THQ INC, S-8, 1996-11-27

THQ INC
S-8, 1996-11-27
PREPACKAGED SOFTWARE

Previous: FIRST ISRAEL FUND INC, DEF 14A, 1996-11-27

Next: BAILARD BIEHL & KAISER INTERNATIONAL FUND GROUP INC, 24F-2NT, 1996-11-27

<PAGE> 1

As filed with the Securities and Exchange Commission on November 27, 1996.
Registration No. 333-
________________________________________________________________________________

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________

FORM S-8
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
_____________________

T-HQ, INC.
(Exact name of issuer as specified in its charter)

NEW YORK 13-3541686
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

5016 North Parkway Calabasas
Calabasas, California 91302
(Address of principal executive offices with zip code)

EMPLOYMENT AGREEMENT
DATED AS OF JANUARY 20, 1995, AS AMENDED, AND AS MODIFIED
BY THE MODIFICATION AGREEMENT DATED AS OF JULY 1, 1996,
BY AND BETWEEN
T-HQ, INC. AND JACK FRIEDMAN
(Full title of the plan)
_____________________

BRIAN J. FARRELL
President and Chief Executive Officer
T-HQ, Inc.
5016 North Parkway Calabasas
Calabasas, California 91302
(818) 591-1310
(Name, address and telephone number,
including area code, of agent for service)

Copies to:

SHERWIN L. SAMUELS, Esq. GABRIEL KASZOVITZ, Esq.
Sidley & Austin Feder, Kaszovitz, Isaacson, Weber, Skala
555 West Fifth Street & Bass LLP
Los Angeles, California 90013 850 Lexington Avenue
New York, New York 10022

_____________________

Approximate date of commencement of proposed sale to the public:
From time to time after the Registration Statement becomes effective.
_____________________
<PAGE> 2
CALCULATION OF REGISTRATION FEE
________________________________________________________________________________
<TABLE>
<CAPTION>
Title of Proposed maximum Proposed maximum
securities to be Amount to be offering price aggregate Amount of
registered registered per share offering price registration fee
---------- ---------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Common Stock 159,343 shares(1) (2) $827,276.25(2) $250.69
($.0001 par value)
</TABLE>
________________________________________________________________________________

(1) 89,343 shares are issuable upon exercise of option granted
pursuant to the Employment Agreement, dated as of January 20,
1995, as amended, and as modified by the Modification
Agreement dated as of July 1, 1996, by and between T-HQ, Inc.
and Jack Friedman (the "Plan"). The number of shares issuable
upon exercise of the option is subject to adjustment pursuant
to the terms of the Plan.

(2) Estimated pursuant to Rule 457(h) of the Securities Act of
1993, as amended, solely for purposes of calculating the
registration fee, the proposed maximum offering price is based
upon an exercise price of $3.75 with respect to the option to
purchase 89,343 shares of Common Stock and the average of the
high and low prices for the common stock on the NASDAQ
SmallCap Market on November 26, 1996 as reported by the
National Association of Securities Dealers Automated Quotation
System for 70,000 shares of Common Stock.
________________________________________________________________________________

<PAGE> 3
PROSPECTUS

70,000 SHARES

T-HQ, INC.

COMMON STOCK

________

This Prospectus has been prepared for T-HQ, Inc., a New York
corporation (the "Company") for use upon resale of shares of common stock, par
value $.0001, of the Company (the "Common Stock"), by a certain holder (the
"Selling Stockholder") of "restricted securities", as defined in Rule 144(a)(3)
of the Securities Act of 1933, as amended, who has acquired 70,000 shares of
Common Stock (the "Shares") issued by the Company pursuant to the Selling
Securityholder's Employment Agreement dated as of January 20, 1995, as amended
and as modified by the Modification Agreement dated as of July 1, 1996, by and
between T-HQ, Inc. and Jack Friedman (the "Plan"). The Company will not
receive any proceeds from the sale of the Shares offered hereby. The holder of
the 70,000 Shares covered by this Prospectus intends to sell the Shares offered
hereby from time to time for his own account in the open market at the prices
prevailing therein or in individually negotiated transactions at such prices as
may be agreed upon. The Selling Stockholder will bear all expenses with
respect to the offering of the Shares by him except the costs associated with
preparing and printing this Prospectus. See "Plan of Distribution." The
Common Stock of the Company is traded on the Nasdaq SmallCap Market under the
symbol "TOYH."

The Company was incorporated in the State of New York on October 16,
1989. The Company's executive offices are located at 5016 North Parkway
Calabasas, Calabasas, California 91302 and its telephone number is (818)
591-1310.

THE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE SECURITIES OFFERED HEREBY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is November 27, 1996

<PAGE> 4
AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information filed by the Company with
the Commission, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at 7
World Trade Center, New York, New York 10007 and Northwestern Atrium Center,
500 Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained upon written request addressed to the Commission,
Public Reference Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and its public reference facilities in New York, New
York and Chicago, Illinois, at prescribed rates. The Commission also maintains
a Web site that contains reports, proxy and information statements and other
information filed electronically by the Company at http://www.sec.gov. The
Company's Common Stock is listed on the Nasdaq SmallCap Market System under the
trading symbol "TOYH" and other information concerning the Company may be
inspected at the National Association of Securities Dealers, Inc., at 1735 K
Street, N.W., Washington, D.C. 20006.

The Company has filed with the Commission a registration statement on
Form S-8 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"). Statements contained in this Prospectus, which
constitutes a part of the Registration Statement, as to the contents of any
agreement or other document are not necessarily complete, and in each instance
reference is made to the copy of such agreement or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, which have been filed by the Company with the
Commission under the Securities Act and the Exchange Act are incorporated by
reference in this Prospectus:

(1) Annual Report on Form 10-K for the year ended December 31,
1995;

(2) Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996, June 30, 1996 and September 30, 1996; and

(3) The description of the Common Stock set forth in the Company's
registration statement on Form 8-A (Registration No. 0-18813), filed with the
Commission on September 24, 1991.

All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering made hereby shall be deemed to be
incorporated by reference herein and to be a part hereof from the respective
dates those documents are filed. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein and to be a part
hereof shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.

The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of that person, a copy of
any or all of the documents which have been or may be incorporated by reference
in this Prospectus (other than certain exhibits to those documents). Requests
should

-2-
<PAGE> 5
be directed to T-HQ, Inc., 5016 North Parkway Calabasas, Calabasas, California
91302, Attention: Secretary, telephone (818) 591-1310.

RISK FACTORS

In addition to the other information and financial data set
forth in this Prospectus, the following risk factors should be considered
carefully in evaluating the Company and its business before purchasing the
Common Stock offered hereby. In each instance in which a risk factor
identifies an event that would or could adversely affect the Company, such risk
should be viewed as adversely affecting the Company's business, results of
operations and financial condition.

ACQUISITION OF PROPERTIES AND DEVELOPMENT OF NEW TITLES

The Company's continuing profitability is a direct result of
its ability to timely develop and release successful new software titles
("Titles") to replace declining revenues from older Titles. Consumer
preferences for interactive entertainment software ("Software") are difficult
to predict, and few Software titles achieve sustained market acceptance. If
revenues from new Titles fail to replace declining revenues from existing
Titles, the Company would be materially and adversely affected.

The development of new Titles is dependant in substantial part
upon the Company's identification and exploitation in a timely manner of titles
based upon entertainment projects (such as movies, television programs and
arcade games), sports and entertainment personalities, or popular sports,
trends or concepts ("Properties") that have high public visibility or
recognition or that reflect the trends of popular culture. The determination
of which Titles the Company should develop is highly subjective and there can
be no assurances that any new Title will be successful. In addition, the
Company is in competition with numerous other Software companies for licenses
to develop Software based on such Properties. To the extent competition
intensifies for licenses to highly desirable Properties, the Company may
encounter increased difficulty in obtaining these licenses. The failure of the
Company to accurately identify and secure the rights to Properties that are or
will become popular would have a material adverse effect on the Company.

In addition, because Properties generate significant public
interest for periods that are unpredictable and often short, and since there is
a lead time between the identification of a Property and the release by the
Company of the Software based on such Property, even the Company's commercially
successful Titles may be marketable in material quantities for only a short
time, often for less than six months. As is typical of Software, the life
cycle of the Titles generally consists of a relatively high level of sales
during the first few months after introduction, followed by market saturation
and a decline in sales. In some instances, a sales decline may also be
accompanied by decreasing sales prices, which may result in credits or
allowances to the Company's customers. See " -- Discounts, Allowances and
Returns; Inventory Management." The development cycle for new Titles,
including the development of the necessary Software, approval by the
Manufacturer, as appropriate, and production of the initial cartridges or
CD-ROMs, typically has ranged from nine to 18 months. To the extent the
Company experiences delays in the development or shipment of new Titles, or if
new Titles are not successful in the market, the Company would be materially
and adversely affected.

As of September 30, 1996, the Company had approximately 20 new
Titles in various stages of development that are currently scheduled for
release in 1997. For the reasons set forth above, there can be no assurance
that the Company will be able to release each of these Titles within such time
or at all, or that the Company will be able to secure the rights to new Titles
at a rate that will maintain the Company's current development and release
schedule.

-3-
<PAGE> 6
DISCOUNTS, ALLOWANCES AND RETURNS; INVENTORY MANAGEMENT

Although the Company's arrangements with its distributors and
retailers generally do not give such distributors or retailers the right to
return manufactured products embodying the Software (the "Products") to the
Company (other than defective Products) or to cancel firm orders, from time to
time the Company grants accommodations to retailers (and, less often, to
distributors) when demand for specific items falls below expectations for the
purpose of maintaining its relationships with such customers. Such
accommodations consist of acquiescing to the customer's request that not all
booked orders be filled or that not all shipped orders be accepted, negotiated
price discounts, credits against future orders and, less often, the return to
the Company of inventory. It is the Company's practice to accept returns of
defective or damaged Products.

