4 million and
$1.0 million, respectively. The investing activities consisted primarily of cash
paid for purchases of equipment and leasehold improvements. These investments
were partially offset by the proceeds from the sale and leaseback of equipment
at our racing centers, such as racing simulators and systems, furniture and
fixtures. See also, "Business -- Unit Economics."

As of August 1, 1999, we had $2.8 million in cash and cash equivalents.
Current maturities of our capital leases as of August 1, 1999 were approximately
$1.1 million. We currently anticipate that the net proceeds from this offering
will be sufficient to meet our presently anticipated working capital, capital
expenditure and business expansion requirements through the first half of 2001.
At that time, we believe our business will generate adequate cash from
operations to fund working capital and our business expansion needs. However our
future capital needs will depend upon numerous factors, including the success of
our racing centers and competing technological and market developments. We may
be required to raise additional funds through public or private financing,
strategic relationships or other arrangements. We cannot guarantee that
additional funding, if needed, will be available on terms acceptable to us, or
at all.

On June 30, 1999, we entered into a secured subordinated convertible note
purchase agreement, issuing three convertible subordinated notes in the amounts
of $2.3 million, $2.3 million and $1.1 million. The notes accrue interest at
8.5%, payable semiannually beginning July 1, 2000. The notes are due on June 30,
2002. At the option of the holders, the notes convert into shares of our common
stock at a conversion price of $15.00 per share. The notes convert automatically
if either the price per share in this offering is greater than $15.00 per share
or if the price of our common stock exceeds $20.00 per share for any four week
period following this offering. If we are involved in an acquisition transaction
resulting in all of our stockholders before the transaction owning less than 50%
of the voting securities of the surviving entity after the transaction, the
holders of these notes may request that we repurchase their notes for 101% of
the face amount of the note, plus any unpaid interest accrued on the notes to
the date of repurchase.

On September 9, 1999, we entered into a second subordinated convertible
note and warrant purchase agreement, issuing convertible subordinated notes in
the amounts of $2.0 million, $500,000, $500,000, $1.0 million and $1.5 million.
We paid each holder a placement fee of one percent of the face value of

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their note. The notes accrue interest at 12.0% per annum, payable on maturity.
The notes are due on March 9, 2001. At the option of the note holders, the notes
convert into shares of our common stock at a conversion price of $10.00 per
share. If we are involved in an acquisition transaction resulting in all of our
stockholders before the transaction owning less than 50% of the voting
securities of the surviving entity after the transaction, the holders of these
notes may request that we repurchase their notes for 101% of the face amount of
the note, plus any unpaid interest accrued on the notes to the date of
repurchase. Concurrent with the issuance of these notes, we issued warrants to
the holders to purchase an aggregate of 68,750 shares of common stock at an
exercise price of $10.80 per share. The warrants terminate five years after the
date we issued the notes.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments." We had no
holdings of derivative financial or commodity instruments at August 1, 1999.
However, we are exposed to financial market risks, including changes in interest
rates. Our revenue and capital spending is transacted in U.S. dollars. We have
had limited funds available for investment other than in our operations. We
believe that the fair value of our investment portfolio, if any, or related
income would not be significantly impacted by increases or decreases in interest
rates due mainly to the short-term nature of our investment portfolio and amount
of funds available for investment through August 1, 1999.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Investments and Hedging Activities." The statement
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. To date, we have not entered into any
derivative financial instruments or hedging activities. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999.

In June 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for
Internally Developed Software." SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use. The impact of
adopting SOP 98-1, which is effective for us in fiscal 1999, is not expected to
have a significant effect on its financial condition and results of operations.

In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." This standard requires companies to expense the costs of
start-up activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. We have expensed
the cost of start up activities in the accompanying financial statements as
incurred.

YEAR 2000 COMPLIANCE

We are heavily dependent upon complex computer software and systems for our
operations. Many existing computer programs and systems use only two digits to
identify a year in the date field. These programs and systems were designed and
developed without considering the impact of the upcoming change in the century.
If not corrected, many computer applications could fail or create erroneous
results by or at January 1, 2000.

State of Readiness

We developed almost all of our racing center systems internally and we
believe them to be Year 2000 compliant. We have tested the Year 2000 compliance
on all of our major racing center systems and

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observed they all continued to function properly. Although we have not tested
our credit card processor readiness we believe this risk is nominal due to the
fact that most of our business is conducted on a cash basis.

In addition, all of our material operating software and our information
technology and other systems, including financial and point-of-sale systems and
network routers and servers, were developed or are supported by third-party
vendors. Most of our third-party vendors have provided written warranties and
assurances that the software will not be affected by the change in century. We
are currently in the process of obtaining assurances from our remaining
third-party vendors. We have been communicating with these third parties to
coordinate Year 2000 readiness. The responses we have received to date have
indicated that steps are currently being taken to prepare for the year 2000.

In addition to the operating systems and software we use directly, our
operations are also dependent upon the performance of operating software and
systems used by our significant service providers. We have contacted most of our
other significant service providers and have obtained written assurances from
some of them that the relevant operating software and systems are Year 2000
compliant or will be by the end of the fourth calendar quarter of 1999. We are
monitoring the status of all our significant service providers' Year 2000
compliance efforts to minimize the risk of any material adverse effect on our
operations resulting from compliance failures. However, we cannot assure you
that our service providers have, or will have operating software and systems
that are Year 2000 compliant.

We have developed contingency plans to be implemented if our efforts to
identify and correct Year 2000 problems affecting our operating systems and
software are not effective. Depending on the systems and software affected,
these plans include:

- accelerated replacement of affected equipment or software;

- short to medium-term use of backup equipment and software;

- increased work hours for our personnel; and

- use of contract personnel to correct on an accelerated schedule any Year
2000 problems that arise or to provide manual workarounds for information
systems.

Our implementation of any of these contingency plans could cause a delay in
the delivery of key components required to build and open new racing centers,
which could cause our operating results to fluctuate.

Costs

We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, we have not incurred
any material costs related to Year 2000 compliance activities. We do not believe
that future costs of remediation will have a material effect on our financial
condition or results of operations.

Risks

The failure of our software or systems to be Year 2000 compliant could
prevent us from being able to service and make sales to our customers, could
cause users of our Web site to consider alternative Web content and community
providers, or could disrupt our financial and management controls and reporting
systems. Any such scenario, if not quickly remedied, would materially and
adversely affect us.

We are also dependent on the Internet and certain T-1 or external ISDN
communication systems, which may have risks that cannot be determined yet.

To date, we have not identified any significant exposure to Year 2000
problems outside of the information technology issues identified above.

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BUSINESS

The following description of our business should be read in conjunction
with the information included elsewhere in this prospectus. The description
contains forward-looking statements.

OVERVIEW

INDUSTRY BACKGROUND

Growth and Popularity of the Motorsports Industry

Motorsports is currently one of the largest and fastest growing spectator
sports in the United States. An ESPN poll indicates that more than 80 million
people in the United States have an interest in auto racing, while Goodyear
reports that more than 17.1 million fans attended an auto racing event in North
America during 1998. This compares with 1998 attendance for the National
Football League of 15.4 million fans and the National Basketball Association of
21.8 million fans. NASCAR racing is the fastest growing motorsports segment in
terms of attendance and media exposure. Attendance at NASCAR Winston Cup events
increased 56.7% from 1993 to 1998, and NASCAR now accounts for more than 50% of
all auto racing attendance.

In recent years, television coverage has increased for NASCAR-related
events. According to Nielsen Media Research, NASCAR's events reached over 126
million estimated households in 1998 and are covered by major broadcast and
cable television networks. Nielsen Media Research estimated that household
viewership of NASCAR's televised Winston Cup events on network television and
cable has increased by 20.8% and 40.0%, respectively, from 1993 to 1997.
Motorsports coverage is currently provided by broadcast and cable television
networks, including ABC, CBS, NBC, ESPN, TBS, TNN and Speedvision, a motorsports
cable network, in addition to regional sports networks. NASCAR has announced
that it will consolidate all television broadcast rights, currently held
individually by each track, for all NASCAR-sanctioned races. We believe this
will further increase media exposure for NASCAR events.

Large corporate advertisers have recognized the growing popularity of
motorsports and the brand-loyalty of motorsports fans. According to Performance
Research, NASCAR fans are more sponsor-loyal purchasers than fans of other
sports. Accordingly, more than 80 Fortune 500 companies are NASCAR sponsors. The
IEG Sponsorship Report indicates that in 1999 corporate sponsors are expected to
spend an estimated $1.2 billion, or 24% of all sports sponsorship dollars, on
motorsports marketing programs in the United States. We believe that interest in
NASCAR sponsorship will continue to grow.

The growth and popularity of motorsports is expected to continue, in part
due to the recent openings of new speedways in the Los Angeles, Dallas/Ft. Worth
and Las Vegas metropolitan areas. Plans for the development of additional
speedways have been announced for the Chicago, Denver, Kansas City and New York
metropolitan areas. These new speedways are bringing NASCAR and other major
motorsports events to new geographic markets that have larger population bases
than many of the traditional NASCAR

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venues. We believe that the increased accessibility of major motorsports events
in these previously untapped markets will stimulate continued growth in the
motorsports industry by creating new racing fans.

The Growth of Retail Entertainment Opportunities

Retail entertainment includes destinations such as theaters, restaurants,
large scale entertainment complexes and other venues that serve customers'
demand for unique entertainment experiences. Traditionally, many of these
destinations have involved passive activities in which little or no
interactivity is required of the participants. However, we believe many
consumers are willing to pay a premium for entertainment that provides a level
of sophistication and interactivity greater than that which can be achieved at
home or through passive entertainment experiences. We believe the most
successful retail entertainment formats will:

- have a strong brand name identity;

- provide an attractive social environment;

- offer unique experiences with strong appeal;

- draw from foot traffic; and

- build repeat business.

We believe that retail entertainment has become an integral part of
enhancing the overall mall experience. Leading mall owners and developers are
continuing to add a significant retail entertainment component to each mall in
order to attract destination traffic, appeal to a broader demographic and
increase the frequency and extend the duration of visits. As a result, we
believe that high quality retail entertainment formats will generally be able to
obtain high profile locations within malls under favorable lease terms.

The Growth of the Internet and Online Communities

The Internet has emerged as a global mass medium, enabling users to access
and share information, socialize and conduct business online. International Data
Corporation estimates that there were 142 million Internet users worldwide at
the end of 1998 and anticipates that the number will increase to approximately
502 million users by the end of 2003. According to Jupiter Communications, the
number of U.S. households connected to the Internet is expected to increase from
37% in 1998 to 63% by the end of 2003.

Online communities are becoming a popular way for people with similar
interests to locate and interact with each other. Communities such as GeoCities,
theglobe.com and Xoom.com attract millions of people with similar interests. We
believe people tend to visit these sites more frequently and stay longer than at
most other types of Web sites because of the content and interactive experience
they provide. We also believe companies will increasingly use community-based
Web sites to attract and retain customers.

We did not record any revenues related to our Web site in our most recent
fiscal year. However, we believe that the current growth in the number of
Internet users and our efforts to expand our marketing campaign through the
enhancement of our Web site may lead to a growth in the use of our Web site by
our customers and potentially lead to the generation of Internet revenues.

NASCAR SILICON MOTOR SPEEDWAY

We believe our NASCAR Silicon Motor Speedway provides a unique
entertainment experience. The key factors of our simulated racing experience
are:

Racing So Real You Can Feel It

Our NASCAR Silicon Motor Speedway racing centers offer realistic and
interactive simulated NASCAR racing. We provide this authentic racing experience
for the customer by simulating the key aspects of a NASCAR event: the race
tracks, race cars, sights, sounds and competition. Each of our race
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car simulators has graphics corresponding to a real NASCAR team, allowing our
customers to choose from race cars driven by Dale Earnhardt, Jeff Gordon, Dale
Jarrett, Rusty Wallace and others. Our race car simulators have motion platforms
that move in a variety of different directions, simulating the actual motion of
a NASCAR race car. The cockpit of each is nearly identical to that of a NASCAR
race car, with the same gauges, gear shift, pedals and steering wheel. Seated in
our race car simulator, the driver is surrounded by 135 degrees of video screens
and has a video rearview mirror, while the passenger has a dashboard video
display which can be easily switched between different views. Our racing centers
also include pit areas, grandstands, a track announcer and video displays for
spectators.

Strong Appeal

We design our racing centers to provide a fun, interactive entertainment
experience in an environment that is both social and competitive. Our racing
centers include pit areas and grandstands designed to offer racers and
spectators locations in which to socialize with friends and other competitors.
We believe that the social aspects of our racing centers greatly enhance the
entertainment value for our customers. In addition to the many individuals and
groups that visit our racing centers purely for a fun entertainment experience,
many customers view our racing simulation as a competitive sport. Many of our
customers cite challenge and competition as primary reasons for returning to our
centers. Each racing center has leagues and competitions that appeal to these
customers and allow them to compete against other drivers. We believe that by
offering a racing experience that is both social and competitive, we will be
able to continue to attract new customers and retain a significant base of
repeat customers. In fact, since September 1997, we have sold 74% of our races
to repeat customers.

High Profile Locations

To capitalize on our strong appeal, we place our racing centers in high
profile, heavy traffic retail locations. We believe our racing centers appeal to
destination customers as well as mall traffic that is drawn to our visually and
audibly exciting environment. Our racing centers are currently located in the
Mall of America in Bloomington (Minneapolis), Minnesota; Dallas Galleria in
Dallas, Texas; Woodfield in Schaumburg (Chicago), Illinois; Irvine Spectrum in
Irvine, California; Palisades Center in West Nyack, New York; Concord Mills in
Charlotte, North Carolina; and Arbor Place and Mall of Georgia, both near
Atlanta, Georgia. We believe that it is important to locate in retail locations
with characteristics such as strong sales per square foot, state-of-the-art
movie theaters, casual dining, high traffic food courts and strong retail
tenants. We believe there are many retail entertainment locations such as
shopping malls and entertainment centers with high traffic and favorable
demographics where we can locate our racing centers.

Premium Motorsports Merchandise

Each of our racing centers offers high quality, racing-related merchandise.
Examples include branded hats, t-shirts and die-cast collectible cars featuring
Dale Earnhardt, Jeff Gordon, Dale Jarrett, Rusty Wallace and others. We also
offer a variety of NASCAR merchandise and NASCAR Silicon Motor Speedway branded
merchandise.

SMSonline.com

Our Web site is designed to build upon the community of our racing
customers and extend our racing experience into the home or office. We provide
our customers with an intuitive, easy to use environment through which they can
access a range of information and services online including:

- Reservations -- Customers are able to book reservations, thereby
eliminating possible wait times at our racing centers.

- Race results -- Customers are able to get a more detailed version of the
race results they receive at the racing centers to further analyze their
performance.

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- Standings -- We recognize winners of local and national competitions and
provide the standings of ongoing leagues and competitions.

- Racing Center Information -- We provide the hours of operations and
locations of each racing center, a schedule of events and other
information.

Key Strategic Relationships

We have established strategic relationships with companies and individuals
that help us provide a realistic racing simulation, obtain high profile real
estate locations and offer NASCAR-themed merchandise. For a more detailed
description of the following licenses, see "-- Licensing Agreements."

- NASCAR. We have entered into a licensing agreement with NASCAR, under
which we have the exclusive right to use the NASCAR name for our
simulated racing experience. We use the NASCAR name on our racing center
signage, selected merchandise and our Web site. Use of the NASCAR name
provides us with immediate name recognition and credibility and increases
the authenticity of our racing experience.

- NASCAR DRIVERS. We have entered into licensing agreements with several
leading NASCAR drivers that provide for scheduled appearances by the
drivers at our racing centers. We utilize the driver appearances to
create additional excitement at our grand openings and other racing
center events. These drivers include Dale Earnhardt, Dale Earnhardt, Jr.,
Jeff Gordon, Kenny Irwin, Dale Jarrett, Bobby Labonte, Jeremy Mayfield,
Rusty Wallace and Michael Waltrip.

- TEAM OWNERS AND RACE TRACK OWNERS. We have also established relationships
with team owners and two race track owners. These relationships allow us
to authentically replicate the look of the team owners' cars and selected
tracks in our racing centers and in our racing simulations. In addition
to relationships with race track owners Speedway Motorsports and Richmond
International Raceway, we have relationships with the following team
owners: Dale Earnhardt, Inc., Penske Racing South, Richard Childress
Racing, Eastman Kodak Company, Hendrick Motorsports, Roush Racing, Joe
Gibbs Racing through Redline Sports Marketing, Wood Brother Racing, JG
Motorsports and Robert Yates Racing.

- SIMON PROPERTY GROUP, INC. We have a strategic relationship with Simon
Investors LLC, whose principals are affiliated with Simon Property Group,
Inc. In particular, Simon Property Group has assisted us in site
selection for our racing centers and has notified us of available sites
from its portfolio of properties.

- ACTION PERFORMANCE COMPANIES, INC. We have a strategic relationship with
Action Performance Companies, Inc. that provides us with selected
merchandise and licensed apparel. This relationship allows us to access
all of Action Performance's top product lines including NASCAR-themed
merchandise such as t-shirts, hats and die-cast cars.

SILICON ENTERTAINMENT STRATEGY

Our objective is to be the leading provider of simulated NASCAR racing. We
intend to achieve this by:

Expanding the Number of Our Racing Centers

We plan to accelerate the roll-out of our racing centers, focusing on
metropolitan areas throughout the United States with moderate to upper income
levels and high population densities that have shown a substantial interest in
NASCAR racing. We currently operate eight racing centers and expect to open 20
to 30 additional racing centers over the next 24 months. Of these, we have
signed leases for seven sites and are currently negotiating leases for another
three. Of these ten sites, five are currently under construction, three are
being designed and two are in pre-design.

We currently have one 14-simulator racing center, four 12-simulator racing
centers, one 10-simulator racing center and two 8-simulator racing centers. In
the future, we plan to open an approximately equal

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number of 8-, 10- and 12-simulator racing centers. As market opportunities
arise, we plan to open 14-simulator racing centers in selected locations, as we
did in Concord Mills, North Carolina.

Continuing to Develop SMSonline.com

We intend to enhance SMSonline.com and build upon the community of our
racing customers by providing online opportunities to discuss our competitions
and racing experiences and by offering NASCAR driver testimonials and customer
endorsements of our racing experience.

We also intend to offer our customers who purchase our proprietary software
and subscribe to our online services, the ability, from a personal computer, to:

- download replays of races;

- customize their car set-up;

- view live racing at the racing centers; and

- race against customers at the racing centers.

Continuing to Enhance Our Racing Experience

We have spent approximately $6.7 million since the beginning of fiscal year
1996 developing and refining our technology and we expect to spend approximately
$1.5 to $2.0 million per year continuing to develop our technology. In
particular, we are working on projects that add features to our racing
experience and extend it to the Internet. Some of these projects currently under
development are:

- customized car set-up in our racing centers and on SMSonline.com;

- real-time racing between multiple racing centers;

- incorporation of additional race tracks when licensed;

- sale of replays of races on videotapes or through a video download on
SMSonline.com;

- instant replays of races; and

- communication during a race between drivers and racing center spectators.

Leveraging Strategic and Working Relationships

We intend to continue to leverage our key relationships with NASCAR, NASCAR
drivers, team owners, race track owners, Simon Property Group and Action
Performance Companies to help us provide a realistic racing simulation, secure
high profile real estate locations and offer NASCAR-themed merchandise.

We intend to continue to leverage our relationship with NASCAR. In
particular, we expect NASCAR to continue to incorporate the NASCAR Silicon Motor
Speedway name into selected marketing promotions. We also intend to leverage our
relationship with NASCAR to gain exposure on various motorsports-related
television programming, and to enter into sponsorship agreements with selected
NASCAR sponsors.

We intend to continue to leverage our relationships with NASCAR drivers,
team owners and race track owners to incorporate additional drivers, cars and
tracks into our racing experience and instructional and promotional materials.
We also plan to continue the use of driver appearances to generate additional
business and media coverage at our racing centers. We intend to use our team of
NASCAR drivers to advise us on enhancing our technology to ensure authentic
simulator handling and a realistic racing experience.

We believe that relationships with key mall property owners such as Simon
Property Group, The Mills Corporation, General Growth Properties and Pyramid
Management Group will offer us opportunities

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to continue to secure attractive racing center sites. We intend to become
involved at an early stage in the development of new malls so that the design of
our sites will be incorporated into these malls. We also believe that our
continued relationships with merchandise suppliers such as Action Performance
will help us to improve merchandise selection and sales.

OUR RACING EXPERIENCE

After buying a ticket for between $7.00 and $8.50 and reserving a race
time, a customer goes to our training room and is shown, via video presentation,
the basics of racing in our race car simulators by our team of leading NASCAR
drivers. After training, each customer races for approximately six minutes on a
simulated race track, such as Atlanta Motor Speedway, Lowes Motor Speedway
(Charlotte) and Richmond International Raceway. The race is a real-time
interactive experience where our customers compete in a field of 32 cars against
each other and computer-generated cars, known as drones. Actions taken by any
driver impact the racing environment of the other drivers. We offer each driver
the opportunity to have a crew member in the passenger seat who can use a video
screen in the dashboard to assist the driver by spotting other race cars and
following the standings.

After the race, our customers meet in the winner's circle to receive their
race results sheet that includes personalized information on individual lap
time, speeds in the corners, finishing order and other important data. Our
racers often talk about the race and compare their statistics with other
drivers, which leads to significant interaction among the racers and spectators.
This interaction and competition among the drivers, crew and spectators as well
as the challenge of improving upon their race results are key factors causing
many customers to visit our centers repeatedly.

Our racing centers also are designed to draw potential customers into our
centers and to turn them into participating racers. Our racing centers offer a
spectator area including grandstands from which spectators can view races on
large video screens placed throughout the racing center that display various
statistics and views of the race. We believe that the visual and audio
stimulation is important in drawing mall traffic into our centers and in turning
potential customers in the spectator areas into participating racers.

LOCATIONS

The following table summarizes our existing and planned locations:

<TABLE>
<CAPTION>
NUMBER OF
SQUARE RACE CAR
EXISTING LOCATIONS CITY FOOTAGE SIMULATORS OPENING DATE TYPE OF SITE
------------------ ---- ------- ---------- -------------- ------------------------
<S> <C> <C> <C> <C> <C>
Mall of America.......... Bloomington (Minneapolis), MN 5,899 12 August 1997 Super Regional Mall
Woodfield................ Schaumburg (Chicago), IL 6,111 12 June 1998 Regional Mall
Dallas Galleria.......... Dallas, TX 6,651 8 August 1998 Regional Mall
Irvine Spectrum.......... Irvine, CA 5,218 8 August 1998 Entertainment Center
Palisades Center......... West Nyack, NY 5,700 12 November 1998 Super Regional Mall
Concord Mills............ Charlotte, NC 7,865 14 September 1999 Value Entertainment Mall
Arbor Place.............. Douglasville (Atlanta), GA 5,055 10 October 1999 Super Regional Mall
Mall of Georgia.......... Buford (Atlanta), GA 5,895 12 October 1999 Super Regional Mall
</TABLE>

39
<PAGE> 40

<TABLE>
<CAPTION>
NUMBER OF
SQUARE RACE CAR
PLANNED LOCATIONS CITY FOOTAGE SIMULATORS STATUS(1) TYPE OF SITE
----------------- ---- ------- ---------- -------------- ------------------------
<S> <C> <C> <C> <C> <C>
Katy Mills............... Katy (Houston), TX 6,172 12 Construction Value Entertainment Mall
Rivertown Crossings...... Grand Rapids, MI 6,100 10 Construction Super Regional Mall
Carousel Mall............ Syracuse, NY 4,597 8 Construction Super Regional Mall
Walden Galleria.......... Buffalo, NY 4,124 8 Construction Super Regional Mall
Universal CityWalk....... Universal City (Los Angeles), CA 5,000 12 Construction Theme Park/
Entertainment Center
Crossgates Mall.......... Albany, NY 4,167 8 Design Super Regional Mall
Riverchase Galleria...... Birmingham, AL 6,188 10 Design Regional Mall
Opry Mills............... Nashville, TN 6,007 12 Design Value Entertainment Mall
Peabody Place............ Memphis, TN 6,000 12 Pre-Design Entertainment Center
Arundel Mills............ Baltimore, MD 5,500 12 Pre-Design Value Entertainment Mall
</TABLE>

- -------------------------
(1) In some instances, construction or design may begin on a site prior to our
signing a definitive lease agreement. For our planned location at Peabody
Place, we have signed a definitive lease, but we have not yet begun design.

UNIT ECONOMICS

As of August 1, 1999, we had five racing centers open, each with a limited
history of operations, and we opened three additional racing centers after
August 1, 1999. We opened our first racing center in August 1997 and our most
recent racing center in October 1999. Accordingly, we have a limited amount of
historical financial data to analyze and evaluate their performances.

Of our eight existing racing centers, only Mall of America and Woodfield
are 12-simulator racing centers that have been open for longer than a year. We
recently reduced the number of race car simulators from fourteen to eight at our
Dallas Galleria racing center and from twelve to eight at our Irvine Spectrum
racing center. These reductions were intended to better match the number of
simulators at each location with the levels of mall traffic. Total revenues for
our Dallas Galleria and Irvine Spectrum racing centers averaged $1.3 million in
the twelve month period ended August 29, 1999. Our Palisades Center racing
center is a 12-simulator racing center that has been opened for less than a
year. In the twenty-six week period ended August 1, 1999, total revenues at this
racing center were $931,000.

In the twelve month period ended August 1, 1999, combined average operating
performance for the Mall of America and Woodfield racing centers is shown in the
following table:

<TABLE>
<CAPTION>
AVERAGE PER CENTER
FOR MALL OF AMERICA
AND WOODFIELD
----------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Total revenues.............................................. $2,073
Profit contribution(1)...................................... $ 400
Profit contribution margin.................................. 19.3%
Earnings before interest, taxes, depreciation and
amortization(2)........................................... $ 638
Earnings before interest, taxes, depreciation and
amortization margin....................................... 30.8%
Initial investment (including build-out costs, pre-opening
expense and initial merchandise inventory)................ $2,129
Payback (in years)(3)....................................... 3.3
</TABLE>

- ---------------
(1) Profit contribution is defined as total revenues less direct expense of the
racing center and merchandise cost of goods sold. Profit contribution also
excludes pre-opening expenses.

(2) Earnings before interest, taxes, depreciation and amortization excludes
pre-opening expenses and is a measure that does not conform to generally
accepted accounting principles. Not all companies calculate this number in
the same manner and the manner as presented above may not be comparable to
similarly defined measures presented by other companies.

40
<PAGE> 41

(3) Payback is defined as the total initial cash investment of opening a racing
center divided by the earnings before interest, taxes, depreciation and
amortization in the twelve months ended August 1, 1999.

The information presented above is historical and not necessarily
indicative of future results. In addition to the factors discussed elsewhere in
this prospectus, including "Risk Factors," in evaluating this information you
should consider that of our first five racing centers, only Mall of America had
total revenues in excess of the average total revenues shown above. In addition,
our Mall of America and Woodfield racing centers have 12 simulators each, while
our planned racing centers will have approximately equal numbers of 8-, 10- and
12-simulator racing centers. As market opportunities arise, we plan to open
14-simulator racing centers in selected locations. No assurance can be given
that the profit contribution amounts, margins and other measures of
profitability for the Mall of America and Woodfield racing centers are
representative of results to be obtained by any other racing centers or for us
on an overall basis.

Since the opening of our initial racing centers, we believe our site
selection methodology has been improved and is considerably more research-based
than in the past. We determine the market potential and size of each racing
center based on location and traffic analysis and through the use of a site
selection model developed by Thompson & Associates. Based on this site selection
methodology, we believe we are now better able to match the revenue potential of
a new market with the number of simulators placed in a new racing center.

In addition, we believe we have made progress in reducing the initial cost
of opening our racing centers primarily by improving their design and planning,
as well as our sourcing of equipment, fixtures and inventory. The average
initial cost of opening our first four 12-simulator racing centers, including
our Irvine Spectrum racing center which was initially built as a 12-simulator
racing center, was approximately $2.0 million, including development costs,
pre-opening costs and start-up merchandise inventory. The average cost of
opening our next three 12-simulator racing centers is expected to be
approximately $1.6 million. The cost of opening our 14-simulator Dallas Galleria
racing center was approximately $2.3 million. The cost of opening our latest
14-simulator racing center at Concord Mills, North Carolina in September 1999
was approximately $1.8 million.

We also expect to incur lower operating expenses at our planned locations
than at our existing locations. In particular, we expect lower labor costs from
better personnel scheduling, including increased use of part-time employees, and
lower rent expense from the realization of more favorable lease terms.

We believe that expected improvements in site selection, lower opening
costs and lower operating expenses will result in improved financial performance
at our planned racing centers. Nevertheless, controlling these costs depends on
a number of factors, many of which are beyond our control. Therefore, there can
be no assurance that we will be able to achieve these cost reductions.

EXPANSION AND SITE SELECTION

We continually seek to identify and evaluate new markets and locations for
expansion. We expect to open approximately 20 to 30 additional racing centers
over the next 24 months. Of these, we have signed leases for seven sites and are
in negotiations for another three. Of these ten sites, five are currently under
construction, three are being designed and two are in pre-design. We believe
that the location of our racing centers is critical to our success and devote
significant time and resources to analyzing each prospective site. We primarily
perform three types of analysis for each potential site:

Location Analysis

In general, we target high profile retail locations with strong sales per
square foot within metropolitan areas with high interest in NASCAR racing. We
place emphasis on locations that balance traditional retail stores with
entertainment experiences such as megaplex movie theaters, large scale
entertainment complexes and restaurants, which make ideal co-tenants for our
racing centers.

41
<PAGE> 42

Traffic Analysis

Once we have identified a potential location in an existing mall, we
perform extensive traffic analysis. We count the mall traffic of our target
customer in front of potential sites and compare it to our existing locations.
Our data continues to show that at the existing locations, revenue performance
correlates positively with the mall traffic of our target customer.

Site Selection Model

We also use a site selection model developed by Thompson & Associates, a
nationally-recognized market research firm. We use this model to predict the
number of potential races at a location based on surrounding demographics and
additional market data. The model is also used to identify potential target
markets.

MARKETING AND PROMOTION

Our marketing and promotional programs are targeted towards our typical
customer who is between the ages of 18 and 45 and who is an auto racing fan
and/or plays video games. We intend to build NASCAR Silicon Motor Speedway into
a nationally known and respected brand name through a variety of marketing and
promotional programs. These programs focus on two areas:

New Customers

We primarily rely on mall traffic in front of our racing centers and
word-of-mouth referrals to attract new customers. Historically, approximately
50% of our new customers visit our racing centers as a result of walking by the
storefront, while approximately 37% of our new customers visit as a result of
word-of-mouth. We also target potential customers through:

- broadcast advertising during NASCAR Winston Cup races;

- advertising at local race tracks; and

- appearances at our racing centers by a member of our team of NASCAR
drivers.

We expect to attract strong media interest when we open a racing center in
a new geographic market because of our unique concept and the power of the
NASCAR brand. Openings that feature a member of our team of NASCAR drivers
usually attract substantial television, radio and print media coverage.

Customer Retention

We have developed targeted programs that focus on customer loyalty. Since
September 1997, we have sold 74% of our races to repeat customers.

We have the following programs designed to retain customers:

- local and national competitions;

- promotion of new features and technology;

- appearances by NASCAR drivers;

- customer competitions against NASCAR drivers;

- special discounts and promotions (e.g., buy 2 tickets, get 1 free);

- gift certificate promotions; and

- comprehensive drivers clubs that allow our customers to compete in
simulated racing leagues, receive discounts off our ticket and
merchandise prices and make online and phone reservations.

42
<PAGE> 43

We intend to collect data from our racing centers and our Web site to
analyze the behavior and purchasing cycles of our existing and potential
customers in order to more effectively target promotions. Anticipated promotions
will include:

- new technology introduction campaigns;

- special offers tailored to customer behavior or purchasing decisions;

- frequent driver rewards; and

- special campaigns to existing customers.

OPERATIONS AND MANAGEMENT

Our ability to manage our racing centers is critical to our success. We
strive to maintain a superior level of service and consistency in each of our
racing centers through the hiring, training and supervision of personnel.
Accordingly, we have established and adhere to high standards relating to
personnel performance and maintenance of our racing centers.

Our corporate operations management team consists of a Vice President of
Operations, regional directors (typically one director for every six to eight
centers), directors of group sales, directors of training and directors of
merchandise. In addition, staffing levels at each racing center vary according
to the size of the location, but typically have the following personnel: a
general manager, one or two assistant general managers and a supervisor, 20 to
25 full and part-time employees, a technical manager and an assistant technical
manager.

We provide extensive training programs for both employees and managers. New
employees are given a thorough orientation on our policies and procedures and
three to five days of training. New managers must complete a four-week training
program that covers all aspects of each racing center.

LICENSING AGREEMENTS

We have entered into numerous licensing agreements with the goal of
creating an authentic NASCAR racing experience. Creating an authentic
environment is a key to our ability to attract new customers and retain existing
customers. We believe that our licensing agreements create a significant barrier
to entry for competition. We have relationships with the following:

- NASCAR. We have entered into a licensing agreement with NASCAR under
which NASCAR receives guaranteed minimum royalties and royalties based on
the sale of tickets for our race car simulators and merchandise. Under
this agreement, we have the right to use the NASCAR marks and trade dress
solely for display in, and promotion of, our racing centers, all subject
to certain limitations on the use of the marks and NASCAR's prior
approval of such uses. Our license agreement with NASCAR for the use of
its image and trademarks extends to December 31, 2005 and is exclusive
for a designated category until December 31, 2002, at which time NASCAR
has the sole option to renew the exclusive portion of the agreement. The
exclusive category of the NASCAR license is "operator assisted,
location-based interactive stockcar or stock-truck entertainment
experiences that consist of no less than five linked simulator units,
with each on a motion-based platform and each allowing a maximum of two
people to participate in each individual simulator unit." Additionally,
under the license each location must be permanent in nature and in a
retail environment. In addition, NASCAR has the right to terminate the
agreement upon the occurrence of certain events. For a more detailed
description of our NASCAR licensing agreement, see "Risk Factors -- If we
fail to maintain our licensing agreement with NASCAR, which is exclusive
only for our simulated racing experience and which may be terminated if
we default, our ability to provide and enhance our racing experience will
be impaired."

- NASCAR Drivers. Our licensing agreements with our team of NASCAR drivers
generally provide for the NASCAR drivers to give feedback on our race car
simulators and allow us to use their names, voices and likenesses for the
promotion of our business. All of the agreements also provide
43
<PAGE> 44

that the NASCAR drivers will make personal appearances and act as
spokespeople for our racing experience. We use these NASCAR driver
appearances to promote our racing centers as well as to enhance the
racing experience for the customer. The agreements generally provide that
the NASCAR drivers are compensated by guaranteed fees and the granting of
stock options as consideration for their personal appearances and use of
their likenesses. The agreements typically expire four years after
execution and may be terminated by either party if the other party
commits an illegal or immoral act. In addition, we generally have the
right to terminate an agreement if the driver stops racing. Our team of
NASCAR drivers includes the following:

<TABLE>
<S> <C> <C>
- - Dale Earnhardt - Kenny Irwin - Jeremy Mayfield
- - Dale Earnhardt, Jr. - Dale Jarrett - Rusty Wallace
- - Jeff Gordon - Bobby Labonte - Michael Waltrip
</TABLE>

- Team Owners. Our licensing agreements with the team owners allow us to
use the designs and accompanying trademarks of team cars either as actual
simulators, as images on the video screen or simply as computer-generated
cars on the video screen. The agreements generally set forth a schedule
of fee payments and expire three years after execution. They also
typically allow us to terminate an agreement if a particular race car is
no longer racing. Some of these agreements are expected to terminate May
31, 2000, unless extended by mutual agreement. The following is a list of
teams with which we have licensing agreements:

Race Car Simulators

<TABLE>
<CAPTION>
CAR NO. TEAM OWNERS
------- -----------
<C> <S>
1 Dale Earnhardt, Inc.
2 Penske Racing South
3 Richard Childress Racing
4 Eastman Kodak Company
5 Hendrick Motorsports
6 Roush Racing
</TABLE>

<TABLE>
<CAPTION>
CAR NO. TEAM OWNERS
------- -----------
<C> <S>
18 Joe Gibbs Racing through
Redline Sports Marketing
21 Wood Brother Racing
24 JG Motorsports
28 Robert Yates Racing
88 Robert Yates Racing
99 Roush Racing
</TABLE>

Computer-Generated Race Cars

<TABLE>
<CAPTION>
CAR NO. RACE CAR OWNERS
- ------- ---------------
<C> <S>
22 The Source International
30 Bahari Racing, Inc.
43 Petty Enterprises
55 The Motorsports Decision Group
75 Butch Mock Motorsports
97 Roush Racing through Moore & Cotter
</TABLE>

- Race Track Owners. We also have licensing agreements with the following
race track owners that allow us to authentically replicate the following
tracks through use of the simulators:

- Speedway Motorsports, Inc. (all of the Speedway Motorsports, Inc.
racing tracks)

- Richmond International Raceway

These agreements typically expire five years after execution and allow us
to terminate the agreement if the track is no longer used for certain types
of races. We also plan to obtain licenses for additional tracks in the
future.

NASCAR and the NASCAR drivers, team owners and race track owners all have
approval rights for the use of their marks.

44
<PAGE> 45

TECHNOLOGY

We have designed and installed state-of-the-art technology at our racing
centers. This technology is based on Intel PC systems, graphics engines from
3Dfx Interactive, Inc. and licensed and proprietary software. Our system is
inexpensive, modular and easy to upgrade. The technology consists of several
integrated components.

Central Control System

All of the activity at each racing center is monitored or directed by its
central control system. This system consists of a Pentium-based control computer
and three high-speed communications networks. All racing functions, as well as
the entertainment and business functions, are controlled or interconnected here.

All systems are orchestrated and synchronized by the central control system
to the race schedule. During our normal race schedule, a new race starts every
eight minutes. Racing activities such as collision management, drone generation,
safety monitoring, generation of the race event stream for use with the
entertainment systems and race recording for future Web download are additional
functions of the central control system.

Racing Activities Network

The core simulation technology is contained within the Racing Activities
Network. The race car simulators are connected together on a high-speed, low
latency network. The three displays in front of each race car simulator are
driven by five dedicated 600 MHz Pentium III processor systems that display
approximately 1.1 million polygons and over 85 million pixels each second. All
of the images are updated sixty times per second. All of the display systems are
connected to each race car simulator's individual high-speed Ethernet. The
interactivity of our race car simulators is based on the network infrastructure
carrying time sensitive data throughout the simulation system, and managed by
the central control system.

The motion of our race car simulators is created by our acceleration sled,
which has a patent pending on its technology, that can simulate acceleration,
flat or banked turns and collisions. Similar to the display system, the sled has
a very low signal-to-motion response time that significantly reduces the
occurrence of simulation motion sickness. The sled is powered by a two
horsepower high flow/low pressure hydraulic system.

The manner in which each race car simulator handles depends on a
proprietary vehicle dynamics model. Our vehicle dynamics model, in combination
with quick response times, a nearly full-size race car, 135 degrees of
surrounding graphics, working gauges, pedals, gear shifter, roll cage,
directional sound and interactivity, provides a realistic driving experience.
Our team of NASCAR drivers works with us to confirm the reality of our racing
experience.

Racing Center Entertainment Systems Network

Spectators at a racing center are entertained through our Racing Center
Entertainment Systems Network, an audio and video system operating a high-speed
Ethernet and displayed on monitors located throughout our racing center. The
lighting in the racing center is also controlled by this system. Races are shown
on this system with alternating camera angles and audio commentary, much like a
NASCAR race telecast. Between races, a variety of content, including music,
announcements, prerecorded information on NASCAR related subjects and commentary
from our team of drivers is broadcast over this system. This patent-pending
system also controls storefront video attractions, crew table displays and
post-race replay in our Winner's Circle. In the Winner's Circle, our system
displays the last few laps completed by the winner and also provides a ceremony
for the top driver while others receive their race results sheets.

Registration and Customer Tracking Network

Our Registration and Customer Tracking Network gathers personal data about
a customer and stores it in our databases. A unique identifier is given to each
customer and then used for all subsequent
45
<PAGE> 46

interactions, including Internet reservations. This system also manages the
customer training videos shown in our training room before each race. The data
collected during each race is archived for later use at one of our racing
centers or over the Internet.

COMPETITION

We face competition from providers of other types of simulated racing and
from other providers of retail entertainment. Illusion, Inc. has provided racing
equipment to a racing center in Las Vegas, Nevada which uses multiple,
interactive, motion-based racing cars. In addition, a racing center in Anaheim,
California operates under the name "Penske Racing Center," which uses equipment
similar to that used by Illusion, Inc. Each of these companies uses simulated
"open wheel" (Formula One or Indy type) race cars. Although neither of these
competitors has undertaken a broad geographic expansion, they may do so in the
future. We may face direct competition in the future from these or other
operators of simulated racing entertainment products. Our racing centers also
face indirect competition from other retail entertainment providers, including
interactive games, movie theaters, video arcades and theme restaurants. We also
compete with retail entertainment providers and other retail stores for high
profile locations within retail centers for our racing centers. We believe the
primary competitive factors in attracting customers to our racing centers are
the quality of the experience, strong appeal, facility location, pricing and
customer convenience. While we believe our racing centers provide an
entertainment experience that competes favorably with respect to these factors,
most of our competitors, particularly our indirect competitors such as theme
restaurants, are operated by well-established companies with greater financial,
management, technical and marketing resources than we have. Additionally, some
of these providers have greater name recognition than we do and may provide an
entertainment alternative that appeals to a broader demographic, which may
encompass children and families. By comparison, our core audience is males
between the ages of 18 and 45.

PROPRIETARY RIGHTS

Although our success and ability to compete depend more upon our technical
expertise than our proprietary rights, our proprietary technology plays a role
in our future success and ability to maintain a competitive stance. We rely on
our contractual rights as well as copyright, patent, trademark and trade secret
laws to protect our intellectual property. Despite our efforts to protect our
intellectual property, a third party could copy or otherwise obtain our
proprietary information without authorization, or could develop technology
competitive to ours. Our means of protecting rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around patents that may be subsequently issued to us or other
intellectual property. In addition, the laws of some foreign countries do not
protect our proprietary rights to as great an extent as do the laws of the
United States.

We may have to resort to litigation to enforce our intellectual property
rights, to protect our trade secrets or know-how or to determine their scope,
validity or enforceability. Enforcing or defending our proprietary technology
could be expensive, could divert our resources and may be unsuccessful. Our
protective measures may be inadequate to protect our proprietary rights, and any
failure to enforce or protect our rights could diminish the value of our
proprietary rights.

EMPLOYEES

As of August 1, 1999, we had a total of 181 employees. Of those, 6 are in
senior management, 4 are in sales and marketing, 47 are in technology, 109 are
in operations and 15 are in accounting and administrative positions. We also
retain independent contractors to support activities such as product
development. Our success depends on our ability to attract and retain qualified,
experienced employees and management. None of our employees is represented by a
labor union or subject to a collective unit and we have never experienced a work
stoppage. We consider our relations with our employees to be good.

46
<PAGE> 47

FACILITIES

Our headquarters are located in a leased facility in Campbell, California,
consisting of approximately 40,000 square feet of office space under a lease
expiring in June 2003. We lease an additional 5,000 square feet of warehouse
space in San Jose, California. We believe our current facilities will be
adequate to meet our needs for the foreseeable future.

LEGAL PROCEEDINGS

On October 5, 1998, we were served with a summons and complaint for a civil
case by Dark Horse Trading Co., Inc. in the United States District Court for the
Northern District of Illinois for the alleged infringement of Dark Horse's
patents. The complaint sought to enjoin us from the alleged infringement and
sought damages as well as treble damages. The complaint focused on our
reservation method and not on our core simulation technology. We filed an answer
with the same court denying any infringement.

We believe that we have meritorious defenses against the alleged claims and
intend to defend ourselves vigorously. However, due to the nature of litigation
and the fact that discovery is still in its early stages, we cannot determine
the possible loss, if any, that may ultimately be incurred either in the context
of a trial or as a result of a negotiated settlement. We may also incur
substantial legal fees in this matter. After consideration of the nature of the
claims and facts relating to the litigation, we believe that the resolution of
this matter will not harm our business. However, the results of these
proceedings, including any potential settlement, are uncertain and there can be
no assurance that they will not harm our business.

An unfavorable resolution of this matter could require us to change our
reservation method, or alternatively cause us to pay a nominal settlement or
license fee, either of which would negatively impact our business.

47
<PAGE> 48

MANAGEMENT

DIRECTORS AND OFFICERS

The following table sets forth certain information regarding our directors
and executive officers as of August 1, 1999:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David S. Morse................. 56 Chairman of the Board of Directors, Chief
Executive Officer and President
Ross C. Mulholland............. 56 Vice President, Finance and Chief Financial
Officer
Rick L. Moncrief............... 50 Vice President and Chief Technical Officer
Lee E. Knowlton................ 37 Vice President, Operations
Christopher O. Morse........... 29 Vice President, Marketing and Business Development
Russell J. Friend.............. 38 Vice President, Real Estate
William Hart(1)................ 59 Director
Robert H. Manschot(1).......... 56 Director
Christopher S. Besing(2)....... 39 Director
Robert V. Cheadle(2)........... 57 Director
</TABLE>

- -------------------------
(1) Member of the compensation committee

(2) Member of the audit committee

David S. Morse is a founder of Silicon Entertainment and has been the
Chairman of the Board of Directors since January 1995. Mr. Morse has also served
as our President and Chief Executive Officer from January 1997 to June 1997 and
from August 1998 to the present. In 1992, Mr. Morse founded Crystal Dynamics,
Inc., a developer of games for the 32-bit game market. He served as its Chairman
of the board of directors from September 1992 to April 1996 and as its Chief
Executive Officer from October 1994 to May 1995. From January 1994 to December
1995, Mr. Morse also served as a partner of Interactive Partners, a venture
capital firm. Mr. Morse also founded Silicon Gaming, Inc. in 1993 and served as
its Chief Executive Officer from August 1998 to January 1999, Chairman of the
board of directors from September 1993 to September 1996 and as a director from
September 1993 to May 1999. Mr. Morse received a B.S. from Tufts University and
an M.B.A. from the Amos Tuck School at Dartmouth. Mr. Morse's son, Christopher
O. Morse, serves as our Vice President, Marketing and Business Development.

Ross C. Mulholland has served as our Vice President, Finance and Chief
Financial Officer since February 1998 and as our Assistant Secretary since April
1998. From February 1993 to February 1995 and from January 1997 to February
1998, Mr. Mulholland was self-employed as a retail consultant. From February
1995 to January 1997, Mr. Mulholland served as Senior Vice President and Chief
Financial Officer of The Nature Company/Discovery Channel Store. Mr. Mulholland
received a B.A. and an M.B.A. from Wayne State University.

Rick L. Moncrief has served as our Vice President and Chief Technical
Officer since February 1995. From March 1977 to February 1995, Mr. Moncrief held
various senior positions in technology and technology management, the most
recent of which was Director of Applied Research for Time Warner Interactive,
Inc. (a.k.a. Atari Games, Inc.). Mr. Moncrief received a B.S.E.E. from the
University of Utah.

Lee E. Knowlton has served as our Vice President, Operations since April
1997. From April 1994 to March 1997, Mr. Knowlton held various positions at
Planet Hollywood, Inc., most recently as Regional Director of Operations. From
August 1990 to March 1994, Mr. Knowlton held various positions at TGI Fridays,
including the Director of Operations, Northwest/Southwest territories from
August 1992 to March 1994. Mr. Knowlton attended West Valley College and majored
in Restaurant Management.

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<PAGE> 49

Christopher O. Morse is a founder of Silicon Entertainment and has served
as our Vice President, Marketing and Business Development since September 1997.
Mr. Morse previously served as our Director of Business Development from July
1996 to August 1997 and as Project Manager from January 1995 to June 1996. From
May 1993 to January 1995, Mr. Morse served as an account executive for Crystal
Dynamics, Inc. Mr. Morse received a B.A. from the University of California at
Berkeley. Mr. Morse's father, David S. Morse, serves as the Chairman of the
Board of Directors, Chief Executive Officer and President.

Russell J. Friend has served as our Vice President, Real Estate since July
1999. From January 1999 to July 1999, Mr. Friend worked for Blatteis Realty
Company, where he served as Vice President and as a consultant to Silicon
Entertainment. From August 1998 to December 1998, Mr. Friend served as Managing
Partner of Retail Reps, a real estate consulting firm. Prior to that time, from
August 1996 to August 1998, Mr. Friend served as Vice President, Real Estate for
Sega GameWorks, L.L.C., an entertainment retail venture. From September 1993 to
August 1996, Mr. Friend was the Director of Lease Negotiations for the Wolfgang
Puck Food Company. Mr. Friend is a member of the International Council of
Shopping Centers and the Urban Land Institute. Mr. Friend attended the
University of Arizona and majored in Business.

William Hart has served as a member of our board of directors since our
inception in November 1994. Mr. Hart has served as general partner and managing
member of Technology Partners V L.P., a venture capital management firm, since
August 1979. Mr. Hart serves on the boards of directors of Trimble Navigation
Ltd. and Silicon Gaming, Inc., as well as on the boards of directors of several
private companies. Mr. Hart received a B.E. Mgmt. from Rensselaer Polytechnic
Institute and an M.B.A. from the Amos Tuck School at Dartmouth.

Robert H. Manschot has served as a member of our board of directors since
April 1996. Mr. Manschot currently serves as Managing Director and Chairman of
the Manschot Investment Group L.L.C. and as Chairman of Seceurop Security
Services Group, a privately held emergency services corporation in the United
Kingdom. Mr. Manschot also serves as Chief Executive Officer and Chairman of
RHEM International Enterprises, Inc. Mr. Manschot served as President and Chief
Executive Officer of Rural/Metro Corporation, a publicly held provider of
ambulance and fire protection services, from October 1988 until March 1995,
after serving as Executive Vice President, Chief Operating Officer and a
director since October 1987. Mr. Manschot currently serves as a director of
Samoth Capital Corporation, Action Performance Companies, Inc. and DenAmerica
Corp., as well as on the boards of directors of several privately held
companies. Mr. Manschot received a B.A. from the School for Hospitality
Management, The Hague, Netherlands and an M.B.A. from Boston University.

Christopher S. Besing has served as a member of our board of directors
since June 1999. Mr. Besing has served as the Chief Executive Officer of
goracing.com, Inc. since May 1999 and has served as Vice President and Chief
Financial Officer of Action Performance Companies, Inc. since January 1994.
Prior to joining Action Performance, Mr. Besing held several financial and
accounting positions with Orbital Sciences Corporation from September 1986 to
December 1993, most recently as Director of Accounting and Controller of OSC's
Launch Systems Group in Chandler, Arizona. Mr. Besing serves as a director of
goracing.com, Inc. and Action Performance, which is a publicly traded company.
Mr. Besing received a B.S. from the American University. Mr. Besing is a
Certified Public Accountant.

Robert V. Cheadle has served as a member of our board of directors since
June 1999. Mr. Cheadle has been self-employed as a financial consultant since
June 1998. From October 1983 to June 1998, Mr. Cheadle was a Senior Managing
Director at NationsBanc Montgomery Securities and initiated coverage on the
motorsports industry. Mr. Cheadle also serves on the board of directors of
CornerHardware.com, Inc. Mr. Cheadle received a B.S. from San Jose State
University and an M.B.A. from the University of Southern California.

49
<PAGE> 50

BOARD COMMITTEES

The board of directors has established an audit committee and a
compensation committee. The audit committee, which consists of Messrs. Besing
and Cheadle, reviews the results and scope of the annual audit and meets with
our independent auditors to review our internal accounting policies and
procedures. The compensation committee, which consists of Messrs. Hart and
Manschot, makes recommendations to the board of directors with respect to our
general and specific compensation policies and practices and administers our
stock option plans.

DIRECTOR COMPENSATION

Our outside directors currently do not receive any cash compensation from
Silicon Entertainment for their services as members of our board of directors,
although we are authorized to pay members for attendance at meetings or a salary
in addition to reimbursement for expenses in connection with attendance at
meetings. Our non-employee directors receive stock options to purchase 10,000
shares of common stock upon joining the board and stock options to purchase
2,500 shares of common stock each year thereafter. For more detail regarding
director compensation and stock ownership, see "-- Stock Option Plans,"
"Principal Stockholders" and "Transactions with Related Parties."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of the compensation committee is currently or has been,
at any time since our formation, an officer or employee of Silicon
Entertainment. No member of the compensation committee serves as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving as a member of our board of directors or compensation
committee.

INDEMNIFICATION

We have adopted provisions in our certificate of incorporation, permitted
by Delaware General Corporation Law ("Delaware Law"), which provide that our
directors shall not be personally liable for monetary damages to us or our
stockholders for a violation of the directors' duty to act with care and in the
best interests of the stockholders, except for liability:

- for acts or omissions that are not in good faith, are deliberately
improper or are known to be illegal;

- under section 174 of the Delaware Law relating to improper dividends or
distributions; or

- for any transaction from which the director obtained an improper personal
benefit.

Such limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission.

