3DO CO, 10-K, 1997-06-30

3DO CO
10-K, 1997-06-30
PREPACKAGED SOFTWARE

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

FORM 10-K

ANNUAL REPORT

PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934

<TABLE>
<S> <C>
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
MARCH 31, 1997 0-21336
</TABLE>

THE 3DO COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 94-3177293
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>

600 GALVESTON DRIVE, REDWOOD CITY, CALIFORNIA 94063
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

(415) 261-3000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO 12(b) OF THE ACT:
None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Act:
Common Stock, $.01 Par Value

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of May 31, 1997, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $79,407,449 (based upon the closing sales
price of such stock as reported by the Nasdaq National Market on such date).
Shares of Common Stock held by each officer, director, and holder of 5% or more
of the outstanding Common Stock on that date have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

As of May 31, 1997, the number of outstanding shares of the Registrants'
Common Stock was 28,507,837.

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<PAGE> 2

PART 1

ITEM 1. BUSINESS

Except for the historical information contained herein, this discussion and
analysis includes certain forward-looking statements that involve risks and
uncertainties. Such statements represent the Company's reasonable judgment on
the future and are subject to risks and uncertainties that could cause the
Company's actual results and financial position to differ materially from those
projected in the forward-looking statements as a result of the factors described
herein. Such forward-looking statements include, without limitation: the extent
to which the Company will receive and/or recognize revenue from the M2
Technology Licensing Agreement (the "M2 Agreement") with Matsushita Electric
Industrial Co., Ltd. ("Matsushita") and from the related Addendum; the extent to
which the Company will receive and/or recognize revenue from its Joint
Development and License Agreement with Cirrus Logic, Inc. ("Cirrus Logic"); the
extent to which the Company will save operating expenses such as personnel,
non-recurring engineering, facility and other overhead expenses, in fiscal year
1998 as a result of the completion of the sale of the Company's hardware systems
business to Samsung Electronics Co., Ltd. ("Samsung"); the length of time for
which the Company's existing cash resources, working capital financing and other
sources of funds, including the $20.0 million payment from Samsung received on
June 23, 1997, will fund the Company's activities; the extent to which CagEnt
Technologies, Inc., a subsidiary of Samsung, will assist the Company, as a
subcontractor, in completing the remaining deliverables associated with the M2
Agreement and Addendum; the extent to which the Company will receive the minimum
guaranteed payments and potential royalties from its international distribution
agreements; the Company's ability to successfully leverage its core technologies
into other markets; the Company's ability to develop software products for new
platforms and the timeliness, cost, and market demand for such products created
as part of its software development activities; and the effect of competitive
factors in the marketplace, including the market acceptance of certain formats
and the timing and release of competitors' products. The Company undertakes no
obligation to publicly release the result of any revisions to the
forward-looking statements contained herein to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.

OVERVIEW

The 3DO Company ("3DO" or "the Company") develops, publishes and markets
interactive entertainment products for multiple platforms including the
IBM-compatible personal computer (the "PC"), Sony Playstation, M2 and Internet
platforms. During fiscal year 1997, the Company also designed and licensed
hardware technologies for the 64-bit consumer and PC markets. In September 1996,
the Company announced its intention to exit the hardware business and focus on
developing and publishing interactive entertainment software. In April 1997, the
Company announced an agreement to sell certain assets of its hardware systems
group to Samsung for $20.0 million. In June 1997, the required government
approvals of the sale agreement were obtained and the sale transactions closed.
(see hardware systems group Sale below).

The Company was incorporated as SMSG, Inc., under the laws of California,
in September 1991, commenced operations in October 1991, and changed its name to
The 3DO Company in September 1992. The Company is a successor to a California
general partnership named Medio, which was formed in October 1990 and dissolved
in September 1991. In April 1993, the Company reorganized as a Delaware holding
company. In April 1993, the Company acquired a California partnership named NTG,
L.P., and one of its partners, NTG, Inc., in exchange for 3DO common stock and
cash. The Company's common stock became publicly traded on the NASDAQ National
Market in May 1993 under the symbol THDO. The Company acquired the business of
Cyclone Studios in November 1995 and of Archetype Interactive Corporation in May
1996. In June 1996, the Company acquired certain assets of New World Computing,
Inc. References to "3DO" or the "Company" mean The 3DO Company, a Delaware
corporation, and its subsidiaries and predecessor entities.

The Company's initial business model was as a licensor of technology to
hardware manufacturers and software developers to enable the establishment of a
new interactive video entertainment platform, the 3DO Interactive Multiplayer
system (the "3DO Multiplayer"). The 3DO Multiplayer was launched in

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October 1993, and was the first 32-bit, CDROM-based, video game console product
to market. Ultimately, the 3DO Multiplayer failed to achieve significant market
acceptance. All of the Company's hardware licensees have ceased manufacturing
and distribution of the 3DO Multiplayer. In addition, third-party software
development for the platform has stopped for nearly all of the Company's
licensees.

In December 1995, the Company licensed its next generation 64-bit
technology (the "M2 Technology") to Matsushita for an upfront license fee of
$100 million plus certain ongoing royalties (the "M2 Agreement). During fiscal
year 1997, the Company continued development of the M2 Technology.

On April 25, 1997, the Company signed a definitive agreement with Samsung
Electronics Company, Ltd. ("Samsung") to sell most of the assets of the
Company's hardware systems group to Samsung for $20.0 million. As part of the
sale agreement, CagEnt Technologies, Inc. ("CagEnt"), a subsidiary of Samsung,
agreed to assist the Company, as a subcontractor, with respect to the Company's
efforts to complete the remaining deliverables under the M2 Agreement with
Matsushita. CagEnt will also acquire the Company's video encoder business as
part of the transaction. In June 1997, the required government approvals of the
sale agreement were obtained and the sale transaction closed.

In September 1996, the Company announced its intention to transition to a
developer and publisher of interactive entertainment for the PC, video game and
Internet software markets. As a result of the sale of the hardware systems
group, the Company has completed this transition. The Company will focus on
developing high-quality software products with a special emphasis on creating
lasting franchise value in each of the titles developed and published. Because
the entertainment software business is a "hit driven" business, the Company
seeks to increase its potential for developing hit products by focusing on
products that take advantage of the Company's in-house development expertise,
are targeted at the fastest growing segments of the market, have "sequel"
potential and leverage technologies across multiple products and platforms.

The Company creates software titles for the PC, Sony PlayStation, M2 and
Internet platforms. The Company released several titles for the PC in fiscal
year 1997, including the hit game "Heroes of Might & Magic II" ("Heroes II")
from the Company's New World Computing division. Heroes II has received numerous
industry awards and has continued to sell well while sales have remained
consistent since its November 1996 release. In October 1996, the Company
launched "Meridian 59," the first Internet-based, 3D role-playing game. Meridian
59 has established the Company as one of the early leaders in the emerging
market for Internet-based entertainment.

The Company is currently organized into four development groups: Studio
3DO, Cyclone Studios, New World Computing and the Internet Group. Studio 3DO and
the Internet Group are located in Redwood City, California, Cyclone Studios in
San Mateo, California, and New World Computing in Agoura Hills, California. Each
development group includes programmers, artists, designers, directors,
audio/video specialists and production management.

MARKET

The market for interactive entertainment software is characterized by
multiple platforms with no single platform achieving market dominance.
Compressed technology lifecycles have resulted in different personal computer
platforms (including Windows 95, Windows, DOS, and Macintosh platforms),
multiple generations of video game hardware systems (including 16-bit, 32-bit
and 64-bit platforms), and new remote and electronic delivery systems being
available simultaneously. For developers and publishers of interactive
entertainment software products, this availability of numerous platforms for
which consumers may purchase entertainment software has resulted in additional
expenses such as substantial investments in research and development of products
for operation on these advanced platforms, new and increased marketing efforts
for the various platforms and license fees to develop products for certain
proprietary platforms, as well as risks such as the potential for failure of the
platforms in which research and development investments have been made to
achieve sufficient market penetration to allow software developers and
publishers to recoup their increased expenses, the ineffectiveness of efforts to
market products for these platforms and unfavorable terms in the license
agreements governing the development of products for certain proprietary
platforms.

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The Company is currently developing products for the PC, Sony PlayStation,
M2 and Internet platforms. The Company expects that it will make substantial
investments in research and development and marketing of products for operation
on these advanced platforms and in licensing fees for the development of
products for the Sony PlayStation, a proprietary platform. Development costs for
PC, video game and Internet titles are high due to increased emphasis on video
and graphics performance, license fees associated with proprietary platforms and
research and development costs for new and rapidly developing platforms. It is
not unusual to have a video game cost over $1 million to develop. If the
platforms for which the Company has chosen to develop interactive entertainment
software do not sustain or achieve significant market penetration, the Company's
planned revenues from products for such platforms will not be achieved and the
Company may not recover its research, development and marketing investment.
Conversely, if platforms for which the Company has chosen not to, or could not
obtain licenses to, develop software products achieve significant market
success, the Company's revenue growth may also be adversely affected. Today, the
Company does not have a license to develop products for some of the most popular
platforms including the proprietary platforms of Sega Enterprises, Ltd. and
Nintendo Co., Ltd. Although the Company does have the ability to license its
titles to publishers who do have such licenses, the revenue from such licensing
activity is significantly less than the revenue which could be generated from
direct publishing. See "Risk Factors -- Changing Product Platforms and Formats"
on page 9, "-- Dependence on the PC Market" and "-- Dependence on the Sony
PlayStation Market" on page 10, "-- Dependence on the M2 Platform" and
"-- Dependence on the Internet Market" on page 11, "-- Product Development" on
page 12 and "-- Technological Change" on page 13.

The availability of multiple advanced platforms and the corresponding
increase in the volume of interactive entertainment software available has also
raised the competitiveness of the market. This higher competitiveness has
resulted in an increase in the importance of mass merchant software sales as a
distribution channel, with corresponding increases in price pressure and
competition for limited shelf space to accommodate the abundance of new titles.
A number of factors, including historic performance, discounts to retailers,
inventory and return policies, customer service, product support, brand
recognition, perceived quality and entertainment value of specific titles and
marketing activities all affect the access to distributors and retailers of
interactive entertainment software developers and publishers. The Internet
platform has additionally provided new distribution opportunities which have
come with such corresponding expenses as fees related to Internet payment
services, costs of hardware and software to allow Internet distribution of
interactive entertainment software and costs for maintaining, and advertising
on, various Internet sites.

There will be intense competition in procuring adequate distribution of the
Company's software products for the PC, Sony PlayStation, M2 and Internet
markets. Fewer products in such markets are successful and publishers of these
games, including the Company, must incur substantial marketing and sales
expenses to promote retailers' sales of such products. In addition to the
challenges faced by the field of interactive entertainment software developers
and publishers in such markets, the Company faces additional challenges because
certain of the markets it is entering with its software products, specifically
the Sony PlayStation, M2 and Internet markets, are new to the Company. To enter
these new markets the Company has had or will need to negotiate with
distributors and retailers who have, in the past, not carried the Company's
products, as a result of which, the Company has had or will need to spend
significant amounts beyond the already substantial marketing and sales expenses
to increase new retailers' sales of the Company's products. The Company has also
invested in Internet payment services, Internet-capable hardware and software
and Internet distribution marketing and sales efforts to increase its chances of
success in the market for interactive entertainment software on the Internet.
See "Risk Factors -- Competition" and "-- Variability of Operating Results" on
page 13 and "-- Dependence on Distributors" on page 14.

The increased importance of mass merchant software sales and the Internet
as distribution channels has been coupled with increased competition for
consumer spending, with consumers considering such factors as pricing, brand
history, advanced product features, quality and reliability, hardware
compatibility, ease of understanding, and operation and availability and quality
of support services, and has been affected by such factors as dealer
merchandising and advertising pricing. Sales of interactive entertainment
software have become increasingly "hits" driven and even such hit software
products have only had lifespans of 3 to 12 months. Accordingly, software
developers and publishers have had to attempt to constantly develop and bring

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to market new products that achieve market acceptance quickly, keep pace with
competitive offerings, adapt to new hardware platforms and emerging industry
standards and provide additional functionality.

The Company has published and will continue to publish titles in a number
of different categories or "genres" with the highest consumer interest,
including sports, action, strategy, adventure, simulations and role playing.
Furthermore, the Company has focussed and will continue to also focus on markets
with relatively small installed bases and limited historical sales, specifically
the Internet market, because of its belief that early investment in new
platforms is strategically important in order to position the Company as a
leader in these emerging markets. In the short term, this strategy may
negatively affect the Company's financial performance by delaying revenues until
use of the Internet gains market acceptance for interactive entertainment
applications. See "Risk Factors -- Product Development" and "-- Short Product
Lifespans" on page 12 and "-- Variability of Operating Results" on page 13.

COMPETITION

See "Risk Factors -- Competition."

RESEARCH AND DEVELOPMENT

During fiscal year 1997, the Company significantly expanded its
entertainment software development efforts and continued developing advanced
products for the PC, M2 and Internet markets. In addition, the Company began
development of its first products for the Sony Playstation. The Company
contracts with a number of external developers to accommodate its development
requirements. Currently less than one-fourth of the Company's development is
contracted through external developers and this percentage is expected to remain
low. The Company's agreements with its external developers usually call for
significant advances or prepaid royalties to be paid to the developer during the
development process as well as certain ongoing royalties.

The Company invests in the creation of software tools and utilities that
are used in the development of software products. These tools are being designed
to allow for more cost-effective product development and the ability to more
efficiently convert products from one hardware platform to another.

The Company makes substantial investments in research and development of
software products for new platforms, such as the M2 and the Internet. Such
investment occurs one to two years in advance of availability of such platforms.
If the Company invests in the development of products for a platform that does
not achieve significant market penetration, the Company's planned revenues from
those products will not be achieved and the Company may not recover its
development investment. Conversely, if the Company does not choose to develop
for a platform that achieves significant market success or is unable to obtain
the rights to develop products for such platforms, its revenue growth may also
be adversely affected. There can be no assurance that the Company will correctly
make such platform choices or will be able to obtain adequate rights to develop
products for such platforms.

SEASONALITY AND VARIABILITY OF OPERATING RESULTS

The market for interactive entertainment software is highly seasonal. The
Company's revenues are expected to be affected by the seasonal nature of the
market, which is characterized by increased sales in the fourth calendar quarter
coinciding with the holiday selling season and typically a seasonal low in
revenues in the quarter ending in June. Seasonal trends may also be affected by
general economic or industry factors. The Company's revenues may also reflect
substantial variations as a result of the timing of the introductions of and
demand for particular software titles which the Company has published and/or
distributed. Such demand may increase or decrease as a result of a number of
factors, such as consumer preferences, product announcements by competitors and
the popularity of particular hardware platforms, that cannot be predicted. The
software industry is characterized by frequent product delays which can
materially adversely affect the sales of a product if a product is not released
in time for the holiday season.

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In addition, the Company expects that its operating results will experience
significant fluctuation as a result of changes in the composition of the
Company's revenues, the timing of new video game hardware and software product
introductions by the Company's competitors, the timeliness with which the
Company releases its products to the market, the Company's investments in
research and development, and expenditures on marketing and promotional
programs.

Product development schedules, particularly for new platforms such as the
M2 and the Internet, are difficult to predict because they involve creative
processes, use of new development tools for new platforms, and the learning
process associated with development for new technologies, as well as other
factors. In addition, today's leading-edge entertainment software products
frequently include substantial amounts of content and are complex,
time-consuming and costly to develop, which can cause additional development and
scheduling risks. These development risks can cause particular difficulties in
predicting quarterly results. Failure to meet product development schedules may
cause a shortfall in shipments in any quarter and may cause the operating
results for such quarter to fall significantly below anticipated levels.

The Company has stock-balancing programs for its software products that,
under certain circumstances and up to a specified amount, allow for the exchange
of software products by resellers. The Company also typically provides for price
protection for its software products that, under certain conditions, allows the
reseller a price reduction from the Company for unsold products. The Company
maintains a policy of exchanging products or giving credits, but does not
typically give cash refunds. The risk of price protection requirements is
increasing as a result of the maturing and the increasingly hit-based nature of
the video game market. Moreover, the risk of product returns may increase as new
hardware platforms become more popular or market factors force the Company to
make changes in its distribution system. Although the Company monitors and
manages the volume of its sales to retailers and distributors and their
inventories in an effort to prevent overstocking in the distribution channel,
which can result in high returns or the requirement for substantial price
protection in subsequent periods, there can be no assurance that the Company can
adequately anticipate the demand for its products. The Company reserves for
returns and price protection based on estimated future returns of products,
taking into account promotional activities, the timing of new product
introductions, distributor and retailer inventories of the Company's products
and other factors. There can be no assurance that actual returns or price
protection will not exceed the Company's reserves.

The distribution channels through which consumer software products are sold
have been characterized by change, including consolidations and financial
difficulties of certain distributors and retailers and the emergence of new
retailers such as general mass merchandisers. The bankruptcy or other business
difficulties of a distributor or retailer could render the Company's accounts
receivable from such entity uncollectible, which could have an adverse effect on
the operating results and financial condition of the Company. In addition, an
increasing number of companies are competing for access to these channels. The
Company's arrangements with its distributors and retailers may be terminated by
either party at any time without cause. Distributors and retailers often carry
products that compete with those of the Company. Retailers of the Company's
products typically have a limited amount of shelf space and promotional
resources for which there is intense competition. There can be no assurance that
distributors and retailers will purchase the Company's products or provide the
Company's products with adequate levels of shelf space and promotional support.

The Company also licenses its products to third parties for international
distribution and marketing. Under these agreements the Company provides
third-party licensees with final software code from which to manufacture, market
and distribute the Company's products outside North America. Such agreements
also provide that the Company receives a minimum guaranteed payment as well as
potential royalties on product sales in the designated territories. The market
for licensing products internationally is highly competitive. There can be no
assurance that the Company will be able to maintain its current international
licensing arrangements or enter into new ones. In the event that the Company
does sign a license for a third party to market and distribute the Company's
titles overseas, there can be no assurance that the product will achieve market
success and generate royalties for the Company. Failure to sign licenses or
achieve market acceptance of licensed products overseas would have a material
adverse affect on the Company's revenues and resulting financial performance.

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The percentage breakdown by principal source of the Company's revenues for
the three fiscal years in which the Company earned revenue is as follows:

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1997 1996 1995
---- ---- ----
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Royalties and license fees............................. 86% 64% 61%
Software publishing.................................... 10% 19% 11%
Development systems and other sales.................... 4% 17% 28%
</TABLE>

Matsushita and its affiliates represent, in fiscal year 1997, a major
customer of the Company, providing more than 80% of the Company's revenues. With
the remaining revenue from the M2 Agreement with Matsushita to be recognized in
the first half of fiscal year 1998, this percentage is expected to be
significantly lower in the future.

The Company continues to be dependent on the technological, manufacturing,
marketing, financial and other resources of third parties such as Matsushita and
CagEnt, with which it has established or is attempting to establish commercial
or strategic relationships. The Company relies on third parties to develop,
manufacture, market and distribute products that incorporate technology licensed
from 3DO, such as Matsushita with respect to the M2 Technology. Although certain
companies have made financial investments in 3DO and established strategic,
technical or marketing relationships with 3DO, such companies may choose not to
utilize the Company's technology and could develop products or technologies that
compete directly with products based upon the Company's technology. In addition,
there can be no assurance that these third parties will commit any resources to
the commercialization of the Company's technology.

ACQUISITIONS

During November 1995, the Company acquired the business of Cyclone Studios,
a software developer located in the greater San Francisco area. The purchase
price consisted of cash, stock and potential future consideration based upon the
financial performance of the new division. On May 31, 1996, the Company acquired
all of the outstanding capital stock of Archetype Interactive Corporation
("Archetype"), a software developer, also based in the greater San Francisco
area. Archetype's only product, "Meridian 59," a multi-user role-playing game
designed to be played over the Internet is now published and distributed by the
Company.

In June 1996, the Company purchased certain assets and assumed certain
liabilities of New World Computing, Inc. ("NWC"), an entertainment software
company located in Agoura Hills, California. As consideration for the purchase,
the Company issued approximately 1 million shares of its common stock to NWC's
parent, NTN Communications, Inc. ("NTN"). In addition, pursuant to the terms of
the purchase agreement, the Company made a cash payment to NTN because the value
of the Company's stock issued in the transaction fell below $10.00 per share
during a period following the closing date. As of December 1996, the Company
paid approximately $5.0 million in cash to NTN with no further obligations under
the Purchase Price Guarantee. The Company accounted for the acquisition using
the purchase method of accounting.

These acquisitions place a strain on the Company's management, operational,
financial and administrative resources. There can be no assurance that the
Company will be able to successfully integrate these entities into the Company,
or that such acquisitions will be profitable for the Company.

INTERNATIONAL OPERATIONS

The Company maintains a subsidiary in the United Kingdom, 3DO Europe, Ltd.,
which is responsible for the marketing and distribution of the Company's
entertainment software products outside of North America. During fiscal year
1997, 3DO Europe focused on licensing the company's software products for
international distribution. In the future, the Company expects that such
activities will be transferred to and managed by employees at the Company's
headquarters in Redwood City, California.

In December 1995, the Company sold its Japanese developer support business
for the 3DO Multiplayer platform to Matsushita. The Company continues to
maintain a subsidiary in Japan, Studio 3DO K.K. However, as of March 31, 1997,
this entity had no employees and was not conducting any business activities.

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PROPRIETARY RIGHTS AND LICENSES

The Company's success will depend in part on its ability to obtain and
enforce intellectual property protection for its technology in the U.S. and
other countries. The Company has several United States patent applications which
are presently pending in the United States Patent and Trademark Office and has
filed for protection of certain patents in various countries under the
protection of the Patent Cooperation Treaty. In the U.S., 11 patents have been
issued. The Company has not been notified that any of its other patent
applications will issue. The Company may file additional applications as it
deems appropriate for patents covering its technology. The Company's existing
patents will expire between the years 2011 and 2014.

The Company also relies on its trade secrets and proprietary know-how,
which it seeks to protect in part by confidentiality agreements with its
employees, consultants, vendors and current and prospective licensees. The
Company's license agreements typically prohibit unauthorized disclosure and
unauthorized reverse engineering of the Company's technologies.

The Company relies in part on copyright laws to prevent unauthorized
duplication or distribution of its software, written materials and audiovisual
works. Existing copyright laws and enforcement procedures afford only limited
protection, particularly in certain jurisdictions outside the United States.

The Company has applied for trademark protection in the United States and
approximately 36 other countries, including Japan and the United Kingdom, for
the Company's name and logo and, in a limited number of countries, for the names
of certain hardware and software products. The Company has obtained 30 federal
registrations of its trademarks in the United States. To date, the Company has
received approximately eight Notices of Allowance from the U.S. Patent and
Trademark Office for its Intent to Use Trademark application of its marks in a
variety of international classes. The Company has other pending applications for
its "3DO" word mark, logo and names of various hardware and software products.
The Company has experienced difficulty in registering some of its marks in
various jurisdictions, including Japan. Once obtained, the term of a United
States trademark registration is ten years from the date of issuance of the
registration, and may be renewed. The Company licenses its name and logo for use
in connection with authorized product offerings marketed and distributed by its
licensees.

From time to time, the Company receives communications from third parties
asserting that features or content of certain of the Company's or its licensees'
products infringe upon intellectual property rights held by such third parties.
The Company has been notified by a third party that such third party believes
that the Company's initial hardware design, the 3DO Multiplayer system,
infringes upon one or more of such third party's patents. The Company has
evaluated this claim in the event litigation is initiated. As the number of
patents and products in the Company's industry increases and as the
functionality of these products further overlap, the Company believes that
products based on its technology will increasingly become the subject of
infringement claims by third parties. If such claims occur, the Company could
incur substantial costs in defending itself.

EMPLOYEES

On March 31, 1997, the Company's personnel included 237 full-time employees
and 34 independent contractors in the United States. These persons provided
services in the following functional areas: 74 in engineering and operations, 8
in sales and marketing, 143 in studio, and 46 in finance, administration,
distribution and legal services. On March 31, 1997, the Company's Japanese
subsidiary had no employees. On March 31, 1997, the Company's European
subsidiary employed a total of 1 person involved in sales and marketing.

Many of the Company's employees are highly skilled. The Company's business
depends, to a great extent, on its ability to attract and retain skilled
employees. The interactive multimedia industry is characterized by a high level
of employee mobility and aggressive recruiting of skilled personnel, and, as
such, the Company competes for its employees with interactive multimedia
companies as well as other high technology companies in the hardware and
software industries, many of which have substantially greater resources than the
Company. There can be no assurance that the Company will be able to attract and
retain skilled employees,

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and the loss of skilled employees could have a material, adverse effect on the
Company's business. The employees and the Company are not parties to any
collective bargaining agreements. The Company believes that its relations with
its employees are good.

RISK FACTORS

HARDWARE SYSTEMS GROUP SALE

The Company is in the process of selling certain assets of its hardware
systems group to Samsung pursuant to an Asset Purchase Agreement (the "Samsung
Agreement"). As part of the Samsung Agreement, CagEnt, a subsidiary of Samsung,
will assist the Company, as a subcontractor, in its efforts to complete the
remaining deliverables associated with the M2 Agreement. Neither the Samsung
Agreement, nor any addendum to the M2 Agreement, relieves the Company of its
obligation to complete the deliverables called for in the M2 Agreement. There
can be no assurance that the Company, with CagEnt's subcontractor assistance,
will successfully complete the deliverables pursuant to the M2 Agreement. In the
event that CagEnt's subcontracted engineering services are unsatisfactory, the
Company will incur substantial expenses to complete its obligations under the M2
Agreement. This would have a material adverse impact on the Company, including,
but not limited to, diverting funds from the Company's software publishing
business.

CHANGE IN STRATEGY

Upon completion of the sale of its hardware systems business to Samsung,
the Company will have completed the restructuring of its business to focus on
being a multi-platform interactive entertainment software developer and
publisher. Since December 1995, this change in business focus has had the effect
of shifting the source of a majority of the Company's revenues from royalties
received from third party software licensees for the 3DO Multiplayer platform to
technology licensing fees and the publishing and distribution of internally and
externally developed titles. The Company expects that its future revenues will
mostly be generated by its software publishing and licensing business. Revenues
to the Company under the M2 Agreement will be fully recognized in the first half
of fiscal year 1998. However, there can be no assurance that the Company will
fulfill its obligations under the M2 Agreement, and any such failure of the
Company to fulfill its obligations, or any failure of CagEnt to successfully
provide subcontracted engineering services sufficient for the Company to timely
complete the deliverables due under the M2 Agreement, would have a material
adverse effect upon the Company's business, operating results and financial
condition. Although the Company commenced operations in 1991, the Company has a
very limited operating history upon which an evaluation of the Company and its
current strategy can be based. The Company is at an early stage of development
in its new business strategy and is subject to all of the risks inherent in the
establishment of a new business enterprise. To address these risks, the Company
must, among other things, ensure the completion of the deliverables detailed in
the M2 Agreement, respond to competitive developments, continue to attract,
retain and motivate qualified personnel, and support the development and
marketing of products based on the Company's technology. The Company's decision
to focus its efforts on software title publishing and distribution for the PC,
M2, Sony PlayStation and Internet platforms is predicated on the assumption that
in the future the installed hardware base of PCs, M2s and Sony PlayStations, as
well as active users of interactive entertainment on the Internet, will be large
enough to permit this portion of the Company's business to operate profitably.
There can be no assurance that the Company's assumption will be correct. In
addition, there can be no assurance that the Company will be able to
successfully compete as an entertainment software developer and publisher. Any
failure to achieve these goals could have a material adverse effect upon the
Company's business, operating results and financial condition.

CHANGING PRODUCT PLATFORMS AND FORMATS

The Company is entering new markets with its software products,
specifically the PC, Sony PlayStation and Internet markets. The markets for
entertainment software and entertainment software platforms are undergoing rapid
technological change. As a result, the Company must continually anticipate and
adapt its products to emerging platforms and evolving consumer preferences. The
introduction of new platforms and technologies can render existing products
obsolete and unmarketable. Development of entertainment software

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products for new hardware platforms requires substantial investments in research
and development for technologies such as motion capture, digitized speech and
sound effects, music and full motion video and requires the Company to
anticipate and develop products for those platforms that will ultimately be
successful. Generally, software development efforts must occur well in advance
of the release of new platforms in order to introduce new products on a timely
basis following the release of such platforms. Although the Company intends to
develop and market entertainment software for certain advanced and emerging
platforms, the development and marketing efforts in connection therewith may
require greater financial and technical resources than currently possessed by
the Company. In addition, there can be no assurance that the platforms for which
the Company develops products 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 products or products that generate
sufficient revenues to offset research and development costs incurred in
connection with the creation of such products. There can be no assurance that
the Company will be successful in developing and marketing products for new
platforms. Failure to develop products for new platforms that achieve
significant market acceptance would have a material adverse effect on the
Company's business, operating results and financial condition. Furthermore, the
Company does not have a license to develop products for certain of the most
popular platforms, including the proprietary platforms of Sega and Nintendo.
Finally, the Company's products must maintain compatibility with certain
hardware, software and hardware accessories. Any changes in any of such
third-party product designs that result in incompatibility of the Company's
products could result in significant product returns and obsolescence.

DEPENDENCE ON THE PC MARKET

The Company's future success is in part dependent on the PC market, which
is extremely dynamic and has historically been characterized by wide
fluctuations in product supply and demand. From time to time, the PC industry
has also experienced significant downturns, often in connection with, or in
anticipation of, declines in general economic conditions. Furthermore, rapid
technological change in PC hardware may render the currently installed base of
PCs and the Company's technology obsolete. There can be no assurance that unit
sales of PCs or the number of entertainment software users in the PC market will
continue at their present levels or increase in the future. The Company's
revenues from its entertainment software products will be dependent on marketing
and distribution of titles to an installed base of PC users. Any decrease in
demand for PCs or in the number of entertainment software users in the PC market
would have a material adverse effect on the Company's operating results.

DEPENDENCE ON THE SONY PLAYSTATION MARKET

The market for software products for the Sony PlayStation is currently
experiencing rapid growth. The Company's future success is partly dependent on
its ability to successfully take advantage of this growing market and on the
continued growth of the Sony PlayStation market. There can be no assurance that
the Company will be able to develop products for the Sony PlayStation in a
timely manner to take advantage of this growing market, that the Company's Sony
PlayStation software products will achieve market acceptance or that the Sony
PlayStation market will continue to grow. In the event that the Company fails to
develop products while the Sony PlayStation market is expanding or fails to
deliver products that are commercially successful, or if the Sony PlayStation
market does not continue to grow, the Company's operating results would be
adversely affected.

SONY PLAYSTATION LICENSE AGREEMENT

The Company entered into a licensing agreement with Sony Computer
Entertainment of America in March 1997 (the "Sony Agreement"). Pursuant to the
terms of the Sony Agreement, the Company may develop CD-ROM software products
for the Sony PlayStation platform and distribute them in the United States and
Canada, and Sony has the exclusive right to manufacture such software products
for the Company. Sony's exclusive right to manufacture the Company's software
products compatible with the Sony PlayStation leaves the Company with little
control of its supply or timing of delivery of Sony PlayStation software
products. There can be no assurance that the Company's supply and/or delivery of
its Sony PlayStation

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software products will meet the product volumes and schedules set forth in
distribution agreements between the Company and distributors and/or retailers
carrying the Company's products. Supply shortages and/or late or no delivery of
the Company's Sony PlayStation software products would result in adverse effects
on the Company's operating results.

DEPENDENCE ON THE M2 PLATFORM

The Company has undertaken the development of interactive entertainment
software products for the 64-bit interactive entertainment market. Specifically,
the Company has been developing several of its titles for the next generation
64-bit M2 video games system (the "M2 System") which is being developed by
Matsushita under license from 3DO. The M2 System has not yet been fully
developed. The Company is dependent on Matsushita, as the exclusive licensee, to
complete the development and manufacture production units of the M2 System.
Matsushita will control the timing of any M2 product launch, the pricing and
marketing of any such product, and any third-party licensing activities
pertaining to any such product. The video game hardware platform market is
extremely competitive and the Company's previous experience with the 3DO
Multiplayer platform, the first 32-bit, CDROM-based, video game console in the
market, demonstrates the perils involved with the development of new video game
hardware technology. Nintendo introduced a 64-bit video game hardware platform
in a cartridge format (the "Nintendo 64") in Japan in June 1996 and began
shipping the Nintendo 64 in North America in September of 1996, setting the pace
for competition in the 64-bit video game system market. A large installed base
of M2 Systems will be necessary for the Company to successfully develop and
market interactive entertainment software for the competitive 64-bit video game
system market. There can be no assurance that Matsushita will be able to
manufacture a video game console in large enough quantities or at low enough
costs to enable this product to be priced competitively or that it will do so at
all. In addition, there can be no assurance that any M2 System will offer
advantages over alternative 64-bit technologies such as the Nintendo 64
sufficient to generate market acceptance. The introduction of the M2 System by
Matsushita or of products compatible with the M2 System by the Company after the
64-bit video game system market has slowed, or the failure of the M2 System or
the Company's products for the M2 System to gain market acceptance or to be
brought to the market at all, will have material adverse effects on the
Company's operating results.

DEPENDENCE ON THE INTERNET MARKET

The Company's future success is in part dependent upon continued growth in
the use of the Internet. Rapid growth in the use of and interest in the Internet
is a recent phenomenon. The Internet may not prove to be a viable commercial
marketplace for a number of reasons, including potentially inadequate
development of the necessary infrastructure, such as a reliable network
infrastructure, or timely development of performance improvements including high
speed modems. In addition, to the extent that the Internet continues to
experience significant growth in the number of users and level of use, there can
be no assurance that the Internet infrastructure will continue to be able to
support the demands placed upon it by any such growth. In addition, the Internet
could lose its viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity, or due to increased government regulation. Changes in or insufficient
availability of telecommunications services to support the Internet also could
result in slower response times and adversely affect usage of entertainment
software developed for the Internet. If the use of the Internet does not grow,
or if the Internet infrastructure does not effectively support the growth that
may occur, the Company's business, results of operations and financial
conditions would be materially adversely affected.

INTERACTIVE MULTIPLE PLAYER GAMES ON THE INTERNET

The availability of multiple player games on the Internet is a recent
phenomenon. The limited history of multiple player games on the Internet has
been characterized by numerous companies entering the market in a short span of
time and competing for a limited number of players of multiple player games by
providing incentives to get player interest and by entering into agreements with
the few companies providing Internet game sites that have developed some player
following. However, there has been little evidence of success in

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this area and a profitable business model to capitalize on the Internet multiple
player game market has not yet been established. In addition, multiple player
games on the Internet require the implementation of newly developed software to
accept and process payments from players which may contain errors in the program
which have not yet been discovered or corrected. The Company provides free play
time and other incentives such as discounts and contests to interest the limited
number of players in the market into trying the Company's games, has entered
into agreements to have its games distributed through Internet game sites, is
testing various pricing models to determine the most profitable models and has
tested and has implemented different software applications for the acceptance
and processing of payment from players of its games. There can be no assurance
that any of the incentives provided by the Company or the availability of the
Company's games on Internet game sites will result in increased player interest
in the Company's games, that the costs of providing such incentives or entering
into agreements with Internet game site providers will be compensated for by
increased payments from use of the Company's games, that the Company will be
able to continue to offer the incentives it does in accordance with laws of the
jurisdictions into which the Company's games are distributed or that the Company
will be able to continue to offer its games through various Internet game sites.
In addition, so far, none of the pricing models implemented for Internet
multiple player games by the Company have yielded profit for the Company, and
there can be no assurance that any such model will do so in the future.
Furthermore, the Company has experienced problems with certain of the Internet
hardware and software it has put into operation and there can be no assurance
that such problems or other problems will not reoccur in the future.

PRODUCT DEVELOPMENT

The Company's future success is based in substantial part upon its ability
to create software titles for the PC, the Sony PlayStation and the Internet
platforms. Software product development schedules, particularly for new hardware
platforms such as the Sony PlayStation and Internet platforms, are difficult to
predict because they involve creative processes, use of new development tools
for new platforms, and the learning processes associated with development for
new technologies, as well as other factors. As a result of their complexity,
software products frequently contain undetected errors or failures, especially
when first introduced or when new versions or enhancements are released. Despite
extensive product testing prior to the release of new products, the Company may
discover errors in its products after their initial release. There can be no
assurance that, despite testing by the Company, errors will not be found in new
products and product revisions released by the Company in the future. The
occurrence of such errors could result in significant losses to the Company. Any
such occurrence also could result in reduced market acceptance of the Company's
products, which could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, CD-ROM and Internet
multiple player products frequently include more content and are more complex,
time-consuming and costly to develop than simpler PC or video game console
products and accordingly, cause additional development and scheduling risk. As a
result, there can be no assurance that the Company will achieve any planned
product release schedules. These development risks can cause particular
difficulties in predicting quarterly results. Failure to meet product
development schedules may cause a shortfall in shipments in any quarter and may
cause the operating results for such quarter to fall significantly below
anticipated levels.

SHORT PRODUCT LIFESPANS

Interactive entertainment software products typically have life spans of
only 3 to 12 months. Accordingly, the Company will need to constantly develop
and bring to market new products that achieve market acceptance quickly. The
Company's future success will depend in large part on its ability to develop and
introduce new products on a timely basis. New products must keep pace with
competitive offerings, be compatible with new hardware platforms and emerging
industry standards, and provide additional functionality. If the Company is
unable, due to resource constraints or technological or other reasons, to
develop and introduce such products in a timely manner, this inability would
have a material adverse effect on its operating results and financial condition.
There can be no assurance that the Company will be able to complete the timely
development of, and commercially release, new software products that achieve
market acceptance.

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TECHNOLOGICAL CHANGE

The market for interactive multimedia products is characterized by rapidly
changing technology and user preferences, evolving formats for compression of
audio and video data and frequent new product introductions. Even if the
Company's technology and related software titles gain broad market acceptance,
the Company's success will depend upon, among other things, the ability of the
Company and its licensees to achieve and maintain technological leadership and
to remain competitive in terms of price and product performance.

The Company's pursuit of these technical improvements and other
technological goals will require substantial expenditures, and there can be no
assurance that any of these technical improvements will be developed or that the
Company or its licensees will achieve or maintain technological leadership. Any
material failure of the Company or its licensees to develop or incorporate any
planned improvement would adversely affect the widespread adoption of the
Company's technology and the introduction and sale of future products based on
the Company's technology, and would increase the likelihood that competitive
technologies will become broadly accepted. There can be no assurance that
products or technologies developed by others will not render obsolete the
Company's technology and the products based on the Company's technology.

COMPETITION

The Company is entering new markets with its software products,
specifically the Sony PlayStation and Internet markets. This will, to some
degree, require distribution through distributors and retailers who have not, in
the past, carried the Company's products. There will be intense competition in
procuring adequate distribution of the Company's software products. There can be
no assurance that the Company will succeed in obtaining sufficient distribution
to enable its products to achieve market success.

The markets in which the Company's software products compete are expected
to undergo significant changes, due in part to the introduction, or planned
introduction, of new hardware platforms and electronic delivery systems, and the
entry and participation of new industries and companies. Severe competition
exists for retail shelf space in the consumer software industry. A number of
factors, including the Company's historic performance, discounts to retailers,
inventory and return policies, customer service, product support, brand
recognition, perceived quality and entertainment value of specific titles, and
marketing activities, affect access to distributors and retailers. In addition,
sales of interactive entertainment products are becoming increasingly "hits"
driven. Fewer products in that market are successful and publishers of these
games, including the Company, must incur substantial marketing and sales
expenses to promote retailers' sales of such products.

A variety of companies offer products that compete directly with one or
more of the Company's products. These direct competitors vary in size from very
small companies with limited resources to companies with financial, managerial
and technical resources substantially greater than those of the Company. The
Company's competitors include manufacturers of hardware platform systems such as
Nintendo, Sega and Sony (together with third-party licensees); diversified media
and entertainment companies such as Walt Disney Company, Viacom International,
Inc. and Time Warner Enterprises, Inc.; large independent multi-platform
software developers such as Electronic Arts, Acclaim Entertainment, Inc., Lucas
Arts Entertainment Co., and Spectrum HoloByte, Inc.; and publishers of personal
computer software such as Microsoft Corporation. In addition, companies in
industries such as cable television and telecommunications, many of which have
significant financial resources, have begun to diversify or have announced plans
to enter the interactive software market. These new entrants have the potential
to become significant competitors.