At the time of Product shipment, the Company establishes
provisions against gross revenues generated by such shipment based on estimates
of future returns of, and other customer accommodations that may be granted
with respect to, such Products, based on the Company's historical experience,
retailer inventories of the Titles and other factors. For the year ended
December 31, 1995 and the nine months ended September 30, 1996, provisions of
approximately $3.6 million and $3.3 million, respectively, were taken against
gross sales made during such periods, and as of September 30, 1996 the
Company's aggregate reserve against accounts receivable for returns and
customer accommodations was approximately $3.3 million.

The Company cannot predict the amount or nature of
accommodations that will be provided to its customers in future periods. To
the extent such accommodations exceed the Company's reserves, the Company will
be adversely affected. Although the Company believes its reserves are adequate
with respect to such matters, there can be no assurance that actual returns and
other customer accommodations will not exceed the reserves established.

The identification by the Company of slow-moving or obsolete
inventory, whether as a result of requests from customers for accommodations or
otherwise, would require the Company to establish reserves against such
inventory or to write-down the value of such inventory to its estimated net
realizable value. In 1993 and 1994 the Company incurred material charges to
income as a result of such write- downs, but has not experienced such problems
subsequent to those periods. While the Company believes that substantially all
of its current inventory is saleable in the ordinary course, there can be no
assurance that this will occur or that in the future the Company will not be
required to incur charges related to slow-moving or obsolete inventory.

REVENUE FLUCTUATIONS AND SEASONALITY

The Company has experienced and may continue to experience
significant quarterly fluctuations in net sales and operating results due to a
variety of factors, including the timing of releases of new Titles by the
Company, the popularity of both new Titles and Titles released in prior
periods, fluctuations in the mix of Titles with varying profit margins, the
timing of customer orders, the timing of shipments by Sony, Sega and Nintendo
(the "Manufacturers"), fluctuations in the size and rate of growth of consumer
demand for Software for various platforms, the timing of the introduction of
new hardware platforms ("Platforms") and the accuracy of retailer's forecasts
of consumer demand. The Company's expenses are based, in part, on its
expectations of future revenues and, as a result, operating results would be
disproportionately and adversely affected by a decrease in sales or a failure
by the Company to meet its sales expectations. Finally, the interactive game
market is highly seasonal, with sales typically significantly higher during the
fourth quarter (due primarily to the increased demand for Software during the
year-end holiday buying season). There can be no assurance that the Company
can maintain consistent profitability on a quarterly or annual basis.

CUSTOMER CONCENTRATION AND CREDIT RISK

Sales to the Company's seven largest customers collectively
accounted for approximately 44% of the Company's gross sales in 1995 and 46%
for the nine months ended September 30, 1996. Toys "R" Us, Wal-Mart and Kay
Bee accounted for approximately 12%, 10% and 7%, respectively, of the Company's
gross sales in 1995. For the nine months ended September 30, 1996, Toys "R"
Us, Wal-Mart and Target accounted for 12%,

-4-
<PAGE> 7
9% and 7% of the Company's gross sales, respectively. The Company has no
written agreement or other understanding with any of its customers that relate
to future purchases by such customers, and thus such purchases could be
terminated at any time. A termination of or other adverse change in the
Company's relationship with any of its largest customers would have a material
adverse effect on the Company.

The Company's sales are typically made on credit, with terms
that vary depending upon the customer and the nature of the Title. The Company
does not hold any collateral to secure payment by its customers, and currently
does not factor any of its receivables. Thus, the Company bears the risk of
its customers' and distributors' inability to pay such receivables or the
effect of any delay in such payment. Retailers and distributors compete in a
volatile industry and are subject to the risk of business failure. A business
failure by any of the Company's largest customers would have, and a business
failure by any of the Company's distributors or other retailers could have, a
material adverse effect on the Company.

RISKS ASSOCIATED WITH CD-ROM TITLES FOR PERSONAL COMPUTERS

In 1996 the Company determined to broaden its Software line by
engaging in the development of Titles for the personal computer CD-ROM market,
and consummated the acquisition of Heliotrope Studios, Inc. ("Heliotrope") for
that purpose. While the principals of Heliotrope have certain experience
developing and marketing CD-ROM games for personal computers, prior to this
acquisition the Company had no experience in this segment of the Software
market. The development and marketing of such Titles can be expected to
subject the Company to risks in addition to those encountered in the operation
of the Company's historical business, some of which may not be anticipated by
the Company. Such risks include the ability to accurately predict which Titles
have appeal to the purchasers of games for personal computers, greater reliance
on distributors in order to obtain retail distribution, and the greater
consumer returns experienced for CD-ROMs for personal computers. There can be
no assurance that the Company will be able to successfully develop and market
Titles for the CD-ROM personal computer market.

GROWTH STRATEGY

The Company intends to evaluate on a continual basis potential
acquisitions of, or investments in, other Software publishers or developers
that the Company believes will complement or enhance its business. In
connection with any such acquisitions, the Company may incur debt or issue debt
or additional equity securities, depending on market conditions and other
factors. There can be no assurance that the Company will consummate any such
acquisitions or investments or, if consummated, that such acquisitions or
investments will prove to be beneficial to the Company. As of the date of this
Prospectus, the Company has no understanding or agreement with respect to any
future acquisitions or investments.

DEPENDENCE ON THE PLATFORM MANUFACTURERS

The Company is wholly dependent on the Manufacturers and its
licenses with the Manufacturers (the "Platform Licenses") for the right to
publish Titles for the Manufacturers' Platforms and for the manufacture of its
Titles. For the year ended December 31, 1995, 79% of the Company's net sales
consisted of Nintendo Titles and 21% consisted of Sega Titles, and for the nine
months ended September 30, 1996, 74% of net sales consisted of Nintendo Titles,
15% consisted of Sega Titles and 11% consisted of Sony Titles. The Company's
current Platform License with Nintendo limits the Company to introducing
fifteen and ten titles for Game Boy for domestic and European distribution,
respectively, and twelve and thirteen for SNES for domestic and European
distribution, respectively. The Company's current Platform License with Sega
limits the Company to introducing three titles for the Sega Genesis and two for
Sega Game Gear per year of the license, and while the Company's current
Platform License with Sony does not impose any such limitations, it requires
that the Company obtain approval for the publication of new Titles on a
title-by-title basis. As a result, the number of Titles the Company is able to
publish for these Platforms, and thus the Company's revenues from Titles for
these Platforms, may be limited.

-5-
<PAGE> 8
In the event that, at the end of the term of the current
Platform License with a Manufacturer, such Manufacturer chooses not to renew or
extend such agreement, or if a Manufacturer were to terminate such license for
any reason, the Company would be unable to publish additional Titles for such
Manufacturer's Platform, which would materially and adversely affect the
Company.

Each of the Manufacturers is the sole manufacturer of the
Products published by the Company under license from such Manufacturer. The
Platform Licenses provide that such Manufacturer may raise prices for the
Titles at any time, and include other provisions giving the Manufacturer
substantial control over the Company's release of new Titles. Furthermore, the
relatively long manufacturing cycle for cartridge-based Products (from 60 to
120 days) requires the Company to accurately forecast retailer and consumer
demand for its Titles. Since each of the Manufacturers is also a publisher of
Software for its own Platforms, and also manufacturers products for all of
their other licensees, the Manufacturers may give priority to their own
products or those of other publishers' in the event of insufficient
manufacturing capacity. If the Company experiences unanticipated delays in the
delivery of Products for these or any other reasons, the Company would be
materially and adversely affected.

RECOVERY OF PREPAID ROYALTIES, GUARANTEES AND CAPITALIZED DEVELOPMENT COSTS

The Company typically enters into agreements with licensors of
Properties and developers of Titles that require advance payments of royalties
and/or guaranteed minimum royalty payments. In addition, the Company
capitalizes Software development costs upon the establishment of technological
feasibility. Amortization of these payments and costs is determined on a
title-by-title basis based on the greater of (a) the ratio of current gross
revenues for a Title to the sum of its current and anticipated gross revenues,
or (b) the straight- line method over the estimated remaining economic life of
the Title. The Company analyzes such capitalized costs quarterly, and writes
off as project abandonment losses these capitalized costs (and expenses any
unpaid guaranteed minimum royalties) when, based on the Company's estimate,
future revenues will not be sufficient to recover such costs. As of September
30, 1996, the Company had prepaid royalties and capitalized development costs
of approximately $5.2 million. If the Company were required to write off a
material portion of its prepaid royalties or capitalized development costs, the
Company's results of operations could be adversely affected.

CHANGES IN TECHNOLOGY AND CONSUMER DEMAND

During the approximately 20-year history of the interactive
entertainment industry, there have been periods of significant growth in
consumer interest, followed by periods in which growth has substantially
declined. The Company's sales are dependant, among other factors, on the
popularity and unit sales of Platforms generally, as well as the relative
popularity and unit sales of the Platforms of the various Manufacturers. The
relative popularity of Platforms has experienced wide fluctuations in recent
years. Unexpected declines in the popularity of a particular Platform can be
expected to have a material adverse affect on consumer demand for Titles
released or scheduled for release by the Company for such Platform.