Our bylaws authorize us to indemnify our officers, directors, employees and
agents to the extent permitted by the Delaware Law. Section 145 of the Delaware
Law empowers us to enter into indemnification agreements with our officers,
directors, employees and agents. We have entered into separate indemnification
agreements with our directors and executive officers which may in some cases be
broader than the specific indemnification provisions contained in the Delaware
Law. The indemnification agreements may require us, among other things, to
indemnify such executive officers and directors against liabilities that may
arise by reason of status or service as directors or executive officers and to
advance expenses they spend as a result of any proceeding against them as to
which they could be indemnified.

At present, there is no material litigation or proceeding pending involving
any of our directors, officers, employees or agents of Silicon Entertainment
where indemnification will be required or permitted and we are not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.

50
<PAGE> 51

EXECUTIVE COMPENSATION

The following table summarizes the compensation paid to or earned during
the fiscal year ended January 31, 1999 by our current and former Chief Executive
Officer and our four other most highly compensated executive officers, each of
whose total salary and bonus exceeded $100,000 for services rendered to us in
all capacities during such fiscal year.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL ----------------------------
COMPENSATION SECURITIES
------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION(1)
--------------------------- -------- ------- ---------- ---------------
<S> <C> <C> <C> <C>
David S. Morse.................................. $202,500 $ -- 175,000 $ --
Chairman, Chief Executive Officer and
President(2)
Lee E. Knowlton................................. 130,833 10,000 35,000 --
Vice President, Operations
Rick L. Moncrief................................ 163,125 20,000 35,000 --
Vice President and Chief Technical Officer
Christopher O. Morse............................ 97,917 10,000 35,000 --
Vice President, Marketing and Business
Development
Ross C. Mulholland.............................. 165,000 -- 97,500 16,013
Vice President, Finance and Chief Financial
Officer

FORMER EXECUTIVE OFFICER:
Damon Danielson(2).............................. 108,333 25,000 -- 4,000
</TABLE>

- -------------------------
(1) Represents moving and living cost adjustments.

(2) Mr. Danielson served as our President and Chief Executive Officer from June
1997 to July 1998. Mr. Morse became our Chief Executive Officer and
President effective August 1998.

OPTION GRANTS IN LAST FISCAL YEAR

The following table contains information about the stock option grants
during the fiscal year 1998 to the executive officers described in the first
sentence of "Executive Compensation." The table is based on an aggregate of
929,000 options we granted to our employees and consultants during the fiscal
year 1998. The exercise price per share of each option was equal to the fair
market value of the common stock on the date of grant as determined by the board
of directors. These options were granted under our 1996 Stock

51
<PAGE> 52

Option Plan and 1998 Executive Stock Option Plan. Such options expire 10 years
from the date of grant, or earlier upon termination of employment. See "Stock
Option Plans."

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------- ANNUAL RATES
NUMBER OF % OF OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% 10%
---- ---------- ------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
David S. Morse............... 175,000 18.8% $1.00 08/11/08 $110,057 $278,905
Lee E. Knowlton.............. 35,000 3.8 0.70 06/09/08 15,408 39,047
Rick L. Moncrief............. 35,000 3.8 0.70 06/09/08 15,408 39,047
Christopher O. Morse......... 35,000 3.8 0.70 06/09/08 15,408 39,047
Ross C. Mulholland........... 62,500 6.7 0.15 02/26/08 5,896 14,941
Ross C. Mulholland........... 35,000 3.8 0.70 06/09/08 15,408 39,047

FORMER EXECUTIVE OFFICER:
Damon Danielson(1)........... -- -- -- -- -- --
</TABLE>

- -------------------------
(1) Mr. Danielson served as our President and Chief Executive Officer from June
1997 to July 1998. Mr. Morse became our Chief Executive Officer and
President effective August 1998.

Amounts reported in the Potential Realizable Value column above represent
hypothetical values that may be realized upon exercise of the options
immediately prior to the expiration of their term, assuming that the stock price
on the date of grant appreciates at the specified annual rates of appreciation,
compounded annually over the term of the options. These numbers are calculated
based on rules promulgated by the Securities and Exchange Commission. Actual
gains, if any, on stock option exercises and common stock holdings are dependent
on the time of such exercise and the future performance of our common stock.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The table below provides information about the number and value of options
held by the executive officers described above at January 31, 1999.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR END(1) OPTIONS AT FISCAL YEAR END(3)
--------------------------------- ---------------------------------
NAME EXERCISABLE(2) UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE
---- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
David S. Morse........... 175,000 -- $ -- $ --
Lee E. Knowlton.......... 95,000 -- 61,500 --
Rick L. Moncrief......... 70,000 -- 40,250 --
Christopher O. Morse..... 55,000 -- 27,500 --
Ross C. Mulholland....... 97,500 -- 53,125 --
FORMER EXECUTIVE OFFICER:
Damon Danielson(4)....... -- -- -- --
</TABLE>

- -------------------------
(1) All options were granted under our 1996 Stock Option Plan and 1998 Executive
Stock Option Plan. These options vest over four years and otherwise
generally conform to the terms of the option plans.

(2) All stock options granted under our stock option plans are immediately
exercisable. We have rights to repurchase unvested shares in the event of
early termination of employment. These rights lapse over time as options
become vested.

(3) Calculated on the basis of the fair market value of our common stock of
$1.00 per share on January 31, 1999, as determined by our board of
directors, minus the applicable exercise price.

52
<PAGE> 53

(4) Mr. Danielson served as our President and Chief Executive Officer from June
1997 to July 1998. Mr. Morse became our Chief Executive Officer and
President effective August 1998.

STOCK OPTION PLANS

1996 Stock Option Plan

Our 1996 Stock Option Plan (the "1996 Plan") was approved by the board of
directors in October 1996, subsequently approved by our stockholders and amended
in 1997 to increase the share reserve. The 1996 Plan provides for the grant of
incentive stock options within the meaning of section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") to employees and for grants of
nonstatutory stock options to employees, non-employee directors and consultants.
A total of 1,850,000 shares of common stock have been reserved for issuance
under the 1996 Plan which amount will automatically be increased on the first
day of each of our fiscal years on and after January 1, 2000 by a number of
shares equal to 4% of the number of shares of our common stock issued and
outstanding on the last day of the preceding fiscal year. Because non-employee
directors are eligible to receive grants under the 1996 Plan, we have not
adopted a separate plan which provides for the formula grant of stock options to
non-employee directors.

The 1996 Plan is administered by the board of directors or a committee
thereof. Subject to the provisions of the 1996 Plan, the board or committee has
the authority to select the persons to whom options are granted and determine
the terms of each option, including:

- the number of shares of common stock covered by the option;

- when the option becomes exercisable;

- the per share option exercise price, which in the case of incentive stock
options must be at least equal to the fair market value of a share of
common stock on the grant date (or 110% of such fair market value for
incentive stock options granted to 10% stockholders) and, in the case of
nonstatutory stock options, must be at least 85% of the fair market value
of a share of common stock on the grant date; and

- the duration of the option (which may not exceed ten years, or, with
respect to incentive stock options granted to 10% stockholders, five
years).

Generally, options granted under the 1996 Plan are immediately exercisable,
subject to our right to repurchase any unvested shares upon the optionee's
termination of service. Options granted under the 1996 Plan generally vest over
four years, although the board or committee may specify a different vesting
schedule for a particular grant. Options granted under the 1996 Plan are
nontransferable other than by will or the laws of descent and distribution.

In the event of our change in control, the acquiring or successor
corporation may assume or substitute for the outstanding options granted under
the 1996 Plan. The outstanding options will terminate to the extent that such
options are neither exercised nor assumed or substituted for by the acquiring or
successor corporation.

As of August 1, 1999, 705,808 shares have been issued upon the exercise of
options granted under the 1996 Plan, options to purchase of a total of 585,219
shares at a weighted average exercise price of $2.78 per share were outstanding
under the 1996 Plan and, after taking into account 1,979 shares we repurchased,
560,953 shares were available for future grant under the 1996 Plan.

1997 Nonstatutory Stock Option Plan

Our 1997 Nonstatutory Stock Option Plan (the "1997 Plan") was approved by
the board of directors in July 1997, and was subsequently approved by our
stockholders and amended to increase the share reserve. The 1997 Plan provides
for the grant of nonstatutory stock options to consultants. A total of 625,000
shares of common stock have been reserved for issuance under the 1997 Plan.

53
<PAGE> 54

The 1997 Plan is administered by the board of directors or a committee
thereof. Subject to the provisions of the 1997 Plan, the board or committee has
the authority to select the persons to whom options are granted and determine
the terms of each option, including:

- the number of shares of common stock covered by the option;

- when the option becomes exercisable;

- the per share option exercise price, which must be at least equal to 85%
of the fair market value of a share of common stock on the grant date;
and

- the duration of the option (which may not exceed ten years).

Generally, options granted under the 1997 Plan are immediately exercisable,
subject to our right to repurchase any unvested shares upon the optionee's
termination of service. Options granted under the 1997 Plan generally vest over
four years, although the board or committee may specify a different vesting
schedule for a particular grant. Options granted under the 1997 Plan are
nontransferable other than by will or the laws of descent and distribution.

In the event of our change in control, the acquiring or successor
corporation may assume or substitute for the outstanding options granted under
the 1997 Plan. The outstanding options will terminate to the extent that such
options are neither exercised nor assumed or substituted for by the acquiring or
successor corporation.

As of August 1, 1999, 70,000 shares have been issued upon the exercise of
options granted under the 1997 Plan, options to purchase of a total of 270,667
shares at a weighted average exercise price of $0.32 per share were outstanding
under the 1997 Plan and 284,331 shares were available for future grant under the
1997 Plan.

1998 Executive Stock Option Plan

Our 1998 Executive Stock Option Plan (the "1998 Plan") was approved by the
board of directors in June 1998 and was subsequently approved by our
stockholders. The 1998 Plan provides for the grant of incentive stock options
within the meaning of section 422 of the Code to employees and for grants of
nonstatutory stock options to employees, non-employee directors and consultants.
A total of 350,000 shares of common stock have been reserved for issuance under
the 1998 Plan.

The 1998 Plan is administered by the board of directors or a committee
thereof. Subject to the provisions of the 1998 Plan, the board or committee has
the authority to select the persons to whom options are granted and determine
the terms of each option, including:

- the number of shares of common stock covered by the option;

- when the option becomes exercisable;

- the duration of the option (which may not exceed ten years, or, with
respect to incentive stock options granted to 10% stockholders, five
years).

Generally, options granted under the 1998 Plan are immediately exercisable,
subject to our right to repurchase any unvested shares upon the optionee's
termination of service. Options granted under the 1998 Plan generally vest over
four years, although the board or committee may specify a different vesting
schedule for a particular grant. Options granted under the 1998 Plan are
nontransferable other than by will or the laws of descent and distribution.

54
<PAGE> 55

In the event of our change in control, the acquiring or successor
corporation may assume or substitute for the outstanding options granted under
the 1998 Plan. The outstanding options will terminate to the extent that such
options are neither exercised nor assumed or substituted for by the acquiring or
successor corporation.

As of August 1, 1999, 253,500 shares have been issued upon the exercise of
options granted under the 1998 Plan, options to purchase of a total of 86,500
shares at a weighted average exercise price of $1.36 per share were outstanding
under the 1998 Plan and 10,000 shares were available for future grant under the
1998 Plan although we do not intend to continue to grant options under this
plan.

Stock Bonus Plan

Our Stock Bonus Plan (the "Bonus Plan") was approved by the board of
directors in August 1998 and was subsequently approved by our stockholders. A
total of 15,000 shares of common stock has been reserved for issuance under our
Bonus Plan. The Bonus Plan provides for the grant of stock bonus awards to
employees and does not require any monetary payment by an employee who receives
an award. Stock bonus awards are generally granted on a quarterly basis to
hourly employees at our racing centers and are fully vested at the time of
grant.

As of August 1, 1999, 2,413 shares have been granted pursuant to the Bonus
Plan, 1,525 shares have been issued pursuant to the Bonus Plan and 12,763 shares
were available for future grant under the Bonus Plan.

1999 Employee Stock Purchase Plan

A total of 250,000 shares of common stock has been reserved for issuance
under our 1999 Employee Stock Purchase Plan (the "Purchase Plan") which amount
will automatically be increased on the first day of each of our fiscal years on
and after January 1, 2000 by a number of shares equal to the lesser of (i)
50,000 shares or (ii) 2% of the number of shares of our common stock issued and
outstanding on the last day of the preceding fiscal year. No shares have been
issued under the Purchase Plan as of the effective date of our initial public
offering. The Purchase Plan, which is intended to qualify under section 423 of
the Code, is administered by the board or by a committee thereof. Our employees
(including our officers and employee directors) or employees of any subsidiary
designated by our board for participation in the Purchase Plan are eligible to
participate in the Purchase Plan if they are customarily employed for more than
20 hours per week and more than five months per year. The Purchase Plan will be
implemented by sequential offerings of approximately six months duration, the
first of which will commence on the effective date of our initial public
offering and will terminate on August 31, 2000. Subsequent offering periods
under the Purchase Plan will generally begin on March 1 and September 1 of each
year. Shares will be purchased on the last day of each offering period under the
Purchase Plan. The board may change the dates or duration of one or more
offerings under the Purchase Plan, but no offering may exceed 27 months. The
Purchase Plan permits eligible employees to purchase common stock through
payroll deductions and the purchase price per share will be equal to 85% of the
lower of the fair market value of the common stock on (a) the first day of the
offering under the Purchase Plan, or (b) the purchase date. Participants
generally may not purchase more than 500 shares on a purchase date or stock
having a value (measured at the beginning of the offering under the Purchase
Plan) greater than $25,000 in any calendar year. If we were to experience a
change in control, our board could accelerate the purchase date of the then
current offering period under the Purchase Plan to a date prior to the change in
control unless the acquiring or successor corporation assumed or replaced the
purchase rights outstanding under the Purchase Plan.

401(K) PLAN

We have established a tax-qualified employee savings and retirement plan,
or a 401(k) plan, which covers all of our full-time employees who have completed
60 days of service. Under our 401(k) plan, eligible employees may defer up to
20% of their pre-tax earnings, subject to the Internal Revenue Service's

55
<PAGE> 56

annual contribution limit. The 401(k) plan permits additional discretionary
matching contributions by us on behalf of all participants in the 401(k) plan in
such a percentage amount as may be determined annually by the board of
directors. To date, we have made no matching contributions. Our 401(k) plan is
intended to qualify under section 401 of the Code so that contributions by
employees or by us to the 401(k) plan and income earned on plan contributions
are not taxable to employees until withdrawn from the 401(k) plan and so that
our contributions, if any, will be deductible by us when made. The trustee under
the 401(k) plan, at the direction of each participant, invests the assets of the
401(k) plan in any of a number of investment options.

EMPLOYMENT AGREEMENTS

We routinely deliver written offer letters containing provisions on salary,
bonuses, benefits and stock option grants to prospective employees.

In addition, we entered into a written employment agreement with Russell
Friend, Vice President, Real Estate, in August 1999. The agreement sets forth
Mr. Friend's base salary, benefits, bonuses and stock option grant. The
agreement provides that if Mr. Friend is terminated without due cause, we will
pay Mr. Friend severance pay equal to six months' salary, unless the net fair
market value of his vested stock equals or exceeds six months' salary. If the
net fair market value of Mr. Friend's vested stock exceeds six months' salary,
we have agreed to provide Mr. Friend with sixty days' notice of termination and
continue to pay his salary until the termination date.

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<PAGE> 57

TRANSACTIONS WITH RELATED PARTIES

Since January 1, 1996, there has not been, nor is there currently, any
transaction or series of similar transactions to which we were or are a party in
which the amount involved exceeds $60,000 and in which any of our directors,
executive officers or holders of more than five percent of our capital stock had
or will have a direct or indirect material interest other than (a) agreements
which are described where required under the caption "Management" and (b) the
transactions described below.

SALES OF STOCK TO DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS

The following directors, executive officers, holders of more than 5% of a
class of voting securities and members of each such person's immediate families
purchased shares of our Series A Preferred Stock, Series B Preferred Stock, or
Series C Preferred Stock:

<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PURCHASER PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
--------- --------------- --------------- ---------------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
David S. Morse............................... -- 99,628 --
Rick L. Moncrief............................. -- 38,802 --
Christopher S. Besing........................ -- 2,500 8,334
Robert V. Cheadle............................ -- -- 41,667
Robert H. Manschot........................... -- 6,667 333,333

5% STOCKHOLDERS
Technology Partners Fund V L.P............... 1,633,334 605,521 293,837
</TABLE>

In February 1996, we sold 1,633,334 shares of our Series A Preferred Stock
to Technology Partners Fund V L.P. for $0.60 per share, for an aggregate
purchase price of approximately $980,000.

From May 1996 through May 1997, we sold an aggregate of 2,769,016 shares of
our Series B Preferred Stock to various investors for $1.50 per share, for an
aggregate purchase price of $4,153,524. Of such $4,153,524 aggregate purchase
price, $2,452,037 was applied towards the payment of principal and interest
under notes and other indebtedness payable to the investors.

During the period beginning March 1997 through November 1997, we issued an
aggregate of $5,258,000 in convertible subordinated promissory notes to various
existing investors, all of which converted into Series C Preferred Stock at or
around the first closing of the sale of our Series C Preferred Stock. Concurrent
with the issuance of these notes, we also issued warrants to purchase
approximately 232,584 shares of our Series C Preferred Stock to such note
holders at a price per share equal to the price of the Series C Preferred Stock.
All of these warrants are expected to be exercised in connection with the
closing of this offering.

From December 1997 through July 1999, we sold an aggregate of 3,485,449
shares of Series C Preferred Stock at a price of $6.00 per share, for an
aggregate purchase price of $20,912,676. Of such $20,912,676 aggregate purchase
price, $5,264,000 was applied towards the payment of principal and interest
under notes and other indebtedness payable to the investors.

On February 7, 1996, we entered into a promissory note and warrant
agreement with RPM International Investments, GbR, of which Mr. Manschot is the
President and Chief Executive Officer, in the amount of $150,000, which gives
RPM a warrant to purchase 50,000 shares of our common stock at a price of $1.50
per share. This note accrued interest at the rate of 8% per annum. We paid this
promissory note in May 1996.

On April 12, 1996, we issued a convertible demand note to Technology
Partners Fund V L.P., a 5% stockholder, in the amount of $200,000. This note
accrued interest at the rate of 8% and was subsequently converted into 136,722
shares of Series B Preferred Stock in May 1996.

57
<PAGE> 58

From March 2, 1997 to November 19, 1997, in connection with our Series C
Preferred Stock financing, we issued warrants to purchase 108,750 shares of our
Series C Preferred Stock to Technology Partners Fund V L.P. at an exercise price
of $6.00 per share.

See the notes to the table of beneficial ownership in "Principal
Stockholders" for information relating to the beneficial ownership of such
shares.

LOAN TO EXECUTIVE OFFICER

On April 30, 1999, we loaned $175,000 to David S. Morse, the Chairman of
the Board of Directors, Chief Executive Officer and President, secured by a
promissory note and pledge agreement, in connection with his exercise of options
to purchase 175,000 shares of our common stock at an exercise price of $1.00 per
share, a portion of which is subject to a right of repurchase in our favor. This
note accrues interest at the rate of 6% per annum and is due on April 1, 2004.

LOAN FROM EXECUTIVE OFFICER

On November 23, 1998, David S. Morse loaned us $150,000. This note accrued
interest at the rate of 8% per annum and was due on demand. We repaid $50,000 of
this loan on January 29, 1999 and the remainder on February 8, 1999.

MANAGEMENT SERVICES WITH RELATED PARTY

We paid fees of $91,000; $125,000; $203,000; $90,000 and $137,000 during
fiscal years 1997, 1998, 1999 and the twenty-six week periods ended August 2,
1998 and August 1, 1999, respectively, to a company owned by David S. Morse, our
Chairman of the Board of Directors, Chief Executive Officer and President.

INDEMNIFICATION

We have entered into indemnification agreements with each of our officers
and directors containing provisions which may require us, among other things, to
indemnify our officers and directors against liabilities that may arise by
reasons of their status or service as officers or directors and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified. We also intend to execute such agreements with our future
directors and executive officers. See "Management -- Indemnification" for a more
detailed description of our indemnification agreements.

CONFLICT OF INTEREST POLICY

We believe that all transactions with affiliates described above were made
on terms no less favorable to us than could have been obtained from unaffiliated
third parties. Our policy is to require that a majority of the independent and
disinterested outside directors on our board of directors approve all future
transactions between us and our officers, directors, principal stockholders and
their affiliates. We intend that these kinds of transactions will continue to be
on terms no less favorable to us than we could obtain from unaffiliated third
parties.

For a description of other transactions between our affiliates and us, see
"Management -- Compensation Committee Interlocks and Insider Participation."

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<PAGE> 59

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information concerning the
beneficial ownership of the shares of our common stock as of August 1, 1999 and
as adjusted to give effect to the sale of 4,500,000 shares of common stock in
this offering, assuming (a) conversion of all of our outstanding shares of
convertible preferred stock into common stock and (b) no exercise of the
underwriters' over-allotment option, by:

- each person who is known by us to beneficially own 5% or more of the
outstanding shares of our common stock;

- each executive officer listed in the Summary Compensation Table;

- each of our directors; and

- all of our executive officers and directors as a group.

Percentage of ownership prior to the offering is based on 10,703,355 shares
outstanding on August 1, 1999, excluding an aggregate of 813,659 shares subject
to outstanding warrants to purchase common stock or convertible preferred stock,
1,105,598 shares subject to outstanding options and shares underlying
approximately $5.7 million in outstanding promissory notes. Percentage of
ownership after the offering is based on 15,203,355 shares outstanding assuming
no exercise of the underwriters' over-allotment option. The number and
percentage of shares beneficially owned are determined in accordance with rules
and regulations of the Securities and Exchange Commission. All shares of common
stock underlying options are immediately exercisable with all unvested shares of
common stock being subject to a right of repurchase in our favor which lapses
over time in the event of early termination. Shares of common stock underlying
options currently exercisable or exercisable within 60 days after August 1, 1999
are deemed outstanding for the purpose of computing the number of shares
beneficially owned and the percentage ownership of the person holding these
options but are not deemed outstanding for computing the percentage ownership of
any other person. Except in cases where community property laws apply or as
indicated in the footnotes to this table, we believe that each stockholder
identified in the table possesses sole voting and investment power with respect
to all shares of common stock shown as beneficially owned by that stockholder.
Unless otherwise indicated, the address of each listed stockholder is c/o
Silicon Entertainment, 210 Hacienda Avenue, Campbell, CA 95008.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES --------------------
NAME AND ADDRESS BENEFICIALLY BEFORE AFTER
OF BENEFICIAL OWNER OWNED OFFERING OFFERING
------------------- ---------------- -------- --------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
David S. Morse(1)................................. 791,145 7.3% 5.2%
Lee E. Knowlton(2)................................ 95,000 * *
Rick L. Moncrief(3)............................... 345,302 3.2 2.3
Christopher O. Morse(4)........................... 145,000 1.4 1.0
Ross C. Mulholland(5)............................. 97,500 * *
Damon Danielson................................... 109,375 1.0 *
William Hart(6)................................... 2,808,942 25.9 18.3
Robert H. Manschot(7)............................. 754,956 7.0 4.9
Christopher S. Besing(8).......................... 207,501 1.9 1.4
Robert V. Cheadle(9).............................. 51,667 * *
5% STOCKHOLDERS
Technology Partners Fund V L.P.(10)............... 2,808,942 25.9 18.3
Attn: William Hart
1550 Tiburon Blvd., Suite A
Belvedere, CA 94920
ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP
(10 persons)(11)................................ 5,339,512 47.5 33.9
</TABLE>

- -------------------------
* Less than 1%.

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<PAGE> 60

(1) Includes (i) 697,128 shares registered in the name of the Morse Family
Trust, of which Mr. Morse is a trustee, of which 127,604 shares are subject
to a right of repurchase in our favor which lapses over time, (ii) 75,000
shares subject to a fully-vested option held by Mr. Morse and (iii) 19,017
shares subject to warrants held by Morse & Co., of which Mr. Morse is the
owner, exercisable within 60 days of August 1, 1999. The warrants are
expected to be exercised upon the closing of this offering.

(2) Includes (i) 26,729 shares subject to a right of repurchase in our favor
which lapses over time and (ii) 22,750 shares subject to immediately
exercisable options subject to our right of repurchase.

(3) Includes (i) 38,021 shares subject to a right of repurchase in our favor
which lapses over time, (ii) 26,250 shares subject to immediately
exercisable options held by Mr. Moncrief subject to our right of repurchase
and (iii) 1,500 shares subject to an immediately exercisable option held by
Carrie Moncrief, Mr. Moncrief's wife, subject to our right of repurchase.

(4) Includes 33,021 shares subject to a right of repurchase in our favor which
lapses over time.

(5) Includes (i) 37,761 shares subject to a right of repurchase in our favor
which lapses over time, and (ii) 35,000 shares subject to an immediately
exercisable option, of which 24,063 shares are subject to our right of
repurchase.

(6) Includes (i) 108,750 shares subject to warrants registered in the name of
Technology Partners Fund V, L.P. ("Technology Partners"), of which Mr. Hart
is the general and managing partner, exercisable within 60 days at August
1, 1999 and (ii) 5,000 shares subject to a fully vested option held by
Technology Partners. Also includes 12,500 shares subject to fully-vested
options held by TPW Management V, L.P., the general partner of Technology
Partners and a venture capital fund of which Mr. Hart is a general partner.
The warrants are expected to be exercised upon the closing of this
offering.

(7) Includes (i) 333,333 shares registered in the name of the Manschot
Opportunity Fund ("Manschot Fund"), of which Mr. Manschot is the managing
director and (ii) 22,500 shares subject to warrants held by Manschot Fund
exercisable within 60 days of August 1, 1999. Also includes (i) 166,373
shares registered in the name of RPM International Investments, GbR, of
which Mr. Manschot is the President and Chief Executive Officer and (ii)
60,417 shares subject to warrants held by RPM International GbR exercisable
within 60 days of August 1, 1999. Also includes (i) 57,500 shares subject
to warrants held by Mr. Manschot exercisable within 60 days of August 1,
1999 and (ii) 7,500 shares subject to a fully-vested option held by Mr.
Manschot. The warrants are expected to be exercised upon closing of this
offering.

(8) Includes (i) 166,667 shares registered in the name to Action Performance
Companies, of which Mr. Besing is a director and (ii) 20,000 shares subject
to warrants held by Action Performance Companies exercisable within 60 days
of August 1, 1999. Also includes 10,000 shares subject to a fully-vested
option held by Mr. Besing. The warrants are expected to be exercised upon
the closing of this offering.

(9) Includes 10,000 shares subject to a fully-vested option. Also includes
41,667 shares registered in the name of The Robert Cheadle Trust, of which
Mr. Cheadle is the trustee.

(10) All shares listed are registered in the name of Technology Partners and
include (i) 108,750 shares subject to warrants exercisable within 60 days
of August 1, 1999 and (ii) 5,000 shares subject to a fully-vested option.
Also includes 12,500 shares subject to fully-vested options held by TPW
Management V, L.P., the general partner of Technology Partners. The
warrants are expected to be exercised upon the closing of this offering.

(11) Includes (i) 375,199 shares subject to a right of repurchase in our favor
which lapses over time, (ii) 288,184 shares subject to warrants exercisable
within 60 days of August 1, 1999 and (iii) 243,000 shares subject to
options, each of which is exercisable within 60 days of August 1, 1999. The
warrants are expected to be exercised upon the closing of this offering.

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<PAGE> 61

DESCRIPTION OF CAPITAL STOCK

GENERAL

Our authorized capital stock consists of 100,000,000 shares of common
stock, par value $0.001 per share and 500,000 shares of preferred stock, par
value $0.001 per share. Each outstanding share of convertible preferred stock
will be automatically converted into one share of common stock upon the closing
of this offering. Upon the conversion, the convertible preferred stock will be
canceled and retired. The following summary of our common stock and preferred
stock is not complete and a full understanding requires a review of our
certificate of incorporation and bylaws that are included as exhibits to this
registration statement of which this prospectus is a part and applicable laws.

COMMON STOCK

As of August 1, 1999, we had 10,703,355 shares of common stock outstanding,
assuming the conversion of all of our preferred stock into common stock. These
shares are held by 290 stockholders of record after giving effect to the
conversion of our mandatorily redeemable convertible preferred stock into
common. Options to purchase an aggregate of 1,105,598 shares of our common stock
were also outstanding. The holders of common stock are entitled to one vote for
each share held of record on all matters submitted to a vote of the
stockholders. Subject to preferences that may be applicable to any then
outstanding preferred stock, holders of common stock are entitled to receive
proportionate dividends, if any, as may be declared by our board of directors
out of any available funds. See "Dividend Policy."

In the event that we liquidate, dissolve or wind up, holders of our common
stock and preferred stock are entitled to share ratably on an as-converted basis
in all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding preferred stock. Our common stock has no
preemptive or conversion rights or other subscription rights and also has no
applicable redemptive or sinking fund provisions. We have received full payment
for all outstanding shares of our common stock and cannot require our
stockholders to make further payments on the stock. In addition, the common
stock that will be outstanding upon completion of this offering will have the
same status.

PREFERRED STOCK

The board of directors has the authority, without further action by the
stockholders, to issue from time to time the preferred stock in one or more
series and to fix the number of shares, designations, preferences, powers and
relative, participating, optional or other special rights and the qualifications
or restrictions thereof. The preferences, powers, rights and restrictions of
different series of preferred stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions and purchase funds and other matters. The
issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to holders of common stock or affect adversely the
rights and powers, including voting rights, of the holders of common stock and
may have the effect of delaying, deferring or preventing our change in control.
See Notes to Consolidated Financial Statements for a description of the
currently outstanding preferred stock.

WARRANTS

As of August 1, 1999, we had issued warrants to purchase a total of 378,017
shares of common stock at exercise prices ranging between $1.50 per share and
$6.00 per share, 64,001 shares of Series B Preferred Stock at $1.50 per share
and 371,641 shares of Series C Preferred Stock at $6.00 per share, on an as-
converted basis. These warrants generally terminate upon the sooner to occur of
three to five years after the date the warrants were issued or the completion of
our initial public offering. Those warrants that do not terminate upon the
completion of the offering terminate ten years after the date those warrants
were issued. We expect that all of these warrants will be exercised prior to the
completion of this offering. Some of these warrants have rights to registration,
all of which we expect will be waived in connection with this offering. For a
description of these registration rights, see "-- Registration Rights."

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<PAGE> 62

In connection with a subordinated convertible note purchase agreement we
entered into in September 1999, we issued warrants to purchase an aggregate of
68,750 shares of common stock at an exercise price of $10.80 per share. The
warrants terminate five years after the date they were issued.

CONVERTIBLE PROMISSORY NOTES

On June 30, 1999, we entered into a secured subordinated convertible note
purchase agreement, issuing three convertible subordinated notes in the amounts
of $2.3 million, $2.3 million and $1.1 million. The notes accrue interest at
8.5%, payable semiannually beginning 12 months after the date we issued the
notes. The notes are due on June 30, 2002. At the option of the holders, the
notes convert into shares of our common stock at a conversion price of $15.00
per share. The notes convert automatically if either the price per share in this
offering is greater than $15.00 per share or if the price of our common stock
exceeds $20.00 per share for any four week period following this offering. If we
are involved in an acquisition transaction resulting in all of our stockholders
before the transaction owning less than 50% of the voting securities of the
surviving entity after the transaction, the holders of these notes may request
that we repurchase their notes for 101% of the face amount of the note, plus any
unpaid interest accrued on the notes to the date of repurchase.

On September 9, 1999, we entered into a second subordinated convertible
note purchase agreement, issuing convertible subordinated notes in the amounts
of $2.0 million, $500,000, $500,000, $1.0 million and $1.5 million. We paid each
holder a placement fee of one percent of the face value of their note. The notes
accrue interest at 12.0% per annum, payable on maturity. The notes are due on
March 9, 2001. At the option of the note holders, the notes convert into shares
of our common stock at a conversion price of $10.00 per share. If we are
involved in an acquisition transaction resulting in all of our stockholders
before the transaction owning less than 50% of the voting securities of the
surviving entity after the transaction, the holders of these notes may request
that we repurchase their notes for 101% of the face amount of the note, plus any
unpaid interest accrued on the notes to the date of repurchase. Concurrent with
the issuance of these notes, we issued warrants to the holders to purchase an
aggregate of 68,750 shares of common stock at an exercise price of $10.80 per
share. The warrants terminate five years after the date we issued the notes.

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW

Certificate of Incorporation and Bylaws

Effective upon the closing of this offering, our certificate of
incorporation will provide that any action permitted to be taken by our
stockholders must be effected at a duly-called annual or special meeting of
stockholders and will not be able to be effected by a consent in writing. Our
certificate of incorporation will also require the approval of at least
two-thirds of the total number of authorized directors in order to adopt, amend
or repeal our bylaws. In addition, our certificate of incorporation will
similarly permit the stockholders to adopt, amend or repeal our bylaws only upon
the affirmative vote of the holders of at least two-thirds of the voting power
of all then outstanding shares of stock entitled to vote. Also, a director will
be removable by stockholders only for cause. Vacancies on the board of directors
resulting from death, resignation, removal or other reason may be filled by a
majority of the directors or a majority of the shares entitled to vote. In
general, other vacancies are to be filled by a majority of the directors.
Lastly, the provisions in our certificate of incorporation described above and
other provisions pertaining to the limitation of liability and indemnification
of directors will be able to be amended or repealed only with the affirmative
vote of the holders of at least two-thirds of the voting power of all then
outstanding shares of stock entitled to vote. These provisions may have the
effect of deterring hostile takeovers or delaying changes in our control or
management, which could have an adverse effect on the market price of our common
stock.

Upon the closing of this offering, our bylaws will also contain many of the
above provisions found in our certificate of incorporation. Our bylaws will not
permit stockholders to call a special meeting. In addition, our bylaws will
establish an advance notice procedure with regard to matters to be brought
before an annual or special meeting of our stockholders, including the election
of directors. Business permitted to

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<PAGE> 63

be conducted in any annual meeting or special meeting of stockholders will be
limited to business properly brought before the meeting.

DELAWARE TAKEOVER STATUTE

We are subject to section 203 of the Delaware Law, which, subject to
limited exceptions, prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless:

- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;

- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (1) by persons who are
directors and also officers and (2) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or

- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.

Section 203 of the Delaware Law defines business combination to include:

- any merger or consolidation involving the corporation and the interested
stockholder;

- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;

- subject to specified exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;

- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or

- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.

In general, section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.

REGISTRATION RIGHTS

After this offering and under a Third Amended and Restated Rights
Agreement, as amended on June 30, 1999, the holders of approximately 9,091,601
shares of common stock will have registration rights with respect to their
shares. Of these shares, 763,134 are held by certain holders of our common
stock, 7,887,799 shares are issuable upon conversion of our convertible
preferred stock, 64,001 shares are issuable upon exercise and conversion of
warrants to purchase convertible preferred stock, and 376,667 shares are
issuable upon conversion of outstanding subordinated convertible promissory
notes, or persons to whom some of these holders transferred the common stock. If
we propose to register any of our securities under the Securities Act, either
for our own account or for the account of other security holders, holders of
shares entitled to registration rights are entitled to notice of and are
entitled to include their shares in this registration, at our expense. However,
the underwriters of any such offering have the right to limit the number of
shares included in such registration. In addition, beginning 180 days after the
effective date of

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<PAGE> 64

this offering, holders of at least 40% of the shares entitled to registration
rights outstanding may require us to prepare and file a registration statement
under the Securities Act, at our expense, covering their shares and we are
generally required to use our best efforts to effect such registration. We are
not obligated to effect more than two of these stockholder-initiated
registrations. Further, holders of shares entitled to registration rights
generally may require us to file additional registration statements on Form S-3.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is Boston Equiserve,
which can be reached at (201) 222-4099.

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<PAGE> 65

SHARES ELIGIBLE FOR FUTURE SALE

Before this offering there has been no public market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect market prices prevailing from time to time. As described below,
only a limited number of shares will be available for sale immediately after
this offering due to contractual and legal restrictions on resale described
below. Nevertheless, sales of substantial amounts of our common stock in the
public market after the restrictions lapse could adversely affect the prevailing
market price at such time and our ability to raise equity capital in the future.

- Upon the closing of this offering, we will have outstanding an aggregate
of approximately 15,203,355 shares of common stock based on the number of
shares of convertible preferred stock and common stock outstanding as of
August 1, 1999 and assuming no exercise of the underwriters'
over-allotment option.

- Of these shares, the 4,500,000 shares of common stock to be sold in this
offering will be freely tradable without restriction or further
registration under the Securities Act, unless these shares are purchased
by our "affiliates" as that term is defined in Rule 144 of the Securities
Act.

- All remaining shares held by our existing stockholders were issued and
sold by us in private transactions and are eligible for public sale if
registered under the Securities Act or sold in accordance with Rule 144
or Rule 701, which are summarized below.

Our directors, executive officers and 5% stockholders will collectively
hold an aggregate of approximately 4,470,289 shares of common stock after the
offering and after giving effect to conversion of the convertible preferred
stock. These stockholders have signed lock-up agreements which prevent them from
selling any common stock owned by them for a period of 180 days from the date of
this prospectus without the prior written consent of SG Cowen Securities
Corporation. When determining whether or not to release shares from the lock-up
agreements, SG Cowen Securities Corporation will consider, among other factors,
the stockholder's reasons for requesting the release, the number of shares for
which the release is being requested and market conditions at the time. As a
result of lock-up agreements with SG Cowen Securities Corporation and the
provisions of Rule 144 and 701, a total of approximately 9,322,891 outstanding
shares of common stock will be eligible for sale in the public market upon
expiration of the lock-up period. Resales of approximately 5,775,043 of these
shares, including the 4,470,289 held by our directors, executive officers and 5%
stockholders, will continue to be subject to the volume and other restrictions
of Rule 144 described below, while the remainder will be eligible for resale
under Rule 144(k) or Rule 701. In addition, a total of approximately 378,630
shares of common stock not subject to lock-up agreements or other restrictions
will be eligible for sale in the public market immediately following completion
of this offering.

In general, under Rule 144 as currently in effect, a person or persons
whose shares are aggregated, including an "affiliate", who has beneficially
owned shares for at least one year is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of either 1% of the
then outstanding shares of common stock or the average weekly trading volume of
the common stock on the Nasdaq National Market during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to such sale. One
percent of the outstanding shares of common stock would be 152,033 shares
immediately after the offering. Sales under Rule 144 are also subject to
prescribed requirements regarding the manner of sale, notice and availability of
current public information about us. Under Rule 144(k), a person who is not
deemed to have been one of our "affiliates" at any time during the 90 days
preceding a sale and who has beneficially owned the shares proposed to be sold
for at least two years, would be entitled to sell such shares without complying
with the manner of sale, public information, volume limitation or notice
requirements described above. Therefore, unless restricted through lock-up
agreements or other restrictions, "144(k) shares" may be sold immediately
following completion of this offering without limitations as to volume.

In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchased shares from us in
connection with a compensatory stock or option

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<PAGE> 66

plan or written employment agreement is eligible to resell such shares 90 days
after the effective date of the offering in reliance on Rule 144, by complying
with the applicable requirements of Rule 144 other than the holding period
conditions. On the date 90 days after the effective date of this offering,
options to purchase approximately 26,718 shares of common stock not subject to
lock-up agreements with SG Cowen Securities Corporation will be vested and may
be sold pursuant to Rule 701.

We intend to file one or more registration statements on Form S-8 under the
Securities Act to register all of our shares of common stock issued or reserved
for future issuance under our stock option and employee stock purchase plans.
Based upon the number of shares subject to outstanding options as of August 1,
1999 and currently reserved for issuance under our stock option plans, these
registration statements would cover approximately 3,050,000 shares. These
registration statements are expected to be filed soon after the date of this
prospectus and will automatically become effective upon filing. Accordingly,
shares registered under these registration statements will be available for sale
in the open market, unless those shares are subject to vesting restrictions
imposed by us or the lock-up restrictions described above.

Beginning 180 days after this offering, the holders of approximately
9,091,601 shares of common stock will be entitled to certain rights to cause us
to register the sale of such shares under the Securities Act. Registration of
such shares under the Securities Act would generally result in such shares
becoming freely tradable without restriction under the Securities Act
immediately upon the effectiveness of such registration. However, shares
purchased by our affiliates would not be freely tradable. For a more detailed
discussion, see "Management -- Stock Option Plans," "Management -- Stock Option
Plans -- 1999 Employee Stock Purchase Plan," and "Description of Capital
Stock -- Registration Rights."

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UNDERWRITING

Silicon Entertainment and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the number
of shares indicated in the following table at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. SG Cowen Securities Corporation, CIBC World Markets Corp., J.C.
Bradford & Co. and E*OFFERING Corp. are the representatives of the underwriters.

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ----------
<S> <C>
SG Cowen Securities Corporation.............................
CIBC World Markets Corp.....................................
J.C. Bradford & Co..........................................
E*OFFERING Corp.............................................
----------
Total............................................. 4,500,000
==========
</TABLE>

The underwriting agreement provides that the obligations of the
underwriters are conditional and may be terminated at their discretion based on
their assessment of the state of the financial markets. The obligations of the
underwriters may also be terminated upon the occurrence of the other events
specified in the underwriting agreement. The underwriters are severally
committed to purchase all of the common stock being offered by us if any shares
are purchased, other than those covered by the over-allotment option described
below.

The underwriters, at our request, have reserved for sale to our employees,
friends and family members of employees and to certain other persons, at the
initial public offering price, up to five percent of the shares of common stock
to be sold in this offering. The number of shares available for sale to the
general public will be reduced to the extent that any reserved shares are
purchased. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same basis as the other shares offered
hereby.

The underwriters propose to offer the common stock directly to the public
at the public offering price set forth on the cover page of this prospectus. The
underwriters may offer the common stock to securities dealers at that price less
a concession not in excess of $ per share. Securities dealers may reallow a
concession not in excess of $ per share to other dealers. After the shares
of the common stock are released for sale to the public, the underwriters may
vary the offering price and other selling terms from time to time.

We have granted to the underwriters an option to purchase up to 675,000
additional shares of common stock at the public offering price set forth on the
cover of this prospectus to cover over-allotments, if any. The option is
exercisable for a period of 30 days. If the underwriters exercise their over-
allotment option, the underwriters have severally agreed to purchase shares in
approximately the same proportion as shown in the table above.

We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act and to contribute to payments
that the underwriters may be required to make in respect of those liabilities.

Silicon Entertainment, our directors and executive officers, all principal
stockholders and other existing stockholders who hold an aggregate of 10,156,377
shares, together with the holders of options to purchase 991,698 shares of
common stock, holders of warrants to purchase 758,684 shares of common stock and
holders of 919,444 shares of common stock assuming conversion of subordinated
convertible promissory notes, have agreed with the underwriters that for a
period of 180 days following the date of this prospectus, without the prior
written consent of SG Cowen Securities Corporation, they will not dispose of or
hedge any shares of common stock or any securities convertible into or
exchangeable for common stock.

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<PAGE> 68

Certain employees of SG Cowen Securities Corporation own 8,000 shares of
our common stock and 37,432 shares of our preferred stock and warrants to
purchase up to 17,917 shares of our preferred stock. Also, certain employees of
CIBC World Markets Corp. and its affiliates own an aggregate of 23,168 shares of
our preferred stock. In addition, J.C. Bradford Venture Fund IV, an affiliate of
J.C. Bradford & Co., owns 16,667 shares of our common stock. All of these shares
were acquired from us on the same terms as other purchases of our capital stock
during the periods in which these shares were acquired.

The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Securities Exchange Act of 1934.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
common stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the
representatives to reclaim a selling concession from a syndicate member when the
common stock originally sold by such syndicate member is purchased in a
syndicate covering transaction to cover syndicate short positions. In passive
market making, market makers in the common stock who are underwriters or
prospective underwriters may, subject to certain limitations, make bids for or
purchases of the common stock until the time, if any, at which a stabilizing bid
is made. These stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

The underwriters have advised us that they do not intend to confirm sales
in excess of 5% of the common stock offered hereby to any account over which
they exercise discretionary authority.

Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price was determined by
negotiations between us and the underwriters. Among the factors considered in
these negotiations were prevailing market conditions, the market capitalizations
and the stages of development of other companies that we and the underwriters
believe to be comparable to us, estimates of our business potential, our results
of operation in recent periods, the present state of our development and other
factors deemed relevant.

SG Cowen Securities Corporation acted as the placement agent of a private
placement of our Series C Preferred Stock and, in connection with that
placement, received a customary fee for its services.

We estimate that our out of pocket expenses for this offering will be
approximately $1,000,000.

LEGAL MATTERS

The validity of the common stock offered by this prospectus will be passed
upon for Silicon Entertainment by Gray Cary Ware & Freidenrich LLP, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Brobeck, Phleger & Harrison LLP, San
Francisco, California.

EXPERTS

The financial statements as of February 1, 1998 and January 31, 1999 and
for each of the three years in the period ended January 31, 1999 included in
this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers L.L.P., independent accountants, given on the authority
of said firm as experts in auditing and accounting.

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<PAGE> 69

WHERE TO FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission (SEC) a
registration statement on Form S-1 under the Securities Act with respect to the
common stock offered in this prospectus. When used in this prospectus, the term
"registration statement" includes amendments to the registration statement. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement. The term
"registration statement" means the initial registration statement, including the
exhibits, schedules, financial statements and notes filed as part of the
registration statement, including any and all amendments. This prospectus omits
certain information contained in the registration statement as permitted by the
rules and regulations of the SEC. Investors should read the registration
statement for further information about us and the common stock we are offering
in this prospectus. Statements herein concerning the contents of any contract or
other document are not necessarily complete and in each instance, reference is
made to the copy of such contract or other document filed with the SEC as an
exhibit to the registration statement, each such statement being qualified by
and subject to such reference in all respects. With respect to each such
document filed with the SEC as an exhibit to the registration statement,
reference is made to the exhibit for a more complete description of the matter
involved.

As a result of this offering, we will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended and in
accordance therewith, will file reports and other information with the SEC.
Reports, registration statements, proxy statements and other information filed
by us with the SEC can be inspected and copied at the public reference
facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the SEC's Regional Offices: 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
New York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549. The SEC maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the site is
http://www.sec.gov.

We intend to furnish holders of our common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing unaudited
condensed financial information for the first three quarters of each fiscal
year. We intend to furnish such other reports as it may determine or as may be
required by law.

69
<PAGE> 70

SILICON ENTERTAINMENT, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Deficit......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1
<PAGE> 71

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Silicon Entertainment, Inc.

In our opinion, the accompanying balance sheets, and the related statements
of operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of Silicon Entertainment, Inc. at
February 1, 1998 and January 31, 1999 and the results of its operations and its
cash flows for each of the three years in the period ended January 31, 1999, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

/s/ PricewaterhouseCoopers LLP
San Jose, California

June 7, 1999 (except for Note 11, as to which date is September 9, 1999)

- --------------------------------------------------------------------------------

To the Board of Directors and Stockholders of
Silicon Entertainment, Inc.

The financial statements and notes thereto included herein have been
adjusted to give effect to the reincorporation of the Company in the state of
Delaware and the recapitalization as described more fully in Note 11 to the
financial statements. The above report is in the form that will be signed by
PricewaterhouseCoopers LLP upon the effectiveness of such reincorporation and
recapitalization assuming that, from June 7, 1999 to the effective date of such
reincorporation and recapitalization, no other events shall have occurred that
would affect the accompanying financial statements or notes thereto.

/s/ PricewaterhouseCoopers LLP
San Jose, California

June 7, 1999 (except for Note 11, as to which date is September 9, 1999)

F-2
<PAGE> 72

SILICON ENTERTAINMENT, INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
FEBRUARY 1, JANUARY 31, AUGUST 1, AUGUST 1,
1998 1999 1999 1999
----------- ----------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Currents assets:
Cash and cash equivalents............................ $ 129 $ 606 $ 2,778
Inventory............................................ 54 188 295
Prepaid expenses and other........................... 224 1,611 1,310
------- -------- --------
Total current assets......................... 407 2,405 4,383
Property and equipment, net............................ 2,287 10,322 10,888
Other assets........................................... 71 360 939
------- -------- --------
Total assets................................. $ 2,765 $ 13,087 $ 16,210
======= ======== ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to related parties.................. $ -- $ 1,111 $ 3,832
Accounts payable.................................. 604 3,962 684
Accrued expenses.................................. 349 1,740 1,723
Current portion of capital leases................. 304 992 1,101
------- -------- --------
Total current liabilities.................... 1,257 7,805 7,340
Long-term portion of capital leases.................... 434 2,088 1,969
Long-term debt......................................... -- -- 5,054
------- -------- --------
Total liabilities............................ 1,691 9,893 14,363
------- -------- --------
Commitments (Notes 4 and 5)
Mandatorily redeemable convertible preferred stock,
$0.001 par value:
Authorized: 20,000, 20,000 and 20,000 shares at
February 1, 1998, January 31, 1999 and August 1,
1999 and 500 shares pro-forma; Issued and
outstanding: 5,279, 7,481, 7,888 shares at
February 1, 1998, January 31, 1999 and August 1,
1999 and no pro-forma shares (Liquidation value:
$10,393, $23,602 and $26,047 at February 1, 1998,
January 31, 1999 and August 1, 1999).............. 9,200 21,952 24,370 $ --
------- -------- -------- -------
Stockholders' equity (deficit):
Common stock, $.001 par value:
Authorized: 40,000, 40,000 and 40,000 shares at
February 1, 1998, January 31, 1999 and August 1,
1999 and 100,000 shares pro-forma
Issued and outstanding: 1,798, 2,301 and 2,815
shares at February 1, 1998, January 31, 1999 and
August 1, 1999 and 15,203 shares pro-forma...... 2 2 3 11
Additional paid-in capital........................... 158 1,733 3,698 28,060
Notes receivable from stockholders................... -- -- (247) (247)
Warrants............................................. 1,139 1,379 2,493 2,493
Deferred stock compensation.......................... (76) (1,035) (1,121) (1,121)
Accumulated deficit.................................. (9,349) (20,837) (27,349) (27,349)
------- -------- -------- -------
Total stockholders' equity (deficit)......... (8,126) (18,758) (22,523) 1,847
------- -------- -------- -------
Total liabilities, mandatorily redeemable
convertible preferred stock and
stockholders' equity (deficit)............. $ 2,765 $ 13,087 $ 16,210
======= ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE> 73

SILICON ENTERTAINMENT, INC.

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
YEAR ENDED ENDED
----------------------------------------- ----------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 31, AUGUST 2, AUGUST 1,
1997 1998 1999 1998 1999
----------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Simulator races.................... $ 47 $ 892 $ 4,357 $ 1,218 $ 3,532
Merchandise........................ -- 104 620 148 462
Other.............................. -- 56 405 175 175
------- ------- -------- ------- -------
Total revenues................ 47 1,052 5,382 1,541 4,169
OPERATING EXPENSES
Cost of revenue.................... -- 359 1,907 496 1,599
Direct expense..................... -- 264 1,875 478 1,580
Marketing and licensing............ -- 484 999 456 827
Research and development........... 1,142 1,767 3,043 1,726 703
General and administration......... 1,476 2,322 5,770 2,478 2,811
Depreciation and amortization...... 46 232 957 215 850
Pre-opening expense................ -- 571 1,571 915 66
Stock-based compensation expense... -- 22 589 124 1,073
------- ------- -------- ------- -------
Total operating expenses...... 2,664 6,021 16,711 6,888 9,509
------- ------- -------- ------- -------
Operating loss....................... (2,617) (4,969) (11,329) (5,347) (5,340)
Interest expense..................... 25 223 159 23 1,172
------- ------- -------- ------- -------
Net loss........................ (2,642) (5,192) (11,488) (5,370) (6,512)
Accretion of mandatorily redeemable
convertible preferred stock........ -- (8) (55) (21) (41)
------- ------- -------- ------- -------
Net loss attributable to
common stockholders........ $(2,642) $(5,200) $(11,543) $(5,391) $(6,553)
======= ======= ======== ======= =======
Basic and diluted net loss per share
attributable to common
stockholders....................... $ (1.65) $ (3.67) $ (5.85) $ (2.95) $ (2.63)
======= ======= ======== ======= =======
Shares used in computing basic and
diluted net loss per share
attributable to common
stockholders....................... 1,605 1,417 1,973 1,830 2,489
======= ======= ======== ======= =======
Pro forma basic and diluted net loss
per share attributable to common
stockholders (unaudited)........... $ (1.36) $ (0.65)
======== =======
Shares used in computing pro forma
basic and diluted net loss per
share attributable to common
stockholders (unaudited)........... 8,459 10,071
======== =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE> 74

SILICON ENTERTAINMENT, INC.