VARIABILITY OF OPERATING RESULTS

The Company expects that its operating results will experience significant
fluctuation as a result of changes in the composition of the Company's revenues,
the timing of new video game hardware and software product introductions by the
Company's competitors, the timeliness with which the Company releases its
products to the market, fluctuations in the PC and Internet market, the
financial impact of acquisitions of other companies by the Company, and the
Company's investments in research and development, and expenditures on marketing
and promotional programs.

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The market for entertainment software is highly seasonal. The Company's
revenues are expected to be affected by the seasonal nature of the market, which
is characterized by increased sales in the fourth calendar quarter coinciding
with the holiday selling season and typically a seasonal low in revenues in the
quarter ending in June. Seasonal trends may also be affected by general economic
or industry factors. The Company's revenues may also reflect substantial
variations as a result of the timing of the introduction of and demand for a
particular software title it has published and/or distributed. Such demand may
increase or decrease as a result of a number of factors, such as consumer
preferences, product announcement by competitors and the popularity of
particular hardware platforms, that cannot be predicted. The software industry
is characterized by frequent product delays which can materially adversely
affect the sales of a product if the product is not released in time for the
holiday season.

The Company's revenues are also affected by the timing of payments under
agreements with companies that license the Company's technologies. These
licenses can represent significant revenues to the Company which can cause
fluctuation in quarterly results. Also, where there are contractual obligations
of the Company to complete certain technology, the Company will recognize
revenues on the "percentage of completion" method, and the progress made in
completing the engineering of such technology will affect the revenue recognized
in any particular quarter.

The Company has stock-balancing programs for its software products that,
under certain circumstances and up to a specified amount, allow for the exchange
of software products by resellers. The Company also typically provides for price
protection for its software products that, under certain conditions, allows the
reseller a price reduction from the Company for unsold products. The Company
maintains a policy of exchanging products or giving credits, but does not
typically give cash refunds. The risk of price protection requirements is
increasing as a result of the maturing and the increasingly hit-based nature of
the video game market. Moreover, the risk of product returns may increase as new
hardware platforms become more popular or market factors force the Company to
make changes in its distribution system. Overstocking in the distribution
channel can result in high returns or the requirement for substantial price
protection in subsequent periods. The Company provides for reserves for returns
and price protection based on estimated future returns of products, taking into
account promotional activities, the timing of new product introductions,
distributor and retailer inventories of the Company's products and other
factors. There can be no assurance that actual returns or price protection will
not exceed the Company's reserves.

DEPENDENCE ON DISTRIBUTORS

DEPENDENCE ON THIRD PARTIES

The Company continues to be dependent on the technological, manufacturing,
marketing, financial and other resources of third parties with which it has
established or is attempting to establish commercial relationships. The Company
relies on third parties to develop, manufacture, market and distribute products
that incorporate technology licensed from 3DO, such as Matsushita with respect
to the M2 Technology. The Company's licensees may choose not to utilize the
Company's technology and could develop products or technologies that compete
directly with products based upon the Company's technology. In addition, there
can be no assurance that these third parties will commit any resources to the
commercialization of the Company's

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technology. Further, a licensee's financial or other resource limitations may
prevent such licensee from commercializing products based on the Company's
technology. Any failure of a third-party developer to complete its contractual
obligations to the Company would adversely affect the Company's ability to
complete and release titles which would adversely affect the Company's operating
results.

DEPENDENCE ON KEY PERSONNEL

The Company's future success depends in large part on the continued service
of its key technical, marketing, sales and management personnel. Given the
Company's early stage of development, the Company is dependent on its ability to
recruit, retain and motivate high quality personnel, especially highly skilled
engineers, programmers and artists involved in the ongoing hardware and software
development required to define future interactive hardware systems, refine
existing interactive technologies, introduce enhancements for future
applications, and develop novel software titles. The Company is particularly
dependent on the skills and contributions of several key individuals, any one of
whom may voluntarily terminate employment with the Company at any time and whose
departure would have a material adverse effect on the Company's business. The
Company is particularly dependent upon its Chief Executive Officer, Trip
Hawkins. The Company does not have "key person" life insurance policies on any
of its employees. The interactive multimedia industry is characterized by a high
level of employee mobility and aggressive recruiting of skilled personnel. The
Company competes with computer hardware, software and entertainment companies
for the recruitment of skilled personnel. There can be no assurance that the
Company's current employees will continue to work for the Company or that the
Company will be able to obtain the services of additional personnel necessary
for the Company's growth.

RECENT ACQUISITIONS

The Company acquired the business of Cyclone Studios ("Cyclone"), a
software developer, during November of 1995. In May of 1996, the Company
acquired all the outstanding capital stock of Archetype Interactive Corporation
("Archetype"), a developer of a multi-user role-playing game to be played over
the Internet. In June 1996, the Company purchased certain assets and assumed
certain liabilities of New World Computing, Inc. ("NWC"), an entertainment
software company. Each of these acquisitions represented the addition of new
products and personnel to the Company, which has caused changes in the
allocation of management and other resources, marketing strategies and
production systems. The Company's ability to manage its acquired businesses
effectively will depend on its ability to hire additional management and
technical personnel and to continue to improve the operating, financial and
management systems and controls in each of its operating units. There can be no
assurance that the Company will be able to successfully integrate these acquired
businesses or other companies which the Company may acquire in the future with
the current operations of the Company.

FUTURE ACQUISITIONS

The Company is in the process of establishing operations as a
multi-platform entertainment software developer and publisher and its strategy
may involve, in part, acquisitions of products, technologies or businesses from
third parties. Identifying and negotiating these acquisitions may divert
substantial management time away from the Company's operations. An acquisition
could absorb substantial cash resources, could require the Company to incur or
assume debt obligations, or could involve the issuance of additional equity
securities of the Company. The issuance of additional equity securities could
dilute and could represent an interest senior to the rights of then outstanding
common stock. An acquisition which is accounted for as a purchase, like the
acquisitions of Cyclone and NWC, could involve significant one-time non-cash
write-offs, and could involve the amortization of goodwill over a number of
years, which would adversely affect earnings in those years. Acquisitions
outside the entertainment software area may be viewed by outside market analysts
as a diversion of the Company's focus on entertainment software. For these
reasons, the market for the Company's stock may react positively or negatively
to the announcement of any acquisition. Any acquisition will require attention
from the Company's management to integrate the acquired entity into the
Company's operations, may require the Company to develop expertise outside its
existing businesses and may result in

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departures of management of the acquired entity. An acquired entity may have
unknown liabilities, and its business may not achieve the results anticipated at
the time of the acquisition. Any acquisitions that adversely affect the
operations of the Company may have an adverse impact on the Company's stock
price.

PROPRIETARY RIGHTS AND LICENSES

The Company's success will depend in part on its ability to obtain and
enforce intellectual property protection for its technology in both the United
States and other countries. The Company has filed a number of patent
applications with the U.S. Patent and Trademark Office ("U.S. Patent Office")
and international counterparts of certain of these applications with the United
States Receiving Office pursuant to the Patent Cooperation Treaty. The Company
intends to file additional applications as it deems appropriate for patents
covering its technology. The process of obtaining patent protection is expensive
and absorbs substantial management and engineering time. No assurance can be
given that any patents will issue from these applications or that, if any patent
does issue, the claims allowed will be sufficiently broad to protect the key
aspects of the Company's technology or that the patent laws will provide
effective legal or injunctive remedies to stop any infringement of the Company's
patents. In addition, no assurance can be given that any patent issued to the
Company will not be challenged, invalidated or circumvented, that the rights
granted under patents will provide competitive advantages to the Company, or
that the Company's competitors will not independently develop or patent
technologies that are substantially equivalent or superior to the Company's
technology.

The Company also relies on trade secrets and proprietary know-how which it
seeks to protect, in part, by confidentiality agreements with its employees,
consultants, developers, vendors, and current and prospective licensees. The
Company's license agreements typically prohibit unauthorized disclosure or
unauthorized reverse engineering of the Company's licensed technology. However,
the Company expects that third parties may attempt to reverse engineer its
technology without authorization and there can be no assurance that the
Company's confidentiality and license agreements will not be breached or that
the Company would have adequate remedies for any breach. As a result, the
Company may not have an adequate remedy if a competitor disassembles or reverse
engineers products based on the Company's proprietary technology, even if the
technology is protected by trade secret or copyright law. There can be no
assurance that the Company's trade secrets will not otherwise become known or be
independently discovered by competitors.

The Company relies in part on copyright laws to prevent unauthorized
duplication or distribution of its software, written materials and audiovisual
works. Existing copyright laws afford only limited protection, particularly in
certain jurisdictions outside the United States where the Company may seek to
license its technology. There can be no assurance that the copyright laws will
adequately protect the Company's technology.

The Company licenses its name and logo for use in connection with
authorized products. The Company has experienced difficulty in registering some
of its marks in various jurisdictions, including Japan. There can be no
assurance that the Company will obtain sufficient trademark protection for these
marks, that these marks will not be duplicated without authorization, or that
the Company will have adequate remedies for trademark infringement in any
country.

From time to time, the Company receives communications from third parties
asserting that features or content of certain of the Company's or its licensees'
products infringe upon intellectual property rights held by such third parties.
The Company has been notified by a third party that such third party believes
that the Company's initial hardware design, the 3DO Multiplayer system,
infringes upon one or more of such third party's patents. The Company has
evaluated this claim in the event litigation is initiated. As the number of
patents and products in the Company's industry increases and as the
functionality of these products further overlaps, the Company believes that
products based on its technology will increasingly become the subject of
infringement claims. The Company could incur substantial costs in defending
itself or its licensees in litigation brought by others, or in prosecuting
infringement claims against third parties. The Company could also incur
substantial costs in interference proceedings declared by the U.S. Patent Office
in connection with one or more of the Company's or a third party's patents or
patent applications. Those proceedings could result in an adverse

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decision as to the priority of the Company's inventions. A third party claiming
infringement may be able to obtain an injunction or other equitable relief,
which could effectively block the ability of the Company's licensees to import
into the United States or to distribute and sell hardware or software products
licensed by the Company. This would materially adversely affect the Company.
Such a third party could also assert claims for substantial damages against the
Company, its licensees or distributors of such licensees' products, which could
inhibit the manufacture or sale of licensed products. In the event of a claim of
infringement, the Company or its licensees may be required to obtain one or more
licenses from third parties. There can be no assurance that the Company or its
hardware and software licensees will be able to obtain from third parties any
required license to technology at a reasonable cost or at all. Failure by the
Company or its hardware and software licensees to obtain any such license would
have a material adverse impact on the Company.

VOLATILITY OF STOCK PRICE

Market prices of securities of companies engaged in the entertainment
software industry have been highly volatile. Factors such as announcements of
the introduction of new products by the Company or its competitors,
announcements of joint development efforts or corporate partnerships in the
entertainment software field, market conditions in the technology,
entertainment, cable, telecommunications and other emerging growth company
sectors, and analyst reports and rumors relating to the Company or its
competitors, have had and may in the future have a significant impact on the
market price of the Company's common stock. Further, the stock market has
experienced volatility that has particularly affected the market prices of
equity securities of many high technology and development stage companies such
as those in the entertainment software and semiconductor industries that has
often been unrelated to the operating performance of such companies. These
market fluctuations may adversely affect the price of the Company's common
stock.

ITEM 2. PROPERTIES

As of March 31, 1997, the Company leased approximately 92,000 square feet
of facilities in Redwood City, California, and 7,600 square feet in San Mateo,
California, and 10,922 square feet in Agoura Hills, California, for an aggregate
monthly rent expense of approximately $189,000. These facilities house the
Company's administrative, research, development and sales operations. The lease
with respect to the existing Redwood City facilities expires in August 1997 with
an option to extend for one year. The lease for the San Mateo site expires
during May 1999 while the lease for the Agoura Hills facility expires in
January, 2001. The Company also leases office space in the United Kingdom for
the sales and marketing activities of the Company's subsidiary, 3DO Europe, Ltd.
The Company believes that these facilities are adequate for its current needs.

ITEM 3. LEGAL PROCEEDINGS

On October 3, 1996, Cirrus Logic, Inc.("Cirrus"), filed a complaint in the
Superior Court of the State of California for the Southern Division of the
County of Alameda to rescind a Joint Development and License Agreement (the
"Cirrus Agreement") entered into between Cirrus and the Company on February 29,
1996, on the grounds of frustration of purpose, mistake, failure of
consideration, concealment, and non-disclosure; and to obtain a repayment of
$2.5 million in nonrefundable payments made to the Company. The Company has
responded to Cirrus' complaint and filed a cross-complaint for Cirrus' breach of
the Agreement to enforce its rights under the Cirrus Agreement, including
procurement of the payment by Cirrus of $4.5 million in nonrefundable license
fees, prepaid royalties, and termination fees; and to recover damages, collect
interest, and obtain attorneys' fees and costs. There can be no assurance that
the Company will prevail in the litigation, will not be required to refund the
$2.5 million payment received from Cirrus, or will receive the additional $4.5
million that it believes Cirrus owes under the Cirrus Agreement.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the
quarter ended March 31, 1997.

17
<PAGE> 18

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock trades publicly on the Nasdaq National Market
under the symbol "THDO." The following table sets forth for the periods
indicated the quarterly high and low closing sales prices of the Common Stock on
the Nasdaq National Market.

<TABLE>
<CAPTION>
CLOSING SALES
PRICES
-----------------
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year Ended March 31, 1996:
First Quarter............................................ $17.31 $11.25
Second Quarter........................................... 15.63 11.00
Third Quarter............................................ 12.88 9.00
Fourth Quarter........................................... 11.25 9.00
Fiscal Year Ended March 31, 1997:
First Quarter............................................ $12.38 $ 8.25
Second Quarter........................................... 11.25 5.63
Third Quarter............................................ 6.63 4.63
Fourth Quarter........................................... 5.50 2.63
</TABLE>

As of May 31, 1997, there were approximately 853 holders of record of
28,507,837 shares of outstanding common stock.

DIVIDEND POLICY

The Company has not paid any dividends since its inception and does not
intend to pay any dividends on its common stock in the foreseeable future.

18
<PAGE> 19

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
---------------------------------------------------
1997 1996 1995 1994 1993
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues............................... $92,350 $ 37,918 $ 30,380 $ 10,295 $ --
Total cost of revenues....................... 7,989 7,914 7,177 3,464 --
------- -------- -------- -------- --------
Gross profit................................. 84,361 30,004 23,203 6,831 --
------- -------- -------- -------- --------
Operating expenses:
Research and development..................... 42,077 41,184 36,483 23,412 11,434
Sales and marketing.......................... 8,043 6,837 11,777 8,248 1,993
General and administrative................... 11,310 9,535 7,504 6,175 2,008
Market development advertising............... -- 924 4,926 -- --
Stock incentive.............................. -- -- 8,359 -- --
Acquisition of NTG royalty rights............ -- -- -- 21,353 --
In-process research and development.......... 7,700 -- -- -- --
------- -------- -------- -------- --------
Total operating expenses..................... 69,130 58,480 69,049 59,188 15,435
------- -------- -------- -------- --------
Operating income (loss)...................... 15,231 (28,476) (45,846) (52,357) (15,435)
Net interest and other income................ 2,115 684 437 976 50
------- -------- -------- -------- --------
Income (loss) before income and foreign
withholding taxes.......................... 17,346 (27,792) (45,409) (51,381) (15,385)
Income and foreign withholding taxes......... 4,075 6,876 853 50 1
------- -------- -------- -------- --------
Net income (loss)............................ $13,271 $(34,668) $(46,262) $(51,431) $(15,386)
======= ======== ======== ======== ========
Net income (loss) per share.................. $ 0.46 $ (1.36) $ (2.04) $ (2.60) $ (1.02)
======= ======== ======== ======== ========
Shares used in per share calculations........ 29,103 25,456 22,697 19,747 15,018
======= ======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1997 1996 1995 1994 1993
------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and available-for-sale securities....... $33,617 $ 50,145 $ 14,346 $ 14,301 $ 2,827
Working capital.............................. $14,067 $ (6,951) $ 10,826 $ 10,494 $ (1,175)
Total assets................................. $44,954 $ 63,330 $ 34,161 $ 25,870 $ 6,437
Total long-term liabilities.................. $ 1,715 $ 1,831 $ 6,529 $ 2,152 $ 2,920
Total stockholders' equity (deficit)......... $21,399 $ 131 $ 15,685 $ 15,879 $ (959)
</TABLE>

19
<PAGE> 20

ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

The following discussion is intended to assist in the understanding and
assessment of significant changes and trends relating to the results of
operations and financial condition of The 3DO Company, together with its
consolidated subsidiaries (the "Company"). This discussion and analysis should
be read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto.

Private Securities Litigation Reform Act Safe Harbor Statement

Except for the historical information contained herein, this discussion and
analysis includes certain forward-looking statements that involve risks and
uncertainties. Such statements represent the Company's reasonable judgment on
the future and are subject to risks and uncertainties that could cause the
Company's actual results and financial position to differ materially from those
projected in the forward-looking statements as a result of the factors described
herein. Such forward-looking statements include, without limitation: the extent
to which the Company will receive and/or recognize revenue from the M2
Technology Licensing Agreement (the "M2 Agreement") with Matsushita Electric
Industrial Co., Ltd. ("Matsushita") and from the related Addendum; the extent to
which the Company will receive and/or recognize revenue from its Joint
Development and License Agreement with Cirrus Logic, Inc. ("Cirrus Logic"); the
extent to which the Company will save operating expenses such as personnel,
non-recurring engineering, facility and other overhead expenses, in fiscal year
1998 as a result of the completion of the sale of the Company's hardware systems
business to Samsung Electronics Co., Ltd. ("Samsung"); the length of time for
which the Company's existing cash resources, working capital financing and other
sources of funds, including the $20.0 million payment from Samsung received on
June 23, 1997, will fund the Company's activities; the extent to which CagEnt
Technologies, Inc. a subsidiary of Samsung, will assist the Company, as a
subcontractor, in completing the remaining deliverables associated with the M2
Agreement and Addendum; the extent to which the Company will receive the minimum
guaranteed payments and potential royalties from its international distribution
agreements; the Company's ability to successfully leverage its core technologies
into other markets; the Company's ability to develop software products for new
platforms and the timeliness, cost, and market demand for such products created
as part of its software development activities; and the effect of competitive
factors in the marketplace, including the market acceptance of certain formats
and the timing and release of competitors' products. The Company undertakes no
obligation to publicly release the result of any revisions to the
forward-looking statements contained herein to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.

Overview

Since commencement of its operations in October 1991, the Company has been
developing interactive technologies and software applications. To date, it has
devoted a majority of its resources to research and development activities,
marketing and licensing its technology, recruiting and supporting third-party
licensees. More recently, the Company has devoted greater resources to its
software publishing and distribution businesses. In the future, the Company will
focus on creating technologies and entertainment products for the advanced
64-bit market and will continue to develop software titles for multiple
platforms including the IBM-compatible PC CD-ROM platform (the "PC"), the 32-bit
PlayStation platform developed by Sony, the 64-bit M2 platform being developed
by Matsushita, and the Internet.

Prior to fiscal year 1997, the Company generated a majority of its revenue
from software royalties and pressing fees on titles published by its software
licensees for the 3DO Multiplayer platform. The Company has also derived revenue
from the sale of development systems to licensees, software title development
activities whereby the Company developed titles under contract for publishing by
third parties, engineering activities under contract to third parties,
technology licensing fees, and the licensing and distribution of software titles
published by the Company and others. Revenue has also been generated from
royalties paid by semiconductor foundries upon their sale of licensed chipsets
to hardware system manufacturers (see "Results of Operations" below).

20
<PAGE> 21

In fiscal year 1997, the Company derived the majority of its revenue from
technology licensing fees and the publishing and distribution of internally and
externally developed software titles. For most of fiscal year 1995 and fiscal
year 1996, the focus of the Company's business was on maximizing royalty
revenues from the pressing and publishing of third-party software CDs that
played on the 3DO Multiplayer systems marketed and distributed by Panasonic and
Goldstar, which failed to achieve market acceptance. As a result, this third-
party CD pressing and publishing royalty stream decreased significantly, to less
than 1% of revenue in fiscal year 1997. The Company has recently reorganized its
organization to focus on entertainment software products for the PC, Sony
PlayStation, M2 and Internet platforms.

The Company generally recognizes revenue from the sale of software titles,
development systems, or digital video systems at the time of shipment. Revenue
from the M2 Agreement with Matsushita, and the Joint Development and License
Agreement with Cirrus Logic, and other engineering contracts, is recognized
using the percentage-of-completion method.

The Company developed a next generation 64-bit technology (the "M2
Technology") and in December 1995, the Company and Matsushita entered into a
definitive license agreement pursuant to which the Company granted Matsushita an
exclusive, worldwide, perpetual license, with the right to grant sublicenses,
with respect to the M2 Technology, for use in both hardware and software for
games and all other applications (the "M2 Agreement"). The license was granted
in exchange for an upfront license payment of $100 million, and for certain
royalties which shall be paid to the Company for certain software products
manufactured after January 1, 1998 which are compatible with the M2 Technology.
Under the terms of the M2 Agreement, Matsushita granted the Company a
non-exclusive license to use the M2 Technology for the development, manufacture
and distribution of (i) hardware products designed for use in the computer
field, (ii) software and peripherals compatible with hardware products developed
by Matsushita or its sublicensees that incorporate the M2 Technology, and (iii)
development systems to be used by third parties outside of Japan that are
authorized by Matsushita to develop and publish software products compatible
with hardware products that incorporate the M2 Technology. Revenue pertaining to
the license fees under the M2 Agreement is being recognized by the Company using
the percentage-of-completion method based on the costs incurred to fulfill its
commitments to deliver technology as specified in the agreement. The Company
estimates that it will continue to recognize revenue in connection with the M2
Agreement through June 30, 1997.

On April 24, 1996, the Company agreed to make certain modifications to the
M2 system design, pursuant to the terms of an addendum (the "Addendum") to the
M2 Agreement. As consideration for providing engineering and certain support
services, the Company will receive an aggregate fee of approximately $4.5
million to be received in installments in fiscal 1997 and 1998. The payments by
Matsushita are contingent upon the Company timely meeting certain milestones, as
stipulated in the Addendum. The Company intends to recognize this revenue as
these milestones are achieved.

Concurrent with the execution of the M2 Agreement, Matsushita and the
Company entered into a separate stock purchase and license agreement whereby
Matsushita acquired all of the outstanding capital stock of 3DO Japan Co., Ltd.
for $668,000, the approximate book value of the entity at the date of closing.
This entity of approximately 14 people was responsible for the third-party
support activities of the 32-bit 3DO Multiplayer platform. In February 1996, the
Company licensed the 3-D graphics portion of the M2 Technology to Cirrus Logic
for the potential development of high-end 3-D graphics chips for the PC market.
Under the terms of the Joint Development and License Agreement (the "Cirrus
Agreement") the Company was to develop certain modifications to its "3-D
Engine," which is a component of the proprietary semiconductor technology that
is part of the M2 Technology. As partial consideration under such agreement, the
Company has received the non-refundable sum of $2.5 million as of March 31,
1997. This payment has been recognized into revenue under the percentage of
completion method.

21
<PAGE> 22

enforce its rights under said agreement, including procurement of Cirrus'
payment of $4.5 million in nonrefundable license fees, prepaid royalties and
termination fees, plus damages, interest, and attorneys' fees and costs.
Although the Company believes Cirrus has specific obligations under the contract
to pay an additional $4.5 million in nonrefundable license fees, prepaid
royalties, and termination fees, there can be no assurance that the Company will
prevail in the litigation, will not be required to refund the $2.5 million
payment received from Cirrus, or will receive the additional $4.5 million that
it believes Cirrus owes under the Cirrus Agreement.

In November 1995, the Company acquired the business, including all of the
assets and certain of the liabilities, of Cyclone Studios, a software developer.
Consideration for the purchase consisted of upfront cash and stock, and
potential future consideration based upon the financial performance of the
resulting new software development division. The upfront portion of the purchase
price, approximately $880,000, was expensed as acquired in-process research and
development in the third quarter of fiscal year 1996.

On May 31, 1996, the Company acquired all the outstanding capital stock of
Archetype Interactive Corporation ("Archetype"), a software developer of a
multi-user role playing game designed to be played over the Internet. In
exchange for the outstanding capital stock of Archetype, the Company issued
592,000 shares of its common stock to the Archetype shareholders. The Company
accounted for this acquisition using the "pooling of interests" method.

In June 1996, the Company purchased certain assets and assumed certain
liabilities of New World Computing, Inc. ("NWC"), a PC platform game developer.
Subsequent to the asset purchase, the Company created a production unit using
the NWC brand name. NWC continues to be a wholly-owned subsidiary of NTN
Communications, Inc. ("NTN"). As consideration for the purchase, the Company
issued 1.02 million shares of its common stock to NTN. In addition, under the
terms of the agreement, the Company was obligated to make a cash payment to NTN
because the value of the Company stock issued in the transaction fell below an
amount equal to approximately $10.00 per share during a period following the
closing date (the "Purchase Price Guarantee"); as of December 31, 1996, the
Company paid approximately $5.0 million to NTN. This payment represents the
total amount due to NTN under the terms of the asset purchase agreement and, as
such, the Company has no further obligations to NTN under the Purchase Price
Guarantee. The Company recorded the purchase in June 1996 using the purchase
method of accounting. A one-time charge was recorded in the first quarter of
fiscal year 1997 for $7.7 million representing the amount of the purchase price
assigned to in-process research and development. At the time, the entire
purchase was booked at the guaranteed purchase price. As a result, the one-time
payment of approximately $5.0 million has no impact on the Company's income
statement for fiscal year ended March 31, 1997. Also included as part of the
purchase price were intangibles valued at $3.1 million, to be amortized on a
straight-line basis over a period of one to five years.

The Company expects that its operating results will fluctuate as a result
of a wide variety of factors, including changes in the composition of the
Company's revenues, the timing of new software product introductions by the
Company and by its competitors, new introductions of platforms for interactive
entertainment software, the Company's expenditures on research and development,
marketing and promotional programs, the result of legal proceedings in which the
Company is or may become involved, the state of the interactive entertainment
industry and the general state of the national and global economies. In
addition, the Company's revenue will be affected by the seasonal nature of the
market for consumer electronics products and variations as a result of the
demand for particular software titles.

On June 23, 1997, the Company sold most of the assets of the Company's
hardware systems group, including certain intellectual properties and
approximately $1.5 million in equipment, to Samsung Electronics Co., Ltd.
("Samsung") for $20.0 million. The sale will result in a one time increase in
other income during the first quarter of fiscal year 1998. Additionally, the
sale is expected to result in a decrease in operating expenses during the fiscal
year 1998 due to decrease in personnel, facility and other overhead expenses
associated with the hardware systems group.

On April 1, 1996 the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-lived Assets and Long-lived Assets to be

22
<PAGE> 23

Disposed Of," which requires long-lived assets to be evaluated for impairment
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. The adoption of SFAS No. 121 did not have a material effect
on the Company's consolidated results of operations.

The Financial Accounting Standards Board recently issued SFAS No. 128,
"Earnings Per Share." SFAS No. 128 requires the presentation of basic earnings
per share (EPS) and, for companies with complex capital structures (or
potentially dilutive securities, such as convertible debt, options and
warrants), dilutive EPS. SFAS No. 128 is effective for annual and interim
periods ending after December 15, 1997. The Company will adopt the new standards
in the fiscal year ending March 31, 1998. The Company anticipates basic net
income (loss) per share to be slightly higher (lower) than net income (loss) per
share disclosed in the accompanying consolidated statements of operations and
anticipates dilutive net income (loss) per share to approximate such net income
(loss) per share as has been historically disclosed.

RESULTS OF OPERATIONS

The following discussions compare the results of operations for the fiscal
year ended March 31, 1997, to the fiscal year ended March 31, 1996, and the
fiscal year ended March 31, 1996, to the fiscal year ended March 31, 1995. The
operating results for each of the years ended March 31, 1997, 1996 and 1995 are
not necessarily indicative of operating results in future periods. The following
comparative information should be read in conjunction with the Consolidated
Financial Statements and Notes thereto for each period discussed, as well as the
information presented in other sections of Management's Discussion and Analysis.

FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31 CHANGE
---------------------------------------- ------------------
1997 %(A) 1996 %(A) AMOUNT %
------- ------ -------- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Royalties and license fees........ $79,167 85.7 $ 24,074 63.5 $55,093 228.9
Software publishing............... 9,540 10.3 7,330 19.3 2,210 30.2
Development systems and other..... 3,643 4.0 6,514 17.2 (2,871) (44.1)
------- ----- -------- ----- ------- -----
Total revenues...................... 92,350 100.0 37,918 100.0 54,432 143.6
------- ----- -------- ----- ------- -----
Cost of revenues:
Royalties and license fees........ 456 0.6 694 2.9 (238) (34.3)
Software publishing............... 5,397 56.6 3,989 54.4 1,408 35.3
Development systems and other..... 2,136 58.6 3,231 49.6 (1,095) (33.9)
------- ----- -------- ----- ------- -----
Total cost of revenues.............. 7,989 8.6 7,914 20.9 75 1.0
------- ----- -------- ----- ------- -----
Gross profit........................ 84,361 91.4 30,004 79.1 54,357 181.2
------- ----- -------- ----- ------- -----
Operating expenses:
Research and development.......... 42,077 45.6 41,184 108.6 893 2.2
Sales and marketing............... 8,043 8.7 6,837 18.0 1,206 17.6
General and administrative........ 11,310 12.3 9,535 25.2 1,775 18.6
Market development advertising.... -- -- 924 2.4 (924) (100.0)
In-process research and
development.................... 7,700 8.3 -- -- 7,700 --
------- ----- -------- ----- ------- -----
Total operating expenses............ 69,130 74.9 58,480 154.2 10,650 18.2
------- ----- -------- ----- ------- -----
Operating income (loss)............. 15,231 16.5 (28,476) (75.1) 43,707 --
Net interest and other income....... 2,115 2.3 684 1.8 1,431 209.2
------- ----- -------- ----- ------- -----
Income (loss) before income and
foreign withholding taxes......... 17,346 18.8 (27,792) (73.3) 45,138 --
Income and foreign withholding
taxes............................. 4,075 4.4 6,876 18.1 (2,801) (40.7)
------- ----- -------- ----- ------- -----
Net income (loss)................... $13,271 14.4 $(34,668) (91.4) $47,939 --
======= ===== ======== ===== ======= =====
</TABLE>

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

(a) Percentage of total revenues except cost of revenue components, which are a
percentage of their respective revenue amounts.

23
<PAGE> 24

Revenue for the year ended March 31, 1997, increased by approximately $54.4
million (144%) from $37.9 million in fiscal year 1996 to $92.3 million in fiscal
year 1997. Royalties and license fees were the largest component of revenue and
accounted for approximately 86% and 64% for the years ended March 31, 1997 and
1996, respectively, and represented an approximate $55.1 million (229%) increase
compared to the prior year. Royalties and license fees consisted of technology
license fees, software royalties, pressing fees, semiconductor royalties and MDF
revenue (see Note A of the Notes to the Consolidated Financial Statements).
Included in technology license fees is $75.1 million and $14.5 million for
fiscal year 1997 and 1996, respectively, revenue recognized under the M2
Agreement with Matsushita (see "Overview," above). The revenue recognition
methodology for the M2 Agreement is based upon the percentage-of-completion
method, as the Company fulfills its commitments to deliver technology as
specified in the agreement. Software royalties decreased from $6.7 million in
fiscal 1996 to $0.1 million in fiscal year 1997 due to decreases in sales of
software products compatible with 3DO multiplayer systems being manufactured by
third-party publishers. In light of the fact that the 3DO Multiplayer did not
achieve market acceptance, the Company does not expect to earn additional
revenues from software royalties and pressing fees related to the 3DO
Multiplayer platform in the future. The Company recognized $2.5 million in
revenue in fiscal year 1997 related to the Cirrus Agreement. No revenue was
recognized in fiscal year 1996 as the Cirrus Agreement commenced on February 29,
1996. Due to litigation between 3DO and Cirrus Logic, the Company does not
expect to derive additional revenue from the Cirrus Agreement in the future.

Software publishing revenue of approximately $9.5 million for the year
ended March 31, 1997, increased by approximately $2.2 million (30.2%) compared
to the prior fiscal year, which resulted from the Company's increased publishing
and distribution activities. Software publishing revenue is generated by the
Company's publishing, distribution, and licensing, of externally and internally
developed software titles. The increase in software publishing revenue is
primarily due to revenues generated from New World Computing, a division of 3DO,
which was acquired in June 1996. During fiscal year 1996, the Company recognized
approximately $1.4 million in software publishing revenues under the agreement
in which the Company granted Matsushita the right to license, manufacture and
distribute certain software titles developed by or for 3DO. Software revenue is
recorded net of reserves for price protection and returns.

Development systems and other revenue of $3.6 million for fiscal year 1997
decreased approximately $2.9 million (44%) compared to the prior fiscal year.
This decrease is comprised of a $0.6 million decrease in development systems
revenue and a decrease of approximately $2.1 million in other revenue compared
to the prior year. For the fiscal year ended March 31, 1997 development system
sales of $2.6 million was a decrease compared to the prior fiscal year, which
was a result of a decline in new orders for M2 development systems. Other
revenue for fiscal year 1997 totaled approximately $1.1 million and is primarily
comprised of engineering and development services and encryption and duplication
revenues. The decrease is primarily due to the decision to eliminate software
development activities for other publishers.

Cost of revenues of approximately $8.0 million increased by approximately
$0.1 million (1%), compared to the prior year. Cost of revenues consists of
direct costs associated with software titles and development systems products
sold, amortization of prepaid royalties (described in Note A of the Notes to the
Consolidated Financial Statements), and hardware systems incentives accrued on
all chipsets shipped into distribution. Internal development costs of software
title development for titles published by the Company or by third-party
publishers is recognized as incurred and included in research and development
expenses. Costs of revenues, as a percentage of revenue, were approximately 9%
for the fiscal year ended March 31, 1997 compared to approximately 21% for
fiscal year 1996. The decrease is primarily due to the increased proportion of
royalties and license fee revenue recognized for the year ended March 31, 1997,
which have significantly lower associated costs of revenues, compared to all
other types of revenues.

Research and development expenses, including in-process research and
development of approximately $49.8 million increased by approximately $8.6
million (21%) for the year ended March 31, 1997 compared to fiscal year 1996.
The increase was primarily due to a one-time $7.7 million charge for in-process
research and development related to the Company's acquisition of the assets of
New World Computing in June 1996, and on-going development expenses associated
with Cyclone Studios, Archetype Interactive and New World Computing, which were
acquired by the Company in November 1995, May 1996 and June 1996, respectively.
The increase was partially offset by the decrease in research and development
spending in the hardware

24
<PAGE> 25

systems division as the M2 development project approaches completion. The
Company anticipates that research and development expenses will significantly
decrease after the sale of its hardware systems unit to Samsung has been
completed.

Sales and marketing expenses, including market development advertising, of
approximately $8.0 million increased by approximately $0.3 million (3.6%) for
fiscal year 1997, compared to the prior fiscal year, primarily due to marketing
and promotional expenses associated with the Company's Internet game, Meridian
59.

General and administrative expenses of approximately $11.3 million
increased by approximately $1.8 million (19%) for fiscal year 1997, compared to
the prior fiscal year, primarily due to goodwill amortization expense related to
the New World Computing acquisition, and additional reserves recorded for bad
debt and other expenses.

Net interest and other income increased from $0.7 million to approximately
$2.1 million for the years ended March 31, 1996 and 1997, respectively. The net
increase was primarily due to an increase in interest income, due to increased
cash balances associated with payments received under the M2 Agreement and a
reduction of other expenses, which was partially offset by an increase in
interest expense on capital leases.

The provision for income and foreign withholding taxes decreased from $6.9
million for fiscal year 1996 to $4.1 million for fiscal year 1997. The decrease
is primarily attributable to $4.0 million in foreign withholding taxes
associated with a payment received under the M2 Agreement with Matsushita for
the current year compared to $6.0 million for the prior fiscal year (see
"Overview," above).

FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31 CHANGE
------------------------------------ -----------------
1996 %(A) 1995 %(A) AMOUNT %
-------- ----- -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Royalties and license fees.............. $ 24,074 63.5 $ 18,593 61.2 $ 5,481 29.5
Software publishing..................... 7,330 19.3 3,287 10.8 4,043 123.0
Development systems and other........... 6,514 17.2 8,500 28.0 (1,986) (23.4)
-------- ----- -------- ------ -------- ------
Total revenues............................ 37,918 100.0 30,380 100.0 7,538 24.8
-------- ----- -------- ------ -------- ------
Cost of revenues:
Royalties and license fees.............. 694 2.9 2,200 11.8 (1,506) (68.5)
Software publishing..................... 3,989 54.4 1,526 46.4 2,463 161.4
Development systems and other........... 3,231 49.6 3,451 40.6 (220) (6.4)
-------- ----- -------- ------ -------- ------
Total cost of revenues.................... 7,914 20.9 7,177 23.6 737 10.3
-------- ----- -------- ------ -------- ------
Gross profit.............................. 30,004 79.1 23,203 76.4 6,801 29.3
-------- ----- -------- ------ -------- ------
Operating expenses:
Research and development................ 41,184 108.6 36,483 120.1 4,701 12.9
Sales and marketing..................... 6,837 18.0 11,777 38.8 (4,940) (42.0)
General and administrative.............. 9,535 25.2 7,504 24.7 2,031 27.1
Market development advertising.......... 924 2.4 4,926 16.2 (4,002) (81.2)
Stock incentive......................... -- -- 8,359 27.5 (8,359) (100.0)
-------- ----- -------- ------ -------- ------
Total operating expenses.................. 58,480 154.2 69,049 227.3 (10,569) (15.3)
-------- ----- -------- ------ -------- ------
Operating loss............................ (28,476) (75.1) (45,846) (150.9) 17,370 37.9
Net interest and other income............. 684 1.8 437 1.4 247 56.5
-------- ----- -------- ------ -------- ------
Loss before income and foreign withholding
taxes................................... (27,792) (73.3) (45,409) (149.5) 17,617 38.8
Income and foreign withholding taxes...... 6,876 18.1 853 2.8 6,023 706.1
-------- ----- -------- ------ -------- ------
Net loss.................................. $(34,668) (91.4) $(46,262) (152.3) $ 11,594 25.1
======== ===== ======== ====== ======== ======
</TABLE>

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

(a) Percentage of total revenues except cost of revenue components, which are a
percentage of their respective revenue amounts.

25
<PAGE> 26

Revenue for the year ended March 31, 1996 increased by approximately $7.5
million (25%) from $30.4 million in fiscal 1995 to $37.9 million in fiscal year
1996. Royalties and license fees were the largest component of revenue and
accounted for approximately 64% and 61% for the years ended March 31, 1996 and
1995, respectively, and represented approximately a $5.5 million (30%) increase
compared to the prior year. Royalties and license fees consisted of technology
license fees, software royalties, pressing fees, semiconductor royalties and MDF
revenue (see Note A of the Notes to the Consolidated Financial Statements).
Included in technology license fees for the fiscal year ended March 31, 1996 is
$14.5 million of the $100.0 million license fee under the M2 Agreement with
Matsushita (see "Overview," above). There were no technology license fees in the
prior fiscal year. The revenue recognition methodology for the M2 Agreement is
based upon the percentage-of-completion method, as the Company fulfills its
commitments to deliver technology as specified in the agreement. Software
royalties and pressing fees decreased from $14.9 million in fiscal year 1995 to
$6.7 million in fiscal year 1996 due to the upfront license fee from Matsushita
for the right to manufacture 3DO-formatted CDs in Japan earned in fiscal year
1995, which was absent in fiscal year 1996, and decreases in sales of software
products being manufactured by third-party publishers. In light of the fact that
the 3DO Multiplayer did not achieve market acceptance, the Company does not
expect to derive software royalties and pressing fees related to the 3DO
Multiplayer platform in the future.