The market for Software is undergoing rapid technological
change. As a result, the Company must continually anticipate and adapt its
offerings to emerging Platforms and evolving consumer preferences. The
development of Software for new hardware Platforms requires substantial
investment. Generally, such development efforts must occur well in advance of
the release of new Platforms in order to introduce Titles on a timely basis
following the release of such Platforms. The development and marketing of
Titles for new Platforms may require greater financial and technical resources
than are currently available to the Company. In addition, there can be no
assurance that the new Platforms for which the Company develops Titles will
achieve market acceptance and, as a result, there can be no assurance that the
Company's development efforts with respect to such new Platforms will lead to
marketable Titles or Titles that generate sufficient revenues to recoup their
development and marketing costs. In addition, as the Company introduces CD-ROM
Titles for personal computers, the Company's Software must maintain
compatibility with such computers, their operating software and their hardware
accessories. The failure of the Company to timely develop Software for new
Platforms that achieve significant market acceptance, or the failure of the
Company to maintain such compatibility, would have a material adverse effect on
the Company.

-6-
<PAGE> 9
The introduction of new Platforms and technologies can render
existing Software obsolete and unmarketable. More commonly, as Platforms age
and are superseded by more advanced Platforms, consumer demand for Software for
older platforms diminishes. While the Company's experience indicates that
competition for licenses to develop new Titles for older platforms is
significantly less intense than for newer platforms, there can be no assurance
that, as a result of such reduced consumer demand for such Titles, the
Company's Titles for such platforms will generate sufficient sales to make such
Titles profitable.

A number of Software publishers who compete with the Company
are currently developing Software for use by consumers over the Internet.
While the Company believes that the market for such Software is currently
insignificant, future increase in the availability of such Software or
technological advances in such Software could result in a decline in
Platform-based Software and thus have a material adverse effect on the Company.

COMPETITION

The Software industry is intensely competitive. The Company
competes, for both licenses to Properties and the sale of Software, with the
Manufacturers, each of whom is the largest developer and marketer of Software
for its platforms. There can be no assurance that these companies will not
increase their own Software development efforts. As a result of their
commanding positions in the industry as the manufacturers of Platforms and
Software for their Platforms, the Manufacturers generally have better
bargaining positions with respect to retail pricing, shelf space and purchases
than do any of their licensees, including the Company. In addition, each of
the Manufacturers has dozens of active licensees, each of which is also a
competitor of the Company. Each of the Manufacturers and many of these other
competitors (such as Electronic Arts, Inc., Acclaim Entertainment, GT
Interactive Software and Broderbund Software, Inc.) have broader Software lines
and greater financial, marketing and other resources than the Company; these
competitive advantages enable such competitors to market their Software more
aggressively and make higher offers or guarantees in connection with the
acquisition of licensed Properties. In addition, as competition for retail
shelf space becomes more intense, the Company may need to increase marketing
expenditures to maintain sales of its Titles; and as competition for popular
Properties increases, the cost of acquiring licenses for such Properties is
likely to increase, resulting in reduced margins. Prolonged price competition,
increased licensing costs or reduced profit margins would have a material
adverse effect on the Company. There can be no assurance that the Company will
be able to compete successfully with the Manufacturers and their other
licensees in the future.

DEPENDENCE ON KEY PERSONNEL

The Company relies to a substantial extent on the management,
marketing, sales, technical and Software development skills of a limited number
of employees to formulate and implement its business plan, including the
development of its Titles. The Company's success depends upon, to a
significant extent, its ability to attract and retain key management and
software development personnel. Competition for such employees is acute and
the process of locating key personnel with the combination of skills and
attributes required to execute the Company's strategy is often lengthy. The
loss of services of key personnel could have a material adverse effect on the
Company. The Company does not have any key-man life insurance on the lives of
any of its officers or other personnel and does not currently have any plans to
obtain any such insurance. The only officer with whom the Company has an
employment agreement is Brian J. Farrell, its President and Chief Executive
Officer.

PROPRIETARY RIGHTS OF THE MANUFACTURERS

The Company depends on the Manufacturers for the protection of
intellectual property rights to their respective platforms, cartridges and
CD-ROMs, their ability to control the proliferation of new titles by licensees
and others, and their ability to discourage unauthorized persons from producing
Software for their platforms. There can be no assurance that the Manufacturers
will be able to continue to (i) protect their rights so that the proprietary
information and technology licensed by the Company from the Manufacturers will
not become generally available, (ii) control the proliferation of Software,
(iii) discourage unauthorized persons from producing

-7-
<PAGE> 10
Software, or (iv) believe that it is in their best interests to continue any of
the foregoing policies. A change in any of these policies could have a
material adverse effect on the Company.

PROPRIETARY RIGHTS OF THE COMPANY

As a result of its acquisition of Heliotrope, the Company owns
the rights to certain trade names, trademarks and other intellectual property
with respect to Pax Imperia and its sequel. However, other than such rights,
its licenses from the Manufacturers to produce Titles and its licenses to
develop and/or publish Titles based on Properties owned or controlled by
others, the Company does not have any material proprietary rights, technology
or intellectual property.

As a result of the proprietary rights of the Manufacturers and
the efforts taken by the Manufacturers to protect such rights, the Company does
not believe that there is a material amount of unauthorized copying of the
Company's Titles. However, unauthorized production occurs in the computer
software industry generally, and were a significant amount of unauthorized
production of the Company's CD-ROM Products for personal computers to occur,
the Company could be materially and adversely affected.

FOREIGN SALES AND CURRENCY FLUCTUATIONS

For both 1995 and the first nine months of 1996, foreign sales
represented approximately 25% of the Company's net sales, and the Company
expects that foreign sales will continue to account for a significant portion
of its net sales in future periods. Foreign sales are subject to inherent
risks, including unexpected changes in regulatory requirements, tariffs and
other barriers, difficulties in staffing and managing foreign operations and
the possibility of difficulty in accounts receivable collection. There can be
no assurance that these or other factors will not have an adverse effect on the
Company's future foreign sales and, consequently, on the Company.

Because the majority of foreign sales are made in U.S.
dollars, the Company does not believe that foreign currency fluctuations have
had a material affect on its results of operations. To the extent the
Company's foreign sales increase and such sales are not denominated in U.S.
dollars, the Company's reported sales and results of operations could be
adversely affected by foreign currency fluctuations. The Company has not
engaged in any hedging activities and does not have any current plans to engage
in any such activities.

VOLATILITY OF SHARE PRICE

The market price of the Common Stock has been, and is likely
to continue to be, highly volatile. Such price has fluctuated substantially in
recent periods. In addition, there has been a history of significant
volatility in the market prices for shares of other companies engaged in the
interactive entertainment Software industry. Factors such as the timing and
market acceptance of new Titles, the introduction of new Software by the
Company's competitors, loss of key personnel of the Company, variations in
quarterly operating results or changes in market conditions in the
entertainment Software industry generally could have a significant impact on
the market price of the Common Stock. Thus, there can be no assurance that the
market price of the Common Stock will not decline below the public offering
price or experience extreme volatility.

NO DIVIDENDS

The Company has not paid any cash or other dividends on its Common
Stock and does not expect to declare or pay any cash dividends in the
foreseeable future. In addition, the Company's revolving credit agreement
restricts the payment of any cash dividends.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market
could adversely affect the market price of the Common Stock. As of the date of
this Prospectus, 704,091 shares were reserved for issuance pursuant to

-8-
<PAGE> 11
outstanding warrants, 527,164 shares of Common Stock were reserved for issuance
pursuant to options granted under the Company's Stock Option Plan, and 521,010
shares were reserved for issuance upon exercise pursuant to other stock option
grants by the Company, including the Option Shares.

USE OF PROCEEDS

The Company will not receive any proceeds from the sale of the Shares.
All of the proceeds will be received by the Selling Stockholder. See "Selling
Stockholder."

-9-
<PAGE> 12
SELLING STOCKHOLDER

The person that may offer shares of Common Stock pursuant to this
Prospectus (the "Selling Stockholder") has heretofore been granted shares of
Common Stock pursuant to that certain Employment Agreement dated as of January
20, 1995, as amended and as modified by the Modification Agreement dated as of
July 1, 1996 by and between T-HQ, Inc. and Jack Friedman (the "Plan"). All of
the 70,000 shares (the "Shares") of the Company offered by this Prospectus are
being offered for the account of the Selling Stockholder. The Shares were
acquired by the Selling Stockholder pursuant to the Plan.

The following table sets forth certain information concerning the
Selling Stockholder as of September 30, 1996.
<TABLE>
<CAPTION>
Number of Percentage of
Shares of Shares of
Common Stock Number of Common Stock
Beneficially Shares Offered Owned
Owned for Resale Before Offer After Offer
--------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Jack Friedman 172,009(1) 70,000 3.6%(2) 2%(2)(3)
</TABLE>
_________________________
(1) Includes (i) 12,666 shares of Common Stock currently issuable
upon the exercise of an option granted to Mr. Friedman
pursuant to the Company's Amended and Restated 1990 Stock
Option Plan, as amended, at an exercise price of $3.75 per
share and (ii) 89,343 shares of Common Stock currently
issuable upon exercise of an option at an exercise price of
$3.75 per share. Mr. Friedman is a consultant to the
Company.

(2) "Before offer" percentages are based upon 4,597,930 shares
issued and outstanding as of the date of this Prospectus and
"after sale" percentages are based upon 4,649,930 shares which
would be issued and outstanding after the sale of all 70,000
shares offered hereunder. All figures assume no exercise of
any warrants or other outstanding options pursuant to Rule
13d-3 of the Exchange Act.

(3) Does not constitute a commitment to sell any or all of the
stated number of Shares to be registered. The number of
Shares to be offered shall be determined from time to time by
the Selling Stockholder at his sole discretion.