STATEMENTS OF STOCKHOLDERS' DEFICIT

(IN THOUSANDS)

<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
--------------- PAID-IN FROM UNEARNED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS WARRANTS COMPENSATION DEFICIT DEFICIT
------ ------ ---------- ------------ -------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, February 5,
1996...................... 1,605 $ 2 $ 1 $ -- $ -- $ -- $ (1,515) $ (1,512)
Net loss.................... -- -- -- -- -- -- (2,642) (2,642)
----- ------ ------ ----- ------ ------- -------- --------
Balances, February 2,
1997...................... 1,605 2 1 -- -- -- (4,157) (4,154)
Accretion of mandatorily
redeemable preferred
stock..................... -- -- (8) -- -- -- -- (8)
Issuance of common stock for
cash...................... 5 -- 1 -- -- -- -- 1
Buyback of common stock from
founder pursuant to
termination in March
1997...................... (252) -- -- -- -- -- -- --
Issuance of common stock for
note receivable........... 325 -- 49 -- -- -- -- 49
Issuance of common stock
pursuant to exercise of
stock options............. 115 -- 17 -- -- -- -- 17
Deferred compensation
related to grants of stock
options................... -- -- 98 -- -- (98) -- --
Amortization of deferred
stock compensation........ -- -- -- -- -- 22 -- 22
Issuance of warrants........ -- -- -- -- 1,139 -- -- 1,139
Net loss.................... -- -- -- -- -- -- (5,192) (5,192)
----- ------ ------ ----- ------ ------- -------- --------
Balances, February 1,
1998...................... 1,798 2 158 -- 1,139 (76) (9,349) (8,126)
Accretion of mandatorily
redeemable preferred
stock..................... -- -- (55) -- -- -- -- (55)
Issuance of common stock for
cash...................... 39 -- 19 -- -- -- -- 19
Issuance of common stock
pursuant to exercise of
stock options............. 466 -- 63 -- -- -- -- 63
Buyback of common stock
pursuant to termination... (2) -- -- -- -- -- -- --
Deferred compensation
related to grants of stock
options................... -- -- 1,548 -- -- (1,548) -- --
Amortization of deferred
stock compensation........ -- -- -- -- -- 589 -- 589
Issuance of warrants........ -- -- -- -- 240 -- -- 240
Net loss.................... -- -- -- -- -- -- (11,488) (11,488)
----- ------ ------ ----- ------ ------- -------- --------
Balances, January 31,
1999...................... 2,301 2 1,733 -- 1,379 (1,035) (20,837) (18,758)
Unaudited:
Accretion of mandatorily
redeemable preferred
stock..................... -- -- (41) -- -- -- -- (41)
Issuance of common stock
pursuant to exercise of
stock options............. 496 1 312 (247) -- -- -- 66
Issuance of stock under
Stock Bonus Plan.......... 1 -- -- -- -- -- -- --
Issuance of stock for
services.................. 17 -- 11 -- -- -- -- 11
Deferred compensation
related to grants of stock
options................... -- -- 1,683 -- -- (1,159) -- 524
Amortization of deferred
stock compensation........ -- -- -- -- -- 1,073 -- 1,073
Issuance of warrants........ -- -- -- -- 1,114 -- -- 1,114
Net loss.................... -- -- -- -- -- -- (6,512) (6,512)
----- ------ ------ ----- ------ ------- -------- --------
Balances, August 1, 1999
(unaudited)............... 2,815 $ 3 $3,698 $(247) $2,493 $(1,121) $(27,349) $(22,523)
===== ====== ====== ===== ====== ======= ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE> 75

SILICON ENTERTAINMENT, INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
ENDED
----------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 31, AUGUST 2, AUGUST 1,
1997 1998 1999 1998 1999
----------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................... $(2,642) $(5,192) $(11,488) $(5,370) $(6,512)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 46 232 957 215 850
Deferred compensation charge................ -- 22 589 124 1,267
Amortization of warrants.................... -- -- -- -- 818
Changes in assets and liabilities:
Prepaid expenses and other assets......... (29) (195) (1,387) (189) 301
Inventories............................... -- (54) (134) (48) (107)
Accounts payable.......................... 88 481 3,358 550 (3,278)
Accrued expenses.......................... 8 415 1,402 283 103
------- ------- -------- ------- -------
Net cash used in operating
activities........................... (2,529) (4,291) (6,703) (4,435) (6,558)
------- ------- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets...................... (340) (2,159) (8,992) (3,385) (1,411)
Sale of fixed assets.......................... 309 621 2,832 -- 483
Increase in other assets...................... (31) (30) (274) (926) (27)
------- ------- -------- ------- -------
Net cash used in investing
activities........................... (62) (1,568) (6,434) (4,311) (955)
------- ------- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable....... 1,720 5,115 1,150 400 9,890
Repayment of notes payable obligation......... (14) -- (50) (400) (2,229)
Repayment of capital lease obligations........ (13) (179) (490) (146) (493)
Proceeds from issuance of mandatorily
redeemable convertible preferred stock, net
of cancellations............................ 1,642 107 12,922 10,828 2,440
Proceeds from issuance of common stock........ -- 66 82 27 77
------- ------- -------- ------- -------
Net cash provided by financing
activities........................... 3,335 5,109 13,614 10,709 9,685
------- ------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................... 744 (750) 477 1,963 2,172
Cash and cash equivalents, beginning of
period........................................ 135 879 129 129 606
------- ------- -------- ------- -------
Cash and cash equivalents, end of period........ $ 879 $ 129 $ 606 $ 2,092 $ 2,778
======= ======= ======== ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING
ACTIVITIES:
Fixed assets acquired under sales/leaseback
arrangements................................ $ 309 $ 621 $ 2,832 $ -- $ 483
======= ======= ======== ======= =======
Conversion of notes payable to Series A
Preferred Stock............................. $ 980 $ -- $ -- $ -- $ --
======= ======= ======== ======= =======
Conversion of notes payable and interest
thereon to Series B preferred stock......... $ 2,344 $ -- $ -- $ -- $ --
======= ======= ======== ======= =======
Conversion of notes payable and interest
thereon to Series C Preferred Stock......... $ -- $ 5,258 $ -- $ -- $ 6
======= ======= ======== ======= =======
Valuation of warrants issued.................. $ -- $ 1,139 $ 225 $ 225 $ 69
======= ======= ======== ======= =======
Accretion of Series C Preferred Stock......... $ -- $ -- $ 55 $ 21 $ 41
======= ======= ======== ======= =======
Cash paid for interest:....................... $ 2 $ 43 $ 173 $ 33 $ --
======= ======= ======== ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE> 76

SILICON ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- NATURE OF BUSINESS:

Silicon Entertainment, Inc. (the "Company"), a California corporation, was
incorporated in November 1994. The Company owns and operates NASCAR Silicon
Motor Speedway racing centers, that provide a racing experience that simulates
the motions, sights and sounds of an actual NASCAR race.

The Company's fiscal year is a 52/53 week year that ends on the Sunday
closest to February 1. Fiscal year references relate to the year that
encompasses the majority of months within the twelve month period. Consequently,
the Company's fiscal 1996, 1997 and 1998 years encompass the years ended
February 2, 1997, February 1, 1998 and January 31, 1999, respectively.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES:

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.

UNAUDITED INTERIM FINANCIAL STATEMENTS

The accompanying balance sheet as of August 1, 1999 and the statements of
operations and cash flows for the twenty-six week period ended August 2, 1998
and August 1, 1999 and the statement of stockholders' deficit for the twenty-six
week period ended August 1, 1999 are unaudited. In the opinion of management,
the unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the financial
position, results of operations, and cash flows for the interim periods. The
results of operations for the twenty-six week period ended August 1, 1999 are
not necessarily indicative of operating results to be expected for the full
fiscal year.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with an original or
remaining maturity of three months or less at the date of purchase to be cash
equivalents.

CERTAIN RISKS AND CONCENTRATIONS

The Company's services are concentrated in the retail entertainment
industry which is highly competitive and rapidly changing. The Company opened
its first racing center in August 1997 and has a limited operating history. The
Company expects to incur significant losses from operations and its future
profitability remains uncertain. The Company also relies on a single product and
the demand for the Company's racing centers is uncertain. The Company's success
also depends in large part upon the success in identifying sites for its racing
centers. Additional financing is required to accomplish the opening of new
racing centers and management is in the process of investigating alternative
methods of financing.

The Company licenses technology that is incorporated into its products from
certain third parties. Any significant interruption in the supply or support of
any licensed software could adversely affect the Company's sales, unless and
until the Company can replace the functionality provided by this licensed
software. Because the Company's race car simulators incorporate software
developed and maintained by third parties, the Company depends on such third
parties to deliver and support reliable products, enhance their current
products, develop new products on a timely and cost-effective basis and respond
to emerging industry standards and other technological changes. The failure of
these third parties to meet these criteria could adversely impact the Company's
business.

F-7
<PAGE> 77
SILICON ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Company licenses certain trademarks and endorsements as part of its
strategy. These trademarks and endorsements authorize the Company to incorporate
their images and designs into the Company's retail racing centers. Certain
agreements contain provisions that allow the licensor to terminate the agreement
upon the occurrence of certain events. The Company's business would be
materially and adversely affected if the Company's rights under the licensing
agreements were diminished or lost.

Cash and cash equivalents are invested in deposits with one major bank in
the United States. Deposits in this bank may exceed the amount of insurance
provided on such deposits. The Company has not experienced any losses on its
deposits of cash and cash equivalents.

REVENUES AND OPERATING EXPENSES

Revenues are generated primarily from the sale of tickets for the Company's
race car simulators. The Company also sells racing-related merchandise at its
racing centers. Other revenue historically has consisted of group sales, such as
parties and corporate events, and accounts for the balance of total revenues.

Revenues from the sale of tickets for the Company's race car simulators and
group sales are recognized when the customer completes a race. Revenues from the
sale of merchandise are recognized at the point of sale.

Cost of revenue includes the cost of merchandise sold and direct racing
center labor and benefits.

Pre-opening expense includes the start-up expenses and other expenses
typically incurred during the two-month period prior to the opening of one of
the Company's racing centers. Pre-opening expenses include compensation,
training, recruiting, relocation, travel, occupancy, supplies and marketing.

INVENTORY

Inventory, which consists of racing-related merchandise, is stated at the
lower of cost (computed using the average cost method which approximates the
first-in, first-out method) or market. Provision, when necessary, has been made
to reduce excess or obsolete inventory to its net realizable value.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts payable and other accrued
liabilities approximate fair value due to their short maturities. Based on
borrowing rates currently available to the Company for loans with similar terms,
the carrying value of the notes payable approximates fair value.

F-8
<PAGE> 78
SILICON ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DEPRECIATION AND AMORTIZATION

Property and equipment are stated at cost less accumulated depreciation and
leasehold amortization. Depreciation and leasehold amortization are calculated
using the straight-line method over the estimated useful lives of the assets, as
follows:

<TABLE>
<S> <C>
Computer and other equipment................................ 3 years
Simulation equipment........................................ 7 years
Software.................................................... 3 to 5 years
Furniture and fixtures...................................... 5 years
Leasehold improvement....................................... Life of lease
</TABLE>

LONG LIVED ASSETS

The Company evaluates the recoverability of its long lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be Disposed of." SFAS No. 121 requires recognition of impairment of long lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.

INCOME TAXES

Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.

STOCK-BASED COMPENSATION

The Company uses the intrinsic value method of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for its
employee stock options and presents disclosure of pro forma information required
under SFAS 123, "Accounting for Stock Based Compensation."

RESEARCH AND DEVELOPMENT COSTS

Costs incurred in the research and development of new software products are
expensed as incurred, including minimum payments made and due to third parties
for technology incorporated into the Company's product, until technological
feasibility is established. Development costs are capitalized beginning when a
product's technological feasibility has been established and ending when the
product is available for general release to customers. To date, products and
enhancements have generally reached technological feasibility and have been
released for incorporation into the Company's product at substantially the same
time.

NET LOSS PER SHARE AND UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY

Basic and diluted net loss per share are computed using the weighted
average number of common shares outstanding. Options, warrants, shares subject
to repurchase and preferred stock were not included in the computation of
diluted net loss per share because the effect would be antidilutive.

Unaudited pro forma net loss per share has been computed as described above
and also gives effect, even if antidilutive, to common equivalent shares from
the mandatorily redeemable convertible preferred stock that will automatically
convert upon the closing of the Company's initial public offering (using the

F-9
<PAGE> 79
SILICON ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

as-if-converted method). If the offering contemplated by this Prospectus is
consummated, all of the mandatorily redeemable convertible preferred stock
outstanding as of the closing date will automatically be converted into an
aggregate of approximately 7,888 shares of common stock based on the shares of
convertible preferred stock outstanding at August 1, 1999 (unaudited). The pro
forma effect of this conversion of preferred stock is presented on the pro forma
balance sheet.

A reconciliation of shares used in the calculation of net loss per share
and unaudited pro forma net loss per share follows:

<TABLE>
<CAPTION>
TWENTY-SIX WEEK
YEAR ENDED PERIOD ENDED
----------------------------------------- ----------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 31, AUGUST 2, AUGUST 1,
1997 1998 1999 1998 1999
----------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss per share, basic and
diluted:
Net loss attributable to common
stockholders.................... $(2,642) $(5,200) $(11,543) $(5,391) $(6,553)
======= ======= ======== ======= =======
Weighted average shares of common
stock outstanding............... 1,605 1,421 2,077 1,919 2,558
Less weighted average shares
subject to repurchase........... -- (4) (104) (89) (69)
------- ------- -------- ------- -------
Shares used in computing net loss
per share, basic and diluted.... 1,605 1,417 1,973 1,830 2,489
======= ======= ======== ======= =======
Net loss per share, basic and
diluted......................... $ (1.65) $ (3.67) $ (5.85) $ (2.95) $ (2.63)
======= ======= ======== ======= =======
Antidilutive options, warrant,
shares subject to repurchase and
preferred stock not included in
loss per share calculations..... 428 1,642 1,896 2,256 1,919
======= ======= ======== ======= =======
Pro forma net loss per share, basic
and diluted:
Net loss........................ $(11,543) $(6,553)
========
Shares used in computing net
loss per share, basic and
diluted....................... 1,973 2,489
Adjustments to reflect the
effect of the assumed
conversion of weighted average
shares of convertible
preferred stock outstanding... 6,486 7,582
-------- -------
Shares used in computing pro
forma net loss per share,
basic and diluted............. $ 8,459 10,071
======== -------
Pro forma net loss per share,
basic and diluted............. $ (1.36) $ (0.65)
======== -------
</TABLE>

COMPREHENSIVE INCOME

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The Company implemented SFAS No. 130 during fiscal 1998
and has restated all prior periods to comply with SFAS No. 130. There was no
difference between the Company's net loss applicable to common stockholders and
its total comprehensive income for the years ended February 2, 1997, February 1,
1998 and January 31, 1999 and for the twenty-six week periods ended August 2,
1998 and August 1, 1999.

F-10
<PAGE> 80
SILICON ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

RECENT PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Investments and Hedging Activities." The statement
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. To date, the Company has not entered into any
derivative financial instruments or hedging activities. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999.

In June 1997, the American Institute of Certified Public Accountants
("AICPA") issued statement of Position 98-1 ("SOP 98-1"), "Accounting for
Internally Developed Software." SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use. The impact of
adopting SOP 98-1, which is effective for the Company in fiscal 1999, is not
expected to have a significant effect on its financial condition and results of
operations.

In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." This standard requires companies to expense the costs of
start-up activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. The Company has
expensed the cost of start up activities in the accompanying financial
statements as incurred.

NOTE 3 -- BALANCE SHEET COMPONENTS (IN THOUSANDS):

<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31, AUGUST 1,
1998 1999 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
PREPAID AND OTHER ASSETS:
Rebate receivable............................... $ 200 $ 974 $ 280
Prepaid rental fees............................. -- 329 1,003
Other........................................... 24 308 27
------ ------- -------
$ 224 $ 1,611 $ 1,310
====== ======= =======
FIXED ASSETS:
Computer and other equipment.................... $ 209 $ 831 $ 2,202
Simulation equipment............................ 1,786 5,341 5,361
Software........................................ 18 115 247
Furniture and fixtures.......................... 41 530 566
Leasehold improvements.......................... 510 4,782 4,634
------ ------- -------
2,564 11,599 13,010
Less accumulated depreciation and
amortization................................. (277) (1,277) (2,122)
------ ------- -------
$2,287 $10,322 $10,888
====== ======= =======
ACCRUED LIABILITIES
Sales taxes..................................... $ 31 $ 234 $ 171
Payroll and related expenses.................... 97 236 240
Deferred revenue................................ 144 335 238
License fees.................................... 25 151 256
Professional services........................... 18 445 777
Other........................................... 34 339 41
------ ------- -------
$ 349 $ 1,740 $ 1,723
====== ======= =======
</TABLE>

F-11
<PAGE> 81
SILICON ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 4 -- NOTES PAYABLE, LONG TERM DEBT AND RELATED PARTY TRANSACTIONS:

Notes payable and long-term debt activity is summarized as follows (in
thousands):

<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31, AUGUST 1,
1998 1999 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
NOTES PAYABLE:
Beginning balance..................................... $ -- $ -- $ 1,111
Notes............................................... 5,115 1,100 4,890
Accrued interest.................................... 143 11 66
Payments made....................................... -- -- (2,229)
Notes and accrued interest converted to Series C
mandatorily redeemable convertible preferred
stock............................................ (5,258) -- (6)
------- ------ -------
$ -- $1,111 $ 3,832
======= ====== =======
</TABLE>

At January 31, 1999, the Company's balance of $1,111 is due on demand to a
founder and certain investors. The founder note of $100 bears interest at 8%.
The investor notes of $1,000 bear interest at 12% per annum. At August 1, 1999,
the Company's balance of $3,832 is due on demand to certain related party
investors. The notes bear interest at rates of between 6% to 13%, payable
semi-annually.

During fiscal 1997, notes totaling $5,115 together with $143 of accrued
interest were converted into Series C mandatorily redeemable convertible
preferred stock at the rate of one share for each $6.00 of debt. Accordingly,
876 shares of Series C mandatorily redeemable convertible preferred stock were
issued.

<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31, AUGUST 1,
1998 1999 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
LONG-TERM DEBT:
Notes............................................... $ -- $ -- $ 5,000
Accrued interest.................................... -- -- 54
------- ------ -------
$ -- $ -- $ 5,054
======= ====== =======
</TABLE>

In June 1999, the Company issued convertible notes to certain investors in
the principal amount of $5,650. The notes bear interest at 8 1/2% per annum and
become due on June 30, 2002. The Company received $5,000 proceeds from these
issuances and will amortize the discount, $650, as additional interest using the
effective interest method over the term of the notes.

The notes are convertible, at the option of the holder, into shares of
common stock at the rate of one share of common stock for each $15 of principal
amount subject to certain adjustments as provided for in the agreements, should
the notes be converted prior to June 30, 2000.

RELATED PARTY TRANSACTIONS:

The Company utilizes management services provided by a related company,
which is owned by a founder of Silicon Entertainment. The Company paid fees to
this company of $91, $125, $203, $90 and $137 during fiscal 1997, 1998, 1999 and
the twenty six week period ended August 2, 1998 (unaudited) and the twenty six
week period ended August 1, 1999 (unaudited), respectively.

F-12
<PAGE> 82
SILICON ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 -- COMMITMENTS :

OPERATING LEASES

The Company leases its facilities and retail locations under noncancelable
operating leases expiring from 2002 to 2010. Total rent expense for the years
ended February 2, 1997, February 1, 1998, January 31, 1999 was $124, $394 and
$1,732, respectively. Future minimum lease payments under noncancelable
operating leases, including lease commitments entered into subsequent to January
31, 1999 are as follows (in thousands):

<TABLE>
<S> <C>
FISCAL YEAR END
1999........................................................ $ 2,024
2000........................................................ 2,779
2001........................................................ 2,975
2002........................................................ 2,954
2003........................................................ 1,975
Thereafter.................................................. 3,511
-------
$16,218
=======
</TABLE>

CAPITAL LEASES

The Company has certain furniture, equipment and software under capital
leases which were acquired under sale-leaseback arrangements expiring in
December 1999 through August 2002. An analysis of leased assets under capital
leases is as follows (in thousands):

<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31, AUGUST 1,
1998 1999 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computers................................. $ 35 $ 65 $ 65
Simulation equipment...................... 859 3,577 3,577
Software.................................. 1 1 1
Furniture and fixtures.................... 35 35 518
Leasehold improvements.................... -- 84 84
---- ------ ------
930 3,762 4,245
Less accumulated depreciation and
amortization............................ (79) (397) (748)
---- ------ ------
$851 $3,365 $3,497
==== ====== ======
</TABLE>

Future minimum lease payments as of January 31, 1999 are as follows (in
thousands):

<TABLE>
<S> <C>
FISCAL YEAR END
1999........................................................ $1,287
2000........................................................ 1,088
2001........................................................ 960
2002........................................................ 324
------
3,659
Less amount representing interest........................... (579)
------
3,080
Less current portion........................................ (992)
------
$2,088
======
</TABLE>

F-13
<PAGE> 83
SILICON ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

On June 30, 1999 (unaudited) the Company entered into a new capital lease
agreement for equipment purchases. The lease term is 36 months and future
minimum lease payments under this agreement are $110, $188, $188 and $151, in
fiscal 1999, 2000, 2001 and 2002 respectively.

LICENSING AGREEMENTS

The Company has various licensing agreements with NASCAR, NASCAR drivers,
team owners and race track owners.

The Company has entered into a licensing agreement with NASCAR under which
NASCAR receives guaranteed minimum royalties and royalties based on a percentage
of each racing center's simulator revenues and merchandise, beverage and food
revenues. Under this agreement, the Company has the right to use the NASCAR
marks and trade dress solely for display in, and promotion of, its racing
centers, all subject to certain limitations on the use of the marks and NASCAR's
prior approval of such uses. The Company's license agreement with NASCAR for the
use of its image and trademarks extends to December 31, 2005 and is exclusive
for a designated category until December 31, 2002, at which time NASCAR has the
sole option to renew the exclusive portion of the agreement. The exclusive
category of the NASCAR license is "operator assisted location-based interactive
stockcar or stock-truck entertainment experiences that consist of no less than
five linked simulator units, with each on a motion-based platform and each
allowing a maximum of two people to participate in each individual simulator
unit." Additionally, under the license each location must be permanent in nature
and in a retail environment. In addition, NASCAR has the right to terminate the
agreement upon the occurrence of certain events.

The Company's licensing relationships with NASCAR drivers generally provide
for the NASCAR drivers to give feedback on the Company's race car simulators and
allow the Company to use the names, voices and likenesses of the NASCAR drivers
for the promotion of its business. All of the agreements also provide that the
NASCAR drivers will make personal appearances and act as spokespeople for the
NASCAR Silicon Motor Speedway experience. The Company uses these NASCAR driver
appearances to promote its racing centers as well as to enhance the racing
experience for the customer. The agreements generally provide that the NASCAR
drivers are compensated by guaranteed fees and the granting of stock options as
consideration for their personal appearances and use of their likenesses. The
agreements typically expire four years after execution and may be terminated by
either party if the other party commits an illegal or immoral act. In addition,
the Company generally has the right to terminate an agreement if the driver
stops racing.

The Company's licensing relationships with the team owners allow the
Company to use the designs and accompanying trademarks of team cars either as
actual simulators, as images on the video screen or simply as computer-generated
cars on the video screen. The agreements generally set forth a schedule of fee
payments and expire three years after execution. They also typically allow the
Company to terminate an agreement if a particular race car is no longer racing.
Some of these agreements are expected to terminate May 31, 2000, unless extended
by mutual agreement.

The Company also has agreements with race track owners that allow the
Company to replicate race tracks. These agreements typically expire three years
after execution and allow the Company to terminate the agreement if the track is
no longer used for certain types of races.

F-14
<PAGE> 84
SILICON ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Future minimum commitments under these agreements as of January 31, 1999
are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR END
--------------------
1999 2000 2001
---- ---- ----
<S> <C> <C> <C>
NASCAR...................................................... $500 $800 $650
Physical cars............................................... 94 4 --
On-screen cars.............................................. 14 -- --
Tracks...................................................... 27 27 27
Consultants................................................. 46 -- --
---- ---- ----
Total............................................. $681 $831 $677
==== ==== ====
</TABLE>

NOTE 6 -- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:

Series A, Series B and Series C mandatorily redeemable convertible
preferred stock were issued following the conversion of notes payable as part of
private placement offerings at $0.60 per share, $1.50 per share and $6.00 per
share, respectively.

The rights, preferences and privileges of the preferred stockholders are as
follows (numbers in thousands):
<TABLE>
<CAPTION>
AUTHORIZED ISSUED AND OUTSTANDING PROCEEDS, NET
--------------------------------------- ---------------------------------------- -----------
FEBRUARY 1, JANUARY 31, AUGUST 1, FEBRUARY 1, JANUARY 31, AUGUST 1, FEBRUARY 1,
1998 1999 1999 1998 1999 1999 1998
----------- ----------- ----------- ----------- ----------- ------------ -----------
STOCK (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Series A............. 1,634 1,634 1,634 1,634 1,634 1,634 $ 973
Series B............. 3,111 3,111 3,111 2,769 2,769 2,769 4,112
Series C............. 2,500 4,250 4,250 876 3,078 3,485 5,246
Undesignated......... 2,755 1,005 1,005 -- -- -- --
------ ------ ------ ------ ------ ------ -------
Total preferred...... 10,000 10,000 10,000 5,279 7,481 7,888 $10,331
====== ====== ====== ====== ====== ====== =======

<CAPTION>
PROCEEDS, NET
--------------------------
JANUARY 31, AUGUST 1,
1999 1999
----------- ------------
STOCK (UNAUDITED)
<S> <C> <C>
Series A............. $ 973 $ 973
Series B............. 4,112 4,112
Series C............. 18,168 20,608
Undesignated......... -- --
------- -------
Total preferred...... $23,253 $25,693
======= =======
</TABLE>

REDEMPTIONS

At any time on or after January 31, 2001, upon request of the holders of
the majority of the then outstanding shares of Series A, Series B, or Series C
Preferred Stock, the holders may require the Company to redeem for cash up to
one-third of the number of such shares outstanding of record on that date (the
Redemption Request). Redemptions of each share shall be made at the original
price plus an amount equal to the amount of all declared or accrued but unpaid
dividends as of that date. A further one-third and one-third of the number of
such shares outstanding shall be redeemed for cash on the first and second
anniversaries of the Redemption Request upon the request of the holders of the
majority of the then outstanding shares of Series A, Series B, or Series C
Preferred Stock.

DIVIDENDS

The holders of Series A, Series B and Series C mandatorily redeemable
convertible preferred stock, in preference to the holders of any common stock of
the Company, shall be entitled to receive, when and as declared by the Board of
Directors, non-cumulative dividends in cash on a pari passu basis at the rate
per annum of $0.06 per share of Series A Preferred Stock and $0.15 per share of
Series B preferred stock, and $0.60 per share of Series C Preferred Stock,
respectively, as adjusted for any consolidations, combinations, stock
distributions, stock splits or similar events. Dividends may be declared and
paid for common stock in any fiscal year of the Company only if dividends on the
preferred stock have been paid or set aside.

F-15
<PAGE> 85
SILICON ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

VOTING

Each share of preferred stock is entitled to vote on an "as converted"
basis along with common stockholders.

CONVERSION RIGHTS

Shares of Series A, Series B and Series C mandatorily redeemable
convertible preferred stock are convertible into fully paid and non-assessable
shares of common stock at the option of the holder or automatically upon a
public offering of the Company's securities with aggregate proceeds to the
Company of at least $10,000,000 and an offering price per share equal to or
greater than $6.00. The conversion rate is one share of common stock for one
share of preferred stock (subject to certain anti-dilution adjustments).

LIQUIDATION RIGHTS

Upon liquidation, dissolution, or winding up of the Company, before any
distribution or payment is made to the holders of common stock, the holders of
Series A, Series B and Series C mandatorily redeemable convertible preferred
stock are entitled to a liquidation preference to common stockholders of $0.60,
$1.5 and $6.00, per share, respectively, plus all declared and unpaid dividends
thereon to the date fixed for such distribution. After setting apart or paying
in full the preferential amount due the holders of preferred stock, the
remaining assets of the Company shall be distributed ratably to the holders of
common stock.

NOTE 7 -- STOCKHOLDERS' EQUITY:

COMMON STOCK

At August 1, 1999, the Company has issued and outstanding 2,815 shares of
its common stock to the founders and key employees of the Company and to
investors under stock purchase agreements. Each share of common stock has the
right to one vote. The holders of common stock are also entitled to receive
dividends whenever funds are legally available and when declared by the Board of
Directors, subject to the prior rights of holders of all classes of stock at the
time outstanding who have prior rights as to dividends.

WARRANTS

During fiscal 1995, 1996, and 1998, in conjunction with notes payable, the
Company issued warrants to purchase 40, 206, and 10 shares of common stock at an
exercise price of $1.50 per share and 10 shares of common stock at an exercise
price of $6.00 per share. During the twenty-six week period ended August 1,
1999, in conjunction with notes payable, the Company issued warrants to purchase
121 shares of common stock at an exercise price of $6.00 per share. The fair
value of the warrants of $1,060 was estimated using the Black-Scholes model and
the following assumptions: divided yield of 0%, volatility of 60%, risk-free
interest rate of 6% and a five year life. The estimated value of the warrants
has been recorded as interest expense.

During 1997, in conjunction with notes payable, the Company issued warrants
to purchase 232 shares of Series C Preferred Stock at an exercise price of $6.00
per share. The fair value of the warrants of $1,433 was estimated using the
Black-Scholes model and the following assumptions: dividend yield of 0%,
volatility of 60%, risk-free interest rate of 6% and a five year life. The
estimated value of the warrants has been recorded as additional consideration
for the notes payable and recorded as a discount on the debt.

During fiscal 1996, 1998 and the twenty-six week period ended August 1,
1999, the Company entered into various equipment line of credit agreements. In
conjunction with these line of credit agreements, the

F-16
<PAGE> 86
SILICON ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Company issued warrants to the institution to purchase 64 shares of Series B
preferred stock at an exercise price of $1.50 per share and 36 shares of Series
C Preferred Stock at an exercise price of $6.00 per share. The estimated fair
value of these warrants is being accreted as interest expense to be amortized
over the term of the lease agreements.

During 1997 and 1998, warrants to purchase 140 shares as Series C Preferred
Stock at an exercise price of $6.00 per share were issued to certain strategic
investors. The estimated fair value of these warrants is being accreted as
marketing and licensing expense over the period of the relationship.

All warrants remain outstanding at August 1, 1999. All warrants generally
have an exercise period of three to five years from the date of issuance. All
warrants terminate upon the completion of an initial public offering with the
exception of warrants to purchase 64,000 shares of Series B Preferred Stock and
warrants to purchase 33,334 shares of Series C Preferred Stock.

STOCK OPTION PLAN

In October 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan") for the issuance of stock options to employees, directors, or consultants
under terms and provisions established by the Board of Directors. The 1996 Plan
expires in 2006. Under the 1996 Plan, the Company is authorized to issue up to
1.85 million shares of Common Stock.

In July 1997, the Company adopted the 1997 Nonstatutory Stock Option Plan
(the "1997 Plan"). The 1997 Plan provides for the issuance of non qualified
stock options to Company employees and consultants. The Company has reserved
approximately 625,000 shares of common stock for issuance under the Plan.

In June 1998, the Company adopted the 1998 Executive Stock Option Plan (the
"1998 Plan") and reserved 350,000 shares of common stock for issuance under the
Plan. The 1998 Plan provides for the issuance of shares to executives of the
Company.

In July 1998, the Company adopted the Stock Bonus Plan and reserved 15,000
shares of common stock for issuance under the plan.

Options to purchase the Company's common stock may be granted at a price
not less than 85% of fair market value in the case of nonstatutory stock
options, and at fair market value in the case of incentive stock options. Fair
market value is determined by the Board of Directors. Options become exercisable
as determined by the Board of Directors but generally at a rate of 25% after the
first year and 1/48 per month thereafter. Options expire as determined by the
Board of Directors but not more than ten years after the date of grant.

F-17
<PAGE> 87
SILICON ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Activity under the Company's stock option plan is set forth below:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------
WEIGHTED
AVAILABLE AVERAGE
FOR PRICE PER EXERCISE
GRANT SHARES SHARE AMOUNT PRICE
--------- ------ ---------- ------ --------
<S> <C> <C> <C> <C> <C>
Shares reserved......................... 487 -- $ -- -- $0.15
Options granted......................... (154) 154 0.15 23 0.15
------ ----- ---------- ------ -----
Balance, February 2, 1997............... 333 154 0.15 23 0.15
Additional shares reserved.............. 1,235 -- -- -- 0.15
Options granted......................... (1,055) 1,055 0.15 158 0.15
Options canceled........................ 9 (9) 0.15 (1) 0.15
Options exercised....................... (115) 0.15 (17) 0.15
------ ----- ---------- ------ -----
Balance, February 1, 1998............... 522 1,085 0.15 163 0.15
Additional shares reserved.............. 375 -- -- -- 0.15
Options granted......................... (929) 929 0.15-1.00 678 0.73
Options canceled........................ 342 (342) 0.15-1.00 (97) 0.28
Options exercised....................... -- (466) 0.15-0.70 (75) 0.16
------ ----- ---------- ------ -----
Balance, January 31, 1999............... 310 1,206 0.15-1.00 669 0.55
Additional shares reserved.............. 952 -- -- -- --
Options granted (unaudited)............. (449) 449 1.00-6.00 1,752 3.90
Options canceled (unaudited)............ 53 (53) 0.15-1.00 (39) 0.73
Options exercised (unaudited)........... -- (497) 0.15-1.00 (314) 0.63
------ ----- ---------- ------ -----
Balance, August 1, 1999................. 866 1,105 $0.15-6.00 $2,068 $1.87
====== ===== ========== ====== =====
</TABLE>

The following table summaries information with respect to stock options
outstanding at January 31, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
- -----------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE
PRICE OUTSTANDING LIFE IN YEARS PRICE
- ------------ ----------- ------------- --------
<S> <C> <C> <C>
$ 0.15 457 8.50 $0.15
0.50 54 9.25 0.50
0.70 408 9.33 0.70
1.00 287 9.54 1.00
-----
$0.15 - 1.00 1,206 $0.55
=====
</TABLE>

F-18
<PAGE> 88
SILICON ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes information with respect to stock options
outstanding at August 1, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
- -----------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE
PRICE OUTSTANDING LIFE IN YEARS PRICE
- ------------ ----------- ------------- --------
<S> <C> <C> <C>
$ 0.15 284 7.92 $0.15
0.50 29 8.75 0.50
0.70 282 8.83 0.70
1.00 250 9.42 1.00
6.00 260 9.87 6.00
-----
$0.15 - 6.00 1,105 $1.87
=====
</TABLE>

DEFERRED STOCK COMPENSATION

During fiscal year end 1997, 1998 and the twenty-six week period ended
August 1, 1999, the Company issued options to certain employees under the Plan
with exercise prices below the deemed fair market value for financial reporting
purposes of the Company's common stock at the date of grant. In accordance with
the requirements of APB 25, the Company has recorded deferred compensation for
the difference between the exercise price of the stock options and such deemed
fair market value at the date of grant. This deferred compensation is amortized
to expense over the period during which the Company's right to repurchase the
stock lapses or the options become exercisable, generally four years.

In connection with the grant of options for the purchase of 2,587 shares of
Common Stock to employees during the period from October 1996 through August 1,
1999, the Company recorded aggregate deferred compensation expense of
approximately $98 in fiscal 1997, $1,548 in fiscal 1998 and $1,159 in the
twenty-six week period ended August 1, 1999. Such deferred compensation will be
amortized over the forty-eight month vesting period relating to these options,
of which approximately $22, $589 and $1,073 has been amortized during the fiscal
years ending 1997 and 1998 and the twenty-six week period ended August 1, 1999,
respectively, and is included in the statement of operations within the caption
"operating expenses."

The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Had compensation cost been determined based on
the fair value at the grant date for awards in fiscal year end 1996, 1997 and
1998 consistent with the provisions of SFAS No. 123, the Company's net loss for
fiscal year end 1996, 1997 and 1998 would have been as follows:

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net loss attributable to common
stockholders -- as reported............... $(2,642) (5,200) (11,543)
Net loss attributable to common
stockholders -- pro forma................. $(2,643) (5,225) (11,634)
Net loss per share as reported.............. $ (1.65) (3.67) (5.85)
Net loss per share -- pro forma............. $ (1.65) (3.69) (5.90)
</TABLE>

F-19
<PAGE> 89
SILICON ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Such pro forma disclosure may not be representative of future compensation
cost because options vest over several years and additional grants are made each
year.

The fair value of each option grant has been estimated on the date of grant
using the minimum value method with the following weighted-average assumptions
used for grants in fiscal 1996, 1997 and 1998:

<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Expected average life of option................... 5 years 5 years 5 years
Risk-free interest rate........................... 6.25% 6.27% 5.38%
Expected dividends................................ -- -- --
Expected volatility............................... 60% 60% 60%
</TABLE>

The weighted average per share value of common stock options granted during
fiscal 1996, 1997 and 1998 were $0.00, $0.02 and $0.45, respectively.

NOTE 8 -- INCOME TAXES:

The tax effect of temporary differences that give rise to significant
components of the net deferred tax asset are as follows (in thousands):

<TABLE>
<CAPTION>
FEBRUARY 2, FEBRUARY 1, JANUARY 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Research and development.................... $ 579 $ 998 $ 1,571
Net operating loss carryforward............. 875 2,392 5,800
Research and development credit
carryforward.............................. 100 268 457
Other....................................... -- (7) (32)
------- ------- --------
Total............................. 1,554 3,651 7,796
Less: Valuation allowance................... (1,554) (3,651) (7,796)
------- ------- --------
Net deferred tax asset...................... $ -- $ -- $ --
======= ======= ========
</TABLE>

As of January 31, 1999, the Company had approximately $15,550 and $10,243
for federal and state net operating loss carryforwards, respectively, available
to offset future regular and alternative minimum taxable income. As of January
31, 1999, the Company had approximately $273 and $184 of federal and state
research and development tax credits available to offset future U.S. federal and
state income taxes. The Company's federal and state net operating loss and
research and development carryforwards expire between January 1, 2003 and
January 31, 2019, if not used before such time to offset future taxable income
or tax liabilities. For federal and state income tax purposes, a portion of the
Company's net operating loss and research and development credit carryforwards
is subject to certain limitations on annual utilization as a result of a change
in ownership, as defined by federal and state tax laws.

Management believes that, based on a number of factors, it is more likely
than not that the deferred tax assets will not be utilized, such that a full
valuation allowance has been recorded. The valuation allowance increased by
$1,004, $2,097 and $4,145 in fiscal 1996, 1997 and 1998, respectively.

F-20
<PAGE> 90
SILICON ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The Company's effective tax rate differs from the statutory federal income
tax rate as shown in the following schedule:

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
FEBRUARY 2, FEBRUARY 1, JANUARY 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rate........... (34)% (34)% (34)%
Net operating loss not benefited............ 34% 34% 34%
---- ---- ----
Net deferred tax asset...................... $ --% $ --% --%
==== ==== ====
</TABLE>

NOTE 9 -- SIGNIFICANT CUSTOMER AND GEOGRAPHIC INFORMATION:

The Company has adopted the Financial Accounting Standards Board's
Statements of Financial Accounting Standards No. 131, or SFAS 131, "Disclosure
about Segments of an Enterprise and Related Information," effective for fiscal
years beginning after December 31, 1997.

The Company has one reportable segment. Management uses one measurement of
profitability for its business. The Company markets its products and related
services to customers in the United States.

No customer individually accounted for more than 10% of revenue in fiscal
1996, 1997 or 1998 or the twenty-six week periods ended August 2, 1998 and
August 1, 1999.

NOTE 10 -- PROFIT SHARING PLAN:

The Company sponsors a 401(k) Profit Sharing Plan covering all of its
full-time employees who have completed 60 days of services. Under this plan,
participating employees may defer up to 20% of their cash pre-tax earnings,
subject to certain limitations. The Company may elect to make contributions to
the plan at the discretion of the Board of Directors. No contributions have been
made by the Company as of August 1, 1999.

NOTE 11 -- SUBSEQUENT EVENTS:

INITIAL PUBLIC OFFERING REGISTRATION

On August 24, 1999, the board of directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission covering the proposed sale of its common stock to the public.

REINCORPORATION

On August 24, 1999, the board of directors authorized the reincorporation
of the Company in the state of Delaware subject to shareholder approval. Under
the new certificate of incorporation in Delaware, the Company is authorized to
issue 100,000,000 shares of common stock at $0.001 par value and 500,000 shares
of preferred stock at $0.001 par value.

RECAPITALIZATION

On August 24, 1999, the board of directors authorized a one-for-two reverse
split of the outstanding shares of mandatorily redeemable convertible preferred
stock and common stock. All share data is restated to reflect the stock split.

CONVERTIBLE DEBT

In September 1999, the Company issued convertible notes to certain
investors in the principal amount of $5.5 million. The notes bear interest at
12% per annum and are due in March 2001. The notes are convertible, at the
option of the holder, into shares of common stock at the rate of one share of
common stock for each $10 of principal amount. The notes may be repaid at the
Company's option after 90 days. Concurrent with the issuance of these notes, the
Company issued warrants to the holders to purchase an

F-21
<PAGE> 91
SILICON ENTERTAINMENT, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

aggregate of 68,750 shares of common stock at an exercise price of $10.80 per
share. The warrants terminate five years after the date the Company issued the
notes.

STOCK OPTION ACTIVITY

On August 24, 1999, the Company granted options to purchase 33,250 shares
at an exercise price of $10.80 per share.

A total of 31,098 options have been exercised in the period form August 2,
1999 to September 16, 1999 at a weighted average exercise price of $2.00.

F-22
<PAGE> 92

INSIDE FRONT COVER OF PROSPECTUS:

Graphic depicts the NASCAR Silicon Motor Speedway logo in the shape of a rotated
oval with the tagline "Racing so real you can feel it" situated along the base
of the oval.

INSIDE GATEFOLD:

Graphic is a rectangle depicting the inside of one of Silicon Entertainment's
racing centers.

The top left hand corner of the graphic depicts the "NASCAR Silicon Motor
Speedway" logo in the shape of a rotated oval, with the slogan "Racing so real
you can feel it" situated along the base of the oval.

Centered at the top of the graphic is the following caption: "NASCAR Silicon
Motor Speedway" with the caption "We're putting fans in the driver's seat" just
beneath it.

Two smaller graphics are overlayed on top of the larger rectangular graphic. The
first is located just beneath the NASCAR Silicon Motor Speedway logo and is a
square-shaped graphic with a caption entitled "www.SMSonline.com." This graphic
depicts an online view of a frame of Silicon Entertainment's Web site. The
second small graphic is a rectangle situated along the bottom of the larger
graphic which contains two smaller pictures of the outside of one of Silicon
Entertainment's racing centers and an outside view of a customer racing a race
car simulator. This graphic has a caption entitled "Palisades Center West Nyack,
NY."

INSIDE BACK COVER OF PROSPECTUS:

The graphic depicts a view of two customers racing from inside a race car
simulator.

The top of the graphic bears a long horizontal oval inside which is the caption
"NASCAR Silicon Motor Speedway Team of Drivers." Just under this caption is a
rectangular picture of nine uniformed NASCAR drivers.

One smaller graphic is located in the bottom left and is overlayed on top of the
larger graphic. This graphic has a caption entitled "Racing Gear" and depicts
two customers perusing the merchandise at a racing center.
<PAGE> 93

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

4,500,000 SHARES

LOGO

COMMON STOCK

-------------------------
PROSPECTUS
-------------------------

SG COWEN
CIBC WORLD MARKETS
J.C. BRADFORD & CO.
E*OFFERING

, 1999

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 94

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the common stock being registered. All amounts shown are estimates except for
the registration fee, the NASD filing fee and the Nasdaq National Market fee.

<TABLE>
<S> <C>
Registration fee............................................ $ 14,387
NASD filing fee............................................. 5,675
Nasdaq National Market fee..................................
Blue sky qualification fees and expenses....................
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 200,000
Transfer agent and registrar fees...........................
Miscellaneous...............................................
----------
Total............................................. $1,000,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

Section 145 of the Delaware Law permits indemnification of officers,
directors and other corporate agents under certain circumstances and subject to
certain limitations. The Registrant's Certificate of Incorporation and By-laws
provide that the Registrant shall indemnify its directors, officers, employees
and agents to the full extent permitted by the Delaware Law, including
circumstances in which indemnification is otherwise discretionary under Delaware
law. In addition, the Registrant has entered into separate indemnification
agreements with its directors and executive officers which require the
Registrant, among other things, to indemnify them against certain liabilities
which may arise by reason of their status or service (other than liabilities
arising from acts or omissions not in good faith or willful misconduct).

These indemnification provisions and the indemnification agreements entered
into between the Registrant and its executive officers and directors may be
sufficiently broad to permit indemnification of the Registrant's executive
officers and directors for liabilities (including reimbursement of expenses
incurred) arising under the Securities Act.

The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since January 1, 1996, we sold and issued the following unregistered
securities:

1. From inception through August 1, 1999, we granted stock options to
purchase an aggregate of 2,588,141 shares of our common stock at an average
weighted exercise price of approximately $1.90 per share to employees,
consultants, directors and other service providers pursuant to our 1996
Stock Option Plan, 1997 Nonstatutory Stock Option Plan, and 1998 Executive
Stock Option Plan.

2. From inception through August 1, 1999, we issued and sold an
aggregate of 1,078,368 shares of our common stock to employees,
consultants, directors and other service providers for aggregate
consideration of approximately $2,050,085 pursuant to exercise of options
granted under our 1996 Stock Option Plan, 1997 Nonstatutory Stock Option
Plan, and 1998 Executive Stock Option Plan. Of the $2,050,085
consideration, $382,000 was received in the form of promissory notes and
$1,558 was received in the form of prior services rendered.

II-1
<PAGE> 95

3. From January 5, 1996 through May 16, 1996, in connection with the
issuance of promissory notes, we issued warrants to certain of our existing
private investors to purchase an aggregate of 106,667 shares of our common
stock at an exercise price of $1.50 per share.

4. On February 7, 1996, we sold 1,633,334 shares of Series A Preferred
Stock for $0.60 per share to a private investor for an aggregate purchase
price of $980,000.10.

5. On October 15, 1996, in connection with an equipment lease line, we
issued a warrant to Phoenix Leasing Incorporated to purchase 26,667 shares
of our Series B Preferred Stock at an exercise price of $1.50 per share.

6. From May 16, 1996 through May 12, 1997, we issued and sold an
aggregate of 2,769,016 shares of Series B Preferred Stock for $1.50 per
share to a group of private investors for an approximate aggregate purchase
price of $4,153,524.

7. From March 27, 1997 through November 19, 1997, we issued warrants
to certain of our existing private investors to purchase an aggregate of
232,584 shares of our Series C Preferred Stock at an exercise price of
$6.00 per share.

8. On August 14, 1997, in connection with a strategic partnership and
license transaction, we issued a warrant to one of our strategic partners
to purchase 50,000 shares of our Series C Preferred Stock at an exercise
price of $6.00 per share.

9. On August 18, 1997, in connection with a strategic partnership and
licensing agreement, we issued an option to one of our strategic partners
to purchase 20,000 shares of our common stock at $0.15 per share.

10. From December 1997 through July 1999, we issued and sold an
aggregate of 3,485,449 shares of Series C Preferred Stock for $6.00 per
share to a group of private investors for an aggregate purchase price of
$20,912,676. SG Cowen Securities Corporation acted as a broker in this
transaction.

11. On April 23, 1998, in connection with a strategic partnership
transaction, we issued a warrant to John Force to purchase 7,500 shares of
our Series C Preferred Stock at an exercise price of $6.00 per share.

12. On May 17, 1998, in connection with a strategic partnership
transaction, we issued a warrant to Simon Investors to purchase 25,000
shares of our Series C Preferred Stock at an exercise price of $6.00 per
share.

13. On July 1, 1998, in connection with a strategic partnership
transaction, we issued a warrant to Action Performance Companies to
purchase 20,000 shares of our Series C Preferred Stock at an exercise price
of $6.00 per share.

14. On July 1, 1998, in connection with an equipment lease line, we
issued a warrant to Phoenix Growth Capital Corporation to purchase 13,334
shares of our Series C Preferred Stock at an exercise price of $6.00 per
share.

15. From February 2, 1999 through June 18, 1999, we granted 2,413
shares of our common stock to our employees pursuant to our 1999 Employee
Stock Bonus Plan. Of these shares, 1,525 shares have been exercised.

16. From January 22, 1999 through July 1, 1999, we issued warrants to
certain of our existing private investors to purchase an aggregate of
131,000 shares of our common stock at an exercise price of $6.00 per share.

17. On June 17, 1999, we issued a warrant to LINC to purchase 3,224
shares of our Series C Preferred Stock in connection with a capital
equipment lease agreement.

II-2
<PAGE> 96

18. On July 1, 1999, we issued a warrant to Pentech Financial
Services, Inc. to purchase 20,000 shares of our Series C Preferred Stock at
$6.00 per share in connection with a capital equipment lease agreement.

19. On June 30, 1999, we issued a secured subordinated convertible
note to each of Galladio Holding B.V., Wagenaarkwartier's-Gravenhage B.V.
and Van der Lee Partnership in the principal amount of $2,260,000,
$2,260,000 and $1,130,000, respectively. All of these notes are convertible
into shares of our common stock.

20. From June 16, 1999 to September 9, 1999, we issued promissory
notes in an aggregate amount of $8,803,166 to various investors, $5,780,000
of which is convertible into shares of our common stock.

21. On February 2, 1999, we issued an option to purchase 100,000
shares of our common stock at $1.00 per share to one of our strategic
partners in connection with a strategic partnership and license agreement.

22. On April 23, 1998, August 11, 1998 and June 17, 1999, we issued
1,817, 3,421 and 4,420 shares, respectively, of our common stock at $0.50,
$1.00 and $6.00 per share, respectively, to Michael DiLorenzo in connection
with consultant stock purchase agreements.

23. On June 17, 1999, we issued 4,000 and 1,000 shares of our common
stock at $6.00 per share to Nagle & Ferri, L.L.C. and Michael Nichols,
respectively, in connection with a consultant stock purchase agreement.

24. On February 2, 1999 and April 7, 1999, we issued an aggregate of
3,393 shares of our common stock at $1.00 per share to Madeline Canepa in
connection with a consultant common stock purchase agreement.

There were no underwriters employed in connection with any of the
transactions set forth in Item 15.

The issuances described in Items 15.3 through 15.14 and 15.16 through 15.23
were deemed to be exempt from registration under the Securities Act in reliance
on Section 4(2) of the Securities Act as transactions by an issuer not involving
a public offering. In addition, the issuances described in Item 15.1, 15.2 and
15.15 were deemed exempt from registration under the Securities Act in reliance
on Rule 701 promulgated thereunder as transactions pursuant to compensatory
benefit plans and contracts relating to compensation. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) EXHIBITS.

II-3
<PAGE> 97

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
**10.3 1997 Nonstatutory Stock Option Plan and form of Nonstatutory
Stock Option Agreement thereunder.
**10.4 1998 Executive Stock Option Plan and forms of Incentive
Stock Option Agreement and Nonstatutory Stock Option
Agreement thereunder.
**10.5 Stock Bonus Plan and form of Stock Bonus Agreement
thereunder.
*10.6 1999 Employee Stock Purchase Plan and form of subscription
agreement thereunder.
**10.7+ License Agreement by and between National Association for
Stock Car Auto Racing, Inc. and the Registrant, dated August
18, 1997, as amended.
**10.8+ The Registrant and Action Performance Companies, Inc.
Terms -- Strategic Partnership, dated April 20, 1998.
**10.9+ Letter Agreement with Simon Investors, LLC, dated May 17,
1998.
**10.10+ Industrial Complex Lease (California) between MP Hacienda,
Inc. and the Registrant, dated as of April 30, 1998.
**10.11+ Dallas Galleria Lease between Dallas Galleria Limited as
"Landlord" and the Registrant, as "Tenant" d/b/a/ Nascar
Silicon Motor Speedway, dated as of May 22, 1998, as
amended.
**10.12+ Lease by and between Mall of America Company, a Minnesota
General Partnership, and the Registrant, dated as of August
12, 1997.
**10.13+ Irvine Retail Properties Company Retail Space Lease, dated
as of April 22, 1998.
**10.14+ The Palisades Center Shopping Center Lease, dated as of July
27, 1998.
**10.15+ Lease, the Registrant, Tenant, "NASCAR Silicon Motor
Speedway," Trade Name, Woodfield Mall, dated as of December
18, 1997.
**10.16+ Lease, the Registrant, Tenant, NASCAR Silicon Motor Speedway
and/or Silicon Motor Speedway, Trade Name, Concord Mills,
dated as of June 30, 1999.
**10.17+ Lease, the Registrant, Tenant, NASCAR Silicon Motor Speedway
and/or Silicon Motor Speedway, Trade Name, Katy Mills, dated
as of March 17, 1999.
**10.18+ Universal Studios CityWalk Hollywood Lease between Universal
Studios CityWalk Hollywood, a division of Universal Studios,
Inc. as Landlord and the Registrant, executed as of July 20,
1999.
**10.19+ Standard Shopping Center Lease, dated as of August 12, 1999
(Walden Galleria, Buffalo, New York).
**10.20+ Standard Shopping Center Lease, dated as of August 12, 1999
(Crossgates Mall, Albany, New York).
**10.21+ Retail Lease Agreement between Peabody Place Centre, L.P., a
Tennessee limited partnership and the Registrant dated as of
May 24, 1999.
**10.22+ Standard Shopping Center letter, dated as of August 18, 1999
(Carousel Center, Syracuse, New York).
**10.23+ Lease, the Registrant, Tenant, NASCAR Silicon Motor Speedway
and/or Silicon Motor Speedway, Trade Name, Opry Mills, dated
as of August 23, 1999.
10.24+ Agreement of Lease between Mall of Georgia, L.L.C. and the
Registrant, dated as of September 23, 1999.
10.25 Service Agreement by and among the Registrant, Dale
Earnhardt, Inc. and Richard Childress Racing, dated as of
April 30, 1997.
10.26 Jeff Gordon Personal Services and Endorsement Agreement by
and among the Registrant, Jeff Gordon, Inc. and Jeff Gordon,
dated as of January 1, 1998.
10.27 Licensing Agreement by and between the Registrant and Dale
Jarrett, dated as of March 24, 1997.
10.28 Licensing Agreement by and between the Registrant and Rusty
Wallace Inc., dated as of March 1, 1997.
10.29 License Agreement (Auto Design) by and between the
Registrant and Robert Yates Racing, Inc., dated as of
February 28, 1997.
</TABLE>

II-4
<PAGE> 98

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
*10.30 Note Purchase Agreement by and among the Registrant,
Galladio Holding, Wagenaarkwartier and E.M.H. van der Lee,
dated as of June 30, 1999.
*10.31 Note Purchase Agreement by and among the Registrant and
Galladio Holding, van der Lee Partnership, E.M.H. van der
Lee E.W. van der Lee and Manschot Opportunity Fund, dated as
of September 9, 1999.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Public
Accountants.
*23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in
Exhibit 5.1).
**24.1 Power of Attorney.
</TABLE>

- -------------------------
* To be filed by amendment.