Software publishing revenue of approximately $7.3 million for the year
ended March 31, 1996 increased by approximately $4.0 million (123%) compared to
the prior fiscal year, which resulted from the Company's increased publishing
and distribution activities. Software publishing revenue is generated by the
Company's publishing, distribution, and licensing of externally and internally
developed software titles. In June 1995 the Company entered into an agreement
under which the Company granted Matsushita the right to license, manufacture and
distribute certain software titles developed by or for 3DO. During fiscal year
1996, the Company recognized approximately $1.4 million in software publishing
revenues under this agreement. The increase in software publishing revenue is
also attributed to sales from the release of ten published and three distributed
titles during fiscal year 1996. Software revenue is recorded net of reserves for
price protection and returns.

Development systems and other revenue of $6.5 million for fiscal year 1996
decreased approximately $2.0 million (23%), compared to the prior fiscal year.
This decrease is comprised of a $1.1 million decrease in development systems
revenue and a decrease of approximately $0.9 million in other revenue compared
to the prior year. For the fiscal year ended March 31, 1996 development system
sales of $3.3 million have decreased as new software development on the
Company's 3DO Multiplayer platform declined. This decrease was partially offset
by shipments of M2 development systems, which commenced in July 1995. Other
revenue for fiscal year 1996 totaled approximately $3.2 million of revenue and
was primarily comprised of engineering and development services and encryption
and duplication revenues. The decrease was primarily due to the decision to
eliminate software development activities for other publishers.

Cost of revenues of approximately $7.9 million for fiscal year 1996
increased by approximately $0.7 million (10%) compared to the prior year. Cost
of revenues consists of direct costs associated with software titles and
development systems products sold, amortization of prepaid royalties (described
in Note A of the Notes to the Consolidated Financial Statements), and hardware
systems incentives accrued on all chipsets shipped into distribution. Internal
development costs of software title development for titles published by the
Company or for third-party publishers is recognized as incurred and included in
research and development expenses. Cost of revenues, as a percentage of revenue,
was approximately 21% for the fiscal year ended March 31, 1996 compared to
approximately 24% for the same period in fiscal year 1995. The decrease was
primarily due to the increased proportion of royalties and license fee revenue
recognized for the year ended March 31, 1996 which have significantly lower
associated costs of revenues, compared to all other types of revenues.

Research and development expenses, including in-process research and
development, of approximately $41.2 million increased by approximately $4.7
million (13%) for the year ended March 31, 1996 compared to fiscal year 1995.
The increases were attributable to (i) the additional reserves for prepaid
royalties in the fiscal year, which resulted from disappointing sales during the
holiday season; (ii) increases in software title development for the 3DO
Multiplayer system, as well as 64-bit development for the M2 and the PC
platforms;

26
<PAGE> 27

and (iii) a research and development in-process charge associated with the
acquisition of Cyclone Studios, a software developer, in November 1995. The
Company anticipates that research and development expenses will increase in
future periods due to the Company's increasing levels of software development
activities.

Sales and marketing expenses of approximately $6.8 million decreased by
approximately $4.9 million (42%) for fiscal year 1996, compared to the prior
fiscal year, primarily due to reduced television advertising expenditures in
fiscal year 1996.

General and administrative expenses of approximately $9.5 million increased
by approximately $2.0 million (27%) for fiscal year 1996, compared to the prior
fiscal year, primarily due to the additional reserves recorded for bad debt,
legal and other expenses.

Stock incentive expenses of approximately $8.4 million for the fiscal year
ended March 31, 1995, represents the market value of the stock issued or to be
issued under the stock incentive program described in Note I of the Notes to the
Consolidated Financial Statements. The stock incentive program concluded on
December 31, 1994, and there was no comparable expense for the fiscal year ended
March 31, 1996.

In October 1994, the Company established a Market Development Fund ("MDF")
program under which a pressing fee was charged to authorized CD pressing
facilities for each copy of a licensed software title that was manufactured
outside of Japan. Marketing expenses under the MDF program decreased by
approximately $4.0 million (81%) in the fiscal year ended March 31, 1996
compared to the prior fiscal year. The MDF program started in October 1994, and
until December 31, 1994 all funds collected under this program were used for
advertising and promoting the 3DO format and product family. Starting in January
1995, a portion of the MDF funds was used for advertising and promotions and the
remaining funds have or will be paid to certain hardware system licensees, based
on the quantity of hardware systems shipped into certain markets.

Net interest and other income increased from $0.4 million to approximately
$0.7 million for the years ended March 31, 1995 and 1996, respectively. The net
increase was primarily due to an increase in interest income, due to increased
cash balances associated with payments received under the M2 Agreement, and a
reduction of other expense, which was partially offset by an increase in
interest expense on capital leases.

The provision for income and foreign withholding taxes increased to
approximately $6.9 million for the fiscal year 1997 compared to the prior fiscal
year. The increase in fiscal year 1997 was primarily attributable to $6.0
million in foreign withholding taxes associated with a payment received under
the M2 Agreement with Matsushita (see "Overview," above).

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of liquidity are its cash and cash
equivalent balances and short-term investments, which totaled approximately
$33.6 million and $50.1 million as of March 31, 1997 and 1996, respectively. The
decrease in fiscal year 1997 was attributable to cash used in operating
activities, offset by cash received in connection with the M2 Agreement with
Matsushita. (See Note G of the Notes to the Consolidated Financial Statements.
The current ratio (current assets to current liabilities) was 1.64 to 1 as of
March 31, 1997, compared to .89 to 1 as of March 31, 1996. This improvement is
primarily due to decreases in deferred revenue, accounts payable and current
hardware incentive obligations balances as of March 31, 1997, which were
partially offset by decreased cash and short-term investments balances. Net cash
used in operating activities was $8.0 million for the fiscal year ended March
31, 1997, which compares with net cash provided by operating activities of $22.5
million for fiscal year 1996. The deterioration in cash position was primarily
due to the reduction in deferred revenue balance, which was a result of the
recognition of the M2 revenue. This was offset by the $36.0 million cash
payment, net of foreign withholding tax, received from Matsushita during fiscal
year 1997. For the fiscal year ended March 31, 1997, the Company invested
approximately $4.3 million ($3.3 million in the prior year) in fixed assets,
excluding assets acquired under capital lease obligations, which were primarily
purchases of computer equipment, software applications and office furnishings.
In relation to the acquisition of New World Computing, the Company paid
approximately $5 million in cash and issued approximately 1.02 million shares of
common stock to NTN (see "Overview," above).

27
<PAGE> 28

The Company anticipates that existing cash resources, working capital
financing and all other sources of funds (including the $20.0 million proceeds
from the sale of the Company's hardware division to Samsung) should be
sufficient to fund the Company's activities through the end of fiscal year 1998.
There can be no assurance that additional capital will not be required in fiscal
year 1999 since cash flows will be affected by the rate at which the Company
develops, publishes and distributes software titles and the resulting sale of
these products, the market acceptance of such products and the levels of
advertising and promotions required to promote market acceptance. The Company
anticipates that it may require additional capital beyond fiscal year 1998. The
level of financing required beyond fiscal year 1998 will depend on these and
other factors. If the Company needs to raise additional funds through public or
private financing, no assurance can be given that additional financing will be
available or that, if available, it will be available on terms acceptable to the
Company or its stockholders. Additional financings may result in substantial and
immediate dilution to existing stockholders. If adequate funds are not available
to satisfy either short- or long-term capital requirements, the Company may be
required to curtail its operations significantly or to obtain funds through
arrangements with strategic partners or others that may require the Company to
relinquish material rights to certain of its technologies and/or potential
markets.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The Independent Auditors' Report, Consolidated Financial Statements and
Notes to Consolidated Financial Statements follow on Pages 29 through 46.

28
<PAGE> 29

INDEPENDENT AUDITORS' REPORT

The Board of Directors
The 3DO Company:

We have audited the accompanying consolidated balance sheets of The 3DO
Company and subsidiaries as of March 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended March 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The 3DO
Company and subsidiaries as of March 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1997, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

San Jose, California
May 14, 1997, except as to Note Q,
which is as of June 23, 1997

29
<PAGE> 30

THE 3DO COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1997 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 14,395 $ 9,459
Short-term investments............................................. 19,222 40,686
Accounts receivable, net........................................... 429 2,060
Prepaid and other current assets................................... 1,861 2,212
---------- ----------
Total current assets....................................... 35,907 54,417
Property and equipment, net.......................................... 6,681 8,642
Deposits and other assets............................................ 2,366 271
---------- ----------
Total assets............................................... $ 44,954 $ 63,330
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 569 $ 1,905
Accrued expenses................................................... 3,251 3,814
Deferred revenue................................................... 11,992 47,818
Current portion of capital lease obligations....................... 807 1,424
Hardware incentive obligations..................................... 2,944 4,620
Other current liabilities.......................................... 2,277 1,787
---------- ----------
Total current liabilities.................................. 21,840 61,368
Capital lease obligations, net of current portion.................... 611 1,287
Other liabilities.................................................... 1,104 544
---------- ----------
Total liabilities.......................................... 23,555 63,199
---------- ----------
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000 shares authorized; no
shares issued................................................... -- --
Common stock, $0.01 par value; 50,000 shares authorized; 28,369 and
26,003 shares issued and outstanding, respectively.............. 284 260
Additional paid-in capital......................................... 158,489 150,541
Cumulative translation adjustment.................................. (164) (189)
Accumulated deficit................................................ (137,210) (150,481)
---------- ----------
Total stockholders' equity................................. 21,399 131
---------- ----------
Total liabilities and stockholders' equity................. $ 44,954 $ 63,330
========== ==========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

30
<PAGE> 31

THE 3DO COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Revenues:
Royalties and license fees................................ $79,167 $ 24,074 $ 18,593
Software publishing....................................... 9,540 7,330 3,287
Development systems and other............................. 3,643 6,514 8,500
-------- --------- ---------
Total revenues.............................................. 92,350 37,918 30,380
-------- --------- ---------
Cost of revenues:
Royalties and license fees................................ 456 694 2,200
Software publishing....................................... 5,397 3,989 1,526
Development systems and other............................. 2,136 3,231 3,451
-------- --------- ---------
Total cost of revenues...................................... 7,989 7,914 7,177
-------- --------- ---------
Gross profit................................................ 84,361 30,004 23,203
-------- --------- ---------
Operating expenses:
Research and development.................................. 42,077 40,356 36,483
Sales and marketing....................................... 8,043 6,837 11,777
General and administrative................................ 11,310 9,535 7,504
Market development advertising............................ -- 924 4,926
Stock incentive........................................... -- -- 8,359
In-process research and development....................... 7,700 828 --
-------- --------- ---------
Total operating expenses.................................... 69,130 58,480 69,049
-------- --------- ---------
Operating income (loss)..................................... 15,231 (28,476) (45,846)
Net interest and other income............................... 2,115 684 437
-------- --------- ---------
Income (loss) before income and foreign withholding taxes... 17,346 (27,792) (45,409)
Income and foreign withholding taxes........................ 4,075 6,876 853
-------- --------- ---------
Net income (loss)........................................... $13,271 $(34,668) $(46,262)
======== ========= =========
Net income (loss) per common and common equivalent share.... $ 0.46 $ (1.36) $ (2.04)
======== ========= =========
Common and common equivalent shares used in
computing per share amounts............................... 29,103 25,456 22,697
======== ========= =========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

31
<PAGE> 32

THE 3DO COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
--------------- PAID-IN TRANSLATION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT EQUITY
------ ------ ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances as of March 31, 1994...... 20,023 $200 $ 85,209 $ 21 $ (69,551) $ 15,879

Sale of common stock, net of
issuance costs of $654........... 2,984 30 36,248 36,278
Sale of common stock through
employee stock plans and other
plans............................ 475 5 1,149 1,154
Common stock to be issued under
stock incentive program.......... 8,359 8,359
Foreign currency translation....... 277 277
Net loss........................... (46,262) (46,262)
------ ---- -------- ----- --------- --------
Balances as of March 31, 1995...... 23,482 235 130,965 298 (115,813) 15,685

Sale of common stock, net of
issuance costs of $5............. 1,580 16 16,537 16,553
Issuance of common stock for
acquisition...................... 50 506 506
Sale of common stock through
employee stock plans and other
plans............................ 491 5 2,537 2,542
Common stock issued under stock
incentive program................ 400 4 (4) --
Foreign currency translation....... (487) (487)
Net loss........................... (34,668) (34,668)
------ ---- -------- ----- --------- --------
Balances as of March 31, 1996...... 26,003 260 150,541 (189) (150,481) 131

Issuance of common stock for
acquisition...................... 1,610 16 5,664 5,680
Sale of common stock through
employee stock plans and other
plans............................ 709 7 1,844 1,851
Common stock issued under stock
incentive program................ 47 1 440 441
Foreign currency translation....... 25 25
Net income......................... 13,271 13,271
------ ---- -------- ----- --------- --------
Balances as of March 31, 1997...... 28,369 $284 $ 158,489 $ (164) $(137,210) $ 21,399
====== ==== ======== ===== ========= ========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

32
<PAGE> 33

THE 3DO COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 13,271 $(34,668) $(46,262)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 7,446 5,630 5,080
Stock incentive....................................... -- -- 8,359
Deferred revenue...................................... (35,870) 46,713 (1,623)
In-process research and development................... 7,700 828 --
Changes in operating assets and liabilities:
Accounts receivable, net............................ 2,571 3,751 (3,895)
Prepaid and other assets............................ 733 902 (833)
Accounts payable.................................... (2,249) (1,531) 908
Accrued expenses.................................... (1,540) (618) 1,913
Hardware incentives................................. (1,236) 975 2,618
Other liabilities................................... 1,095 547 441
-------- -------- --------
Net cash provided by (used in) operating activities........ (8,079) 22,529 (33,294)
-------- -------- --------
Cash flows from investing activities:
Short-term investments, net.............................. 21,500 (31,155) 2,273
Capital expenditures..................................... (4,304) (3,265) (3,410)
Acquisition of businesses................................ (4,575) (442) --
-------- -------- --------
Net cash provided by (used in) investing activities........ 12,621 (34,862) (1,137)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net.............. 1,851 19,095 37,432
Payments on capital lease obligations.................... (1,446) (1,631) (960)
-------- -------- --------
Net cash provided by financing activities.................. 405 17,464 36,472
-------- -------- --------
Effect of foreign currency translation..................... (11) (518) 302
-------- -------- --------
Net increase in cash and cash equivalents.................. 4,936 4,613 2,343
Cash and cash equivalents at beginning of year............. 9,459 4,846 2,503
-------- -------- --------
Cash and cash equivalents at end of year................... 14,395 $ 9,459 $ 4,846
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest................................................. $ 628 $ 757 $ 442
Income and foreign withholding taxes..................... $ 4,075 $ 6,776 $ 760
Noncash investing and financing transactions:
Assets acquired under capital lease obligations.......... $ 152 $ 245 $ 5,059
Common stock issued in connection with business
acquisitions.......................................... $ 5,680 $ 506 $ --
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

33
<PAGE> 34

THE 3DO COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1997, 1996, AND 1995

A. SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

In April 1993, The 3DO Company was incorporated as a Delaware holding
company. The accompanying Consolidated Financial Statements include the accounts
of The 3DO Company and its wholly owned subsidiaries (the "Company"). The 3DO
Company develops, publishes and markets interactive entertainment products for
multiple platforms. All significant intercompany balances and transactions have
been eliminated in consolidation. Certain prior-year amounts have been
reclassified to conform to the current year's presentation.

Use of Estimates

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

Cash Equivalents and Short-term Investments

Cash equivalents include highly liquid investments with original maturities
of 90 days or less.

The Company has classified its investments in certain debt securities as
"available-for-sale." Such investments are recorded at fair value, with material
unrealized gains and losses reported as a separate component of stockholders'
equity. Fair value is based on quoted market prices for these or similar
investments. Realized gains and losses are recorded in the accompanying
Consolidated Statements of Operations and were immaterial during the periods
presented. The cost of securities sold is based upon the specific identification
method (see Note B, "Available-for-sale Securities").

Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization
are calculated using the straight-line method over the shorter of the estimated
useful lives or lease terms, if applicable, of the assets, which range from one
to five years.

Stock-Based Compensation

Effective April 1, 1996, the Company adopted the disclosure provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which requires pro forma disclosure of net income and
earnings per share as if SFAS No. 123's fair value method had been applied. The
Company continues to apply the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," for the preparation
of its basic consolidated financial statements. (See Note F, "Stock Plans").

Revenue Recognition

Revenue pertaining to the license fees, including that from the M2
Technology Agreement (the "M2 Agreement"), is being recognized using the
percentage-of-completion method based on the costs incurred to fulfill the
Company's commitments to deliver technology as specified in the agreement.
Revenue from the sales of software titles published and distributed by the
Company, and revenue from the sales of development systems is recognized at the
time of shipment, provided the Company has no significant outstanding
obligations. Subject to certain limitations, the Company permits customers to
obtain exchanges of software

34
<PAGE> 35

THE 3DO COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

MARCH 31, 1997, 1996, AND 1995

titles published and distributed by the Company, within certain specified
periods, and provides price protection to retailers on certain unsold
merchandise. Software publishing revenue is reflected net of an allowance for
returns and price protection. Revenue from software title development agreements
with third-party publishers and third-party engineering agreements is recognized
upon the attainment of contractual milestones (approximating the
percentage-of-completion method) and is included in "Development systems and
other revenues" in the accompanying Consolidated Statements of Operations. The
Company recognizes revenue from royalty and pressing fee agreements upon receipt
of documentation indicating that the compact disc ("CD") manufacturer shipped
CDs to the software title developers or publishers, or the licensed chipset
foundry shipped chipsets to the hardware manufacturers. Revenue from software
maintenance, including maintenance bundled with the development systems, is
recognized on a straight-line basis over the term of the agreement, generally
one year, and is included in other revenue.

Deferred revenue consists primarily of payments received in advance of
revenue being earned under the M2 Agreement (see Note G, "Matsushita Electric
Industrial Co., Ltd. Agreements," for further information), engineering and
development agreements, certification fees, and deposits.

Prepaid Royalties

Prepaid royalties represent prepayments made to independent software
developers under development agreements and are included in "Prepaid and other
current assets" in the accompanying Consolidated Balance Sheets. Prepaid
royalties are expensed at the contractual royalty rate as cost of revenues based
on actual net product sales. Management evaluates the future realization of
prepaid royalties quarterly, and charges to expense any amounts that management
deems unlikely to be amortized at the contractual royalty rate through product
sales.

Since technological feasibility for internally developed software occurs
nearly simultaneously with product release, internal development costs on
software title development for titles published by the Company are recognized as
incurred and shown in "Operating expenses" in the accompanying Consolidated
Statements of Operations.

Other Assets

Intangible assets, primarily goodwill from the acquisition of New World
Computing, are stated at cost less accumulated amortization and are included in
other assets. The Company periodically reviews the net realizable value of its
intangible costs and adjusts the carrying amount accordingly.

Income Taxes

The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. A valuation allowance is recorded to
reduce deferred tax assets to an amount whose realization is more likely than
not.

Foreign Currency Translation

The functional currencies of the Company's foreign subsidiaries are the
local currencies. The Company translates assets and liabilities to U.S. dollars
at the current exchange rate as of the applicable balance sheet date. Revenue
and expenses are translated at the average exchange rates prevailing during the
period. Adjustments resulting from the translation of the foreign subsidiaries'
financial statements are reported as a separate component of stockholders'
equity. Gains and losses from foreign currency transactions are a result of

35
<PAGE> 36

THE 3DO COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

MARCH 31, 1997, 1996, AND 1995

the effect of exchange rate changes on transactions denominated in currencies
other than the functional currencies. Net gains and losses resulting from
foreign exchange transactions were immaterial during the periods presented.

Net Income (Loss) Per Share

Net income (loss) per share is computed based on the weighted average
number of common shares outstanding, and common equivalent shares from stock
options, when dilutive, using the treasury stock method. The computation for the
net income (loss) per share for the years ended March 31, 1997, 1996 and 1995,
includes common stock to be issued under the Stock Incentive Program, described
in Note I, "Incentive and Promotional Programs."

Recent Accounting Pronouncements

On April 1, 1996 the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of,"
which requires long-lived assets to be evaluated for impairment whenever events
or changes in circumstances indicate that the carrying value may not be
recoverable. The adoption of SFAS No. 121 did not have a material effect on the
Company's consolidated results of operations.

The Financial Accounting Standards Board recently issued SFAS No. 128,
"Earnings Per Share." SFAS No. 128 requires the presentation of basic earnings
per share (EPS) and, for companies with complex capital structures (or
potentially dilutive securities, such as convertible debt, options and
warrants), dilutive EPS. SFAS No. 128 is effective for annual and interim
periods ending after December 15, 1997. The Company will adopt the new standards
in the fiscal year ending March 31, 1998. The Company anticipates basic net
income (loss) per share to be slightly higher (lower) than net income (loss) per
share disclosed in the accompanying Consolidated Statements of Operations and
anticipates dilutive net income (loss) per share to approximate such net income
(loss) per share as has been historically disclosed.

B. AVAILABLE-FOR-SALE SECURITIES

Available-for-sale securities classified as current assets as of March 31,
1997 and 1996 included the following:

<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1997 1996
----------- -----------
AGGREGATE AGGREGATE
FAIR VALUE FAIR VALUE
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term investments:
U. S. Treasury and other government agency
obligations..................................... $15,710 $35,662
Commercial debt securities......................... 3,512 5,024
------- -------
Total short-term investments......................... $19,222 $40,686
Cash equivalents:
Money market funds................................. 7,963 9,459
Asset backed repurchase agreement.................. 4,946 --
------- -------
Total cash equivalents............................... 12,909 9,459
------- -------
Total available-for-sale securities.................. $32,131 $50,145
======= =======
</TABLE>

36
<PAGE> 37

THE 3DO COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

MARCH 31, 1997, 1996, AND 1995

The aggregate fair value of the Company's investment in available-for-sale
securities as of March 31, 1997, by contractual maturity, consisted of the
following:

<TABLE>
<CAPTION>
AGGREGATE
FAIR VALUE
--------------
(IN THOUSANDS)
<S> <C>
Due in one year or less........................................ $ 32,611
Due in one to three years...................................... 1,006
-------
$ 33,617
=======
</TABLE>

The aggregate fair value approximates amortized cost.

C. ALLOWANCE FOR DOUBTFUL ACCOUNTS, RETURNS AND PRICE PROTECTION

The following summarizes the activity for the allowance for doubtful
accounts, returns and price protection for the years ended March 31, 1997, 1996
and 1995:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year.................... $ 2,329 $ 249 $ 175
Additions....................................... 4,873 4,540 129
Deductions...................................... (4,094) (2,460) (55)
------ ------ -----
Balance at end of year.......................... $ 3,108 $ 2,329 $ 249
====== ====== =====
</TABLE>

D. PROPERTY AND EQUIPMENT

Property and equipment as of March 31, 1997 and 1996 consisted of:

<TABLE>
<CAPTION>
MARCH 31,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Computer and manufacturing equipment................... $ 18,616 $ 15,345
------ ------
Furniture, fixtures and leasehold improvements......... 3,828 3,425
Computer software...................................... 4,824 3,859
------ ------
Property and equipment, at cost........................ 27,268 22,629
Less accumulated depreciation and amortization......... (20,587) (13,987)
------ ------
Property and equipment, net............................ $ 6,681 $ 8,642
====== ======
</TABLE>

As of March 31, 1997 and 1996, property and equipment includes
approximately $5.5 and $5.3 million of assets acquired under capital lease
obligations, respectively. Accumulated amortization related to these lease
obligations was approximately $5.2 million and $3.4 million as of March 31, 1997
and 1996, respectively.

Depreciation and amortization expense associated with property and
equipment amounted to approximately $6.6 million, $5.6 million and $5.1 million
for the fiscal years ended March 31, 1997, 1996 and 1995, respectively.

37
<PAGE> 38

THE 3DO COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

MARCH 31, 1997, 1996, AND 1995

E. ACCRUED EXPENSES

Accrued expenses as of March 31, 1997 and 1996, consisted of the following:

<TABLE>
<CAPTION>
MARCH 31,
-----------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accrued compensation....................................... $ 909 $1,435
Other...................................................... 2,342 2,379
------- -------
$3,251 $3,814
======= =======
</TABLE>

F. STOCK PLANS

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan whereby eligible employees
may authorize payroll deductions of up to 15% of their compensation to purchase
shares at 85% of the lower of the fair market value of the common stock on the
date of commencement of the two-year offering period, or on the last day of each
six-month purchase period. The Employee Stock Purchase Plan commenced in
September 1994. In fiscal years 1997 and 1996, 204,254 and 179,059 shares,
respectively, were issued by the Company to employees, at a price ranging from
$3.98 to $6.80, and $8.02 to $8.50 per share, respectively. The weighted-average
fair value of the rights issued to employees to purchase a share of stock under
the Stock Purchase Plan was $2.93 and $4.65 at March 31, 1997 and 1996,
respectively. As of March 31, 1997 and 1996, the Company had 550,555 and 754,809
shares, respectively, of common stock reserved for future issuance under the
Employee Stock Purchase Plan.

Stock Option Plans

The Company's 1993 Incentive Stock Plan (the "Plan") authorizes the
granting of incentive and non-qualified stock options and stock purchase rights
to employees. Incentive stock options must be granted with exercise prices at
least equal to the fair market value of the common stock on the date of grant,
as determined by the Company's Board of Directors. Non-qualified stock options
and stock purchase rights must be granted with exercise prices at least equal to
85% of the fair market value of the common stock on the grant date, as
determined by the Board of Directors. Stock options generally vest over a
sixty-month period. Unexercised options generally expire 10 years from date of
grant. A small number of options have been granted to executives and key
employees which vest over 3 years, subject to meeting certain performance goals,
and are included in the stock plan information presented below.

As of March 31, 1997 and 1996, 13,211,136 and 9,618,275 shares,
respectively, of common stock have been authorized for issuance under the Plan.

38
<PAGE> 39

THE 3DO COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

MARCH 31, 1997, 1996, AND 1995

Transactions for the years ended March 31, 1997, 1996 and 1995, were as
follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
OPTIONS ----------------------------
AVAILABLE AVERAGE
FOR GRANT SHARES OPTION PRICE
----------- ----------- ------------
<S> <C> <C> <C>
Outstanding as of March 31, 1994... 422,138 3,580,185 $11.75
Authorized......................... 1,641,571
Granted............................ (3,848,563) 3,848,563 11.72
Terminated......................... 2,949,570 (2,949,570) 18.94
Exercised.......................... -- (430,730) 1.42
----------- -----------
Outstanding as of March 31, 1995... 1,164,716 4,048,448 7.57
-----------

Authorized......................... 3,848,705

Granted............................ (2,627,704) 2,627,704 11.60
Terminated......................... 1,057,208 (1,035,031) 10.22
Exercised.......................... -- (312,592) 3.53
----------- -----------
Outstanding as of March 31, 1996... 3,442,925 5,328,529 9.28
-----------

Authorized......................... 3,000,000

Granted............................ (16,005,702) 16,005,702 6.79
Terminated......................... 13,306,657 (13,306,657) 8.82
Exercised.......................... -- (438,085) 1.64
----------- -----------
Outstanding as of March 31, 1997... 3,743,880 7,589,489 $ 5.27
=========== ===========
</TABLE>

The weighted-average fair values of options granted during 1997 and 1996,
were $2.41 and $6.13, respectively.

As of March 31, 1997, 1996 and 1995, 1,618,167, 1,486,055 and 854,011
options, respectively, were exercisable under the Plan. The weighted-average
exercise prices for the shares exercisable at March 31, 1997, 1996 and 1995 were
$4.84, $6.54, and $4.00, respectively.

The following table summarizes information about fixed stock options
outstanding at March 31, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- -----------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
- ---------------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0.05 to $0.40 221,241 5.23 $ 0.12 190,323 $ 0.11
$2.00 104,956 5.83 $ 2.00 87,230 $ 2.00
$5.00 to $6.25 7,111,436 9.59 $ 5.37 1,291,612 $ 5.51
$8.15 to $11.13 83,356 9.15 $ 8.37 20,502 $ 8.27
$12.25 68,500 8.31 $ 12.25 28,500 $ 12.25
--------- ---------
$0.05 to $12.25 7,589,489 9.40 $ 5.27 1,618,167 $ 4.84
========= =========
</TABLE>

In November 1993, December 1993, May 1994, December 1994, April 1996,
October 1996 and April 1997, the Board of Directors approved the repricing of
options granted at prices in excess of $34.00, $23.50, $9.875, $10.75, $8.25,
$5.50 and $3.25 per share, respectively, for all employees, including executive
officers.

39
<PAGE> 40

THE 3DO COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

MARCH 31, 1997, 1996, AND 1995

Pro Forma Net Income (Loss)

Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company is required to disclose the pro forma effects on net income (loss) and
net income (loss) per share data as if the Company had elected to use the fair
value approach to account for all its employee stock-based compensation plans.
Had compensation cost for the Company's plans been determined consistent with
the fair value approach enumerated in SFAS No. 123, the Company's pro forma net
income and pro forma net income per share for the year ended March 31, 1997, and
the pro forma net loss and pro forma net loss per share for the year ended March
31, 1996, would have been as indicated below:

<TABLE>
<CAPTION>
YEARS ENDED MARCH
31,
--------------------
1997 1996
------- --------
<S> <C> <C>
Net income (loss) as reported........................... $13,271 $(34,668)
Pro forma............................................... 7,230 (36,064)
Earnings (loss) per share as reported................... $ 0.46 $ (1.36)
Pro forma............................................... $ 0.26 $ (1.42)
</TABLE>

The effects of applying SFAS No. 123 may not be representative of the
effects on reported operating results for future years as the pro forma
calculations are based on grants made in fiscal years 1996 and 1997 only. The
fair value of employee stock options and employee stock purchase plan rights are
estimated on the date of grant using the Black Scholes option-pricing model with
the following weighted-average assumptions used for fiscal years 1997 and 1996:

<TABLE>
<CAPTION>
OPTION PLANS ESPP
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted-average risk free rate............... 6.01% 5.93% 6.04% 5.59%
2 years with
6 month
Expected life of options/rights (in years).... 3.5 3.5 increments
Expected stock price volatility............... 68% 68% 68% 68%
Dividend yield................................ -- -- -- --
Forfeiture rate............................... 60% 60% 60% 60%
</TABLE>

G. MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD. AGREEMENTS

On December 7, 1995 the Company and Matsushita entered into a definitive
license agreement pursuant to which the Company granted Matsushita a perpetual,
exclusive, worldwide license, with the right to grant sublicenses, with respect
to the M2 Technology, for use in both hardware and software for games and all
other applications. The license was granted in exchange for an upfront license
payment of $100 million, and for certain royalties which shall be paid to the
Company for certain software products manufactured after January 1, 1998, which
are compatible with the M2 Technology. Under the terms of the M2 Agreement,
Matsushita granted the Company a non-exclusive license to use the M2 Technology
for the development, manufacture and distribution of (i) hardware products
designed for use in the computer field, (ii) software and peripherals compatible
with hardware products developed by Matsushita or its sublicensees that
incorporate the M2 Technology, and (iii) development systems to be used by third
parties outside of Japan that are authorized by Matsushita to develop and
publish software products compatible with hardware products that incorporate the
M2 Technology. Revenue pertaining to the license fees under the M2 Agreement is
being recognized by the Company using the percentage-of-completion method based
on the costs incurred to fulfill its commitments to deliver technology as
specified in the agreement. The Company estimates that it will recognize
substantially all of the revenue in connection with the M2 Agreement through

40
<PAGE> 41

THE 3DO COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

MARCH 31, 1997, 1996, AND 1995

June 30, 1997. For the years ending March 31, 1997 and 1996, the Company
incurred costs of approximately $6.3 million and $4.3 million, respectively, in
connection with fulfilling its commitments under the M2 Agreement. This amount
is included in research and development expenses.

In conjunction with the above transaction, Matsushita and the Company
entered into a separate stock purchase and license agreement whereby Matsushita
acquired all of the outstanding capital stock of 3DO Japan Co., Ltd.

H. CIRRUS LOGIC, INC.

On February 29, 1996, the Company and Cirrus Logic, Inc. ("Cirrus Logic")
entered into a Joint Development and License Agreement (the "Cirrus Agreement")
regarding the Company's development and license to Cirrus Logic of certain
modifications to the "3-D Engine," which is a component of the Company's
proprietary semiconductor technology. As consideration under the Cirrus
Agreement, the Company is to receive a nonrefundable amount not to exceed $7.8
million, of which $2.5 million was received as of March 31, 1997. This payment
has been recognized as revenue using the percentage of completion method.

On October 3, 1996, Cirrus filed a complaint to rescind the Cirrus
Agreement on the grounds of frustration of purpose, mistake, failure of
consideration, concealment, and non-disclosure, and to obtain a repayment of
$2.5 million in nonrefundable payments made to the Company. The Company has
responded to Cirrus' complaint and filed a cross-complaint regarding Cirrus'
breach of the Cirrus Agreement and seeking to enforce its rights under said
agreement, including procurement of Cirrus' payment of $4.5 million in
nonrefundable license fees, prepaid royalties and termination fees, plus
damages, interest, and attorneys' fees and costs. Although the Company believes
Cirrus has specific obligations under the contract to pay an additional $4.5
million in nonrefundable license fees, prepaid royalties, and termination fees,
there can be no assurance that the Company will prevail in the litigation, will
not be required to refund the $2.5 million payment received from Cirrus, or will
receive the additional $4.5 million that it believes Cirrus owes under the
Cirrus Agreement.

I. INCENTIVE AND PROMOTIONAL PROGRAMS

Incentive Programs

The Company provided a manufacturing incentive of $5.00, $4.00 and $3.00
for each 3DO Multiplayer system distributed in calendar years 1993, 1994 and
1995 (or 1994, 1995 and 1996 for units distributed within the Japanese market),
respectively. Amounts under the Manufacturing Incentive Program and certain
other incentive programs were accrued as the obligation arose and as of March
31, 1997, the Company had accrued approximately $2.9 million. In May 1996, one
of the Company's hardware licensees elected to receive 47,090 shares of the
Company's stock in lieu of a cash payment of $0.4 million. In addition, a total
cash payment of $1.2 million was paid on April 1, 1996. The March 31, 1997
balance is due to be paid in fiscal 1998.

The Company entered into an agreement with its hardware system licensees to
provide two shares of 3DO Common Stock for each 3DO hardware system they shipped
from February 1, 1994 through September 30, 1994 at or below certain suggested
retail prices (the Stock Incentive Program). The Stock Incentive Program was
extended through December 31, 1994 for one of the licensees. The market value of
the stock to be issued under the Stock Incentive Program was recognized as an
expense at the time the Company

41
<PAGE> 42

THE 3DO COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

MARCH 31, 1997, 1996, AND 1995

incurred the obligation to issue the stock, and is separately reflected in the
Consolidated Statements of Operations. As of March 31, 1997, the Company had
issued 466,826 shares under this program and anticipates issuing the remaining
23,264 shares during the next fiscal year.

Promotional Program

In October 1994, the Company established a Market Development Fund ("MDF")
program under which a pressing fee was charged to authorized CD pressing
facilities for the manufacture of compact discs compatible with the 3DO
Multiplayer format. Under the MDF program, a pressing fee was charged for each
copy of any such software title that was manufactured outside of Japan. In the
quarter ended December 31, 1994, all funds collected under this program were
used for advertising and promoting the 3DO Multiplayer format and related
product family. Beginning January 1, 1995, a portion of the MDF funds was used
by the Company for advertising and promotions based on hardware systems shipped
in certain markets, to encourage Licensees' production and the reduction of the
pricing of such systems. All such pressing fees are recognized as revenue, and
the amount due to hardware systems licensees is accrued and recorded as an
offset to revenue, as the applicable CDs are pressed. The related advertising
and promotions expenditures under the program are recorded as incurred and are
separately reflected as an operating expense in the accompanying Consolidated
Statements of Operations.

J. NET INTEREST AND OTHER INCOME

Net interest and other income for the fiscal years ended March 31, 1997,
1996 and 1995, consisted of the following:

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income................................. $ 2,720 $1,422 $1,123
Interest expense................................ (628) (757) (442)
Other income (expense), net..................... 23 19 (244)
------- ------ ------
$ 2,115 $ 684 $ 437
======= ====== ======
</TABLE>

K. INCOME TAXES

The provision for income taxes consisted of the following:

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------
1997 1996 1995
------- ------ ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal......................................... $ 75 $ 502 $ --
State and local................................. 1 1 1
Foreign......................................... 3,999 6,373 852
------ ----- ----
Total current..................................... 4,075 6,876 853
------ ----- ----
Total deferred.................................... -- -- --
------ ----- ----
Total income taxes................................ $ 4,075 $6,876 $853
====== ===== ====
</TABLE>

42
<PAGE> 43

THE 3DO COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

MARCH 31, 1997, 1996, AND 1995

The differences between the statutory income tax rate and the Company's
effective tax rate, expressed as a percentage of income before provision for
income taxes, for the years ended March 31, 1997, 1996 and 1995 were as follows:

<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Statutory federal tax rate.......................................... 34.0% (34.0%) (34.0%)
Valuation allowance................................................. (33.6) 32.2 34.0
Foreign tax withholding............................................. 23.1 (22.9) (1.9)
----- ----- -----
23.5% (24.7%) (1.9%)
</TABLE>

The tax effect of temporary differences that give rise to significant
portions of deferred tax assets as of March 31, 1997 and 1996, are presented as
follows:

<TABLE>
<CAPTION>
MARCH 31,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Depreciation and amortization........................ $ 2,452 $ 2,232
Accrued expenses and reserves........................ 2,880 1,058
Deferred revenue..................................... 4,813 18,848
Deferred research and development costs.............. 5,260 5,089
Net operating loss carryforwards..................... 30,581 26,194
Tax credit carryforwards............................. 21,340 12,815
-------- --------
Total gross deferred tax assets........................ 67,326 66,236
Less valuation allowance............................... (67,326) (66,236)
-------- --------
Net deferred tax assets................................ $ -- $ --
======== ========
</TABLE>

The valuation allowance increased $1.1 million in the year ended March 31,
1997. Approximately $0.6 million of the valuation allowance is related to
benefits associated with employee stock options which will be allocated to
equity when realized.

As of March 31, 1997, the Company had cumulative federal net operating loss
carryforwards of approximately $90.3 million for federal income tax purposes,
which if not offset against future taxable income, will expire in fiscal years
2008 through 2011. There is no California net operating loss, primarily due to
capitalization of research and development costs for California purposes.

As of March 31, 1997, the Company had unused research and development tax
credits of approximately $4.9 million and $4.6 million available to reduce
future federal and California income taxes, respectively, expiring through
fiscal year 2012. The Company also had foreign tax credits of approximately
$11.0 million available to reduce future federal income taxes, expiring through
fiscal year 2002. There are also minimum tax credits of approximately $0.5
million available to reduce future federal income taxes, which will carryforward
indefinitely.

L. LEASE COMMITMENTS

The Company leases its facilities under several operating lease agreements.
The Company also leases certain office equipment under non-cancelable operating
leases. Lease payments for the periods ended March 31, 1997, 1996 and 1995 were
$2.0 million, $1.7 million and $1.9 million, respectively.

43
<PAGE> 44

THE 3DO COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

MARCH 31, 1997, 1996, AND 1995

The Company has entered into various capital lease agreements for computer
equipment and furniture. The typical lease period is 24 to 36 months. Lease
payments for the fiscal years ended March 31, 1997, 1996 and 1995 were $1.9
million, $2.3 million, and $1.3 million, respectively.