-10-
<PAGE> 13
PLAN OF DISTRIBUTION

The Selling Stockholder is offering the Shares for his own account and
not for the account of the Company. The Company will not receive any proceeds
from the sale of the Shares by the Selling Stockholder. See "Use of Proceeds."

The Shares offered by the Selling Stockholder may be sold from time to
time by the Selling Stockholder directly to purchasers or, alternatively, may
be offered from time to time through agents, brokers, dealers or underwriters,
who may receive compensation in the form of concessions or commissions from the
Selling Stockholder or purchasers of the Shares (which compensation may be in
excess of customary commissions). Sales of the Shares may be made in one or
more transactions through the Nasdaq SmallCap Market system, otherwise in the
over-the-counter market, or in privately negotiated transactions or otherwise,
and such sales may be made at the market price prevailing at the time of sale,
a price related to such prevailing market price or a negotiated price.

Under the Exchange Act and the regulations thereunder, persons engaged
in a distribution of the Shares of the Company offered by this Prospectus may
not simultaneously engage in market making activities with respect to the
Common Stock of the Company during the applicable "cooling off" periods prior
to the commencement of such distribution. In addition, and without limiting
the foregoing, the Selling Stockholder will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder including, without
limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of Common Stock by the Selling Stockholder. Further, the
amount of securities to be reoffered or resold under this Prospectus by the
Selling Securityholder, and by any other person with whom a Selling
Securityholder is acting in concert in such resale, may not exceed during any
three-month period, the amount specified in Rule 144(e) under the Securities
Act.

To the extent required, the Company will use its best efforts to file,
during any period in which offers or sales are being made, one or more
supplements to this Prospectus to describe any material information with
respect to the plan of distribution not previously disclosed in this Prospectus
or any material change to such information in this Prospectus.

LEGAL MATTERS

The validity of the Shares that may be offered hereby has been passed
upon for the Company by Sidley & Austin, Los Angeles, California.

EXPERTS

The financial statements incorporated in this Prospectus by reference
from the Company's Annual Report on Form 10-K for the year ended December 31,
1995 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report which is incorporated herein by reference and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.

-11-
<PAGE> 14

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
- ----
<S> <C>
Available Information . . . . . . . . . . . . 2
Incorporation of Certain Documents
by Reference . . . . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . . 3
Use of Proceeds . . . . . . . . . . . . . . . 9
Selling Stockholder . . . . . . . . . . . . 10
Plan of Distribution . . . . . . . . . . . 11
Legal Matters . . . . . . . . . . . . . . . 11
Experts . . . . . . . . . . . . . . . . . . 11
</TABLE>

No person is authorized to give any information or to make any representations
not contained or incorporated by reference in this Prospectus, and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to
sell nor a solicitation of an offer to buy any securities other than the
registered securities to which it relates or an offer of any securities in any
jurisdiction to any person where such an offer would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances create any implication that the information contained herein is
correct as of any time subsequent to the date of this Prospectus.

COMMON STOCK

T-HQ

70,000 Shares

<PAGE> 15
PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3. Incorporation of Certain Documents by Reference.

The following documents filed with the Securities and Exchange
Commission (the "Commission") by T-HQ, Inc., a New York corporation (the
Company or the "Registrant"), pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and the Securities Act of 1993, as amended (the
"Securities Act"), are incorporated by reference in this Registration
Statement:

(a) Annual Report on Form 10-K for the year ended December 31,
1995;

(b) Quarterly Reports on Form 10-Q for the quarters ended March
31, 1996, June 30, 1996 and September 30, 1996; and

Item 4. Description of Securities.

The Company's Common Stock is registered under Section 12 of the
Securities Exchange Act of 1934. See Item 3(c) above.

Item 5. Interests of Named Experts and Counsel.

Murray L. Skala, a director of the Company and a member of the firm of
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP, the Company's legal
counsel, has been granted by the Company options to purchase 38,334 shares of
Common Stock at various exercise prices.

Item 6. Indemnification of Officers and Directors.

Under the provisions of Article Seventh of the Certificate of
Incorporation of the Company and subject to Sections 721 through 726 of the
Business Corporation Law of the State of New York, the Company may indemnify a
director or officer of the Company for expenses arising out of legal
proceedings in which the director or officer becomes involved by reason of his
position as a director or officer of the Company, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal proceedings, if he
had no reasonable cause to believe his conduct was unlawful. Expenses against
which a director or officer of the Company may be indemnified include amounts
paid in satisfaction of settlements, judgments, fines and other expenses
(including attorneys' fees) incurred in connection with such proceedings. In a
proceeding to procure a judgment in the Company's favor, a director or officer
may be indemnified for expenses

-13-
<PAGE> 16
incurred by him in connection with the defense or settlement of the suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, except that no indemnification
shall be made in respect of (i) a threatened action, or a pending action which
is settled or disposed of, or (ii) any claim, issue or matter as to which such
director or officer is fairly and reasonably entitled to indemnify for such
portion of the settlement amount and expenses as the court deems proper.
Indemnification of a director or officer for expenses, as provided above,
unless court-ordered, shall be made by the Company only upon a determination
that indemnification is proper in a specific case. Such determination shall be
made (i) by a vote of the majority of directors who were not parties to the
proceeding involved, (ii) by independent legal counsel in a written opinion, or
(iii) by the shareholders of the Company.

Item 7. Exemption from Registration Claimed.

The shares to be offered or sold by the Selling Stockholder include
70,000 shares of Common Stock issued by the Company pursuant to the Employment
Agreement, dated as of January 20, 1995, as amended and as modified by the
Modification Agreement dated as of July 1, 1996 by and between the Company and
Jack Friedman (the "Plan"). Such shares were issued and sold by the Company in
a private transaction in reliance upon the exemption provided by Section 4(2)
of the Securities Act.

Item 8. Exhibits.

<TABLE>
<CAPTION>
Number Description of Exhibit
- ------ ----------------------
<S> <C>
4.1 Employment Agreement dated as of January 20, 1995, as amended (filed as Exhibit to the
Company's Registration Statement on Form S-2 (File No. 33-81632), which became effective
December 7, 1995 and is incorporated by reference herein)
4.2 Modification Agreement, dated as of July 1, 1996 by and between T-HQ, Inc. and Jack Friedman

5.1 Opinion of Sidley & Austin regarding the validity of certain of the securities being
registered

5.2 Opinion of Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP regarding the validity of
certain of the securities being registered
23.1 Consent of Deloitte & Touche LLP

23.2 Consent of Sidley & Austin, incorporated by reference to Exhibit 5.1
23.3 Consent of Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP, incorporated by reference to
Exhibit 5.2
</TABLE>

Item 9. Undertakings.

The Company hereby undertakes:

(a) (1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this Registration
Statement:

(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act;

(ii) To reflect in the prospectus any facts
or events arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which,

-14-
<PAGE> 17
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;

(iii) To include any material information
with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change
to such information in the Registration Statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.

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

(3) To remove from registration by means of a
post-effective amendment any of the securities being registered hereby
which remain unsold at the termination of the offering.

(b) That, for the purposes of determining any liability
under the Securities Act, each filing of the Company's Annual Report pursuant
to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the 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 Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question 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.

-15-
<PAGE> 18
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Calabasas and State of California on the 26th
day of November, 1996.

T-HQ, Inc.

By: /s/ Brian J. Farrell
--------------------------------
Brian J. Farrell, President and
Chief Executive Officer

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

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Brian J. Farrell Director, Chief Executive November 26, 1996
- -------------------- Officer and President
Brian J. Farrell (Principal Executive Officer
and Principal Financial
Officer)

/s/ Lawrence Burstein Director November 26, 1996
- ---------------------
Lawrence Burstein

/s/ Murray L. Skala Director November 26, 1996
- -------------------
Murray L. Skala

/s/ Bruce Jagid Director November 26, 1996
- ---------------
Bruce Jagid

/s/ Jeffrey C. Lapin Director November 26, 1996
- --------------------
Jeffrey C. Lapin

/s/ L. Michael Haller Director November 26, 1996
- ---------------------
L. Michael Haller

/s/ Deborah A. Lake Vice President-Finance and November 26, 1996
- ------------------- Administration
Deborah A. Lake (Principal Accounting Officer)

</TABLE>

-16-
<PAGE> 19
INDEX OF EXHIBITS

<TABLE>
<CAPTION>
Number Description of Exhibit
- ------ ----------------------
<S> <C>
4.1 Employment Agreement dated as of January 20, 1995,
as amended (1)

4.2 Modification Agreement, dated as of July 1, 1996
by and between T-HQ, Inc. and Jack Friedman

5.1 Opinion of Sidley & Austin regarding the validity
of certain of the securities to be registered

5.2 Opinion of Feder, Kaszovitz, Isaacson, Weber,
Skala & Bass LLP regarding the validity of certain
of the securities to be registered

23.1 Consent of Deloitte & Touche LLP

23.2 Consent of Sidley & Austin, incorporated by
reference to Exhibit 5.1 to this registration
statement

23.2 Consent of Feder, Kaszovitz, Isaacson, Weber,
Skala & Bass LLP, incorporated by reference to
Exhibit 5.2 to this registration statement
</TABLE>

(1) Filed as an Exhibit to the Registration Statement on Form S-2 (File
No. 33-81632) which became effective December 7, 1995 and is
incorporated by reference herein.

<PAGE> 1

EXHIBIT 4.1

EMPLOYMENT AGREEMENT

AGREEMENT dated as of January 20, 1995, by and between ToHQ, INC., a
New York corporation having an address at 5016 North Parkway Calabasas,
Calabasas, California 91302 (the "Company") and JACK FRIEDMAN, having an
address at 27428 Pacific Coast Highway, Malibu, California 90265 ("Friedman").