** Previously filed.

+ Confidential treatment has been requested for portions of this exhibit.

(b) FINANCIAL STATEMENT SCHEDULES.

No schedules have been filed because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, employee or agent of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, employee or agent in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-5
<PAGE> 99

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Campbell, County of Santa Clara, State of California, on the 21st day of
October, 1999.

SILICON ENTERTAINMENT, INC.

By: /s/ ROSS C. MULHOLLAND

------------------------------------

Ross C. Mulholland

Vice President Finance, Chief
Financial Officer

and Principal Accounting Officer

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ DAVID S. MORSE* Chairman of the Board, Chief October 21, 1999
- --------------------------------------------- Executive Officer and President
David S. Morse

/s/ ROSS C. MULHOLLAND Vice President Finance, Chief October 21, 1999
- --------------------------------------------- Financial Officer and Principal
Ross C. Mulholland Accounting Officer

/s/ WILLIAM HART* Director October 21, 1999
- ---------------------------------------------
William Hart

/s/ ROBERT H. MANSCHOT* Director October 21, 1999
- ---------------------------------------------
Robert H. Manschot

/s/ CHRISTOPHER S. BESING* Director October 21, 1999
- ---------------------------------------------
Christopher S. Besing

/s/ ROBERT V. CHEADLE* Director October 21, 1999
- ---------------------------------------------
Robert V. Cheadle

*By: /s/ ROSS C. MULHOLLAND
- ---------------------------------------------
Ross C. Mulholland
Attorney-in-Fact
</TABLE>

II-6
<PAGE> 100

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
* 1.1 Form of Underwriting Agreement.
* 3.1 Restated Certificate of Incorporation of the Registrant.
* 3.2 Amended and Restated Bylaws of the Registrant.
** 4.1 Third Amended and Restated Rights Agreement, dated as of
December 31, 1998, as amended to date.
* 4.2 Specimen Common Stock Certificate.
* 5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
*10.1 Form of Indemnification Agreement for directors and
executive officers.
**10.2 1996 Stock Option Plan and forms of Incentive Stock Option
Agreement and Nonstatutory Stock Option Agreement
thereunder.
**10.3 1997 Nonstatutory Stock Option Plan and form of Nonstatutory
Stock Option Agreement thereunder.
**10.4 1998 Executive Stock Option Plan and forms of Incentive
Stock Option Agreement and Nonstatutory Stock Option
Agreement thereunder.
**10.5 Stock Bonus Plan and form of Stock Bonus Agreement
thereunder.
**10.6 1999 Employee Stock Purchase Plan and form of subscription
agreement thereunder.
**10.7+ License Agreement by and between National Association for
Stock Car Auto Racing, Inc. and the Registrant, dated August
18, 1997, as amended.
**10.8+ The Registrant and Action Performance Companies, Inc. Terms
-- Strategic Partnership, dated April 20, 1998.
**10.9+ Letter Agreement with Simon Investors, LLC, dated May 17,
1998.
**10.10+ Industrial Complex Lease (California) between MP Hacienda,
Inc. and the Registrant, dated as of April 30, 1998.
**10.11+ Dallas Galleria Lease between Dallas Galleria Limited as
"Landlord" and the Registrant, as "Tenant" d/b/a/ Nascar
Silicon Motor Speedway, dated as of May 22, 1998, as
amended.
**10.12+ Lease by and between Mall of America Company, a Minnesota
General Partnership, and the Registrant, dated as of August
12, 1997.
**10.13+ Irvine Retail Properties Company Retail Space Lease, dated
as of April 22, 1998.
**10.14+ The Palisades Center Shopping Center Lease, dated as of July
27, 1998.
**10.15+ Lease, the Registrant, Tenant, "NASCAR Silicon Motor
Speedway," Trade Name, Woodfield Mall, dated as of December
18, 1997.
**10.16+ Lease, the Registrant, Tenant, NASCAR Silicon Motor Speedway
and/or Silicon Motor Speedway, Trade Name, Concord Mills,
dated as of June 30, 1999.
**10.17+ Lease, the Registrant, Tenant, NASCAR Silicon Motor Speedway
and/or Silicon Motor Speedway, Trade Name, Katy Mills, dated
as of March 17, 1999.
**10.18+ Universal Studios CityWalk Hollywood Lease between Universal
Studios CityWalk Hollywood, a division of Universal Studios,
Inc. as Landlord and the Registrant, executed as of July 20,
1999.
**10.19+ Standard Shopping Center Lease, dated as of August 12, 1999
(Walden Galleria, Buffalo, New York).
**10.20+ Standard Shopping Center Lease, dated as of August 12, 1999
(Crossgates Mall, Albany, New York).
**10.21+ Retail Lease Agreement between Peabody Place Centre, L.P., a
Tennessee limited partnership and the Registrant dated as of
May 24, 1999.
**10.22+ Standard Shopping Center letter, dated as of August 18, 1999
(Carousel Center, Syracuse, New York).
**10.23+ Lease, the Registrant, Tenant, NASCAR Silicon Motor Speedway
and/or Silicon Motor Speedway, Trade Name, Opry Mills, dated
as of August 23, 1999.
</TABLE>

<PAGE> 101

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
10.24+ Agreement of Lease between Mall of Georgia, L.L.C. and the
Registrant, dated as of September 23, 1999.
10.25 Service Agreement by and among the Registrant, Dale
Earnhardt, Inc. and Richard Childress Racing, dated as of
April 30, 1997.
10.26 Jeff Gordon Personal Services and Endorsement Agreement by
and among the Registrant, Jeff Gordon, Inc. and Jeff Gordon,
dated as of January 1, 1998.
10.27 Licensing Agreement by and between the Registrant and Dale
Jarrett, dated as of March 24, 1997.
10.28 Licensing Agreement by and between the Registrant and Rusty
Wallace Inc., dated as of March 1, 1997.
10.29 License Agreement (Auto Design) by and between the
Registrant and Robert Yates Racing, Inc., dated as of
February 28, 1997.
*10.30 Note Purchase Agreement by and among the Registrant,
Galladio Holding, Wagenaarkwartier and E.M.H. van der Lee,
dated as of June 30, 1999.
*10.31 Note Purchase Agreement by and among the Registrant and
Galladio Holding, van der Lee Partnership, E.M.H. van der
Lee, E.W. van der Lee and Manschot Opportunity Fund, dated
as of September 9, 1999.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Public
Accountants.
*23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in
Exhibit 5.1).
**24.1 Power of Attorney.
</TABLE>

- -------------------------
* To be filed by amendment.

** Previously filed.

+ Confidential treatment has been requested for portions of this exhibit.

<PAGE> 1
Exhibit 10.24

PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED BASED ON A
REQUEST FOR CONFIDENTIAL TREATMENT

AGREEMENT OF LEASE
BETWEEN
MALL OF GEORGIA, L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY
AND
SILICON ENTERTAINMENT, INC.
D/B/A "NASCAR SILICON MOTOR SPEEDWAY" OR "SILICON MOTOR SPEEDWAY"
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TABLE OF CONTENTS

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ARTICLE 1 Definitions....................................................................................... 1-1

ARTICLE 2 Construction ..................................................................................... 2-1

Section 2.1 Tenant's Work...................................................................... 2-1
Section 2.2 Performance of Tenant's Work....................................................... 2-1
Section 2.3 Remedies for Tenant's Failure or Delay to Submit Plans
or Perform Work............................................................... 2-2
Section 2.4 Ownership of Improvements.......................................................... 2-2
Section 2.5 Failure to Open or to do Business.................................................. 2-2
Section 2.6 Remodeling of Premises............................................................. 2-2

ARTICLE 3 Rent ............................................................................................. 3-1
Section 3.1 Payment............................................................................ 3-1
Section 3.2 Fixed Rent......................................................................... 3-1
Section 3.3 Percentage Rent.................................................................... 3-1
Section 3.4 Tax Rent........................................................................... 3-3
Section 3.5 Common Area Rent................................................................... 3-5
Section 3.6 Additional Rent.................................................................... 3-8
Section 3.7 Rent for a Partial Month........................................................... 3-8
Section 3.8 Late Charges and Interest.......................................................... 3-8
Section 3.9 Taxes.............................................................................. 3-8

ARTICLE 4 Common Areas ..................................................................................... 4-1
Section 4.1 Common Areas....................................................................... 4-1

ARTICLE 5 Landlord's Additional Covenants................................................................... 5-1
Section 5.1 Repairs by Landlord................................................................ 5-1
Section 5.2 Quiet Enjoyment.................................................................... 5-1

ARTICLE 6 Tenant's Additional Covenants..................................................................... 6-1
Section 6.1 Affirmative Covenants.............................................................. 6-1
Section 6.2 Negative Covenants................................................................. 6-8

ARTICLE 7 Destruction: Condemnation........................................................................ 7-1
Section 7.1 Fire or Other Casualty............................................................. 7-1
Section 7.2 Eminent Domain..................................................................... 7-2

ARTICLE 8 Defaults and Remedies............................................................................. 8-1
Section 8.1 Bankruptcy, Insolvency............................................................. 8-1
Section 8.2 Default............................................................................ 8-1
Section 8.3 Remedies of Landlord............................................................... 8-2
Section 8.4 Waiver of Trial by Jury: Tenant Not to Counter-Claim............................... 8-3
Section 8.5 Holdover by Tenant................................................................. 8-3
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Section 8.6 Landlord's Right to Cure Defaults.................................................. 8-4
Section 8.7 Effect of Waivers of Default....................................................... 8-4
Section 8.8 Security Deposit................................................................... 8-4

ARTICLE 9 Additional Provisions............................................................................. 9-1
Section 9.1 Notices from One Party to the Other................................................ 9-1
Section 9.2 Brokerage.......................................................................... 9-1
Section 9.3 Estoppel Certificates.............................................................. 9-1
Section 9.4 Applicable Law and Construction.................................................... 9-1
Section 9.5 Relationship of the Parties........................................................ 9-1
Section 9.6 Limitations on Liability........................................................... 9-2
Section 9.7 Landlord's Entry Rights............................................................ 9-2
Section 9.8 Subordination...................................................................... 9-3
Section 9.9 Construction on Adjacent Premises or Buildings..................................... 9-4
Section 9.10 Mall Expansion..................................................................... 9-4
Section 9.11 Short Form Lease................................................................... 9-6
Section 9.12 Binding Effect of Lease............................................................ 9-6
Section 9.13 Effect of Unavoidable Delays....................................................... 9-7
Section 9.14 No Oral Changes.................................................................... 9-7
Section 9.15 Executed Counterparts of Lease..................................................... 9-7
Section 9.16 Landlord's Liability............................................................... 9-7
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AGREEMENT OF LEASE made as of Sept. 23rd, 1999 between MALL OF GEORGIA,
L.L.C., a Delaware limited liability company, having its principal place of
business at 115 West Washington, Indianapolis, Indiana 46204 (the Landlord) and
SILICON ENTERTAINMENT, INC., d/b/a "NASCAR Silicon Motor Speedway" or "Silicon
Motor Speedway", a California corporation, having its principal place of
business at 210 Hacienda Avenue, Campbell, California 95008, (the Tenant).

RECITAL

Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord, the Premises, for the Term, commencing on the Commencement Date,
subject to the terms, covenants, conditions and provisions of this Lease. If the
Commencement Date is not the first (1st) day of a month, Rent for the month in
which the Commencement Date occurs shall be prorated to the end of the month,
the first (1st) full monthly installment of Rent shall be due on the first (1st)
day of the next month and after the expiration of the number of years in the
Term, the Term shall expire on the last day of the same month in which the
Commencement Date of the Term occurred, it being the intention of the parties
that the Term expire on the last day of a month. If there shall be any change in
the Floor Space of the Premises, Landlord and Tenant shall execute and deliver a
written statement reflecting such change or changes, in no event, however, shall
the Size of the Premises or the amount of Lease line frontage on the enclosed
mall be materially reduced without consent of Tenant. Said statement upon
execution and delivery shall be deemed to be a part of this Lease.
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ARTICLE 1

DEFINITIONS

Whenever used in this Lease, the following terms shall have the meanings
indicated below.

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Premises Store No. 2068, Second Level, as shown on Exhibit
B.

Term [***] Years

Commencement Date The earlier of (i) the date Tenant opens for
business at the Premises, and (ii) the later of (a)
the Grand Opening of the Shopping Center, or (b)
the expiration of Tenant's Work Period.

Size of Premises 5,895 square feet

Fixed Rent [***] per year for each of the first (1st) through
[***] years, and
[***] per year for each of the [***] through [***]
years.

Environmental Charge The initial amount of [***] per year, subject to
adjustment as provided in Exhibit C.

Percentage Rent Rate [***] Percent

Promotion Fund Charge [***] per year initially or such other greater
amount as shall be determined pursuant to Section
6.1 L.

Security Deposit None

Tenant's Work Period The period of [***] days after the date possession
of the Premises is made available to Tenant in the
condition required hereby.

Tenant's Trade Name "NASCAR Silicon Motor Speedway" or "Silicon Motor
Speedway"

Guarantor None

Broker Russell Friend
Blatteis Realty Company
233 South Beverly Drive
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Beverly Hills, CA 90212

Construction Barrier Fee Tenant shall only be required to erect a
construction barrier in the event Tenant is not
open for the Grand Opening. In the event that a
construction barrier is required, Tenant shall be
permitted to construct its own barrier, at its
sole cost and expense and such barrier must
conform to the requirements of the Shopping Center
Criteria and all Governmental Authorities.

Construction Deposit None

Plan Review Fees None

Number of Department Stores Four (4)

Percentage of Advertising None
Required

Permitted Use Tenant shall use the Premises for the use set
forth below and for no other purpose: The premises
shall be occupied and used by Tenant for the
purpose of conducting therein the business of an
auto racing entertainment center and other related
retail uses. The entertainment facility may
include a combination of driving simulators, but
shall not include coin operated machines as
typically found in conventional video arcade game
room type operations. Incidental thereto, Tenant
shall be permitted to use the Premises for the
display and retail sale of auto racing and other
auto racing themed or related entertainment
merchandise. Tenant shall be permitted to sell
some concessions from the Premises as mutually
agreed to from time to time by Landlord and
Tenant. Tenant shall not use or permit or suffer
to use of the Premises for any other business or
purpose. Tenant shall have the right, in an area
not to exceed [***] percent of the Floor Space of
the Premises to sell snack food items including,
but not limited to popcorn and hot and cold
non-alcoholic beverages. Landlord hereby
represents and warrants to Tenant that Tenant's
use of the Premises as contemplated in this
paragraph does not violate any exclusivity clause
or other agreement between Landlord and any other
party, including any other tenant of the Shopping
Center and Landlord shall indemnify, defend,
protect and hold harmless Tenant from any loss,
liability, cost,
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expense, judgment, action or claim of any such
party arising from the inaccuracy of such
representation and warranty. Tenant shall have the
right to temporarily prohibit or restrict access to
the Premises by members of the public from time to
time for conducting group sales or promotional
activities. In connection with such group sales
activities, Tenant may contract with private
caterers to provide food and beverage service
(including alcoholic beverage service) for the
group sales customers. Provided they are not within
[***] feet of the lease line, Tenant shall have the
right to install up to [***] soft drink vending
machines at the Premises.

Additional Rent The Percentage Rent, Storage Rent, if any, Common
Area Rent, Tax Rent and Taxes, Environmental
Charge, Promotion Fund Charge and all other
amounts, except Fixed Rent, payable by Tenant
under this Lease.

Affiliate Any Person which controls or is controlled by the
Person in question or is controlled by the same
Persons which shall then control the Person in
question and any Person which is a member with the
Person in question in a relationship of joint
venture, partnership or other form of business
association; the term "control" means, with
respect to a corporation, the ownership of stock
possessing, or the right to exercise, at least
fifty (50%) percent of the total combined voting
power of all classes of the controlled
corporation, issued, outstanding and entitled to
vote for the election of directors, whether such
ownership be direct ownership or indirect
ownership through another Person.

Common Areas As defined in Section 4.1.

Common Area Operating Costs As defined in Subsections 3.5 A (2) and 3.5 B (2).

Common Area Rent As defined in Subsections 3.5 A (1) and 3.5 B (1).

Department Store A retail store occupying not less than an
aggregate of 50,000 square feet of Floor Space on
one or more levels, for the sale in combination or
solely, of a variety of goods and services such as
wearing apparel, accessories, general merchandise,
home furnishings, fittings, appliances,
housewares, furniture, floor coverings and the
like. Except for the purposes described in
Section 3.2 and Subsection 6.1B, the term
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"Department Store" shall be deemed to include any
movie theatre complex or non-retail operation
occupying the third (3rd) level of the Enclosed
Shopping Center and any other building, improvement
or structure, not devoted primarily to retail use,
such as an office building or hotel/motel, unless
same is deemed by Landlord not to be part of the
Shopping Center.

Enclosed Shopping Center That portion of the Shopping Center containing an
enclosed mall and stores which front on said
enclosed mall, as shown in orange on Exhibit A
hereto.

Floor Space The space available for occupancy by each tenant
within the exterior faces of the walls between the
tenant's premises and any Common Area or, if the
tenant's premises are enclosed by one or more
walls abutting leaseable space, the space within
such exterior faces and the center of such walls;
if the tenant's premises are not surrounded by
walls, then the space within and up to the lease
line of the premises shall be included in the
computation. For the purposes of the definition,
store fronts shall not be deemed to be walls. No
deduction or exclusion shall be made from Floor
Space otherwise computed by reason of stairs,
elevators, escalators, interior partitions or
other interior construction or equipment.

Governmental Authority The United States, the state, county, city, town,
village and any water, sewer or school or other
district covering the area in which the Shopping
Center is located, and any political subdivision
thereof or any local public or quasi-public
authority, agency, department, commission, board,
bureau or instrumentality of any of them
including, with respect to matters pertaining to
insurance, boards of fire underwriters, rating
bureaus and the like, to the extent they have
power to impose conditions on the issuance of
policies or the coverage thereof.

Governmental Requirement Any law, ordinance, code, order, rule or regulation
of any Governmental Authority.

Gross Leaseable Area The aggregate of all Floor Space in the Shopping
Center excluding Storage Space, if any, and
excluding for the purposes of the computation of
Tax Rent pursuant to Section 3.4., Floor Space
which is part of either a parcel or improvement
which is separately assessed for the purpose of
assessment of Taxes, to the extent the Taxes
thereon are paid by the tenant or occupant thereof.
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Gross Sales As defined in Subsection 3.3B.

Landlord The party named as Landlord herein until a sale,
transfer or lease, and thereafter the Person or
Persons, collectively, who shall, for the time
being, be liable for the obligations of Landlord
under the provisions of Subsection 9.16A of this
Lease.

Lease Year For the purposes of Percentage Rent only, the
period of twelve (12) consecutive months from
January 1 to December 31 of each year during the
Term. If the date Tenant opens for business or
the expiration of the Term does not coincide with
the beginning or end of a Lease Year, the periods
preceding or following the commencement or end of
each full Lease Year, as the case may be, shall be
deemed independent, partial Lease Years.

Necessary Approvals Any permit, license, certificate or approval or
other evidence of compliance with any Governmental
Requirement necessary to the lawful occupancy of
the Premises for the Permitted Use and the
issuance of the insurance required to be carried
by Tenant.

Percentage Rent As defined in Subsections 3.3A and 3.3B.

Person A natural person, firm, partnership, association,
business trust or corporation, as the case may be.

Rent The Fixed Rent and the Additional Rent.

Retail Restriction Limit As defined in Subsection 6.2A.

Shopping Center Mall of Georgia at Mill Creek, as outlined in
green on Exhibit A hereto, located in Gwinnett
County, Georgia, plus (i) any other parcels of
land at any time designated by Landlord to be
added thereto (but only so long as any such
designation remains unrevoked) which are used for
Shopping Center or related purposes, including,
but not limited to, recharge or catch basins,
drainage and detention ponds, sumps, access and
circulatory roadways to and from public streets,
parking, the furnishing to the Shopping Center of
any utility, amenity or other service, shuttle
transit to and from the Shopping Center,
recreation areas for customers of the Shopping
Center, or for any other improvement appropriate
or related to the operation or functioning of the
Shopping Center; together with (ii) all
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present and future buildings on and improvements
to any such parcels.

Specialty Store A retail store occupying not less than an aggregate
of 25,000 square feet of Floor Space on one or more
levels.

Storage Space Space not contained within any tenant's premises
which is used solely for the storage of merchandise
and other items.

Tax Rent and Taxes As defined in Section 3.4.

Tenant's Work As set forth in Sections 2.1 and 2.2.

Village Area That portion of the Shopping Center containing
stores which do not front on the enclosed mall, as
shown in yellow on Exhibit A hereto.

Exhibit A Shopping Center.

Exhibit B Premises.

Exhibit C Utilities.

Exhibit D (optional) Food Court Area.
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ARTICLE 2

CONSTRUCTION

Section 2.1. Tenant's Work. Not later than the twentieth (20th) day after
the execution and delivery of this Lease by Landlord, Tenant shall furnish to
Landlord for Landlord's approval, in accordance with the Shopping Center
Information Manual and Design Criteria, plans and specifications which shall
provide for the complete remodeling (or finishing in the event the Premises have
not been previously occupied) of the Premises. Within [***] days following the
Commencement Date, Tenant shall pay to Landlord, a Plan Review Fee calculated in
accordance with the fee schedule set forth in Article 1. Tenant agrees, at its
sole cost and expense, to construct and make such improvements in the Premises
in accordance with the approved plans and specifications. Tenant has inspected
the Premises, is familiar with their condition and accepts same "as is" and in
their present condition and Landlord shall not be obligated to do any further
construction or to make any additional improvements in the Premises, except as
may otherwise be expressly provided herein. Tenant understands that Landlord's
approval of its plans and specifications is primarily for conceptual purposes
and such approval shall not constitute a representation or warranty of any kind
with respect thereto, including, without limitation, the cost of Tenant's Work,
compliance with Governmental Requirements or suitability of design. Tenant
acknowledges receipt of the Shopping Center Tenant Information Manual and Design
Criteria, the provisions of which are incorporated herein by reference.

Section 2.2 Performance of Tenant's Work. As soon as practicable after
Landlord shall have approved Tenant's plans and specifications and possession of
the Premises shall be made available to Tenant and Tenant shall have obtained
all Necessary Approvals with respect to commencement of Tenant's Work, Tenant
shall enter the Premises and shall proceed with due diligence and dispatch to
make improvements and install fixtures and other equipment and a full stock of
inventory therein, in accordance with the approved plans and specifications and
all Governmental Requirements. Such work and installation shall not interfere
with any work to be done by Landlord in other portions of the Shopping Center,
shall be done with labor which is not incompatible with other labor employed at
the Shopping Center without creating any conflict or work stoppage with, under
or as a result of any labor agreement to which Landlord or its contractors may
be a party, and in compliance with such rules and regulations as Landlord may
reasonably make. Except for Landlord's negligence and willful acts (subject,
however, to the waiver of subrogation elsewhere set forth in this Lease),
Landlord shall have no responsibility or liability whatsoever for any loss of or
damage to any fixtures or other equipment or inventory installed or left in the
Premises, and Tenant's entry on and occupancy of the Premises shall be governed
by and subject to all the provisions, covenants and conditions of this Lease
other than those requiring payment of Rent. Prior to commencing any construction
work in the Premises, Tenant shall (i) obtain a building permit and furnish a
copy of same to Landlord and (ii) deposit with Landlord (or cause its general
contractor to deposit) the Construction Deposit set forth in Article 1, said
deposit (less any amount retained by Landlord as reimbursement for sums expended
in performing Tenant's construction obligations) shall be returned upon
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Tenant's Work including punchlist items and clean-up. Tenant shall also obtain
and furnish to Landlord, to be delivered not later than the end of Tenant's Work
Period, lien waivers from all contractors, subcontractors and materialmen, and
all licenses, certificates and approvals with respect to work done and
installations made by Tenant that may be required from the Governmental
Authorities with respect to Tenant's Work, use and occupancy. During Tenant's
Work Period and throughout the Term of this Lease, Tenant shall not do or suffer
anything to be done whereby the Premises or the Shopping Center may be
encumbered by a mechanic's lien, and Tenant shall, whenever any mechanic's lien
is filed against the Premises or the Shopping Center purporting to be for labor,
materials or services furnished or to be furnished to Tenant, discharge or
remove the same of record within thirty (30) days after the date of filing.
Notice is hereby given that Landlord shall not be liable for any labor,
materials or services furnished or to be furnished to Tenant. Tenant shall
complete Tenant's Work and open for business to the public not later than the
expiration of Tenant's Work Period. Landlord and Tenant agree that the timely
performance of Tenant's obligations under this Article 2 is a material
inducement to the execution and delivery of this Lease by Landlord.

Section 2.3. Remedies for Tenant's Failure or Delay to Submit Plans or
Perform Work. If Tenant fails or omits to make timely submission to Landlord of
any plans or specifications or delays in performing or completing Tenant's Work,
such failure or delay shall constitute a default hereunder and shall be governed
by Article 8 hereof.

Section 2.4. Ownership of Improvements. All installations, alterations,
additions or improvements upon the Premises, made by either party, including all
heating, ventilating and air conditioning equipment, electrical and plumbing
equipment and fixtures, carpeting or other floor covering and wall coverings,
pipes, ducts, conduits, wiring, paneling, partitions, railings, mezzanine
floors, galleries and the like, shall, unless Landlord otherwise elects by
giving Tenant notice not less than thirty (30) days prior to the expiration or
other termination of this Lease, become the property of Landlord and shall
remain upon and be surrendered with the Premises as a part thereof at the
expiration or sooner termination of the Term. None of the foregoing shall be
deemed to include Tenant's trade fixtures, furniture and other personal
property. Tenant shall not be required to remove at the end of the Term any
installations made with Landlord's consent unless Landlord shall so specify at
the time its consent is given.

Section 2.5 Failure to Open or to do Business. The parties covenant and
agree that because of the difficulty or impossibility of determining Landlord's
damages, should Tenant (i) subject to Unavoidable Delays, fail to open for
business within the number of days allowed for Tenant's Work Period, or (ii) at
any time during the Term, vacate, abandon or desert the Premises, or (iii)
subject to Unavoidable Delays, at any time during the Term, cease operating its
business therein, then, in any such event if Landlord does not terminate this
Lease, Tenant shall pay to Landlord, in addition to Fixed and Additional Rent,
[***] the Premises and Tenant's business therein are not continuously and
uninterruptedly operated by Tenant.

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Section 2.6. Remodeling of Premises. Between the [***] and [***] months of
the Term, Tenant shall furnish to Landlord for Landlord's approval, plans and
specifications which shall provide for the remodeling of the Premises in order
to [***]. Within [***] days following receipt of Landlord's approval of said
plans and specifications, Tenant shall commence remodeling the Premises in
accordance with the approved plans and specifications and shall complete such
remodel within [***] days thereafter. In no event shall Tenant, in connection
with its remodeling of the Premises, close for business at the Premises for more
than [***] days, in the aggregate, and in no event shall Tenant be entitled to
receive an abatement of or credit against the Rent due hereunder as a result of
any such closure.

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ARTICLE 3

RENT

Section 3.1. Payment. Tenant covenants and agrees, at all times during the
Term, to perform promptly all of the obligations of Tenant set forth in this
Lease and to pay when due all Rent, charges, costs and other sums (all of which
shall be deemed to be Additional Rent) which by the terms of this Lease are to
be paid by Tenant. All Rent shall be paid in lawful money of the United States
which shall be legal tender for payment of all debts and dues, public and
private, at the time of payment, at the address of Landlord set forth in this
Lease or at such other place as Landlord in writing may designate, without
(except as may be otherwise herein expressly provided) any set-off or deduction
whatsoever and without any prior demand or notice therefor.

Section 3.2. Fixed Rent. Tenant shall pay the annual Fixed Rent in equal
monthly installments in advance on the first (1st) day of each calendar month
included in the Term. If the Shopping Center shall, at any time during the Term
of this Lease, contain in excess of the number of Department Stores set forth in
Article 1, the Fixed Rent herein provided for shall automatically be increased
by [***] percent upon the date each additional Department Store is opened for
business.

Section 3.3. Percentage Rent.

A. Tenant shall also pay, as "Percentage Rent" for each Lease Year
included in the Term, payable as hereinafter provided, the amount, if any, by
which Tenant's Gross Sales transacted during such Lease Year, [***], shall
exceed the [***] payable for the same period; provided, however, that there
shall be excluded from such computation any [***].

B. The term "Gross Sales" as used herein is defined to mean the total
amount in dollars of the actual prices charged, whether for cash or on credit or
trade-in or partly for cash, credit or trade-in, for all sales or leases of
merchandise, food, beverages and services (including finance or service charges
thereon), redeemed gift or merchandise certificates, irrespective of where sold,
and all other receipts of business conducted at, in, on, about or from the
Premises, including, but not limited to, all mail or telephone orders received
or filled at, in, on, about or from the Premises, and including all deposits not
refunded, all orders taken at, in, on, about or from the Premises, whether or
not said orders are filled elsewhere, total receipts of sales through any
vending machine or other coin or token operated device, other than not more than
[***] vending machines used exclusively by Tenant's employees, and total sales
by any sublessee, concessionaire or licensee or any other occupant otherwise at,
in, on, about or from the Premises, and sales and receipts occurring or arising
as a result of solicitation off the Premises conducted by personnel operating
from, or reporting to, or under the supervision of any employee of Tenant
located at the Premises. Provided that Tenant keeps proper evidence thereof,
Gross Sales shall not, however, include (i) any sums collected and paid out for
any retail sales tax or retail excise

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tax imposed by any Governmental Authority and paid directly by Tenant to that
Governmental Authority and separately stated, (ii) any exchange of goods or
merchandise between the stores or warehouses of Tenant where such exchange of
goods or merchandise is made solely for the convenient operation of the business
of Tenant and not for the purpose of consummating a sale which had theretofore
been made at, in, on, about or from the Premises, nor for the purpose of
depriving Landlord of the benefits of a sale which otherwise would be made at,
in, on, about or from the Premises, (iii) the amount of returns to shippers or
manufacturers, (iv) the amount of any cash or credit refund, limited to the
sales prices, made upon any sale where the merchandise sold, or some part
thereof, is thereafter returned by the purchaser and accepted by Tenant, (v)
sales of fixtures (after use thereof) which are not a part of Tenant's
stock-in-trade, (vi) the amount of any discount on sales to employees of the
Premises, (vii) to the extent that the amount thereof was previously included in
Gross Sales, bad debts, not exceeding [***] percent of Gross Sales per Lease
Year, (viii) to the extent such charges do not materially exceed Tenant's costs,
separately stated charges for alterations, repairs, giftwrapping and delivery
services rendered to Tenant's customers, and (ix) sales of gift certificates.
Each layaway sale shall be treated as a sale (to the extent of the amount
received) when Tenant shall receive any payment from its customer. Each sale
upon installment or credit shall be treated as a sale for the full amount when
Tenant shall receive any payment from its customer, and subject to the
limitation set forth above, no deduction shall be allowed for uncollectible
credit accounts. Each lease of merchandise shall be treated as a sale in the
month in which made for a price equal to the total rent payable during the term
of the lease. Notwithstanding anything contained in this Subsection with respect
to inclusion in Gross Sales of all receipts of sales made through any vending
machine or other coin or token operated device, the operation of any such device
shall be subject to the prior written consent of Landlord, as provided in
Subsection 6.2E hereof.

C. Tenant shall utilize, and cause to be utilized, cash registers equipped
with sealed continuous totals or such other devices for recording sales as
Landlord shall reasonably approve to record all sales, and Tenant shall keep at
its principal office in the continental United States for at least [***] months
after expiration of each Lease Year full, true and accurate books of account and
records conforming to generally accepted accounting principles showing all of
the Gross Sales transacted at, in, on, about or from the Premises for such Lease
Year, including all sales or similar tax reports and returns, dated cash
register tapes, sales checks, sales books, bank deposit records, computer tapes,
disc, chips, print-outs or other storage media and any other records normally
maintained by Tenant and other supporting data. Landlord shall have the right,
from time to time, to inspect Tenant's recordkeeping system and, in connection
therewith, to make test audits of Gross Sales. Within [***] days after the end
of each calendar month, or portion thereof, Tenant shall furnish to Landlord a
statement signed and verified by Tenant (or by an authorized officer if Tenant
be a corporation) of the Gross Sales transacted during such month or portion
thereof; and within [***] days after the end of each Lease Year and within [***]
days after the end of the Term, Tenant shall furnish to Landlord a statement,
hereinafter called the annual statement, certified to Landlord by an executive
officer of Tenant, of Gross Sales transacted during the preceding Lease Year
included in the Term. The certification by said officer shall expressly state
that the Gross Sales shown on said statement conform with and are

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computed in compliance with the definition thereof contained in Subsection 3.3B
hereof. In the event Gross Sales for each of [***] Lease Years are misstated by
more than [***] percent, thereafter the annual statement of Gross Sales must be
certified by an independent certified public accountant. Landlord shall have the
right, from time to time, by its accountants or representatives, to audit
Tenant's Gross Sales and, in connection with such audits, to examine all of
Tenant's records (including sales or similar tax returns, an actual inventory of
Tenant's stock-in-trade and all supporting data and any other records from which
Gross Sales may be tested or determined) of Gross Sales disclosed in any
statement given to Landlord by Tenant and Tenant shall make all such records
readily available at Tenant's main office, for such examination. If any such
audit discloses that the Gross Sales transacted by Tenant exceed those reported,
Tenant shall forthwith pay to Landlord such additional Percentage Rent as may be
so shown to be payable and, if the actual Gross Sales exceed the Gross Sales
reported by Tenant by more than [***] percent, or if Tenant's records or systems
do not comply with the requirements of this Subsection, Tenant shall also then
pay the reasonable cost of such audit and examination, including travel, food
and lodging and related expenses of Landlord's auditors. In the event Tenant has
understated Gross Sales by [***] percent or more, Landlord may, in addition to
any other remedies, terminate this Lease but Tenant shall remain liable
hereunder as set forth in Article 8; provided, however, that Landlord shall not
exercise its right to terminate this Lease if Tenant shall demonstrate to
Landlord's reasonable satisfaction that such understatement was made
inadvertently. Any information obtained by Landlord pursuant to the provisions
of this Subsection shall be treated as confidential, except in any litigation or
arbitration proceedings between the parties and, except further, that Landlord
may disclose such information to prospective buyers, to prospective or existing
lenders, in any registration statement filed with the Securities and Exchange
Commission or other similar body or in compliance with subpoenas and judicial
orders. In no event shall this Subsection be deemed to limit Landlord's rights
of pre-trial discovery and disclosure in any action or proceeding.

D. If Tenant fails to submit a monthly statement of Gross Sales within
[***] days following Landlord's request therefor, then until such statement is
received by Landlord, Gross Sales for such month shall be deemed equal to
Tenant's highest previously reported monthly Gross Sales (or, if Tenant has
never previously reported, to the Gross Sales reasonably estimated by Landlord),
and if such failure shall occur [***] in any Lease Year, Landlord may, at
Tenant's expense, conduct an audit of Tenant's Gross Sales as set forth in
Subsection 3.3C above.

E. Percentage Rent shall be payable by Tenant not later than the [***] day
of each calendar month for and in respect to the preceding calendar month. Such
payment shall be a sum equal to the amount by which Tenant's Gross Sales for the
then current Lease Year, through the last day of the preceding month, multiplied
by the Percentage Rent Rate, shall exceed the Fixed Rent payable for said
period, less payments previously made with respect to such Lease Year. Upon
receipt by Landlord of the certified annual statement of Gross Sales to be
furnished as hereinabove provided, there shall be an adjustment between Landlord
and Tenant with payment to or credit by Landlord, as the case may be, to the end
that Landlord shall receive the entire amount of Percentage Rent payable under
this Lease for the preceding Lease Year and no more.

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Section 3.4. Tax Rent.

A. Tenant shall pay to Landlord, as Additional Rent, Tax Rent in an amount
equal to the product obtained by multiplying Taxes by a fraction, the numerator
of which shall be the Floor Space of the Premises excluding Storage Space, if
any, and the denominator of which shall be the portion of the aggregate leased
and occupied Floor Space in the Shopping Center which is included in the
assessment which constitutes the basis for the Taxes, but excluding Storage
Space, if any, buildings or areas occupied by Department Stores and Specialty
Stores, stores not fronting on the enclosed mall, and temporary kiosks;
provided, however, that Tenant's Tax Rent for any year shall not exceed the
amount which would otherwise be payable by Tenant hereunder if the denominator
of said fraction were [***] percent of the Gross Leaseable Area of that portion
of the Shopping Center included in the assessment, exclusive of Department
Stores, Specialty Stores, stores not fronting on the enclosed mall, and
temporary kiosks. Tax Rent shall be payable at least [***] days prior to the due
date of any Taxes or installment thereof; however, Landlord may, if it so
elects, collect Tax Rent from Tenant on a monthly basis, in which event Tenant
shall pay, with each monthly installment of Fixed Rent, one-twelfth (1/12) of
the annual amount estimated by Landlord to be due hereunder. In the event Taxes
for the then current tax year are not known, monthly installments shall be based
on the preceding tax year with immediate adjustment as soon as current taxes
become known. If at the time any Taxes or installments are required to be paid,
the amount of Tenant's previously made monthly payments is insufficient to pay
Tenant's share, Tenant shall pay such deficiency within [***] days after demand
therefor. In the event of any excess, it shall be credited and applied to future
Tax Rent payments, except that any excess in the last year of the Term shall be
refunded at the end of the Term.

B. Should the taxing authority include in Taxes as a separately stated
item the value of any improvements made by or for the benefit of Tenant, or
include machinery, equipment, fixtures, inventory or other personal property or
assets used by Tenant in the Premises, then Tenant shall pay the entire tax
attributable to such items.

C. Nothing herein contained shall be construed to include as a tax which
shall be the basis of Tax Rent, any inheritance, estate, succession, transfer,
gift, franchise, corporation, income or profit tax or capital levy that is or
may be imposed upon Landlord, provided, however, that if, at any time during the
Term, the method of taxation prevailing at the Commencement Date of this Lease
shall be altered so that in lieu of or as a substitute for the whole or any part
of the taxes now levied, assessed or imposed on real estate as such, there shall
be levied, assessed or imposed (i) a tax on the rents received from real estate,
or (ii) a tax or license fee imposed on Landlord which is otherwise measured by
or based, in whole or in part, upon the Shopping Center or any portion thereof,
then the same shall be included in the computation of Tax Rent hereunder,
computed as if the amount of such tax or fee so payable were that due if the
Shopping Center were the only property of Landlord subject thereto.

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D. For the purpose of this Section 3.4, the term "Taxes" shall include all
real estate taxes, assessments, license fees or charges, excise on rent, water
and sewer rents, any sums including interest or any payments in lieu or in
substitution thereof on any bonds or debt (except industrial revenue bonds or
similar indebtedness incurred for construction of non-public facilities)
incurred by any Governmental Authority and payable by Landlord in connection
with the Shopping Center and other governmental impositions, payments and
charges of every kind and nature whatsoever, extraordinary as well as ordinary,
foreseeable and unforeseeable, and each and every installment thereof which
shall or may during the Term of this Lease be levied, assessed, imposed, become
due and payable, or liens upon or arising in connection with the use, occupancy
or possession of or grow due or payable out of, or for, the Shopping Center, or
any part thereof or any land, building or other improvements therein, including
any and all fees or expenses incurred in connection with the institution,
prosecution, conduct and maintenance of any negotiations, settlements, actions
or proceedings with respect to the amount of any Taxes, less the contributions
or payments, if any, paid to Landlord with respect to Taxes by Department
Stores, Specialty Stores, stores not fronting on the enclosed mall, and
temporary kiosks, such deduction to be credited to the year in which actually
received. Taxes shall not include any of the foregoing relating to any parcel or
improvement included in the Shopping Center which, except for insignificant
portions thereof, comprises a separate tax lot or is separately assessed or
valued for the purpose of real estate taxes to the extent the taxes thereon are
paid by a single tenant or occupant thereof, and further excluding any charge
such as a water meter charge, sewer rent, if any, based thereon, which is
measured by the consumption by the actual user of the item or service for which
the charge is made. Whether or not Landlord shall take the benefit of the
provisions of any statute or ordinance permitting an assessment for public
betterment or improvements to be paid over a period of time, Landlord shall,
nevertheless, be deemed to have taken such benefit so that the term Taxes shall
include only the current annual installment of any such assessment and the
interest on unpaid installments. A tax bill or copy thereof submitted by
Landlord to Tenant shall be conclusive evidence of the amount of taxes or
installments thereof.

E. In the event Landlord shall obtain a tax refund as a result of tax
reduction proceedings or other proceedings of similar nature, then Tenant shall,
provided Tenant is not then in default beyond any opportunity to cure elsewhere
set forth in this Lease, and after the final conclusion of all appeals or other
remedies, be entitled to its pro rata share of the net refund obtained based
upon Tax Rent paid by Tenant which is the subject of the refund. As used herein,
the term "net refund" means the refund plus interest, if any, thereon, less
appraisal, engineering, expert testimony, attorneys', printing and filing fees
and all other costs and expenses of the proceeding, to the extent such fees,
costs and expenses have not been previously included in Taxes under Subsection
3.4D, and less an administrative fee to Landlord in the amount of not more than
[***] percent of the original refund. Tenant shall not have the right to
institute or participate in any such proceedings, it being understood that the
commencement, maintenance, settlement or conduct thereof shall be in the sole
discretion of Landlord.

Section 3.5. Common Area Rent.

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A. (1) Tenant shall pay to Landlord as Additional Rent, an amount equal to
the product obtained by multiplying Interior Common Area Operating Costs for
each fiscal year adopted by Landlord by a fraction, the numerator of which shall
be the Floor Space of the Premises excluding Storage Space, if any, and the
denominator of which shall be the aggregate of all leased and occupied Floor
Space in the Enclosed Shopping Center, excluding the Floor Space of Storage
Space, if any, and any buildings or areas occupied by Department Stores,
Specialty Stores, stores not fronting on the enclosed mall, and temporary
kiosks; provided, however, that the denominator of said fraction shall never be
less than [***] percent of the Gross Leaseable Area of the Enclosed Shopping
Center, exclusive of Department Stores, Specialty Stores, stores not fronting on
the enclosed mall, and temporary kiosks. Tenant shall pay, with each monthly
installment of Fixed Rent, one-twelfth (1/12) of the annual amount estimated by
Landlord to be due hereunder, subject to adjustment.

(2) As used in this Lease, the term Interior Common Area Operating
Costs shall mean all costs and expenses incurred by Landlord in maintaining,
managing, operating, repairing, replacing and protecting the Common Areas of the
Enclosed Shopping Center, all in a manner consistent with the highest shopping
center standards, including the cost of all work necessary to preserve and
maintain the value, utility and appearance of said Common Areas. Interior Common
Area Operating Costs shall specifically include, without limitation, all costs
and expenses incurred in connection with the following: lighting, heating,
ventilating, and air conditioning the Common Areas of the Enclosed Shopping
Center; painting and decorating non-leaseable areas; gardening, including
planting and replacing flowers and plants; compliance with environmental, health
and safety regulations and standards promulgated by applicable Governmental
Authorities; sanitary control, including extermination; removal of rubbish,
garbage and other refuse; contracted security personnel, security systems and
all other security measures; acquisition (including rental fees), maintenance,
repair and replacement of fixtures, machinery, equipment, and supplies used in
the operation and maintenance of the Common Areas of the Enclosed Shopping
Center, and all personal property taxes and/or fees payable with respect to such
items; maintenance, repair and replacement of Enclosed Shopping Center signs,
ceilings, elevators, escalators and utility systems; maintenance, repair and
replacement of all roofs over non-leaseable areas in the Enclosed Shopping
Center; acquisition, maintenance, repair and replacement of cost saving devices
commonly used in properties comparable to the Shopping Center; music program
services and loud speaker systems; cleaning of non-leaseable areas; maintenance,
repair and replacement of decorations in non-leasable areas; water for interior
fountains and restrooms; acquisition, maintenance, repair and replacement of
seasonal decorations; resolution of disputes or litigation with persons
attempting to use the Common Areas of the Enclosed Shopping Center for
commercial purposes; professional and technical fees and all other disbursements
incurred in connection with the performance of any of the foregoing; other
similar direct costs of the type incurred in the operation of comparable
properties; and [***] percent of all of the foregoing costs to cover Landlord's
administrative and overhead expenses. From the aggregate of the aforementioned
costs and expenses, there shall be deducted the payments, if any, made with
respect to Interior Common Area Costs by Department Stores, Specialty Stores,
stores not fronting on the enclosed mall, and temporary kiosks, such deduction

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to be credited to the year for which such payments are applicable irrespective
of the fiscal year in which such payments are actually received.

B. (1) Tenant shall pay to Landlord as Additional Rent, an amount equal to
the product obtained by multiplying Exterior Common Area Operating Costs for
each fiscal year adopted by Landlord by a fraction, the numerator of which shall
be the Floor Space of the Premises excluding Storage Space, if any, and the
denominator of which shall be the aggregate of all leased and occupied Floor
Space in the Shopping Center, excluding Storage Space, if any, any buildings or
areas occupied by Department Stores and Specialty Stores, stores not fronting on
the enclosed mall, and temporary kiosks; provided, however, that Tenant's share
of Exterior Common Area Operating Costs for any fiscal year shall not exceed the
amount which would otherwise be payable by Tenant hereunder if the denominator
of said fraction were [***] percent of the Gross Leaseable Area of the Shopping
Center, exclusive of Department Stores and Specialty Stores, stores not fronting
on the enclosed mall, and temporary kiosks. Tenant shall pay, with each monthly
installment of Fixed Rent, one-twelfth (1/12) of the annual amount estimated by
Landlord to be due hereunder, subject to adjustment.

(2) As used in this Lease, the term Exterior Common Area Operating
Costs shall mean all costs and expenses incurred by Landlord in maintaining,
managing, operating, repairing, replacing and protecting the Exterior Common
Areas of the Shopping Center, excluding the Common Areas of the Village Area,
all in a manner consistent with the highest shopping center standards, including
the cost of all work necessary to preserve and maintain the value, utility and
appearance of the Exterior Common Areas. Exterior Common Area Operating Costs
shall specifically include, without limitation, all costs and expenses incurred
in connection with the following: lighting the Exterior Common Areas; providing
snow and ice removal; maintenance, repair and replacement of all parking lot
surfaces, including striping, repaving and sealcoating; gardening and
landscaping, including planting and replacing flowers, shrubbery and trees;
policing and regulating vehicle and pedestrian traffic, including the cost of
any contracted security personnel; providing off-site employee parking
facilities, including transportation to and from such facilities; maintenance,
repair and replacement of sewer and storm drainage systems, waste disposal
facilities, lift stations, retention ponds or basins and sump facilities;
removal of rubbish and other refuse from the Exterior Common Areas; acquisition
(including rental fees), maintenance, repair and replacement of machinery,
equipment, vehicles and supplies used in the operation and maintenance of the
exterior Common Areas, and all personal property taxes and/or fees payable with
respect to such items; maintenance, repair and replacement of exterior Shopping
Center signs, curbs and walkways; painting and decorating exterior structures
and improvements; water for exterior fountains, if any; salaries and other costs
(including training costs, employee benefits and workers' compensation
insurance) of Shopping Center personnel, such as security and maintenance staff,
the regional property manager (a reasonable allocation), the Shopping Center
manager, assistant manager, property accountant, secretaries and office staff;
resolution of disputes or litigation with Persons attempting to use the Exterior
Common Areas for non-commercial purposes; professional and technical fees and
all other disbursements incurred in connection with the performance of any of
the foregoing; the cost of acquiring,

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maintaining and administering such "all risk" insurance (including rental
income, flood and earthquake), boiler and machinery insurance, comprehensive
general and umbrella liability insurance and such other insurance for the
Shopping Center as Landlord may, from time to time, deem necessary, or in lieu
thereof or in combination therewith, the costs attributable to that portion of
the coverage which Landlord shall elect to self-insure, including the cost of
administering Landlord's self-insurance program; dues and assessments allocable
to the Shopping Center pursuant to the Declaration of Covenants, Conditions and
Restrictions for the Mill Creek development, including any property owners
association; other similar direct costs of the type incurred in the operation of
the exterior areas of comparable properties; and [***] percent of all of the
foregoing costs to cover Landlord's administrative and overhead expenses. Costs
and expenses incurred by Landlord solely in connection with or for the benefit
of the Common Areas of the Village Area of the Shopping Center, shall not be
included as Exterior Common Area Operating Costs. From the aggregate of the
aforementioned costs and expenses, there shall be deducted the payments, if any,
made with respect to Exterior Operating Costs by Department Stores, Specialty
Stores, stores not fronting on the enclosed mall and temporary kiosks, such
deduction to be credited to the year for which such payments are applicable
irrespective of the fiscal year in which such payments are actually received.

C. With respect to costs which Landlord may elect to depreciate (or
amortize) in lieu of including such costs in Common Area Operating Costs for a
single fiscal year, only that portion of the depreciation (or amortization)
allocable to the year for which Common Area Operating Costs are being determined
shall be included in then current Common Area Operating Costs, it being
understood, however, that interest (at a rate equal to the prime rate being
charged from time to time by Citibank, N.A. during the year for which Common
Area Operating Costs are being determined) on the then undepreciated (or
unamortized) portion of such costs shall be included in Common Area Costs. In no
event shall Common Area Operating Costs include the costs and expenses incurred
by Landlord in constructing new buildings in the Shopping Center or expanding or
improving leasable area or the costs and expenses incurred by Landlord for
repairs and replacements with respect to which Landlord receives insurance
proceeds or condemnation awards.

D. After the end of each fiscal year adopted by Landlord, Landlord shall
furnish to Tenant a statement showing in reasonable detail the information
relevant or necessary to the calculation and determination of Landlord's actual
Interior and Exterior Common Area Operating Costs, as hereinabove defined, for
the fiscal year in question. If the monthly charges paid by Tenant during such
fiscal year, as hereinabove provided, shall be less than (i) Landlord's actual
Interior Common Area Operating Costs for such fiscal year, as shown by such
statement, multiplied by the fraction referred to in Subsection 3.5A, plus (ii)
Landlord's actual Exterior Common Area Operating Costs for such fiscal year, as
shown by such statement, multiplied by the fraction referred to in Subsection
3.5B, Tenant shall pay to Landlord the excess within [***] days after service of
such statement. If, however, the said monthly charges shall exceed Landlord's
actual costs multiplied by said fractions, Landlord shall, with the submission
of said statement, credit or refund to Tenant the excess.

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Section 3.6. Additional Rent. Unless another time shall be herein
expressly provided, Additional Rent shall be due and payable within [***] days
following demand or together with the next-succeeding installment of Fixed Rent,
whichever shall first occur, and Landlord shall have the same remedies for
failure to pay the Additional Rent as for a non-payment of Fixed Rent. Tenant's
failure to object to any final statement, invoice or billing rendered by
Landlord within a period of [***] days after receipt thereof shall constitute
Tenant's acquiescence with respect thereto and shall render such statement,
invoice or billing an account stated between Landlord and Tenant.

Section 3.7. Rent for a Partial Month. For any portion of a calendar month
included at the beginning or end of the Term, Tenant shall pay one-thirtieth
(1/30) of each monthly installment of Rent for each day of such portion, payable
in advance at the beginning of such portion, except that Percentage Rent for
such portion shall be computed and paid as provided in Section 3.3 hereof.

Section 3.8. Late Charges and Interest. Tenant shall pay, as Additional
Rent, a service charge in the amount of [***] for bookkeeping and administrative
expenses, if any Rent due hereunder is not received within [***] days following
its due date. In addition, as of the [***] day following service of notice by
Landlord that a payment of Rent is overdue, interest shall accrue on the overdue
amount, retroactive to the original due date, at the lesser of the highest rate
permitted to be paid by Tenant in the state in which the Shopping Center is
located or an annual rate of [***] percent more than the prime interest rate of
Citibank N.A., located in New York, New York.