Future minimum lease payments are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
MARCH 31, LEASES LEASES
--------------------------------------------------------- ------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998..................................................... $ 1,179 $ 1,729
1999..................................................... 395 784
2000..................................................... -- 237
2001..................................................... -- 179
------ ------
Total minimum lease payments............................. 1,574 $ 2,929
======
Less amount representing interest........................ 156
------
Present value of minimum lease payments.................. 1,418
Less current portion..................................... 807
------
Total long-term obligations.............................. $ 611
======
</TABLE>

M. RELATED PARTY TRANSACTIONS

During the years ended March 31, 1997, 1996 and 1995 the Company recognized
$78.2 million, $26.2 million and $12.1 million of revenue, respectively, from
certain stockholders, primarily Matsushita. At March 31, 1997 and 1996, $0.8
million and $1.7 million, respectively, were due from these stockholders.

As of March 31, 1997 and 1996, the Company had deferred revenue of $12.0
million and $46.1 million, respectively, from certain stockholders.

During the years ended March 31, 1997, 1996 and 1995 the Company acquired
$0.5 million, $1.1 million and $0.6 million, respectively, of inventory,
prototype materials and engineering services from certain stockholders. At March
31, 1996, $0.5 million was due to these stockholders; no outstanding balance was
due to these stockholders as of March 31, 1997. Additionally, at March 31, 1997
and 1996, $2.9 million and $5.1 million, respectively, were due to certain
stockholders under incentive programs, described in Note I, "Incentive and
Promotional Programs."

N. CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash, cash equivalents, short-term
investments, and accounts receivable. The Company's investment portfolio
consists of diversified investment-grade securities. The Company's policy limits
the amount of credit exposure to investments in any one issue, and the Company
believes no significant concentration of credit risks exists with respect to
these investments.

Credit risk in receivables is limited to distributors, software developers,
software licensees and affiliated labels. The Company performs ongoing credit
evaluations of its customers' financial condition and requires prepayments when
deemed necessary.

44
<PAGE> 45

THE 3DO COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

MARCH 31, 1997, 1996, AND 1995

O. ACQUISITIONS

New World Computing, Inc.

In June 1996, the Company purchased certain assets and assumed certain
liabilities of New World Computing, Inc. ("NWC"), a PC platform game developer
located in Agoura Hills, California. Subsequent to the asset purchase, the
Company created a production unit using the New World Computing brand name. As
consideration for the purchase, the Company issued approximately 1 million
shares of its common stock to the parent of NWC, NTN Communications, Inc.
("NTN"). In addition, under the terms of the agreement, the Company was
obligated to make a cash payment to NTN because the value of the Company's stock
issued in the transaction fell below an amount equal to approximately $10 per
share during a period following the closing date (the "Purchase Price
Guarantee"); as of March 31, 1997 the Company paid approximately $5.0 million to
NTN. This payment represents the total amount due to NTN under the terms of the
asset purchase agreement and, as such, the Company has no further obligations to
NTN under the Purchase Price Guarantee. The Company recorded the purchase in
June 1996 using the purchase method of accounting. A one-time charge was
recorded in the first quarter of fiscal year 1997 for $7.7 million representing
the amount of the purchase price assigned to in-process research and
development. At the time, the entire purchase was booked at the guaranteed
purchase price. As a result, the one time payment of approximately $5.0 million
has no impact on the Company's income statement for fiscal year ended March 31,
1997. Also included as part of the purchase price were intangibles valued at
$3.1 million, to be amortized on a straight line basis over a period of one to
five years. As of March 31, 1997, intangible assets, net of amortization, were
$2.2 million.

The results of operations of NWC have been included in the Company's
results of operations since the date of acquisition. The following unaudited pro
forma information presents the results of operations of the Company and New
World Computing for the years ended March 31, 1997, and 1996, with pro forma
adjustments as if the acquisition had been consummated as of the beginning of
the periods presented.

<TABLE>
<CAPTION>
FOR YEARS ENDED
MARCH 31,
--------------------
1997 1996
------- --------
<S> <C> <C>
Pro forma financial information:
Revenue.............................................. $93,191 $ 43,836
Net income (loss).................................... $11,678 $(35,208)
Net Income (loss) per share.......................... $ 0.40 $ (1.33)
</TABLE>

Archetype Interactive Corporation

In May 1996, the Company acquired all the outstanding stock of Archetype
Interactive Corporation, a software developer of a multi user role playing game
designed to be played over the internet, from its shareholders in a tax-free
reorganization which has been accounted for using the "pooling-of-interests"
method of accounting. The Company issued 592,000 shares of its common stock in
connection with this transaction.

The results of operations of Archetype Interactive Corporation prior to the
acquisition date are not considered material to the consolidated results of
operations of the Company and, accordingly, pro forma financial statement
information has not been presented.

Cyclone Studios

In December 1995, the Company acquired all the assets and assumed certain
liabilities of Cyclone Studios, a software developer. Consideration for the
purchase consisted of cash, stock, other consideration, and potential future
consideration based upon the financial performance of the resulting new
division. A portion of

45
<PAGE> 46

THE 3DO COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

MARCH 31, 1997, 1996, AND 1995

the purchase price was expensed as acquired in-process research and development.
This transaction has been accounted for using the purchase method of accounting.
In addition, the Board of Directors granted options to purchase 200,000 shares
of the Company's common stock to former employees and officers of Cyclone
Studios. These options were granted under the 1993 Incentive Stock Plan and
become vested upon the earlier of (a) the achievement of certain financial
performance milestones or (b) December 31, 2005. These options have an exercise
price of $10.125 per share (see Note F, "Stock Plans," for subsequent repricing
information), equal to the fair market value of the Company's common stock on
the date of grant.

The results of operations of Cyclone Studios prior to the acquisition date
are not considered material to the consolidated results of operations of the
Company and, accordingly, pro forma financial statement information has not been
disclosed.

P. EXPORT SALES

The Company had export sales, primarily to Japan and the United Kingdom, of
approximately $0.6 million, $7.0 million, and $17.1 million for the fiscal years
ended March 31, 1997, 1996, and 1995, respectively.

Q. SUBSEQUENT EVENTS

On June 23, 1997, the Company sold most of the assets of the Company's
hardware systems group, including intellectual properties and approximately $1.5
million in equipment, to Samsung Electronics Company, Ltd. ("Samsung") for $20.0
million. As part of the sale agreement, CagEnt Technologies, Inc. ("CagEnt"), a
subsidiary of Samsung, agreed to assist the Company, as a subcontractor, with
respect to the Company's efforts to complete the remaining deliverables under
the M2 Agreement with Matsushita. CagEnt will also acquire the Company's video
encoder business as part of the transaction.

Neither the Samsung Agreement, nor any addendum to the M2 Agreement,
relieves the Company of its obligation to complete the deliverables called for
in the M2 Agreement. There can be no assurance that the Company, with CagEnt's
subcontracted assistance, will successfully complete the deliverables pursuant
to the M2 Agreement. In the event that CagEnt's subcontracted engineering
services are unsatisfactory or are not timely completed, the Company will incur
substantial expenses to complete its obligations under the M2 Agreement. This
would have a material adverse impact on the Company, including, but not limited
to, diverting funds from the Company's software publishing business.

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

Not Applicable.

46
<PAGE> 47

PART III

ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT

The executive officers and directors of the Company and their ages as of
March 31, 1997, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------- --- -----------------------------------------------------
<S> <C> <C>
Trip Hawkins 43 Chairman of the Board and Chief Executive Officer
Hugh C. Martin 43 President and Director
James Alan Cook 47 Executive Vice President, General Counsel and
Secretary
Robert B. Faber 36 Managing Director, 3DO Europe Ltd.
Tobin E. Farrand 36 Senior Vice President, Engineering
Robert A. Lindsey 45 Senior Vice President, Marketing and General Manager,
Studio 3DO
John A. Orcutt 44 Senior Vice President, Business Operations
Vinod Khosla(1) 42 Director
Charles S. Paul(1) 47 Director
</TABLE>

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

(1) Member of Audit Committee and Compensation Committee.

Mr. Hawkins, the founder of the Company, has been Chairman of the Board and
Chief Executive Officer of the Company since September 1991. He also served as
President of the Company from September 1991 until October 1995, and he served
as Secretary from September 1991 through February 1993. From August 1982 to
December 1990, Mr. Hawkins served as president of Electronic Arts. He served as
the chief executive officer of Electronic Arts from August 1982 until May 1991,
and was chairman of its board of directors from August 1982 until July 1994.
Prior to founding Electronic Arts, Mr. Hawkins was a director of marketing at
Apple. Mr. Hawkins' term as a director expires at the 1998 Annual Meeting of
Stockholders.

Mr. Martin became President of the Company in October 1995 and was
appointed to the Board of Directors in April 1996. He previously served as the
Company's Chief Operating Officer from January 1993 until October 1995 and had
been the Company's Senior Vice President, Engineering and Operations from May
1992 until January 1993. From March 1988 to April 1992, he served as a director
and then a senior director of Apple. Previously, Mr. Martin co-founded and
served as the vice president and chief development officer of Ridge Computers,
where he co-designed one of the industry's first commercial RISC processors. Mr.
Martin's term as a director expires at the 1998 Annual Meeting of Stockholders.

Mr. Cook became Executive Vice President, General Counsel and Secretary of
the Company in April 1996. From July 1994 until April 1996 he was Senior Vice
President, General Counsel and Secretary, and had been the Company's Vice
President, General Counsel and Secretary since January 1993. From January 1990
to January 1993, he was a partner in the law firm of Cook and Lefevre. From June
1985 to December 1989, he was a sole practitioner operating as the Law Offices
of James Alan Cook.

Mr. Faber became Managing Director of 3DO Europe Ltd. in August 1994 and
had been Senior Vice President, Sales and Marketing since January 1993. He
served as Vice President, Sales and Marketing from June 1992 to January 1993.
From October 1991 to June 1992, he served as vice president of strategic
planning and new business development for the Simon & Schuster Technology Group,
a publishing division of Paramount Communications, Inc. From January 1991 to
September 1991, he was a vice president of marketing of Worlds of Wonder. From
November 1985 to January 1991, Mr. Faber was employed by NEC Technologies, a
subsidiary of NEC Corporation of Japan, most recently as an assistant vice
president of software marketing.

Mr. Farrand became the Company's Senior Vice President, Engineering in
March 1996. He previously served as Senior Vice President Hardware Engineering
and Operations from February 1994; became Vice President, Hardware Engineering
and Operations in November 1993; and served as Vice President, Hardware
Engineering from July 1992 until November 1993. From June 1982 to June 1992, he
was employed by Apple, most recently as manager of the RISC Products Group.

47
<PAGE> 48

Mr. Lindsey became Senior Vice President, Marketing and General Manager,
Studio 3DO in December 1994. From April 1993 to December 1994 he was group
director of marketing at Sega of America. Prior to Sega, he served as vice
president of sales and marketing at Strategic Simulations, Inc. from September
1989 to March 1993. From 1985 to 1988 he was director of software development,
and from 1988 to 1989 he was director of business development at Epyx. Mr.
Lindsey was appointed to the board of directors of the Interactive Digital
Software Association in March 1996.

Mr. Orcutt became Senior Vice President, Business Operations in December
1994. Previously, he was president and CEO at Nomadic Systems (subsequently
named SmartDelta, Inc.) from August 1993 to December 1994 and vice president,
sales and marketing from November 1991 to August 1993. SmartDelta, Inc. filed
for Chapter 7 bankruptcy on February 1, 1996, in U.S. bankruptcy Court, Northern
District of California. From January 1988 to November 1991, Mr. Orcutt served as
vice president and general manager of the Distributed Systems Division at
Unisys/Convergent Technologies and president of its Open Systems subsidiary.

Mr. Khosla has been a director of the Company since September 1991. He has
been a general partner of Kleiner Perkins Caufield & Byers since November 1987.
Mr. Khosla is also a director of PictureTel Corporation, a manufacturer of video
teleconferencing equipment, Spectrum HoloByte, Inc., a publisher of interactive
games, and Excite, Inc., an Internet search engine provider. Mr. Khosla's term
as a director expires at the 1997 Annual Meeting of Stockholders.

Mr. Paul has been a director of the Company since April 1992. Since March
1996, he has been chairman and chief executive officer of Sega GameWorks LLC, a
joint venture between Sega Enterprises, MCA Inc, and DreamWorks LLC. From 1989
to 1996, he served as a director and executive vice president of MCA Inc., an
entertainment company. From 1985 to 1989, he served as a vice president of MCA
Inc. Mr. Paul is also a director of National Golf Properties, a real estate
investment trust, and Interplay Productions, a software development company. Mr.
Khosla's term as a director expires at the 1999 Annual Meeting of Stockholders.

Mr. Hawkins and Mr. Orcutt each had one transaction during the fiscal year
that was not reported in a timely manner to the Securities and Exchange
Commission. All other executive officers, directors and holders of more than 10%
of the Company's Common Stock ("Section 16 Persons") reported all transactions
in the Company's Common Stock in filings with the Securities Exchange Commission
("SEC") as required under Section 16(a) of the Securities Exchange Act of 1934 .

Officers are appointed by the Board of Directors and serve at the
discretion of the Board. There are no family relationships among the directors
and executive officers of the Company.

48
<PAGE> 49

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION TABLES

Summary Compensation Table. The following table sets forth the compensation
paid by the Company to the Chief Executive Officer and the four other most
highly compensated executive officers of the Company other than the Chief
Executive Officer (collectively the "Named Officers") during the last fiscal
year.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
NAME AND FISCAL ---------------------- OPTIONS/SAR ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS # COMPENSATION(1)
- -------------------------------- ------ -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Trip Hawkins 1997 $295,000 $35,128 2,620,000(3) $ 720
Chairman and Chief 1996 $290,042 -- 50,000 $ 720
Executive Officer(2) 1995 $270,923 -- 510,000(4) $ 750
Hugh C. Martin 1997 $288,750 $27,611 1,096,000(5) $421,033(6)
President and Director 1996 $270,800 -- 80,000 $197,206(7)
1995 $230,308 -- 101,000(8) $ 720
James Alan Cook 1997 $243,552 $20,408 738,000(9) $ 701
Executive Vice President, 1996 $226,237 -- 68,000 $ 630
General Counsel, and 1995 $200,577 -- 38,000(10) $ 642
Secretary
Robert B. Faber 1997 $239,792(11) $16,709 152,000(12) $ 54,284(13)
Managing Director, 1996 $286,070(11) -- 18,000 $247,530(14)
3DO Europe Ltd. 1995 $267,527(11) -- 28,000(15) $ 510
Tobin E. Farrand 1997 $236,448 $14,425 368,000(16) $139,672(17)
Senior Vice President, 1996 $185,866 -- 68,000 $ 530
Engineering 1995 $167,077 -- 44,000(18) $ 504
</TABLE>

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

(1) The amounts represent premiums paid by the Company for group term life
insurance.

(2) See "Employment Contract" below.

(3) Includes 500,000 options (see footnote 4) that were originally granted in
fiscal year 1994, 10,000 options that were originally granted in fiscal
year 1995 at $11.00 per share, and 50,000 options that were originally
granted in fiscal year 1996 at $11.875 per share that in fiscal year 1997
were twice exchanged for new options, first at $8.25 per share and later at
$5.50 per share, after Mr. Hawkins agreed to certain adjustments to the
option vesting schedules.

(4) Includes 500,000 options originally granted in fiscal year 1994 at $25.75
per share that in fiscal year 1995 were exchanged for new options at $9.875
per share, after Mr. Hawkins agreed to certain adjustments to the option
vesting schedule.

(5) Includes 75,000 options granted in fiscal year 1995 at $9.875 per share
(see footnote 8), 8,000 options granted in fiscal year 1995 at $10.75 per
share (see footnote 8), 10,000 options granted in fiscal year 1995 at
$11.00 per share, 20,000 options granted in fiscal year 1996 at $11.875 per
share, and 60,000 options granted in fiscal year 1996 at $11.50 per share
that in fiscal year 1997 were twice exchanged for new options, first at
$8.25 per share and later at $5.50 per share, after Mr. Martin agreed to
certain adjustments to the option vesting schedules. Also includes 250,000
options granted in fiscal year 1997 at $8.25 per share that were exchanged
for new options at $5.50 per share, after Mr. Martin agreed to certain
adjustments to the option vesting schedule.

(6) Includes a gain of $420,313 realized upon the sale of shares acquired
through the exercise of incentive stock options.

(7) Includes a gain of $196,500 realized upon the sale of shares acquired
through the exercise of incentive stock options.

(8) Includes 75,000 options originally granted in fiscal year 1994 at $25.75
per share that in 1995 were exchanged for new options at $9.875 per share,
after Mr. Martin agreed to certain adjustments to the

49
<PAGE> 50

option vesting schedule; and includes 8,000 options originally granted in
fiscal year 1995 at $14.50 per share that in fiscal year 1995 were
exchanged for new options at $10.75 per share, after Mr. Martin agreed to
certain adjustments to the option vesting schedule.

(9) Includes 4,000 options granted in fiscal 1995 at $9.875 per share (see
footnote 10), 12,000 options granted in fiscal year 1995 at $10.75 per
share (see footnote 10), 10,000 options granted in fiscal year 1995 at
$11.00 per share, 28,000 options granted in fiscal year 1996 at $11.875 per
share, and 40,000 options granted in fiscal year 1996 at $11.50 per share
that in fiscal year 1997 were twice exchanged for new options, first at
$8.25 per share and later at $5.50 per share, after Mr. Cook agreed to
certain adjustments to the option vesting schedules. Also includes 150,000
options granted in fiscal year 1997 at $8.25 per share that were exchanged
for new options at $5.50 per share, after Mr. Cook agreed to certain
adjustments to the option vesting schedule.

(10) Includes 4,000 options originally granted in fiscal year 1994 at $25.75 per
share that in fiscal year 1995 were exchanged for new options at $9.875 per
share, after Mr. Cook agreed to certain adjustments to the option vesting
schedule; and includes 12,000 options originally granted in fiscal year
1995 at $14.50 per share that in fiscal year 1995 were exchanged for new
options at $10.75 per share, after Mr. Cook agreed to certain adjustments
to the option vesting schedule.

(11) This amount includes compensation and expenses related to Mr. Faber's
overseas assignment.

(12) Includes 4,000 options granted in fiscal year 1995 at $9.875 per share (see
footnote 15), 10,000 options granted in fiscal year 1995 at $10.75 per
share (see footnote 15), 4,000 options granted in fiscal year 1995 at
$11.00 per share, 8,000 options granted in fiscal year 1996 at $11.875 per
share, and 10,000 options granted in fiscal year 1996 at $11.875 per share
that in fiscal year 1997 were twice exchanged for new options, first at
$8.25 per share and later at $5.50 per share, after Mr. Faber agreed to
certain adjustments to the option vesting schedules. Also includes 40,000
options granted in fiscal year 1997 at $8.25 per share that were exchanged
for new options at $5.50 per share, after Mr. Faber agreed to certain
adjustments to the option vesting schedule.

(13) Includes a gain of $53,715 realized upon the sale of shares acquired
through the exercise of incentive stock options and shares purchased
through the Employee Stock Purchase Plan.

(14) Includes a gain of $246,992 realized upon the sale of shares acquired
through the exercise of incentive stock options and shares purchased
through the Employee Stock Purchase Plan.

(15) Includes 4,000 options originally granted in fiscal year 1994 at $25.75 per
share that in fiscal year 1995 were exchanged for new options at $9.875 per
share, after Mr. Faber agreed to certain adjustments to the option vesting
schedule; and includes 10,000 options originally granted in fiscal year
1995 at $14.50 per share that in fiscal year 1995 were exchanged for new
options at $10.75 per share, after Mr. Faber agreed to certain adjustments
to the option vesting schedule.

(16) Includes 20,000 options granted in fiscal year 1995 at $9.875 per share
(see footnote 18), 8,000 options granted in fiscal year 1995 at $10.75 per
share (see footnote 18), 4,000 options granted in fiscal year 1995 at
$11.00 per share, 28,000 options granted in fiscal year 1996 at $11.875 per
share, and 40,000 options granted in fiscal year 1996 at $11.50 per share
that in fiscal year 1997 were twice exchanged for new options, first at
$8.25 per share and later at $5.50 per share, after Mr. Farrand agreed to
certain adjustments to the option vesting schedules. Also includes 80,000
options granted in fiscal year 1997 at $8.25 per share that were exchanged
for new options at $5.50 per share, after Mr. Farrand agreed to certain
adjustments to the option vesting schedule.

(17) Includes a gain of $138,991 realized upon the sale of shares acquired
through the exercise of incentive stock options.

(18) Includes 20,000 options originally granted in fiscal year 1994 at $25.75
per share that in fiscal year 1995 were exchanged for new options at $9.875
per share, after Mr. Farrand agreed to certain adjustments to the option
vesting schedule; and includes 8,000 options originally granted in fiscal
year 1995 at $14.50 per share that in fiscal year 1995 were exchanged for
new options at $10.75 per share, after Mr. Farrand agreed to certain
adjustments to the option vesting schedule.

50
<PAGE> 51

Employment Contract. On September 30, 1991, Mr. Hawkins entered into a
five-year employment agreement with the Company that currently provides for an
annual base salary of $295,000, a bonus payable in the discretion of the Board
of Directors, and salary and bonus reviews at least annually. The agreement, as
amended to date, provides that Mr. Hawkins' optioned shares shall continue to
vest in accordance with their applicable vesting schedules, provided that Mr.
Hawkins devotes at least fifty percent (50%) of his business efforts and time to
the Company, and provided further that he is not employed by any third party
during that time period. In the event Mr. Hawkins' employment is terminated
without cause after a change in control of the Company, Mr. Hawkins will become
fully vested in his shares.

Option Grants in Last Fiscal Year. The following table sets forth certain
information concerning grants of stock options to each of the Named Officers
during the fiscal year ended March 31, 1997. The table also sets forth
hypothetical gains or "opinion spreads" for the options at the end of their
respective ten-year terms. These gains are based on the assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted over the full option term. Actual gains, if any, on option exercises are
dependent on the future performance of the Company's Common Stock and overall
market conditions.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATE OF STOCK PRICE
% OF TOTAL APPRECIATION FOR OPTION
OPTIONS GRANTED EXERCISE PRICE TERM (4)
OPTIONS GRANTED TO EMPLOYEES IN PER SHARE EXPIRATION -----------------------
NAME (1)(2) FISCAL YEAR (2) DATE 5% 10%
- ----------------------- --------------- ---------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Trip Hawkins
New Options.......... 500,000 3.14% $ 8.25 04/09/06 $2,594,190 $6,574,188
500,000 3.14% $ 5.00 02/04/07 $1,572,237 $3,984,356
Repriced
Options(3)......... 500,000 3.14% $ 8.25 04/09/06 $2,594,190 $6,574,188
10,000 0.06% $ 8.25 04/09/06 $ 51,884 $ 131,484
10,000 0.06% $ 8.25 04/09/06 $ 51,884 $ 131,484
40,000 0.25% $ 8.25 04/09/06 $ 207,535 $ 525,935
500,000 3.14% $ 5.50 10/10/06 $1,729,460 $4,382,792
500,000 3.14% $ 5.50 10/10/06 $1,729,460 $4,382,792
10,000 0.06% $ 5.50 10/10/06 $ 34,589 $ 87,656
10,000 0.15% $ 5.50 10/10/06 $ 34,589 $ 87,656
40,000 0.25% $ 5.50 10/10/06 $ 138,357 $ 350,623
Hugh C. Martin
New Options.......... 250,000 1.57% $ 8.25 04/09/06 $1,297,095 $3,287,094
250,000 1.57% $ 5.50 02/04/07 $ 786,118 $1,992,178
Repriced
Options(3)......... 75,000 0.47% $ 8.25 04/09/06 $ 389,129 $ 986,128
8,000 0.05% $ 8.25 04/09/06 $ 41,507 $ 105,187
10,000 0.06% $ 8.25 04/09/06 $ 51,884 $ 131,484
20,000 0.13% $ 8.25 04/09/06 $ 103,768 $ 262,968
60,000 0.38% $ 8.25 04/09/06 $ 311,303 $ 788,903
250,000 1.57% $ 5.50 10/10/06 $ 864,730 $2,191,396
75,000 0.47% $ 5.50 10/10/06 $ 259,419 $ 657,419
8,000 0.05% $ 5.50 10/10/06 $ 27,671 $ 70,125
10,000 0.06% $ 5.50 10/10/06 $ 34,589 $ 87,656
20,000 0.13% $ 5.50 10/10/06 $ 69,179 $ 175,312
60,000 0.38% $ 5.50 10/10/06 $ 207,536 $ 525,936
James Alan Cook New
Options.............. 150,000 0.94% $ 8.25 04/09/06 $ 778,257 $1,972,256
250,000 1.57% $ 5.00 02/04/07 $ 786,118 $1,992,178
</TABLE>

51
<PAGE> 52

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATE OF STOCK PRICE
% OF TOTAL APPRECIATION FOR OPTION
OPTIONS GRANTED EXERCISE PRICE TERM (4)
OPTIONS GRANTED TO EMPLOYEES IN PER SHARE EXPIRATION -----------------------
NAME (1)(2) FISCAL YEAR (2) DATE 5% 10%
- ----------------------- --------------- ---------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Repriced
Options(3)......... 4,000 0.03% $ 8.25 04/09/06 $ 20,754 $ 52,594
10,000 0.06% $ 8.25 04/09/06 $ 51,884 $ 131,484
12,000 0.08% $ 8.25 04/09/06 $ 62,261 $ 157,781
40,000 0.25% $ 8.25 04/09/06 $ 207,535 $ 525,935
28,000 0.18% $ 8.25 04/09/06 $ 145,275 $ 368,155
150,000 0.94% $ 5.50 10/10/06 $ 518,838 $1,314,838
4,000 0.03% $ 5.50 10/10/06 $ 13,836 $ 35,062
10,000 0.06% $ 5.50 10/10/06 $ 34,589 $ 87,656
12,000 0.08% $ 5.50 10/10/06 $ 41,507 $ 105,187
40,000 0.25% $ 5.50 10/10/06 $ 138,357 $ 350,624
28,000 0.18% $ 5.50 10/10/06 $ 96,849 $ 245,437
Robert B. Faber
New Options.......... 40,000 0.25% $ 8.25 04/09/06 $ 207,535 $ 525,935
Repriced
Options(3)......... 4,000 0.03% $ 8.25 04/09/06 $ 20,754 $ 52,594
10,000 0.06% $ 8.25 04/09/06 $ 51,884 $ 131,484
4,000 0.03% $ 8.25 04/09/06 $ 20,754 $ 52,594
8,000 0.05% $ 8.25 04/09/06 $ 41,507 $ 105,187
10,000 0.06% $ 8.25 04/09/06 $ 51,884 $ 131,484
40,000 0.25% $ 5.50 10/10/06 $ 138,357 $ 350,623
4,000 0.03% $ 5.50 10/10/06 $ 13,836 $ 35,062
10,000 0.06% $ 5.50 10/10/06 $ 34,589 $ 87,656
4,000 0.03% $ 5.50 10/10/06 $ 13,836 $ 35,062
8,000 0.05% $ 5.50 10/10/06 $ 27,671 $ 70,125
10,000 0.06% $ 5.50 10/10/06 $ 34,589 $ 87,656
Tobin E. Farrand
New Options.......... 80,000 0.50% $ 8.25 04/09/06 $ 415,070 $1,051,870
Repriced
Options(3)......... 20,000 0.13% $ 8.25 04/09/06 $ 103,768 $ 262,968
8,000 0.05% $ 8.25 04/09/06 $ 41,507 $ 105,187
40,000 0.25% $ 8.25 04/09/06 $ 207,536 $ 525,935
8,000 0.05% $ 8.25 04/09/06 $ 41,507 $ 105,187
28,000 0.18% $ 8.25 04/09/06 $ 145,275 $ 368,155
80,000 0.50% $ 5.50 10/10/06 $ 276,714 $ 701,247
20,000 0.13% $ 5.50 10/10/06 $ 69,178 $ 175,312
8,000 0.05% $ 5.50 10/10/06 $ 27,671 $ 70,125
40,000 0.25% $ 5.50 10/10/06 $ 138,357 $ 350,623
8,000 0.05% $ 5.50 10/10/06 $ 27,671 $ 70,125
28,000 0.18% $ 5.50 10/10/06 $ 96,849 245,437
</TABLE>

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

(1) The options referenced in the foregoing table are intended to be incentive
stock options to the extent permitted by applicable law. The Company's 1993
Incentive Stock Plan (the "Incentive Plan") also provides for the grant of
non-qualified stock options. Incentive stock options may be granted under
the Incentive Plan at an exercise price no less than market value on the
date of grant. For so long as the Company's Common Stock is listed on the
Nasdaq National Market, the fair market value is the closing sale price for
the Common Stock. Non-qualified options may be granted at an exercise price
of no less than 85% of market value on the date of grant. Options generally
become exercisable as to 20% of the shares subject to the option one year
after commencement of employment, and as to the remainder in equal monthly
installments (accrued on a monthly basis) over the succeeding 48 months. In
addition, options accelerate in full and become immediately exercisable upon
a merger, unless such options are assumed or replaced by equivalent options
by the successor corporation. Options generally terminate on the earlier of
three months after termination of the optionee's employment by or services
to the Company, or ten years after grant.

(2) On April 11, 1997, the Board of Directors authorized the exchange of all
options (including those held by the individuals listed in the above table)
with an exercise price exceeding $3.25 per share for options with an
exercise price of $3.25 per share, provided the optionee agreed to certain
adjustments to the option vesting schedule.

52
<PAGE> 53

(3) On April 9, 1996, the Board of Directors authorized the exchange of all
options (including those held by the individuals listed in the above table)
with an exercise price exceeding $8.25 per share for options with an
exercise price of $8.25 per share, provided the optionee agreed to certain
adjustments to the option vesting schedule. On October 10, 1996, the Board
of Directors authorized the exchange of all options (including those held by
the individuals listed in the above table) with an exercise price exceeding
$5.50 per share for options with an exercise price of $5.50 per share,
provided the optionee agreed to certain adjustments to the option vesting
schedule.

(4) The 5% and 10% assumed annualized rates of compound stock price appreciation
are based on the exercise prices shown in the table, are mandated by the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or a projection by the Company of future Common Stock
prices.

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

<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE MONEY OPTIONS
AT MARCH 31, 1997 AT MARCH 31, 1997
ACQUIRED VALUE ----------------------------- -----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Trip Hawkins............. -- -- 324,167 1,235,833 -- --
Hugh C. Martin........... 100,000 $420,313 143,019 609,981 $ 190,208 $15,792
James Alan Cook.......... -- -- 109,988 484,012 $ 52,096 $10,404
Robert B. Faber.......... 35,000 $148,088 12,449 73,551 $ 13,426 $12,324
Tobin E. Farrand......... 33,000 $138,991 37,387 153,613 $ 4,333 $12,642
</TABLE>

OPTION REPRICING

The following report is provided to stockholders by the members of the
Compensation Committee of the Board of Directors.

The Compensation Committee (the "Committee") grants stock options in order
to directly link a significant portion of each executive's total compensation to
the long-term interests of shareholders. The Committee believes that stock
options encourage superior performance over time. In order to attract and retain
qualified employees, the Committee felt it necessary to adjust the exercise
price on previously granted options so that the new exercise price would more
closely approximate the market price, and therefore provide greater incentive to
the Company's employees. Consequently, on April 9, 1996, the Committee exchanged
all outstanding options with an exercise price greater than $8.25 (the then
prevailing market price) for options with an exercise price of $8.25, provided
the optionee agreed to adjustments in the vesting schedule. On October 10, 1996,
the Committee exchanged all outstanding options with an exercise price greater
than $5.50 (the then prevailing market price) for options with an exercise price
of $5.50, again provided the optionee agreed to adjustments in the vesting
schedule. Subsequently, on April 11, 1997, the Committee exchanged all
outstanding options with an exercise price greater than $3.25 (the then
prevailing market price) for options with an exercise price of $3.25, again
provided the optionee to adjustments in the vesting schedule. The following
table sets forth certain information concerning option repricing activity.

53
<PAGE> 54

TEN YEAR OPTION REPRICINGS

<TABLE>
<CAPTION>
MARKET LENGTH OF
NUMBER PRICE OF EXERCISE ORIGINAL
OF STOCK AT PRICE AT NEW OPTION TERM
DATE OF OPTIONS TIME OF TIME OF EXERCISE AT TIME
NAME REPRICING REPRICED REPRICING REPRICING PRICE OF REPRICING
- -------------------------- --------- ------- --------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Trip Hawkins.............. 05/20/94 500,000 $ 9.875 $25.750 $ 9.875 9 Years 232 Days
04/09/96 500,000 $ 8.250 $ 9.875 $ 8.250 7 Years 273 Days
04/09/96 10,000 $ 8.250 $11.000 $ 8.250 8 Years 251 Days
04/09/96 40,000 $ 8.250 $11.875 $ 8.250 9 Years 47 Days
04/09/96 10,000 $ 8.250 $11.875 $ 8.250 9 Years 173 Days
10/10/96 500,000 $ 5.500 $ 8.250 $ 5.500 9 Years 181 Days
10/10/96 500,000 $ 5.500 $ 8.250 $ 5.500 7 Years 89 Days
10/10/96 10,000 $ 5.500 $ 8.250 $ 5.500 8 Years 67 Days
10/10/96 40,000 $ 5.500 $ 8.250 $ 5.500 9 Years 181 Days
10/10/96 10,000 $ 5.500 $ 8.250 $ 5.500 8 Years 354 Days
Hugh C. Martin............ 05/20/94 75,000 $ 9.875 $25.750 $ 9.875 9 Years 279 Days
04/09/96 75,000 $ 8.250 $ 9.875 $ 8.250 8 Years 41 Days
12/14/94 8,000 $10.750 $14.500 $10.750 9 Years 231 Days
04/09/96 8,000 $ 8.250 $10.750 $ 8.250 8 Years 249 Days
04/09/96 10,000 $ 8.250 $11.000 $ 8.250 8 Years 251 Days
04/09/96 20,000 $ 8.250 $11.875 $ 8.250 9 Years 47 Days
04/09/96 60,000 $ 8.250 $11.500 $ 8.250 9 Years 124 Days
10/10/96 250,000 $ 5.500 $ 8.250 $ 5.500 9 Years 181 Days
10/10/96 75,000 $ 5.500 $ 8.250 $ 5.500 7 Years 136 Days
10/10/96 8,000 $ 5.500 $ 8.250 $ 5.500 7 Years 296 Days
10/10/96 10,000 $ 5.500 $ 8.250 $ 5.500 8 Years 67 Days
10/10/96 20,000 $ 5.500 $ 8.250 $ 5.500 8 Years 228 Days
10/10/96 60,000 $ 5.500 $ 8.250 $ 5.500 8 Years 305 Days
James Alan Cook........... 05/20/94 4,000 $ 9.875 $25.750 $ 9.875 9 Years 279 Days
04/09/96 4,000 $ 8.250 $ 9.875 $ 8.250 7 Years 320 Days
12/14/94 12,000 $10.750 $14.500 $10.750 9 Years 231 Days
04/09/96 12,000 $ 8.250 $10.750 $ 8.250 8 Years 249 Days
04/09/96 10,000 $ 8.250 $11.000 $ 8.250 8 Years 251 Days
04/09/96 8,000 $ 8.250 $11.875 $ 8.250 9 Years 47 Days
04/09/96 20,000 $ 8.250 $11.875 $ 8.250 9 Years 47 Days
04/09/96 40,000 $ 8.250 $11.500 $ 8.250 9 Years 124 Days
10/10/96 150,000 $ 5.500 $ 8.250 $ 5.500 9 Years 181 Days
10/10/96 4,000 $ 5.500 $ 8.250 $ 5.500 7 Years 136 Days
10/10/96 10,000 $ 5.500 $ 8.250 $ 5.500 9 Years 67 Days
10/10/96 12,000 $ 5.500 $ 8.250 $ 5.500 9 Years 181 Days
10/10/96 40,000 $ 5.500 $ 8.250 $ 5.500 9 Years 181 Days
10/10/96 8,000 $ 5.500 $ 8.250 $ 5.500 8 Years 228 Days
10/10/96 20,000 $ 5.500 $ 8.250 $ 5.500 9 Years 181 Days
</TABLE>

54
<PAGE> 55

<TABLE>
<CAPTION>
MARKET LENGTH OF
NUMBER PRICE OF EXERCISE ORIGINAL
OF STOCK AT PRICE AT NEW OPTION TERM
DATE OF OPTIONS TIME OF TIME OF EXERCISE AT TIME
NAME REPRICING REPRICED REPRICING REPRICING PRICE OF REPRICING
- -------------------------- --------- ------- --------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Faber........... 05/20/94 4,000 $ 9.875 $25.750 $ 9.875 9 Years 279 Days
04/09/96 4,000 $ 8.250 $ 9.875 $ 8.250 7 Years 320 Days
12/14/94 10,000 $10.750 $14.500 $10.750 9 Years 231 Days
04/09/96 10,000 $ 8.250 $10.750 $ 8.250 8 Years 249 Days
04/09/96 4,000 $ 8.250 $11.000 $ 8.250 8 Years 251 Days
04/09/96 8,000 $ 8.250 $11.875 $ 8.250 9 Years 47 Days
04/09/96 10,000 $ 8.250 $11.875 $ 8.250 9 Years 173 Days
10/10/96 40,000 $ 5.500 $ 8.250 $ 5.500 9 Years 181 Days
10/10/96 4,000 $ 5.500 $ 8.250 $ 5.500 7 Years 136 Days
10/10/96 10,000 $ 5.500 $ 8.250 $ 5.500 7 Years 296 Days
10/10/96 4,000 $ 5.500 $ 8.250 $ 5.500 8 Years 67 Days
10/10/96 8,000 $ 5.500 $ 8.250 $ 5.500 8 Years 228 Days
10/10/96 10,000 $ 5.500 $ 8.250 $ 5.500 8 Years 354 Days
Tobin E. Farrand.......... 05/20/94 20,000 $ 9.875 $25.750 $ 9.875 9 Years 279 Days
04/09/96 20,000 $ 8.250 $ 9.875 $ 8.250 7 Years 320 Days
12/14/94 8,000 $10.750 $14.500 $10.750 9 Years 231 Days
04/09/96 8,000 $ 8.250 $10.750 $ 8.250 8 Years 249 Days
04/09/96 8,000 $ 8.250 $11.000 $ 8.250 8 Years 251 Days
04/09/96 20,000 $ 8.250 $11.875 $ 8.250 9 Years 47 Days
04/09/96 8,000 $ 8.250 $11.875 $ 8.250 9 Years 47 Days
04/09/96 40,000 $ 8.250 $11.500 $ 8.250 9 Years 124 Days
10/10/96 80,000 $ 5.500 $ 8.250 $ 5.500 9 Years 181 Days
10/10/96 20,000 $ 5.500 $ 8.250 $ 5.500 9 Years 181 Days
10/10/96 8,000 $ 5.500 $ 8.250 $ 5.500 8 Years 67 Days
10/10/96 40,000 $ 5.500 $ 8.250 $ 5.500 8 Years 305 Days
10/10/96 8,000 $ 5.500 $ 8.250 $ 5.500 7 Years 296 Days
10/10/96 20,000 $ 5.500 $ 8.250 $ 5.500 8 Years 228 Days
10/10/96 8,000 $ 5.500 $ 8.250 $ 5.500 8 Years 228 Days
Robert A. Lindsey......... 04/09/96 50,000 $ 8.250 $ 9.750 $ 8.250 8 Years 270 Days
04/09/96 6,000 $ 8.250 $11.875 $ 8.250 9 Years 47 Days
04/09/96 44,000 $ 8.250 $11.500 $ 8.250 9 Years 124 Days
10/10/96 60,000 $ 5.500 $ 8.250 $ 5.500 9 Years 181 Days
10/10/96 6,000 $ 5.500 $ 8.250 $ 5.500 8 Years 228 Days
10/10/96 50,000 $ 5.500 $ 8.250 $ 5.500 8 Years 86 Days
10/10/96 44,000 $ 5.500 $ 8.250 $ 5.500 8 Years 305 Days
John A. Orcutt............ 04/09/96 75,000 $ 8.250 $ 9.750 $ 8.250 8 Years 270 Days
04/09/96 5,000 $ 8.250 $11.875 $ 8.250 9 Years 47 Days
04/09/96 20,000 $ 8.250 $11.500 $ 8.250 9 Years 124 Days
10/10/96 30,000 $ 5.500 $ 8.250 $ 5.500 9 Years 181 Days
10/10/96 5,000 $ 5.500 $ 8.250 $ 5.500 8 Years 228 Days
10/10/96 75,000 $ 5.500 $ 8.250 $ 5.500 8 Years 67 Days
10/10/96 20,000 $ 5.500 $ 8.250 $ 5.500 8 Years 305 Days
</TABLE>

Respectfully submitted,

Vinod Khosla
Charles S. Paul

55
<PAGE> 56

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of March
31, 1997, by (i) each stockholder known by the Company to be the beneficial
owner of more than 5% of the Company's Common Stock, (ii) each director, (iii)
the Company's Chief Executive Officer and the Company's four other most highly
compensated executive officers serving in that capacity as of March 31, 1997
(together, the "named Officers") and (iv) all executive officers and directors
as a group.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
FIVE PERCENT STOCKHOLDERS, ---------------------
DIRECTORS AND EXECUTIVE OFFICERS NUMBER PERCENT
- ----------------------------------------------------------------------- --------- -------
<S> <C> <C>
Matsushita Electric Industrial Co., Ltd................................ 3,214,285 11.1
1066 Kadoma
Osaka 571, Japan
J & W Seligman & Co., Incorporated..................................... 2,962,600 10.4
100 Park Avenue
New York, New York 10017
Trip Hawkins........................................................... 2,585,402(2) 9.1
600 Galveston Drive
Redwood City, California 94063
Electronic Arts, Inc................................................... 2,013,668 7.1
1450 Fashion Island Boulevard
San Mateo, California 94404
Vinod Khosla........................................................... 75,863(3) *
Charles S. Paul........................................................ 11,000(4) *
Hugh C. Martin......................................................... 153,931(5) *
James Alan Cook........................................................ 123,203(6) *
Robert B. Faber........................................................ 90,223(7) *
Tobin E. Farrand....................................................... 42,949(8) *
All executive officers and directors as a group (9 persons)............ 3,172,392(9) 11.2
</TABLE>

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

* Less than 1%

(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
of Common Stock beneficially owned.