W I T N E S S E T H :

WHEREAS, Friedman has been employed as the President of the Company
pursuant to an Employment Agreement dated as of July 31, 1991, and subsequent
amendments thereto which provides for a salary at the rate of $250,000 per
annum through December 31, 1994 and $495,000 per annum thereafter, in addition
to bonuses (the "Existing Employment Agreement"); and

WHEREAS, the Company and Friedman have agreed that it would be in the
parties' mutual best interest for Friedman to resign as the Company's
President, effective as of the date of this Agreement; and

WHEREAS, the Company desires to continue to employ Friedman and
Friedman desires to continue such employment, in the capacity and upon the
terms and conditions set forth more specifically herein;

NOW, THEREFORE, in consideration of the mutual promises of the parties
hereto and of the mutual benefits to be gained by the performance thereof, the
parties hereby agree as follows:

1. Employment Term. Friedman shall continue to be employed by the
Company until December 31, 1997 (the "Term").

2. Duties. Upon the execution of this Agreement, Friedman shall
resign his position as the Company's President and Chief Executive Officer and
shall also resign as director of the Company. From the date hereof until the
expiration of the Term, Friedman shall be employed by the Company in connection
with special projects that Friedman shall be called upon to evaluate and to
also advise the Company with respect to such special projects and such other
business matters that Friedman may be called upon to become involved with.

3. Devotion of Time. The Company acknowledges that after the date
hereof, Friedman shall devote a substantial amount of his time and attention to
other business matters. Except as specifically limited by paragraph 7
hereafter, Friedman shall be free to devote his time and attention to such
other activities as he deems appropriate and shall render services to the
Company subject to his availability and other commitments and upon three (3)
days prior written notice.

<PAGE> 2

4. Compensation.

(a) Salary. In consideration of the services provided by Friedman to
the Company hereunder, Friedman shall receive a salary payable at the rate of
$60,000 per annum. Such salary shall be paid to Friedman in twelve (12) equal
monthly installments of $5,000 each on the 15th day of each month, commencing
on January 15, 1994 and ending on December 15, 1997.

(b) Bonus. In addition to the salary payable to Friedman pursuant to
subparagraph (a) above, Friedman shall also be entitled to receive bonus
compensation, on an annual basis for 1995, 1996 and 1997, in the amount of one
quarter of one percent (.25%) of the Company's first $10,000,000 in revenues,
for each year, and one half of one percent (.50%) of all revenues in excess of
$10,000,000, for each year; provided, however, that the aggregate of all bonus
compensation (excluding salary) payable to Friedman for each of 1995, 1996 and
1997 shall not exceed $200,000, $250,000 and $300,000, respectively, inclusive
of any amounts deducted for adjustments to prior years, as provided in
subparagraph (c) hereafter. For purposes of this paragraph, revenues shall
mean the gross revenues from all products sold by the Company less commissions,
and an aggregate of ten percent (10%) for reserves for discounts, returns, and
credits for markdowns and allowances, which shall be reconciled, within 30 days
after the completion of the Company's audited financial statements.

(c) Payment of Bonus. The bonus payable to Friedman pursuant to
paragraph (b) above, if any, shall be payable on a quarterly basis within 30
days after the end of each calendar quarter (i.e. March 31st, June 30th,
September 30th and December 31st). In the event that the annual audit by the
Company's accountants reveals an underpayment of any bonus, Friedman shall be
paid such additional amount owed within 40 days after the completion of such
audit. In the event that such audit reveals an overpayment of any bonus, such
excess amount shall be deducted by the Company from any future bonus payable to
Friedman; provided, however, that in no event shall Friedman be required to
return any amounts previously paid to him by the Company.

(d) Stock Option Outside of Stock Option Plan. The stock option
granted to Friedman pursuant to the Existing Employment Agreement, which is a
nonstatutory option granted outside of the ToHQ Amended and Restated 1990 Stock
Option Plan (the "Plan") shall continue and shall be exercisable until one year
after the expiration of the Term, upon the following terms and conditions:

2
<PAGE> 3
(i) Such option has been adjusted as a result of a 1-for-15 reverse
split (the "Reverse Split") of the Company's shares of Common Stock so that the
number of shares available pursuant to such option have been reduced from
1,340,159 shares to 89,343 shares and the exercise price of such option has been
increased from $0.93 per share to $13.95 per share;

(ii) Notwithstanding the provisions of subparagraph (i) above, the
exercise price of such option is hereby reduced to $3.75 per share. Friedman's
right to exercise the Option has previously vested with respect to 29,781
shares, and will vest on August 25, 1995, with respect to an additional 29,871
shares and on February 25, 1997, with respect to the remaining 29,871 shares.
Friedman's right to exercise the Option granted hereunder shall terminate one
year after the expiration of the Term.

(iii) The Company will at all times reserve for issuance and delivery
upon exercise of the Option all shares of Common Stock from time to time due
upon exercise of the Option. All such shares of Common Stock shall be duly
authorized and, when issued upon such exercise, shall be validly issued, fully
paid and nonassessable and free of all preemptive rights.

(iv) The shares of Common Stock issuable upon exercise of the Option
are not presently, and upon their issuance will not be, registered under the
Securities Act of 1933, as amended (the "Act"). The Company agrees to file a
registration statement on Form S-8 to provide for the registration of the shares
of Common Stock and to take all other steps necessary in order to provide for
the sale of such shares of Common Stock, including, if necessary, the filing of
a reoffering prospectus.

(v) The Common Stock issued upon exercise of the Option may be sold or
otherwise disposed of only in accordance with the provisions of subparagraph
(iii) above or pursuant any other provisions provided under the Act.

(vi) The Option shall not, by virtue hereof, grant any rights of a
stockholder of the Company, either at law or in equity, and Friedman's rights,
with respect to the Option, are limited to those rights expressed herein.

(vii) The Option shall not be given, granted, sold, exchanged,
transferred, pledged, assigned or otherwise incumbered or disposed of by
Friedman, otherwise than by Will or the laws of descent and

3
<PAGE> 4
distribution, and, during Friedman's lifetime shall not be exercisable by any
other person, but only by him, and in the event of his disability by his legal
representative.

(viii) (A) In the event that the outstanding Common Stock of the
Company is hereafter changed by reason of reorganization,
merger, consolidation, recapitalization, reclassification, stock
split-up, combination of shares, stock dividends or the like, an
appropriate adjustment shall be made in the number of shares
exercisable under the Option and the exercise price per share.
If the Company shall be reorganized, consolidated or merged with
another corporation, or if all of substantially all of the
assets of the Company shall be sold or exchanged, Friedman
shall, at the time of issuance of stock under such a corporate
event, be entitled to receive upon the exercise of the Option
the same number and kind of shares of stock or the same amount
of property cash or securities as he would have been entitled to
receive upon the happening of such corporate event as if he had
been, immediately prior to such event, the holder of the number
of shares covered by the Option.

(B) Any adjustment in the number of shares shall apply
proportionately to only the unexercised portion of the Option
granted hereunder. If fractions of a share would result from any
such adjustment, the adjustment shall be revised to the next
lower whole number of shares.

(ix) Upon exercise of the Option and the issuance of any of the shares
of Common Stock thereunder, all certificates representing shares shall bear on
the face thereof substantially the following legend, insofar as is consistent
with New York law.

"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR ANY

4
<PAGE> 5
OPINION OF COUNSEL REASONABLY SATISFACTORY TO TOHQ, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."

(x) Friedman may exercise the Option, at any time, for all
or any portion of the underlying shares of Common Stock by giving the
Company written notice of the number of shares he desires to exercise
and delivering payment to the Company in the amount of the total
exercise price for such shares, within 30 days after any such exercise.
In the event that not all of the shares are exercised, the unexercised
portion of the Option shall continue to be exercisable by him, until
such right expires pursuant to the terms provided hereunder.

(e) Existing Stock Option Under the Plan. The option granted to
Friedman on February 25, 1994, pursuant to the Plan, for an additional 3,989
shares of Common Stock (59,841 shares of Common Stock prior to the Reverse
Split), at an exercise price of $13.95 per share ($.93 per share prior to the
Reverse Split), shall also be continued under the terms and conditions of the
Plan and the Stock Option Agreement executed by Friedman and the Company,
provided that, in the event that Company reprices the existing options granted
to its employees under the Plan, at any time, it shall all reprice Friedman's
option for 3,989 shares of Common Stock on the same basis.

(f) New Stock Option Under the Plan. The Company also hereby
agrees to grant to Friedman, on February 15, 1995, an option to purchase up to
an additional 19,000 shares of Common Stock at an exercise price equal to the
closing price of the Company's Common Stock on NASDAQ on February 14, 1995.
The terms and conditions of such option shall be those set forth in the Stock
Option Agreement, in the form of Exhibit 1 annexed hereto.

5. Benefits; Reimbursement of Expenses.

(a) Benefits. Friedman shall continue to be entitled to
participate in, and to receive benefits under, any employee benefit plans of
the Company (including, without limitation, pension, profit sharing, group life
insurance and group medical insurance plans), provided that he meets the
requirements for participation in such plans.

(b) Automobile Allowance. The Company shall continue to make or
reimburse Friedman, for payments relating to the use of his automobile,
consistent with its current practices, during the first 18 months of this
Agreement and Friedman shall assume all of such payments during the remaining
18 months of this Agreement.