Section 3.9. Taxes. Tenant shall pay, as Additional Rent, for any
documentary stamps or other transfer fees or any other sales or use taxes or
other taxes, impositions or levies of or required by any Governmental Authority,
including interest or penalties thereon, arising out of or by reason of this
Lease or the amount of Rent payable hereunder.

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ARTICLE 4

COMMON AREAS

Section 4.1. Common Areas. Landlord hereby grants to Tenant a
non-exclusive license to use (i) the parking areas provided by Landlord in the
Shopping Center for the accommodation and parking of vehicles of Tenant and its
officers, agents and employees and customers while such customers are shopping
in the Premises or in any other portion of the Shopping Center, (ii) the public
conveniences of the Shopping Center, including any connecting passageways and
lobbies used in conjunction with hotels and/or office buildings, and (iii) all
other areas in the Shopping Center, including the enclosed mall, to be used in
common by tenants of the Shopping Center, such parking areas, public
conveniences and other common areas being hereafter collectively referred to as
"Common Areas". Notwithstanding any of the provisions herein contained, Landlord
retains and reserves the non-exclusive right to the use of the Common Areas.

A. Exhibit A sets forth the general layout of the Shopping Center, but
shall not be deemed to be a warranty, representation or agreement on the part of
Landlord that the Shopping Center will be or will continue to be exactly as
indicated on said diagram, and Landlord reserves the right to (i) increase,
eliminate, reduce or change the number, type, size, location, elevation, nature
and use of any of the Common Areas or the buildings comprising the Shopping
Center, (ii) make changes, additions, subtractions, alterations or improvements
in or to such Common Areas, including, but not limited to, the construction of
decked or subsurface parking, (iii) withdraw portions of the Shopping Center
from Common Area or add Common Area to the Shopping Center, including
non-contiguous parcels for parking and other related Shopping Center purposes
and (iv) construct buildings, additional Department Stores, kiosks and other
improvements in the Common Areas. Tenant shall have no rights with respect to
the land or improvements below floor slab level or above the interior surface of
the ceiling of the Premises or air rights above the Premises.

B. Landlord shall not, pursuant to Subsection 4.1A, create any permanent,
substantial, adverse interference with access to or visibility of the Premises
from the covered mall upon which the front of the Premises abuts. However, this
provision shall not preclude Landlord from installing carts or erecting kiosks
or similar improvements anywhere in the covered mall, so long as any kiosks or
similar improvements which are located in front of the Premises are
approximately centered in the mall. Tenant's sole remedy in the event of
Landlord's failure to comply with this Subsection 4.1B shall be to terminate
this Lease. In the event Tenant, as the result of Landlord's failure to so
comply, shall exercise its right to terminate this Lease, Landlord shall pay,
within [***] days following the date Tenant vacates and surrenders the Premises,
the then unamortized cost of the permanent leasehold improvements (excluding,
inter alia, trade fixtures and equipment, furnishings, decorations, inventory
and other items of personal property) initially made by Tenant pursuant to
Article 2 of this Lease, assuming a useful life equal to the length of the
original Term of this Lease and amortization on a straight line

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basis. Tenant shall, not later than [***] days following the Commencement Date,
deliver an affidavit of an officer of Tenant and a certificate of Tenant's
architect accompanied by such bills, contracts, receipts, invoices, cancelled
checks and the like as Landlord may reasonably require, specifying the cost of
the Tenant's leasehold improvements, which amount shall, unless disputed by
Landlord, thereupon be the basis for the amount to be paid by Landlord pursuant
to this Subsection. Failure to timely deliver such affidavit, certificate and
supporting data shall constitute a waiver of Tenant's right to such payment.

C. Tenant, its officers, agents and employees shall park their vehicles
only in areas from time to time designated by Landlord as the area for such
parking, provided that such areas shall be located in or not more than [***]
mile from the perimeter boundary of the Shopping Center. Tenant shall, within
[***] days following written notice from Landlord, furnish Landlord, or its
authorized agent, the state automobile license numbers assigned to its
automobiles and the automobiles of all its employees employed in the Premises.
Tenant shall not at any time park any trucks or any delivery vehicles in the
parking area. Landlord shall have the right, after service of [***] or more
notices to Tenant regarding improper parking, to levy an assessment payable by
Tenant in a sum not to exceed [***] per day for each and every car belonging to
Tenant, its agents, servants, contractors, licensees or employees which shall
thereafter park in an area other than that designated by Landlord as a parking
area for such vehicles. Such assessment shall be payable by Tenant on the next
due date for Fixed Rent and shall be considered Additional Rent.

D. Common Areas shall be subject to such reasonable rules and regulations,
including the right to impose parking charges or fees and to allocate parking
areas on a uniform or non-discriminatory basis and to prohibit the use of the
Shopping Center by such Persons as Landlord determines, as the same may be
amended or modified, as Landlord may, from time to time, adopt as provided in
this Lease.

E. Landlord reserves the right to close, if necessary, all or any portion
of the Common Areas for the minimum length of time as may, in the reasonable
opinion of Landlord's counsel, be legally sufficient to prevent a dedication
thereof or the accrual of the right of the public therein, to close temporarily,
if necessary, all or any part of the parking areas to discourage non-customer
parking and to do and perform such other acts in and to the Common Areas as in
the use of good business judgment of Landlord will improve the use thereof.

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ARTICLE 5

LANDLORD'S ADDITIONAL COVENANTS

Section 5.1. Repairs by Landlord. Landlord shall keep the exterior walls,
foundations, downspouts, gutters and roofs of the buildings, and the plumbing,
electrical and other utility system serving but which are located outside of the
Premises, in good order, condition and repair and shall make necessary
structural repairs to the exterior walls of the buildings (excluding, however,
repairs to windows, doors, saddles, plate glass, store fronts and air
conditioning and heating installations and wiring, pipes and other utility
installations located outside of the Premises which are used exclusively by
Tenant), the dividing walls between the Premises and space occupied or to be
occupied by others and the load-bearing walls and load-bearing columns, if any,
within the Premises, provided that Landlord shall not be obligated hereby to do
any work required to be done because of any damage caused by any act, omission
or negligence of Tenant and its invitees, licensees, their respective officers,
agents and employees or their customers. Except where Landlord has actual notice
of the necessity for such repair, Landlord shall not be required to commence any
such repair until after notice from Tenant that the same is necessary, which
notice, except in case of any emergency, shall be in writing and shall allow
Landlord [***] days in which to commence such repair. The fact that the costs
incurred by Landlord in connection with any of the foregoing are includable in
Common Area Operating Costs pursuant to Subsections 3.5A and 3.5B shall not
affect Landlord's performance obligations under this Section 5.1. When necessary
by reason of accident or other cause occurring in the Premises, or elsewhere in
the Shopping Center, or in order to make any repairs or alterations or
improvements in or relating to the Premises or to other portions of the Shopping
Center, Landlord reserves the right to interrupt the supply to the Premises of
steam, condenser water or cooled air for air conditioning, electricity, water
and gas and also to suspend the operation of the heating and air conditioning
system, if any, until said repairs, alterations or improvements shall have been
completed. If, as a result of Landlord's performance of its obligations or
exercise of its rights under this Section 5.1, there is created a substantial
and material interference with Tenant's ability to conduct its business in the
Premises and Tenant therefor closes for more than [***] consecutive business
days, Tenant shall be entitled to an abatement of Fixed Rent for each day after
the [***] business day during which the condition continues. Other than the
aforesaid, there shall be no abatement of Rent because of any such interruption
or suspension; however, Landlord shall pursue such work with reasonable
continuity, diligence and dispatch and in such a manner as (consistent with good
practice) to cause a minimum of interference with Tenant's use of the Premises.

Section 5.2 Quiet Enjoyment. Landlord covenants that Tenant, on paying the
Rent and performing Tenant's obligations in this Lease, shall peacefully and
quietly have, hold and enjoy the Premises and the appurtenances throughout the
Term without hindrance, ejection or molestation by any Person lawfully claiming
under Landlord subject to the other terms and provisions of this Lease and to
any agreements to which this Lease may be or become subject and subordinate.

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ARTICLE 6

TENANT'S ADDITIONAL COVENANTS

Section 6.1. Affirmative Covenants. Tenant covenants, at its expense, at
all times during the Term:

A. To use the Premises only for the Permitted Use: to operate its business
in the Premises under Tenant's Trade Name (or such other trade name as is
adopted by a majority of stores operating under the Trade Name); and to conduct
its business at all times in a dignified manner and in conformity with the
highest standards of practice obtaining among superior type stores, shops or
concerns dealing in the same or similar merchandise and in such manner as to
produce the maximum volume of Gross Sales and to help establish and maintain a
high reputation for the Shopping Center.

B. To continuously and uninterruptedly use, occupy and operate for retail
sales purposes, all of the Premises other than such minor portions thereof as
are reasonably required for storage and office purposes; to use such storage and
office space only in connection with the business conducted by Tenant in the
Premises; to furnish and install all trade fixtures and permitted signs; to
carry a complete stock of seasonal merchandise; to maintain an adequate number
of trained personnel for efficient service to customers; to open for business
and remain open during the entire Term from at least 10:00 A.M. to 9:30 P.M.
Mondays through Saturdays and 12:30 P.M. to 6:00 P.M. on Sundays, and to light
its display windows and signs during those hours and on those days when the
covered mall is kept illuminated by Landlord (but Tenant shall not be obligated
to keep the same illuminated beyond 11:00 P.M. on any day). Tenant shall, if not
in conflict with any Governmental Requirements, and providing that (i) at least
one Department Store is open on such days or for such hours and (ii) Landlord
shall agree to cause the Shopping Center to remain open for such days or for
such hours, also open for business on such days or for such additional hours.

C. To store in the Premises only such merchandise as is to be offered for
sale at retail within a reasonable time after receipt; to store all trash and
refuse in appropriate containers within the Premises so as not to be visible to
the shopping public and to attend to the daily disposal thereof in the manner
approved by Landlord; to keep all drains inside the Premises open; and to
receive, deliver, load and unload goods, merchandise, supplies, fixtures,
equipment, furniture and rubbish through proper service doors and at times
established by Landlord, provided, however, that if Landlord shall furnish or
designate trash removal service, Tenant shall accept and use such service and
pay Landlord or the Person designated by Landlord, monthly for such service at a
rate which shall be no greater than the prevailing competitive rate for
equivalent service in the locale. If Landlord shall implement a refuse recycling
program for the Shopping Center, Tenant shall participate in such a program and
shall comply with all rules and regulations promulgated by Landlord in
connection therewith, including, but not limited to, the sorting of refuse by
type for deposit in designated containers.

D. Except for repairs hereunder to be made by Landlord, to take good care
of the Premises and the fixtures and appurtenances therein and make all other
necessary repairs and replacements thereto, of every kind whatsoever (including,
without limitation, repairs and

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replacements to windows, doors, saddles, plate glass, store fronts, air
conditioning and heating installations and plumbing inside the Premises or
located outside but exclusively serving the Premises and any exterior
installation peculiar to the conduct of Tenant's business such as, but not
limited to, signs, displays or exterior devices of any nature) which repairs and
replacements shall be in quality and class at least equal to the original work.
If Tenant fails to make any such repairs or replacements, Landlord may after
reasonable notice (other than in the case of an emergency) to Tenant make same
for the account of Tenant, at Tenant's expense, which amount shall be considered
Additional Rent and shall be due and payable by Tenant when billed by Landlord.
Tenant shall not be required to make structural repairs unless the necessity
therefor arises by reason of Tenant's Work, installations or alterations made by
Tenant, the manner of Tenant's use or occupancy or any other cause created by
Tenant.

E. To make all repairs, alterations, additions or replacements to the
Premises, including appurtenances, equipment, facilities and fixtures therein,
arising out of the manner of Tenant's use or occupancy of the Premises or
necessary to satisfy any Governmental Requirement; to keep the Premises equipped
with all safety appliances so required because of such use or occupancy; and
otherwise to comply with the orders and regulations of any Governmental
Authority. Tenant shall not be required to make structural alterations unless
the necessity therefor arises by reason of Tenant's Work, installations or
alterations made by Tenant, the manner of Tenant's use or occupancy or any other
cause created by Tenant.

F. To pay promptly when due the entire cost of any work to the Premises,
including equipment, facilities and fixtures therein, so that the Premises and
all of Tenant's fixtures and equipment shall, at all times, be free of
encumbrances or liens, including liens for labor and materials; to procure all
Necessary Approvals before undertaking such work; to permit Landlord to post and
keep posted on the Premises, sufficient, conspicuous notices stating that any
improvements are not being made at Landlord's instance; to do all such work in a
good and workmanlike manner acceptable to Landlord, employing materials of good
quality; to perform such work in such a manner as to insure proper maintenance
of good and harmonious labor relationships; to comply with any Governmental
Requirement relating thereto. Tenant understands that as part of the rules and
regulations promulgated by Landlord in connection with Tenant's Work, Landlord
requires a construction barrier which fulfills Landlord's construction criteria
to be erected around the mall exposure of the Premises. In the event that such a
barrier is already in place at the time Tenant takes possession of the Premises
to prosecute Tenant's Work, Tenant shall pay to Landlord, as consideration for
Landlord having provided the barrier and thereby having relieved Tenant of
responsibility for erecting same, an amount equal to the product of the [***].
Said amount shall be payable to Landlord not later than [***] days following the
date on which Tenant commences Tenant's Work and shall constitute Additional
Rent under the Lease. Tenant shall within [***] days after completion of any
work performed by Tenant, file for record in the appropriate public records, a
"notice of completion."

G. To defend and save Landlord and Landlord's Managing Agent harmless and
indemnified from all injury, loss, claims or damage (including reasonable
attorneys' fees and

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disbursements incurred by Landlord or its Managing Agent in conducting an
investigation and preparing for and conducting a defense) to any Person
(including Tenant's employees) or property, arising from, related to, or in any
way connected with the use or occupancy of the Premises or the conduct or
operation of Tenant's business, unless such injury, loss, claim or damage be
attributable to the negligence or willful acts of Landlord or its Managing
Agent, or its servants or employees.

H. To maintain with responsible companies approved by Landlord (said
approval not to be unreasonably withheld), (i) commercial general liability
insurance (or comparable coverage, including products liability and blanket
contractual liability insurance) against all claims, demands or actions for
personal injury, bodily injury or property damage arising from, related to, or
in any way connected with Tenant's Work, Tenant's occupation of the Premises, or
the conduct and operation of Tenant's business, or caused by actions or
omissions to act, where there is a duty to act, of Tenant, its agents, servants
and contractors, to the limits of not less than [***] per claim and in the
aggregate, which limits may be provided by any combination of primary and
umbrella or excess insurance, and which insurance shall be on an occurrence
basis and shall be endorsed to name Landlord, its agents and employees as
additional insureds; (ii) "All-Risk" property insurance, including such flood
and earthquake coverage as Landlord may, from time to time, require covering
[***] of Tenant's real and personal property values, such as fixtures and
equipment, stock-in-trade, furniture, furnishings, finishes, improvements and
betterments installed or made by or on behalf of Tenant in, on or about the
Premises, to [***] of their replacement cost without deduction for depreciation,
as well as loss of business income (so-called business interruption) coverage,
to include the Fixed Rent and Additional Rent payable under this Lease; (iii) if
there is air conditioning or refrigeration equipment valued in excess of [***],
boiler and machinery coverage at replacement cost, or if there is a boiler or
pressure vessel or other similar equipment in the Premises, boiler and machinery
coverage in the minimum amount of [***]; and (iv) workers' compensation,
disability and such other similar insurance covering all persons employed by
Tenant in connection with Tenant's Work and the operation of Tenant's business
and with respect to whom death or bodily injury claims could be asserted against
Tenant, Landlord or the Shopping Center. All of said insurance shall be in form
and with deductibles reasonably satisfactory to Landlord and shall provide that
it shall not be subject to cancellation, termination or change except after at
least [***] days' prior written notice to Landlord. In the case of boiler and
machinery insurance, the policy or policies shall cover Landlord or any designee
of Landlord as a loss payee and shall provide that losses sustained by Landlord
shall be adjusted by and payable to Landlord. Certificates of insurance
evidencing the coverage required pursuant to this Subsection H, together with
certificates evidencing coverage on the part of Tenant's contractors, shall be
deposited with Landlord not less than [***] days prior to the day Tenant begins
Tenant's Work and upon renewals of said policies not less than [***] days prior
to the expiration of the term of such coverage. All such policies shall be
delivered with satisfactory evidence of the payment of the premium therefor.
Landlord and Tenant mutually agree that with respect to any loss which is
covered by "All-Risk" property insurance then being carried by them
respectively, or required to be carried, the party carrying or required to carry
such insurance and suffering said loss, releases the other of and from any and

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all claims with respect to such loss, including amounts within the deductibles,
and they further mutually agree that their respective insurance companies shall
have no right of subrogation against the other on account thereof.

I. In the event of any action or proceeding arising out of or pursuant to
this Lease, the successful party shall be entitled to recover its reasonable
attorneys' fees and all other costs and expenses incurred in connection with the
action or proceeding.

J. Within [***] days following receipt of actual notice thereof, to cause
to be discharged of record by bonding, payment or otherwise, any mechanic's or
similar lien, judgment, encumbrance, security interest, chattel mortgage or
notice thereof at any time filed in any public office against the Shopping
Center or the Premises (including any fixtures or equipment located therein) or
the owner of any interest therein for any work, labor, services, materials,
fixtures, equipment or property claimed to have been performed at or furnished
to the Shopping Center or Premises for or on behalf of Tenant or any agent or
contractor of Tenant, or anyone holding the Premises through or under Tenant.
Nothing contained in this Lease shall be construed as a consent on the part of
Landlord to subject Landlord's estate in the Premises to any lien or liability
under applicable law.

K. Upon the expiration or other termination of the Term to quit and
surrender the Premises to Landlord, broom clean, in good order and condition,
ordinary wear and tear and casualty damages excepted, and to remove all property
of Tenant and each alteration addition and improvement made by Tenant as to
which Landlord shall have made the election provided for in Section 2.4 hereof,
to repair all damage to the Premises caused by such removal and restore the
Premises to the condition in which they were prior to the installation of the
articles so removed. Any property not so removed and as to which Landlord shall
not have made said election, shall be deemed to have been abandoned by Tenant
and may be retained or disposed of by Landlord, as Landlord shall desire.
However, Tenant shall be responsible for the cost of removal and disposal. If
the last day of the Term falls on a day the Shopping Center is closed, the Term
shall expire on the business day immediately preceding and Tenant's obligation
to observe or perform this covenant shall survive the expiration or termination
of the Term. Immediately upon the failure of Tenant to perform any covenant of
this Subsection K, Landlord may, without notice, do so, and shall be entitled to
receive from Tenant the then cost of performance of such covenant, such damages
to be paid in addition to and separate and independently from damages accruing
by reason of breach of any other covenant of this Lease.

L. (1) Tenant shall pay to Landlord for deposit by Landlord in a promotion
fund (the "Promotion Fund"), an amount (the "Promotion Fund Charge") equal to
the sum set forth in Article 1, subject to adjustment as hereinafter provided.
On the January 1 next following the [***] anniversary of the Commencement Date
of this Lease, the amount set forth in Article 1 shall be increased by [***]
percent, and on each January 1 thereafter, the Promotion Fund Charge payable for
the immediately preceding year shall be increased by [***] percent. The annual
charge payable by Tenant under this paragraph shall be paid in equal monthly

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installments on the [***] day of each calendar month in advance and shall be
prorated for any partial calendar month. The Promotion Fund shall be used by
Landlord, at such times and in such manner as shall be determined by Landlord,
to pay all costs and expenses (including the costs of administration) associated
with the formulation and carrying out of an ongoing program for the promotion of
the Shopping Center, which program may include, without limitation, special
events, shows, displays, institutional advertising for the Shopping Center,
promotional literature to be distributed within the general trade area of the
Shopping Center, and other activities designed to attract customers to the
Shopping Center.

(2) At any time, Landlord may elect to cause a Merchants'
Association (an "Association") to be organized, the object of which shall be the
general furtherance of the business interests of tenants in the Shopping Center
by sales promotion and Shopping Centerwide advertising. Upon the organization
of an Association, Tenant shall become (and remain) a member thereof, and the
amount which would have otherwise been payable by Tenant to the Promotion Fund
pursuant to the provisions of paragraph (1) above shall be discontinued and a
sum equal to such amount (subject to adjustment as herein set forth or such
greater adjustment as may be assessed from time to time by the Association)
shall be paid by Tenant to the Association as dues. The rules and regulations
and by-laws of the Association shall be consistent with the obligations of
Tenant set forth in this Subsection L, but shall in all other respects be in the
form designated by Landlord; it being agreed, however, that nothing therein set
forth shall be in conflict with the provisions of this Lease. Landlord, having
once exercised its option as set forth in this Subsection, may at any time elect
to discontinue operation of the Association, in which case the provisions of
paragraph (1) applicable to the Promotion Fund Charge shall again become
operative.

(3) The failure of any other tenant or occupant of the Shopping
Center to contribute to the Promotion Fund or become a member of the Association
shall in no way release Tenant from its obligations to do so.

(4) If the Shopping Center shall be expanded by adding a Department
Store and/or [***] percent or more to the Gross Leaseable Area of the Shopping
Center (an "Expansion"), Tenant shall pay to Landlord's Promotion Fund a
one-time charge for each such Expansion. Such Expansion charge shall be an
amount equal to the annual Promotion Fund Charge payable by Tenant for the Lease
Year immediately preceding the year in which work on the Expansion commences and
shall be payable upon [***] days' prior written notice from Landlord given at
any time subsequent to the commencement of construction. A like amount shall
also be payable by Tenant to the Promotion Fund in the event that the Shopping
Center shall be substantially renovated. For purposes of this subparagraph, the
term "substantial renovation" or any variation thereof shall be deemed to mean a
redecoration of the covered mall portion of the Common Areas of the Shopping
Center to the extent of at least [***] percent thereof, including new flooring
and the painting and/or recovering of the walls. The amount payable to the
Promotion Fund in connection with a substantial renovation of the Shopping
Center shall be due upon [***] days' prior written notice from Landlord to
Tenant, but in no

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event prior to commencement of the renovation. In the event of a contemporaneous
Expansion and renovation of the Shopping Center, Tenant shall be assessed only
the one-time Expansion charge.

M. Tenant shall furnish to Landlord an annual statement at the end of each
Lease Year showing the amounts spent by Tenant on white space advertising or
other advertising media. Each such annual statement shall be made a part of the
annual report required to be furnished by Tenant under Section 3.3. If Tenant's
annual statement shows that Tenant has expended for such advertising, during the
preceding Lease Year, less than the Percentage of Advertising Required, Tenant
shall, within [***] days after the required delivery date of its annual
statement, pay to the Promotion Fund (or substitute Association) the difference
between the amount actually expended for such advertising and the Percentage of
Advertising Required. The Promotion Fund Charge (or dues or other payments made
by Tenant to the substitute Association) shall not be deemed an amount expended
for advertising within the meaning of this Subsection M. All expenditures made
by Tenant for advertising in connection with Tenant's other stores, if any,
within the trade area of the Shopping Center, may be included by Tenant to
comply with this Subsection provided such advertising in all instances includes
the Premises and is distributed to the geographical trade area in which the
Shopping Center is located.

N. To refer to the Shopping Center by its name above stated in designating
the location of the Premises in all newspaper or other advertising in the
general trade area in which the Shopping Center is located. With respect to any
advertisement in which the location of another similar business activity
conducted by Tenant in the trade area shall be mentioned, Tenant shall also
mention or cause to be mentioned the Trade Name and location of the business
conducted at the Premises.

O. (1) To the extent that Tenant currently has or in the future shall
establish an online site (including but not limited to a World Wide Web site or
a section of a proprietary online service) (each a "Site"; collectively,
"Sites"), Tenant shall:

(a) In promoting its business via such Site, feature Tenant's
store at the Shopping Center with substantially the same prominence as that of
any other comparable store of Tenant.

(b) To the extent that Tenant shall provide such a link in
connection with any other comparable store, provide a link off an appropriate
page of Tenant's Site to the Mall Site (as hereinafter defined), if Tenant has a
Digital Storefront (as hereinafter defined) for such Mall Site. The placement of
the link shall be subject to Tenant's reasonable technical and design
requirements.

(c) Offer Landlord the opportunity to include content from
Tenant's Site on one or more of Landlord's Sites, on terms to be mutually agreed
upon.

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(d) Subject to Section 3.3, to the extent Tenant shall make
any sales of goods or services via Tenant's Site and such goods or services are
shipped from or delivered to the customer from the Premises, the amount of the
actual prices charged, excluding shipping and handling charges, shall be
included in Gross Sales and shall be subject to all audit rights otherwise
granted to Landlord under Section 3.3.

(2) To the extent that Landlord has established or shall establish
a Site for the Shopping Center (the "Mall Site"), Tenant shall cooperate with
Landlord to establish a "store" for Tenant in such Mall Site, on terms to be
mutually agreed upon, in accordance with Landlord's then current format and
features. The "store" shall be known as a "Digital Storefront".

(a) In connection with the Digital Storefront and the Mall Site,
Tenant shall permit Landlord to use Tenant's Trade Name and any graphics
approved by Tenant for use in the Shopping Center directory. If so requested by
Landlord, Tenant shall also keep Landlord apprised of all sales events and
special promotions taking place in the Premises and shall permit Landlord to
publicize same via the Digital Storefront and the Mall Site.

(b) Subject to Section 3.3, Tenant hereby agrees that, to the
extent that Tenant shall make any sales of goods or services via the Digital
Storefront or the Mall Site, the amount of the actual prices charged, excluding
shipping and handling charges, shall be included in Gross Sales and shall be
subject to all audit rights otherwise granted to Landlord under Section 3.3.

(3) Notwithstanding anything to the contrary contained in this
Subsection 6.10, Tenant shall not be required to:

(a) include any information regarding the Premises, the Shopping
Center, the Digital Storefront, and/or the Mall Site in Tenant's Site unless
Tenant displays at least one other of Tenant's comparable store locations or
other specific shopping centers; or

(b) include sales of goods or services in Gross Sales which are
made via an online service unless such sales are paid for at the Premises or
delivered to the purchaser from the Premises or traceable solely to either the
Mall Site or the Digital Storefront; or

P. To obtain all Necessary Approvals.

Q. To provide in accordance with Landlord's sign criteria, a suitable
identification sign or signs, bearing Tenant's Trade Name, of such size, design
and character as Landlord shall approve and install said sign or signs at a
place or places designated by Landlord. Tenant shall maintain any such signs or
other installations in good condition and repair.

R. To conform to all reasonable rules and regulations which Landlord may
make for management and use of the Shopping Center, requiring such conformance
by Tenant and Tenant's employees. Such rules and regulations shall be uniform
and shall not discriminate against Tenant.

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S. To deliver to Landlord, within [***] days after a request for same, all
or any of the following items, in such form and containing such evidence of
authenticity and regularity as Landlord may reasonably require.

(1) Balance sheet, annual report and related financial statements
of Tenant, Guarantor, if any, Tenant's parent and all subsidiaries of Tenant for
the previous annual period, same to have been prepared in accordance with
generally accepted accounting principles.

(2) A list of all Affiliates, officers, directors and stockholders
of Tenant, including name, title, number and type of shares owned.

(3) If Tenant or any Person from whom information as aforesaid is
required to be submitted is a corporation whose shares are traded on the "over
the counter", American or New York Stock Exchanges then the provisions of
paragraphs (1) and (2) above may be satisfied by submission of Tenant's most
recent annual report and form 10K together with all other current filings with
the Securities Exchange Commission or otherwise made pursuant to Federal
securities laws.

(4) Certificates executed by the appropriate chief financial
officers (or executives) of any entity from whom information is required
pursuant to this Subsection to the effect that there has been no material
adverse change in its financial status since the date of the most recent
information provided to Landlord.

(5) A list of all stores operated by any of the Persons from whom
information is required as aforesaid (including shareholders of such Persons) or
their licensees, franchisees, concessionaires or the like within a radius of
five (5) miles of the Shopping Center.

Tenant represents that Tenant has the right, power and authority to
execute and deliver this Lease, that such execution, delivery and performance of
Tenant's obligations shall not cause, create or constitute a default or breach
of or under any agreement to which Tenant is a party or by which it is bound.
Tenant further represents that the information concerning its financial status,
stockholders, parent, subsidiaries and Affiliates, if any, prior to the
execution and delivery of this Lease is unchanged, true and correct, accurately
represents the financial status of the Person for whom submitted and that there
has been no material or adverse change in the financial status of Tenant or said
Persons.

Section 6.2.Negative Covenants. Tenant covenants at all times during the
Term and such further time as Tenant occupies the Premises or any part thereof:

A. Except for existing stores, Tenant shall not, nor shall any officer,
director, shareholder, Affiliate, franchisee or licensee or the like of Tenant,
directly or indirectly operate, manage or have any interest in any other store
or facility for the sale at retail of merchandise or services similar to that
which is permitted under "Permitted Use", within ten (10) miles of the Shopping
Center (the Retail Restriction Limit). For purposes of this Subsection A, the
Retail

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Restriction Limit shall be measured along a straight line, the beginning of
which is the point on the outer perimeter of the Shopping Center which is
closest to such other store and the end of which is a point on the main entry
doors of such other store. Without limiting Landlord's remedies in the event
Tenant should violate this covenant, Landlord may include the Gross Sales of
such other store in the Gross Sales transacted in the Premises, for the purpose
of computing Percentage Rent due hereunder. In the event Landlord so elects, all
of the provisions of Section 3.3 hereof shall be applicable to all records
pertaining to such other store.

B. Unless specifically set forth in the Permitted Use, not to sell,
display or distribute (i) any alcoholic liquors or beverages for consumption on
or off the Premises or (ii) any pornographic or obscene or sexually erotic
goods, wares, printed material or services or (iii) any drugs or other
substances whose use or sale is prohibited or controlled by Governmental
Authority, including any merchandise which, although not per se violative of
Governmental Requirements, is designed or may reasonably be inferred to have
been designed for use in connection with such prohibited or controlled items.

C. Not to injure, overload, deface or otherwise harm the Premises or any
part thereof or any equipment or installation therein; nor commit any nuisance;
nor permit the emission of any objectionable noise or odor; nor, unless
specifically permitted by the Permitted Use, bum anything within the Shopping
Center; nor permit the collection of trash or refuse contrary to rules and
regulations established by Landlord or by any Person not approved or designated
by Landlord; nor install or cause to be installed any automatic garbage disposal
equipment; nor conduct business at, in, on, about or from all or any part of the
Premises on any days or hours that Landlord does not open the Shopping Center
for business to the public; nor make any use of the Premises or of any part
thereof or equipment therein which is improper, offensive or contrary to any
Governmental Requirement or to the rules and regulations of Landlord as such may
be promulgated from time to time; nor use any advertising medium that may
constitute a nuisance, such as loudspeakers, sound amplifiers or phonographs in
a manner to be heard outside the Premises; nor conduct any auction, fire, "going
out of business" or bankruptcy sales except under conditions approved by
Landlord in writing; nor use or occupy the Premises, or suffer or permit them to
be used or occupied in whole or in part, as a surplus store, salvage or "odd
lot" store, or for any similar business or activity; nor do any act tending to
injure the reputation of the Shopping Center; nor sell or display merchandise
on, or otherwise obstruct, the Common Areas or anywhere else in the Shopping
Center or distribute handbills or other advertising matter in the Shopping
Center outside of the confines of the Premises; nor carry on or permit any
business conduct or practice which, in Landlord's judgment, may harm the
business reputation of Landlord or reflect unfavorably on the Shopping Center,
Landlord or other tenants or which might confuse or mislead the public. Tenant
shall, upon notice from Landlord, immediately discontinue any violation of the
foregoing provisions.

D. Except for those which are interior, non-structural and do not affect
the heating, ventilation, air conditioning, mechanical or utility systems of the
Premises or Shopping Center and the aggregate cost of which does not exceed
[***], not to make any repairs, installations,

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alterations or additions or improvements or work to the Premises without, on
each occasion, obtaining the prior written consent of Landlord, which consent
shall not be unreasonably withheld (it being understood that Landlord's
withholding of consent shall not be deemed unreasonable where Tenant is unable
to demonstrate, to Landlord's reasonable satisfaction, the ability to pay for
the proposed work); nor attach interior signs, placards or other advertising
media or other objects to the windows, doors, valances or ceiling or locate the
same either outside of or within the Premises in such manner as to obstruct the
view of Tenant's store from the mall area or from the outside other than
insubstantially. If Landlord's consent is required, Tenant shall not commence
any work as aforesaid until Tenant shall have filed with Landlord plans and
specifications for such work and Landlord shall have approved same, said
approval not to be unreasonably withheld. Tenant shall perform such work in
accordance with such approved plans and specifications using labor not
incompatible with other labor at the Shopping Center and such as will not create
any labor disputes or work stoppages. Any work performed by Tenant shall at all
times be subject to Landlord's inspection and approval after completion to
determine whether same complies with the requirements of the applicable
provisions of this Lease. Tenant shall, preceding and during the course of any
alteration, addition, enlargement, improvement or construction, post or permit
Landlord to post and keep posted in conspicuous places on the Premises, and in
addition, serve all Persons who are expected to perform work or supply
materials, such notices as are now or hereafter permitted or required to be
posted to protect Landlord from having its interest in the Premises made subject
to a mechanics' or materialmen's lien arising from such alteration, enlargement,
improvement or construction. Prior to commencing construction, Tenant shall give
Landlord a list of names and addresses for all such Persons.

E. Except those for the sole use of Tenant's employees, not to operate any
coin or token operated vending machine or similar device for the sale of any
goods, wares, merchandise, food, beverage or services, including, but not
limited to, pay telephones, pay lockers, pay toilets, scales, amusement devices
and machines for the sale of beverages, foods, candy, cigarettes or toilet
commodities, without the prior written consent of Landlord.

F. Unless Tenant shall first have received Landlord's written consent with
respect thereto, not to assign, sell, mortgage, hypothecate, encumber, pledge,
or in any manner transfer this Lease or any interest therein, or sublet the
Premises or any part or parts thereof, or grant any concession or license or
otherwise permit occupancy of all or any part thereof by anyone with, through or
under it; nor shall Tenant grant or create any security interest or mortgage,
hypothecate, encumber or pledge any equipment, or improvements located in or
about the Premises. A transfer of any of Tenant's or Guarantor's stock or a
transfer or change of "control" (as such term is defined under the heading
"Affiliate" in Article 1 of this Lease) of Tenant or Guarantor, if Tenant or
Guarantor is a corporation or a change in the composition of Persons owning any
interest in any non-corporate Tenant shall be deemed an assignment for the
purpose of this Subsection F. In the event of the occurrence of any of the
foregoing events without Landlord's prior consent, this Lease shall, at
Landlord's option, be deemed to have been cancelled, terminated and expired as
of the date of the occurrence of said event. Neither the consent by Landlord to
any of the foregoing, nor any references in this Lease to concessionaires or
licensees shall be construed to relieve Tenant from obtaining the express
consent of Landlord to any further act which is prohibited herein, nor shall the
collection of Rent by Landlord from any assignee, subtenant or other occupant,
after default by Tenant, be deemed a waiver of this

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covenant or the acceptance of the assignee, subtenant or occupant as Tenant or a
release of Tenant from the further performance by Tenant of the covenants in
this Lease on Tenant's part to be performed.

(1) The provisions of this Subsection 6.2F shall not be deemed to
prohibit (i) transfers of stock among existing stockholders or among spouses,
children or grandchildren of existing stockholders or inter vivos or
testamentary transfers to trusts established for the benefit of such persons,
(ii) a public offering of the stock of Tenant or Guarantor or (iii) the transfer
of outstanding voting stock registered under applicable securities laws of
Tenant or Guarantor which are traded on a recognized national securities
exchange. For the purposes of the preceding clause (iii), the term "voting
stock" shall mean shares of stock regularly entitled to vote for the election of
all directors of the corporation.

(2) Landlord shall not unreasonably withhold its consent to an
assignment of this Lease or sublease of the entire Premises to a parent,
Affiliate or wholly-owned subsidiary of Tenant or to any entity with which or
into which Tenant may consolidate or merge and who shall assume for Landlord's
benefit the performance of all of the terms, conditions and covenants of this
Lease; provided, however, that the merged or consolidated entity shall have a
net worth at least equal to the net worth of Tenant at the time of such
consolidation or merger or at the time of the Commencement Date of this Lease,
whichever shall be greater, and further provided that the assignee or sublessee
shall use the Premises under the Trade Name and only for the Permitted Use.

(3) Except for the transactions described in paragraphs (1) and
(2) of this Subsection, Tenant may not assign or sublet the Premises until
Tenant completes Tenant's Work and opens for business. When Tenant requests
Landlord's consent to a transaction other than the types of transactions
described in paragraphs (1) and (2) of this Subsection, such requests shall
include the name of the proposed transferee of stock, assignee or subtenant and
its officers, directors and stockholders and such information as to the
financial responsibility, business and reputation of the proposed assignee,
transferee of stock or subtenant and its officers, directors and stockholders as
Landlord may reasonably require. Upon the receipt of such request and
information from Tenant, Landlord shall have the right, to be exercised in
writing within [***] days after such receipt, to cancel and terminate this
Lease, as of the date set forth in Landlord's notice of exercise of such option,
which effective date of termination in Landlord's said notice shall not be less
than [***] nor more than [***] days following the service of such notice. Tenant
shall have the right to negate Landlord's cancellation by withdrawing its
request within [***] days after service of Landlord's notice, whereupon, this
Lease and the occupancy hereunder shall continue unchanged and in full force and
effect.

(a) In the event Landlord shall exercise such cancellation right,
Tenant shall surrender possession of the Premises on the date set forth in
Landlord's notice and in accordance with the provisions of this Lease relating
to surrender of the Premises at the

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expiration of the Term. In no event shall the Premises be subdivided or
partially sublet nor any request made for permission to do so.

(b) In the event Landlord shall not exercise its right to cancel
this Lease as provided above, then Landlord's consent to such request shall not
be unreasonably withheld in accordance with subparagraph (c) of this paragraph
(3), provided such consent to sublease or assignment is effected by a legal
document in form and substance satisfactory to Landlord. In no event shall any
assignment or subletting to which Landlord may have consented release or relieve
Tenant from its obligations fully to perform all of the terms, covenants and
conditions of the Lease on its part to be performed. Any assignee or subtenant
shall be bound by, subject to and deemed to have assumed performance of all of
the terms, conditions and covenants of this Lease, including, but not limited
to, the Permitted Use set forth in Article 1 and the Retail Restriction Limit
and any and all defaults shall be cured prior to the assignment or subletting.

(c) In determining reasonableness, Landlord may take into
consideration all relevant factors surrounding the proposed sublease and
assignment, including, without limitation, the following:

(i) The business reputation of the proposed assignee or
subtenant and its officers, directors and stockholders;

(ii) The nature of the business of the proposed assignee or
subtenant in relation to the tenant mix or balance of the Shopping Center;

(iii) The source of the Rent due under this Lease, the
financial condition and operating performance of the proposed assignee or
subtenant and its guarantors, if any;

(iv) Restrictions, if any, contained in lease or other
agreements affecting the Shopping Center;

(v) The extent to which the proposed assignee or subtenant and
Tenant provide Landlord with assurance of future performance hereunder,
including, without limitation, the payment of Percentage Rent; and

(vi) The number of other stores operated by the proposed
assignee or subtenant in the vicinity in which the Shopping Center is located.

(4) This paragraph (4) shall not apply to any transactions described
in paragraphs (1) and (2) above but shall apply to all other transactions. In
the event Tenant shall assign its interest in this Lease or sublet the Premises,
then the Fixed Rent specified in Article 1 shall [***], effective as of the date
of such assignment or subletting, [***], required to be paid by Tenant pursuant
to this Lease for the Lease Year immediately preceding such assignment or

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subletting. In no event shall the Fixed Rent, after such assignment or
subletting, be [***]. In addition to the foregoing, Tenant agrees that in the
event of an assignment or subletting, Tenant shall pay to Landlord any and all
consideration, money or thing of value received by Tenant or payable to Tenant
in connection with the transaction, except Tenant shall not be required to pay
to Landlord consideration received in connection with the sale of Tenant's trade
fixtures, equipment, inventory or leasehold improvements.

(5) Except for transactions of the types described in paragraphs (1)
and (2), in the event of any assignment or subletting, Landlord shall have the
right to require that there be deposited with and held by Landlord, in addition
to any other security then held by Landlord, an amount equal to [***] months'
rent ensuing.

(6) Use of the terms "assignment" or "subletting" shall be deemed to
include stock or share transfers as to corporations, and transfers of ownership
interests in the case of non-corporate entities.

(7) Tenant shall pay to Landlord the sum of [***] for the processing
of any assignment, sublease or other transaction covered or affected by this
Subsection 6.2F. Tenant shall pay to Landlord the sum of [***] for the
processing of all other transactions initiated by Tenant which are covered or
affected by the other provisions of this Lease.

G. Not to permit commercial or piped in music to be played other than in
the Premises or in a manner which can be heard outside the Premises or, except
for work performed by its own employees during reasonable hours designated by
Landlord, not to permit rubbish or garbage removal, window cleaning, janitorial
or maintenance services in or about the Premises, except in each such case, by a
Person, if any, designated by Landlord. Landlord agrees that the prices to be
charged by the Person, if any, so designated to supply or perform any or all of
the services referred to in this Subsection G shall be competitive. Landlord
reserves the right to provide rubbish and garbage removal service, and if
Landlord provides such service, Tenant shall pay for the cost thereof in such
amount and at such intervals as Landlord may fairly and reasonably determine,
said payments to constitute Additional Rent hereunder.

H. Not to place or install or suffer to be placed or installed or maintain
any graphics or sign in, upon or outside the Premises or in the Shopping Center
unless it complies with Landlord's sign criteria and is approved by Landlord
pursuant to Subsection Q of Section 6.1, nor any awning, canopy, banner, flag,
pennant, aerial, antenna or the like in or on the Premises. Tenant shall not
place in the windows or at or near the entrance to the Premises any sign,
graphics, decoration, lettering, advertising matter, shade or blind or other
thing of any kind, other than neatly lettered signs of reasonable size placed on
the floor thereof identifying articles offered for sale and the prices thereof,
without first obtaining Landlord's written approval and consent in each
instance, which consent shall not be unreasonably withheld. Tenant further
agrees that Landlord shall have the right to disapprove and require the removal
of any sign, graphics, lettering, lights, advertising or other forms of
inscription located in the front [***] feet

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of the Premises. Any signs, lights, lettering or other forms of inscription
displayed without prior written approval of Landlord may be removed forthwith by
Landlord. The cost of such removal shall be paid by Tenant and Tenant shall
thereafter restore the Premises and the building to the condition existing
immediately prior to the installation of the removed signs, lettering or
inscription.

I. Not to place a load upon any floor of the Premises which exceeds the
floor load per square foot area which such floor was designated to carry. If
Tenant shall desire a floor load in excess of that for which the floor or any
portion of the Premises is designed, upon submission to Landlord of plans
showing the location of and the desired floor live load for the area in
question, Landlord may, at its option, strengthen and reinforce the same, at
Tenant's sole expense, so as to carry the live load desired. Business machines
and mechanical equipment used by Tenant which cause vibration or noise that may
be transmitted to the building or to any occupiable space to such a degree as to
be reasonably objectionable to Landlord or to any tenants in the building shall
be placed and maintained by Tenant at its expense, in settings of cork, rubber
or spring-type vibration eliminators sufficient to eliminate such vibration or
noise.

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ARTICLE 7

DESTRUCTION: CONDEMNATION

Section 7.1. Fire or Other Casualty.

A. Tenant shall give prompt notice to Landlord in case of fire or other
damage to the Premises.

B. If (i) the Enclosed Shopping Center (whether or not the Premises were
damaged) shall be damaged to the extent of more than twenty-five (25%) percent
of the cost of replacement thereof, or (ii) the proceeds of Landlord's insurance
recovered or recoverable as a result of the damage described in subsection (i)
preceding shall be substantially insufficient to pay fully for the cost of
replacement of the damaged portion of the Enclosed Shopping Center, or (iii) the
Premises or the Enclosed Shopping Center shall be damaged as a result of a risk
which is not covered by Landlord's insurance or generally commercially available
"All-Risk" property insurance, Landlord may terminate this Lease by notice given
within ninety (90) days after such event and upon the date specified in such
notice, which shall be not less than thirty (30) nor more than sixty (60) days
after the giving of said notice, this Lease shall terminate. If the Premises
shall be damaged in whole or in part during the last two (2) years of the Term,
then either Landlord or Tenant may terminate this Lease by notice given to the
other within ninety (90) days after the occurrence of such damage, and upon the
date specified in such notice, which shall not be less than thirty (30) nor more
than sixty (60) days after the giving of said notice, this Lease shall
terminate. If the casualty, or Landlord's repair and restoration work shall
render the Premises untenantable, in whole or in part, then, a proportionate
credit against Rent (except Percentage Rent, Tax Rent and that portion of Common
Area Rent attributable to the cost of insurance) shall be allowed from the date
when the damage occurred until the earlier of (i) the day after Landlord has
substantially completed the work required to repair and restore the Premises, as
set forth in Subsection C of this Section, or (ii) the date Tenant shall have
opened for business, or (iii) the date of termination by Landlord, in the event
Landlord elects to terminate this Lease. Said proportion shall be computed on
the basis of the ratio which the amount of Floor Space rendered untenantable
bears to the total Floor Space. If there is a credit against Fixed Rent, in
computing the "break even" for Percentage Rent purposes, the amount of Fixed
Rent less such credit shall be applied, or if the "break even" is expressed
herein as a fixed dollar amount, such amount shall be ratably reduced.

C. If this Lease shall not be terminated as provided in Subsection B
hereof, Landlord shall, at its expense, repair or restore the Premises with
reasonable diligence and dispatch, to the condition obtaining immediately prior
to the casualty except that Landlord shall not be required to repair or restore
any of Tenant's leasehold improvements or betterments, furniture, furnishings,
finishes, decorations or any other installations made by Tenant. Upon the
completion by Landlord of repair or restoration, Tenant shall prepare the
Premises for occupancy by Tenant in the manner obtaining immediately prior to
the damage or destruction in accordance with plans and specifications approved
by Landlord. All work of restoration or repair by Tenant shall be subject to the
provisions of Article 2.

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D. The provisions of this Section 7.1 shall supersede and are in lieu of
the provisions of any present or future statute or law to the contrary of the
state in which the Shopping Center is located.

E. The "cost of replacement", as such term is used in Subsection B hereof,
shall be determined by the company or companies insuring Landlord against the
casualty in question, or if there shall be no insurance, then, by an independent
engineer selected and paid for by Landlord.

Section 7.2. Eminent Domain.

A. If twenty-five (25%) percent or more of the Floor Space of the Premises
shall be taken or condemned by any competent authority for any public or
quasi-public use or purpose, either party may elect, by giving notice to the
other not more than sixty (60) days after the date on which title shall vest in
such authority, to terminate this Lease, and, in either such event, the Term of
this Lease shall cease and terminate as of the said date of title vesting. In
case of any taking or condemnation, whether or not the Term of this Lease shall
cease and terminate, the entire award shall be the property of Landlord and
Tenant hereby assigns to Landlord all its right, title and interest in and to
any such award. Tenant shall, however, be entitled to claim, prove and receive
in the condemnation proceeding such awards as may be allowed for loss of lease,
moving expense, fixtures and other equipment installed by it but only if such
awards shall be made by the condemnation court in addition to the award made by
it for the land and the building or part thereof so taken.

B. The current Rent (except Percentage Rent) in the case of any taking or
condemnation, shall be apportioned as of the date of vesting of title and, if
the Term of the Lease shall not have ceased and have been terminated as of said
date, Tenant shall be entitled to a pro rata reduction in the Rent (except
Percentage Rent) payable hereunder based on the proportion which the Floor Space
of the space taken bears to the entire Floor Space of the Premises immediately
prior to such taking.

C. If more than fifty (50%) percent of the Floor Space of the Enclosed
Shopping Center, or if more than twenty-five (25%) percent of the total Floor
Space in the Shopping Center shall be so taken or conveyed, or if so much of the
parking facilities shall be so taken or conveyed that a reasonable number of
parking spaces necessary, in Landlord's judgment, for the continued operation of
the Shopping Center shall not be available for use by patrons of the Shopping
Center, then, in any such event, Landlord may, by notice in writing to Tenant
delivered on or before the day of surrendering possession to the Governmental
Authority, terminate this Lease, and Rent shall be paid or refunded as of the
date of termination.

D. If this Lease is not terminated pursuant to the provisions of this
Section 7.2, Landlord shall, at its expense, but only to the extent of an
equitable proportion of the net award or other compensation (after deducting
legal and all other fees in connection with obtaining said award) for the
portion taken or conveyed, of the building of which the Premises are a part
(excluding award for land) make such repairs or alterations as are in Landlord's
reasonable judgment necessary to constitute the building a complete
architectural and tenantable unit.

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ARTICLE 8

DEFAULTS AND REMEDIES

Section 8.1. Bankruptcy, Insolvency.

A. If (i) Tenant or Guarantor shall become insolvent or make an assignment
for the benefit of creditors; or (ii) if there shall be filed against or by
Tenant or Guarantor in any court, pursuant to any statute either of the United
States or of any state, a petition in bankruptcy or insolvency or for
arrangement or reorganization or for the appointment of a receiver or trustee of
all or portion of Tenant's or Guarantor's property and it is not discharged
within thirty (30) days after filing; or (iii) in the case of a filing under
Title 11 of the United States Code (the Federal Bankruptcy Act), if this Lease
is not assumed within sixty (60) days after filing; then upon the occurrence of
any of such foregoing events, this Lease shall, automatically and as a matter of
law, be deemed to have been cancelled, terminated, expired and rejected in which
event neither Tenant nor any Person claiming through or under Tenant by virtue
of any statute or of an order of any court shall be entitled to acquire or
remain in possession of the Premises, and Landlord shall have no further
liability hereunder and Tenant or any such Person, if in possession, shall
forthwith quit and surrender the Premises. If this Lease shall be so cancelled
or terminated, Landlord, in addition to the other rights and remedies of
Landlord by virtue of any other provision herein or elsewhere in this Lease
contained or by virtue of any statute or rule of law, may retain and apply to
damages incurred by Landlord, any Rent, Security Deposit or monies received by
Landlord from Tenant or on behalf of Tenant.

B. In the event of the termination or rejection of this Lease pursuant to
Subsection A hereof, Landlord shall be entitled to recover from Tenant an amount
equal to the maximum allowed by any statute, law or rule of law in effect at the
time when, and governing the proceeding in which, such damages are to be proved.
If this Lease shall have been terminated pursuant to Section 8.2 or otherwise,
prior to the occurrence of any of the events described in Subsection 8.1A above,
then Landlord's rights under this Lease shall not be affected or prejudiced by
this Section 8.1.

Section 8.2. Default.

A. If Tenant defaults in fulfilling any of the covenants or provisions of
this Lease, including, without limiting the generality of the foregoing, the
covenants for the payment of Rent when due or any part thereof or for the making
of any other payment herein provided or for the performance of any other
covenant on Tenant's part to be performed hereunder, and such default shall
continue for [***] days in the case of a default in the payment of Rent or other
monies, after service by Landlord of written notice upon Tenant specifying the
nature of said default, or, [***] days as to any other default except that if a
non-monetary default or omission shall be of such a nature that the same cannot
be reasonably cured or remedied within said [***], if Tenant shall not in good
faith have commenced the curing or remedying of such default within such
twenty-

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day period, and shall not thereafter diligently proceed therewith to
completion, or if any levy, execution or attachment shall be issued against
Tenant or any of Tenant's property at the Premises, or if the Premises become
abandoned, vacant or deserted, or if Tenant shall default with respect to any
other lease between Landlord (or any Affiliate of Landlord) and Tenant (or any
Affiliate of Tenant), Landlord may serve upon Tenant a written notice that this
Lease and the Term will terminate on a date to be specified therein, which shall
be not less than [***] days after the giving of such notice, and upon the date
so specified, this Lease and the Term shall terminate and come to an end as
fully and completely as if such date were the date herein definitely fixed for
the end and expiration of this Lease and the Term, and Tenant shall then quit
and surrender the Premises to Landlord, but Tenant shall remain liable as
hereinafter set forth; provided, however, that if Tenant shall default (i) in
the timely payment of any item of Rent or the timely reporting of Gross Sales as
required by Section 3.3 hereof and any such default shall continue or be
repeated for [***] consecutive months or for a total of [***] months in any
period of [***] months or (ii) in performance of any other particular convenant
of this Lease more than [***] times in any period of [***] months, then,
notwithstanding that such defaults shall have each been cured within the period
after notice as above provided, any further similar default shall be deemed to
be deliberate and Landlord thereafter may serve the said written [***] days'
notice of termination without affording to Tenant an opportunity to cure such
further default.

B. If this Lease shall have been terminated pursuant to Section 8.1 or
8.2, or if Tenant has defaulted (beyond any opportunity to cure hereinabove set
forth) in the payment of Rent or in observing any other term, condition or
covenant, then, in any of such events, Landlord may institute summary
proceedings, re-enter the Premises, dispossess Tenant and the legal
representative of Tenant or other occupants of the Premises, and remove their
effects and hold the Premises as if this Lease had not been made.