(2) Includes 341,499 shares subject to an option exercisable within 60 days of
March 31, 1997.

(3) Includes 16,000 shares held by Mr. Khosla's wife, Neeru Khosla. Also
includes 11,000 shares subject to an option exercisable within 60 days of
March 31, 1997.

(4) Includes 11,000 shares subject to an option exercisable within 60 days of
March 31, 1997.

(5) Includes 153,931 shares subject to an option exercisable within 60 days of
March 31, 1997.

(6) Includes 115,739 shares subject to an option exercisable within 60 days of
March 31, 1997.

(7) Includes 16,823 shares subject to an option exercisable within 60 days of
March 31, 1997.

(8) Includes 42,949 shares subject to an option exercisable within 60 days of
March 31, 1997.

(9) Includes shares held beneficially by executive officers and directors as
shown in the foregoing table.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this Item is incorporated herein by reference to
the Company's Proxy Statement for the 1997 annual meeting of stockholders.

56
<PAGE> 57

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) DOCUMENTS FILED AS PART OF THIS REPORT:

<TABLE>
<CAPTION>
PAGE(S)
IN
FORM 10-K
---------
<C> <S> <C>
1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................... 29
Consolidated Balance Sheets at March 31, 1997 and 1996......... 30
Consolidated Statements of Operations for the years ended March
31, 1997, 1996 and 1995...................................... 31
Consolidated Statements of Stockholders' Equity (Deficit) for
the years ended March 31, 1997, 1996 and 1995................ 32
Consolidated Statements of Cash Flows for the years ended March
31, 1997, 1996 and 1995...................................... 33
Notes to Consolidated Financial Statements..................... 34-46
2. FINANCIAL STATEMENT SCHEDULES
Information required by this Item is included in the Notes to
Consolidated Financial Statements.
3. EXHIBITS
</TABLE>

The following exhibits are filed as part of, or incorporated by reference
into, this report:

<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- ------ ------------------------------------------------------------------------
<S> <C> <C>
2.01 -- Contribution Agreement dated as of March 4, 1993 by and among the
Registrant, the 3DO Company, a California corporation, 3DO Merger Sub,
Technology West Partners, L.P., the shareholders of NTG, Inc. and NTG
Engineering, Inc.(2)
3.03 -- Registrant's Restated Certificate of Incorporation.(10)
3.04 -- Registrant's Delaware Bylaws, as amended.(10)
4.01 -- Form of Specimen Certificate for Registrant's Common Stock.(2)
4.02 -- Fourth Stockholders' Rights Agreement, dated as of February 1, 1995,
between the Registrant and various investors.
10.01 -- Series A Preferred Stock Exchange Agreement between the Registrant and
Electronic Arts Inc. dated as of September 30, 1991.(2)
10.02 -- Series A Preferred Stock Purchase Agreement by and among the Registrant
and Kleiner Perkins Caufield & Byers V, KPCB Zaibatsu Fund I, Technology
Partners West, Fund IV, and Time Warner Enterprises, Inc. dated as of
September 30, 1991.(2)
10.03 -- Series A Preferred Stock Purchase Agreement between the Registrant and
Matsushita Electric Industrial Co., Ltd. dated as of March 24, 1992.(2)
10.04 -- Series B Preferred Stock Purchase Agreement between the Registrant and a
group of investors including American Telephone & Telegraph Company,
Electronic Arts Inc., Toby Farrand, Trip Hawkins, David Horowitz,
Kleiner Perkins Caufield & Byers V, Matsushita Electric Industrial Co.,
Ltd., and Time Warner Entertainment Company, L.P., dated as of January
5, 1993.(1)(2)
10.05 -- Medio Development System License Agreement between the Registrant and
Electronic Arts Inc. dated as of September 30, 1991, as amended.(1)(2)
10.06 -- Publishing Option Agreement between the Registrant and Electronic Arts
Inc. dated as of September 30, 1991.(1)(2)
10.07 -- Equipment Transfer and Security Agreement between Electronic Arts Inc.
and the Registrant dated as of September 30, 1991.(2)
</TABLE>

57
<PAGE> 58

<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- ------ ------------------------------------------------------------------------
<S> <C> <C>
10.08 -- Secured Promissory Note between the Registrant and Electronic Arts Inc.
dated as of September 30, 1991.(2)
10.09 -- Strategic Contribution and Medio Cable Agreement between the Registrant
and Time Warner Enterprises, Inc. as amended through March 31,
1992.(1)(2)
10.10 -- Strategic Contribution Agreement between the Registrant and Matsushita
Electric Industrial Co., Ltd. dated April 9, 1992.(1)(2)
10.11 -- Technology Purchase Agreement between the Registrant and Kleiner Perkins
Caufield & Byers V, NTG Engineering, Inc., David Needle and RJ Mical
dated as of September 30, 1991.(2)
10.12 -- KPCB Option Agreement among the Registrant and Electronic Arts Inc.,
Kleiner Perkins Caufield & Byers V and KPCB Zaibatsu Fund I dated as of
September 30, 1991, as amended.(2)
10.13 -- 1991 Incentive Stock Plan of the Registrant.(2)
10.14 -- 1993 Incentive Stock Plan of the Registrant.(2)
10.15 -- Form of Restricted Stock Purchase Agreement of the Registrant.(2)
10.16 -- Form of Incentive Stock Option Agreement of the Registrant.(2)
10.17 -- Form of Nonstatutory Stock Option Agreement of the Registrant.(2)
10.18 -- 401(k) Plan of the Registrant.(2)
10.19 -- Sublease between NCR Comten, Inc. and the Registrant, for office space
at 1820 Gateway Drive, Suite 109, San Mateo, California.(2)
10.20 -- Form of Lease between Golden Century Investment Company, Inc. and the
Registrant for office space at 1820 Gateway Drive, San Mateo,
California.(2)
10.21 -- Employment Agreement between the Registrant and William M. Hawkins III
dated as of February 1993.(2)
10.21A -- Amendment to Employment Agreement between the Registrant and William M.
Hawkins III, dated as of March 22, 1994.(5)
10.22 -- Form of Indemnity Agreement.(2)
10.23 -- Consumer Interactive Multiplayer License Agreement between the
Registrant and Matsushita Electric Industrial Co., Ltd. dated March 5,
1993.(1)(2)
10.24 -- Covenant Not to Compete and Non-Solicitation Agreement between the
Registrant and Dave Needle dated as of March 4, 1993.(2)
10.25 -- Covenant Not to Compete and Non-Solicitation Agreement between the
Registrant and Dave Morse dated as of March 4, 1993.(2)
10.26 -- Covenant Not to Compete and Non-Solicitation Agreement between the
Registrant and RJ Mical dated as of March 4, 1993.(2)
10.27 -- Stock Restriction Agreement between the Registrant and Dave Needle dated
as of March 4, 1993.(2)
10.28 -- Stock Restriction Agreement between the Registrant and Dave Morse dated
as of March 4, 1993.(2)
10.29 -- Stock Restriction Agreement between the Registrant and RJ Mical dated as
of March 4, 1993.(2)
10.30 -- Form of Software License Agreement.(2)
10.31 -- Form of Stock Purchase Agreement between the Registrant and William M.
Hawkins III.(2)
</TABLE>

58
<PAGE> 59

<TABLE>
<CAPTION>
NUMBER EXHIBIT TITLE
- ------ ------------------------------------------------------------------------
<S> <C> <C>
10.32 -- Form of Stock Purchase Agreement between the Registrant and Namco
Limited.(2)
10.33 -- Letter of Intent dated January 5, 1993 between the Registrant and
American Telephone & Telegraph Company.(1)(2)
10.34 -- Lease between Seaport Centre Venture Phase I and the Registrant for
office space at 600 Galveston Drive, Building 5, Redwood City,
California.(6)
10.34A -- First Amendment to Lease between Seaport Centre Venture Phase I and the
Registrant for office space at 600 Galveston Drive, Building 5, Redwood
City, California.(5)
10.34B -- Second Amendment to Lease between Seaport Centre Venture Phase I and the
Registrant for office space at 600 Galveston Drive, Building 5, Redwood
City, California.(8)
10.35 -- Letter of Intent dated June 1, 1993 between the Registrant and American
Telephone & Telegraph Company.(3)
10.36 -- Letter between the Registrant and MCA Entertainment, Inc. dated
September 29, 1993.(1)(5)
10.37 -- Memorandum of Understanding between the Registrant and Creative
Technology, Ltd. dated March 8, 1994.(1)(5)
10.38 -- Memorandum of Understanding between the Registrant and
Scientific-Atlanta, Inc. dated December 9, 1993.(1)(5)
10.39 -- Letter of Intent between the Registrant and Matsushita Electric
Industrial Co., Ltd. dated effective March 3, 1994.(1)(5)
10.40 -- Letter of Agreement between the Registrant and Creative Technology Ltd.,
dated May 10, 1994.(1)(6)
10.41 -- Supplemental Letter of Agreement between the Registrant and Creative
Technology Ltd., dated May 27, 1994.(1)(6)
10.42 -- Compact Disc Pressing License Agreement between the 3DO Company and
Matsushita Electric Industrial Co., Ltd.(1)(7)
10.43 -- Technology Licensing Agreement between the Registrant and Matsushita
Electric Industrial Co., Ltd., dated December 7, 1995.(1)(9)
10.44 -- Joint Development and License Agreement between Registrant and Cirrus
Logic, Inc., dated February 29, 1996.(1)(10)
10.45 -- Addendum dated April 24, 1996, to Technology Licensing Agreement between
the Registrant and Matsushita Electric Industrial Co., Ltd., dated
December 7, 1995.(1)(10)
10.46 -- 1994 Employee Stock Purchase Plan and the Registrant.
10.47 -- 1995 Director Option Plan of the Registrant.
10.48 -- Asset Purchase Agreement between the Registrant and Samsung Electronics
Co., Ltd.(11)
11.01 -- Computation of Net Income (Loss) Per Share.
21.01 -- List of Subsidiaries of the Registrant.
23.01 -- Consent of Independent Auditors.
24.01 -- Power of Attorney.
27.01 -- Financial Data Schedule.
</TABLE>

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

(1) Confidential treatment has been granted with respect to certain portions of
this document.

59
<PAGE> 60

(2) Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Registration Statement on Form S-1 No. 33-59166.

(3) Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Annual Report on Form 10-K for the year ended March 31, 1993.

(4) Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30,
1993.

(5) Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Registration Statement on Form S-1 No. 33-71364.

(6) Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Annual Report on Form 10-K for the year ended March 31, 1994.

(7) Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Quarterly Report on Form 10-Q/A for the period ended December
31, 1994.

(8) Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Annual Report on Form 10-K for the year ended March 31, 1995.

(9) Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Quarterly Report on Form 10-Q/A2 for the period ended December
31, 1995.

(10) Incorporated by reference to the same-numbered exhibit filed with the
Registrant's Annual Report on Form 10-K for the year ended March 31, 1996.

(11) Confidential Treatment has been requested with respect to certain portions
of this document.

(b) REPORTS ON FORM 8-K:

Current Report on Form 8-K filed May 16, 1997.

The registrant hereby incorporates as part of this Form 10-K the exhibit
listed in Item 14(a)3, as set forth above.

(d) FINANCIAL STATEMENT SCHEDULES:

Information required by this Item is included in Notes to Consolidated
Financial Statements.

60
<PAGE> 61

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:

THE 3DO COMPANY
a Delaware Corporation

By: /s/ TERRENCE J. SCHMID
------------------------------------
Terrence J. Schmid
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
(Duly Authorized Officer)

Date: June 26, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated:

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

<S> <C> <C>
/s/ WILLIAM M. HAWKINS, III Chairman of the Board of Directors June 26, 1997
- ------------------------------------- and Chief Executive Officer
William M. Hawkins, III (Principal Executive Officer)

/s/ TERRENCE J. SCHMID Chief Financial Officer (Principal June 26, 1997
- ------------------------------------- Financial Officer and Principal
Terrence J. Schmid Accounting Officer)

/s/ VINOD KHOSLA Director June 26, 1997
- -------------------------------------
Vinod Khosla

/s/ HUGH C. MARTIN President and Director June 26, 1997
- -------------------------------------
Hugh C. Martin, Jr.

/s/ CHARLES S. PAUL Director June 26, 1997
- -------------------------------------
Charles S. Paul
</TABLE>

61
<PAGE> 62

THE 3DO COMPANY

REPORT ON FORM 10-K FOR
THE YEAR ENDED MARCH 31, 1997

INDEX TO EXHIBITS*

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT NAME
- ------- ----------------------------------------------------------------------------------
<S> <C>
4.02 Fourth Stockholders' Rights Agreement dated as of February 1, 1995, between the
Registrant and various investors.
10.46 1994 Employee Stock Purchase Plan of the Registrant.
10.47 1995 Director Option Plan of the Registrant.
10.48 Asset Purchase Agreement between the Registrant and Samsung Electronics Co.,
Ltd.(1)
11.01 Computation of Net Income (Loss) Per Share.
21.01 List of Subsidiaries of the Registrant.
23.01 Consent of Independent Auditors.
24.01 Power of Attorney (See Page 61).
27.01 Financial Data Schedule.
</TABLE>

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

* Only exhibits actually filed are listed. Exhibits incorporated by reference
are set forth in the exhibit listing included in Item 14 of the Report on
Form 10-K.

(1) Confidential treatment is being requested with respect to certain portions
of this Exhibit.

<PAGE> 1
EXHIBIT 4.02

THE 3DO COMPANY
FOURTH SHAREHOLDERS' RIGHTS AGREEMENT

This Fourth Shareholders' Rights Agreement (the "Agreement") is made and
entered into as of ___________, 1994 by and among The 3DO Company, a California
corporation (formerly SMSG, Inc.) (the "Company"), Electronic Arts Inc., a
Delaware corporation ("EA"), Kleiner Perkins Caufield & Byers V, a California
limited partnership ("KPCB"), KPCB Zaibatsu Fund I, a California limited
partnership ("Zaibatsu"), TW/Three D Holding Co., a New York general partnership
and successor to the rights and obligations of Time Warner Enterprises, Inc.,
Warner Communications, Inc., and Time Warner Entertainment Company, L.P.
("TWEC") under this Agreement and any prior shareholders' rights agreement
ultimately replaced by this Agreement (including its predecessors, "TW/Three
D"), Technology Partners West Fund IV, L.P. ("TP"), Matsushita Electric
Industrial Co., Ltd. ("MEI"), MCA, Inc. ("MCA"), AT&T and Creative Technology
Ltd. ("Creative"). EA, KPCB, Zaibatsu, TW/Three D, TP, MEI, MCA and AT&T are
collectively referred to herein as the "Existing Shareholders" and Creative is
referred to herein as a "New Shareholder." Each party individually is referred
to herein as a "Shareholder."

R E C I T A L S

A. Pursuant to a Series A Preferred Stock Purchase Agreement dated
September 30, 1991 (the "First Series A Purchase Agreement"), TWEC purchased
5,000,000 shares of the Company's Series A Preferred Stock ("Series A Stock")
from the Company, KPCB purchased 3,610,000 shares of Series A Stock from the
Company and acquired an option to purchase an additional 950,000 shares of
Series A Stock from EA, Zaibatsu purchased 190,000 shares of Series A Stock from
the Company and acquired an option to purchase an additional 50,000 shares of
Series A Stock from EA, and TP purchased 400,000 shares of Series A Stock from
the Company. Pursuant to a Series A Preferred Stock Purchase Agreement dated
April 9, 1992 (the "Second Series A Purchase Agreement"), MEI purchased
5,000,000 shares of Series A Stock from the Company. Subsequently, each of MCA
and TWEC exercised options to purchase 666,666 shares of Series A Stock from the
Company. Pursuant to a Series B Preferred Stock Purchase Agreement dated January
5, 1993 (the "Series B Purchase Agreement"), certain individuals and certain of
the Shareholders named on Exhibit A to the Series B Purchase Agreement are
purchasing an aggregate of 2,666,673 shares of Series B Preferred Stock ("Series
B Stock") from the Company. The shares of Common Stock of the Company into which
the Series A Stock and Series B Stock are convertible are referred to herein as
"Conversion Stock."

B. As of September 14, 1993, TWEC assigned to TW/Three D all shares of the
Company's common stock owned by it as of such date and all rights and
obligations relating to such stock. Contemporaneously with such assignments,
TW/Three D accepted such stock and assumed all rights and obligations relating
thereto.

C. Pursuant to a stock purchase agreement between the Company and MEI
dated effective September 1994 (the "MEI Agreement"), the Company has agreed to
issue to MEI two

<PAGE> 2

shares of the Company Common Stock for each hardware system shipped by MEI, at
or below certain suggested retail prices as defined in the MEI Agreement, from
February 1, 1994 through September 30, 1994. Pursuant to a letter agreement
dated May 10, 1994 between the Company and Creative (as supplemented by a letter
agreement dated May 27, 1994 between the Company and Creative) (collectively,
the "Creative Letter"), the Company has agreed to issue to Creative two shares
of the Company's Common Stock for each Qualifying PC Card (as defined in the
Creative Letter) sold and shipped by Creative (or its subsidiaries) and received
by a retail account, at or below certain suggested retail prices as defined in
the Creative Letter, through December 31, 1994. The shares of Common Stock of
the Company issuable pursuant to the MEI Agreement and the Creative Letter are
referred to herein as "Incentive Stock."

D. In connection with the First Series A Purchase Agreement, the Company,
EA, KPCB, Zaibatsu, TW/Three D and TP entered into a Shareholders' Rights
Agreement dated as of September 30, 1991 ("First Shareholders' Rights
Agreement"). The First Shareholders' Rights Agreement was terminated and
replaced by a second Shareholders' Rights Agreement dated April 9, 1992 ("Second
Shareholders' Rights Agreement"). The Second Shareholders' Rights Agreement was
terminated and replaced by a Third Shareholders' Rights Agreement dated January
13, 1993 (the "Third Shareholders' Rights Agreement"), which is, in turn, being
terminated and replaced by this Agreement.

E. The share numbers and dollar amounts in this Agreement (including in
these Recitals) have been adjusted to reflect the two-for-one stock split of the
Company's outstanding capital that occurred in October 1992 and the one-for-two
reverse stock split that occurred in March 1993.

NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:

1. INFORMATION RIGHTS.

1.1 Information to Board Members. The Company agrees that the
Company will:

(a) Annual Budget. Furnish to each member of the Company's
Board of Directors as soon as practicable, and in any event no later than thirty
(30) days after the close of each fiscal year of the Company, an annual
operating plan and budget, prepared on a monthly basis, for the next immediate
fiscal year. The Company will also furnish to each member of the Company's Board
of Directors, within a reasonable time of its preparation, amendments to the
annual budget, if any; and

(b) Monthly Reports. Furnish to each member of the Company's
Board of Directors as soon as practicable, and in any case within thirty (30)
days after the end of each calendar month, monthly unaudited financial
statements, including an unaudited Balance Sheet an unaudited Statement of
Income and an unaudited Statement of Cash Flows, together with a comparison to
the Company's operating plan and budget.

<PAGE> 3

(c) Additional Information. Furnish to any member of the
Company's Board of Directors any additional documents or information regarding
the Company and its business requested by such Board member that is reasonably
required to enable such Board member to fulfill his or her duties as a Board
member.

1.2 144A Information. The Company agrees to provide each Existing
Shareholder who holds at least 400,000 shares of Series A Stock and/or Series B
Stock and/or the equivalent number (on an as-converted basis) of shares of
Conversion Stock upon request, with such written information as may be required
in order to permit such Shareholder to resell any shares of the Company's stock
pursuant to Rule 144A promulgated under the Securities Act, if applicable.

1.3 Determination of Shares. For purposes of this Section 1, the
requisite number of shares of Series A Stock and/or Series B Stock and/or
Conversion Stock required to be held by a Shareholder to qualify for any
particular rights set forth in this Section shall be adjusted proportionally to
reflect any subdivisions, combinations or stock dividends affecting the
outstanding number of shares of such stock after the date of this Agreement.

1.4 Assignment of Information Rights. Rights of any Shareholder
under any Section of this Section 1 may be assigned only to a party who acquires
from a Shareholder (or any permitted successor or assignee of a Shareholder) at
least that number of shares of Series A Stock and/or Series B Stock and/or
Conversion Stock that a Shareholder is required to hold under the terms of such
Section in order to be entitled to such rights.

1.5 Termination of Information Rights. The information rights
granted pursuant to this Section 1 will terminate at the earlier of ten years
after the Company's Initial Public Regis tration or at such time after two years
after the Company's Initial Public Registration as all Registrable Securities
held by a Holder can be resold freely without registration under Rule 144(k).

2. REGISTRATION RIGHTS.

2.1 Definitions. For purposes of this Section 2:

(a) Registration. The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.

(b) Registrable Securities. The term "Registrable Securities"
means: (1) all the shares of Common Stock of the Company issued or issuable upon
the conversion of any shares of Series A Stock or Series B Stock that are now
owned or may hereafter be acquired by any Shareholder or any other party who
purchases Series A Stock or Series B Stock from the Company and subsequently
becomes a party and signatory to this Agreement as a "Shareholder" hereunder;
(2) any shares of Common Stock of the Company issued as Incentive Stock; and (3)
any shares of

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Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
all such shares of Common Stock described in clause (1) of this subsection (b);
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which rights under this Section 2 are not assigned in
accordance with this Agreement or any Registrable Securities sold to the public
or sold pursuant to Rule 144 promulgated under the Securities Act.

(c) Registrable Securities Then Outstanding. The number of
shares of "Registrable Securities then outstanding" shall mean the number of
shares of Common Stock which are Registrable Securities and (1) are then issued
and outstanding or (2) are then issuable pursuant to the exercise or conversion
of then outstanding and then exercisable options, warrants or convertible
securities.

(d) Holder. For purposes of this Section 2, the term "Holder"
means any person owning of record Registrable Securities (aggregating as a
single Holder Registrable Securities held by any TW/Three D Affiliate, and
aggregating as a single Holder Registrable Securities held by any MEI Affiliate,
and aggregating as a single Holder Registrable Securities held by any AT&T
Affiliate, as defined in Section 4.1(d) of the Third Shareholders' Rights
Agreement) that have not been sold to the public or pursuant to Rule 144
promulgated under the Securities Act or any assignee of record of such
Registrable Securities to whom rights under this Section 2 have been duly
assigned in accordance with this Agreement; provided, however, that for purposes
of this Agreement, a record holder of shares of Series A Stock or Series B Stock
convertible into such Registrable Securities shall be deemed to be the Holder of
such Registrable Securities; and provided, further, that the Company shall in no
event be obligated to register shares of Series A Stock or Series B Stock, and
that Holders of Registrable Securities will not be required to convert their
shares of Series A Stock or Series B Stock into Common Stock in order to
exercise the registration rights granted hereunder until immediately before the
closing of the offering to which the registration relates.

(e) Form S-3. The term "Form S-3" means such form under the
Securities Act as is in effect on the date hereof or any successor registration
form under the Securities Act subsequently adopted by the SEC which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.

(f) SEC. The term "SEC" or "Commission" means the U.S.
Securities and Exchange Commission.

2.2 Demand Registration.

(a) Request for Registration. Subject to terms and conditions
of this Section 2, if the Company shall receive:

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(i) Holders Request. At any time after September
30, 1994, a written request from the Holders of at least twenty-five
percent (25%) of the Registrable Securities then outstanding that the
Company file a registration statement under the Securities Act covering
the registration of Registrable Securities (which request shall expressly
state that it is being made pursuant to this Section 2.2(a)(i)); or

(ii) TW/Three D Request. A written request from
TW/Three D that the Company file a registration statement under the
Securities Act covering the registration of Registrable Securities (which
request by TW/Three D shall expressly state that it is being made pursuant
to this Section 2.2(a)(ii));

(iii) MEI Request. A written request from MEI that
the Company file a registration statement under the Securities Act
covering the registration of Registrable Securities (which request by MEI
shall expressly state that it is being made pursuant to this Section
2.2(a)(iii));

(iv) AT&T Request. A written request from AT&T
that the Company file a registration statement under the Securities Act
covering the registration of Registrable Securities (which request by AT&T
shall expressly state that it is being made pursuant to this Section
2.2(a)(iv));

then the Company shall, within ten (10) business days of the receipt of such
written request, give written notice of such request (a "Request Notice") to all
Holders, and effect, as soon as practicable, the registration under the
Securities Act of all Registrable Securities which Holders request to be
registered and included in such registration by written notice given by such
Holders to the Company within twenty (20) days after the Company has mailed the
Request Notice to the Holders, subject only to the limitations of this Section
2.2; provided, however, that the Registrable Securities requested by all Holders
to be registered pursuant to such request must have an anticipated aggregate
public offering price (before any underwriting discounts and commissions) of not
less than $3,000,000 (or $7,500,000 if such requested registration is under
Section 2.2(a)(i) and is the first public offering of the Company's stock
registered under the Securities Act); and provided further that MEI shall not in
any event exercise its rights under Sections 2.2(a)(i) or 2.2(a)(iii) hereof
with respect to more than 2,570,547 shares before April 2, 1996 and that
Creative shall not in any event exercise its rights under Section 2.2(a)(i)
hereof before April 1, 1997.

(b) Underwriting. If the Holder or Holders initiating a
registration request under this Section 2.2 ("Initiating Holder" or "Initiating
Holders", as applicable) intend to distribute the Registrable Securities covered
by their request by means of an underwriting, then the Initiating Holder or
Initiating Holders shall so advise the Company as a part of its or their request
for registration made pursuant to this Section 2.2 and the Company shall include
such information in the Request Notice. In such event, the right of any Holder
to include his Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the

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inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by the Initiating Holder or a majority in interest of
the Initiating Holders, as applicable, and such Holder) to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriters selected for such underwriting by the
Company and the Initiating Holder or a majority in interest of the Initiating
Holders, as applicable. Notwithstanding any other provision of this Section 2.2,
if the underwriters advise the Company in writing that marketing factors require
a limitation of the number of securities to be underwritten then the Company
shall so advise all Holders of Registrable Securities which would otherwise be
registered and underwritten pursuant hereto, and the number of Registrable
Securities that may be included in the underwriting shall be reduced as required
by the underwriter(s) and allocated among the Holders of Registrable Securities
on a pro rata basis according to the number of Registrable Securities then
outstanding held by each Holder requesting registration (including the
Initiating Holder or Initiating Holders); provided, however, that the number of
shares of Registrable Securities to be included in such underwriting and
registration shall not be reduced unless all other securities of the Company are
first entirely excluded from the underwriting and registration; and provided,
further, that (i) if TW/Three D has requested to include Registrable Securities
in such underwriting and registration pursuant to Section 2.2(a)(ii) and if the
number of TW/Three D's Registrable Securities to be included is reduced pursuant
to this sentence, then such request by TW/Three D shall not be deemed to be a
request for registration pursuant to Section 2.2(a)(ii) for purposes of Section
2.2(c), below; (ii) if MEI has requested to include Registrable Securities in
such underwriting and registration pursuant to Section 2.2(a)(iii) and if the
number of MEI's Registrable Securities to be included is reduced pursuant to
this sentence, then such request by MEI shall not be deemed to be a request for
registration pursuant to Section 2.2(a)(iii) for purposes of Section 2.2(c),
below; and (iii) if AT&T has requested to include Registrable Securities in such
underwriting and registration pursuant to Section 2.2(a)(iv) and if the number
of AT&T's Registrable Securities to be included is reduced pursuant to this
sentence, then such request by AT&T shall not be deemed to be a request for
registration pursuant to Section 2.2(a)(iv) for purposes of Section 2.2(c),
below. Any Registrable Securities excluded and withdrawn from such underwriting
shall be withdrawn from the registration.

(c) Maximum Number of Demand Registrations. The Company is
obligated to effect only one (1) registration pursuant to Section 2.2(a)(i),
only one (1) registration pursuant to Section 2.2(a)(ii), only one (1)
registration pursuant to Section 2.2(a)(iii) and only one (1) registration
pursuant to Section 2.2(a)(iv).

(d) Deferral. Notwithstanding the foregoing, if the Company
shall furnish to Holders requesting the filing of a registration statement
pursuant to this Section 2.2, a certificate signed by the President or Chief
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration statement to be filed and it
is therefore essential to defer the filing of such registration statement, then
the Company shall have the right to defer such filing for a period of not more
than 120 days after receipt of the request of the Initiating Holders;

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provided, however, that the Company may not utilize this right more than once in
any twelve (12) month period.

(e) Expenses.

(i) Holder Requested Registration. All expenses
incurred in connection with a registration requested pursuant to Section
2.2(a)(i), including without limitation all registration and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements of one counsel (not to exceed
$25,000) for the selling Holders (but excluding underwriters' discounts and
commissions), shall be borne by the Company. Each Holder participating in a
registration pursuant to Section 2.2(a)(i) shall bear such Holder's
proportionate share (based on the total number of shares sold in such
registration other than for the account of the Company) of all discounts,
commissions or other amounts payable to underwriters or brokers in connection
with such offering. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 2.2(a)(i) if the registration request is subsequently withdrawn at
the request of the Holders of a majority of the Registrable Securities to be
registered, unless the Holders of a majority of the Registrable Securities then
outstanding agree to forfeit their right to a demand registration pursuant to
Section 2.2(a)(i), in which case such right shall be forfeited by all Holders of
Registrable Securities); provided, further, however, that if at the time of such
withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company not known to the Holders at the
time of their request for such registration and have withdrawn their request for
registration with reasonable promptness after learning of such material adverse
change, then the Holders shall not be required to pay any of such expenses and
shall retain their rights pursuant to Section 2.2(a)(i).

(ii) TW/Three D, MEI or AT&T Requested
Registration. All expenses incurred in connection with a registration requested
by TW/Three D pursuant to Section 2.2(a)(ii), or a registration requested by MEI
pursuant to Section 2.2(a)(iii), or a registration requested by AT&T pursuant to
Section 2.2(a)(iv), including without limitation all registration and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company, the fees and disbursements of any counsel engaged to
represent the selling Holders in such registration and all underwriters'
discounts and commissions, shall be borne exclusively by the selling Holders on
a pro rata basis in proportion to the number of Registrable Securities owned by
each such selling Holder that are included in such registration at the time it
goes effective.

2.3 Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding any registration statement relating to any registration
under Section 2.2 or 2.4 of this Agreement or to any employee benefit plan or a
corporate reorganization) and will

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<PAGE> 8

afford each such Holder an opportunity to include in such registration statement
all or any part of the Registrable Securities then held by such Holder. Each
Holder desiring to include in any such registration statement all or any part of
the Registrable Securities held by such Holder shall, within twenty (20) days
after receipt of the above-described notice from the Company, so notify the
Company in writing, and in such notice shall inform the Company of the number of
Registrable Securities such Holder wishes to include in such registration
statement; provided, however, that MEI shall not in any event exercise its
rights under Section 2.3 hereof with respect to more than 2,570,547 shares
before April 2, 1996 and that Creative shall not in any event exercise its
rights under Section 2.3 hereof before April 1, 1997. If a Holder decides not to
include all of its Registrable Securities in any registration statement
thereafter filed by the Company, such Holder shall nevertheless continue to have
the right to include any Registrable Securities in any subsequent registration
statement or registration statements as may be filed by the Company with respect
to offerings of its securities, all upon the terms and conditions set forth
herein.

(a) Underwriting. If a registration statement under which the
Company gives notice under this Section 2.3 is for an underwritten offering,
then the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to the
Company, and second, to each of the Holders requesting inclusion of their
Registrable Securities in such registration statement on a pro rata basis based
on the total number of Registrable Securities then held by each such Holder;
provided, however, that the right of the underwriters to exclude shares
(including Registrable Securities) from the registration and underwriting as
described above shall be restricted so that the number of Registrable Securities
included in any such registration is not reduced below twenty-five percent (25%)
of the shares included in the registration. If any Holder disapproves of the
terms of any such underwriting, such Holder may elect to withdraw therefrom by
written notice to the Company and the underwriter, delivered at least ten (10)
business days prior to the effective date of the registration statement. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
excluded and withdrawn from the registration. For any Holder which is a
partnership or corporation, the partners, retired partners and shareholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "Holder," and any pro rata reduction with respect to such
"Holder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"Holder," as defined in this sentence.

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<PAGE> 9

(b) Expenses. All expenses incurred in connection with a
registration pursuant to this Section 2.3 (excluding underwriters' and brokers'
discounts and commissions), including, without limitation all federal and "blue
sky" registration and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company and reasonable fees and
disbursements of one counsel for the selling Holders (not to exceed $25,000)
shall be borne by the Company.

2.4 Form S-3 Registration. In case the Company shall receive from
any Holder or Holders of at least twenty percent (20%) of all Registrable
Securities then outstanding a written request or requests that the Company
effect a registration on Form S-3 and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders (provided, however, that MEI shall not in any event exercise its
rights under this Section 2.4 with respect to more than 2,570,547 shares before
April 2, 1996 and that Creative shall not in any event exercise its rights under
this Section 2.4 before April 1, 1997), then the Company will:

(a) Notice. Promptly give written notice of the proposed
registration and the Holder's or Holders' request therefor, and any related
qualification or compliance, to all other Holders of Registrable Securities; and

(b) Registration. As soon as practicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within twenty (20) days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 2.4:

(i) if Form S-3 is not available for such offering
by the Holders;

(ii) if the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public of less than
$500,000;

(iii) if the Company shall furnish to the Holders
a certificate signed by the President or Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time,
in which event the Company shall have the right to defer the filing of the
Form S-3 registration statement no more than once during any twelve (12)
month period for a period of

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not more than ninety (90) days after receipt of the request of the Holder
or Holders under this Section 2.4;

(iv) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.

Subject to the foregoing, the Company shall file a Form S-3 registration
statement covering the Registrable Securities and other securities so requested
to be registered pursuant to this Section 2.4 as soon as practicable after
receipt of the request or requests of the Holders for such registration.

(c) Expenses. All expenses incurred in connection with any
registration requested pursuant to this Section 2.4 shall be borne by the
Holders on a pro rata basis in proportion to the number of Registrable
Securities owned by the Holders that are included in such registration at the
time it goes effective.

(d) Not Demand Registration. Form S-3 registrations shall not
be deemed to be demand registrations as described in Section 2.2 above.

2.5 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:

(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to 120 days.

(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.

(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.

(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in

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connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.

(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.

(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.

(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering addressed to the underwriters, if any, and if there are no
underwriters, to the Holders requesting registration of Registrable Securities
and (ii) a "comfort" letter dated as of such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering addressed to the underwriters, if any, and if
there are no underwriters, to the Holders requesting registration of Registrable
Securities.

2.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to timely effect
the registration of their Registrable Securities.

2.7 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.

2.8 Indemnification. In the event any Registrable Securities are
included in a registration statement under Section 2.2, 2.3 or 2.4:

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(a) By the Company. To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the partners, officers and
directors of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"):

(i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto;

(ii) the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or

(iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any federal or state
securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any federal or state securities law in connection
with the offering covered by such registration statement;

and the Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in con nection with investigating or defending
any such loss, claim, damage, liability or action; provided however, that the
indemnity agreement contained in this Section 2.8(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.

(b) By Selling Holders. To the extent permitted by law, each
selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, any underwriter and any other Holder selling securities under such
registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, partner or
director, officer or controlling person of such other Holder may become subject
under the Securities Act, the Exchange

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Act or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
underwriter or other Holder, partner, officer, director or controlling person of
such other Holder in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 2.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; and provided further, that the total amounts
payable in indemnity by a Holder under this Section 2.8(b) in respect of any
Violation shall not exceed the net proceeds received by such Holder in the
registered offering out of which such Violation arises.

(c) Notice. Promptly after receipt by an indemnified party
under this Section 2.8 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 2.8,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commence ment of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 2.8.

(d) Defect Eliminated in Final Prospectus. The foregoing
indemnity agreements of the Company and Holders are subject to the condition
that, insofar as they relate to any Violation made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective or the amended
prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
person if a copy of the Final Prospectus was furnished to the indemnified party
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.

(e) Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights

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<PAGE> 14

under this Agreement, or any controlling person of any such Holder, makes a
claim for indemnification pursuant to this Section 2.8 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 2.8 provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of any such selling Holder or any such controlling person in circumstances
for which indemnification is provided under this Section 2.8; then, and in each
such case, the Company and such Holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that such Holder is responsible for the
portion represented by the percentage that the public offering price of its
Registrable Securities offered by and sold under the registration statement
bears to the public offering price of all securities offered by and sold under
such registration statement, and the Company and other selling Holders are
responsible for the remaining portion; provided, however, that, in any such
case, (A) no such Holder will be required to contribute any amount in excess of
the public offering price of all such Registrable Securities offered and sold by
such Holder pursuant to such registration statement; and (B) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) will be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.

(f) Survival. The obligations of the Company and Holders under
this Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.

2.9 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:

(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;

(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and

(c) So long as a Holder owns any Registrable Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 (at any time
after 90 days after the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public),

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<PAGE> 15

and of the Securities Act and the Exchange Act (at any time after it has become
subject to the reporting requirements of the Exchange Act), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company as a Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration (at any time after the Company has become
subject to the reporting requirements of the Exchange Act).

2.10 Limitations on Subsequent Registration Rights. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
2.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included, or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in Section
2.2(a)(i), (ii), (iii) or (iv), or within one hundred twenty (120) days of the
effective date of any registration effected pursuant to Section 2.2.