5
<PAGE> 6
(c) Expenses. The Company shall pay directly or reimburse
Friedman for all reasonable and necessary expenses and disbursements
incurred by him for and on behalf of the Company in the performance of
his duties under this Agreement. For such purposes, Friedman shall
submit to the Company itemized reports of such expenses in accordance
with the Company's policies and shall be reimbursed in accordance with
past practices.

6. Books and Records; Audit. Friedman, or his
representative, shall have the right, until two years after the expiration of
the Term, upon five days prior written request to audit, examine and make
extracts from the Company's books and records, during regular business hours to
verify the amounts paid to him by the Company pursuant to paragraph 4 hereof.
Friedman, or his representative, shall be limited to two such examinations
during any 12 month period. Friedman shall pay all expenses in connection with
such examinations and audits; provided, however, that in the event the audit
reveals an underpayment of three and one-half percent (3.5%) or greater between
the actual amounts due Friedman and the amounts reported and/or paid to
Friedman, the Company shall pay the cost of such audit.

7. Restrictive Covenant.

(a) Non-Compete. Friedman agrees that, during the Term and
for a period of one year thereafter, he will not directly or indirectly,
be employed or otherwise involved with any business, other than the
Company, which sells video game titles for the Nintendo GameBoy or Sega
Game Gear platforms which originate from or are otherwise sold by
Electronic Arts for any of its other platforms. This restriction is
expressly conditioned upon the Company's performance of the terms and
conditions contained in this Agreement.

(b) Blue Penciling. If, at the time of enforcement of any
provision of subparagraph (a) above, a court holds that the restrictions
stated therein are unreasonable under circumstances then existing, the
parties hereto agree that the maximum period, scope, or geographical
area reasonable under such circumstances will be substituted for the
stated period, scope or area.

8. Mutual Releases. Friedman and the Company shall
execute and deliver to each other general releases in the forms annexed hereto
as Exhibits A and B, respectively, which releases, however, shall not discharge
either from any of their obligations under this Agreement or any of the
exhibits to this Agreement. In addition, such releases shall not affect any of
Friedman's rights with respect to any of the stock options described in this
Agreement, whether pursuant to or outside of the Plan.

6
<PAGE> 7

9. Termination.

(a) Termination of Employment. Friedman's employment hereunder shall
be automatically terminated upon his death or his resignation from the
Company, and in addition may be terminated, at the sole discretion of the
Company, upon 30 days' prior written notice by the Company, for cause as
set forth in paragraph (b) below.

(b) Cause. For purposes hereof, "cause" shall include: (i) Friedman's
willful malfeasance or gross negligence or (ii) the material breach of any
covenant made by Friedman hereunder, and his failure to cure such conduct
or event constituting "cause" within 30 days after written notice thereof.

(c) Termination by Friedman. Friedman may terminate this Agreement
without further obligation or liability to the Company upon 30 days written
notice to the Company, if the Company breaches any material term, covenant
or obligation contained in this Agreement or files a petition in
bankruptcy, liquidates or dissolves. In the event Friedman terminates this
Agreement for any of the reasons herein set forth: (i) the Company shall be
obligated to pay Friedman the compensation, bonus, stock options and
expenses due Friedman pursuant to Paragraphs 4 and 5 of this Agreement
through the date of termination and (ii) Friedman shall be released from
the restrictive covenant set forth in Paragraph 7 hereof.

10. Indemnification. The Company hereby agrees to indemnify Friedman
to the fullest extent permitted by law against any and all claims, expenses,
judgments and/or penalties, including attorneys' fees, arising from or relating
to any claims, actions, suits or proceedings instituted against the Company
and/or Friedman by reason of his actions on behalf of the Company.

11. Dispute Resolution. The parties agree to submit all disputes
arising under this Agreement before the Judicial Arbitration and Mediation
Services located in Santa Monica, California ("JAMS"). Pursuant to the
applicable provisions of the California Code of Civil Procedure, including
without limitation, Section 1283.05 thereof, the parties agree that they shall
be entitled to all rights to discovery as if the matter were litigated in the
California Superior Court. To the extent permitted by law, the parties agree
that the judge shall have full power and authority to resolve all discovery
disputes and issue any and all ancillary relief (injunctions, writs, etc.)
regarding such disputes.

7
<PAGE> 8

12. Attorneys' Fees. In the event that any action or proceeding is
commenced by one party to this Agreement against the other for the purpose of
determining or enforcing the rights of either party hereunder, the prevailing
party shall be entitled to recover against the other party the reasonable
attorneys' fees and costs the prevailing party incurred in connection with such
action or proceeding.

13. Friedman's Legal Fees. The Company agrees to pay up to $2,500 of
Friedman's legal fees associated with this Agreement and the modification of
his employment with the Company.

14. Assigns. This Agreement shall be binding upon, shall inure to the
benefit of, and shall be enforceable by the prospective heirs, beneficiaries,
representatives, successors, and assigns of the parties hereto.

15. Entire Agreement; Amendment. This Agreement, the Exhibits hereto,
all Stock Option Agreements covering Friedman's stock options and the Plan,
together reflect the entire agreement between the parties, with respect to the
subject matters contained herein, and supersede all prior agreements and
understandings between the parties with respect to such subject matter. The
Existing Employment Agreement and any other agreements, oral or written,
relating to Friedman's employment with the Company are hereby cancelled. This
Agreement may be amended only by a written instrument duly executed by the
parties hereto or their respective successors or assigns.

16. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California.

17. Severability. If any provision of this Agreement is declared by
any court of competent jurisdiction to be invalid for any reason, such
invalidity shall not affect the remaining provisions of this Agreement. Such
remaining provisions shall be fully severable, and this Agreement shall be
construed and enforced as if such invalid provisions had never been a part of
this Agreement.

18. Counterparts. This Agreement may be executed simultaneously in
several counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.

19. Survival. Except as set forth in Paragraph 7 and subparagraph
9(c), subparagraphs 4(d), 4(e) and 4(f) and Paragraphs, 6, 7, 8, 10, 11, 12,
13, 14, 15, 16 and 17 shall survive the termination of this Agreement.

8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.

T0HQ, INC.

By: /s/ BRIAN J. FARRELL
--------------------------------
Brian J. Farrell
President

/s/ JACK FRIEDMAN
--------------------------------
JACK FRIEDMAN

9
<PAGE> 10
EXHIBIT A

GENERAL RELEASE

To all to whom these Presents shall come or may Concern, Know That JACK
FRIEDMAN, having an address at 27428 Pacific Coast Highway, Malibu, California
90265, as RELEASOR, in consideration of the sum of Ten Dollars ($10.00),
received from T0HQ, Inc., as RELEASEE, receipt whereof is hereby acknowledged:

Releases and discharges the RELEASEE and RELEASEE'S successors and
assigns from all actions, causes of action, suits, debts, dues, sums of money,
accounts, reckonings, bonds, executions, claims, and demands whatsoever, in
law, admiralty or equity, which against the RELEASEE, the RELEASOR or
RELEASOR'S heirs, executors, administrators, successors and assigns ever had,
now have or hereafter can, shall or may have, for, upon, or by reason of any
matter, cause or thing whatsoever from the beginning of the world to the date
of this RELEASE, except for those liabilities and obligations arising from the
provisions of an Employment Agreement between the RELEASOR and the RELEASEE,
bearing an even date herewith, or arising from the provisions of any agreement
or other document which is an exhibit to said Employment Agreement or executed
in connection therewith.

This RELEASE may not be changed orally.

IN WITNESS WHEREOF, the RELEASOR has hereunto set RELEASOR'S hand on
the 15th day of March, 1995.

/s/ JACK FRIEDMAN
--------------------------------
JACK FRIEDMAN

1
<PAGE> 11

STATE OF NEW YORK )
): ss.:
COUNTY OF NEW YORK )

On March 15, 1995 before me personally came Jack Friedman, to me known,
and known to me to be the individual described in, and who executed the
foregoing RELEASE, and duly acknowledged to me that he executed the same.

/s/ SCOTT M. MILLER
--------------------------------
Notary Public

SCOTT M. MILLER
Notary Public, State of New York
No. 4874728
Qualified in New York County
Commission Expires Oct. 6, 1996

<PAGE> 12
EXHIBIT B

GENERAL RELEASE

To all to whom these Presents shall come or may Concern, Know That
T0HQ, INC., INC., a New York Corporation having an address at 5016 North
Parkway Calabasas, Calabasas, California 91302, as RELEASOR, in consideration
of the sum of Ten Dollars ($10.00), received from JACK FRIEDMAN, as RELEASEE,
receipt whereof is hereby acknowledged:

Releases and discharges the RELEASEE, RELEASEE'S heirs, executors,
administrators, successors and assigns from all actions, causes of action,
suits, debts, dues, sums of money, accounts, reckonings, bonds, executions,
claims, and demands whatsoever, in law, admiralty or equity, which against the
RELEASEE, the RELEASOR or RELEASOR'S successors and assigns ever had, now have
or hereafter can, shall or may have, for, upon, or by reason of any matter,
cause or thing whatsoever from the beginning of the world to the date of this
RELEASE except for those liabilities and obligations arising from the
provisions of an Employment Agreement between the RELEASOR and the RELEASEE,
bearing an even date herewith, or arising from the provisions of any agreement
or other document which is an exhibit to said Employment Agreement or executed
in connection therewith.

This RELEASE may not be changed orally.

IN WITNESS WHEREOF, the RELEASOR has caused this RELEASE to be executed
by a duly authorized officer on the 31st day of March, 1995.

T0HQ, INC.