Section 8.3. Remedies of Landlord.

A. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (i) the Rent shall become due thereupon and be
paid up to the time of such re-entry, dispossess and/or expiration; (ii)
Landlord may relet the Premises or any part or parts thereof, either in the name
of Landlord or otherwise, for a term which may at Landlord's option be less than
or exceed the period which would otherwise have constituted the balance of the
Term, and may grant commercially reasonable concessions including free rent; and
(iii) Tenant or the legal representative of Tenant shall also pay Landlord, for
the failure of Tenant to observe and perform Tenant's covenants herein
contained, the maximum amount of damages recoverable or at Landlord's option,
for each month of the period which would otherwise have constituted the balance
of the Term, any deficiency between (x) the sum of (a) [***], (b) [***], (c)
[***] that would have been payable for the year in question but for such
re-entry or termination, (d) the current [***] and (e) [***] under this Lease,
and (y) the net amount, if any, of the [***]. [***]. In computing damages there
shall be included such commercially reasonable expenses as Landlord may incur in
connection with reletting, such as court costs, attorneys' fees and
disbursements, brokerage fees, other costs and expenses incurred by Landlord

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and for putting and keeping the Premises in good order or for preparing the same
for reletting as hereinafter provided. Any such damages shall, at Landlord's
option, be paid in monthly installments by Tenant on the rent day specified in
this Lease and any suit brought to collect the amount of the deficiency for any
month shall not prejudice in any way the rights of Landlord to collect the
deficiency for any subsequent month by a similar proceeding or, at Landlord's
option, in advance, discounted to the then present value. Landlord, at
Landlord's option, may make such alterations, repairs, replacements and/or
decorations in the Premises as Landlord in Landlord's reasonable judgment
considers advisable and necessary for the purpose of reletting the Premises; and
the making of such alterations and/or decorations shall not operate or be
construed to release Tenant from liability hereunder as aforesaid. Provided that
Landlord makes the same effort to relet the Premises as other space in the
Enclosed Shopping Center, Landlord shall in no event be liable in any way
whatsoever for failure to relet the Premises, or in the event that the Premises
are relet, for failure to collect the rent under such reletting. Landlord shall
not, in reletting the Premises, be required to prefer the letting of the
Premises over any other space in the Enclosed Shopping Center. Landlord shall
have in addition to any statutory or other liens or rights, if any, and not in
lieu thereof, a lien on all fixtures, equipment and leasehold improvements
located at the Premises.

B. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Landlord shall have the right of injunction and
the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided for. Mention in
this Lease of any particular remedy shall not preclude Landlord from any other
remedy.

Section 8.4. Waiver of Trial by Jury: Tenant Not to Counter-Claim. It is
mutually agreed by and between Landlord and Tenant that the respective parties
hereto shall and they hereby do waive, to the extent permitted by the State in
which the Shopping Center is located, trial by jury in any action, proceeding or
counter-claim or other claim brought by either of the parties hereto against the
other on any matters not relating to negligently caused personal injury or
property damage, but otherwise arising out of or in any way connected with this
Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the
Premises, and any emergency statutory or any other statutory remedy. Tenant
further agrees that unless the failure to do so would constitute a waiver of its
right to institute a separate action or proceeding against Landlord, it shall
not interpose any counter-claim or cross-claim in a summary dispossess
proceeding, unlawful detainer proceeding or in any action or proceeding based on
non-payment of Rent or any other payment required of Tenant hereunder, however,
Tenant shall not be precluded from disputing the amounts due Landlord.

Section 8.5 Holdover by Tenant. In the event Tenant remains in possession
of the Premises after the expiration of the Term created hereunder, and without
the express written consent of Landlord or the execution and delivery of a new
lease, Tenant, at the option of Landlord, shall be deemed to be occupying the
Premises as a tenant from month-to-month, terminable at will on thirty (30)
days' notice (notwithstanding any contrary provision

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of applicable law) by either party, at a monthly rental equal to the sum of (i)
[***] the monthly installment of Fixed Rent payable during the last month of the
Term, (ii) one-twelfth (1/12) of the average annual Percentage Rent payable
hereunder based upon the last [***] Lease Years, (iii) the current monthly Tax
Rent payable for the last year of the Term, (iv) the monthly Common Area Rent,
(v) the monthly Environmental Charge and (vi) one-twelfth (1/12) of any other
Additional Rent or other charges payable, subject to all the other conditions,
provisions and obligations of this Lease insofar as the same are applicable to a
month-to-month tenancy. Tenant shall not interpose any counter-claim or
cross-claim in a summary dispossess proceeding, unlawful detainer proceeding or
other action or proceeding based on holdover, however, Tenant shall be permitted
to assert appropriate defense to Landlord's claim.

Section 8.6. Landlord's Right to Cure Defaults. Landlord may cure, after
notice served pursuant to this Article and failure of Tenant to do so, any
default by Tenant under this Lease; and whenever Landlord so elects, all costs
and expenses incurred by Landlord in curing a default, including, without
limitation, reasonable attorneys' fees, together with interest on the amount of
costs and expenses so incurred at the rate provided in Section 3.8 hereof, shall
be paid by Tenant to Landlord on demand, and shall be recoverable as Additional
Rent.

Section 8.7. Effect of Waivers of Default. No consent or waiver, expressed
or implied, by Landlord to or of any breach of any covenant, condition or duty
of Tenant shall be construed as a consent or waiver to or of any other breach of
the same or any other covenant, condition or duty of Tenant, unless in writing
signed by Landlord.

Section 8.8 Security Deposit. Tenant has agreed to deposit with Landlord
the Security Deposit as security for the punctual performance by Tenant of each
and every obligation of it under this Lease. In the event of any default by
Tenant, Landlord may apply or retain all or any part of the Security Deposit to
cure the default or to reimburse Landlord for any sum which Landlord may spend
by reason of the default. In the case of every such application or retention,
Tenant shall, on demand, pay to Landlord the sum so applied or retained which
shall be added to the Security Deposit so that the same shall be restored to its
original amount. If at the end of the Term, Tenant shall not be in default under
this Lease and shall have delivered to Landlord evidence of final utility
service readings and payment thereof, the Security Deposit or any balance
thereof, shall be returned to Tenant within [***] days. If Landlord shall sell
the Shopping Center, or shall lease the Shopping Center, in either case subject
to this Lease, or shall otherwise assign or dispose of this Lease, Landlord may
assign and turn over the Security Deposit or any balance thereof to Landlord's
grantee, lessee or assignee, and Tenant hereby releases and relieves Landlord
from any and all liability for the return of said deposit and shall look solely
to said grantee, lessee or assignee; it being expressly agreed that this
provision shall apply to each and every sale, conveyance or lease of the
Shopping Center or assignment or disposition of this Lease. Landlord shall not
be required to place the Security Deposit in an interest-bearing account and
said fund shall be returned to Tenant without interest.

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ARTICLE 9

ADDITIONAL PROVISIONS

Section 9.1. Notices from One Party to the Other. Any notice or demand
from Landlord to Tenant or from Tenant to Landlord shall be in writing and shall
be deemed duly served if mailed by registered or certified mail, return receipt
requested, addressed, if to Tenant, at the address of Tenant set forth herein,
or to such other address as Tenant shall have last designated by notice in
writing to Landlord, and if to Landlord, at the address of Landlord set forth
herein or such other address as Landlord shall have designated by notice in
writing to Tenant. Notice shall be deemed served when mailed.

Section 9.2. Brokerage. Tenant warrants that it has had no dealings with
any broker or agent in connection with this Lease other than the Broker, if any,
named elsewhere in this Lease and covenants to pay, hold harmless and indemnify
Landlord from and against any and all costs, expense or liability for any
compensation, commissions and charges claimed by the Broker or by any other
broker or agent with respect to this Lease or the negotiation thereof with whom
Tenant had dealings.

Section 9.3. Estoppel Certificates. Each of the parties agrees that it
will, at any time and from time to time, within twenty (20) business days
following written notice by the other party herein specifying that it is given
pursuant to this Section, execute, acknowledge and deliver to the party who gave
such notice a statement in writing certifying that this Lease is unmodified and
in full force and effect (or if there have been modifications, that the same is
in full force and effect as modified and stating the modifications), and the
dates to which the Rent and any other payments due hereunder from Tenant have
been paid in advance, if any, and stating whether or not to the best knowledge
of the signer of such certificate the other party is in default in performance
of any covenant, agreement or condition contained in this Lease, and if so,
specifying each such default of which the signer may have knowledge.

Section 9.4 Applicable Law and Construction. The laws of the state in
which the Shopping Center is located shall govern the validity, performance and
enforcement of this Lease. The invalidity or unenforceability of any provision
of this Lease shall not affect or impair any other provision. All negotiations,
considerations, representations and understandings between the parties are
incorporated in this Lease. Landlord or Landlord's agents have made no
representations or promises with respect to the Shopping Center or the Premises,
except as herein expressly set forth. Tenant further understands that this Lease
and every other lease agreement with every other tenant or occupant of the
Shopping Center is negotiated on its own merits and Landlord does not make any
representation as to the similarity of the terms of this Lease with any other
such lease or agreement. The headings of the several articles and sections
contained herein are for convenience only and do not define, limit or construe
the contents of such articles or sections, it being understood that the
so-called "Recital" constitutes part of the agreement between Landlord and
Tenant. Whenever herein the singular number is used, the same shall include the
plural, and the neuter gender shall include the masculine and feminine genders.

Section 9.5. Relationship of the Parties. Nothing contained herein shall
be deemed or construed by the parties hereto, or any third party, as creating
the relationship of principal and

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agent or partnership or joint venture between the parties hereto, it being
understood and agreed that neither the method of computation of Rent nor any
other provision contained herein, nor any acts of the parties hereto, shall be
deemed to create any relationship between the parties hereto other than the
relationship of landlord and tenant.

Section 9.6. Limitations on Liability. Landlord and Landlord's agents and
employees shall not be liable for, and Tenant waives all claims for, loss or
damage to Tenant's business or damage to any Person or property sustained by
Tenant resulting from any accident or occurrence (unless, subject, however, to
the waiver of subrogation provision hereof, caused by or resulting from the
negligence or willful acts of Landlord) in or upon the Premises or any other
part of the Shopping Center, including, but not limited to, claims for damage
resulting from: (i) any equipment or appurtenances becoming out of repair; (ii)
injury done or occasioned by wind; (iii) any defect in or failure of plumbing,
heating or air conditioning equipment, electric wiring or installation thereof,
gas, water and steam pipes, stairs, porches, railings or walks; (iv) broken
glass; (v) the backing up of any sewer pipe or downspout; (vi) the bursting,
leaking or running of any tank, tub, washstand, water closet, waste pipe, drain
or any other pipe or tank in, upon or about the building or the Premises; (vii)
the escape of steam or hot water; (viii) water, snow, or ice being upon or
coming through the roof, skylight, trapdoor, stairs, doorways, show windows,
walks or any other place upon or near the building or the Premises or otherwise;
(ix) the falling of any fixture, plaster, tile or stucco; and (x) any act,
omission or negligence of other tenants, licensees or of any other Persons or
occupants of the Shopping Center.

Section 9.7 Landlord's Entry Rights. Landlord or Landlord's agents shall
have the right to enter upon the Premises at all reasonable times to examine
same and to make such repairs, alterations, improvements or additions to the
Premises or to the building as may be necessary, and Landlord shall be allowed
to take all materials into and upon the Premises that may be required therefor
without the same constituting an eviction of Tenant, in whole or in part, and
the Rent shall in nowise abate while such repairs, alterations, improvements or
additions are being made by reason of loss or interruption of the business of
Tenant because of the prosecution of any such work. However, if as the result of
the exercise by Landlord of its rights under this Section 9.7, there is created
a substantial and material interference with Tenant's ability to conduct
business in the Premises, and Tenant therefore closes for more than [***]
consecutive business days, Tenant shall be entitled to an abatement of Fixed
Rent for each day after the [***] business day during which the condition
continues. Except in emergencies such entry shall be during business hours and
on reasonable oral notice to the Person then in charge of the Premises for
Tenant. Landlord shall use all reasonable efforts not to unreasonably interfere
with or interrupt the conduct and operation of Tenant's business but in no event
shall Landlord be required to incur any additional expenses for work to be done
during hours or days other than regular business hours or days. Landlord or
Landlord's agents shall also have the right to enter upon the Premises after
notice as set forth above, at reasonable times to show them to prospective
lessees or purchasers of the Shopping Center. During the [***] days prior to the
expiration of the Term, Landlord may show the Premises to prospective tenants.
If, [***] the end of the Term, Tenant shall have removed all or substantially
all of Tenant's property

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therefrom, Landlord may [***] enter, renovate and redecorate the Premises
without elimination or abatement of Rent or the payment of other compensation to
Tenant and such action shall have no effect upon this lease.

Section 9.8. Subordination.

A. This Lease is and all of Tenant's rights hereunder are subject and
subordinate to (i) any ground or underlying (including operation) leases that
now exist or may hereafter be placed on the Shopping Center or any part thereof,
and (ii) any mortgages or deeds of trust or deeds to secure debt that now exist
or may hereafter be placed upon the Shopping Center or the interest under any
ground or underlying leases and to any and all advances made thereunder and the
interest thereon and to all renewals, replacements, amendments, modifications,
consolidations and extensions of any of the foregoing. Tenant covenants and
agrees that if any mortgagee of Landlord's interest in any underlying lease or
any fee mortgagee succeeds to Landlord's interest under this Lease by
foreclosure or otherwise, Tenant will, if requested, attorn to such mortgagee
and will recognize such mortgagee as Tenant's landlord under this Lease. At the
option of the landlord or any successor landlord thereunder, Tenant agrees that
neither the cancellation nor termination of any ground or underlying lease to
which this Lease is now or may hereafter become subject or subordinate, nor any
foreclosure of a mortgage either affecting the fee title of the Premises or the
ground or underlying lease, nor the institution of any suit, action, summary or
other proceeding by the landlord or any successor landlord thereof, or any
foreclosure proceeding brought by the holders of any such mortgage to recover
possession of the leased property, shall by operation of law or otherwise result
in the cancellation or termination of this Lease or the obligations of Tenant
hereunder, and Tenant covenants and agrees to attorn to the landlord or to any
successor to Landlord's interest in the Premises. Tenant shall execute and
deliver in recordable form, whatever instruments maybe required to acknowledge
or further effectuate the provisions of this Subsection, and in the event Tenant
fails to do so within [***] days after demand in writing, such failure shall be
deemed a material default hereunder. Any mortgagee or trustee under any such
mortgage or deed of trust or deed to secure debt, or the lessor under any such
ground or underlying lease may elect that this Lease shall have priority over
its mortgage, deed of trust, deed to secure debt, or lease and upon notification
of such election by such mortgagee, trustee or lessor to Tenant, this Lease
shall be deemed to have priority over said mortgage, deed of trust, deed to
secure debt, or ground or underlying lease whether this Lease is dated prior to
or subsequent to the date of said mortgage, deed of trust, deed to secure debt,
or lease. If the holder of any mortgage, deed of trust, deed to secure debt, or
security agreement shall forward to Tenant written notice of the existence of
such lien or lease, then Tenant shall, so long as such lien or lease continues,
give to such lienholder or lessor the same notice and opportunity to correct any
default as is required to be given to Landlord under this Lease but such notice
of default may be given to Landlord and such lienholder or lessor concurrently.

B. If so requested by Tenant, Landlord shall use reasonable efforts to
obtain non-disturbance and attornment agreements from any ground or underlying
lessors or present or

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future mortgagees of Landlord's interest in the Premises, which efforts shall
consist only of Landlord's making a written request for such agreements on
behalf of Tenant. Tenant shall cooperate in all respects with Landlord's
efforts, shall provide any information reasonably required by such mortgagees or
lessors and shall pay such fees or expenses as may be requested by such parties
in connection with such agreements. Landlord shall not be required to institute
any legal action or proceeding in order to obtain said agreements. The foregoing
shall not be deemed a condition to the effectiveness or continuing effectiveness
of this Lease.

Section 9.9 Construction on Adjacent Premises or Buildings. If any
construction, excavation or other building operation shall be about to be made
or shall be made on any premises adjoining or above or below the Premises or on
any other portion of the Enclosed Shopping Center, Tenant shall permit Landlord,
or the adjoining owner, and their respective agents, employees, licensees and
contractors, to enter the Premises and to strengthen, add to or shore the
foundations, walls, columns or supporting members thereof, and to erect
scaffolding and/or protective barricades around and about the Premises (but not
so as to preclude entry thereto) and to do any act or thing necessary for the
safety or preservation of the Premises. Except as may be expressly set forth to
the contrary in this Section 9.9, Tenant's obligations under this Lease shall
not be affected by any of the foregoing or any such construction or excavation
work, shoring-up, scaffolding or barricading. Landlord shall not be liable in
any such case for any inconvenience, disturbance, loss of business or any other
annoyance arising from any such construction, excavation, shoring-up,
scaffolding or barricades, but Landlord shall use its best efforts so that such
work will cause as little inconvenience, annoyance and disturbance to Tenant as
possible, consistent with accepted construction practice in the vicinity, and so
that such work shall be expeditiously completed. It is understood by Tenant that
shopping centers are at times expanded or reconfigured by the addition of new or
reconfigured buildings, improvements or structures (including multilevel, decked
or subsurface parking structures) and if the foregoing occurs, Landlord shall
have the right of access to enter upon the Premises to perform construction work
and shall use its reasonable efforts to complete all construction in the
Premises as promptly as possible (considering the nature and extent of the
construction and subject to prudent construction practices). Landlord shall have
the right to require Tenant to temporarily curtail its business or to
temporarily close the Premises if necessary in connection with the construction
work. Accordingly, (i) if Landlord requires Tenant to temporarily suspend
business or to temporarily close the Premises because of any such changes or
(ii) if Tenant's use and occupancy of the Premises or Tenant's access to the
covered mall in front of the Premises is materially, adversely interfered with
and Tenant temporarily closes for business, Tenant shall receive an abatement of
Rent (except Percentage Rent) on a per diem basis for the number of days for
which Tenant is required to close. Notwithstanding the foregoing, [***] because
of the proposed expansion, [***] said expansion.

Section 9.10 Mall Expansion.

A. In the event Landlord shall add additional buildings to the Enclosed
Shopping Center or otherwise expand or reconfigure the Enclosed Shopping Center,
Landlord shall have

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the right to relocate Tenant's operation to other premises (the "New Premises")
in another part of the Enclosed Shopping Center in accordance with the following
provisions: The New Premises shall be substantially the same in size and
configuration as the Premises described in this Lease and, to the extent
reasonably possible, shall be located in an area having, in Landlord's
reasonable judgment, comparable pedestrian traffic. If the New Premises have
been previously occupied, Landlord shall deliver the New Premises to Tenant in
"as is" condition. If the New Premises consist of newly created leasable area,
Landlord shall deliver the New Premises to Tenant in a "shell" condition (i.e.,
Landlord shall provide a concrete slab, demising studs, an empty electrical
conduit to the New Premises, sprinkler, water and sewer service to the New
Premises, and a common exhaust vent). Landlord shall give Tenant at least [***]
days' notice of Landlord's intention to relocate Tenant's operation to the New
Premises. To the extent determined by Landlord to be practicable, Tenant's Work
in the New Premises shall be prosecuted while Tenant is open for business in the
Premises herein demised and the physical move shall take place during
non-business hours, if reasonably possible, or during such other period as shall
be mutually agreed upon by Landlord and Tenant. Rent (except Percentage Rent)
and all other charges shall abate for any period during which Tenant's operation
shall be closed to the public as a result of the relocation and there shall be
excluded from the computation set forth in Section 3.3A of this Lease the amount
of Fixed Rent which would otherwise be payable for such period. Landlord shall
not have the right to relocate Tenant's operation more than once during the
Term. If the New Premises are smaller or larger than the Premises described in
this Lease, Fixed Rent for the balance of the original Term of this Lease shall
be adjusted to a sum computed by multiplying the Fixed Rent specified in Article
1, by a fraction, the numerator of which shall be the total number of square
feet of Floor Space in the New Premises and the denominator of which shall be
the total number of square feet of Floor Space in the Premises described in this
Lease. All other charges based upon Floor Space shall likewise be adjusted
proportionately. In addition, the original Term hereof shall be extended for
such period of time (the "Extension Period") as shall be necessary to permit
Tenant to occupy the New Premises for the same number of days and months as
constituted the original Term hereunder [e.g., if Tenant's original Term was
seven (7) years and Tenant opens for business in the New Premises on the
fifteenth day of the fifty second (52nd) month, the Extension Period will be
fifty one (51) months and fifteen (15) days]. During the Extension Period, Fixed
Rent shall be payable at such rates as constitute the then fair market rental
("FMR"), as determined in accordance with paragraph (D) hereof, and all
Additional Rent, including the Promotion Fund Charge, shall be at the rates and
payable on the terms then in effect for new retail leases at the Enclosed
Shopping Center.

B. In the event the New Premises described in Landlord's relocation notice
are unacceptable to Tenant, Tenant shall have the right, as its sole and only
remedy, exercisable by written notice to Landlord given within [***] days
following receipt of Landlord's relocation notice, to terminate this Lease, such
termination to be effective as of the proposed relocation date set forth in
Landlord's notice. Failure by Tenant to timely exercise such right shall be
deemed a waiver with respect thereto and confirmation that the New Premises are
acceptable to Tenant. Such termination shall be Tenant's sole and only remedy in
the event of Tenant's refusal to accept relocation to the New Premises, it being
understood that should Tenant refuse for any

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reason to relocate, but fail to terminate this Lease in accordance with the
foregoing, this Lease shall nevertheless expire on the date set forth in
Landlord's relocation notice.

C. If Tenant shall accept the New Premises, Landlord shall pay, within
ninety (90) days following the date Tenant opens for business in the New
Premises, the then unamortized cost of the permanent leasehold improvements
(excluding, inter alia trade fixtures and equipment, furnishings, decorations,
inventory and other items of personal property) initially made by Tenant in the
original Premises pursuant to Article 2 of this Lease, assuming a useful life
equal to the length of the original Term of this Lease and amortization on a
straight line basis. Tenant shall, not later than, [***] days following the
Commencement Date, deliver an affidavit of an officer of Tenant and a
certificate of Tenant's architect accompanied by such bills, contracts,
receipts, invoices, cancelled checks and the like as Landlord may reasonably
require, specifying the cost of Tenant's leasehold improvements, which amount
shall, unless disputed by Landlord, thereupon be the basis for the amount to be
paid by Landlord pursuant to this provision.

D. FMR during the Extension Period, if any, shall be determined as
follows:

(1) Within [***] days following the date of Landlord's relocation
notice to Tenant, Landlord shall deliver to Tenant a written proposal setting
forth Landlord's determination of FMR (on a per square foot basis) for the New
Premises during the Extension Period.

(2) Within [***] days thereafter, Tenant shall deliver to Landlord
(a) written acceptance of Landlord's proposed FMR or (b) a counterproposal
setting forth Tenant's determination of such annual FMR. Failure by Tenant to
respond to Landlord's proposal within the aforesaid 30-day period shall be
deemed confirmation that Landlord's determination of FMR is acceptable to
Tenant.

(3) If Tenant shall deliver a counterproposal as aforesaid, then for
the ensuing 30-day period, Landlord and Tenant shall conduct good faith
negotiations in an effort to agree upon FMR.

(4) If Landlord and Tenant are unable to reach agreement within said
30-day period, then, within ten (10) days thereafter, each shall appoint an
independent real estate appraiser who is then, and has been for a minimum of ten
(10) years, a member of the American Institute of Real Estate Appraisers. If
Tenant shall fail to make timely appointment of an appraiser, then Landlord's
appraiser shall make the determination of FMR, and such determination shall be
binding upon both parties.

(5) The appraisers shall, within [***] days following their
appointment, render their joint determination of FMR for the New Premises for
each year of the Extension Period, and such determination shall be binding and
conclusive upon Landlord and Tenant. Should the appraisers be unable to reach
agreement as to FMR within said [***]-day period, then

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together they shall designate a third appraiser, who shall select either the FMR
proposed by Landlord's appraiser or the FMR proposed by Tenant's appraiser as
the Fixed Rent (per square foot) to be paid by Tenant for the New Premises
during the Extension Period, and such determination by the third appraiser shall
be binding and conclusive on both Landlord and Tenant. The cost of the appraisal
shall be shared equally by Landlord and Tenant.

Section 9.11 Short Form Lease. Tenant agrees not to record this Lease.
Either party shall, at the request of the other, execute, acknowledge and
deliver, at any time after the date of this Lease, a memorandum or notice of
lease prepared by the requesting party, but the provisions of this Lease shall
control the rights and obligations of the parties.

Section 9.12 Binding Effect of Lease. The covenants, agreements and
obligations herein contained, except as herein otherwise specifically provided,
shall extend to, bind and inure to the benefit of the parties hereto and their
respective personal representatives, heirs, successors and permitted assigns. In
particular the provisions of Subsection F of Section 6.2 shall bind the
executors, administrators or other personal representatives of Tenant, if an
individual, or its successors, if Tenant is a corporation or partnership. Each
covenant, agreement, obligation or other provisions herein contained shall be
deemed and construed as a separate and independent covenant of the party bound
by, undertaking or making the same, not dependent on any other provision of this
Lease unless otherwise expressly provided.

Section 9.13 Effect of Unavoidable Delays. The provisions of this Section
shall be applicable if there shall occur, during the Term, or prior to the
commencement thereof, any (i) strike(s), lockout(s) or labor dispute(s); (ii)
inability to obtain labor or materials, or reasonable substitutes therefor; or
(iii) acts of God, governmental restrictions, regulations or controls, enemy or
hostile governmental action, civil commotion, fire or other casualty, or other
conditions similar or dissimilar to those enumerated in this item (iii) beyond
the reasonable control of the party obligated to perform. If Landlord or Tenant
shall, as the result of any of the above-described events, fail punctually to
perform any obligation on its part to be performed under this Lease, then such
failure shall be excused and not be a breach of this Lease by the party in
question, but only to the extent occasioned by such event. If any right or
option of either party to take any action under or with respect to this Lease is
conditioned upon the same being exercised within any prescribed period of time
and such named date, then such prescribed period of time and such named date
shall be deemed to be extended or delayed, as the case may be, for a period
equal to the period of the delay occasioned by any above-described event.
Notwithstanding anything herein contained, the provisions of this Section shall
not be applicable to or in determining the date of commencement of or the
continuance of Tenant's obligation to pay Rent or its obligations to pay any
other sums, moneys, costs, charges or expenses required to be paid by Tenant
hereunder.

Section 9.14 No Oral Changes. Neither this Lease nor any provision hereof
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought.

Section 9.15 Executed Counterparts of Lease. This Lease may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original; and all such counterparts shall together constitute
but one and the same Lease.

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Section 9.16 Landlord's Liability.

A. In the event of sale or transfer of all or any portion of the Shopping
Center or any undivided interest therein, or in the event of the making of a
lease of all or substantially all of the Shopping Center, or in the event of a
sale or transfer of the leasehold estate under any such lease, the grantor,
transferor or lessor, as the case may be, shall thereafter be entirely relieved
of all terms, covenants and obligations thereafter to be performed by Landlord
under this Lease to the extent of the interest or portion so sold, transferred
or leased, provided that (i) any amount then due and payable to Tenant or for
which Landlord or the then grantor, transferor or lessor would otherwise then be
liable to pay to Tenant (it being understood that the owner of an undivided
interest in the fee or any such lease shall be liable only for his or its
proportionate share of such amount) shall be paid to Tenant; (ii) the interest
of the grantor, transferor or lessor, as Landlord, in any funds then in the
hands of Landlord or the then grantor, transferor or lessor in which Tenant has
an interest, shall be turned over, subject to such interest, to the then
grantee, transferee or lessee; (iii) notice of such sale, transfer or lease
shall be delivered to Tenant and (iv) the grantee, transferee or lessee shall
assume in writing all of Landlord's obligations under this Lease accruing from
the date of the transaction.

B. Tenant agrees that it shall look solely to the estate and property of
Landlord in the land and buildings comprising the Shopping Center and the income
therefrom (subject to prior rights of the holder of any mortgage or deed of
trust on any part of the Shopping Center) for the collection of any judgment (or
other judicial process) requiring the payment of money by Landlord in the event
of any default or breach by Landlord with respect to any of the terms, covenants
and conditions of this Lease to be observed or performed by Landlord; and no
other assets of Landlord, its members or shareholders shall be subject to levy,
execution or other procedures for the satisfaction of Tenant's remedies.

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IN WITNESS WHEREOF, Landlord and Tenant have hereunto executed this Lease
as of the day and year first above written.

(TENANT) SILICON ENTERTAINMENT, INC.

By: /s/ Chris Morse
-----------------------------------

(LANDLORD) MALL OF GEORGIA, LLC, a Delaware
limited liability company

ATTEST: By: CPI-GEORGIA CORPORATION,

a Delaware corporation, Managing Member

By: /s/ David Simon
- ------------------------------------ -----------------------------------
Secretary

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(TENANT, if a Corporation)

STATE OF CALIFORNIA )
) ss.:
COUNTY OF SANTA CLARA )

On this 2nd day of September, 1999, before me personally came Chris Morse,
to me known, who being by me duly sworn, did depose and say that s(he) resides
at 210 Hacienda Avenue, Campbell, CA 95008, that (s)he is the Vice President of
Silicon Entertainment, the corporation described herein and which executed the
foregoing instrument; and that (s)he signed his name thereto by authority of the
Board of Directors of the said corporation.

/s/ Laurie Shermer
-------------------------------
Notary Public

<PAGE> 56
RIDERS TO LEASE AGREEMENT dated September 23rd, 1999 between MALL OF GEORGIA,
L.L.C., a Delaware limited liability company, as Landlord, and SILICON
ENTERTAINMENT, INC., d/b/a "NASCAR Silicon Motor Speedway" or "Silicon Motor
Speedway", as Tenant, for Store No. 2068 at Mall of Georgia, Gwinnett County,
Georgia.

- --------------------------------------------------------------------------------

IN THE EVENT OF ANY INCONSISTENCIES BETWEEN THESE RIDERS AND THE PRINTED
FORM OF THIS LEASE, THE RIDERS SHALL BE DEEMED TO CONTROL.

RIDER #1 - Construction of Shopping Center

Landlord has commenced construction of the Shopping Center of which the
Premises will be a part. Tenant will occupy Store No. 2068, consisting of
approximately 5,895 square feet. Tenant's Premises in the Enclosed Shopping
Center is shown on Exhibit B for illustrative purposes and Landlord reserves the
right to increase, eliminate, reduce or change the number, type, size, location,
elevation, nature and use of any part of the Enclosed Shopping Center and make
changes, additions, subtractions, alterations or improvements in or to the
Enclosed Shopping Center.

RIDER #2 - amending Article 1 - Size of Premises

Landlord and Tenant acknowledge that the Fixed Rent set forth on page 1-1
has been calculated assuming that the Premises shall consist of 5,895 square
feet of Floor Space. As soon as practicable after Tenant's Work is completed,
Landlord shall cause the Premises to be measured and the Floor Space of the
Premises to be determined in accordance with the definition thereof set forth in
Article 1. In the event the Floor Space of the Premises varies from 5,895 square
feet, the Fixed Rent shall be adjusted on the basis of [***] per square foot for
each of the first (1st) through [***] years of the Term and $30.00 per square
foot for each of the [***] through [***] years of the Term. The Promotion Fund
Charge and Environmental Charge set forth on page 1-1 shall also be adjusted to
reflect such variance. In no event, as a result of remeasurement shall the Size
of the Premises be deemed to vary by more than [***] square feet. Landlord and
Tenant shall execute, acknowledge and deliver a supplemental agreement
specifying the adjusted annual Fixed Rent, Promotion Fund Charge and
Environmental Charge. The form of the Supplemental Agreement is annexed hereto
as Exhibit F.

RIDER #3 - Landlord's Work

Landlord has performed the work (Landlord's Work) described in Exhibit E
annexed hereto and made a part hereof. The cost of those items of Landlord's
Work which are to be performed at Tenant's expense are designated on page 5 of
Exhibit E. In no event shall the aggregate costs to Tenant of items A, B, C, D,
E, G, H and I exceed [***] percent of the cost listed on Exhibit E. Such costs
shall be deemed Additional Rent under the Lease, shall be billed

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to Tenant upon commencement of Tenant's Work, and shall be due and payable
within [***] days thereafter.

After delivering possession of the Premises to Tenant, Landlord shall not
then alter the size and/or shape of the Premises without Tenant's consent, which
consent may be withheld in Tenant's sole discretion.

RIDER #4 - Disputes

In the event of any dispute between Landlord and Tenant concerning the
date of substantial completion of Landlord's Work or the Size of Premises or any
part thereof, or whether or not access to the Premises is available as
contemplated in these riders, such dispute shall be determined by an architect
selected by Landlord's and Tenant's architect, whose decision shall be binding
on the parties and whose fees for such determination shall be borne equally by
the parties. Until such determination shall have been made, Tenant shall pay all
Rent as, when and in the amounts billed by Landlord, subject to reimbursement,
if any, as indicated by decision of the architect.

RIDER #5 - Grand Opening Contribution

On the first day of the month next following the month in which the
Commencement Date occurs, Tenant shall pay to Landlord, as a contribution toward
the promotion of the Grand Opening of the Enclosed Shopping Center (the "Grand
Opening Contribution") the sum of [***] per square foot]. In addition, Tenant
shall reasonably cooperate with Landlord in all Grand Opening activities at no
additional cost to Tenant.

RIDER #6 - amending Article 1 - Tenant's Trade Name

Tenant may change its Trade Name to any other name then being used by
substantially all of Tenant's chain of stores currently doing business as
"Nascar Silicon Motor Speedway" or "Silicon Motor Speedway"; provided, however,
said name does not conflict with a name then being used by another tenant in the
Shopping Center.

RIDER #7 - amending Article 1 - Construction Barrier Fee

Tenant shall install a construction barrier at the Premises and decorate
such barrier with a NASCAR motif display announcing Tenant's scheduled opening.

RIDER #8 - Tenant's Work and amending Section 2.1

Tenant shall commence Tenant's Work when possession of the Premises is
made available to Tenant. Landlord's Work is substantially complete in the
Premises, and possession of the Premises shall be deemed to have been delivered
to Tenant on the later of (i) the date of the Lease and (ii) the date that
Tenant has received its conditional use permit (if necessary) and

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all other approvals required for Tenant to commence Tenant's Work in the
Premises. In the event Tenant, despite its good faith efforts to do so, Tenant
is unable to secure all Necessary Approvals required for Tenant to conduct its
business at the Premises for the Permitted Use within [***] months after the
date of the Lease, Tenant shall have the right to terminate this Lease.
Landlord's Work is substantially completed in accordance with Landlord's plans
and specifications on Exhibit E and access to the Premises through the Common
Area is available and the Premises are in a condition to accept the installation
of Tenant's Work, as reasonably determined by Landlord's architect,
notwithstanding that other stores in the Enclosed Shopping Center may not be
ready for occupancy by other tenants. Tenant's Work Period shall be as provided
in Article 1 of this Lease. Tenant's Work shall be performed in accordance with
the terms of the Tenant Design Criteria Manual to be furnished to Tenant by
Landlord.

RIDER #9 - Temporary Utility Charges during Tenant's Work Period

Throughout Tenant's Work Period, Tenant shall pay, promptly upon receipt
of bills therefor, for all utilities used at the Premises and for refuse
removal, in the amounts referenced in Exhibit E.

RIDER #10 - Coordination of Work

The timing and progress of Tenant's Work and the work of other tenants,
Landlord's Work, and work in the Interior Common Area shall be coordinated with
Landlord or its designee. In the event of any dispute with respect to
deliveries, parking, storage of equipment or materials or vehicles, traffic
flow, or any other matter or thing relating to Landlord's Work, Tenant's Work or
the work of other tenants, such dispute shall be determined by Landlord or
Landlord's designee, in their sole discretion. Tenant and its agents or
contractors, when requested, shall attend at the Shopping Center, during
business hours, all construction meetings convened by Landlord or its
representative, and they shall comply with all reasonable and nondiscriminatory
rules and regulations adopted from time to time by Landlord or its designee.
Neither Tenant nor its agents shall park or store any vehicles, equipment,
materials or supplies other than within Tenant's Premises, without the specific
written consent of Landlord.

RIDER #11 - amending Article 1 - Term

In the event Tenant's Gross Sales shall be less than [***] in the [***]
full (twelve (12) month) Lease Year, Tenant may terminate this Lease by written
notice served not later than thirty (30) days after delivery to Landlord of
Tenant's annual statement of Gross Sales for the [***] full Lease Year. Tenant's
termination notice shall specify a date for the termination of this Lease which
shall be not less than [***] days nor more than [***] days from the date
thereof. Tenant's right to terminate as aforesaid and the effectiveness of
Tenant's notice is conditioned upon (i) payment by Tenant to Landlord of an
amount equal to the unamortized portion of Landlord's Contribution assuming a
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a straight-line basis, and (ii) payment by Tenant to Landlord of all Rent and
other charges due to the date of termination.

RIDER #12 - amending Article 1 - Storage Space

Page 1-5, line 2, delete "soley" and substitute "solely".

RIDER #13 - amending Article 1 - Permitted Use

(A) Provided the same have been approved by Landlord on Tenant's Plans,
Tenant shall be allowed to place a full size race car within the Premises in the
area immediately fronting on Tenant's entrance to the Premises. Landlord
acknowledges that the race car may be fitted with operating lights, including
flashing lights, a "fogging" device to simulate exhaust emissions and race car
sound effects. However, Tenant's operation of such race car shall remain subject
to the terms and conditions of the Lease (including, but not limited to Section
6.2 thereof) and shall not cause an adverse effect on the Shopping Center
activities conducted in or from the Common Areas or interfere with any other
tenant's quiet enjoyment of its premises.

(B) Tenant shall be allowed to employ a "greeter" at the Premises who
would greet Tenant's customers in the Common Area immediately adjacent to the
Premises.

(C) Landlord hereby consents to tenant's use of hydraulic oil in
connection with the operation of the stimulators and cleaning and office
products customarily used in retail or office premises so long as such materials
are used, handled, stored and disposed of in accordance with applicable laws.

RIDER #14 - amending Article 1 -Necessary Approvals

Necessary Approvals shall not include those approvals Landlord is required
to secure under this Lease.

RIDER #15 - amending Section 2.1

(A) Landlord shall approve or reject to Tenant's plans and specifications
within twenty (20) days of submission by Tenant. If Landlord rejects Tenant's
plans, Landlord shall provide a detailed explanation why the plans were so
rejected. If Landlord responds to Tenant's plans and specifications later than
[***] days after any submission by Tenant, the Tenant's Work Period shall be
extended on a day for day basis.

(B) Landlord agrees that it shall contribute the sum of [***] per square
foot of Floor Space at the Premises (Landlord's Contribution) towards the cost
of Tenant's Work on the terms set forth below:

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(1) Landlord shall not be required to make Landlord's Contribution
unless this Lease is in full force and effect and Tenant is not in default
beyond any applicable cure period hereunder and the leasehold improvements
(excluding fixtures, furnishings and equipment) at the Premises are free of all
liens.

(2) Landlord's Contribution shall be used only for alterations,
improvements, fixtures and equipment which become part of or attached or affixed
to the realty, including heating, ventilating and air conditioning systems,
walls, floors and ceiling, but excluding trade fixtures, furniture and
furnishing or other personal property.

(3) Landlord's Contribution shall be made in installments as
follows:

[***] upon completion of [***] of Tenant's Work;
[***] upon completion of [***] of Tenant's Work.

The final installment shall be paid upon the last to occur of (i) the
opening for business by Tenant in the Premises and (ii) the completion of
Tenant's Work as certified pursuant to Section (4)(b) below.

(4) Prior to and as a condition precedent to Landlord's obligation
to pay any installment, Tenant shall deliver to Landlord's Managing Agent at the
Shopping Center:

(a) an affidavit of the principal officer of Tenant to the effect
that all leasehold improvements (excluding fixtures, furnishings and equipment)
at the Premises are free and clear of all mechanics liens, encumbrances and
charges;

(b) an affidavit sworn to by Tenant's general contractor to the
effect that it has been paid all sums due to it through the date of the
affidavit or the requisition date, and all subcontractors, materialmen and
suppliers and all costs of labor, including payroll taxes and charges, have been
paid through the date of the affidavit or the requisition date; said affidavit
to contain the names of all subcontractors, materialmen and suppliers, specific
amounts, if any, due to each and to be accompanied by copies of all
requisitions;

(c) conditional lien waivers with respect to work performed and
materials supplied to the date of each respective lien waiver or the requisition
date, executed by Tenant's general contractor and all subcontractors,
materialmen and suppliers supplying in excess of [***] worth of labor and/or
materials;

(d) an affidavit from the architect having supervision over
Tenant's Work to the effect that Tenant's Work has been completed to the extent
necessary to qualify for an advance and in accordance with the plans and
specifications approved by Landlord, to such architects actual knowledge, and in
compliance with all Governmental Requirements.

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(5) Prior to and as a condition precedent to Landlord's obligation
to pay the final installment, Tenant shall also deliver to Landlord's Managing
Agent at the Shopping Center:

(a) a current search of the public records issued by a title
insurance or title abstract company reasonably satisfactory to Landlord showing
that the Premises, including all installations therein (excluding fixtures,
furnishings, and equipment), are free and clear of all mechanics liens, charges,
and encumbrances and that there are no judgments, levies, attachments, liens or
tax liens issued, pending or in effect with respect to Tenant;

(b) an affidavit sworn to by such subcontractors and suppliers
supplying in excess of [***] worth of labor and/or materials to the effect that
they have been paid all sums due them.

(c) a conditional certificate of occupancy and fire underwriters
certificate for the Premises and such other approvals of Tenant's Work which may
be necessary for the conduct of Tenant's business or as may be required by any
Governmental Authority (subject to any and all approvals to be secured by
Landlord under this Lease).

(6) Tenant shall not mortgage, pledge, assign or hypothecate
Tenant's right to receive Landlord's Contribution.

(C) Tenant's acceptance of the Premises is subject to and excluding latent
defects and items of repair which are Landlord's responsibility as elsewhere set
forth in this Lease.

(D) In the event a multiple-user antenna and/or satellite system is
installed or caused to be installed in the Shopping Center by Landlord, Tenant
shall be permitted to utilize said system pursuant to separate agreement with
Landlord and/or the vendor of such system and subject to all provisions
regarding the use of such system as contained in such separate agreement, which
shall be mutually agreed upon by Tenant and Landlord and/or the vendor of such
system. In the event Tenant and Landlord and/or such vendor are unable to
mutually agree on terms of a satellite agreement, or such system is not made
available for Tenant's use, Tenant shall be permitted to install a satellite
dish (hereinafter "Dish") at the Center, subject to the following terms,
conditions and limitations:

(a) Tenant shall provide [***] days prior written notice of its
intent to install the Dish, and shall provide plans and specifications for the
location and installation of the Dish for Landlord's review and approval
concurrently with such notice. Such plans shall be in accordance with Landlord's
current design criteria and must conform to the reasonable requirements of
Landlord's roofing consultant, in part, in order to protect Landlord's roof
warranties;

(b) The location of the Dish shall be on the roof of the Shopping
Center or such other location as Landlord, in its sole and absolute discretion,
shall approve;

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provided that such location provides for the clear transmission of signals from
the Dish, and in no event shall such installation affect the structural
integrity of the roof or any other area where the Dish has been installed;

(c) The installation and maintenance of the Dish, including any
necessary structural support to the roof and/or screening shall be at Tenant's
sole cost and expense;

(d) The Dish shall be installed within the existing wall screen,
if any; however, Landlord may require Tenant to further screen or otherwise
shield the Dish from view by providing fencing, screening materials or
landscaping satisfactory to Landlord;

(e) Tenant shall procure and maintain any approval(s) and/or
permits required by any governmental authority having jurisdiction thereof and
shall deliver evidence of same to Landlord prior to commencing installation. In
the event the use or installation of the Dish is in violation of applicable law
or any agreement of Landlord or the Shopping Center regarding the Shopping
Center, Tenant shall not be permitted to use, install or maintain the Dish and
shall be required to remove the Dish from the Shopping Center;

(f) Tenant's installation or operation of the Dish shall in no
way interfere with the operation of any other transmission or receiving device
at the Center;

(g) Tenant shall give Landlord two (2) days prior notice of the
necessity to access the Dish for service, except in the case of an emergency, or
such shorter period of time as Landlord may allow;

(h) The Dish and related equipment shall remain the property of
Tenant. Tenant shall remove the Dish at the expiration or earlier termination of
the Lease Term and repair any damage occurring as a result thereof, at Tenant's
sole cost and expense; and

(i) Only one Dish will be permitted at the Center for the joint
use of Tenant and Tenant's affiliates. Further, Tenant shall not re-sell
satellite dish services to any other tenant or occupant in the Shopping Center

(E) Tenant shall submit its Design Drawings to Landlord in compliance with
the Design Criteria. In the event that Landlord approves Tenant's Design
Drawings (as Tenant may agree to modify such plans and specifications in
response to Landlord's comments thereto in accordance with the following
sentence), then Landlord will be deemed to have approved the measures taken by
Tenant to minimize noise and vibration and, thereafter, Tenant shall not be in
default under the Lease as a result of noise or vibration associated with the
permitted use of the Premises. In the event that Landlord does not approve
Tenant's Design Drawings (for reasons relating to the measures taken therein to
minimize noise and vibration) within the timeframe required for Landlord's
disapproval in accordance with the Design Criteria, and notwithstanding anything
to the contrary contained in the Design Criteria, Landlord shall deliver written
notice to Tenant thereof (such notice a "Design Drawing Rejection Notice") and
specific reasons therefor

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with reasonable alternative recommendations with respect thereto. Tenant shall,
for a period of [***] business days after Tenant's receipt of the Design Drawing
Rejection Notice, have the right to either (i) agree to incorporate Landlord's
recommendations or otherwise address the reasons for Landlord's rejection (as
set forth in the Design Drawing Rejection Notice) in a manner mutually agreeable
to Tenant and Landlord or (ii) terminate the Lease and neither party shall incur
any liability as a result of such termination; provided, however, if Landlord's
recommendations are commercially reasonable and if the cost that would be
incurred by Tenant therefor is equal to [***] or less, then Tenant shall
incorporate Landlord's recommendations into its design and proceed with
construction; provided, further, upon Tenant's incorporation of Landlord's
recommendations into its design, Landlord shall be deemed to have approved the
measures taken by Tenant to minimize noise and vibration. Landlord shall have
the right to nullify Tenant's right to terminate, as provided above, if, within
the aforementioned [***] day notice period, Landlord notifies Tenant, in
writing, that Landlord shall increase Landlord's Contribution by the amount by
which the cost to implement Landlord's recommendations exceeds [***].
Notwithstanding the foregoing, if unreasonable noise or vibration occurs (i.e.,
so as to materially adversely affect the Shopping Center or the business of
adjacent tenants) after the Premises are open for business, then Tenant will
agree to take such steps as are reasonably necessary to reduce such noise or
vibration, as applicable, the cost of which would be split evenly by Landlord
and Tenant; provided however, if Tenant's expenditure of Tenant's portion of
such costs would, in Tenant's good faith discretion, (1) materially reduce
Tenant's expected returns from the operation of the Premises, or (2) affect the
performance of one or more of its equipment so as to materially and adversely
affect the sensory experience created thereby (e.g., reducing the vertical
movement or the volume of the racing simulators), or (3) otherwise make Tenant's
operation of its business in the Premises infeasible, then Tenant shall, for a
period of [***] days after receiving Landlord's request to make such
expenditures, have the right to elect not to make such expenditures as are
requested by Landlord and instead terminate this Lease, and neither party shall
incur any liability as a result of such termination.

RIDER #16 - amending Section 2.2

(A) Page 2-1, line 21, after "specifications" insert "which shall take
place as set forth in Section 2.1".

(B) Page 2-1, line 27, prior to "interfere" insert "unreasonably".

(D) Page 2-2, line 3, prior to "the end" insert "[***] days following".

(E) Page 2-2, line I 1, after "discharge" insert ", bond".

(F) Page 2-2, line 12, delete "[***]" and substitute "[***]".

(G) Page 2-2, line 14, after "shall" insert "use best efforts to".

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RIDER #17 - amending Section 2.4

Page 2-2, lines 29-30, delete "not less than ... this Lease" and
substitute "at the time Tenant first requests consent thereto".

RIDER #18 - amending Section 2.5

Page 2-2, line 39, after "within" insert "[***] days after".

RIDER #19 - amending Section 2.5 and 6.1 B

Tenant shall not be obligated to continuously operate from the Premises
(i) for a period of up to [***] days and after notice to Landlord while Tenant
is carrying on remodeling activities, (ii) for up to [***] days per year for the
taking of inventory, (iii) while Tenant is unable or reasonably unwilling to
operate as a result of casualty or natural disaster, condemnation, interruption
of utilities or services, extremely inclement weather, civil unrest, operation
of the business would expose Tenants' employees, agents or invitees to an
unreasonable risk of physical injury or property damage, or other force majeure
events, (iv) while Tenant's use and occupancy of the Premises is prohibited by
any law, ordinance, order or other act of any judicial, governmental or
quasi-governmental authority.

RIDER #20 - amending Section 2.6

Provided Tenant maintains the Premises in a state consistent with the
standards required by the Lease and in accordance with Tenant's remodel and
maintenance practices for its chain of stores, the provisions of Section 2.6
shall be deemed waived.

RIDER #21 - amending Section 3.2

So long as the Tenant operating in the Premises is the Tenant named herein
or any assignee of Silicon Entertainment, Inc. pursuant to Section 6.2(F)(2),
the second sentence of Section 3.2 shall be deemed deleted. In addition, the
foregoing Fixed Rent increase shall only apply to Department Stores which open
after the effective date of any such assignment.

RIDER #22 - amending Section 3.3B

The following shall not be included in (or may be deducted from) Gross
Sales:

(A) Receipts from bulk sales to jobbers and the like made for the purpose
of clearing stock of old and/or obsolete merchandise;

(B) Receipts from the bulk sale of the entire stock of merchandise in the
Premises, or a substantial portion thereof, to a successor to the business of
Tenant;

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(C) Fees charged by credit card companies for the transactions originating
in, or from the Premises not to exceed [***] percent of Gross Sales per Lease
Year;

(D) Sale of fixtures, trade fixtures or personal property after use in the
Premises;

(E) Free use of games and discounted sales to Tenant's employees not to
exceed [***] percent of Gross Sales per Lease Year;

(F) Revenue received from mailing, delivery or other service performed on
a non-profit basis for the benefit of Tenant's customers;

(G) Rents, subrents, or other consideration received in connection with an
assignment, sublease, license, concession (however, Gross Sales, if any, for
such transferee shall be included) including license fees otherwise payable by
Tenant in connection with a third party license agreement;

(H) Amounts required to be paid by Tenant under any agreement related to
Tenant's use of the NASCAR name, not to exceed [***] percent of Gross Sales per
Lease Year; and

(1) Discounts given for promotional coupons that are redeemed from time to
time not to exceed [***] percent per Gross Sales per Lease Year.

RIDER #23 - amending Section 3.3C

(A) Page 3-2, line 39, after "to time" insert "but no more than twice per
calendar year".

(B) Page 3-2, line 41, delete "[***]" and substitute "[***]".

(D) Page 3-3, lines 8 and 18, delete "[***]" and substitute "[***]".

(E) Page 3-3, line 10, after "to time" insert "but no more frequently than
twice per calendar year".

(F) Page 3-3, line 22, delete "[***]" and substitute "[***]".

(G) Page 3-3, line 22, after "more" insert "and such understatement
results in underpayment of Percentage Rent".

(H) Page 3-3, line 23, delete "but Tenant shall remain liable hereunder"
and substitute "and Landlord shall have the remedies".

RIDER #24 - amending Section 3.3D

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(A) Page 3-3, line 35, delete "[***]" and substitute "[***]".

(B) Page 3-3, line 36, delete "Landlord's request therefor" and substitute
"the end of the calendar month".

RIDER #25 - amending Section 3.3E

Page 3-4, line 1, delete "[***]" and substitute "[***]".

RIDER #26 - amending Section 3.4

(A) Page 3-4, line 22, delete "[***]" and substitute "[***]".

(B) Page 3-4, line 26, after "elects" insert "upon written notice to
Tenant,".

RIDER #27 - amending Section 3.4

(A) With respect to any special assessments made by governmental
authorities for street improvement, traffic mitigation or similar physical
improvements, Landlord may, at its option, pay any such special assessments in
one lump sum when due or, if permitted by law, Landlord may elect to pay such
special assessments in installments. In the event Landlord shall pay any special
assessment in full when due, Tenant shall nevertheless reimburse Landlord for
its share thereof based upon the installment payments including principal and
interest which Landlord would have been obligated to pay had Landlord elected to
pay the special installment in the maximum number of installments permitted.
Tenant's installment payments for such special assessment shall be due and
payable on the same dates that they would have been payable to the taxing
authority had Landlord elected to pay the special assessment in installments.

(B) Tenant shall be required to pay only Tenant's proportionate share of
such assessments to the extent Tenant's proportionate and amortized share
thereof corresponds to the Lease Term.