2.11 Assignment of Registration Rights. The rights of a Shareholder
under this Section 2 (other than TW/Three D's rights to initiate a demand
registration under Section 2.2(a)(ii), MEI's rights to initiate a demand
registration under Section 2.2(a)(iii) and AT&T's rights to initiate a demand
registration under Section 2.2(a)(iv)) may be assigned to any party who acquires
Registrable Securities or shares of Series A Stock or Series B Stock convertible
into Registrable Securities in a transfer not involving a distribution or
offering of such shares to the public and not made pursuant to Rule 144
promulgated under the Securities Act, who agrees in writing with the Company to
be bound by all of the provisions of this Section 2. TW/Three D's right to
initiate a demand registration under Section 2.2(a)(ii) may be assigned to any
party who acquires at least 80% of the Series A Stock originally acquired by
TW/Three D under the First Series A Purchase Agreement (or the Conversion Stock
with respect thereto) and who agrees in writing with the Company to be bound by
all of the provisions of this Section 2. MEI's right to initiate a demand
registration under Sec tion 2.2(a)(iii) may be assigned to any party who
acquires at least 80% of the Series A Stock originally acquired by MEI under the
Second Series A Purchase Agreement (or the Conversion Stock with respect
thereto) and who agrees in writing with the Company to be bound by all of the
provisions of this Section 2. AT&T's right to initiate a demand registration
under Section 2.2(a)(iv) may be assigned to any party who acquires at least 80%
of the Series B Stock originally acquired by AT&T under the Series B Purchase
Agreement (or the Conversion Stock with respect thereto) and who agrees in
writing with the Company to be bound by all of the provisions of this Section 2.

2.12 Termination of Registration Rights. The registration rights
granted pursuant to this Section 2 will terminate at the earlier of ten years
after the Company's Initial Public Regis-

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<PAGE> 16

tration or at such time after two years after the Company's Initial Public
Registration as all Registrable Securities held by a Holder can be resold freely
without registration under Rule 144(k).

3. VOTING AGREEMENTS.

3.1 Election of Board of Directors.

(a) Voting; Board Designees. The Shareholders further agree to
vote all shares of the capital stock of the Company now or hereafter directly or
indirectly owned (of record or beneficially) by them or their affiliates, and to
nominate candidates for election to the Company's Board of Directors, as shall
be necessary to elect and appoint to the Board of Directors of the Company, and
to maintain as members of the Company's Board of Directors, the following
persons:

(i) one (1) individual designated by EA (the "EA
Designee"), so long (and only so long) as EA owns the Required Number of
Shares (as defined below);

(ii) one (1) individual designated by KPCB (the
"KPCB Designee"), so long (and only so long) as KPCB together with
Zaibatsu owns the Required Number of Shares;

(iii) one (1) individual designated by TW/Three D
(the "TW/Three D Designee"), so long (and only so long) as TW/Three D
together with all TW/Three D Affiliates owns the Required Number of
Shares;

(iv) one (1) independent individual nominated for
election to the Company's Board of Directors by KPCB who is not an officer
or employee of the Company or affiliated with KPCB or TW/Three D and whose
nomination is approved by a majority of the Company's Board of Directors
excluding the KPCB representative (the "KPCB Nominee"), so long (and only
so long) as KPCB owns the Required Number of Shares;

(v) one (1) independent individual nominated for
election to the Company's Board of Directors by TW/Three D who is not an
officer or employee of the Company or affiliated with KPCB or TW/Three D
and whose nomination is approved by a majority of the Company's Board of
Directors excluding the TW/Three D representative (the "TW/Three D
Nominee"), so long (and only so long) as TW/Three D owns the Required
Number of Shares;

(vi) the then-incumbent Chief Executive Officer of
the Company;

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<PAGE> 17

(vii) one (1) individual designated by MEI (the
"MEI Designee"), so long (and only so long) as MEI together with all MEI
Affiliates owns the Required Number of Shares; provided that such
individual is either a senior operating executive employed by MEI's
consumer electronics group or is approved as a nominee by a majority of
the Company's Board of Directors excluding the MEI representative;

(viii) one (1) independent individual nominated
for election to the Company's Board of Directors by MEI who is not an
officer or employee of the Company or affiliated with MEI and whose
nomination is approved by a majority of the Company's Board of Directors
excluding the MEI representative (the "MEI Nominee"), so long (and only so
long) as MEI owns the Required Number of Shares; and

(ix) one (1) individual designated by AT&T (the
"AT&T Designee"), so long (and only so long) as AT&T together with all
AT&T Affiliates owns the Required Number of Shares.

As to any remaining members of the Company's Board of Directors, the
Shareholders may vote their shares as they deem appropriate. The provisions of
this Section 3 will be binding on all Share holders and their transferees
regardless of whether any of them continue to hold the Required Number of
Shares.

(b) Required Number of Shares. As used herein, the term
"Required Number of Shares" with respect to EA, KPCB, TW/Three D and MEI means
3,000,000 shares of Series A Stock and/or Series B Stock, and with respect to
AT&T means 2,000,000 shares of Series B Stock, and/or in each case the
equivalent number (on an as-converted basis) of shares of Conversion Stock (such
numbers of shares of Series A Stock, Series B Stock and Common Stock being
subject to proportional adjustment to reflect subsequent subdivisions,
combinations, stock dividends and similar events affecting the number of
outstanding shares of such stock after the date of this Agreement).

(c) Changes in Board Seats. If from time to time any party
authorized to designate or nominate an individual to serve on the Company's
Board of Directors under clauses (i) through (v), (vii) and (viii) of Section
3.1(a) (an "Electing Party"), elects to:

(i) remove from the Company's Board of Directors
an individual who was designated or nominated for election to the Board by
such Electing Party under Section 3.1; and/or

(ii) designate a different individual to occupy
that Board seat, or to fill a vacancy in such Board seat;

then the Shareholders shall vote all shares of the capital stock of the Company
then directly or indirectly owned (of record or beneficially) by them or their
affiliates to cause the individual designated by such Electing Party to be
removed from, or elected to, the Company's Board of Directors, as the case may
be.

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<PAGE> 18

(d) Notice; Cumulative Voting. The Company shall promptly give
each Shareholder written notice of any election to, or appointment of, or change
in composition of, the Board of Directors of the Company. In any election of
directors, the Shareholders shall utilize cumulative voting, if necessary, to
carry out their voting obligations under this Section 3.

3.2 Further Assurances. Each of the Shareholders and the Company
agree not to vote any shares of Company stock, or to take any other actions, in
any manner that would defeat, impair or adversely effect the stated goals and
intentions of the parties under this Section.

3.3 Effect of Transfer of Shares; Legend.

(a) Restrictions Against Assignment. No party may assign,
delegate or otherwise transfer to any person or entity (including but not
limited to any transferee of shares of the Company's stock) any rights of such
party to designate or nominate any individual for election to the Company's
Board of Directors under this Section 3, except that TW/Three D may transfer
such rights to any TW/Three D Affiliate, MEI may transfer such rights to any MEI
Affiliate and AT&T may transfer such rights to any AT&T Affiliate.

(b) Transferees. Each and every transferee or assignee of
shares of capital stock of the Company from any Shareholder shall be bound by
and subject to all the terms and conditions of this Section 3 (except that no
such transferee or assignee, other than a TW/Three D Affiliate, MEI Affiliate or
AT&T Affiliate pursuant to Section 3.3(a), shall acquire or succeed to any right
to designate or nominate any individual for election to the Company's Board of
Directors). So long as the provisions of this Section 3 are in effect, the
Company shall require, as a condition precedent to the transfer of any shares of
Company stock covered by this Section 3, that the transferee agrees in writing
to be bound by, and subject to, the terms and conditions of this Section 3 as
provided in this Section 3.3(b) and to ensure that his transferees of Company
stock shall be likewise bound.

(c) Legend. The Company and the Shareholders agree that, so
long as the provisions of this Section 3 are in effect, all Company share
certificates now or hereafter held by each Shareholder will be stamped or
otherwise imprinted with a legend in substantially the following form:

THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AGREEMENTS,
COVENANTS AND RESTRICTIONS IN REGARD TO THE VOTING OF SUCH SHARES
AND THEIR TRANSFER, AS PROVIDED IN THE PROVISIONS OF A SHAREHOLDERS'
RIGHTS AGREEMENT, A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE
SECRETARY OF THE CORPORATION.

3.4 Specific Performance. Each of the parties acknowledge that all
other parties hereto will be irreparably damaged in the event that the
provisions of this Section are not specifically enforced. Accordingly, should
any dispute arise pursuant this Agreement, the parties agree that a

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<PAGE> 19

decree of specific performance shall be an appropriate remedy. Such remedy shall
be cumulative and shall be in addition to any other remedies which any party may
have at law or in equity.

3.5 Termination of Voting Agreements. The rights and obligations of
the parties granted pursuant to this Section 3 will terminate at the earlier of
eighteen months after the Company's Initial Public Registration or on the
termination of the Lock-Up Agreements between the Existing Shareholders and the
Underwriters of the Company's Initial Public Registration.

4. SHAREHOLDER CONFIDENTIALITY. Each Shareholder hereby agrees to
safeguard against disclosure to third parties and not to use except as
specifically authorized herein (or by agreements executed pursuant hereto) all
confidential information concerning the business of the Company that may be
disclosed to such Shareholder by reason of such Shareholder's access to the
books, records, properties or personnel of the Company before or after the date
hereof (collectively, "Company Confidential Information") by using reasonable
secrecy measures and in no event less than the same degree of care as such
Shareholder uses for such Shareholder's own similar proprietary information.
However, a Shareholder shall not be obligated to maintain any such Company
Confidential Information in confidence to the extent that: (i) the Company
Confidential Information is or becomes public knowledge other than through the
fault of such Shareholder; (ii) the Company Confidential Information is or
becomes available on an unrestricted basis to such Shareholder from a source
other than the Company; or (iii) the Company Confidential Information is
required to be disclosed by such Shareholder, under a court order or
governmental action, provided that such Shareholder provides not less than 30
days' prior written notification to the Company of such obligation and seeks, or
allows the Company to seek, an appropriate protective order, and provided
further that disclosure solely pursuant to this clause (iii) shall not release a
Shareholder from such Shareholder's obligation to maintain confidentiality.

5. MISCELLANEOUS.

5.1 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties.

5.2 Governing Law. This Agreement shall be governed by and construed
under the internal laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California, without reference to principles of conflict of laws or choice of
laws.

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

5.4 Headings. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise

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<PAGE> 20

provided, refer to sections and paragraphs hereof and exhibits and schedules
attached hereto, all of which are incorporated herein by this reference.

5.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified (including
delivery via facsimile) or three (3) days after deposit with the United States
Post Office, by registered or certified mail, postage prepaid and addressed to
the party to be notified at the address set forth on the signature page of this
Agreement, or at such other address as such party may designate by ten (10) days
advance written notice to all other parties.

5.6 Attorneys' Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.

5.7 Representation by Counsel. Each party to this Agreement
acknowledges that it has had the opportunity to obtain the advice of independent
legal counsel.

5.8 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of holders of a majority of the
Series A Stock and/or Series B Stock and/or Conversion Stock then held by all
Shareholders, acting as a single class. Any such amendment or waiver will be
binding on all parties hereto except where the amendment or waiver affects a
right that is specific to a party named herein, in which event the amendment or
waiver of such right requires the consent of such party.

5.9 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms to the maximum extent possible.

5.10 Entire Agreement. This Agreement, together with all exhibits
and schedules hereto, constitutes the entire understanding and agreement of the
parties with respect to the subject matter hereof and supersedes all prior
negotiations, correspondence, agreements, understandings, duties or obligations
among the parties with respect to the subject matter hereof.

5.11 Further Assurances. From and after the date of this Agreement,
upon the request of a party, the other parties shall execute and deliver such
instruments, documents or other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement.

5.12 Expenses. Each party will bear its own expenses incurred in
connection with the negotiation and preparation of this Agreement.

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<PAGE> 21

5.13 Termination of Prior Agreements. Upon the execution of this
Agreement by Shareholders holding a majority of the Series A Stock subject to
the Third Shareholders' Rights Agreement, the Third Shareholders' Rights
Agreement shall terminate and shall be of no further force or effect (and the
First Shareholders' Rights Agreement and the Second Shareholders' Rights
Agreement each shall remain terminated).

5.14 Determination of Shares. For purposes of this Agreement, the
requisite number of shares of Series A Stock and/or Series B Stock and/or
Conversion Stock and/or Incentive Stock required to be held by a Shareholder to
qualify for any particular rights set forth in this Agreement shall be adjusted
proportionately to reflect any subdivision, combination or stock dividend
affecting the outstanding number of shares of such Stock effected after the date
of this Agreement.

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<PAGE> 22

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.

SHAREHOLDERS
ELECTRONICS ARTS INC. MCA, INC.
a Delaware corporation

By: /S/ RUTH A. KENNEDY By:
------------------------------- ----------------------------------
Title: VP, General Counsel Title:
---------------------------- --------------------------------

KLEINER PERKINS CAUFIELD & TECHNOLOGY PARTNERS WEST,
BYERS V, a California Limited FUND IV, L.P.
Partnership

By: /S/ VINOD KHOSLA By: /S/ WILLIAM HUNT
------------------------------- ----------------------------------
Title: General Partner Title: Managing Partner
---------------------------- --------------------------------

KPCB ZAIBATSU FUND I, a TW/THREE D HOLDING CO.
California Limited Partnership By: TW Service Holding I, L.P.

By: /S/ VINOD KHOSLA By: /S/ DIANE L. MOSS
------------------------------- ----------------------------------
Title: General Partner Title: Vice President
---------------------------- --------------------------------

MATSUSHITA ELECTRIC AT&T
INDUSTRIAL CO., LTD.

By: /S/ H. TACHIBANA By: /S/ JOHN A. BERMINGHAM
------------------------------- ----------------------------------
Title: Dir., Interactive Media Div. Title: VP, New Business Ventures
---------------------------- --------------------------------

CREATIVE TECHNOLOGY LTD.

By:
-------------------------------
Title:
----------------------------

COMPANY
THE 3DO COMPANY

By: /S/ JAMES ALAN COOK
-------------------------------
Title: Secretary
----------------------------

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<PAGE> 1

EXHIBIT 10.46

THE 3DO COMPANY
1994 EMPLOYEE STOCK PURCHASE PLAN

The following constitute the provisions of the 1994 Employee Stock
Purchase Plan of The 3DO Company.

1. Purpose. The purpose of the Plan is to provide
employees of the Company and its Designated Subsidiaries with an opportunity to
purchase Common Stock of the Company through accumulated payroll deductions.
It is the intention of the Company to have the Plan qualify as an "Employee
Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. The provisions of the Plan, accordingly, shall be construed so as to
extend and limit participation in a manner consistent with the requirements of
that section of the Code.

2. Definitions.

(a) "Board" shall mean the Board of Directors of the
Company.

(b) "Code" shall mean the Internal Revenue Code of 1986,
as amended.

(d) "Company" shall mean The 3DO Company and any
Designated Subsidiary of the Company.

(e) "Compensation" shall mean all base straight time
gross earnings, commissions, overtime, shift premium, incentive compensation,
incentive payments, bonuses, and other compensation.

(f) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole
discretion as eligible to participate in the Plan.

(g) "Employee" shall mean any individual who is an
Employee of the Company for tax purposes whose customary employment with the
Company is at least twenty (20) hours per week and more than five (5), months
in any calendar year. For purposes of the Plan, the employment relationship
shall be treated as continuing intact while the individual is on sick leave or
other leave of absence approved by the Company. Where the period of leave
exceeds 90 days and the individual's right to reemployment is not guaranteed
either by statute or by contract, the employment relationship will be deemed to
have terminated on the 91st day of such leave.

(h) "Enrollment Date" shall mean the first day of each
Offering Period.

(i) "Exercise Date" shall mean the last day of each
Purchase Period.
<PAGE> 2
(j) "Fair Market Value" shall mean, as of any date, the
value of Common Stock determined as follows:

(1) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value
shall be the closing sale price for the Common Stock (or the mean of the
closing bid and asked prices, if no sales were reported), as quoted on such
exchange (or the exchange with the greatest volume of trading in Common Stock)
or system on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;

(2) If the Common Stock is quoted on the NASDAQ
System (but not on the Nasdaq National Market thereof) or is regularly quoted
by a recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;

(3) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Board.

(k) "Offering Period" shall mean the period of
approximately twenty-four (24) months during which an option granted pursuant
to the Plan may be exercised, commencing on the first Trading Day on or after
September 1 and March 1 of each year and terminating on the last Trading Day in
the periods ending twenty-four months later. The duration and timing of
Offering Periods may be changed pursuant to Section 4 of this Plan.

(l) "Plan" shall mean this Employee Stock Purchase Plan.

(m) "Purchase Price" shall mean an amount equal to 85% of
the Fair Market Value of a share of Common Stock on the Enrollment Date or on
the Exercise Date, whichever is lower.

(n) "Purchase Period" shall mean the approximately six
month period commencing after one Exercise Date and ending with the next
Exercise Date, except that the first Purchase Period of any Offering Period
shall commence on the Enrollment Date and end with the next Exercise Date.

(o) "Reserves" shall mean the number of shares of Common
Stock covered by each option under the Plan which have not yet been exercised
and the number of shares of Common Stock which have been authorized for
issuance under the Plan but not yet placed under option.

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<PAGE> 3
(p) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the
Company or a Subsidiary, whether or not such corporation now exists or is
hereafter organized or acquired by the Company or a Subsidiary.

(q) "Trading Day" shall mean a day on which national
stock exchanges and the NASDAQ System are open for trading.

3. Eligibility.

(a) Any Employee (as defined in Section 2(g)), who is
employed by the Company on a given Enrollment Date shall be eligible to
participate in the Plan.

(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) if,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) which permits his or her rights to purchase stock under
all employee stock purchase plans of the Company and its subsidiaries to accrue
at a rate which exceeds twenty-five thousand dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such option is
granted) for each calendar year in which such option is outstanding at any
time.

4. Offering Periods. The Plan shall be implemented by
consecutive, overlapping Offering Periods with a new Offering Period commencing
on the first Trading Day on or after September 1 and March 1 each year, or on
such other date as the Board shall determine, and continuing thereafter until
terminated in accordance with Section 19 hereof. The Board shall have the
power to change the duration of Offering Periods (including the commencement
dates thereof) with respect to future offerings without shareholder approval if
such change is announced at least five (5) days prior to the scheduled
beginning of the first Offering Period to be affected thereafter.

5. Participation.

(a) An eligible Employee may become a participant in the
Plan by completing a subscription agreement authorizing payroll deductions in
the form of Exhibit A to this Plan and filing it with the Company's payroll
office at least 14 days prior to the applicable Enrollment Date.

(b) Payroll deductions for a participant shall commence
with the first payroll following the Enrollment Date and shall end with the
last payroll in the Offering Period to which such authorization is applicable,
unless sooner terminated by the participant as provided in Section 10 hereof.

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<PAGE> 4
6. Payroll Deductions.

(a) At the time a participant files his or her
subscription agreement, he or she shall elect to have payroll deductions made
on each pay day during the Offering Period in an amount not exceeding fifteen
percent (15%) of the Compensation which he or she receives on each pay day
during the Offering Period, and the aggregate of such payroll deductions during
the Offering Period shall not exceed fifteen percent (15%) of the participant's
Compensation during said Offering Period.

(b) All payroll deductions made for a participant shall
be credited to his or her account under the Plan and will be withheld in whole
percentages only. A participant may not make any additional payments into such
account.

(c) A participant may discontinue his or her
participation in the Plan as provided in Section 10 hereof, or may decrease the
rate of his or her payroll deductions during the Offering Period by completing
or filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate
shall be effective with the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in participation more
quickly. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10 hereof.

(d) Notwithstanding the foregoing, to the extent
necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof,
a participant's payroll deductions may be decreased to 0% at such time during
any Purchase Period which is scheduled to end during the current calendar year
(the "Current Purchase Period") that the aggregate of all payroll deductions
which were previously used to purchase stock under the Plan in a prior Purchase
Period which ended during the annual calendar year plus all payroll deductions
accumulated with respect to the Current Purchase Period equal $21,250. Payroll
deductions reduced pursuant to this Section 6(d) shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.

(e) At the time the option is exercised, in whole or in
part, or at the time some or all of the Company's Common Stock issued under the
Plan is disposed of, the participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the Common Stock.
At any time, the Company may, but will not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to sale or
early disposition of Common Stock by the Employee.

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<PAGE> 5
7. Grant of Option. On the Enrollment Date of each Offering
Period, each eligible Employee participating in such Offering Period shall be
granted an option to purchase on each Exercise Date during such Offering Period
(at the applicable Purchase Price) up to a number of shares of Common Stock
determined by dividing such Employee's payroll deductions accumulated prior to
such Exercise Date and retained in the Participant's account as of the Exercise
Date by the applicable Purchase Price. In no event shall an Employee be
permitted to purchase during each Purchase Period more than a number of Shares
determined by dividing $12,500 by the Fair Market Value of a share of Common
Stock on the Enrollment Date, and provided further that such purchase shall be
subject to the limitations set forth in Sections 3(b) and 12 hereof. Exercise
of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof, and shall expire on
the last day of the Offering Period.

8. Exercise of Option. Unless a participant has withdrawn from
the Plan as provided in Section 10 hereof, his or her option for the purchase
of shares will be exercised automatically on the Exercise Date, and the maximum
number of full shares subject to option shall be purchased for such participant
at the applicable Purchase Price with the accumulated payroll deductions in his
or her account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant. Any other monies left over in a participant's account after the
Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by the participant.

9. Delivery. As promptly as practicable after each Exercise Date
on which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of the participant's option.

10. Withdrawal; Termination of Employment.

(a) A participant may withdraw all but not less than all
the payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by giving written notice
to the Company in the form of Exhibit B to this Plan. All of the participant's
payroll deductions credited to his or her account shall be paid to such
participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period shall be automatically terminated.
No further payroll deductions for the purchase of shares will be made for such
Offering Period. If a participant withdraws from an Offering Period, payroll
deductions will not resume at the beginning of the succeeding Offering Period
unless the participant delivers to the Company a new subscription agreement.

(b) Upon a participant's ceasing to be an Employee (as
defined in Section 2(g) hereof) for any reason, he or she will be deemed to
have elected to withdraw from the Plan The payroll deductions credited to such
participant's account during the Offering Period but not yet used

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<PAGE> 6
to exercise the option will be returned to such participant or, in the case of
his or her death, to the person or persons entitled thereto under Section 14
hereof, and such participant's option will be automatically terminated. The
preceding sentence notwithstanding, a participant who receives payment in lieu
of notice of termination of employment shall be treated as continuing to be an
Employee for the participant's customary number of hours per week of employment
during the period in which the participant is subject to such payment in lieu
of notice.

11. Interest. No interest shall accrue on the payroll deductions
of a participant in the Plan.

12. Stock.

(a) The maximum number of shares of the Company's Common
Stock which shall be made available for sale under the Plan shall be one
million (1,000,000) shares, subject to adjustment upon changes in
capitalization of the Company as provided in Section 18 hereof. If, on a given
Exercise Date, the number of shares with respect to which options are to be
exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.

(b) The participant will have no interest or voting right
in shares covered by his option until such option has been exercised.

(c) Shares to be delivered to a participant under the
Plan will be registered in the name of the participant or in the name of the
participant and his or her spouse.

13. Administration.

(a) Administrative Body. The Plan shall be administered by
the Board or a committee of members of the Board appointed by the Board. The
Board or its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the
full extent permitted by law, be final and binding upon all parties.

(b) Rule 16b-3 Limitations. Notwithstanding the
provisions of Subsection (a) of this Section 13, in the event that Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any successor provision ("Rule 16b-3") provides specific
requirements for the administrators of plans of this type, the Plan shall be
only administered by such a body and in such a manner as shall comply with the
applicable requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no
discretion concerning decisions regarding the Plan shall be afforded to any
committee or person that is not "disinterested" as that term is used in Rule
16b-3.

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<PAGE> 7
14. Designation of Beneficiary.

(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a
participant may file a written designation of a beneficiary who is to receive
any cash from the participant's account under the Plan in the event of such
participant's death prior to exercise of the option. If a participant is
married and the designated beneficiary is not the spouse, spousal consent shall
be required for such designation to be effective.

(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known
to the Company, then to such other person as the Company may designate.

15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.

16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.

17. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees at least annually, which statements will set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.

18. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.

(a) Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the Reserves as well as the price
per share of Common Stock covered by each option under the Plan which has not
yet been exercised shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split,

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<PAGE> 8
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration".
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.

(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Offering Periods shall
end and all options shall be exercised automatically immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board.

(c) Merger or Asset Sale. In the event of a proposed
sale of all or substantially all of the assets of the Company, or the merger of
the Company with or into another corporation, each option under the Plan shall
be assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, to shorten the Offering Periods then in progress by
setting a new Exercise Date (the "New Exercise Date"). If the Board shortens
the Offering Periods then in progress in lieu of assumption or substitution in
the event of a merger or sale of assets, the Board shall notify each
participant in writing, at least ten (10) business days prior to the New
Exercise Date, that the Exercise Date for his option has been changed to the
New Exercise Date and that his option will be exercised automatically on the
New Exercise Date, unless prior to such date he has withdrawn from the Offering
Period as provided in Section 10 hereof. For purposes of this paragraph, an
option granted under the Plan shall be deemed to be assumed if, following the
sale of assets or merger, the option confers the right to purchase, for each
share of option stock subject to the option immediately prior to the sale of
assets or merger, the consideration (whether stock, cash or other securities or
property) received in the sale of assets or merger by holders of Common Stock
for each share of Common Stock held on the effective date of the transaction
(and if such holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares of
Common Stock); provided, however, that if such consideration received in the
sale of assets or merger is not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board
may, with the consent of the successor corporation, provide for the
consideration to be received upon exercise of the option to be solely common
stock of the successor corporation or its parent equal in fair market value to
the per share consideration received by holders of Common Stock and the sale of
assets or merger.

19. Amendment or Termination.

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<PAGE> 9
(a) The Board of Directors of the Company may at any time
and for any reason terminate or amend the Plan. Except as provided in Section
18 hereof, no such termination can affect options previously granted, provided
that an Offering Period may be terminated by the Board of Directors on any
Exercise Date if the Board determines that the termination of the Plan is in
the best interests of the Company and its shareholders. Except as provided in
Section 18 hereof, no amendment may make any change in any option theretofore
granted which adversely affects the rights of any participant. To the extent
necessary to comply with Rule 16b-3 or under Section 423 of the Code (or any
successor rule or provision or any other applicable law or regulation), the
Company shall obtain shareholder approval in such a manner and to such a degree
as required.

(b) Without shareholder consent and without regard to
whether any participant's rights may be considered to have been "adversely
affected," the Board (or its committee) shall be entitled to change the
Offering Periods, limit the frequency and/or number of changes in the amount
withheld during an Offering Period, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, permit payroll
withholding in excess of the amount designated by a participant in order to
adjust for delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied
toward the purchase of Common Stock for each participant properly correspond
with amounts withheld from the participant's Compensation, and establish such
other limitations or procedures as the Board (or its committee) determines in
its sole discretion advisable which are consistent with the Plan.

20. Notices. All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.

21. Conditions Upon Issuance of Shares. Shares shall not be
issued with respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.

As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment
and without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.

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<PAGE> 10
22. Term of Plan. The Plan shall become effective upon the
earlier to occur of its adoption by the Board of Directors or its approval by
the shareholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 19 hereof.

23. Automatic Transfer to Low Price Offering Period. To the
extent permitted by Rule 16b-3 of the Exchange Act, if the Fair Market Value of
the Common Stock on any Exercise Date in an Offering Period is lower than the
Fair Market Value of the Common Stock on the Enrollment Date of such Offering
Period, then all participants in such Offering Period shall be automatically
withdrawn from such Offering Period immediately after the exercise of their
option on such Exercise Date and automatically re-enrolled in the immediately
following Offering Period as of the first day thereof.

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<PAGE> 11
EXHIBIT A

THE 3DO COMPANY

1994 EMPLOYEE STOCK PURCHASE PLAN

SUBSCRIPTION AGREEMENT

_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)

1. ______________________hereby elects to participate in The 3DO Company
1994 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan")
and subscribes to purchase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.

2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (1-15%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please
note that no fractional percentages are permitted.)

3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.

4. I have received a copy of the complete "The 3DO Company 1994 Employee
Stock Purchase Plan." I understand that my participation in the
Employee Stock Purchase Plan is in all respects subject to the terms
of the Plan. I understand that my ability to exercise the option
under this Subscription Agreement is subject to obtaining shareholder
approval of the Employee Stock Purchase Plan.

5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and spouse only):
_______________________________________________________________________
________________.

6. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Enrollment Date (the first day of
the Offering Period during which I purchased such shares) or one year
after the Exercise Date, I will be treated for federal income tax
purposes as having received ordinary income at the time of such
disposition in an amount equal to the excess of the fair market value
of the shares at the time such shares were purchased over the
<PAGE> 12
price which I paid for the shares. I HEREBY AGREE TO NOTIFY THE
COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION OF
MY SHARES AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR
OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE
DISPOSITION OF THE COMMON STOCK. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to
meet any applicable withholding obligation, including any withholding
necessary to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by
me.

If I dispose of such shares at any time after the expiration
of the 2-year and 1-year holding periods, I understand that I will be
treated for federal income tax purposes as having received income only
at the time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of
(1) the excess of the fair market value of the shares at the time of
such disposition over the purchase price which I paid for the shares,
or (2) 15% of the fair market value of the shares on the first day of
the Offering Period. The remainder of the gain, if any, recognized on
such disposition will be taxed as capital gain.

7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase
Plan.

8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:

NAME: (Please print)______________________________________________
(First) (Middle) (Last)

_______________________________ _____________________________________________
Relationship

____________________________
(Address)

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<PAGE> 13
Employee's Social
Security Number: ____________________________________

Employee's Address: ____________________________________

____________________________________

I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.

Dated:_________________ ______________________________________________________
Signature of Employee

_____________________________________________________
Spouse's Signature (If beneficiary other than spouse)

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<PAGE> 14
EXHIBIT B

THE 3DO COMPANY

1994 EMPLOYEE STOCK PURCHASE PLAN

NOTICE OF WITHDRAWAL

The undersigned participant in the Offering Period of The 3DO Company
1994 Employee Stock Purchase Plan which began on ____________, 19____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.

Name and Address of Participant:

________________________________

Signature:

________________________________

Date:__________________________

<PAGE> 1

EXHIBIT 10.47

THE 3DO COMPANY
1995 DIRECTOR OPTION PLAN

1. Purposes of the Plan. The purposes of this 1995 Director
Option Plan are to attract and retain the best available personnel for service
as Outside Directors (as defined herein) of the Company, to provide additional
incentive to the Outside Directors of the Company to serve as Directors, and to
encourage their continued service on the Board.

All options granted hereunder shall be nonstatutory stock
options.

2. Definitions. As used herein, the following definitions shall
apply:

(a) "Board" means the Board of Directors of the Company.

(b) "Code" means the Internal Revenue Code of 1986, as
amended.

(d) "Company" means The 3DO Company, a Delaware
corporation.

(e) "Director" means a member of the Board.

(f) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and
of itself to constitute "employment" by the Company.

(g) "Exchange Act" means the Securities Exchange Act of
1934, as amended.

(h) "Fair Market Value" means, as of any date, the value
of Common Stock determined as follows:

(i) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a
Share of Common Stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such system or exchange
(or the exchange with the greatest volume of trading in Common Stock) on the
date of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable;

(ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the
<PAGE> 2
high bid and low asked prices for the Common Stock on the date of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable, or;

(iii) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Board.

(i) "Inside Director" means a Director who is an
Employee.

(j) "Option" means a stock option granted pursuant to the
Plan.

(k) "Optioned Stock" means the Common Stock subject to an
Option.

(l) "Optionee" means a Director who holds an Option.

(m) "Outside Director" means a Director who is not an
Employee.

(n) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.

(o) "Plan" means this 1995 Director Option Plan.

(p) "Share" means a share of the Common Stock, as
adjusted in accordance with Section 10 of the Plan.

(q) "Subsidiary" means a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Internal
Revenue Code of 1986.

3. Stock Subject to the Plan. Subject to the provisions of
Section 10 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 300,000 Shares of Common Stock (the
"Pool"). The Shares may be authorized, but unissued, or reacquired Common
Stock.

If an Option expires or becomes unexercisable without having
been exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.

4. Administration and Grants of Options under the Plan.

(a) Procedure for Grants. The provisions set forth in
this Section 4(a) shall not be amended more than once every six months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder. All grants

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<PAGE> 3
of Options to Outside Directors under this Plan shall be automatic and
nondiscretionary and shall be made strictly in accordance with the following
provisions:

(i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.

(ii) Each Outside Director shall be automatically
granted an Option to purchase 30,000 Shares (the "First Option") on the date on
which the later of the following events occurs: (A) the effective date of this
Plan, as determined in accordance with Section 6 hereof, or (B) the date on
which such person first becomes an Outside Director, whether through election
by the stockholders of the Company or appointment by the Board to fill a
vacancy; provided, however, that an Inside Director who ceases to be an Inside
Director but who remains a Director shall not receive a First Option.

(iii) Each Outside Director shall be automatically
granted an Option to purchase 6,000 Shares (a "Subsequent Option") on each
anniversary of the date of grant of the First Option, provided he or she is
then an Outside Director.

(iv) Notwithstanding the provisions of subsections
(ii) and (iii) hereof, any exercise of an Option made before the Company has
obtained stockholder approval of the Plan in accordance with Section 16 hereof
shall be conditioned upon obtaining such stockholder approval of the Plan in
accordance with Section 16 hereof.

(v) The terms of a First Option granted hereunder
shall be as follows:

(A) the term of the First Option shall
be ten (10) years.

(B) the First Option shall be
exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Sections 8 and 10 hereof.

(C) the exercise price per Share shall
be the Fair Market Value per Share on the date of grant of the First Option.
In the event that the date of grant of the First Option is not a trading day,
the exercise price per Share shall be the Fair Market Value on the next trading
day immediately following the date of grant of the First Option.

(D) subject to Section 10 hereof, the
First Option shall become exercisable as to one-fifth (1/5th) of the Shares
subject to the First Option on the first anniversary of its date of grant and
as to one-sixtieth (1/60th) of the Shares each month thereafter, provided that
the Optionee continues to serve as a Director on such dates.

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<PAGE> 4
(vi) The terms of a Subsequent Option granted
hereunder shall be as follows:

(A) the term of the Subsequent Option
shall be ten (10) years.

(B) the Subsequent Option shall be
exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Sections 8 and 10 hereof.

(C) the exercise price per Share shall
be the Fair Market Value per Share on the date of grant of the Subsequent
Option. In the event that the date of grant of the Subsequent Option is not a
trading day, the exercise price per Share shall be the Fair Market Value on the
next trading day immediately following the date of grant of the Subsequent
Option.

(D) subject to Section 10 hereof, the
Subsequent Option shall become exercisable as to one-twelfth (1/12th) of the
Shares subject to the Subsequent Option each month beginning one month after
the fourth anniversary of the date of grant of the Subsequent Option, provided
that the Optionee continues to serve as a Director on such dates.

(vii) In the event that any Option granted under
the Plan would cause the number of Shares subject to outstanding Options plus
the number of Shares previously purchased under Options to exceed the Pool,
then the remaining Shares available for Option grant shall be granted under
Options to the Outside Directors on a pro rata basis. No further grants shall
be made until such time, if any, as additional Shares become available for
grant under the Plan through action of the Board or the stockholders to
increase the number of Shares which may be issued under the Plan or through
cancellation or expiration of Options previously granted hereunder.

5. Eligibility. Options may be granted only to Outside
Directors. All Options shall be automatically granted in accordance with the
terms set forth in Section 4 hereof.

The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate the Director's relationship with the
Company at any time.

6. Term of Plan. The Plan shall become effective upon the
earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company as described in Section 16 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 11 of the Plan.

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<PAGE> 5
7. Form of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of
payment, shall consist of (i) cash, (ii) check, (iii) other shares which (x) in
the case of Shares acquired upon exercise of an Option, have been owned by the
Optionee for more than six (6) months on the date of surrender, and (y) have a
Fair Market Value on the date of surrender equal to the aggregate exercise
price of the Shares as to which said Option shall be exercised, (iv) delivery
of a properly executed exercise notice together with such other documentation
as the Company and the broker, if applicable, shall require to effect an
exercise of the Option and delivery to the Company of the sale or loan proceeds
required to pay the exercise price, or (v) any combination of the foregoing
methods of payment.

8. Exercise of Option.

(a) Procedure for Exercise; Rights as a Stockholder. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4 hereof; provided, however, that no Options shall be exercisable until
stockholder approval of the Plan in accordance with Section 16 hereof has been
obtained.

An Option may not be exercised for a fraction of a Share.

An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and method of
payment allowable under Section 7 of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. A share certificate for the number of Shares so
acquired shall be issued to the Optionee as soon as practicable after exercise
of the Option. No adjustment shall be made for a dividend or other right for
which the record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan.

Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.

(b) Rule 16b-3. Options granted to Outside Directors
must comply with the applicable provisions of Rule 16b-3 promulgated under the
Exchange Act or any successor thereto and shall contain such additional
conditions or restrictions as may be required thereunder to qualify Plan
transactions, and other transactions by Outside Directors that otherwise could
be matched with Plan transactions, for the maximum exemption from Section 16 of
the Exchange Act.

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<PAGE> 6
(c) Termination of Continuous Status as a Director.
Subject to Section 10 hereof, in the event an Optionee's status as a Director
terminates (other than upon the Optionee's death or total and permanent
disability (as defined in Section 22(e)(3) of the Code)), the Optionee may
exercise his or her Option, but only within three (3) months following the date
of such termination, and only to the extent that the Optionee was entitled to
exercise it on the date of such termination (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of such termination, and to the
extent that the Optionee does not exercise such Option (to the extent otherwise
so entitled) within the time specified herein, the Option shall terminate.

(d) Disability of Optionee. In the event Optionee's
status as a Director terminates as a result of total and permanent disability
(as defined in Section 22(e)(3) of the Code), the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration
of its ten (10) year term). To the extent that the Optionee was not entitled
to exercise an Option on the date of termination, or if he or she does not
exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.

(e) Death of Optionee. In the event of an Optionee's
death, the Optionee's estate or a person who acquired the right to exercise the
Option by bequest or inheritance may exercise the Option, but only within
twelve (12) months following the date of death, and only to the extent that the
Optionee was entitled to exercise it on the date of death (but in no event
later than the expiration of its ten (10) year term). To the extent that the
Optionee was not entitled to exercise an Option on the date of death, and to
the extent that the Optionee's estate or a person who acquired the right to
exercise such Option does not exercise such Option (to the extent otherwise so
entitled) within the time specified herein, the Option shall terminate.

9. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.

10. Adjustments Upon Changes in Capitalization, Dissolution,
Merger, Asset Sale or Change of Control.

(a) Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per Share covered by each such outstanding Option,
and the number of Shares issuable pursuant to the automatic grant provisions of
Section 4 hereof shall be proportionately adjusted for any increase or decrease
in the number of issued Shares resulting from a stock split, reverse stock

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<PAGE> 7
split, stock dividend, combination or reclassification of the Common Stock, or
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an Option.

(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, to the extent that an
Option has not been previously exercised, it shall terminate immediately prior
to the consummation of such proposed action.

(i) Change in Control. In the event of a "Change
in Control" of the Company, as defined in paragraph (ii) below, then
immediately prior to the time of any such Change in Control each Option shall
become fully exercisable as to all Shares notwithstanding the vesting schedule
of such Option Outstanding.

(ii) Definition of "Change in Control". For
purposes of this Section (c), a "Change in Control" means the happening of any
of the following:

(A) When any "person," as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than the Company, a subsidiary of the
Company or a Company employee benefit plan, including any trustee of such plan
acting as trustee) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing more than fifty percent (50%) of the combined voting power
of the Company's then outstanding securities entitled to vote generally in the
election of directors; or

(B) The stockholders of the Company
approve a merger or consolidation of the Company with any other corporation or
entity, other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the total
voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets;
or

(C) A change in the composition of the
Board of Directors of the Company, as a result of which fewer than a majority
of the directors are Incumbent Directors.

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<PAGE> 8
"Incumbent Directors" shall mean directors who either (A) are directors of the
Company as of the date the Company's 1995 Director Option Plan was approved by
the stockholders, or (B) are elected, or nominated for election, to the Board
of Directors of the Company with the affirmative votes of at least a majority
of the Incumbent Directors at the time of such election or nomination.