By: /s/ BRIAN J. FARRELL
-------------------------------
Brian J. Farrell
President

<PAGE> 1
EXHIBIT 4.2

MODIFICATION AGREEMENT

MODIFICATION AGREEMENT dated as of July 1, 1996, (the "Modification
Agreement") modifying the amended employment agreement dated as of January 20,
1995 (the "Amended Agreement"), by and between ToHQ, INC., a New York
corporation having an address at 5016 North Parkway Calabasas, Calabasas,
California 91302 (the "Company") and JACK FRIEDMAN, having an address at 6331
Ramirez Mesa, Malibu, California 90265 ("Friedman").

W I T N E S S E T H :

WHEREAS, the parties wish to restructure the cash consideration
(salary and bonus) and other benefits Friedman is to receive under the Amended
Agreement so as to provide Friedman with shares of the Company's common stock
for the amounts presently accrued under the Amended Agreement and services
being performed hereunder; and

WHEREAS, Friedman agrees to waive all future payments and benefits due
under the Amended Agreement; and

WHEREAS, this Modification Agreement modifies the Amended Agreement to
such extent as is stated below, and represents the complete agreement between
the parties;

NOW, THEREFORE, in consideration of the mutual promises of the parties
hereto and of the mutual benefits to be gained by the performance thereof, the
parties hereby agree as follows:

1. Employment Term. Friedman shall be retained by the Company as
a consultant until December 31, 1997 (the "Term").

2. Duties. From the date hereof until the expiration of the
Term, Friedman shall consult with the management of the Company in connection
with special projects that Friedman shall be called upon to evaluate and advise
the Company with respect to such special projects and such other business
matters that Friedman may be called upon to become involved with.

3. Devotion of Time. The Company acknowledges that after the
date hereof, Friedman shall devote a substantial amount of his time and
attention to other business matters. Except as specifically limited by
paragraph 7 hereafter, Friedman shall be free to devote his time and attention
to such other activities as he deems appropriate and shall render services to
the Company subject to his availability and other commitments and upon three
(3) days prior written notice.
<PAGE> 2
4. Compensation.

(a) Friedman hereby waives and relinquishes any right or
claim to receive any salary, bonus, payment or remuneration which he may
otherwise have been entitled to receive under the Amended Agreement.

(b) Shares of Common Stock.

(i) In consideration for Friedman hereby agreeing
to waive and forego salary, bonuses and other benefits not previously paid to
him or otherwise due to him upon execution of this Modification Agreement, the
Company will grant and deliver to Friedman an aggregate of seventy thousand
(70,000) shares of the Company's Common Stock (the "Shares").

(ii) Friedman is acquiring the Shares for his own
account for investment, without a view to, or for resale in connection with,
any distribution of the Shares.

(iii) The Shares granted to Friedman under this
section are not presently, and upon their issuance, will not be registered
under the Securities Act of 1933, as amended (the "Act"), or qualified or
registered under the applicable state securities laws. The Company agrees to
diligently pursue registration of the Shares, including the filing of a
registration statement on Form S-8, providing for the registration of the
Shares in order to provide for the sale of such shares of Common Stock within
fourteen (14) days from the date hereof, and, if necessary, the filing of a
reoffering prospectus.

(c) Previously Granted Stock Option. The stock option
previously granted to Friedman, which is a nonstatutory option granted outside
of the ToHQ, Inc. Amended and Restated 1990 Stock Option Plan shall continue
and shall be exercisable until one year after the expiration of the Term, upon
the following terms and conditions:

(i) Such option is for an aggregate of eighty-nine
thousand three hundred forty-three (89,343) shares of the Company's
Common Stock at an exercise price of $3.75.

(ii) The right to exercise the option for the entire
eighty-nine thousand three hundred forty-three (89,343) shares of the
Company's Common Stock shall immediately vest upon execution of this
Modification Agreement.

(iii) The Company will at all times reserve for
issuance and delivery upon exercise of the Option all shares of Common
Stock due upon exercise of the Option. All such shares of Common
Stock shall be duly authorized and, when issued upon such exercise,
shall be validly issued, fully paid and nonassessable and free of all
preemptive rights.

(iv) The shares of Common Stock issuable upon
exercise of the Option are not presently, and upon their issuance may
not be, registered under the Securities Act of 1933, as amended (the
"Act"), or registered or qualified under the applicable state

2
<PAGE> 3
securities laws. The Company agrees to diligently pursue registration
of the shares underlying this option, including the filing of a
registration statement on Form S-8, providing for the registration of
the Shares in order to provide for the sale of such shares of Common
Stock within fourteen (14) days from the date hereof, and, if
necessary, the filing of a reoffering prospectus.

(v) The Common Stock issued upon exercise of the
Option may be sold or otherwise disposed of only in accordance with
the provisions of subparagraph (iii) above or pursuant any other
provisions provided under the Act and the applicable state securities
laws.

(vi) The Option shall not, by virtue hereof, grant
any rights of a stockholder of the Company, either at law or in
equity, and Friedman's rights, with respect to the Option, are limited
to those rights expressed herein.

(vii) The Option shall not be given, granted, sold,
exchanged, transferred, pledged, assigned or otherwise incumbered or
disposed of by Friedman, otherwise than by Will or the laws of descent
and distribution, and, during Friedman's lifetime shall not be
exercisable by any other person, but only by him, and in the event of
his disability by his legal representative.

(viii) (a) In the event that the
outstanding Common Stock of the Company is hereafter changed by reason
of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, stock
dividends or the like, an appropriate adjustment shall be made in the
number of shares exercisable under the Option and the exercise price
per share. If the Company shall be reorganized, consolidated or
merged with another corporation, or if all of substantially all of the
assets of the Company shall be sold or exchanged, Friedman shall, at
the time of issuance of the stock under such a corporate event, be
entitled to receive upon the exercise of the Option the same number
and kind of shares of stock or the same amount of property, cash or
securities as he would have been entitled to receive upon the
happening of such corporate event as if he had been, immediately prior
to such event, the holder of the number of shares covered by the
Option.

(b) Any adjustment in the number of
shares shall apply proportionately to only the unexercised portion of
the Option granted hereunder. If fractions of a share would result
from any such adjustment, the adjustment shall be revised to the next
lower whole number of shares.

(ix) Upon exercise of the Option and the issuance of
any of the shares of Common Stock thereunder, all certificates
representing shares which have not been registered under the Act or
applicable state securities laws shall bear on the face thereof
substantially the following legend, insofar as is consistent with New
York law:

3
<PAGE> 4
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAW OR ANY OPINION OF COUNSEL REASONABLY SATISFACTORY TO ToHQ,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

(x) Friedman may exercise the Option, at any time,
for all or any portion of the underlying shares of Common Stock by
giving the Company written notice of the number of shares he desires
to exercise and delivering payment to the Company in the amount of the
total exercise price for such shares, within 30 days after any such
exercise. In the event that not all of the shares are exercised, the
unexercised portion of the Option shall continue to be exercisable by
him, until such right expires pursuant to the terms provided
hereunder.

(d) "Lock-Up".

(i) The term "Locked-up Shares" shall mean (a)
the sum of (1) the Shares described in Section 4(b) above and (2) the 89,343
shares which may be purchased by Friedman pursuant to the option described in
Section 4(c) above (collectively, the "Aggregated Shares"), less (b) 20,750 of
the Aggregated Shares.

(ii) With respect to such 20,750 of the Aggregated
Shares, the Company agrees that there is no "lock-up" or other contractual
restriction upon Friedman.

(iii) Friedman agrees that for a period of nine (9)
months following the date hereof, Friedman will not offer, sell, contract to
sell, grant any option or warrant to purchase or right to acquire, or otherwise
dispose of any of the Locked-up Shares, except that fifteen thousand (15,000)
of such Locked-up Shares may be sold without any contractual restriction and
without the written consent of the Company during each month subsequent to
January 1, 1997, and provided further that all restrictions herein provided
shall be terminated automatically in the event that the closing bid quotation
of the Company's Common Stock on Nasdaq is at least $12.50 per share for 20
consecutive days.

(e) Existing Stock Options Under the Plan. The option
granted to Friedman on February 25, 1994, pursuant to the ToHQ, Inc. Amended
and Restated 1990 Stock Option Plan, as amended (the "Plan"), for three
thousand nine hundred eighty-nine (3,989) shares of the Company's Common Stock
at an exercise price of $13.95 is hereby cancelled.

(f) The option granted to Friedman on February 15, 1995
for nineteen thousand (19,000) shares of the Company's Common Stock at an
exercise price of $3.75, of which six thousand three hundred thirty-four
(6,334) shares have been exercised by Friedman as of the date hereof, leaving
an option for twelve thousand six hundred sixty-six (12,666) shares of the
Company's Common Stock, shall continue in effect in accordance with the terms
and

4
<PAGE> 5
conditions of such option which are set forth in the Plan and the accompanying
1990 Stock Option Agreement, in the form of Exhibit 1 annexed hereto, with the
exception that such option, shall vest in full as of the date hereof.

5. Benefits; Reimbursement of Expenses.

(a) Benefits. All benefits provided in the Amended
Agreement are hereby waived by Friedman.

(b) Automobile Allowance. All allowances heretofore
provided in the Amended Agreement are hereby waived by Friedman.

(c) Expenses. The Company shall pay directly or
reimburse Friedman for all reasonable and necessary expenses and disbursements
incurred by him for and on behalf of the Company in the performance of his
duties under this Modification Agreement. For such purposes, Friedman shall
submit to the Company itemized reports of such expenses in accordance with the
Company's policies and shall be reimbursed in accordance with past practices.