RIDER #28 - amending Section 3.4C

Page 3-4, line 43, prior to "gift" insert "change in ownership".

RIDER #29 - amending Section 3.5

(A) Page 3-6, line 23, delete "[***]" and substitute "[***]".

(B) Page 3-7, line 29, delete "[***]" and substitute "[***]".

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(C) In no event shall Common Area Operating Costs for the first twelve
(12) months of the Term exceed [***] per square foot of Floor Space at the
Premises.

(D) Commencing the second full year of the Term, the annual increases for
Common Area Operating Costs shall not exceed [***] percent.

(E) With respect to items costing more than [***], Landlord shall not
include such costs in Common Area Operating Costs for the year in which they are
incurred, but in lieu thereof shall depreciate (or amortize) such items over a
period of not less than [***] nor more than [***] years, as reasonably
determined by Landlord in accordance with generally accepted accounting
principles for the shopping center industry, consistently applied. In such
cases, only that portion of the depreciation (or amortization) allocable to the
year for which Common Area Operating Costs are being determined and interest on
the undepreciated (or unamortized) portion shall be included in then current
costs.

(F) Tenant shall not be responsible for payment of any of the following as
a Common Area Operating Costs, whether or not otherwise included in the
definition of "Common Area Operating Costs":

(i) Interest, loan fees, ground lease rental, and other
carrying costs related to any mortgage or indebtedness secured by the Shopping
Center;

(ii) Premiums or deductibles to the extent any other tenant in
the Shopping Center causes Landlord's insurance premiums relating to the
Premises to increase or obligates Landlord to purchase additional insurance, or
any damage resulting from the negligent or willful acts or omissions or breach
of any other tenant of the Shopping Center;

(iii) New buildings constructed on or within the Shopping
Center;

(iv) Expenses that under generally accepted accounting
principles are treated as capital expenditures to the extent they improve the
Common Areas to beyond their original condition or utility (other than those
capital expenditures reasonably required for maintenance, repair and replacement
of exiting capital items which costs Landlord shall amortize over a period of
years as reasonably determined by Landlord and which amortized amount may be
included in Common Area Operating Costs;

(v) Leasing fees, commissions or other brokerage commissions
of any kind, or advertising or promotional expenditures (including costs
incurred in leasing to or procuring new tenants with allowances, concessions, or
inducements provided by Landlord, such as the cost of leasehold improvements),
attorney's fee, or other comparable expenses incurred in connection with
attracting any prospective tenant to the Shopping Center or with respect to
disputes or litigation with such tenants;

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(vi) Costs incurred due to a violation by Landlord or any
tenant (other than Tenant) of the Shopping Center of the terms of this Lease or
any other lease or condition, covenant or restriction affecting the Shopping
Center, or any laws, rules, regulations or ordinances applicable to the Shopping
Center;

(vii) Costs of repairs, replacements or other work occasioned
by fire, windstorm, earthquake, or other casualty, or the exercise by
governmental authorities of the right of eminent domain;

(viii) Costs and expenses reimbursed by Tenant or any other
third party; except for reimbursements of Common Area Operating Costs;

(ix) The cost of repair necessitated by the negligence,
willful misconduct or breach of any written agreement by Landlord or Landlord's
agents or any other tenant of the Shopping Center;

(x) Cost of repairs, replacements, alterations or improvements
necessary to make the Shopping Center comply with applicable past, present of
future laws, except to the extent compliance with such laws is required as the
result of Tenant's particular use of the Premises or alterations or additions
made or requested to be made by Tenant;

(xi) The cost incurred in performing work or furnishing
services for individual tenants in the Shopping Center to the extent such work
or services are in excess of the work and services required to be provided to
Tenant under the Lease, and costs incurred for the benefit of particular tenants
and not generally beneficial to the tenants of the Shopping Center;

(xii) Expenses for repair or replacement paid by proceeds of
insurance, condemnation awards, warranties or guarantees, or reimbursed by
tenants of the Shopping Center;

(xiii) Costs of salaries, wages and other employment benefits,
except to the extent such costs are fairly allocable to the Shopping Center and
not to other shopping centers or projects;

(xiv) Amounts that are payable or reimbursable by Landlord to
Tenant with respect to Landlord's Contribution provided by Landlord to Tenant in
connection with Tenant's construction of leasehold improvements at the Premises;
and

(xv) Duplication of charges under the Lease.

RIDER #30 - amending Section 3.5 D

Tenant may audit Landlord's Common Area Operating Costs for such year in
order to verify the accuracy thereof, provided that: (a) Tenant specifically
designates the year Tenant

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intends to audit, which shall be a year during the Lease Term that is also
within [***] years of the date of the audit; (b) such audit is conducted only
during regular business hours at the office where Landlord maintains expense
records of Landlord's Common Area Operating Costs; (c) Tenant gives Landlord
[***] days prior written notice of Tenant's request to audit and Tenant shall
deliver to Landlord a copy of the results of such audit within [***] days of its
receipt by Tenant; (d) such audit must be conducted by Tenant's employees or an
independent nationally recognized accounting firm that is not being compensated
on a contingency fee basis; (e) no audit shall be conducted if Tenant has
previously conducted an audit for the same time period; (f) such audit shall be
at Tenant's sole cost and expense; and (g) any financial or other information
provided by Landlord or obtained by Tenant as a result of such audit shall only
be pursuant to duly executed confidentiality agreements between Landlord, Tenant
and Tenant's agents and employees to whom disclosure is made. Tenant
acknowledges that the Landlord considers its financial and other operating
information to be confidential and will not disclose such information to any
third party without Landlord's prior written consent except to prospective
buyers or lenders, Tenant's accountants and attorneys, or in the case of
compliance with a subpoena or other legal process provided Tenant gives Landlord
at least ten (10) days prior written notice of Tenant's receipt of such subpoena
or legal process and Tenant's intent to disclose pursuant thereto. If the audit
discloses that Tenant has underpaid, Tenant shall promptly reimburse Landlord of
any amount owed. If the audit accurately discloses that Tenant has overpaid,
Landlord shall promptly refund such excess.

RIDER #31 - amending Section 3.6

(A) Page 3-9, line 22, prior to "demand" insert "written".

(B) Page 3-9, line 27, after "thereto" insert "excluding manifest error,
which Tenant shall have the continuing right to have corrected".

RIDER #32 - amending Section 3.8

(A) Page 3-9, line 38, delete "its due date" and substitute "written
notice of such failure".

(B) Page 3-9, line 42, delete "[***]" and substitute "[***]".

RIDER #33 - amending Section 4.1B

(A) Page 4-1, line 27, after "create" insert "material, adverse
interference with the access to and/or visibility of the Premises or Tenant's
business operation on the Premises, or create".

(B) Page 4-1, line 28, prior to "access" insert "pedestrian".

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(C) Page 4- 1, line 32, after "mall" insert "and not immediately fronting
the lease line of the Premises".

(D) Landlord agrees that except for existing kiosks or replacements
thereof, Landlord shall not install or operate or permit any other person to
install or operate any kiosks or carts closer than [***] feet parallel to the
front of Tenant's mall entrance.

(E) Landlord shall (i) provide clear access to Tenant's storefront from
the Common Area, and (ii) use reasonable efforts to restrict the theatre queue
such that it will not materially and adversely impair access to and visibility
of the Premises from the Common Area.

(F) Landlord shall maintain such parking as shall be required to be
maintained pursuant to its agreements with the Department Stores, as the same
may from time to time be modified or amended; it being understood that Tenant
shall, without the necessity of any further consents, be bound by such changes
in parking requirements as shall be consented or agreed to by the Department
Stores or their successors. Tenant's sole and only remedy in the event of a
breach of this covenant will be to cancel and terminate this Lease.

RIDER #34 - amending Section 4.1C

In no event shall the employees of the Premises be required to pay for
parking at the Shopping Center while they are working.

RIDER #35 - amending Section 5.1

(A) Page 5-1, line 2, after "roofs" insert "(including membrane)".

(B) Page 5-1, line 25, after "completed" insert "following notice to
Tenant (except in cases of emergency)".

(D) Page 5-1, line 27, after "Premises" insert "as reasonably determined
by Tenant".

(E) Landlord shall perform all repairs to the heating, ventilation and air
conditioning equipment and systems (including ducts) in the Shopping Center,
except those that exclusively serve any tenant's premises.

(F) Landlord shall, at Landlord's sole cost and expense, repair any damage
or defect in the Premises of the Shopping Center caused by the acts or omissions
of Landlord and its agents and contractors.

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RIDER #36 - amending Section 6.1A

Page 6-1, line 9, after "manner" insert "using Tenant's commercially
reasonable efforts".

RIDER #37 - amending Section 6.1B

(A) Page 6-1, line 12, delete "To" and substitute "Except as otherwise
provided, to".

(B) Tenant shall have the right to remain open until 1:00 AM or later if
at least one (1) other Tenant is open; provided that entry and exit by customers
after the mall is closed is through the food court entrance which shall remain
open while Tenant is open for business, and Tenant pays for any additional
security staff or devices reasonably required by mall management as a result of
Tenant's remaining open later than standard mall hours. In the event other
tenants are open after mall hours and the additional security for Tenant's late
hours is shared by Tenant and such other tenants, the cost of such additional
security shall be evenly divided among such tenants during the additional hours
Tenant and such other tenant(s) are simultaneously open. Tenant shall not be
responsible to pay any additional costs so long as Tenant is not open for
operation after the theatre closes.

(D) The parties agree that until such time as Nordstrom opens for business
at the Shopping Center, Tenant shall pay, as Opening Rent, on a monthly basis,
in lieu of Fixed Rent and Percentage Rent only, [***] percent of Gross Sales
made at the Premises, to be paid in accordance with the provisions of Article 3
relating to payment of Percentage Rent. In addition, Tenant shall be obligated
to pay all Additional Rent and charges due under the Lease. At such time as
Nordstrom opens for business at the Shopping Center, the current Fixed Rent and
Percentage Rent, set forth in Article 1 of the Lease shall be reinstated and
paid in accordance with Article 3 of this Lease. Notwithstanding the foregoing,
Gross Sales transacted at the Premises during the period which Tenant is paying
Opening Rent shall not be included in the calculation at Percentage Rent for the
applicable Lease Year.

RIDER #38 - amending Section 6.1D

Tenant shall not be required to maintain plumbing, electrical or other
systems that are not located within the Premises or that otherwise do not
exclusively serve the Premises, and Tenant shall have no obligation to maintain,
repair or replace exterior or structural parts of the Premises, or plumbing,
HVAC, elevators, or electrical or mechanical systems (except those exclusively
serving the Premises).

RIDER #39 - amending Section 6.1E

(A) Page 6-2, lines 18-19, delete "the manner of".

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(B) Page 6-2, line 19, after "Tenant's" insert "particular".

(D) Page 6-2, line 20, after "Requirement" insert "to the extent triggered
by Tenant's particular use of the Premises".

(E) Page 6-2, line 24, prior to "use" insert "particular".

RIDER #40 - amending Section 6.1F

(A) Page 6-2, line 26, after "Premises" insert "performed by or on behalf
of Tenant and not by Landlord".

(B) Page 6-2, line 32, prior to "acceptable" insert "reasonably".

RIDER #41 - amending Section 6.1G

(A) Page 6-3, line 5, delete "Managing Agent" and substitute "managing
agent, if any,".

(B) Landlord hereby agrees to defend and save Tenant harmless and
indemnified from all injuries, losses, claims and damages (including reasonable
attorneys' fees and disbursements) to any Person or property, arising from,
related to, or in any way connected with Landlord's use or occupancy of the
Common Areas, unless such injury, loss, claim or damage be attributable to the
negligence of Tenant or its agents, servants or employees.

RIDER #42 - amending Section 6.1H

Page 6-3, line 20, delete "[***]" and substitute [***]".

RIDER #43 - deleting Section 6.1I

Section 6.1I is hereby deemed deleted in its entirety.

RIDER #44 - amending Section 6.1J

Page 6-4, line 15, delete "[***]" and substitute "[***]".

RIDER #45 - amending Section 6.1L

(A) Page 6-5, line 4, delete "[***] percent" and substitute "the lesser of
(i) [***] percent and (ii) by the [***]. For purposes of this Rider, the
"Consumer Price Index" shall mean the Consumer Price Index for U.S. City Average
for All Items For All Urban Consumers, 1982-

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84 equals 100 (CPI-U), as published by the United States Department of Labor (or
if not published, the most clearly comparable index)."

(B) Page 6-5, line 6, delete "[***] percent" and substitute "in the manner
set forth above".

RIDER #46 - deleting Section 6.1L(4)

Section 6.1L(4) is hereby deemed deleted in its entirety.

RIDER-#47 - deleting Section 6.1M

Section 6.1M is hereby deemed deleted in its entirety.

RIDER-#48 - deleting Section 6.1O

Section 6.1O is hereby deemed deleted in its entirety.

RIDER #49 - deleting Section 6.1P

Page 6-7, line 43, after "Approvals" insert "(except those that Landlord's
required to obtain)".

RIDER #50 - amending Section 6.1R

Page 6-8, line 6, delete "To" and insert "Following receipt by Tenant of
written notice, to".

RIDER #51 - amending Section 6.1S

(A) Page 6-8, line 11, delete "To" and substitute "Subject to Section 9.18
below,".

(B) Page 6-8, line 11, delete "[***]" and substitute "[***]".

(D) Subparagraph (4) is hereby deemed deleted in its entirety.

(E) Page 6-8, line 36, delete "[***]" and substitute "[***]".

RIDER #52 - amending Section 6.2A

(A) Page 6-8, line 7, prior to "officer" insert "then-current".

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(B) Page 6-8, line 10, delete "ten (10)" and substitute "eight (8)".

(C) The Retail Restriction Limit shall not apply to any existing or future
stores of Tenant, or any Affiliate of Tenant, operating under a different trade
name and having a different merchandise mix.

(D) The Retail Restriction Limit shall not apply to Tenant's remote site
promotional activities.

RIDER #53 - amending Section 6.2B

Page 6-9, line 22, prior to "beverages" insert "alcoholic".

RIDER #54 - amending Section 6.2C

Landlord acknowledges that race car simulator noise and track announcer
heard outside the Premises shall not be deemed objectionable.

RIDER #55 - amending Section 6.2D

Page 6-10, line 12, delete "[***]" and substitute "[***]".

RIDER #56 - amending Section 6.2E

Page 6-10, line 38, after "employees" insert "and except for those allowed
by the Permitted Use".

RIDER #57 - amending Section 6.2F

(A) Notwithstanding anything in Section 6.2F to the contrary, provided
such does not involve a change of control, any issuance or transfers of private
stock that are exempt under Securities and Exchange Commission regulations.

(B) Nothing contained in this Lease shall be deemed to prohibit Tenant
from encumbering its trade fixtures and the equipment with security agreements,
but no security interest shall be permitted as to any alterations, installations
or improvements which by the terms of this Lease become part of the Premises.

(D) In the event of assignment or other transfer by Tenant of its interest
in this Lease (whether by merger, consolidation, agency, franchise, or
otherwise) and the assignee or transferee (i) has a net worth equal to or
greater than the net worth of Tenant on the Commencement Date of this Lease or
at the time of such assignment (whichever is greater) and

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(ii) assumes all obligations imposed by this Lease, then as of the effective
date of the assignment, Tenant, Tenant shall be released from all obligations
imposed by this Lease. The form and substance of legal documents shall be
reasonably satisfactory to Landlord.

RIDER #58 - amending Section 6.2F(2)

Section 6.2F(2) is hereby deleted and the following is substituted in lieu
thereof:

"After completion of Tenant's Work and the opening of the Premises for
business, Tenant, without Landlord's consent, may assign this Lease or sublease
the entire Premises to a parent, Affiliate or wholly owned subsidiary of Tenant
(or the Guarantor, if any) or to any entity with which or into which Tenant (or
the Guarantor, if any) may consolidate or merge or to whom all of the assets and
business of the chain of Tenant is sold as a going concern, and who shall assume
for Landlord's benefit the performance of all of the terms, conditions and
covenants of this Lease; provided, however, that the merged or consolidated
entity or transferee of assets shall have a net worth at least equal to the net
worth of Tenant at the time of such consolidation, merger or transfer or at the
time of the Commencement Date of this Lease, whichever shall be greater; and
further provided that the assignee or sublessee shall use the Premises under the
Trade Name and only for the purpose stated in the "Permitted Use" clause."

RIDER #59 - amending Section 6.2F(3)

(A) Page 6-11, line 44, delete "and stockholders".

(B) Page 6-11, line 49 through line 1 on page 6-12, delete
"responsibility" and substitute "status".

(D) Page 6-12, line 19, after "withheld" insert "or delayed".

(E) In the event Landlord exercises its right to terminate this Lease
pursuant to Section 6.2 F (3), Landlord shall pay to Tenant the unamortized
value, less the amount of Landlord's Contribution, and any liens or
encumbrances, of Tenant's leasehold improvements (excluding removable personal
property and fixtures). Tenant shall, not later than ninety (90) days following
its opening for business in the Premises, deliver an affidavit of an officer of
Tenant and a certificate of Tenant's architect, accompanied by bills, receipts,
invoices, canceled checks and the like, specifying the cost of Tenant's Work
which shall thereupon be the basis for the amount to be paid by Landlord
pursuant to this provision. Failure to timely deliver such affidavit and
certificate shall constitute a waiver of Tenant's right to such payment. As of
the termination date, Tenant shall have no further liability for items arising
or accruing after such date.

(F) Page 6-12, lines 34-35, delete "and its officers, directors and
stockholders".

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(G) Page 6-12, line 37, after "nature" insert ", if different from
Tenant's business at the Premises,".

(H) Subparagraph 6.2F(3)(c)(v) is hereby deemed deleted.

RIDER #60 - amending Section 6.2F(4)

(A) Page 6-13, line 19, after "transaction" insert "less out-of-pocket
leasing commissions, tenant improvement costs, advertising costs and other
related expenses paid to third parties".

(B) If an assignment or sublease occurs in connection with the sale of
Tenant's business and a portion of the sales price is allocated to the goodwill
of the business, the payment of said excess rent or other consideration to
Landlord as Additional Rent hereunder shall exclude the valuation of goodwill.

RIDER #61 - amending Section 6.2F(5)

Page 6-13, line 25, delete "[***]" and substitute "[***]".

RIDER #62 - amending Section 6.2F(7)

(A) Page 6-13, line 32, delete "[***]" and substitute "[***]".

(B) Page 6-13, line 34, delete "[***]" and substitute "[***]".

RIDER #63 - amending Section 6.2G

(A) Page 6-13, line 37, delete "Not" and substitute "Except as otherwise
provided herein, not".

(B) Page 6-13, line 43, after "competitive" insert "with fair market value
prevailing".

RIDER #64 - amending Section 6.2H

Tenant shall be permitted to use professionally prepared signs consistent
with signs displayed in Tenant's other locations operating under the Trade Name.

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RIDER #65 - amending Section 6.2I

Page 6-14, lines 23-27, delete "If Tenant ... load desired."

RIDER #66 - amending Section 7.1B

If the Premises are damaged and the reasonably estimated time to repair
the damage will exceed [***] days, then Tenant shall have the right to terminate
this Lease by delivering written notice to Landlord within [***] days after the
estimated time for rebuilding is determined.

RIDER #67 - amending Section 8.1

(A) Page 8-1, line 3, delete "become insolvent or".

(B) Page 8-1, line 6, delete "or insolvency".

RIDER #68 - amending Section 8.2

(A) Page 8-1, lines 38 and 40, delete "[***]" and substitute "[***]".

(B) Page 8-2, line 1, delete "[***]" and substitute "[***]".

(D) Page 8-2, lines 4-6, delete "or if Tenant ... of Tenant)".

(E) Page 8-2, line 17, delete "[***]" and substitute "[***]".

RIDER #69 - amending Section 8.3

(A) Page 8-2, line 33, delete "dispossess" and substitute "dispossession".

(B) Landlord shall use reasonable efforts to relet the Premises, it being
understood that such efforts shall consist of the same efforts as Landlord makes
with respect to other vacant space in the Shopping Center and that Landlord
shall not be required to prefer the reletting of the Premises over any other
vacant or empty space in the Shopping Center or to accept a tenant for any use
or purpose other than a use or purpose acceptable to Landlord.

(D) The last sentence of this Section 8.3A is hereby deemed deleted.

(E) Anything in Section 8.3 A to the contrary notwithstanding, it is
agreed that where reference is made in said Section to sums becoming due and
payable to Landlord for Fixed Rent and Additional Rent for the entire unexpired
balance of the Term, or anything therein referring to

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payment of Fixed Rent and Additional Rent by Tenant to Landlord in a lump sum
shall mean that such payments will be made monthly, with no acceleration, over
the balance of the Term or, alternatively, that Landlord shall have the right to
sue at the end of the Term for amounts accruing to Landlord to the date thereof.

RIDER #70 - deleting Section 8.8

Section 8.8 is hereby deemed deleted in its entirety.

RIDER #71 - amending Section 9.1

(A) Page 9-1, line 7, delete "mailed" and substitute "received or
refused".

(B) Landlord agrees to use reasonable efforts to give copies of default
notices to Tenant's attorneys; however, the failure to give such a notice shall
not affect the validity of any notice otherwise properly given. Tenant's
attorneys are:

PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 SOUTH FLOWER STREET
23RD FLOOR
LOS ANGELES, CALIFORNIA 90071-2371
ATTENTION: RICK S. KIRKBRIDE, ESQ.

RIDER #72 - amending Section 9.7

(A) Page 9-3, line 5, delete "[***]" and substitute "[***]".

(B) Page 9-3, line 30, after "time" insert "upon reasonable notice to
Tenant".

RIDER #73 - amending Section 9.8A

Page 9-3, line 34, prior to "instruments" insert "reasonable".

RIDER #74 - amending Section 9.8B

(A) Page 9-4, line 8, delete "If so requested by Tenant,".

(B) Page 9-3, line 20, after the word "foregoing" add the following:

"(any one or more of the foregoing individually or collectively called an
"Encumbrance") provided however that with respect to Encumbrances recorded after
the date hereof, this Lease shall not be subordinate to such Encumbrance unless
and until Landlord obtains, at Tenant's cost and expense, from the holder of the
Encumbrance placed against the Premises, a non-disturbance agreement in
recordable form which is reasonably acceptable to Tenant and provides that in
the

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event of any foreclosure, sale under a power of sale, ground or master lease
termination or transfer in lieu of any of the foregoing or the exercise of any
other remedy pursuant to any such Encumbrance (a) Tenant's use, possession and
enjoyment of the Premises shall not be disturbed and this Lease shall continue
in full force and effect so long as Tenant is not in default hereunder beyond
any applicable cure period, and (b) this Lease shall automatically become a
direct lease between any successor to Landlord's interest, as Landlord, and
Tenant as if such successor were the Landlord originally named hereunder."

(B) Page 9-3, line 23, delete ", if requested,".

(D) Page 9-3, line 37, after the word "hereunder" add the following:
"Notwithstanding the foregoing, Tenant's obligation to execute the documents as
provided in this Subsection shall be subject to the express limitation that (i)
such documents shall be strictly limited to the matters which are subject of
this Subsection, and (ii) no such document may materially increase any of
Tenant's obligations hereunder or materially decrease any of Tenant's rights
under this Lease."

RIDER #75 - deleting Section 9.10

Section 9.10 is hereby deleted in its entirety.

RIDER #76 - amending Section 9.16B

Page 9-9, line 4, after "Center)" insert "and proceeds thereof".

RIDER #77 - deleting Section 9.16C

Section 9.16C is hereby deemed deleted in its entirety.

RIDER #78 - deleting Section 9.17

Section 9.17 is hereby deemed deleted in its entirety.

RIDER #79 - adding Section 9.18 - Confidentiality

In handling any confidential information Landlord shall exercise the same
degree of care that it exercises with respect to its own proprietary information
of the same types to maintain the confidentiality of any non-public information
thereby received or received pursuant to this Lease, except that disclosure of
such information may be made (i) to the subsidiaries or affiliates of Landlord
in connection with their present or prospective business relations with
Landlord, (ii) to prospective transferees or purchasers of any interest in the
Lease, provided that they have entered into a comparable confidentiality
agreement in favor of Tenant and have delivered a copy to Tenant (iii) as
required by law, regulations, rule or order, subpoena, judicial order or similar
order, (iv) as may be required in connection with the examination, audit or
similar investigation of Landlord and (v) as Landlord may deem appropriate in
connection with the exercise of any remedies hereunder. Confidential information
hereunder shall not include information that either (a) as in the public domain,
or becomes part of the public domain, after

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disclosure to Landlord through no fault of Landlord; or (b) is disclosed to
Landlord by a third party, provided Landlord does not have knowledge that such
third party is prohibited from disclosing such information.

RIDER #80 - Special Stipulations

(A) Landlord's Covenants, Representations and Warranties.

Landlord represents and warrants to Tenant, and covenants and agrees with
Tenant, the following:

(i) Landlord is a Delaware limited partnership, duly organized under
the laws of Delaware, validly existing and in good standing under the laws of
Georgia;

(ii) Landlord has good and marketable fee simple title in and to a
portion of the Center and a leasehold interest in a portion of the Center;

(iii) Landlord, and the undersigned signatories executing this Lease
on behalf of Landlord, are duly authorized and empowered to enter into this
Lease with Tenant; and

(iv) There are no restrictive covenants, zoning or other ordinances
or any Laws prohibiting any of the permitted uses of the Premises set forth in
this Lease by Tenant.

(B) (i) Unless and until Tenant vacates the Premises in violation of
this Lease, or Tenant no longer occupies the Premises for the Permitted Use,
then Landlord will not lease space within the Shopping Center to (a) any tenant
whose permitted use allows the operation of motion-based automobile driving
simulators, or any tenant whose trade name contains the word "NASCAR"
(hereinafter referred to as "Competing Business"). If (x) Landlord violates or
suffers the violation of this paragraph, and (y) Tenant's Gross Sales for any
[***] month period during the first [***] years such violation exists are at
least [***] percent less than Tenant's Gross Sales for the prior [***] month
period, then effective retroactive to the day such Competing Business opens for
business, Tenant shall pay the lesser of (i) [***] and (ii) [***] percent of its
[***], for so long as such Competing Business remains open in the Shopping
Center. If a Competing Business is open for a period in excess of [***]
consecutive months, Tenant shall have the right to terminate this Lease upon
[***] days' written notice to Landlord. Notwithstanding the foregoing, the
restriction hereinabove set forth in this paragraph shall be inapplicable to the
following: any tenant or occupant open for business in the Shopping Center on
the date of this Lease who by the terms of its Lease or operating agreement is
not prohibited or restricted from operating a Competing Business from its
premises; provided, however, to the extent the lease under which any of the
foregoing tenants or occupants is not prohibited or restricted from operating a
Competing Business would nevertheless require such tenant or occupant to obtain
Landlord's consent for (or otherwise permit Landlord the opportunity to object
to) a change in use, an assignment or sublet or other change in the manner that
such tenant or occupant (or its successor assign) does business that would
result in such tenant or occupant

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engaging in such Competing Business, Landlord agrees that it shall not grant
such consent to (or object to, as appropriate) such change in use or assignment
or sublet or other change (i.e., Landlord shall take such affirmative action
that is favorable to Tenant under the circumstances); Game Works; any tenant
occupying an outlot parcel in the Center, and any Department Store or Specialty
Store in the Shopping Center. Additionally, Jillian's may have up to [***]
motion based automobile driving simulators without being considered a Competing
Business. Notwithstanding anything in this Lease to the contrary, Gross Sales
transacted during the period which Tenant is paying Alternative Rent shall not
be included in the calculation of Percentage Rent for the applicable Lease Year.

(ii) In the event Tenant shall exercise its right to terminate this
Lease, as provided above, Landlord shall pay, within [***] days following the
date Tenant vacates and surrenders the Premises herein demised, the then
unamortized cost of the permanent leasehold improvements (excluding, inter alia,
trade fixtures and equipment, furnishings, decorations, inventory and other
items of personal property) initially made by Tenant pursuant to Article 2 of
this Lease, less the amount of Landlord's contribution, assuming a useful life
equal to the length of the original Term of this Lease and amortization on a
straight line basis.

(C) In the event of any action or proceeding arising out of or pursuant to
this Lease, the successful party shall be entitled to recover its reasonable
attorney's fees and all other costs and expenses incurred in connection with the
action or proceeding.

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MALL OF GEORGIA

EXHIBIT "A"

GRAPHIC

<PAGE> 83
EXHIBIT B

GRAPHIC
<PAGE> 84
EXHIBIT C

Utilities

1. The initial Environmental Charge shall be as follows:

The initial amount of [***] per year, of which [***] per year is for the
Electric Component [***] per year is for the Non-Electric Portion of the Chilled
Air Component, [***] is for the Electric Portion of the Chilled Air Component,
[***] per year is for the Facilities Fee, and [***] per year is for sanitary
sewer and domestic water, all subject to adjustment as provided herein.

2. Utilities. As of the Commencement Date, all mains, conduits and other
facilities necessary for supplying electric energy, domestic water, chilled air
and sanitary sewer facilities to the Premises will have been installed by
Landlord. Tenant shall pay to Landlord for the furnishing of such services,
computed in the manner hereinafter provided, the Environmental Charge. The
Environmental Charge shall be paid in equal monthly installments in advance,
simultaneously with the payment of Fixed Rent. Tenant shall be solely
responsible and shall pay separately for all charges for telephone and for any
other utilities used or consumed in the Premises, except those utilities
furnished by Landlord, the charge for which is included in the Environmental
Charge.

3. Electric Energy and Water. Landlord will (subject to Paragraph 12 of this
Exhibit) furnish electric energy for Tenant's lighting and power needs in the
Premises and domestic water and sanitary sewer services, subject to the
restrictions and limitations on Tenant set forth in this Lease. Tenant shall
accept and use the electric energy and domestic water and sanitary sewer
facilities furnished by Landlord to the Premises. Tenant, at its own expense,
shall furnish and maintain all electric, lighting and power apparatus and
plumbing apparatus needed in the Premises. Except as otherwise provided in
paragraph 9 of this Exhibit C, Tenant shall not be charged for domestic water
and sanitary sewer facilities by way of measuring the use or consumption thereof
in the Premises on any meter or other mechanical device based upon amount of
use, the cost of furnishing domestic water and sanitary facilities being covered
by Tenant's payment as set forth in paragraph 1 above.

4. Facilities Fee. Tenant shall pay to Landlord a Facilities Fee in the amount
set forth in Paragraph 1 of this Exhibit C. The Facilities Fee represents an
amount agreed upon by Landlord and Tenant as an appropriate sum for the use by
Tenant of the utility systems provided by Landlord in the Shopping Center.

5. Chilled Air. Landlord will (subject to paragraph 12 hereof) furnish chilled
air to the Premises, subject to the restrictions and limitations on Tenant set
forth in this Exhibit C. Tenant shall accept and use such chilled air to air
condition and heat the Premises. Tenant, at its own expense, shall furnish a
thermostat and mixing (VAV) box to be specified by Landlord to heat the chilled
air provided by Landlord and shall provide the distribution system for
chilled/heated air within the Premises. In the event Tenant's approved plans set
forth a cooling requirement (as

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C-1
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reasonably determined by Landlord, in its sole discretion) which would exceed
1.15 CFM per square foot of Floor Space in the Premises, the initial Electric
Portion of the Chilled Air Component set forth above shall be adjusted upward by
Landlord, in its reasonable determination, to reflect such increased
requirement. The expenses of furnishing chilled air to the Premises shall be
paid by Tenant to Landlord as part of Tenant's payment of the Environmental
Charge and shall be subject to increase as provided for in Paragraph 8.

6. Practices and Rules. The following practices and rules shall apply in
connection with Landlord's obligation to furnish electric energy, chilled air,
and domestic water and in connection with Tenant's use thereof:

A. The Chilled Air Component is predicated upon normal consumption and use
of chilled air by Tenant in air conditioning and heating the Premises during the
hours specified in Section 6.1 of the Lease.

B. Electric energy, chilled air and domestic water shall be made available
to Tenant by Landlord on the days when the Shopping Center is open during the
hours when the Premises are required to be open as specified in Section 6.1 of
the Lease.

C. Tenant shall not materially increase its cooling load beyond that
installed in the Premises at the Commencement Date of the Lease or as shown on
the plans and specifications thereof approved by Landlord.

D. Tenant shall not use chilled air for any purpose other than for air
conditioning and heating in the Premises, and Tenant shall not use electric
energy for any purpose other than for lighting and power demands set forth in
Tenant's plans approved by Landlord.

E. Landlord shall have the right to inspect the Premises in order to test
Tenant's use of chilled air and domestic water and in order to install and
operate suitable devices for the purposes of determining Tenant's demands for
temperatures. The time and frequency of such inspections shall be at Landlord's
sole option, but said test shall be conducted in a manner so as to minimize
interference with or disturbance of Tenant's operations at the Premises. In the
event that inspection indicates that Tenant's chilled air usage deviates from or
materially exceeds the conditions herein set forth, Landlord shall have the
right (in addition to any other rights) to require Tenant to pay the cost of
such excess usage and the costs of said inspection and to require Tenant to
provide, at Tenant's expense, all remedial action or equipment required to
conform Tenant's installations and operations to the conditions set forth in
this Exhibit C. Any such charges payable by Tenant shall be deemed Additional
Rent and shall be payable to Landlord within [***] days after demand.

7. Electric Component. The Environmental Charge as set forth in Paragraph 1 of
this Exhibit includes and sets forth Landlord's initial estimate of the Electric
Component thereof, which estimate shall be subject to adjustment as set forth
below.

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A. Simultaneously with the submission of Tenant's plans and specifications
for Tenant's Work at the Premises, Tenant shall submit to Landlord detailed
electrical plans and specifications, including, without limitation, a list of
all electrical fixtures, equipment and furnishings, the names, model numbers,
electrical ratings and maximum inrush current of each electric consuming item to
be located at the Premises. Provided that Tenant's electrical plans and
specifications do not indicate that Tenant will consume substantially more
electric energy than Landlord's estimated tenant average, the Electric Component
of the Environmental Charge will be billed at the rate of [***] per square foot
of Floor Space per annum from the Commencement Date through the December 31 next
following the Commencement Date. Commencing on the January 1 next following the
Commencement Date, the Electric Component will be adjusted and billed as set
forth in paragraph B below.

B. As part of Tenant's Work, Tenant shall purchase and install an electric
check meter, as set forth in the Shopping Center Tenant Information Manual and
Design Criteria. Such check meter shall measure both the kilowatts used in the
Premises and the kilowatt hours used in the Premises, both of which measurements
shall be used in computing electric service consumption and the annual Electric
Component of Tenant's Environmental Charge (Electric power consumed by Tenant's
heating system is included in the Electric Component). Promptly following the
end of each calendar month throughout the Term, Landlord shall cause all
electric check meters serving the Premises to be read. Promptly following the
end of the calendar year in which the Commencement Date occurs, Landlord shall
cause the actual Electric Component payable by Tenant from the Commencement Date
to the following December 31 to be calculated. If the aggregate amount billed to
Tenant as the Electric Component for said period shall be less than Tenant's
actual Electric Component, Tenant shall pay the differential to Landlord within
[***] days after receipt of Landlord's invoice therefor. If the aggregate amount
billed to Tenant as the Electric Component for said period shall be more than
Tenant's actual Electric Component, Landlord shall credit such amount to future
Environmental Charge payments. In each successive calendar year thereafter, the
monthly Electric Component billed to Tenant shall be one-twelfth (1/12) of the
prior year's actual (annualized) Electric Component, and promptly following the
end of each such year, Landlord shall cause the actual annual Electric Component
payable by Tenant to be calculated. If Tenant's actual Electric Component shall
be more than the aggregate of Tenant's monthly payments for the subject year,
Tenant shall pay the differential to Landlord as aforesaid. So long as Landlord
provides electricity to the Premises on a submetered basis, Tenant shall
purchase electricity from Landlord or Landlord's designated agent at the same
rates Tenant would be required to pay if Tenant were to purchase electric energy
directly from the utility company furnishing electric energy to the Shopping
Center, it being understood that the term "rate" shall include all fees,
adjustments, tariffs and surcharges that Tenant would be required to pay to said
utility company. Where more than one such check meter measures the service to
Tenant, the service rendered through each submeter may be computed and billed
separately in accordance with the above. In the event that such bills are not
paid within [***] days after the same are rendered, Landlord may, in addition to
any other remedy available to Landlord, without further notice, discontinue the
service of electric current to the Premises without releasing Tenant from any
liability under the Lease and without

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Landlord or Landlord's agent incurring any liability for any damage or loss
sustained by Tenant by such discontinuance of services.

C. If there are imposed any taxes or if there is an increase in the amount
of present taxes upon the sale or furnishing of electric energy to the Shopping
Center or to the Premises, then the Electric Component (and the Electric Portion
of the Chilled Air Component) shall be increased in the same proportion as the
increase or assessment to Landlord. Such taxes shall be paid by Tenant to
Landlord in the same manner as if such taxes were to be paid directly by Tenant.
As used in this Article, the term "taxes" shall mean any and all taxes, ordinary
or extraordinary, foreseen or unforeseen, levied, imposed or assessed in
connection with the furnishing of electric energy to the Premises or to the
Shopping Center.

D. Tenant shall not make any material alteration or addition to the
electric system of the Premises without the prior written approval of Landlord,
which approval shall not be unreasonably withheld.

8. Chilled Air. The Environmental Charge as set forth in Paragraph 1 includes a
component for the furnishing by Landlord to the Premises of chilled air for use
by Tenant for air conditioning and heating purposes (the Chilled Air Component
of the Environmental Charge). The Chilled Air Component is composed of a sum
applicable to the purchase by Landlord of electric energy for the production of
chilled air (the Electric Portion) and all other charges related to the
production of chilled air (the Non-Electric Portion). The Electric Portion shall
be increased for the same causes and in the same manner as the Electric
Component of the Environmental Charge is increased as set forth in Paragraph 7.
The Non-Electric Portion shall be increased as provided in Paragraph 17 hereof.

9. Water and Sewer.

A. The Environmental Charge as set forth in Paragraph 1 included a
component for the furnishing by Landlord to the Premises of domestic water and
the right to use the sanitary sewer system of the Shopping Center (the Water and
Sewer Component). If the rate charged by the public utility, Governmental
Authority or other entity supplying water to the Shopping Center shall be
increased, then the Water and Sewer Component shall be increased in the same
proportion as the increase to Landlord. It is understood that as used in this
paragraph, the term "rate" shall include any surcharges which Landlord is
required to pay in connection with obtaining domestic water and/or sanitary
sewer services for the Shopping Center.

B. If Landlord shall so request, Tenant shall install a water meter to
measure the amount of water consumed at the Premises. Landlord shall read the
meter on a regular basis, and Tenant shall pay to Landlord, in lieu of the
amount set forth in paragraph 1 hereof the amount, based on consumption, which
Tenant would otherwise pay to the utility company providing water to the
Shopping Center.

10. Disputes. Any dispute between Landlord and Tenant arising out of or relating
to the amount of increase of the Environmental Charge which Tenant is required
to pay pursuant to this Exhibit C shall be determined promptly by a reputable
independent electrical engineer to be

C-4
<PAGE> 88
selected by Landlord and paid by Tenant. The determination of said engineer
shall be binding and conclusive on Landlord and Tenant.

11. Effective Dates. All increases of the Environmental Charge as a result of
any of the events described in this Exhibit shall be effective as of the date
the event occurs which constitutes the basis for such increase and the
provisions of this Exhibit shall be cumulative and each of said paragraphs shall
operate independently of each other, so that each or all events, if they occur,
shall be a separate, cumulative basis for any increase of the Environmental
Charge. Landlord reserves the right to bill any increase pursuant to this
Exhibit at such times as Landlord shall in its sole discretion determine and the
failure to bill any increase pursuant to this Exhibit on the date the event
which constitutes the basis for the increase occurs shall not be deemed a waiver
of Landlord's right to so bill at a subsequent time, effective, in any event, as
of the date the event which constitutes the basis for the increase occurs. Each
time an increase in the Environmental Charge occurs pursuant to this Exhibit,
Landlord shall notify Tenant of the amount of such increase and the new dollar
amount. However, said increase shall be effective from the date the increase
became operative. Any decrease in consumption by reason of removal of electric
consuming equipment from the Premises shall, provided the equipment is removed,
be measured from the date written notice of removal is served upon Landlord.

12. Discontinuance of Utilities. Landlord hereby reserves the right to
discontinue furnishing electric energy, chilled air or domestic water to Tenant
in the Premises at any time upon not less than [***] days' written notice to
Tenant. If Landlord exercises such right of termination, the Lease shall
continue in full force and effect and shall be unaffected thereby, except that
from and after the effective date of such termination, Landlord shall not be
obliged to furnish the discontinued utility to Tenant and the Environmental
Charge payable under the Lease shall be reduced by the amount of the
discontinued component included therein at the time of discontinuance. If
Landlord so discontinues furnishing electric energy or water to Tenant, Tenant
shall arrange to obtain same directly from the utility company furnishing the
same to the Shopping Center. Electric energy may be furnished to Tenant by means
of the then existing building system feeders, risers and wiring to the extent
that the same are available, suitable and safe for such purposes. All meters and
additional panel boards, feeders, risers, wiring and other conductors and
equipment which may be required to obtain electric energy directly from such
utility company shall be installed and maintained by Tenant at its expense.

13. Reduction in Power Factor. If Tenant's use of electricity causes reduction
in the "power factor" of its electric service below ninety (90%) percent
lagging, Tenant will, at Tenant's expense, make the necessary corrections
through the proper approved uses of capacitors or other approved devices.

14. Furnishing of Utilities. Any utility which Landlord is required or elects to
provide or causes to be provided to the Premises may be furnished by an agent
employed or by an independent contractor engaged by Landlord, and Tenant shall
accept the same therefrom to the exclusion of all other suppliers. Landlord
shall not be liable to any extent to Tenant in damages

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C-5
<PAGE> 89
or otherwise if any one or more of said utilities is interrupted, impaired or
terminated because of failures, repairs, installations or improvements, nor
shall any such interruption, impairment or termination in any way release Tenant
from the performance of any of its obligations under the Lease.

15. Rates if Central Utility Plant is Declared to be a Public Utility. If
Landlord's operation of the central utility plant furnishing any utility to the
Premises and the other premises served thereby shall be determined to be a
public utility service, and rates therefor should be fixed or approved by the
public authority having jurisdiction, then such rates for such service shall
supersede the provisions of this Exhibit with respect to the determination of
the rates to be paid by Tenant for such services, and Tenant shall pay therefor
at such rates.

16. Sales and Use Tax. Tenant shall pay all sales, use and other taxes imposed
by any Governmental Authority upon the manufacture, sale, use, transmission,
distribution or other process necessary or incidental to the furnishing of
electric energy and chilled air, and domestic water to the Premises. If Landlord
has paid said taxes, Tenant shall reimburse Landlord for the full amount thereof
on demand.

17. Increases of Certain Charges. The Non-Electric Portion of the Chilled Air
Component of the Environmental Charge shall be adjusted on the January 1 next
following the first anniversary of the Commencement Date and on each January 1
thereafter, as provided in the next following sentences. The term "Consumer
Price Index" means the Consumer Price Index for U.S. City Average for All Items
For All Urban Consumers, 1982-84 equals 100 (CPI-U), as published by the Bureau
of Labor Statistics of the United States Department of Labor or if not published
then the index of prices most closely comparable. The term "Base Number" means
the Consumer Price Index number applicable to the January 1 next following the
Commencement Date. The term "Current Number applicable to a calendar year" means
the latest Consumer Price Index number published for the month of January (or if
no Consumer Price Index is published for January then for the next succeeding
month) of each, respective calendar year occurring subsequent to the first
anniversary of the Commencement Date. If the latest Current Number applicable to
a calendar year exceeds the Base Number, then the new amount of the Non-Electric
Portion effective January 1 of each calendar year shall be obtained by
multiplying the original amount thereof at the time of execution and delivery of
the Lease by a fraction, the numerator of which is the Current Number applicable
to any calendar year and the denominator of which is the Base Number; provided,
however, that in no event shall the Environmental Charge ever be less than the
amount specified in Article 1 of the Lease.

18. Obligations Prior to Commencement Date. Tenant shall pay Environmental
Charges for temporary water, chilled air and electricity from the date upon
which the Premises are made available to Tenant for Tenant's Work until the
Commencement Date, such payment to be at the amounts and rates set forth in
Paragraph 1.

19. Communication Services. Landlord may install in the Premises and the
Shopping Center such communications lines and systems as Landlord shall elect
and, in connection therewith, Landlord may provide communication services (other
than voice-grade telephone service) for Tenant's use in the Premises. To the
extent that Tenant requires the type of communication services made available by
Landlord, Tenant shall use the services offered by Landlord to the

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exclusion of any other provider. Tenant shall pay Landlord, as an additional
component of the Environmental Charge, for the furnishing of such services, in
an amount not to exceed what Tenant would pay were Tenant to obtain such
services from another provider in the locale in which the Shopping Center is
located.

20. All capitalized terms used herein unless otherwise defined shall have the
same meaning as in the Lease.

C-7
<PAGE> 91
Exhibit D

Intentionally Deleted

<PAGE> 92
EXHIBIT E

LANDLORD'S WORK

I. Landlord's Work at Tenant's Premises:

Landlord shall perform the following work in or at the Premises
("Landlord's Work"). The respective costs of those items of Landlord's
Work which are to be reimbursed by Tenant are delineated in the rate
schedule which constitutes Part II of this Exhibit E. Said costs shall
be deemed Additional Rent under the Lease, shall be billed to Tenant
upon completion of Landlord's Work, and shall be due and payable within
thirty (30) days thereafter.

ITEMS

A. Electrical Service An empty conduit sized to service capacity for
a 277/480 V, 3 phase, 4 wire, 60 cycle AC
service capacity sized to accommodate a
maximum load of 20 watts per square foot of
Floor Space in the Premises shall be provided
from the Landlord's electrical room to a point
within the Premises. The location of such
conduit shall be indicated on the Lease
Outline Drawing. Landlord shall provide a
service connection point in the electrical
room.

B. Telephone Room An 1" empty conduit shall be provided for
Tenants not adjacent to a service corridor. A
6" wide cable tray will be provided in the
service corridor and the cable tray will
terminate in the Landlord's telephone room.

C. Sewer Service One (1) 4 inch sanitary sewer connection shall
be installed at one point below the Premises.
The approximate location of such connection
shall be indicated on the Lease Outline
Drawing.

D. Sanitary Vent Furnish and install one (1) 2" common sanitary
vent connection at one point within the
Premises. Approximate location and size will be
indicated on the Lease Outline Drawing.

E. Water Service A 3/4 inch domestic cold water service with
ball valve shall be brought to one point
within the Premises. The approximate location
of such service shall be indicated on the
Lease Outline Drawing.

F. Sprinklers A sprinkler system flange connection shall be
installed within the Premises for extension by
Tenant, in accordance with all applicable
codes, references design standards and IRI.
All branch sprinkler piping within the

E-1
<PAGE> 93
Premises shall be at Tenant's expense.

G. Toilet Exhaust A gravity toilet exhaust duct
main shall be provided to each Premise.
Approximate location of duct main will be
indicated on Lease Outline Drawing.

H. Floor Floor Slab. Furnish and install a concrete
floor slab designed to support a maximum live
load of 75 pounds per square foot and a
partition load of 20 pounds per square foot.
Smooth troweled finish, no depression,
recesses or cutting of slab will be permitted
without the prior written approval of Landlord.

I. Walls Demising Studs. Furnish and install 6 inch
demising metal studs from floor to the
underside of the roof deck and/or structural
members.

J. Roof Roof Penetration. All roof penetrations and
flashing will be a Tenant expense and
performed solely by Landlord's contractor.
Landlord reserves the right to disallow any
installation which may exceed the structural
capabilities of the roof system or if, in
Landlord's opinion, the appearance of such
equipment will be detrimental to the
appearance of the building.

K. Tenant Plan Review Landlord will review Tenant's plans to
ascertain that the Tenant and his Architect
are in compliance with the Tenant and
Information Design Manuals and have designed
improvements that uniquely identify the retail
store and are a credit to the Tenant and the
Mall.

L. Construction Deposit Deposit required before Tenant construction can
commence to ensure the successful completion of
build-out including punch list items,
construction clean-up, and administration
close-out.

M. Intentionally Omitted

N. Trash Removal During construction, fixturing and
merchandising of the Premises, Landlord will
remove Tenant's trash and debris from the
building site (not Tenant's Premises) at a
cost based upon size of the Premises. Tenant
shall deliver trash and debris to designated
locations and deposit same in receptacles
provided. If Tenant does not maintain the
Premises in a clean and orderly condition or
properly dispose of its trash and debris in
the designated locations, Landlord may perform
such work and charge Tenant Landlord's actual
cost plus fifteen (15%) percent thereof

E-2
<PAGE> 94
for administration.

O. Temporary Electric Landlord shall provide limited temporary
During Construction Service electric service for Tenant's
contractors. This is the only temporary
electric service available to such contractors.
Tenant shall have five (5) days from beginning
work to connect to permanent power.

P. Temporary Storefront Landlord will furnish and install a painted
Closure gypsum board and metal stud wall enclosure at
those tenant storefronts' for those tenant
spaces' that are not under construction or open
at mall grand opening which tenant's contractor
can move and use for future construction
barricade.

II. Landlord's Work - Reimbursed by Tenant

<TABLE>
<S> <C> <C>
A. Electrical Conduit Empty - 2".................. $ 1,100.00 EA
B. Telephone Hook/Conduit......................... $ 100.00 EA
C. Sanitary Sewer................................. $ 500.00 EA
D. Sanitary Vent.................................. $ 600.00 EA
E. Water.......................................... $ 500.00 EA
F. Sprinkler Shut-Down Fee........................ $ 200.00 EA
G. Toilet Exhaust................................. $ 600.00 EA
H. Floor
1. Pavers (material only)
Floor.................................... $ 15.00/SF
Base..................................... $ 15.00/LF
2. Carpet (material only)................... $ 6.50/SF
3. Concrete Slab............................ $ 2.50/SF

I. Walls

1. Demising Studs (one-half wall) (No
Drywall)
6' metal stud, 16" O.C................... $ 12.00/LF

J. Roof Cuts/Penetrations/Flashing................ $ Actual Cost
plus 15% Admin
K. Tenant Plan Reviews

1. Initial Review........................... $
</TABLE>

E-3
<PAGE> 95

<TABLE>
<S> <C> <C>
2. Additional Review........................ $

L. Construction Deposit (Required from Contractor) $
M. Intentionally Omitted
N. Trash Removal
1. Up to 1,000 SF........................... $ 500.00 EA
2. 1,001 SF to 3,000 SF..................... $ 1,200.00 EA
3. 3,001 SF or more......................... $ 1,700.00 EA
O. Temporary Electric............................. $ 0.38/SF/MTH
P. Temporary Storefront Closure................... $ 40.00/LF
</TABLE>

E-4
<PAGE> 96
EXHIBIT F

MODIFICATION OF LEASE

LANDLORD NAME AND ADDRESS: MALL OF GEORGIA, L.L.C.,

a Delaware limited liability company
115 West Washington Street
Indianapolis, Indiana 46204

TENANT NAME AND ADDRESS:

DATE OF LEASE:

PREMISES: Store No.

SHOPPING CENTER: Mall of Georgia
Gwinnett County, Georgia

DATE OF AGREEMENT:

R E C I T A L

Landlord and Tenant have agreed to amend the Lease in accordance with the
terms of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants herein contained
it is hereby agreed as follows:

1. The Commencement Date of the Lease shall be _________________ and the
Expiration Date of the Term shall be _________________.

2. Landlord and Tenant have agreed that the Size of the Premises is
_____________ square feet.

3. The adjusted Fixed Rent shall be as follows:

$_______ per year from ______________ through ______________;

$_______ per year from ______________ through ______________; and

$_______ per year from ______________ through ______________.

4. The adjusted Promotion Fund Charge shall be $_____________ per year
initially or such other greater amount as shall be determined pursuant to
Section 6.1 L.

5. The adjusted Grand Opening Contribution is $_______________________.

F-1
<PAGE> 97
6. All additional Rent charges calculated based on the Size of the
Premises shall be adjusted according to the adjusted size of the Premises as of
the Commencement Date.

7. After execution and delivery of this Modification of Lease, Landlord
shall bill Tenant for any monies owed retroactive to the Commencement Date of
the Lease. Tenant shall pay such amount within ten (10) days after demand.

8. Except as provided herein all of the terms, conditions and covenants of
the lease shall remain the same and in full force and effect.

9. Any capitalized terms used herein shall have the meaning ascribed to it
in the Lease.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Agreement as of
the day and year first above written.

Tenant:

By:
---------------------------------
Title:

Landlord:
MALL OF GEORGIA, L.L.C., a Delaware
limited liability Company

By: CPI-Georgia Corporation, a
Delaware corporation, Managing Member

By:
---------------------------------
David Simon, Chief Executive
Officer

F-2

<PAGE> 1

EXHIBIT 10.25

SERVICE AGREEMENT

Effective April 30, 1997 ("Effective Date") Dale Earnhardt, Inc., 1675
Coddle Creek Highway, Mooresville, North Carolina 28115 ("DEI") and Richard
Childress Racing, 8188 Hampton Road, Clemmons, North Carolina 27021 ("RCR")
(referred to hereinafter individually as "Licensor" and collectively as
"Licensors") and LBE Technologies, Inc., 10401 Bubb Road, Cupertino, California
95014 ("Company") agree as follows:

1. Services, Payment and Options. Each Licensor agrees to undertake and
complete the services specified in Exhibit A ("Services"). As the only
consideration due Licensors regarding the subject matter of this Agreement,
Company shall pay the fees and grant the stock options set forth in Exhibit A.