11. Amendment and Termination of the Plan.

(a) Amendment and Termination. Except as set forth in
Section 4, the Board may at any time amend, alter, suspend, or discontinue the
Plan, but no amendment, alteration, suspension, or discontinuation shall be
made which would impair the rights of any Optionee under any grant theretofore
made, without his or her consent. In addition, to the extent necessary and
desirable to comply with Rule 16b-3 under the Exchange Act (or any other
applicable law or regulation), the Company shall obtain stockholder approval of
any Plan amendment in such a manner and to such a degree as required.

(b) Effect of Amendment or Termination. Any such
amendment or termination of the Plan shall not affect Options already granted
and such Options shall remain in full force and effect as if this Plan had not
been amended or terminated.

12. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date determined in accordance with Section 4
hereof.

13. Conditions Upon Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, state securities laws, and the requirements of any
stock exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment
and without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.

Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not
have been obtained.

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<PAGE> 9
14. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.

15. Option Agreement. Options shall be evidenced by written
option agreements in such form as the Board shall approve.

16. Stockholder Approval. Continuance of the Plan shall be
subject to approval by the stockholders of the Company at or prior to the first
annual meeting of stockholders held subsequent to the granting of an Option
hereunder. Such stockholder approval shall be obtained in the degree and
manner required under applicable state and federal law.

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<PAGE> 1
Exhibit 10.48

ASSET PURCHASE AGREEMENT

BY AND BETWEEN

SAMSUNG ELECTRONICS CO., LTD.

AND

THE 3DO COMPANY

Dated as of April 25, 1997

<PAGE> 2

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (the "Agreement") is entered into as
of this 24th day of April, 1997 ("Execution Date"), by and between Samsung
Electronics Co., Ltd. ("Samsung"), a corporation organized under the laws of the
Republic of Korea and having a place of business at San # 24, Nongseo-Lee,
Kiheung-Eup, Yongin-City, Kyungki-Do, Korea and The 3DO Company ("3DO"), a
California corporation having its principal place of business at 600 Galveston
Drive, Redwood City, CA 94063, U.S.A.

RECITALS

A. 3DO is currently in the business of, among other things,
designing and licensing the manufacture, marketing and sale, of semiconductor
devices and systems that use those devices, which business is operated as the
3DO Systems Division (the "3DO Systems Division").

B. 3DO wishes to sell to Samsung and Samsung wishes to acquire,
certain tangible and intangible assets of 3DO related to the business of the 3DO
Systems Division.

C. Pursuant to the terms of the Stock Purchase Agreement among
Samsung, Samsung Semiconductor, Inc. ("SSI"), a California corporation, AGT,
Inc. ("Newco"), a Delaware corporation, and the current stockholders of Newco of
even date herewith (the "Newco Agreement"), concurrent with closing of the
purchase and sale of the assets of 3DO pursuant to this Agreement, Samsung
intends to transfer all of such assets to Newco as part of the consideration for
the issuance of shares of Series A Preferred Stock of Newco to Samsung.

NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants, and other terms and conditions, set forth herein,
Samsung and 3DO (each a "Party" and together the "Parties") agree as follows:

AGREEMENT

DEFINITIONS

For the purpose of this Agreement, the following definitions shall
apply.

I.1 "Affiliate" of any Person means any other Person which directly
or indirectly controls, is controlled by or is under common control with, such
Person. The term "control" (including its correlative meanings "controlled by"
and "under common control with") means possession, directly or indirectly, of
power to direct or cause the direction of management, business

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<PAGE> 3

affairs, or policies (whether through ownership of securities or partnership or
other ownership interests, by contract or otherwise).

I.2 "Business Day" means any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of California or the Republic of
Korea) on which banks are open for business in San Francisco, California, U.S.A.

I.3 "Closing" means the closing of the transactions described in
Section IV.4 of this Agreement.

I.4 "Closing Date" means the date on which the Closing occurs.

I.5 "Corporate Sale" shall mean (i) any acquisition of a Party by
another entity by means of merger or consolidation resulting in the exchange of
the outstanding shares of such Party for securities or consideration issued, or
caused to be issued, by the acquiring corporation or any of its subsidiaries
that results in the Party's stockholders immediately prior to such merger or
consolidation not holding at least 50% of the voting stock of the surviving
corporation immediately after such merger or consolidation, or (ii) any other
transaction or series of related transactions that will result in such Party's
stockholders immediately prior to such transaction, or series of related
transactions, not holding at least 50% of the voting stock of such Party
immediately after such transaction or series of transaction (other than a
transaction or series of transactions involving the original issue of shares of
capital stock by such Party for cash or cancellation of indebtedness), or (iii)
a sale or other transfer of all or substantially all of the assets of the Party;
for purposes of clause (iii) above, both the quantum of assets involved in a
sale or other transfer and the effect of such transfer upon the nature of the
business of the Party shall be taken into account in determining whether such
transfer involves all or substantially all of such Party's assets.

I.6 "Dollars" or "$" means U.S. dollars.

I.7 "Governmental Action" means any authorization, consent,
approval, order, waiver, exception, variance, franchise, permission, permit or
license of, or any registration, filing or declaration with, by or in respect
of, any Governmental Authority.

I.8 "Governmental Authority" means any national, federal, state or
local governmental Person, authority, agency, court, regulatory commission or
other governmental body in the United States, the Republic of Korea or other
applicable jurisdiction, or any stock exchange or automated quotation system
having authority with respect to the applicable matter.

I.9 "Governmental Rule" means any statute, law, treaty, rule, code,
ordinance, regulation, license, permit, certificate or order of any Governmental
Authority or any judgment, decree, injunction, writ, order or like action of any
court or other judicial or quasijudicial tribunal.

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<PAGE> 4
I.10 "Intellectual Property Rights" means any rights with respect to
intellectual property, including patents, patent applications and other patent
rights; copyrights, copyright registrations and copyright rights (including, but
not limited to, copyrights, copyright registrations and other copyright rights
with respect to computer software, firmware, programming tools, drawings,
specifications, databases and documentation) mask work rights and other rights
with respect to semiconductors; trade secrets and other rights with respect to
confidential or proprietary information; other rights with respect to
inventions, discoveries, improvements, know how, formulae, processes, technical
information and other technology; and other intellectual property rights,
whether or not subject to statutory registration or protection, and all rights
under any license or other arrangement with respect to the foregoing; but,
unless otherwise expressly provided herein or necessary to otherwise effect the
transfer of Intellectual Property Rights contemplated by this Agreement or
otherwise necessary to effect the purposes of this Agreement, excluding any
trademark, trade name or similar rights with respect to identification of source
or origin.

I.11 "Person" means any individual, firm, company, corporation,
unincorporated association, partnership, trust, joint venture, Governmental
Authority or other entity, and shall include any successor (by merger or
otherwise) of any such entity.

I.12 "Prior 3DO Agreements" means the Technology Licensing Agreement
between 3DO and Matsushita Electric Industrial Co., Ltd. dated December 7, 1995,
as amended pursuant to the amendments thereof dated April 24, 1996 and March 2,
1997 (the "MEI Agreement"), the Joint Development and License Agreement between
3DO and Cirrus Logic, Inc., dated on or about February 29, 1996 (the "Cirrus
Logic Agreement"), and the Semiconductor Purchase and Sales Agreement between
3DO and International Business Machines, Inc., dated on or about June 28, 1996
(the "IBM Agreement").

I.13 "3DO Transferred Assets" means the 3DO Transferred Assets as
defined in Section II.1 hereof.

I.14 "Use" means, with respect to any Intellectual Property Rights
or any embodiments thereof (including, but not limited to, any computer software
and other copyrightable subject matter, any semiconductor technology and
materials related thereto, and other technology, in tangible, intangible or
other form), (a) to reproduce, distribute, perform and display (publicly or
otherwise), prepare derivative works of, make (or have made) any product or
process based on, using or otherwise subject to such Intellectual Property
Rights or any such embodiment, and otherwise to use and exploit such
Intellectual Property Rights and (b) to grant licenses (with the right to grant
sublicenses) of the right to do the same.

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<PAGE> 5

II.

TRANSFER OF ASSETS AND CERTAIN COVENANTS OF 3DO

II.1 Transfer of 3DO Transferred Assets. On the Closing Date, 3DO
shall transfer and assign to Samsung all right, title and interest in and
deliver to Samsung, the following tangible and intangible assets of the business
of 3DO ("3DO Transferred Assets") currently operated as the 3DO Systems Division
(the "3DO System Division"):

(a) Certain computer equipment and other capital equipment
owned by 3DO that is used principally in the business of the 3DO Systems
Division, as specifically set forth in Exhibit A and certain inventory of the
3DO Systems Division as listed on Exhibit A to the extent not shipped to
customers prior to Closing pursuant to orders received by 3DO prior to Closing
and scheduled to be shipped prior to Closing ("3DO Owned Physical Assets");

(b) Certain computer equipment and other capital equipment held
by 3DO under lease from third parties that is used principally in the business
of the 3DO Systems Division, as specifically set forth in Exhibit A ("3DO Leased
Physical Assets"), provided that (i) the transfer and assignment of 3DO's
leasehold interest in the 3DO Leased Physical Assets and physical delivery of
the 3DO Leased Physical Assets shall occur only after 3DO has obtained any
required consents of such third parties, and (ii) 3DO pays any fees, penalties
or other charges payable in connection with the transfer, assignment and
delivery and Samsung (subject to its right of assignment to Newco or any other
third party transferee) assumes any further payment and other obligations to
such third parties arising after the Closing; and

(c) Certain designs, technical developments, netlists, work in
progress, and other technology used principally in the business of the 3DO
Systems Division, as specifically set forth in Exhibit A, including any related
Intellectual Property Rights, and any of the same developed or used through the
Closing Date including any related Intellectual Property Rights ("3DO Intangible
Assets"), to the extent 3DO has the right to assign such 3DO Intangible Assets,
subject to the reservation of Section II.4.

Except for the performance of obligations arising after the Closing
from the leases or other contracts pursuant to which the 3DO Leased Physical
Assets are leased or from licenses or other contracts constituting part of the
3DO Intangible Assets to be assigned to Samsung as specified in Exhibit A (the
"Assumed Liabilities"), notwithstanding any provision of this Agreement, neither
Samsung nor Newco nor any other Person to whom Samsung or Newco hereafter
transfers or assigns any of the 3DO Transferred Assets shall assume or become
liable for any liabilities or obligations of 3DO or any of its Affiliates,
whether presently fixed and determined, contingent or otherwise. All such
liabilities and obligations of 3DO and its Affiliates not expressly assumed by
Samsung hereunder, which liabilities and obligations not assumed include,
without limitation, all liabilities and obligations under the Prior 3DO
Agreements, shall remain liabilities and obligations of 3DO

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<PAGE> 6

and/or such Affiliates, and 3DO and/or such Affiliates shall be solely liable to
perform and discharge such liabilities and obligations.

II.2 License of Assets. To the extent 3DO (i) does not have the
right to assign 3DO Intangible Assets to Samsung in accordance with Section II.1
or (ii) does not have the right to assign 3DO Intangible Assets to Samsung in
accordance with Section II.1 without consent and such consent is not obtained,
such absolute or conditional lack of a right to transfer such 3DO Intangible
Assets is so indicated on Exhibit A, and 3DO grants to Samsung, effective on the
Closing Date, an exclusive (subject to the reservation of Section II.4.),
perpetual, irrevocable, paid-up, transferable (to and by Newco or any other
transferee of Samsung or its transferees), worldwide license (with right of
sublicense) of 3DO's rights with respect to such 3DO Intangible Assets to Use
such 3DO Intangible Assets, but subject to any limitations with respect thereto
set forth in the Prior 3DO Agreements and except for the 3DO Intangible Assets
under licenses, which cannot be licensed by 3DO or which require consent to be
licensed and as to which consent could not be obtained despite 3DO's performance
of its obligations under Section II.8. To the extent any Intellectual Property
Rights owned, or licensed by 3DO that are not 3DO Intangible Assets ("Other 3DO
Intellectual Property Rights") are necessary for the Use of the 3DO Intangible
Assets, 3DO grants to Samsung, effective on the Closing Date, a non-exclusive,
perpetual, irrevocable, paid-up, transferable (to or by Newco or any other
transferee of Samsung or its transferees), worldwide license (with right of
sublicense) to Use the Other 3DO Intellectual Property Rights to the extent
necessary for the Use of the 3DO Intangible Assets.

II.3 Employee Matters. 3DO shall use reasonable commercial efforts
to cause the employees of 3DO listed on Exhibit B (the "3DO Employees") and such
other 3DO employees, if any, as the Parties may agree, to accept offers of
employment by Newco on and as of the Closing Date. With respect to 3DO employees
who accept such employment as of the Closing Date, 3DO shall have no liability
to Samsung or Newco, except to the extent required by applicable employment law,
to the 3DO employees with respect to employment after the Closing Date and,
except as the Parties may expressly otherwise agree in writing, any such
personnel employed by Newco shall be independent of, and have no further
obligations to, 3DO. With respect to 3DO employees who accept such employment
with Newco as of the Closing Date, all obligations of 3DO to such 3DO employees
accrued through the Closing Date, including obligations for salaries, sales
commissions, payroll taxes, fringe benefits and severance pay shall remain the
obligations of 3DO.

II.4 Retention of Rights by 3DO. Notwithstanding the assignment,
transfer and delivery of the 3DO Transferred Assets to Samsung in accordance
with the provisions of this Article II, and notwithstanding the licenses herein
granted by 3DO to Samsung or anything else to the contrary contained in this
Agreement, 3DO and its successors and assigns hereby retain (and the exclusivity
of Samsung's licenses and rights hereunder and thereunder shall not apply to)
the non-exclusive rights to use and exploit the 3DO Intangible Assets, to Use
any Intellectual Property Rights that relate to the 3DO Intangible Assets, and
to retain copies of any tangible items and related technical information of or
concerning the 3DO Intangible Assets, to the extent any such rights, items
and/or information are necessary to (i) the fulfillment of 3DO's contractual
obligations to MEI pursuant to

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<PAGE> 7

the MEI Agreement, provided that any Intellectual Property Rights owned or
licensed by 3DO resulting from the modification, enhancement or other
improvement to the 3DO Intangible Assets in the course of the performance of
3DO's contractual obligations to MEI shall be deemed automatically licensed to
MEI pursuant to the MEI Agreement, shall be deemed to be 3DO Intangible Assets
and shall be assigned by 3DO to Samsung or Newco or, if not assignable, shall be
licensed to such Person in accordance with Section II.2, (ii) the prosecution,
defense, and/or settlement of any claims or actions arising in connection with
any separate agreements entered into between 3DO and any third parties prior to
the Closing Date of this Agreement; provided that, in no event, may 3DO enter
into any settlement or to take any action which limits or otherwise compromises
the right, title and interests of Samsung or any transferee or assignee of the
3DO Transferred Assets, including Newco, in the 3DO Transferred Assets or rights
of Samsung or any assignee of Samsung, including Newco, under any licenses
herein granted by 3DO to Samsung, (iii) the prosecution, defense, and/or
settlement of any claims or actions arising in connection with the conduct,
activities, products or services of any third party or parties prior to the
Closing Date; provided that, in no event, may 3DO enter into any settlement or
to take any action which limits or otherwise compromises the right, title and
interests of Samsung or any transferee or assignee of the 3DO Transferred
Assets, including Newco, in the 3DO Transferred Assets or rights of Samsung or
any transferee or assignee of the 3DO Transferred Assets, including Newco, under
any licenses herein granted by 3DO to Samsung, (iv) the continued operation of
3DO's existing business activities relating exclusively to software publishing,
software development tools and authoring systems for use in the software
business, and the fulfillment of 3DO's contractual obligations to its
Opera-related licensees, but specifically excluding, without limitation, the
semiconductor logic device design, hardware architecture and systems design
activities of the 3DO Systems Division, and (v) the operation of 3DO's future
business activities relating exclusively to software development tools and
authoring systems for use in the software business and/or to other future
business activities that are consistent with 3DO's current business, involve
only software, do not involve a substantive expansion of 3DO's current business
and do not compete with any business being conducted by Samsung. or Newco,
provided, however, 3DO acknowledges and agrees that it does not have the right
to use and exploit the 3DO Intangible Assets or any Intellectual Property Rights
that relate to the 3DO Intangible Rights, in the design, development,
manufacture and/or distribution of semiconductor logic devices, video game
system architectures or designs, consumer electronic system architectures or
designs, or personal computer system architectures or designs and provided
further that, despite this Section II.4, 3DO shall not retain any rights to any
M2 Derivative Technology except as specifically stated in Section 2.4 of Exhibit
A-4.

II.5 Conduct of Business. From and after the execution and delivery
of this Agreement and until the Closing Date or the termination of this
Agreement, whichever shall first occur: (i) 3DO shall not engage in any
activities or transactions involving the 3DO Systems Division which shall be
outside the ordinary course of the business operations of the 3DO Systems
Division without the prior written consent of Samsung, including, without
limitation, granting of license right or disposition of any of the 3DO
Transferred Assets and termination of the employment of the 3DO Employees or any
change in their current terms of employment, and (ii) 3DO will pay and discharge
all liabilities and

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<PAGE> 8

obligations related to the 3DO Systems Business or the 3DO Transferred Assets,
as they become payable, in accordance with its usual and customary payment
policies.

II.6 Notice of Certain Adverse Changes, Defaults or Claims. 3DO
shall give prompt notice to Samsung of any material adverse change in the
business, assets (including intangible assets), liabilities, financial
condition, operations, results of operations or prospects (financial or
otherwise) (a "Material Adverse Change") of the 3DO Systems Division, or any
notice of default received by 3DO subsequent to the date of this Agreement and
prior to the Closing Date under any instrument or agreement to which 3DO is a
party relating to the 3DO Systems Division, or of the assertion of any claim
which, if upheld, would render inaccurate any representation of 3DO herein.

II.7 Regulatory Approvals. 3DO shall promptly prepare and file all
applications and other documents which may be necessary in order for 3DO to
obtain the authorization, approval or consent of any Governmental Authority,
which may be required or advisable by or with respect to 3DO in connection with
the consummation by it of the transactions contemplated by this Agreement. 3DO
shall use its best efforts to obtain all such authorizations, approvals and
consents.

II.8 Consents. 3DO shall use its best efforts to obtain the consent
or approval of any third party whose consent or approval is required in
connection with the consummation by 3DO of the transactions contemplated by this
Agreement.

III.

PAYMENT OF PURCHASE PRICE AND
CERTAIN COVENANTS OF SAMSUNG

III.1 Payment of Purchase Price. Subject to the terms and conditions
hereof, in consideration of the transfer assignment and delivery of the 3DO
Transferred Assets, at the Closing, Samsung shall pay to 3DO by check or wire
transfer twenty million dollars ($20,000,000) in cash.

III.2 Regulatory Approvals. Samsung shall promptly prepare and file
all applications and other documents which may be necessary in order for Samsung
to obtain the authorization, approval or consent of any Governmental Authority,
which may be required or advisable by or with respect to Samsung in connection
with the consummation by it of the transactions contemplated by this Agreement.
Samsung shall use its best efforts to obtain all such authorizations, approvals
and consents.

III.3 Consents. Samsung shall use its best efforts to obtain the
consent or approval of any third party whose consent or approval may be required
or advisable in connection with the consummation by Samsung of the transactions
contemplated by this Agreement.

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IV.

CLOSING AND CLOSING DATE

IV.1 Closing. The Closing will be held on the fiftieth (50th) day
after the Execution Date ("Target Closing Date") at the offices of SSI in San
Jose, California; or at such other date, time and place as the Parties mutually
agree. At such time and place, the actions and deliveries referred to in Section
IV.4 hereof will take place and the documents referred to in Section IV.4 hereof
will be exchanged; provided, that if any of the conditions referred to Section
IV.2 or IV.3 shall not have been fulfilled or waived in accordance with such
Section IV.2 or IV.3 by the date on which the Closing is then scheduled, either
Samsung or 3DO will be entitled to postpone the Closing for a period of not more
than twenty (20) Business Days until such condition or conditions will have been
met (which each Party will seek to cause to happen at the earliest practicable
date) or been waived. The process contemplated by this Section IV.I shall
continue until such condition or conditions have been met or been waived, or
there is an election to terminate this Agreement in accordance with Section
VII.1.

IV.2 Conditions to the Obligations of Samsung. The obligation of
Samsung to consummate the transactions contemplated hereby is subject to and
conditioned upon the satisfaction of each of the following conditions, any or
all of which may be waived in writing in whole or in part by Samsung:

(a) The representations and warranties of 3DO contained in
Article V will be true and correct as of the Closing Date in all material
respects as though such representations and warranties were made on and as of
such Closing Date, and 3DO shall deliver to Samsung a certificate to such effect
executed by its Chief Executive Officer;

(b) 3DO will have performed and complied in all material
respects with all agreements, covenants and conditions on its part required by
this Agreement to be performed or complied with on or prior to the Closing Date;

(c) All Governmental Actions necessary for the consummation by
Samsung of the transactions contemplated hereby or by the Newco Agreement will
have occurred, including obtaining any required approvals of Governmental
Authorities, including, but not limited to, Governmental Authorities of the
Republic of Korea, the expiration or early termination of any required waiting
periods such as, but not limited to, expiration or early termination of the
waiting period required by the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") or the giving of the notice (the "Exon Florio
Notice") of determination not to investigate, or to take no action, under the
Exon Florio amendment to the Defense Production Act of 1990, as amended (the
"Exon Florio Act"), and be reasonably satisfactory to counsel to Samsung;

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(d) No order shall have been entered, and not vacated by a
court or other Governmental Authority of competent jurisdiction, in any action
or proceeding which enjoins, restrains or prohibits consummation of the
transactions contemplated by this Agreement;

(e) No claim, action, suit or other proceeding shall be pending
or threatened by any Governmental Authority or private person before any court,
agency or administrative body which, in the opinion of counsel for 3DO or
Samsung, creates any reasonable possibility that the consummation of this
Agreement or the transactions contemplated hereby will be restrained. enjoined
or otherwise prevented, or that any damages will be recovered or other relief
obtained as a result of this Agreement or the transactions contemplated hereby;

(f) There shall have been no Material Adverse Change (as
defined in Section II.6) with respect to 3DO Systems Division and the 3DO
Transferred Assets shall not have been adversely affected in any material way as
a result of 3DO's actions or inaction; and

(g) Concurrent with the Closing, there shall have occurred the
closing of the purchase by Samsung and SSI of the shares of the Series A
Preferred Stock of Newco pursuant to the Newco Agreement.

IV.3 Conditions to the Obligations of 3DO. The obligation of 3DO to
consummate the transactions contemplated hereby is subject to and conditioned
upon the satisfaction of each of the following conditions, any or all of which
may be waived in writing in whole or in part by 3DO:

The representations and warranties of Samsung contained in Article V will be
true and correct in all material respects on and as of the Closing Date as
though such representations and warranties were made at and as of such Closing
Date, and Samsung shall deliver a certificate to such effect executed by the
chief executive officer of its System LSI Business;

(a) Samsung will have performed and complied in all material
respects with all agreements, covenants and conditions on its part required by
this Agreement to be performed or complied with prior to or on the Closing Date;

(b) All Governmental Actions necessary for the consummation by
3DO of the transactions contemplated hereby, will have occurred including
obtaining any required approvals of Governmental Authorities, the expiration or
early termination of any required waiting periods, such as, but not limited to,
expiration or early termination of the waiting period required by the HSR Act,
and the giving of the Exon Florio Notice, and be reasonably satisfactory to
counsel to 3DO;

(c) No order shall have been entered, and not vacated by a
court or other Governmental Authority of competent jurisdiction, in any action
or proceeding which enjoins, restrains or prohibits consummation of the
transactions contemplated by this Agreement; and

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(d) No claim, action, suit or other proceeding shall be pending
or threatened by any Governmental Authority or private person before any court,
agency or administrative body which, in the opinion of counsel for 3DO or
Samsung, creates any reasonable possibility that the consummation of this
Agreement or the transactions contemplated hereby will be restrained, enjoined
or otherwise prevented, or that any damages will be recovered or other relief
obtained as a result of this Agreement or the transactions contemplated hereby.

IV.4 Actions and Deliveries at Closing. At the Closing, Samsung and
3DO will take all actions required by Articles II and III hereof, including (i)
in the case of Samsung, payment of the cash, and execution and delivery of the
certificate required by Section IV.1(a) and (ii) in the case of 3DO, execution
and delivery of a bill of sale, endorsements, assignments and other good and
sufficient instruments of transfer, conveyance and assignment, in form
satisfactory to Samsung and its counsel, as shall be effective to vest in
Samsung (good to the 3DO Transferred Assets, free and clear of all liens and
encumbrances, and delivery of the certificate required by Section IV 2(a).

IV.5 Allocation of Purchase Price. The Purchase Price shall be
allocated among the 3DO Transferred Assets in accordance with Exhibit C which
shall be agreed upon by Samsung and 3DO on or before the Closing. The Parties
shall file all tax returns (including amended returns and claims for refund) and
information reports in a manner consistent with such allocation, and shall use
their reasonable best efforts to sustain such allocation in any subsequent tax
audit or tax dispute.

IV.6 Tax Liability Arising Out of the Agreement. All stamp,
transfer, purchase, use, sale, income, realty transfer or other taxes, federal,
state or local, arising out of the transactions contemplated by this Agreement
imposed by any Governmental Authority in the United States or any jurisdiction
other than the Republic of Korea shall be borne by 3DO. All stamp, transfer,
purchase, use, sale, cash, income, realty transfer or other taxes arising out of
the transaction contemplated by this Agreement imposed by any Governmental
Authority in the Republic of Korea shall be borne by Samsung.

IV.7 Further Assurances. 3DO will, from time to time and without
further consideration, execute and deliver such other documents, instruments or
certificates of transfer, conveyance and assignment, and take such further
actions, as Samsung may reasonably request to effect the transfer, conveyance,
assignment or vesting in Samsung or Newco of the 3DO Transferred Assets.

REPRESENTATIONS AND WARRANTIES

V.1 Representation of Both Parties. Each of the Parties represents
and warrants to the other Party as follows:

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(a) Organization and Authority. It is a corporation duly
organized and validly existing under applicable laws, and has all requisite
corporate power and authority to carry on its business as now being conducted,
to execute and deliver this Agreement, and to consummate the transactions
contemplated hereby.

(b) Authorization.

(i) The execution and delivery of this Agreement and the
documents and agreements provided for herein, and the consummation by it of all
transactions contemplated hereby or thereby, have been duly authorized by all
requisite corporate action. This Agreement, and all such other documents and
agreements entered into and undertaken in connection with the transactions
contemplated hereby or thereby constitute, or will constitute following the
execution and delivery hereof and thereof, valid and legally binding obligations
of it, enforceable against it in accordance with their respective terms, subject
to applicable bankruptcy, insolvency, reorganization and other laws affecting
generally the enforcement of the rights of creditors and subject to a court's
discretionary authority with respect to the granting of a decree ordering
specific performance or other equitable remedies; and

(ii) The execution. delivery and performance by it of this
Agreement, and the other documents and agreements provided for herein, and the
consummation by it of the transactions contemplated hereby and thereby, will
not, with or without the giving of notice or the passage of time or both: (i)
violate the provisions of any Governmental Rule; (ii) require any notice, filing
or other submission to any Governmental Authority, the expiration of any waiting
period with respect thereto, or any other Governmental Action, other than under
the Korean Foreign Exchange Control laws and regulations, Korean Securities
Exchange Commission laws and regulations, the HSR Act or the Exon Florio Act;
(iii) violate the provisions of its articles or certificate of incorporation,
bylaws, or other charter or governing documents, or any resolution of its board
of directors or shareholders; (iv) violate any judgment, decree, order or award
of any arbitrator, court or other Governmental Authority; or (v) conflict with
or result in the breach or termination of any material term or provision of, or
constitute a default under, or cause any acceleration under, any material
license, indenture, mortgage, deed of trust, lease, contract, permit, or other
instrument or agreement by which it is bound, in each instance (of this clause
(iv)) so as to have a material adverse effect on such Party's ability to carry
on its obligations under this Agreement, other than as set forth in Exhibit D
attached hereto.

V.2 Representations of 3DO. 3DO represents and warrants to Samsung
as follows:

(a) 3DO Intellectual Assets. 3DO owns, or is licensed or
otherwise possesses legally enforceable rights to Use, sell or otherwise dispose
of all of the 3DO Intangible Assets (but specifically excluding the 3DO
Intangible Assets which require third party approval prior to assignment) and
all of the Other 3DO Intellectual Property Rights, to the extent necessary, with
respect to the Other 3DO Intellectual Property Rights to grant the licenses with
respect thereto granted under Section II.2. The 3DO Intangible Assets include
all of the Intellectual Property Rights

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that are necessary to conduct the business of the 3DO Systems Division as
currently conducted. Exhibit D lists, by reference to the list contained on
Exhibit A or otherwise, (i) all patents and patent applications, and all
trademarks, registered copyrights, trade names and service marks, which 3DO
considers to be material to the 3DO Systems Division as currently conducted and
included in the 3DO Intangible Assets, including the jurisdictions in which each
such 3DO Intangible Asset has been issued or registered or in which any such
application for such issuance and registration has been filed, (ii) all
licenses, sublicenses, distribution agreements and other agreements which 3DO
considers material to the business of the 3DO Systems Division as currently
conducted and as to which 3DO or any of its Affiliates is a party and pursuant
to which any person is authorized to use any 3DO Intangible Asset or has the
right to manufacture, reproduce, market or exploit any current product of the
3DO Systems Division or any adaptation, translation or derivative work based on
such product or any portion thereof, (iii) all licenses, sublicenses and other
agreements which 3DO considers material to the business of the 3DO Systems
Division as currently conducted and as to which 3DO or any of its Affiliates is
a party and pursuant to which 3DO or any of its Affiliates is authorized to use
any third party patents, trademarks or copyrights, including software ("3DO
Third Party Intellectual Property Rights") which are incorporated in, are, or
form a part of either any Intellectual Property Right included in the 3DO
Intangible Assets or Other 3DO Intellectual Property Rights or any product of
the 3DO Systems Division that is material to the current business of the 3DO
Systems Division and its Affiliates, and (iv) all material joint development
agreements which 3DO considers material to the business of the 3DO Systems
Division as currently conducted and as to which 3DO or any of its Affiliates is
a party relating to the 3DO Systems Division.

(b) 3DO has not received notice of any pending or threatened
actions, suits or proceedings with respect to any of its Intellectual Property
Rights subject to this Agreement which could materially and adversely affect 3DO
Transferred Assets or the transactions contemplated by this Agreement, other
than as set forth in Exhibit D, attached hereto.

(c) Title to Assets. 3DO has good and marketable title to all
of the 3DO Transferred Assets other than the 3DO Leased Physical Assets, whether
real, personal, tangible or intangible and good title to its leasehold estate in
the 3DO Leased Physical Assets. All of 3DO Transferred Assets are free and clear
of restrictions on or conditions to transfer or assignment and free and clear of
mortgages, liens, pledges, encumbrances, claims, conditions or restrictions,
except: (i) those for current taxes not yet due and payable; (ii) liens, imposed
by law, such as mechanics', workers' and other like liens arising in the
ordinary course of business in respect of obligations that are not yet due and
payable and (iii) with respect to the 3DO Leased Physical Assets, the conditions
and rights imposed by the leases respecting the 3DO Leased Physical Assets.

(d) Absence of Undisclosed Liabilities. 3DO has no material
liability or obligation, either accrued, absolute, contingent or otherwise,
relating to 3DO Transferred Assets, except as set forth on Exhibit D attached
hereto.

(e) Contracts. Except for the leases and agreements listed and
described in Exhibit A hereto related to 3DO Leased Physical Assets or other
contracts or agreements listed on

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Exhibit A, it is not a party to or otherwise bound by the terms of any contract,
agreement, obligation or proposal (whether written or oral) in any way
materially affecting Samsung's right to Use the 3DO Transferred Assets. All such
leases and agreements are valid and binding contracts enforceable against the
parties thereto in accordance with their terms. 3DO is not in default of any
such leases or agreements.

(f) Compliance With Laws and Regulations. It is not in
violation of any federal, state, local or foreign statute, law, rule or
regulation which could reasonably be expected to materially interfere with the
conduct of the business of Newco, or with Samsung's or Newco's ownership of the
3DO Transferred Assets. 3DO is not presently subject to any order, injunction or
decree issued by any Governmental Authority relating to its Transferred Assets
or the 3DO Systems Division.

(g) 3DO Employees. Each 3DO Employee has executed a proprietary
information agreement. To the best knowledge of 3DO, no 3DO Employee is
obligated under any contract or agreement, or subject to any judgment, decree or
order of any court or other Governmental Authority that would conflict with such
employee's obligation to use his best efforts to promote the interests of Newco
(assuming such employee's employment by Newco) or that would conflict with
Newco's conduct of its business, as contemplated by this Agreement. To the best
knowledge of 3DO, no 3DO Employee is in violation of any term of any employment
contract, non-competition agreement, or any other contract or agreement relating
to the relationship of any such employee with 3DO, any 3DO Affiliate or any
previous employer.

(h) Underlying Documents. Any underlying documents listed or
described in Exhibit D or in any other exhibit hereto have heretofore been
furnished to or made available to Samsung. All such documents furnished to or
made available to Samsung are complete and correct copies, and there are no
amendments or modifications thereto, except as expressly noted in Exhibit D.

(i) No Options. Other than this Agreement, there are no
existing agreements, options, commitments or rights with, of or to any person to
acquire all or any portion of the 3DO Systems Division or the 3DO Transferred
Assets, or any interest therein, except for contracts entered into in the normal
course of the 3DO Systems Division consistent with past practice.

(j) Creditor's Rights. The transactions contemplated by this
Agreement will not give rise to any right of any creditor of 3DO whatsoever to
any of the 3DO Transferred Assets in the hands of Samsung or Newco after the
Closing except pursuant to the Assumed Liabilities.

(k) Public Reports. 3DO has and, at the Closing Date will have,
filed all required forms, reports and documents with the United States
Securities and Exchange Commission since August 31, 1995 (collectively, the "SEC
Reports"), all of which have and shall have complied in all material respects
with all applicable requirements of the Securities Act of 1933, as amended, and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and 3DO is
current in all of its

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required filings under the Exchange Act. As of their respective dates of filing
in final or definitive form (or, if amended or superseded by a subsequent
filing, then on the date of such subsequent filing), none of the SEC Reports,
including, without limitation, any financial statements or schedules included
therein, contained or shall have contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading. Each of the balance sheets (including
the related notes) included in the SEC Reports fairly presents the consolidated
financial position of 3DO and its subsidiaries as of the respective dates
thereof, and the other related financial statements (including the related
notes) included therein fairly presented the consolidated results of operations
and changes in financial position of 3DO and its subsidiaries for the respective
periods indicated, except, in the case of interim financial statements, for
year-end audit adjustments, consisting only of normal recurring accruals. Each
of the financial statements (including the related notes) included in the SEC
Reports has been prepared in accordance with GAAP consistently applied during
the periods involved, except as otherwise noted therein.

(l) Disclosure. No representation, warranty or statement by 3DO
in this Agreement (including the Exhibits hereto), or in any written certificate
required by this Agreement to be furnished to Samsung or its counsel pursuant to
this Agreement contains or will contain any untrue statement of material fact or
omits or will omit to state a material fact necessary to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading.

(m) Litigation. There are no actions, suits or other
proceedings pending or, to the best of its knowledge, threatened, before any
arbitrator, court or other Governmental Authority and no facts or circumstances
which could reasonably be expected to give rise to a claim, action, suit or
proceeding which could materially and adversely affect the 3DO Transferred
Assets or the transactions contemplated by this Agreement, other than as set
forth in Exhibit D attached hereto.

VI.

SURVIVAL OF WARRANTIES AND INDEMNIFICATION

VI.1 Survival of Warranties. All representations and warranties made
by 3DO or Samsung herein, or in any certificate, schedule or exhibit delivered
pursuant hereto, shall survive the Closing and continue in full force and effect
for a period of the longer of (i) one (1) year from the Closing Date or (ii) the
period from the Closing Date until thirty days after the expiration of the
applicable statutes of limitation.

VI.2 Indemnified Losses. For the purpose of this Article VI and when
used elsewhere in this Agreement, "Loss" shall mean and include any and all
liability, loss, damage, claim, charge, expense, cost, interest, fine, fee,
penalty, amounts paid in settlement, obligation or injury, whether accrued,
absolute, contingent or otherwise, including, without limitation, those
resulting from any

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and all actions, suits, investigations, proceedings, hearings, demands,
assessments, judgments, decrees, awards, injunctions, orders, rulings, or
arbitrations, together with reasonable costs and expenses including the
reasonable attorneys' fees and other legal costs and expenses relating thereto.

VI.3 Indemnification by 3DO. Subject to the provisions set forth in
this Article VI, 3DO agrees to defend, indemnify and hold harmless Samsung and
any present, past or future parent, subsidiary (including Newco), Affiliate,
director, officer, employee, shareholder or agent of Samsung (collectively, the
"Samsung Indemnitees") from and against and in respect to the entirety of any
Loss which arises out of, results from, is caused by or attributable to:

(a) any breach or inaccuracy or misrepresentation in any of the
representations or warranties or covenants or agreements of 3DO made in this
Agreement (including any exhibit hereto) or in documents to be delivered by 3DO
at Closing;

(b) any liability of 3DO which is not an Assumed Liability;

(d) taxes, of any kind or nature, arising out of, or payable
with respect to, 3DO business operations and any tax imposed on 3DO by any
Governmental Authority in the United States resulting directly from the transfer
of the 3DO Transferred Assets.

VI.4 Indemnification by Samsung. Subject to the provisions set forth
in this Article VI, Samsung agrees to defend, indemnify and hold harmless 3DO,
any present, past or future parent, subsidiary, Affiliate, director, officer,
employee, shareholder or agent of 3DO (collectively, the "3DO Indemnitees") from
and against and in respect of the entirety of any Loss which arises out of,
results from, is caused by or attributable to:

(a) any breach or inaccuracy or misrepresentation in any of the
representations or warranties, or covenants or agreements of Samsung made in
this Agreement (including any exhibit hereto);

(b) the failure of Samsung to timely pay or perform any of the
Assumed Liabilities; provided that, with respect to the indemnification
obligations under this Section VI.4(b), upon assumption of the Assumed
Liabilities by Newco, Newco shall be deemed to assume Samsung's indemnification
obligations under this Section VI.4(b);or

(c) taxes, of any kind or nature, arising out of, or payable
with respect to, Samsung business operations and any tax imposed by any
Governmental Authority in the Republic of Korea resulting directly from the
transfer of the 3DO Transferred Assets.

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VI.5 Indemnification Procedure.

(a) Claim. Whenever any Loss shall be asserted against or
incurred by a Samsung Indemnitee or 3DO Indemnitee (the "Indemnified Party"),
for which a claim of indemnity can be made under Section VI.3 or VI.4, the
Indemnified Party shall give prompt written notice thereof (a "Claim") to 3DO or
Samsung, as appropriate (the "Indemnifying Party"). The Indemnified Party shall
furnish to the Indemnifying Party in reasonable detail such information as the
Indemnified Party may have with respect to the Claim (including, in any case,
copies of any summons, complaint or other pleading which may have been served on
it and any written claim, demand, invoice, billing or other document evidencing
or asserting the same). The failure, or any delay, to give such notice shall not
relieve the Indemnifying Party of its indemnification obligations under this
Agreement, unless and then solely to the extent that the failure to give such
notice to the Indemnifying Party prevents the Indemnifying Party from raising a
defense to the Claim or otherwise materially and adversely affects the
Indemnifying party's ability to defend against the Claim. The Indemnified Party
shall cooperate in good faith with the Indemnifying Party in resolving any Claim
and shall use commercially reasonable efforts (at the expense of the
Indemnifying Party) to mitigate any Losses which are the subject to such Claim.
Subject to Section VI.5(c), the Indemnifying Party shall use reasonable efforts
to keep the Indemnified Party advised of material developments in the defense of
the Claim, and shall consult with the Indemnified Party during the course of any
settlement negotiations.