6. Books and Records; Audit. Friedman waives any rights to
conduct an audit or to receive audit expenses.

7. Restrictive Covenant.

(a) Non-Compete. Friedman agrees that, during the Term
and for a period of one year thereafter, he will not directly or indirectly, be
employed or otherwise involved with any business, other than the Company, which
sells video game titles for the Nintendo GameBoy or Sega Game Gear platforms
which originate from or are otherwise sold by Electronic Arts for any of its
other platforms. This restriction is expressly conditioned upon the Company's
performance of the terms and conditions contained in this Modification
Agreement.

(b) Blue Penciling. If, at the time of enforcement of
any provision of subparagraph (a) above, a court holds that the restrictions
stated therein are unreasonable under circumstances then existing, the parties
hereto agree that the maximum period, scope, or geographical area reasonable
under such circumstances will be substituted for the stated period, scope or
area.

8. Mutual Releases. Friedman and the Company shall execute and
deliver to each other general releases in the forms annexed hereto as Exhibits
2 and 3, respectively, which releases, however, shall not discharge either from
any of their obligations under this Modification Agreement or any of the
exhibits to this Modification Agreement. In addition, such releases shall not
affect any of Friedman's rights with respect to any of the stock options
described in this Modification Agreement, whether pursuant to or outside of the
Plan.

5
<PAGE> 6
9. Termination.

(a) Termination of Employment. Friedman's employment
hereunder shall be automatically terminated upon his death or his resignation
from the Company, and in addition may be terminated, at the sole discretion of
the Company, upon 30 days' prior written notice by the Company, for cause as
set forth in paragraph (b) below.

(b) Cause. For purposes hereof, "cause" shall include:
(i) Friedman's willful malfeasance or gross negligence, (ii) the material
breach of any covenant made by Friedman hereunder, and his failure to cure such
conduct or event constituting "cause" within 30 days after written notice
thereof, and (iii) termination for commission of an act of dishonesty, theft,
fraud, embezzlement, falsification of books and records, continued or prolonged
intoxication, either alcohol or drug related, and conviction of a felony or a
crime involving moral turpitude or securities laws.

(c) Termination by Friedman. Friedman may terminate this
Modification Agreement without further obligation or liability to the Company
upon 30 days written notice to the Company, if the Company breaches any
material term, covenant or obligation contained in this Modification Agreement
and fails to cure such breach to Friedman's reasonable satisfaction within such
30-day period or files a petition in bankruptcy, liquidates or dissolves. In
the event Friedman elects to terminate this Modification Agreement for any of
the reasons herein set forth, Friedman shall be released from the restrictive
covenant set forth in Paragraph 7 hereof.

10. Indemnification. The Company hereby agrees to indemnify
Friedman to the fullest extent permitted by law against any and all claims,
expenses, judgments and/or penalties, including attorneys' fees, arising from
or relating to any claims, actions, suits or proceedings instituted against the
Company and/or Friedman by reason of his actions on behalf of the Company.

11. Dispute Resolution. The parties agree to submit all disputes
arising under this Modification Agreement before the Judicial Arbitration and
Mediation Services located in Santa Monica, California ("JAMS"). Pursuant to
the applicable provisions of the California Code of Civil Procedure, including
without limitation, Section 1283.05 thereof, the parties agree that they shall
be entitled to all rights to discovery as if the matter were litigated in the
California Superior Court. To the extent permitted by law, the parties agree
that the judge shall have full power and authority to resolve all discovery
disputes and issue any and all ancillary relief (injunctions, writs, etc.)
regarding such disputes.

12. Attorneys' Fees. In the event that any action or proceeding is
commenced by one party to this Modification Agreement against the other for the
purpose of determining or enforcing the rights of either party hereunder, the
prevailing party shall be entitled to recover against the other party the
reasonable attorneys' fees and costs the prevailing party incurred in
connection with such action or proceeding.

13. Omitted.

6
<PAGE> 7
14. Assigns. This Modification Agreement shall be binding upon,
shall inure to the benefit of, and shall be enforceable by the prospective
heirs, beneficiaries, representatives, successors, and assigns of the parties
hereto.

15. Entire Agreement; Amendment. This Modification Agreement, the
Exhibits hereto, all Stock Option Agreements covering Friedman's stock options
and the Plan, together reflect the entire agreement between the parties, with
respect to the subject matter contained herein, and supersede all prior
agreements and understandings between the parties with respect to such subject
matter. This Modification Agreement may be amended only by a written
instrument duly executed by the parties hereto or their respective successors
or assigns.

16. Governing Law. This Modification Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of
California.

17. Severability. If any provision of this Modification Agreement is
declared by any court of competent jurisdiction to be invalid for any reason,
such invalidity shall not affect the remaining provisions of this Modification
Agreement. Such remaining provisions shall be fully severable, and this
Modification Agreement shall be construed and enforced as if such invalid
provisions had never been a part of this Modification Agreement.

18. Representation of the Parties. Each party has had full
opportunity to review this Agreement with independent and separate counsel.
The Company, in entering into this Modification Agreement has reviewed it with
and been represented by Sidley & Austin, and Friedman has reviewed it with and
been represented by Perry Wander, Esq.

19. Confidentiality. Unless the terms of this Modification Agreement
are publicly disclosed by the Company, Friedman shall not reveal, divulge, or
disclose the terms of this Modification Agreement to any person, firm,
corporation or other business organization, without the prior written consent
of the Company.

20. Counterparts. This Modification Agreement may be executed
simultaneously in several counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same
instrument.

7
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Modification
Agreement as of the date and year first above written.

ToHQ, INC.

By: /s/ Brian J. Farrell
--------------------------------
Brian J. Farrell
President

/s/ Jack Friedman
-----------------------------------
JACK FRIEDMAN

<PAGE> 1

EXHIBIT 5.1

[Sidley & Austin Letterhead]

November 27, 1996

ToHQ, Inc.
5016 North Parkway Calabasas
Calabasas, California 91302

Re: 70,000 shares of Common Stock, par value $.0001, of ToHQ, Inc.

Gentlemen:

We refer to the Registration Statement on Form S-8 (the
"Registration Statement") being filed by ToHQ, Inc., a New York corporation
(the "Company"), with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
registration of 159,343 shares of common stock, par value $.0001 per share (the
"Common Stock"), of the Company including the registration for reoffering and
resale of 70,000 shares of Common Stock issued by the Company (the "Shares")
and 89,343 shares of Common Stock which may be issued upon the exercise of an
option granted pursuant to the Modification Agreement, dated as of July 1,
1996, by and between the Company and Jack Friedman (the "Plan"). This opinion
is being delivered with respect to the Shares.

We have acted as special counsel to the Company in connection
with the Plan and the issuance and sale of the Shares and have examined such
records, documents and questions of law, and satisfied ourselves as to such
matters of fact, as we have considered relevant and necessary as a basis for
this opinion. In addition, we have examined the originals, or photocopies, of
such other corporate records of the Company, certificates of public officials
and of officers of the Company and such agreements, instruments and other
documents as we have deemed necessary as a basis for the opinions expressed
below. As to the questions of fact material to such opinions, we have, when
relevant facts were not independently established by us, relied upon a
certificate of the Company or its officers or of public officials.
<PAGE> 2
Based on the foregoing, we are of the opinion that the Shares
are duly authorized, legally issued, fully paid and nonassessable.

We do not find it necessary for purposes of this opinion to
cover, and accordingly we express no opinion as to, the application of the
securities or "Blue Sky" laws of the various states to the sale of the Shares.
This opinion is limited to the Business Corporation Law of the State of New
York.

We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to all references to our firm in the
Registration Statement.

Very truly yours,

/s/ Sidley & Austin

<PAGE> 1
EXHIBIT 5.2

[FEDER, KASZOVITZ, ISAACSON, WEBER, SKALA & BASS LLP LETTERHEAD]

November 26, 1996

TOHQ, Inc.
5016 North Parkway Calabasas
Calabasas, California 91302

Gentlemen:

We refer to the Registration Statement on Form S-8 (the "Registration
Statement") to be filed by TOHQ, Inc. (the "Company") with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act"),
relating to the registration of 89,343 shares of the common stock of the
Company, par value, $.0001 per share (the "Shares") which may be issued upon
the exercise of an option granted by the Company pursuant to the Employment
Agreement, dated as of January 20, 1995, as amended and as modified by the
Modification Agreement dated as of July 1, 1996 by and between the Company and
Jack Friedman (the "Plan").

As counsel for the Company, we have examined such corporate records and
documents and such questions of law as we have considered necessary or
appropriate for the purposes of this opinion and, upon the basis of such
examination, advise you that in our opinion, all necessary corporate
proceedings by the Company have been duly taken to authorize the issuance of
the Shares upon the exercise of the option granted pursuant to the Plan, and
that the Shares being registered pursuant to the Registration Statement, when
issued upon the exercise of the option granted under the Plan in accordance
with the terms of the option and the Plan, will be duly authorized, legally
issued, fully paid and nonassessable.

<PAGE> 2
THQ, Inc.
November 26, 1996
Page 2

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under Item 5 of Part II
of the Registration Statement entitled "Interests of Named Experts and Counsel",
included in the Registration Statement.

Very truly yours,

/s/ FEDER, KASZOVITZ, ISAACSON,
WEBER, SKALA & BASS LLP
------------------------------------
Feder, Kaszovitz, Isaacson,
Weber, Skala & Bass LLP

<PAGE> 1

Exhibit 23.1

We consent to the incorporation by reference in this Registration Statement of
ToHQ, Inc. on Form S-8 of our report dated February 16, 1996, appearing in the
Annual Report on Form 10-K of ToHQ, Inc. for the year ended December 31, 1995
and to the reference to us under the heading "Experts" in the Prospectus, which
is part of this Registration Statement.

Los Angeles, California /s/ Deloitte & Touche LLP
November 25, 1996