2. Inventions; Proprietary Information.

a. Company shall own all right, title and interest (including
patent rights, copyrights, trade secret rights, trademark rights and other
rights throughout the world) relating to any and all inventions (whether or not
patentable), works of authorship, designations, designs, know-how, ideas and
information made or conceived or reduced in practice, in whole or in part, by
each Licensor during the term of this Agreement that relate to the subject
matter of, or arise out of, the Services or any Proprietary Information (as
defined below) (collectively, "Inventions") and each Licensor will promptly
disclose and provide all Inventions to Company. Each Licensor hereby makes all
assignments necessary to accomplish the foregoing ownership. Each Licensor shall
further assist Company, at Company's expense, to further evidence such record
and perfect such assignments, and to perfect, obtain, maintain, enforce, and
defend any rights assigned.

b. Licensors each agree that all Inventions and all other
business, technical and financial information (including, without limitation,
the identity of and information relating to Company's customers or employees)
each Licensor develops, learns or obtains during the period over which it is (or
is supposed to be) providing Services that relate to Company or the business or
demonstrably anticipated business of Company or that are received by or for
Company in confidence, constitute "Proprietary Information." Licensors will hold
in confidence and not disclose or, except in performing the Services, use any
Proprietary Information. However, a Licensor shall not be obligated under this
paragraph with respect to information such Licensor can document is or becomes
readily publicly available without restriction through no fault of either
Licensor. Upon termination and as otherwise requested by Company, each Licensor
will promptly return to Company all items and copies containing or embodying
Proprietary Information, except that each Licensor may keep its personal copies
of its compensation records and this Agreement.

c. As additional protection for Proprietary Information, each
Licensor agrees that during the period over which it is (or is supposed to be)
providing Services, and for one year thereafter, (i) such Licensor will not
encourage or solicit any employee or consultant of Company to leave Company for
any reason; (ii) such Licensor will not engage in any activity that is in any
way competitive with the business or demonstrably anticipated business of

1
<PAGE> 2

Company; and (iii) such Licensor will not assist any other person or
organization in competing or in preparing to compete with any business or
demonstrably anticipated business of Company.

3. Grant of Rights.

a. Publicity. DEI grants Company a worldwide non-exclusive
license to use, reproduce, disseminate, display, perform, record, photograph,
alter and otherwise exploit R. Dale Earnhardt's ("Earnhardt") names, likeness,
biographical data, memorabilia (along with any trademarks or service marks
incorporated therein, including without limitation those of any sponsor of
Earnhardt during the effective term of this Agreement with DEI) and/or voice, in
whole or in part, in connection with the promotion of Company's current and
future business, products and services, including but not limited to display and
other use at Company's Centers (as defined below). RCR grants Company a
worldwide non-exclusive license to use, reproduce, disseminate, display,
perform, record, photograph, alter and otherwise exploit Richard Reed
Childress's ("Childress") names, likeness, biographical data, memorabilia
(alone, with any trademarks or service marks incorporated therein, including
without limitation those of any sponsor of Childress during the effective term
of this Agreement with RCR) and/or voice, in whole or in part, in connection
with the promotion of Company's current and future business, products and
services, including but not limited to display and other use at Company's
Centers (as defined below). To the extent any of the foregoing grants are
ineffective under applicable law, each Licensor hereby agrees to provide, or, if
necessary, to obtain from third parties, at no expense to Company, any and all
waivers, approvals, licenses and consents required to accomplish the purpose of
the foregoing grants. From time to time, as reasonably requested by Company,
each Licensor will confirm in writing that any such waivers, approvals, licenses
and consents have been obtained or granted. Each Licensor has no knowledge that
any of the foregoing grants are ineffective as of the Effective Date.

b. Auto Design. RCR grants Company a nonexclusive worldwide
license to incorporate the Auto Design (as defined below) into Productions (as
defined below). This license grant includes the right to reproduce, use,
display, digitize, broadcast, perform, modify, and distribute the Auto Design,
in whole or in part, as incorporated in any Production and any advertising and
promotion related to any Production. The rights granted herein shall not confer
in RCR or DEI any rights of ownership in any Production, including, without
limitation, the copyright thereto, all of which shall be and remain the
exclusive property of Company, except that RCR shall retain copyright in the
Auto Design. This license grant includes, without limitation, use of the Auto
Design on Simulators (as defined below) and as computer graphics projected on a
monitor and/or screen at Centers (as defined below).

i. Definition of "Auto Design". "Auto Design" shall mean
the trade dress, name and design of (a) the race car known as "the #3 car" and
(b) any race car RCR or Richard Reed Childress uses in professional auto racing
during the effective term of this Agreement with RCR ("Future Auto Design").
"Auto Design" includes, without limitation, the colors and combination thereof,
overall design, placement, shape and size of design elements, decals, logos,
lettering and trademarks, and any changes made thereto during the effective term
of this Agreement with RCR.

2
<PAGE> 3

ii. Definition of "Production"; "Center"; and "Simulators."
"Production" shall mean any of the following: (i) Company's current or future
auto racing simulation centers ("Centers"); (ii) Company's boardable auto-shaped
racing simulation control modules ("Simulators"); and (iii) other multimedia
uses of any kind, including but not limited to computer software, graphical
displays, and audio soundtracks.

iii. Quality Approval. After the Auto Design has been
incorporated into a Simulator but before the Simulator is commercially
distributed or displayed, Company shall submit photographs of the Simulator to
RCR for a quality control review. RCR shall have the opportunity to review the
Simulator photographs for ten (10) business days and submit any suggested
changes or improvements in the reproduction of the Auto Design to Company by the
end of this period. Where reasonably possible, and considering production
schedules and technical limitations, Company shall incorporate these changes and
improvements in the final Simulator. RCR's failure, within the ten (10) day
period, to either (i) approve the reproduction of the Auto Design in the
Simulator or (ii) submit suggestions shall be deemed to be approval of the
reproduction of the Auto Design. Subject to the foregoing, RCR retains final
approval of the reproduction of the Auto Design on a Simulator, which shall not
be unreasonably withheld.

4. Representations and Warranties. Each Licensor represents and warrants
that: (i) the Services will be performed in a professional and workmanlike
manner and that none of such Services or any part of this Agreement is or will
be inconsistent with any obligation such Licensor may have to others; (ii) all
work under this Agreement shall be such Licensor's original work and none of the
Services or Inventions or any development, use, production, distribution or
exploitation thereof will infringe, misappropriate or violate any intellectual
property or other right of any person or entity; and (iii) such Licensor has the
full right and power to make the assignments and grant the rights to Company as
provided for in this Agreement. RCR represents and warrants that RCR owns all
right, title and interest in the Auto Design, including all copyrights,
trademarks and other intellectual property rights therein. Each Licensor shall
indemnify, defend and hold harmless Company and its officers, employees, and
agents from any claims, demands, liabilities, losses, damages, judgments or
settlements (including, reasonable attorneys' fees) arising from any breach by
such Licensor of any warranty or representation made by such Licensor hereunder,
including without limitation a claim of infringement or violation of any
intellectual property right or right of publicity or privacy. Execution by
Earnhardt and Childress, respectively, and delivery to Company of Releases
(i.e., documents granting DEI and RCR, respectively, such permission and rights
necessary for Licensors to enter into this Agreement) in a form satisfactory to
Company is a condition precedent to the effectiveness of this Agreement.

5. Termination; Extension.

a. Termination. The term of this Agreement shall be four (4)
years from the Effective Date, except that this Agreement may be terminated
earlier as follows. Company may terminate this Agreement: (i) upon thirty (30)
days' written notice, only with respect to a breaching Licensor, if such
Licensor breaches a material provision of this Agreement, including without
limitation failure to perform the Services set forth on Exhibit A, unless the
breach is cured within the notice period; (ii) immediately, only with respect to
the affiliated Licensor, if Earnhardt or Childress commits (or is accused by a
credible third party of committing) an illegal

3
<PAGE> 4

or immoral act; (iii) at any time upon sixty (60) days' written notice, only
with respect to DEI, if Earnhardt is no longer actively engaged in his NASCAR
race driving, and/or NASCAR team owner career; and (iv) at any time upon sixty
(60) days' written notice, only with respect to RCR, if an Auto Design is no
longer utilized on a racing car actively participating in professional auto
racing. If Company breaches a material provision of this Agreement with respect
to a Licensor, such Licensor may terminate this Agreement, only with respect to
such Licensor, upon thirty (30) days' written notice, unless the breach is cured
within the notice period. Sections 2 (subject to the limitations on Section 2(c)
stated therein) through 6 of this Agreement and any remedies for breach of this
Agreement shall survive any termination or expiration, except that the licenses
granted pursuant to Section 3(a) and Section 3(b) shall be limited such that
Company may continue to use, to the full extent of the rights granted
thereunder, only those Productions or promotional materials already in
production or manufactured prior to the effective date of termination or
expiration of this Agreement.

b. Automatic Extension. On the fourth anniversary of the
Effective Date of this Agreement, if the value of the stock underlying all the
stock options granted pursuant to this Agreement (whether or not such options
have been exercised) equals or exceeds One Million U.S. Dollars ($1,000,000) as
determined by (i) if Company's stock has been listed on a national stock
exchange or consolidated reporting system for at least thirty (30) days, the
average closing sales price for the thirty (30) days preceding the fourth
anniversary date or (ii) if Company's stock is not so listed, the fair market
value as determined by the Company's Board of Directors (the "Board") in good
faith; then the term of this Agreement shall be automatically extended to eight
(8) years from the Effective Date.

6. Miscellaneous. Each party shall be and act as an independent
contractor and not as partner, joint venture, or agent of any other party and
shall not bind nor attempt to bind any other to any contract, as such. Each
Licensor is an independent contractor and is solely responsible for all taxes,
withholdings, and other statutory or contractual obligations of any sort.
Neither Licensor shall have the right or ability to assign, transfer, or
subcontract any obligations under this Agreement without the written consent of
Company; any attempt to do so shall be void. All notices under this Agreement
shall be in writing, and shall be deemed given when personally delivered, or
three days after being sent by prepaid certified or registered U.S. mail to the
address of the party to be notified as set forth herein or such other address as
such party last provided to the others by written notice. The failure of any
party to enforce its rights under this Agreement at any time for any period
shall not be construed as a waiver of such rights. No changes or modifications
or waivers to this Agreement will be effective unless in writing and signed by
Company, and the Licensor or Licensors who are directly affected thereby. In the
event that any provision of this Agreement shall be determined to be illegal or
unenforceable, that provision will be limited or eliminated to the minimum
extent necessary so that this Agreement shall otherwise remain in full force and
effect and enforceable. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without regard to the
conflicts of laws provisions thereof. In any action or proceeding to enforce
rights under this Agreement, the prevailing party will be entitled to recover
costs and attorneys' fees. Headings herein are for convenience of reference only
and shall in no way affect interpretation of the Agreement.

4
<PAGE> 5

Dale Earnhardt, Inc. LBE Technologies, Inc.
(Licensor) (Company)

By: Donald Hawk By: Chris Morse
-------------------------------- ---------------------------------
[Print Name]

Signature: /s/ Donald Hawk Signature: /s/ Chris Morse
------------------------- --------------------------
Title: President Title: Director of Marketing

Richard Childress Racing
(Licensor)

By: Richard Childress
--------------------------------
[Print Name]

Signature: /s/ Richard Childress
-------------------------

Title: President

Don Hawk, the undersigned, represents and warrants he has full authority
to execute the foregoing Agreement on behalf of Dale Earnhardt, Inc. and Richard
Childress Racing.

/s/ Don Hawk
------------------------------------
Don Hawk

5
<PAGE> 6

Exhibit A

SERVICES:

Product development. As requested by Company, DEI will cause R. Date
Earnhardt ("Earnhardt") to test drive the prototype Simulator(s) and provide
feedback as well as arrange visits by Company representatives to the Winston Cup
#3 race shop to obtain various technical information (e.g., engine, audio and
wind tunnel data but not necessarily the latest results).

Public appearances (1 one-day public appearance trip per year).
Licensors will cause Earnhardt and Richard Reed Childress ("Childress") to visit
such locations as requested by Company to meet with the media, sponsors and some
of the general public (at Company's request, these appearances may include
display of each Licensor's memorabilia). Earnhardt and Childress will be
important spokespersons for Company, but Company will use reasonable efforts to
limit this work to high-impact exposures for them. Each public appearance trip
may involve more than one appearance and/or activity, but all such appearances
and/or activities will take place at one city and neighboring area per trip.
Autograph sessions will not exceed two hours.

Delivery of Design Specifications. RCR shall within 10 days of the
Effective Date (or, in the case of any Future Auto Design, within 10 days of
determination of the official new Auto Design) deliver to Company materials and
specifications sufficient to authentically reproduce the Auto Design, including,
but not limited to, paint color codes, measurements of decals, and color
photographs clearly depicting the Auto Design including views of each side,
front, back and top of the #3 car.

Merchandising. Each Licensor shall ensure that Company is able to obtain
such Licensor's licensed merchandise at most favored reseller prices and terms
for licensed merchandise sales.

Video Shoot. Company will be allowed one, two-hour video shoot per year.
The shoot will be scheduled at a mutually acceptable time/place.

FEES:

Company shall pay to each of Earnhardt and Childress, respectively, the
following fees: $10,000, payable upon execution of this Agreement; $7,500,
payable upon the earlier of (i) the opening to the public of Company's 1st
public commercial Center or (ii) September 1, 1997; and $7,500, payable upon the
earlier of (i) the opening to the public of Company's 2nd such Center or (ii)
November 15, 1997.

Company shall reimburse Licensors collectively up to $3,000 for the cost of jet
fuel if Earnhardt and Childress use the same private jet on the annual public
appearance trip, such payment to be made in accordance with instructions
received from Licensors. If Earnhardt and Childress travel via separate private
jets on a public appearance trip, Company shall reimburse each Licensor for up
to $3,000 for jet fuel used on the trip.

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<PAGE> 7

STOCK OPTIONS:

Company will grant to each of Earnhardt and Childress, respectively,
effective as of the Effective Date of this Agreement, stock options to purchase
30,000 shares of Company's Common Stock pursuant to Company's stock option plan,
which shares shall vest over 4 years. Twenty-five percent (25%) of the total
shares will vest at the end of one year, and 1/48 of the total shares will vest
each subsequent month for the remaining 3 years of the vesting period, provided,
however, that vesting, shall cease on termination or expiration of this
Agreement. The per-share exercise price will be $0.075 as specified by the
Company's Board. The options must be exercised by the earlier of (i) seven (7)
years from the date of this Agreement or (ii) the date of Company's initial
public offering of its stock.

In addition, Company will grant to each of Earnhardt and Childress,
respectively, stock options to purchase 20,000 shares of Company's Common Stock
pursuant to Company's stock option plan, which shares shall be fully vested upon
the execution of this Agreement. The per-share exercise price will be $0.075 as
specified by the Company's Board. The options must be exercised by the earlier
of (i) seven (7) years from the date of this Agreement or (ii) the date of
Company's initial public offering of its stock.

<PAGE> 1
EXHIBIT 10.26

JEFF GORDON

PERSONAL SERVICES AND ENDORSEMENT AGREEMENT

THIS AGREEMENT is entered into this 1st day of January, 1998 by and
between LBE TECHNOLOGIES, INC., a California corporation with offices at 10401
Bubb Road, Cupertino, California 95014 ("LBE") , JEFF GORDON, INC., an Indiana
corporation with offices at 5257 Pit Road South, Harrisburg, North Carolina
28075 ("JGI") and JEFF GORDON, an individual resident of North Carolina
("Gordon").

W I T N E S S E T H:

WHEREAS, Gordon is recognized and widely known throughout the world as
a professional race car driver in the NASCAR Winston Cup Series ("Winston Cup");
and

WHEREAS, Gordon's name, by virtue of his ability and experience, has
acquired a meaning in the mind of the purchasing public important to the
advertising, promotion, and sale of products and merchandise; and

WHEREAS, Gordon is currently the driver of the #24 Hendrick Motorsports
Limited Partnership ("Hendrick")/DuPont Automotive Finishes ("DuPont") race car
("#24 Race Car"); and

WHEREAS, LBE is engaged in, among other things, the operation of NASCAR
Silicon Motor Speedway themed auto-racing entertainment centers featuring
driving simulators; and

WHEREAS, LBE is desirous of obtaining certain personal appearances from
Gordon and acquiring the right to utilize Gordon's name and likeness in
connection with the advertisement and promotion of NASCAR Silicon Motor Speedway
entertainment centers ("Silicon Motor Speedway") and the use of simulators
("Simulators") produced by LBE in the United States of America and its
territories and possessions, Puerto Rico and United States military bases
throughout western Europe (the "Territory") , and JGI and Gordon are willing to
grant such rights on the terms and conditions contained herein;

NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and for other good and valuable consideration, the parties hereto agree
as follows:

1. GRANT OF ENDORSEMENT RIGHTS. Subject to the terms and conditions set
forth herein, JGI and Gordon hereby grant to LBE the right during the Term (as
defined below) and within the Territory to use Gordon's name, photograph,
likeness and/or endorsement (collectively, the "Endorsements") in connection
with the advertisement and promotion of Silicon Motor Speedway entertainment
centers and the Simulators operated therein in the Territory. Subject to the
terms and conditions herein, JGI and Gordon specifically grant LBE the right to
use the Endorsements in the following during such period:

(i) national and regional television commercials, including edits
and tags;

<PAGE> 2

(ii) radio commercials, including edits and tags to serve as
promotional carriers during the Term;

(iii) print and outdoor advertising materials;

(iv) point-of-sale and product promotional materials, counter-top,
shelf, and freestanding displays, banners, posters and cutouts; and

(v) press releases and other press materials.

2. TERM. This Agreement shall be binding as of the date of execution by
both parties and shall extend through August 1, 2000, unless terminated earlier
pursuant to the terms hereof (the "Term"). Provided that no default by LBE has
occurred hereunder and provided that the value of the stock options granted
herein exceed $850,000 (such valuation to be following LBE's initial public
offering and calculated based on the public market if publicly traded and if not
publicly traded in a manner and on a basis mutually acceptable to JGI and LBE),
this Agreement will be renewed for a three-year period from August 1, 2000
through August 1, 2003, with personal appearance terms and conditions to be
mutually agreed (including dates and fees) by LBE and JGI.

3. COMPENSATION. In consideration for the rights granted hereunder, LBE
agrees to pay to JGI, on behalf of Gordon, during the Term of this Agreement a
promotional fee as provided for below (the "Promotional Fee").

- A signing fee of $15, 000 is due and payable and earned on the date
hereof. In addition, LBE hereby agrees to pay to JGI the following appearance
fees:

<TABLE>
<CAPTION>
Year Fee
---- ---
<S> <C>
1998 $25,000 (1 appearance)

1999 $10,000 (1 appearance)

2000 $15,000 (1 appearance)
</TABLE>

The appearance fees are due and earned on the earliest of the date of
the appearance or December 31 of the relevant calendar year (August 1 in the
case of the year 2000) ; provided, however, no appearance fee shall be due in
any calendar year where Jeff Gordon has wrongfully refused to provide the
required appearance or is unable to make any appearance for LBE; provided
further, that LBE has complied with the terms of Section 4 hereof and has given
JBI sufficient advance notice and alternate dates for an appearance that do not
conflict with Jeff Gordon's driving schedule and other commitments.

- LBE hereby agrees to grant to JGI, or if designated Jeff Gordon,
individually, options to purchase 85,000 shares of LBE common stock for an
exercise price of $.075 per share. Options for (i) 35,000 shares will vest upon
execution of this agreement, (ii) 16,667 shares will

2
<PAGE> 3

vest on the first anniversary hereof and (iii) the remaining shares shall vest
at a rate of 1,388.875 shares per month thereafter on the first day of each such
month. The options must be exercised, at the option of Gordon if Gordon chooses
to exercise the options, by the earlier of (a) seven (7) years after the date of
grant or (b) the date of completion of LBE's qualified initial public offering.
If this Agreement is terminated due to a breach by JGI or Gordon, no further
vesting shall occur after the date of termination.

4. PERSONAL APPEARANCES.

(a) If requested to do so by LBE, Gordon agrees to make himself
available for one (1) day during each calendar year of the Term for photo shoots
and production of television and radio commercials, point of sale and print
materials and other promotional materials for use in LBE's advertising. Such
session shall be at Hendrick Motorsports race shop or at a mutually agreed to
location. The date and location of such session shall be coordinated with JGI
and shall be subject to Gordon's driving schedule and other personal appearances
and professional commitments. Such session shall be for or no more than one (1)
hour. In connection with the foregoing, Gordon agrees to participate as a
principal non-union performer in the production of television commercials (the
"Commercials") for regional and/or national imagebased advertising for
Simulators to be broadcast in the Territory. The Commercials may be broadcast
over network and cable television. LBE shall be responsible for any amounts due
the Screen Actors Guild or related pension, welfare or similar plans. In
connection with the Commercials:

(i) The filming and recording date and time of the production of
the Commercials will be subject to Gordon's prior commitments and will be
mutually agreed upon by JGI and LBE;

(ii) The result of Gordon's services hereunder shall be deemed
"a work for hire" under the provisions of the U.S. Copyright Act, and the
resulting Commercials shall be owned by LBE for all purposes. LBE shall have
full usage rights for the Commercials produced hereunder until August 1, 2000
for so long as this Agreement is in full force and effect;

(iii) All rights, if any, to the #24 Race car, as well as
Gordon's uniform, helmet, etc. will be coordinated through JGI or, its affiliate
JG Motorsports, Inc.; however, rights to any racing footage or with respect to
tracks or other drivers are to be granted to LBE by the appropriate owners; and

(iv) All production costs shall be the responsibility of LBE.

(b) If requested to do so by LBE, Gordon shall make one (1)
appearance in each year of the Term on behalf of LBE (total of three (3) during
the term). The time, date and location of such personal appearance shall be
mutually agreed upon by LBE and JGI and shall be subject to Gordon's driving
schedule and other personal appearances and professional commitments. LBE shall
use reasonable efforts to give JGI at least sixty (60) days' prior notice for
such requested appearance; however, LBE acknowledges that any such request is
subject to Gordon's availability on the requested date. Such appearance shall be
attendance at a Silicon Motor Speedway entertainment center. The appearance
shall be for no more than two (2) hours, not including travel time. If
reasonably deemed necessary by JGI, LBE will provide appropriate

3
<PAGE> 4

security and crowd control to ensure Gordon's safety and orderly conduct of such
personal appearance.

(c) With respect to each photo session or appearance set forth
above, LBE agrees to pay first-class or private corporate jet travel expenses at
JGI's customary reasonable rates from time to time agreed upon between JGI and
LBE, at the option of Gordon, for Gordon, and one other, and reasonable
out-of-pocket expenses (including, without limitation, ground transportation,
hotel accommodations and meals and beverages) incurred by Gordon in connection
with such session or appearance. Additionally, LBE shall provide an employee to
coordinate all logistics in connection with such sessions or appearances.

(d) At LBE's request, Gordon agrees to wear, whenever rendering
services for LBE, either his racing uniform or other clothing provided by LBE
bearing LBE's trademarks after consulting with Gordon and with appropriate
consideration for Gordon's personal taste. LBE will supply Gordon, Robert B.
Brannan, III and the appropriate officers and advisors of JGI with a reasonable
quantity of such clothing and other promotional items, which may include banners
and race caps bearing LBE's trademarks. If appropriate, LBE will consider the
purchase of apparel and products through Sports Image, Inc. or M.T. Sales and
Marketing, Inc. and utilize the "Chase Authentics(TM)" or "Competitors
View(TM)" labels.

5. NOTICE AND PAYMENTS. Any notice required to be given pursuant to
this Agreement shall be in writing and mailed to Gordon at the address set forth
below by certified or registered mail, return receipt requested or delivered by
a national overnight express service:

If to JGI or Gordon:

Jeff Gordon, Inc.
5257 Pit Road-South
Harrisburg, NC 28075
Attn: Robert B. Brannan, III
Fax: (704) 455-7429

If to LBE:

LBE Technologies, Inc.
10401 Bubb Road
Cupertino, CA 95014
Attn: Christopher Morse
Fax: (408) 777-8082

6. ENDORSED PRODUCTS FOR GORDON'S USE. During the Term of this
Agreement, LBE shall supply Gordon, and his agents, at no charge, a reasonable
number of passes for use at Silicon Motor Speedway entertainment centers.

7. PROMOTIONAL MATERIALS. All advertising and promotional material
prepared by LBE in connection with the Simulators depicting Gordon or the #24
Race Car shall be subject to the prior written approval of JGI and Gordon which
approval or disapproval shall be given

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<PAGE> 5

within ten (10) business days following receipt of the advertising or
promotional material, such approval not to be unreasonably withheld. If the
materials are not approved by JGI and Gordon within such ten (10) day period,
the materials will be deemed disapproved. Such approvals shall be based on the
submission of initial renderings, layouts, comps, pencils and other works in
progress. If the text of the advertising and/or promotional material has been
previously approved in writing by JGI and Gordon, LBE may reuse such material
without again obtaining the written approval of JGI and Gordon unless such
approval has been previously withdrawn in writing by JGI or Gordon or unless
this Agreement has been terminated.

8. RESERVATION OF RIGHTS; NO LICENSE.

(a) "Jeff Gordon(R)" is a federally registered trademark. JGI and
Gordon shall retain all rights in and to Gordon's name, likeness, signature and
endorsement and, whether during the Term or any extension thereof, Gordon shall
not be prevented from using or permitting or licensing others to use his name or
endorsement in connection with the advertisement, promotion, and sale of any
product or service.

(b) It is understood and agreed that Gordon, and JGI as applicable,
shall retain all right, title and interest in this likeness, name and/or
trademarks, where applicable.

(c) This agreement does not grant any license in favor of LBE to
produce any products or souvenirs bearing the name, likeness, signature or other
mark of JGI or Gordon or the #24 Race Car for sale.

(d) The use of the Endorsements in conjunction with any other
celebrity or any other marks must be preapproved by Gordon; provided, however,
that LEE may utilize the Endorsements in connection with other NASCAR Winston
Cup drivers involved with the Simulators, subject to approval of the materials
in accordance with the terms hereof.

9. REPRESENTATIONS, WARRANTIES AND INDEMNITY.

(a) Gordon, JGI and JG Motorsports, Inc. represent to LBE that they
have the full title, right, power, and authority to grant the rights and
Endorsements herein and to perform hereunder. Gordon, JGI and JG Motorsports,
Inc. agree to defend, indemnify and hold LBE harmless against all costs,
expenses, and losses (including reasonable attorneys' fees and costs) incurred
through claims of third parties against LBE arising out of their breach of this
representation.

(b) LBE agrees to defend, indemnify and hold JGI, JG Motorsports,
Inc. and Gordon harmless against all costs, expenses and losses (including
reasonable attorneys' fees and costs) incurred through claims of third parties
against JGI, JG Motorsports, Inc. and/or Gordon based on the manufacture or
operation of the Silicon Motor Speedway entertainment centers or of the
Simulators, including, but not limited to, actions founded on product liability,
or on any violation of the terms hereof by LBE.

5
<PAGE> 6

10. TERMINATION.

(a) JGI and Gordon shall have the right to terminate this Agreement
upon fifteen (15) days' prior written notice to LBE in the event of any of the
following contingencies:

(i) If LBE is adjudicated insolvent, declares bankruptcy, or
fails to continue its business of operating the Simulators; or

(ii) In the event LBE fails to make payments to JGI of any sums
due pursuant to this Agreement within fifteen (15) days after such payment is
due or upon other breach hereunder by LBE unless the breach is cured during the
notice period; or

(iii) In the event that Hendrick obtains a competitive sponsor
for the #24 Race Car or, as to the #24 Race Car, in the event of any sponsor
changes or if Gordon ceases to be a driver for the #24 team;

(b) JGI and Gordon shall have the right to terminate this Agreement
upon default by LBE under the Limited License Agreement of even date.

(c) Either party may terminate this Agreement on thirty (30) days'
written notice to the other party in the event of a material breach of any
material provision of this Agreement by the other party, provided that, during
the thirty (30) day period, the breaching party fails to cure such breach.

(d) LBE shall have the right to terminate this Agreement (i) upon
fifteen (15) days, prior written notice to JGI and Gordon in the event of any
breach hereof by JGI or Gordon and failure to cure during such notice period,
(ii) if Gordon is convicted of a felony or a crime of moral turpitude or (iii)
at any time after sixty (60) days' written notice to JGI and Gordon if Gordon
has permanently ceased being a NASCAR Winston Cup series driver.

11. POST TERMINATION RIGHTS.

(a) Upon the expiration or termination of this Agreement, all
rights granted to LBE under this Agreement shall forthwith terminate and
immediately revert to JGI and Gordon, and LBE shall discontinue all use of and
reference to the Endorsement.

(b) In the event of termination of this Agreement other than due to
a breach of any representation or warranty by Gordon, all moneys paid to JGI and
Gordon shall be deemed non-refundable.

12. RELATIONSHIP OF THE PARTIES. Gordon's performance of services for
LBE hereunder is in his capacity as an independent contractor. Accordingly,
nothing contained in this Agreement shall be construed as establishing an
employer/employee, a partnership, or a joint venture relationship between JGI
and Gordon and LBE.

13. JURISDICTION & DISPUTES. This Agreement shall be governed by the
laws of North Carolina and all disputes hereunder shall he resolved in the
applicable state or federal

6
<PAGE> 7

courts of North Carolina. The parties consent to the jurisdiction of such
courts, agree to accept service of process by mail, and waive any jurisdictional
or venue defenses otherwise available.

14. AGREEMENT BINDING ON SUCCESSORS; COSTS. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, their heirs,
administrators, successors and assigns. Each party hereto shall bear its own
costs in connection with the preparation, negotiation and execution of this
Agreement.

15. ASSIGNABILITY. The license granted hereunder is personal to Gordon
and may not be assigned by any act of Gordon, with the exception that Gordon
shall have the right to assign his financial benefits hereunder. LBE may not
assign its rights or obligation hereunder without the prior written consent of
JGI and Gordon.

16. WAIVER. No waiver by either party of any default shall be deemed as
a waiver of any prior or subsequent default of the same or other provisions of
this Agreement.

17. SEVERABILITY. If any provision hereof is held invalid or
unenforceable by a court of competent jurisdiction, such invalidity shall not
affect the validity or operation of any other provision and such invalid
provision shall be deemed to be severed from the Agreement.

18. INTEGRATION. This Agreement constitutes the entire understanding of
the parties and revokes and supersedes all prior agreements between the parties
and is intended as a final expression of this Agreement. It shall not be
modified or amended except in writing signed by the parties hereto and
specifically referring to this Agreement. This Agreement shall take precedence
over any other documents which may be in conflict therewith.

19. CONFIDENTIALITY. The terms and conditions of this Agreement, as
well as LBE's advertising and marketing plans and programs, are confidential and
will not be disclosed by either party, other than to their agencies and
representatives, without the other party's prior consent.

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<PAGE> 8

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have each caused to be affixed hereto its or his/her hand and seal the
day indicated.

LBE TECHNOLOGIES, INC.

By: /s/ Chris Morse
-----------------------------
Title:

JEFF GORDON, INC.

By: /s/ Robert B. Brannan, III
-----------------------------
Robert B. Brannan, III
Vice President

/s/ Jeff Gordon
---------------------------------
JEFF GORDON

<PAGE> 1
EXHIBIT 10.27

LICENSING AGREEMENT

Effective March 24, 1997, Dale Jarrett ("Licensor") and LBE
Technologies, Inc., 10401 Bubb Rd., Cupertino, CA 95125 ("Company") agree as
follows:

1. Services, Payment and Options. Licensor agrees to undertake and
complete the Services (as defined in Exhibit A) specified in Exhibit A. As the
only consideration due Licensor regarding the subject matter of this Agreement,
Company will pay Licensor in accordance with Exhibit A. As a consultant,
Licensor will also be entitled to stock options referred to in Exhibit A.

2. Ownership; Rights' Proprietary Information; Publicity.

a. Company shall own all right, title and interest
(including patent rights, copyrights, trade secret rights, trademark rights and
other rights throughout the world) relating to any and all inventions (whether
or not patentable), works of authorship, designations, designs, know-how, ideas
and information made or conceived or reduced in practice, in whole or in part,
by the Licensor during the term of this Agreement that relate to the subject
matter of, or arise out of, the Services or any Proprietary Information (as
defined below) (collectively, "Inventions") and Licensor will promptly disclose
and provide all Inventions to Company. Licensor hereby makes all assignments
necessary to accomplish the foregoing ownership. Licensor shall further assist
Company, at Company's expense, to further evidence, record and perfect such
assignments, and to perfect, obtain, maintain, enforce, and defend any rights
assigned the foregoing with the same legal force and effect as if executed by
Licensor.

b. Licensor agrees that all Inventions and all other
business, technical and financial information (including, without limitation,
the identity of and information relating to the Company's customers or
employees) Licensor develops, learns or obtains during the period over which it
is (or is supposed to be) providing Services that relate to Company or the
business or demonstrably anticipated business of Company or that are received by
or for Company in confidence, constitute "Proprietary Information." Licensor
will hold in confidence and not disclose or, except in performing the Services,
use any Proprietary Information. However, Licensor shall not be obligated under
this paragraph with respect to information Licensor can document is or becomes
readily publicly available without restriction and through no fault of Licensor.
Upon termination and as otherwise requested by Company, Licensor will promptly
return to Company all items and copies containing or embodying Proprietary
Information, except that Licensor may keep its personal copies of its
compensation records and this agreement.

c. As additional protection for Proprietary Information,
Licensor agrees that during the period over which it is (or is supposed to be)
providing Services, and for one year thereafter, (i) Licensor will not encourage
or solicit any employee or consultant of Company to leave Company for any reason
and (ii) Licensor will not engage in any activity that is in any way competitive
with the business or demonstrably anticipated business of Company.

d. Licensor grants Company the worldwide non-exclusive
license to use, reproduce, disseminate, display, record, photograph, alter and
otherwise exploit Licensor's

1
<PAGE> 2
names, likeness, memorabilia (along with any trademarks or service marks
incorporated therein) and/or voice in connection with promotion of company's
current and future business, products and services, including but not limited to
display and other use at Company's auto racing simulation centers. To the extent
any of the foregoing grant is ineffective under applicable law, Licensor hereby
agrees to provide, or, if necessary, to obtain from third parties, any and all
waivers approvals, licenses and consents required to accomplish the purpose of
foregoing grant. From time to time, as reasonably requested by Company, Licensor
will confirm in writing that any such waivers, approvals, licenses and consents
have been obtained or granted. This License Agreement does not grant a license
to use Robert Yates Racing owned properties, including the #88 car.

3. Warranty. Licensor warrants that: (i) Trademark (Reg.
#1,996,695) "Dale Jarrett" is owned by, used, and is being licensed herewith
(ii) the Services will be performed in a professional and workmanlike manner and
that none of such Services or any part of this Agreement is or will be
inconsistent with any obligation Licensor may have to others; (iii) all work
under this Agreement shall be Licensor's original work and none of the Services
or Inventions or any development, use, production, distribution or exploitation
thereof will infringe, misappropriate or violate any intellectual property or
other right of any person or entity; and, (iv) Licensor has the full right and
power to make the assignment and grant the rights to the company as provided for
herein.

Licensor shall indemnify, defend and hold harmless Company and its officers,
employees, and agents from any claims, demands liabilities, losses, damages,
judgments or settlements (including reasonable attorney's fees) arising from any
breach by Licensor of any warranty or representation made by Licensor hereunder,
including without limitation a claimed infringement or violation of any
intellectual property right or right of publicity or privacy, up to a maximum of
$25,000.00.

4. Termination. This Agreement will terminate four years from the
date hereof, except that it may be terminated earlier as follows. If either
party materially breaches a material provision of this Agreement or commits (or
is accused by a credible third party of) a illegal or immoral act, the other
party may terminate this Agreement upon 30 days notice, unless, in the case of a
breach, the breach is cured within the notice period. Company also may terminate
this Agreement at any time upon 60 days notice if Licensor is no longer actively
engaged in his NASCAR race driving career. Sections 2 (subject to the
limitations on Section 2.c stated therein) through 8 of this Agreement and any
remedies for breach of this Agreement shall survive any termination or
expiration, except that the license granted pursuant to Section 2(d) shall be
limited such that the Company may continue to use, to the full extent of the
rights granted thereunder, only those promotional materials already produced or
manufactures pursuant to this Agreement prior to termination.

5. Miscellaneous. Each party shall be and act as an independent
contractor and not as partner, joint venture, or agent of the other and shall
not bind nor attempt to bind the other to any contract, as such Licensor is an
independent contractor and is solely responsible for all taxes, withholdings,
and other statutory or contractual obligations of any sort. Licensor shall not
have the right or ability to assign, transfer, or subcontract any obligations
under this Agreement without the written consent of Company; any attempt to do
so shall be void. All notices under

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<PAGE> 3

this Agreement shall be deemed be in writing, and shall be deemed given when
personally delivered, or three days after being sent by prepaid certified or
registered U.S. mail to the address of the party to be notified as set forth
herein or such other address as such party last provided to the other by written
notice. The failure of either party to enforce its rights under this Agreement
at any time for any period shall not be construed as a waiver of such rights. No
changes or modifications or waivers to this Agreement will be effective unless
in writing and signed by both parties. In the event that any provision of this
Agreement shall be determined to be illegal or unenforceable, that provision
will be limited or eliminated to the minimum extent necessary so that this
Agreement shall otherwise remain in full force and effect and enforceable. This
Agreement shall be governed by and construed in accordance with the laws of the
State of California without regard to the conflicts of laws provisions thereof.
In any action or proceeding to enforce rights under this Agreement, the
prevailing party will be entitled to recover costs and attorneys' fees. Headings
herein are for convenience of reference only and shall in no way affect
interpretation of the Agreement.

Dale Jarrett LBE Technologies, Inc.
- ---------------------------------- -----------------------------------------
(Licensor) (Company)

/s/ Dale Jarrett By /s/ Chris Morse
- ---------------------------------- --------------------------------------

Title:
----------------------------------

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<PAGE> 4
Exhibit A

SERVICES

Product development. As requested by the Company, test drive the simulator and
provide feedback as well as arrange visits by company representatives to the
Busch car shop to obtain various technical information (e.g., engine, audio and
wind tunnel data but not necessarily the latest 1996 results).

Public appearances (expect 3 or 4 public performance trips per year). Visit
operating locations as requested by the Company to meet with the media, sponsors
and some of the general public (at the Company's request, these appearances may
include Licensor memorabilia and/or the Busch cars). Licensor would be an
important spokesperson for the Company, but the Company would use reasonable
efforts to limit this work to high impact-and fun-exposures for Licensor.

Merchandising. Ensure that the Company is able to obtain Licensor licensed
merchandise at most favored reseller prices and terms for licensed merchandise
sales at our operating sites.

FEES

$3,000 per public performance trip (each of which may involve more than one
appearance and/or activity, but all of which will take place at one site/city
per trip; autograph sessions will not exceed two hours).

Expense reimbursement is limited to required, reasonable telephone expenses and
first-class (or equivalent) travel (transportation, lodging and meals)
authorized in writing by Company in advance; payable ___ days after itemized
invoice and delivery of receipts).

STOCK OPTIONS

Licensor will be granted stock options to purchase 65,000 shares of the
company's common stock under the Company's stock option plan and its terms with
vesting over 4 years. (The first vesting period occurs at the end of one year
with 25% of the total shares, and 1/48 of the total amount each month for the
remaining 3 years of the deal term). The per share exercise price will be $0.075
as specified by the Company's board. The options must be exercised at earlier of
(i) seven (7) years from the date of this Agreement or (ii) the date of the
Company's IPO (initial public offering) of its stock.

Company warrants that option granted to licensor will not be less than 0.3% of
the Company's outstanding stock prior to an Initial Public Offering.

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<PAGE> 5
EQUALITY WITH OTHER DRIVERS

Licensee agrees that fees for public performances, stock options, and option
exercise price agreed to herein will not be less than that provided to any other
NASCAR driver during 1997.

<PAGE> 1
EXHIBIT 10.28

LICENSING AGREEMENT

Effective March 1, 1997, Rusty Wallace Inc. ("Licensor") and LBE
Technologies, Inc. 10401 Bubb Rd. Cupertino CA 95125 ("Company") agree as
follows:

2. Ownership; Rights' Proprietary Information: Publicity.

a. Company shall own all right, title and interest
(including patent rights, copyrights, trade secret rights, trademark rights and
other rights throughout the world) relating to any and all inventions (whether
or not patentable), works of authorship, designations, designs, know-how, ideas
and information made or conceived or reduced in practice, in whole or in part,
by the Licensor during the term of this Agreement that relate to the subject
matter of, or arise out of, the Services or any Proprietary Information (as
defined below) (collectively, "Inventions") and Licensor will promptly disclose
and provide all Inventions to Company. Licensor hereby makes all assignments
necessary to accomplish the foregoing ownership. Licensor shall further assist
Company, at Company's expense, to further evidence, record and perfect such
assignments, and to perfect, obtain, maintain, enforce, and defend any rights
assigned the foregoing with the same legal force and effect as if executed by
Licensor.

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<PAGE> 2
organization in competing or in preparing to compete with any business or
demonstrably anticipated business of Company.

d. Licensor grants Company the worldwide non-exclusive
license to use, reproduce, disseminate, display, record, photograph, alter and
otherwise exploit Licensor's names, likeness, memorabilia (along with any
trademarks or service marks incorporated therein) and/or voice in connection
with promotion of company's current and future business, products and services,
including but not limited to display and other use at Company's auto racing
simulation centers. To the extent any of the foregoing grant is ineffective
under applicable law, Licensor hereby agrees to provide, or, if necessary, to
obtain from third parties, any and all waivers approvals, licenses and consents
required to accomplish the purpose of foregoing grant. From time to time, as
reasonably requested by Company, Licensor will confirm in writing hat any such
waivers, approvals, licenses and consents have been obtained or granted.

3. Warranty. Licensor warrants that: (i) the Services will be
performed in a professional and workmanlike manner and that none of such
Services or any part of this Agreement is or will be inconsistent with any
obligation Licensor may have to others; (ii) all work under this Agreement shall
be Licensor's original work and none of the Services or Inventions or any
development, use, production, distribution or exploitation thereof will
infringe, misappropriate or violate any intellectual property or other right of
any person or entity; and, (iii) Licensor has the full right and power to make
the assignment and grant the rights to the company as provided for herein.

Licensor shall indemnify, defend and hold harmless Company and its
officers, employees, and agents from any claims, demands liabilities, losses,
damages, judgments or settlements (including reasonable attorney's fees) arising
from any breach by Licensor of any warranty or representation made by Licensor
hereunder, including without limitation a claimed infringement or violation of
any intellectual property right or right of publicity or privacy.

4. Termination. This Agreement will terminate four years from the
date hereof, except that it may be terminated earlier as follows. If either
party materially breaches a material provision of this Agreement or commits (or
is accused by a credible third party of) a illegal or immoral act, the other
party may terminate this Agreement upon 30 days notice, unless, in the case of a
breach, the breach is cured within the notice period. Company also may terminate
this Agreement at any time upon 60 days notice if Licensor is no longer actively
engaged in his NASCAR race driving career. Sections 2 (subject to the
limitations on Section 2.c stated therein) through 5 of this Agreement and any
remedies for breach of this Agreement shall survive any termination or
expiration, except that the license granted pursuant to Section 2(d) shall be
limited such that the Company may continue to use, to the full extent of the
rights granted thereunder, only those promotional materials already produced or
manufactures pursuant to this Agreement prior to termination.

5. Miscellaneous. Each party shall be and act as an independent
contractor and not as partner, joint venture, or agent of the other and shall
not bind nor attempt to

2
<PAGE> 3
bind the other to any contract, as such Licensor is an independent contractor
and is solely responsible for all taxes, withholdings, and other statutory or
contractual obligations of any sort. Licensor shall not have the right or
ability to assign, transfer, or subcontract any obligations under this Agreement
without the written consent of Company; any attempt to do so shall be void. All
notices under this Agreement shall be in writing, and shall be deemed given when
personally delivered, or three days after being sent by prepaid certified or
registered U.S. mail to the address of the party to be notified as set forth
herein or such other address as such party last provided to the other by written
notice. The failure of either party to enforce its rights under this Agreement
at any time for any period shall not be construed as a waiver of such rights. No
changes or modifications or waivers to this Agreement will be effective unless
in writing and signed by both parties. In the event that any provision of this
Agreement shall be determined to be illegal or unenforceable, that provision
will be limited or eliminated to the minimum extent necessary so that this
Agreement shall otherwise remain in full force and effect and enforceable. This
Agreement shall be governed by and construed in accordance with the laws of the
State of California without regard to the conflicts of laws provisions thereof.
In any action or proceeding to enforce rights under this Agreement, the
prevailing party will be entitled to recover costs and attorneys fees. Headings
herein are for convenience of reference only and shall in no way affect
interpretation of the Agreement.

Rusty Wallace Inc. LBE Technologies, Inc.
(Licensor) (Company)

By: /s/ By: /s/ Chris Morse
------------------------------ -------------------------------------

Title: Vice President Title:
--------------------------- ----------------------------------

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<PAGE> 4
Exhibit A

SERVICES

Product development. As requested by the Company, test drive the simulator and
provide feedback as well as arrange visits by company representatives to the
Winston Cup #2 race shop to obtain various technical information (e.g., engine,
audio and wind tunnel data but not necessarily the latest results).

Public appearances (expect 3 or 4 public performance trips per year). Visit
operating locations as requested by the Company to meet with the media, sponsors
and some of the general public (at the Company's request, these appearances may
include Licensor memorabilia). Licensor would be an important spokesperson for
the Company, but the Company would use reasonable efforts to limit this work to
high impact-and fun-exposures for Licensor.

Merchandising. Ensure that the Company is able to obtain Licensor licensed
merchandise at most favored reseller prices and terms for licensed merchandise
sales at our operating sites.

FEES

Expense reimbursement is limited to required, reasonable telephone expenses and
first-class (or equivalent) travel (transportation, lodging and meals)
authorized in writing by Company in advance; payable 30 days after itemized
invoice and delivery of receipts).

STOCK OPTIONS

Licensor will be granted stock options to purchase 65,000 shares of the
company's common stock under the Company's stock option plan and its terms with
vesting over 4 years. (the first vesting period occurs at the end of one year
with 25% of the total shares, and 1/48 of the total amount each month for the
remaining 3 years of the deal term). The per share exercise price will be $0.075
as specified by the Company's board. The options must be exercised at earlier of
(i) seven (7) years from the date of this Agreement or (ii) the date of the
Company's IPO (initial public offering) of its stock.

<PAGE> 1

EXHIBIT 10.29

LICENSE AGREEMENT
(Auto Design)

This agreement is made and entered into this 28th day of February, 1997
("Effective Date") by and between Robert Yates Racing Inc. ("Licensor") and LBE
Technologies, Inc. ("Company").

Grant of Rights. For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Licensor hereby grants to Company
a nonexclusive license for use in the United States of America to incorporate
the Auto Design, as hereinafter defined, into Productions, as hereinafter
defined. The license granted hereunder includes the right to reproduce, use,
display, digitize, broadcast, perform, modify, and distribute the Auto Design,
in whole or in part, as incorporated in any Production and any advertising and
promotion related to any Production. This license shall not include the right to
use the Auto Design independently of the Productions or advertising and
promotion related thereto. The rights granted herein shall not confer in
Licensor any rights of ownership in any Production, including, without
limitation, the copyright thereto, all of which shall be and remain the
exclusive property of Company, except that Licensor shall retain copyright in
the Auto Design. This license grant includes, without limitation, use of the
Auto Design on Simulators (defined below) and as a computer graphic projected on
a monitor and/or screen at Centers (defined below).

Description of Auto Design. "Auto Design" shall mean the trade dress,
name and design of the race car known as the #88 car. "Auto Design" includes,
without limitation, the colors and combination thereof, overall design,
placement, shape and size of design elements, decals, logos, lettering and
trademarks.

Description of Production. "Production" shall mean any of the following:
(i) Company's current or future auto racing simulation centers ("Centers"); (ii)
Company's boardable auto-shaped racing simulation control modules
("Simulators"); and (iii) other multimedia uses, including but not limited to
computer software, graphical displays, and audio soundtracks.

Monetary Consideration. In further consideration of the rights granted
to Company herein, Company shall pay to Licensor the following license fees: (i)
$2,000 on signing of this Agreement; (ii) $3,000 payable within 90 days of the
first commercial installation and opening to the public of a Simulator
incorporating the Auto Design; (iii) $7,500 payable half on June 30, 1998 and
half on December 31, 1998; and (iv) $10,000 payable half on June 30, 1999 and
half on December 31, 1999.

Merchandise. Company agrees to offer Licensor's merchandise to be
purchased from Robert Yates Racing, Inc., as selected by Licensor, for sale at
the retail sales outlets in Company's Centers until this Agreement is terminated
or expires.

Delivery of Design Specifications. Licensor shall, within 10 days of the
Effective Date, deliver to Company materials and specifications sufficient to
authentically reproduce the Auto Design, including, but not limited, to paint
color codes, measurements of decals, and color

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<PAGE> 2

photographs clearly depicting the Auto Design including, views of each side,
front, back and top of the #88 car.

Quality Approval. After the Auto Design has been incorporated into a
Simulator but before the Simulator is commercially distributed or displayed,
Company will submit photographs of the Simulator to Licensor for a quality
control review. Licensor shall have the opportunity to review the Simulator
photographs for ten (10) business days and submit any suggested changes or
improvements in the reproduction of the Auto Design to Company by the end of
this period. Where reasonably possible, and considering production schedules and
technical limitations, Company shall incorporate these changes and improvements
in the final Simulator. Licensor's failure, within the ten (10) day period, to
either (i) approve the reproduction of the Auto Design in the Simulator or (ii)
submit suggestions shall be deemed to be approval of the reproduction of the
Auto Design. With the exception of the foregoing, Licensor retains final
approval of the reproduction of the Auto Design on a Simulator, which shall not
be unreasonably withheld.

Representations and Warranties. Licensor represents and warrants to
Company that Licensor owns all right, title and interest in the Auto Design,
including all copyrights, trademarks and other intellectual property rights
therein, and has the authority to grant to Company the rights provided for
herein. Licensor shall indemnify, defend and hold harmless Company and its
officers, employees, and agents from any claims, demands, liabilities, losses,
damages, judgments or settlements (including reasonable attorneys' fees) arising
from any breach by Licensor of any warranty or representation made by Licensor
hereunder, including without limitation a claimed infringement or violation of
any intellectual property right.

Termination. The term of this Agreement shall be three (3) years from
the Effective Date, except that this Agreement may be terminated earlier as
follows. If either party breaches a material provision of this Agreement, the
other party may terminate this Agreement upon thirty (30) days' written notice
(specifying the nature of the breach), unless the breach is cured within the
thirty (30) day notice period. Company may also terminate this Agreement at any
time upon sixty (60) days' notice if the Auto Design is no longer utilized on a
racing car actively participating in professional auto racing. Sections 1 (as
limited below), 2, 3, 8, 9 and 10 and any remedies for breach of this Agreement
shall survive any termination or expiration. Notwithstanding the foregoing, the
license granted pursuant to Section 1 shall be limited such that the Company may
continue to exercise its rights thereunder only with respect to those
Productions into which the Auto Design has already been incorporated prior to
the effective date of termination or expiration of this Agreement.

General. Each party shall be and act as an independent contractor and
not as partner, joint venture or agent of the other. The provisions herein
constitute the entire understanding between the parties hereto with respect to
the subject matter hereof. Any additions to or changes in the Agreement shall be
valid only if set forth in writing and signed by the parties. A waiver of any of
the terms or conditions of this Agreement in any instance shall not be deemed or

2
<PAGE> 3

construed to be a waiver of such term or condition for the future. This
Agreement shall be construed in accordance with the substantive laws of the
State of California, without regard to its conflict of laws principles.

Accepted for Licensor: Accepted for Company:

By: William R. Yates By: Christopher Morse
-------------------------------- --------------------------------
(print name) (print name)

Signature: /s/ WILLIAM R. YATES Signature: /s/ CHRISTOPHER MORSE
------------------------- -------------------------

Title: Business Manager Title: Director Marketing
----------------------------- -----------------------------

Robert Yates Racing Inc. LBE Technologies, Inc.
115 Dwelle St. 10401 Bubb Rd.
Charlotte, NC 28208 Cupertino, CA 95014

<PAGE> 1

EXHIBIT 23.1

CONSENT OF PRICEWATERHOUSECOOPERS LLP
INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated June 7, 1999, except for Note 11, which is as of September 9,
1999 relating to the financial statements of Silicon Entertainment, Inc., which
appear in such Registration Statement. We also consent to the references to us
under the headings "Experts" and "Selected Financial Data" in such Registration
Statement.

/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP

San Jose, California
October 20, 1999