(b) Dispute of Claim. If the Indemnifying Party disputes the
Loss presented in the Claim, the Indemnifying Party shall notify the Indemnified
Party of such disagreement within thirty (30) days of the receipt of the Claim.
Thereupon, the Indemnified Party and the Indemnifying Party will negotiate in
good faith and use reasonable efforts to resolve their differences with respect
to the Claim during the thirty (30) days following the Indemnifying Party's
notice of disagreement to the Indemnified Party. In the event such dispute is
not resolved upon the expiration of the thirty (30) day period following the
Indemnifying Party's notice of disagreement to the Indemnified Party, the
parties shall resolve the dispute in accordance with the terms of Section IX.12
hereof.

(c) Third Party Claims. If the Claim is based on a claim of a
Person that is not a party to this Agreement, the Indemnifying Party will have
the right, at its expense, to undertake the defense of such third party claim (a
"Third Party Claim") with attorneys of its own choosing reasonably satisfactory
to the Indemnified Party so long as the following conditions are satisfied (the
"Third Party Claim Defense Conditions"): (i) the Indemnifying Party notifies the
Indemnified Party in writing within ten (10) days after the Indemnified Party
has given notice of the Third party Claim that the Indemnifying Party will
indemnify the Indemnified Party from and against the entirety of the Loss
arising out of the Third Party Claim, (ii) the Indemnifying Party provides the
Indemnified Party with evidence acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources necessary to defend against
the Third Party Claim and fulfill its indemnification obligations hereunder,
(iii) the Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief, (iv) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently and (v) the Indemnified
Party is kept informed by the

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Indemnifying Party with respect to, and shall have the right to participate in,
the contest, defense, settlement or compromise of the Third Party Claim. In the
event the Indemnifying Party fails to elect to defend the Third Party Claim
within such ten (10) day period or upon the failure of any other Third Party
Claim Defense Condition, the Indemnified Party may, at the Indemnifying Party's
expense, undertake the defense of the Third Party Claim and may compromise or
settle the Third Party Claim.

(d) Consent. The Indemnifying Party shall not consent to entry
of any judgment, or enter into any settlement, with respect to a Third Party
Claim, except with the consent of the Indemnified Party, which consent shall not
be unreasonably withheld or delayed.

VI.6 Period for Making Claims. A claim for indemnification under
this Article VI may be brought, if at all, any time after the Closing Date, with
respect to any claim or claims for indemnification under this Article VI,
provided, however, that any claim under Sections V1.3(a) or VI.4(a) with respect
to the inaccuracy or misrepresentation of a representation or warranty must be
brought, if at all, at any time prior to the time such representation or
warranty expires pursuant to Section VI.1.

VII.

TERM AND TERMINATION

VII.1 Term. This Agreement shall be binding on the Parties as of the
Execution Date and shall continue in full force and effect until the second
anniversary of the Closing Date, provided that this Agreement may be earlier
terminated (i) by mutual written agreement of Samsung and 3DO, (ii) by either
Samsung or 3DO, at its option, prior to the Closing, in the event of a failure
of a condition described in Article IV that the other party is obligated to
satisfy, if the other Party is unable or unwilling satisfy such condition within
twenty (20) Business Days after such Party notifies the other Party of its
intent to terminate this Agreement in accordance herewith, or (iii) by either
Samsung or 3DO at its option, if the Closing shall not have occurred by the
Target Closing Date set forth in Section IV.1, provided, however, that the right
to terminate this Agreement under this Section VII.1 (iii) shall not be
available to a Party whose failure to fulfill or perform any obligation under
this Agreement has been the cause of, or has resulted in the failure of, the
Closing to occur on or before such date.

VII.2 Effect of Termination. Articles I, II (including any licenses
set forth therein), III, V (for the periods specified in Section VI.1), VI, VII,
VIII and IX of this Agreement shall survive expiration or earlier termination of
this Agreement, except that Articles II (including the licenses set forth
therein), III, V, VI and Section VIII.2 shall not survive if termination occurs
prior to the Closing. If either SEC or 3DO or both terminate this Agreement
pursuant to Section VII.1 prior to Closing, except as set forth in the preceding
sentence, all obligations of Samsung and 3DO to the other Party shall terminate
without any liability to the other Party.

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VIII.

CONFIDENTIALITY AND SUPPORT OBLIGATIONS

VIII.1 Confidentiality.

(a) For purposes of this Section VIII.1 Newco shall be deemed
to be a Party. Except as expressly authorized herein each Party agrees not to
disclose to third parties the Confidential Information of any other Party or to
use the Confidential Information of any other Party for any purpose other than
to fulfill its obligations or exercise its rights under this Agreement. Without
limiting the generality of the foregoing, each Party agrees to do the following
with respect to Confidential Information of any other Party: (i) instruct and
require all of its employees, agents, and consultants to maintain the
confidentiality, and refrain from any unauthorized use, of the Confidential
Information; (ii) exercise at least the same degree of care to safeguard the
confidentiality and prevent the unauthorized use of such Confidential
Information as that Party exercises to safeguard its own Confidential
Information, but not less than reasonable care; (iii) restrict disclosure of
such Confidential Information to those of its employees, agents and consultants
who have a "need to know" for purposes consistent with the purposes for which
such Confidential Information was disclosed; and (iv) require such employees,
agents and consultants to sign non-disclosure agreements requiring them to
maintain the confidentiality and to refrain from any unauthorized use of such
Confidential Information. Each Party agrees to indemnify and hold harmless any
other Party with respect to any loss, expense or damage (including, without
limitation, reasonable attorneys' fees) which such Party suffers as a result of
a breach by the indemnifying Party of its obligations hereunder and to undertake
whatever action is necessary to remedy any such breach.

(b) The following information of a disclosing Party shall not
be treated as Confidential Information: (i) information published or otherwise
available to the public other than by an act or omission of any other Party;
(ii) information rightfully received by the recipient from a third party not
obligated to the disclosing Party (under this Agreement or otherwise) to keep
that information confidential; (iii) information rightfully known to the
recipient prior to disclosure by the disclosing Party; and (iv) information
independently developed by a Party.

(c) Each Party further agrees not to remove or destroy any
proprietary or confidentiality legends or markings placed upon any documentation
or other materials which contain or set forth Confidential Information of any
other Party and, to the extent copying is permitted, to copy such legends and
markings.

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VIII.2 Newco Support for MEI Obligations.

(a) Newco shall use its best efforts to provide to 3DO such
engineering and support services as shall permit 3DO to fulfill the engineering
and support obligations to MEI under the MEI License Agreement (the "Subcontract
Projects"). Upon request from 3DO, Newco shall utilize employees or consultants
or subcontractors that Newco reasonably deems qualified to perform the
Subcontract Projects. Such engineering or support services shall be provided, at
no cost or expense to 3DO, until such time as the cost of the services so
provided by Newco shall, in the aggregate, equal *** dollars ($***) (the
"Services Cap"). In calculating the aggregate cost of the services provided by
Newco to 3DO, such costs shall include and be limited to the actual salaries of
the employees of Newco who are designated to perform the Subcontract Services
and the actual out-of-pocket costs and other actual expenses necessarily
incurred in the provision of such services (the "Subcontract Project Costs").

(b) Notwithstanding the fact that the aggregate Subcontract
Project Costs of completing the Subcontract Projects exceed the Services Cap,
Newco shall continue to perform the Subcontract Projects upon 3DO's request,
and, in such event, Newco shall invoice 3DO promptly following the conclusion of
each calendar quarter for the Subcontract Project Costs actually incurred by
Newco during such calendar quarter for a period of *** after Closing and
provided that such services do not require more than *** in any month. 3DO
agrees that it shall pay Newco's invoice(s) regarding Subcontract Project Costs
in excess of the Service Cap within thirty (30) days after the date of its
receipt of any such invoice. In the event 3DO falls to timely pay such
Subcontract Project Costs, Newco may discontinue performance of its services
under this Section VIII.2.

(c) 3DO and Newco acknowledge and agree that their respective
representatives shall attend monthly meetings in the San Francisco Bay area, at
such times and places as shall be mutually agreed upon by such parties (which
agreement shall not be unreasonably withheld or delayed), in order to discuss
and review Newco's performance of the Subcontract Projects and to evaluate
Newco's progress with respect to any such projects then in process.

(d) Newco shall have no obligation to any Person other than 3DO
hereunder and no Person shall be a third party beneficiary of 3DO's rights
hereunder. Except as provided in the Subcontract Agreement entered into by Newco
and 3DO pursuant to Section VIII.2(e), in no event shall either Newco or 3DO be
liable for any incidental, consequential, special or punitive damages arising
out of this Section VIII.2, or the breach of any of its provisions other than
Section VIII.2(e).

(e) Newco and 3DO shall negotiate diligently and in good faith
after the Closing to enter into a subcontract agreement (the "Subcontract
Agreement") with respect to the subject matter of this Section VIII.2 on terms
consistent with this Section VIII.2 and such additional terms as are reasonably
acceptable to both parties, including, but not limited to, terms respecting
acceptance and cure periods.

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

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<PAGE> 21

IX.

GENERAL PROVISIONS

IX.1 Nature of Relationship. This Agreement shall not be construed
as creating an agency, partnership, joint venture or any other form of legal
association between Samsung and 3DO, other than the contractual relationship as
expressly set forth herein. Neither Samsung nor 3DO shall have any right or
authority, express or implied, to assume or create any obligation of any kind,
or to make any representation or warranty, on behalf of any other Party or to
bind any other Party in any respect whatsoever.

IX.2 Assignment. Until the Closing, and, except as set forth in the
next sentence hereof, after Closing, neither Samsung or 3DO may assign or
otherwise transfer this Agreement or any rights or obligations hereunder,
whether voluntarily, by operation of law or otherwise, without the express
written consent of the other Party. After the Closing, Samsung may assign or
otherwise transfer this Agreement, together with its rights and obligations
hereunder, to Newco and Samsung or 3DO may assign or otherwise transfer this
Agreement, together with its rights and obligations hereunder, as part of a
Corporate Sale of such Party, provided that (a) the transferee agrees in writing
to be bound by this Agreement to the same extent as if a party hereto and
thereto, and (b) such Party shall remain liable for its obligations and the
other terms and conditions applicable to it under this Agreement. For the
purposes hereof a Corporate Sale of a Party, regardless of its form, shall
constitute an assignment of this Agreement.

IX.3 Severability. If any provision of this Agreement or the
application of any such provision is determined to be invalid, illegal or
unenforceable in any jurisdiction or as applied to particular circumstances,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement or invalidate or render unenforceable such provision
in any other jurisdiction or other circumstances. To the extent permitted by
applicable law, the Parties waive any provision of law that renders any
provision of this Agreement invalid, illegal or unenforceable in any respect.
The Parties shall, to the extent lawful and practicable, use their reasonable
efforts to enter into arrangements to reinstate the intended effect of any
provision held invalid, illegal or unenforceable.

IX.4 Amendment and Waiver. No amendment to this Agreement shall be
effective unless it is in writing, identifies with specificity the provisions of
this Agreement that are thereby amended, and is signed by each Party. Any
failure of a Party to comply with any obligation, covenant, agreement or
condition contained in this Agreement may be waived by the Party entitled to the
benefits thereof only by a written instrument duly executed and delivered by
such Party, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure of compliance.

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<PAGE> 22

IX.5 Headings. The article and section headings of this Agreement
are for convenience of reference only and shall not affect the construction of,
or be taken into consideration in interpreting, this Agreement.

IX.6 Remedies Cumulative. Except as may otherwise be specifically
provided in this Agreement, the rights and remedies of the Parties under this
Agreement are cumulative and are not exclusive of any other rights or remedies
the Parties may have, whether under this Agreement, or otherwise at law or in
equity. Equitable relief, including the remedies of specific performance and
injunction, shall be available with respect to any actual or attempted breach of
any obligation under this Agreement. Except as provided by Section VI of this
Agreement, neither Party shall be liable to the other for any incidental,
consequential, special or punitive damages arising out of this Agreement.

IX.7 Parties in Interest. This Agreement shall be binding upon and
inure to the benefit of the Parties and their permitted successors and assigns.
Nothing in this Agreement, whether express or implied, shall give or be
construed to give any Person (other than the Parties and their permitted
successors and assigns and the Samsung Indemnitees and 3DO Indemnitees) any
legal or equitable right, remedy or claim under or in respect of this Agreement.

IX.8 Counterparts. This Agreement may be executed by the Parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same agreement. This Agreement shall not become effective until one or more
counterparts have been executed and delivered by each of Samsung and 3DO and
Newco.

IX.9 Entire Agreement This Agreement, together with the exhibits and
other attachments hereto and thereto, constitutes the entire agreement of the
Parties with respect to the subject matter hereof and thereof and supersedes all
prior and contemporaneous agreements and understandings (written, oral or
otherwise) with respect to such subject matter. Despite the preceding sentence,
the Memorandum of Understanding between Samsung and 3DO dated October 17, 1996
(the "MOU") shall survive the execution of this Agreement and shall continue in
force and effect until the occurrence of the Closing. Upon the occurrence of the
Closing, the MOU shall become null and void and of no further force and effect.

IX.10 Construction. References in this Agreement to any gender
include references to all genders, and references in this Agreement to the
singular include references to the plural and vice versa. References in this
Agreement to a Party or other Person include their respective permitted
successors and assigns. Unless the context otherwise requires, references in
this Agreement to Articles, Sections or Exhibits shall be deemed references to
Articles and Sections of, and Exhibits to, this Agreement. Unless the context
otherwise requires, the words "hereof", "hereby" and "herein" and words of
similar meaning when used in this Agreement refer to this Agreement in its
entirety and not to any particular Article, Section or provision of this
Agreement. This Agreement shall be fairly interpreted in accordance with its
terms and without any construction in favor of or against any

-21-

<PAGE> 23

of the Parties. The term "knowledge," when used in relation to a Person, means
the knowledge of such Person's officers and directors.

IX.11 Governing Law; Governing Language. This Agreement shall in all
respects be governed by and construed in accordance with the internal laws of
the State of California applicable to agreements made and to be performed
entirely within the State of California, without regard to the conflict of laws
principles of the State of California. This Agreement shall be interpreted in
accordance with the English meaning of its terms.

IX.12 Dispute Resolution.

(a) Escalation. If the Parties have any problems or disputes
arising from or otherwise relating to this Agreement, such problems or disputes
shall first be submitted to the Parties' respective relationship coordinators,
and, in the event the relationship coordinators cannot agree, to senior
executives designated by each Party at that time, for discussion in an effort to
determine whether an amicable resolution regarding any such problem or dispute
may be achieved. Such efforts shall continue for at least thirty (30) days from
the date a Party receives notice from another Party to initiate this escalation
procedure and shall be a precondition to initiate any legal action with any
court or Governmental Authority or otherwise pursuing its remedies under this
Agreement or at law or in equity, provided, however, that either Party shall be
entitled to immediately proceed to file an action in any appropriate court to
seek temporary or permanent injunctive or other equitable relief if such
immediate relief is appropriate and reasonably necessary to protect that Party's
rights.

The initial relationship coordinators will be Jae Beom Kim for
Samsung and Hugh C. Martin for 3DO. Such Parties each may designate a new
relationship coordinator by providing written notice of such change to the other
Party or Parties,

(b) Litigation Forum and Venue. Each Party irrevocable consents
to and submits itself to the exclusive Jurisdiction of the United States
District Court for the Northern District of California (or the Superior Court
for the City and County of San Francisco for any claim that cannot be asserted
in federal court) for the purposes of any suit, action or other proceeding in
connection with any controversy, claim or dispute arising from or otherwise
relating to this Agreement or to enforce any resolution, settlement, order or
award made with respect to any such matter. Each Party irrevocably waives and
agrees not to assert (by way of motion, as a defense or otherwise) in any such
suit, action or proceeding, any claim that (i) it is not personally subject to
the jurisdiction of such court, (ii) the suit, action or proceeding is brought
in an inconvenient forum, or (iii) the venue of the suit, action or proceeding
is improper.

(c) Service of Process. Each Party irrevocably consents to
service of process in any action, suit or proceeding by personal service or by
the transmittal of copies thereof in the English language (without any
requirement for translation) in accordance with the provisions of Section XI.13,
provided that a reasonable period for appearance is allowed. The foregoing,
however,

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<PAGE> 24

shall not limit the right of either party to serve process in any other manner
permitted by law. Any judgment against a Party or the assets of a party in any
action, suit or proceeding for which such Party has no further right of appeal
shall be conclusive, and may be enforced in other jurisdictions by suit on the
judgment. A certified or true copy of any such judgment shall be conclusive
evidence of authorization of any U.S. and/or Korean governmental body, as the
case may be, that may be required by applicable law.

IX.13 Notices. All notices, consents, approvals and other
communications to be given to any Party shall be in writing and in the English
language in order to be effective. Any notice shall be deemed given when
delivered by hand, courier or overnight delivery service, or seven (7) Business
Days after being mailed by certified or registered mail, return receipt
requested, with appropriate postage prepaid, or when received in the form of a
facsimile, and shall be directed as specified below (or at such other address or
facsimile number as such Party shall designate by like notice):

(a) If to Samsung:

Samsung Electronics Co., Ltd.
Strategic Planning Team, Semiconductor Business
San #24, Nongseo-Ri, Kiheung-Eup
Yongin-City, Kyunggi-Do, Korea
Telephone: 82-2-760-7250
Facsimile: 82-2-760-7202
Attention: Jae Beom Kim

With a copy to:

Samsung Electronics Co., Ltd.
Legal Department
Samsung Main Building
250, 2-Ka, Taepyung-Ro, Chung-Ku
Seoul, Korea
Telephone: (82)-(2)-727-7234
Facsimile: (82)-(2)-727-7179
Attention: General Counsel

(b) If to 3DO:

The 3DO Company
600 Galveston Drive
Redwood City, California 94063
Telephone: (415) 261-3000
Facsimile: (415) 261-3151
Attention: General Counsel

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<PAGE> 25

IX.14 Attorneys' Fees. If a Party commences a legal action or other
legal proceeding against the other Party to enforce or seek remedies for breach
of this Agreement, the prevailing Party in such proceeding shall be entitled to
recover from the other Party the reasonable costs and expenses incurred by the
prevailing Party in connection with such proceeding, including, but not limited
to, court costs and reasonable attorneys' fees.

IX.15 Expenses. The Parties hereto shall each bear their own costs
and expenses (including attorneys' fees) incurred in connection with the
negotiation and preparation of this Agreement and consummation of the
transactions contemplated hereby.

IX.16 Further Assurances. The Parties each agree to perform such
acts, execute and deliver such instruments and documents, and do all such other
things as may be reasonably necessary to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
cooperating fully with the other Parties by provision of information necessary
to make all filings by the other Parties with Governmental Authorities pursuant
to Sections II.7 and III.2 hereof.

-24-

<PAGE> 26

IN WITNESS WHEREOF, Samsung and 3DO have caused this instrument to
be executed by their duly authorized and empowered officers and representatives
as of the day and year first written above.

SAMSUNG ELECTRONICS CO., LTD. THE 3DO COMPANY

By: /s/ DAEJE CHIN By: /s/ HUGH C. MARTIN
-------------------------- -------------------------------------

Printed Name: Daeje Chin Printed Name: Hugh C. Martin
--------------- -------------------------
Title: Executive Vice Title: President
President & CEO
----------------------- --------------------------------

For the purpose of Section VI.4(b) and Article VIII, this Agreement is accepted
and agreed to by Newco as of the day and year first written above.

AGT, Inc.

By: /s/ TOBIN E. FARRAND
--------------------------------------

Printed Name: Tobin E. Farrand
----------------------------

Title: CEO
----------------------------------

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<PAGE> 27

LIST OF EXHIBITS
<S> <C>

Exhibit A: 3DO Transferred Assets and Assumed Liabilities

Exhibit B: 3DO Employees

Exhibit C: Allocation of Purchase Price

Exhibit D: Disclosure Schedule

</TABLE>

<PAGE> 28

Exhibit A

3DO CONTRIBUTIONS

[Please See Attached]

-2-

<PAGE> 29

Exhibit A-1

3DO OWNED PHYSICAL ASSETS

ASSET NAME MANUFACTURER MODEL
<S> <C> <C> <C>

1. 3DO Opera Units Panasonic FZ- 1
2. 3DO Opera Units Panasonic FZ- 10 (Certification Units)
3. 3DO Opera Units Panasonic FZ-10
4. 3DO Opera Units Sanyo Try
5. A/V Selector Sony
6. Amplifier Alesis RA 100
7. Amplifier/Tuner Harmon Kardon AUR-25
8. AV Selector Sony SBV665
9. AV Selector Sony SBV665
10. CD-I Player Philips CDI910
11. CD-ROM Drive ADVANTAGE EXT CDROM DRIVE
12. CD-ROM Drive APPLE EXT CDROM DRIVE
13. CD-ROM Drive Apple CD300i Plus
14. CD-ROM Drive Apple CD300
15. CD-ROM Drive Apple CD600E
16. CD-ROM Drive Apple
17. CD-ROM Drive Apple CD300
18. CD-ROM Drive Apple
19. CD-ROM Drive Apple CD300
20. CD-ROM Drive Apple CD300
21. CD-ROM Drive APPLE EXT CDROM DRIVE
22. CD-ROM Drive Apple CD300
23. CD-ROM Drive Apple
24. CD-ROM Drive APPLE EXT CDROM DRIVE
25. CD-ROM Drive APPLE EXT CDROM DRIVE
26. CD-ROM Drive Apple CD150
27. CD-ROM Drive Apple
28. CD-ROM Drive Creative Labs CR563
29. CD-ROM Drive IBM 7210-001
30. CD-ROM Drive N/A EXT CDROM DRIVE
31. CD-ROM Drive NUDESIGN EXT CDROM DRIVE
32. CD-ROM Drive PHILLIPS CD ROM RECORDER
33. CD-ROM Drive POWERUSER EXT CDROM DRIVE
34. CD-ROM Drive Smart & Friendly
35. CD-ROM Drive SUN EXT CDROM DRIVE
36. CD-ROM Drive Sun 4 Drive Stack
37. CD Player Memorex MD2500
38. CD ROM RECORDER PHILLIPS CD ROM RECORDER
39. CD ROM RECORDER PHILLIPS CD ROM RECORDER
40. Chairs Various Desk and conference room chairs
41. Computer A-OPEN PC CLONE 166 MHZ
42. Computer A-Open P166

</TABLE>

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<PAGE> 30

ASSET NAME MANUFACTURER MODEL
<S> <C> <C> <C>

43. Computer A-Open P133
44. Computer A-OPEN PC CLONE 133 MHZ
45. Computer Apple Duo 230
46. Computer Apple PowerMac 8100/80AV
47. Computer Apple Quadra 650
48. Computer Apple Mac Quadra 700
49. Computer Apple QUADRA 700
50. Computer Apple Power Mac 8500/120
51. Computer Apple Power Mac 8100/100AV
52. Computer Apple PowerMac 8100/100AV
53. Computer Apple PowerMac 8500/120
54. Computer Apple PowerPC 7100/80AV
55. Computer Apple PowerPC 8100/100
56. Computer Apple PowerMac 8100/100
57. Computer Apple PowerPC 7100/80
58. Computer Apple PPC 7100/80
59. Computer Apple Quadra 800
60. Computer Apple Duo 230
61. Computer Apple QUADRA 700
62. Computer Apple MAC CLASSIC II
63. Computer Apple QUADRA 800
64. Computer Apple Mac Quadra 800
65. Computer Apple Mac IICI
66. Computer Apple Quadra 800
67. Computer Apple Mac Quadra 800
68. Computer Apple Quadra 800
69. Computer Apple Quadra 950
70. Computer Apple QUADRA 800
71. Computer Apple Quadra 800
72. Computer Apple Quadra 700
73. Computer Apple Quadra 800
74. Computer Apple Duo 230
75. Computer Apple Quadra 800
76. Computer Apple CENTRIS 610
77. Computer Apple QUADRA 800
78. Computer Apple Mac Quadra 800
79. Computer Apple QUADRA 800
80. Computer Apple QUADRA 700
81. Computer Apple Quadra 700
82. Computer Apple Duo
83. Computer Apple Duo
84. Computer Apple Duo
85. Computer Arche 386/33
86. Computer Compaq DESKPRO 5166
87. Computer Compaq DESKPRO 5166
88. Computer Compaq Deskpro 5166
89. Computer Compaq Deskpro 5166
90. Computer Compaq Deskpro 5166
91. Computer Compaq Deskpro 5166
92. Computer Compaq DESKPRO 5166
93. Computer Compaq Deskpro 5166

</TABLE>

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<PAGE> 31

ASSET NAME MANUFACTURER MODEL
<S> <C> <C> <C>

94. Computer Compaq DESKPRO 5166
95. Computer Compaq Deskpro 5166
96. Computer Compaq DESKPRO 5166
97. Computer Compaq 5133
98. Computer Compaq Deskpro 5120
99. Computer Compaq Deskpro 5120
100. Computer Compaq DESKPRO 5166
101. Computer Dell Dimension XPS-P133
102. Computer Dell P133 Optiplex GMT5133
103. Computer Dell Dimension XPS-P133
104. Computer Force C-Cube
105. Computer IBM System 6000/250
106. Computer Micro Mellinia Plus
107. Computer Micron MILLENIA PLUS PC CLONE
108. Computer Micron M5BHIPLUS-P166
109. Computer Micron MILLENIA PLUS PC CLONE
110. Computer Micron P133PC1
111. Computer Micron P133-PC1
112. Computer Micron P133 PCI
113. Computer Micron P133PCI
114. Computer Micron P166
115. Computer Micron POWERSTATION
116. Computer Micron MILLENIA PLUS PC CLONE
117. Computer Micron MILLENIA PLUS P166 MHZ
118. Computer Micron P133PCI
119. Computer Micron
120. Computer MSN 486DX/66 PCI
121. Computer MSN 486DX-66PCI
122. Computer MSN 486DX/66 PCI
123. Computer NCD MCX-L
124. Computer NetPower NETPOWER FAST SERIES MP
125. Computer NetPower Calisto
126. Computer WIT PC
127. Computer WIT PC CLONE
128. Computer WIT 486DX
129. Computer NON-DESCRIPT CPU-TYPE ITEM
130. Computer CPU-LIKE ITEM, NO OTHER DETAIL
131. Computer DUO POWERBOOK
132. Computer Laptop Apple Duo
133. Computer Laptop Apple Duo
134. Computer Laptop Apple Duo
135. Computer Laptop Apple Duo
136. Computer Laptop Micron Millennium Transport
137. Computer Laptop Micron NVK001221-00
138. Computer Laptop
139. Computer Laptop
140. Concentrator SYNOPSIS 3000 CONCENTRATOR
141. Concentrator SYNOPSIS 3000 CONCENTRATOR
142. Cubicles Various Approx. 120
143. Disk Array Falcon
144. Disk Array Falcon

</TABLE>

-5-

<PAGE> 32

ASSET NAME MANUFACTURER MODEL
<S> <C> <C> <C>

145. Disk Array Falcon
146. Docking Station Apple Duo Dock
147. Docking Station Apple Duo Dock
148. Docking Station Apple Duo Dock
149. Docking Station Apple Duo Dock
150. Docking Station Apple Duo Dock
151. Docking Station Apple Duo Dock
152. Docking Station Apple Duo Dock
153. Docking Station Apple Duo Dock
154. Docking Station Apple Duo Dock
155. Docking Station Apple Duo Dock
156. Docking Station Apple Duo Dock
157. Docking Station Apple Duo Dock
158. Docking Station Micron
159. Docking Station Micron Port Replicator
160. Docking Station Micron
161. Docking Station Micron
162. Docking Station DUO DOCK
163. Electron Microscope Schott KL1500
164. Electron Microscope Vision Engineering Mantis
165. External Drive PINNACLE MICRO EXT REMOVABLE DRIVE
166. Fax Machine HP Fax 310
167. Fax Machine HP Fax 310
168. Fax Machine HP HP Fax 700
169. Hard Drive Acropolis
170. Hard Drive Acropolis
171. Hard Drive ADVANTAGE EXT HD
172. Hard Drive ADVANTAGE EXT HD 1000
173. Hard Drive ADVANTAGE EXT HD
174. Hard Drive ADVANTAGE EXT HD
175. Hard Drive Advantage
176. Hard Drive Andataco
177. Hard Drive Andataco
178. Hard Drive ANDATACO EXT HD
179. Hard Drive Andataco
180. Hard Drive Andataco
181. Hard Drive Andataco
182. Hard Drive Andataco
183. Hard Drive Andataco
184. Hard Drive Apple CD300
185. Hard Drive Apple EXT HD 160 SC
186. Hard Drive APS EXT HD
187. Hard Drive APS EXT HD
188. Hard Drive Avcom
189. Hard Drive AVCOM EXT HD
190. Hard Drive Falcon EXT HD
191. Hard Drive Falcon 9 GB
192. Hard Drive Falcon
193. Hard Drive Falcon Systems CFP10805
194. Hard Drive LACIE EXT HD
195. Hard Drive LACIE EXT HD

</TABLE>

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<PAGE> 33

ASSET NAME MANUFACTURER MODEL
<S> <C> <C> <C>

196. Hard Drive Micronet SS1012
197. Hard Drive Micronet EXTERNAL HD
198. Hard Drive Micronet EXT HD
199. Hard Drive Micronet 1 GB
200. Hard Drive Micronet SS-1012
201. Hard Drive Micronet Hard Disk 1000
202. Hard Drive Micronet EXT HD
203. Hard Drive Micronet EXT HD
204. Hard Drive Micronet EXT HD
205. Hard Drive Micronet
206. Hard Drive Micronet EXTERNAL HD
207. Hard Drive Micronet 1 GB
208. Hard Drive Micronet 1 GB
209. Hard Drive NCA
210. Hard Drive NCA EXT HD
211. Hard Drive NCA EXT HD
212. Hard Drive NuDesign Quantum 550
213. Hard Drive PowerUser
214. Hard Drive PowerUser PowerUser Pro
215. Hard Drive PowerUser EXT HD
216. Hard Drive PowerUser PowerUser Pro
217. Hard Drive PowerUser EXT HD
218. Hard Drive PowerUser EXT HD
219. Hard Drive STORAGE DIMENSIONS EXT HD
220. Hard Drive Sun
221. Hard Drive Sun
222. Hard Drive
223. Hard Drive EXTERNAL HD
224. Hub Assante 10T Hub/8
225. Hub HP Ethertwist Hub Plus
226. Keyboard Fatar Studio 610 Plus
227. Laser Disc Player Pioneer LDV8000
228. Laser Disc Player Pioneer CLD-V2600
229. Laser Disc Player Pioneer CLD990
230. Laser Disc Player Pioneer CLD D505
231. Laser Printer HP TOOLS HP4SI/MX
232. Laser Printer HP LASERJET 4 MV
233. Laser Printer QMS QMS LASER PRINTER
234. Laser Printer SUN SPARCPRINTER
235. Laserdisc Player SONY LASERMAX MULTIDISC PLAYER
236. Logic Analyzer HP 16500A
237. Logic Analyzer HP 16500A
238. Logic Analyzer HP LOGIC ANALYZER
239 Logic Analyzer HP LOGIC ANALYZER
240. Logic Analyzer HP 136CH
241. Logic Analyzer HP 1660A
242. Logic Analyzer HP 16500A
243. Logic Analyzer HP 1660A
244. Microscope VISION EDGE MICROSCOPE
245. Midi Sound Generator Roland SC-55
246. Mixer - 12 Channel Mackie Microseries 1202

</TABLE>

-7-

<PAGE> 34

ASSET NAME MANUFACTURER MODEL
<S> <C> <C> <C>

247. Mixer - 12 Channel Mackie Microseries 1202
248. Mixer - 12 Channel Mackie Micro 1202-BLZ
249. MODELSOURCE SYNOPSIS MODELSOURCE MSU-D160Q-H-00-P
MSU-D160Q-H-00-P
250. Modulation Domain HP 53310A
Analyzer
251. Monitor Panasonic CT-1383Y
252. Monitor 12" Apple 12" Monitor
253. Monitor 12" Apple
254. Monitor 12" Apple Black & White 12"
255. Monitor 12" EYE
256. Monitor 13" Apple 13" Color Monitor
257. Monitor 13" Apple 13" COLOR MONITOR
258. Monitor 13" Apple 13" COLOR MONITOR
259. Monitor 13" Apple
260. Monitor 13" Apple
261. Monitor 13" EYE 13" AMBER MONITOR
262. Monitor 13" Mitac
263. Monitor 13" Sony PVM1344Q
264. Monitor 13" Sony PVM1344Q
265. Monitor 13" Sony PVM1344Q
266. Monitor 14" Apple Color
267. Monitor 14" Apple 14" Monitor
268. Monitor 14" Apple 14" Color Monitor
269. Monitor 14" Apple 14" Display
270. Monitor 14" Apple 14" COLOR MONITOR
271. Monitor 14" Apple AudioVision 14" Monitor
272. Monitor 14" Compaq 443-P
273. Monitor 14" CTX 14" COLOR MONITOR
274. Monitor 14" EverSync
275. Monitor 14" Goldstar 14" Monitor
276. Monitor 14" Leading Edge CMC1414AD-9
277. Monitor 14" Sony CPD1430
278. Monitor 14" RGB Apple 14" RGB
279. Monitor 15" NEC 4FGE
280. Monitor 15" NEC 4FGE
281. Monitor 15" NEC 15" COLOR MONITOR
282. Monitor 15" NEC Multisync 4FGE
283. Monitor 16" Apple 16" Color Display
284. Monitor 16" Apple 16" Color Display
285. Monitor 16" Apple 16" Color Display
286. Monitor 16" Apple 16" Color Display
287. Monitor 16" Apple 16" Color Display
288. Monitor 16" Apple 16" Color Display
289. Monitor 16" Apple 16" Color Display
290. Monitor 16" Apple 16" Color Display
291. Monitor 16" Apple 16" Color Display
292. Monitor 16" Apple 16" Color Display
293. Monitor 16" Apple 16" Color Display
294. Monitor 16" Apple 16" Color Display
295. Monitor 16" Apple 16" Color Display

</TABLE>

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<PAGE> 35

ASSET NAME MANUFACTURER MODEL
<S> <C> <C> <C>

296. Monitor 16" Apple 16" Color Display
297. Monitor 16" Apple 16" Color Display
298. Monitor 16" Apple 16" Color Display
299. Monitor 16" Apple 16" Color Display
300. Monitor 16" Apple 16" Color Display
301. Monitor 16" NCD 16X69A
302. Monitor 16" NCD 16X69A
303. Monitor 16" NCD 16X69A
304. Monitor 16" Nokia
305. Monitor 16" Nokia 447E
306. Monitor 16" Sun
307. Monitor 17" Apple 17" COLOR MONITOR
308. Monitor 17" Apple 17" COLOR MONITOR
309. Monitor 17" Apple 17" Color Display
310. Monitor 17" Apple 17" Color Monitor
311. Monitor 17" Apple Multiscan 17
312. Monitor 17" Apple 17" COLOR MONITOR
313. Monitor 17" Apple 17" COLOR MONITOR
314. Monitor 17" Apple 17" COLOR MONITOR
315. Monitor 17" Apple 17" COLOR MONITOR
316. Monitor 17" Apple 17" COLOR MONITOR
317. Monitor 17" Apple 17" COLOR MONITOR
318. Monitor 17" Apple 1710AV
319. Monitor 17" Dell D17-28D
320. Monitor 17" Hitachi Supervision Elite 17
321. Monitor 17" Hitachi CM1797MUZ
322. Monitor 17" Hitachi Superscan Elite 17
323. Monitor 17" HP
324. Monitor 17" IIYAMA 17" COLOR MONITOR
325. Monitor 17" Iiyama Vision Master 17
326. Monitor 17" MAG 17" COLOR MONITOR
327. Monitor 17" MAG MXP17F
328. Monitor 17" MAG 17" COLOR MONITOR
329. Monitor 17" Nanau F5501
330. Monitor 17" NCD 17" COLOR MONITOR
331. Monitor 17" NCD 17" COLOR MONITOR
332. Monitor 17" NCD 16X69A
333. Monitor 17" NCD 17" Color Monitor
334. Monitor 17" NEC Multisync XE17
335. Monitor 17" NEC 17" COLOR MONITOR
336. Monitor 17" NEC Multisync 5FG
337. Monitor 17" Radius
338. Monitor 17" Radius 460
339. Monitor 17" Radius 17" COLOR MONITOR
340. Monitor 17" Radius Precision Color
341. Monitor 17" Radius 460
342. Monitor 17" Radius
343. Monitor 17" Radius 17" Color Monitor
344. Monitor 17" Radius
345. Monitor 17" Radius 460
346. Monitor 17" Radius 460

</TABLE>

-9-

ASSET NAME MANUFACTURER MODEL
<S> <C> <C> <C>
347. Monitor 17" Radius
348. Monitor 17" Radius 460
349. Monitor 17" Radius
350. Monitor 17" Radius 17" Color Monitor
351. Monitor 17" Radius
352. Monitor 17" Radius 17" COLOR MONITOR
353. Monitor 17" Sony 17" COLOR MONITOR
354. Monitor 17" Sony 17SF
355. Monitor 17" Sony 17SE
356. Monitor 17" Sony 17SF
357. Monitor 17" Sony 17" COLOR MONITOR
358. Monitor 17" Sony 17SF II
359. Monitor 17" Sony 17SF II
360. Monitor 17" Sony 17SF II
361. Monitor 17" Sony 17SF II
362. Monitor 17" Sony 17" COLOR MONITOR
363. Monitor 17" Sony
364. Monitor 17" Sony 17SF II
365. Monitor 17" Sony 17SF II
366. Monitor 17" Sony 17SF II
367. Monitor 17" Sony 17SF
368. Monitor 17" Sony 17" COLOR MONITOR
369. Monitor 17" Sony 17SF
370. Monitor 17" Sony 17" COLOR MONITOR
371. Monitor 17" Sony 17" COLOR MONITOR
372. Monitor 17" Sony 17SF
373. Monitor 17" Sony 17SE
374. Monitor 17" Sony 17SE II
375. Monitor 17" Sony 17SE
376. Monitor 17" Sony 17" Color Monitor
377. Monitor 17" Sony 17SF
378. Monitor 17" Sony 17SE
379. Monitor 17" Sony 17" COLOR MONITOR
380. Monitor 17" Sony 17SE
381. Monitor 17" Sony 17SE
382 Monitor 17" Sony 17SE
383. Monitor 17" Sony 17" COLOR MONITOR
384. Monitor 17" Sony 17" COLOR MONITOR
385. Monitor 17" Sony 17SE
386. Monitor 17" Sony 17SE
387. Monitor 17" Sony 17SE
388. Monitor 17" Sony 17SE
389. Monitor 17" Sony 17" COLOR MONITOR
390. Monitor 17" Sony Multiscan 17se
391. Monitor 17" Sony 17SE
392. Monitor 17" Sony 17SF
393. Monitor 17" SUN 17" COLOR MONITOR
394. Monitor 17" SUPERMATCH 17" COLOR MONITOR
395. Monitor 19" Hyundai
396. Monitor 19" Hyundai HM4419-D
397. Monitor 19" Hyundai 19" COLOR MONITOR

</TABLE>

-10-

<PAGE> 37

ASSET NAME MANUFACTURER MODEL
<S> <C> <C> <C>
398. Monitor 19" NEWCOC VM-R190SU
399. Monitor 19" NCD
400. Monitor 19" Sony PVM1954Q
401. Monitor 19" SUN 19" COLOR MONITOR
402. Monitor 19" Sun
403. Monitor 19" Sun GDM-1962B
404. Monitor 19" Sun GDM-1962B
405. Monitor 19" Sun GDM-1962B
406. Monitor 19" Sun GDM-1962B
407. Monitor 19" Sun GDM-1962B
408. Monitor 19" Sun GDM-1962B
409. Monitor 19" Sun GDM-1962B
410. Monitor 19" Sun 19" COLOR MONITOR
411. Monitor 20" AXIL 20" COLOR MONITOR
412. Monitor 20" Capetronic CD5892X
413. Monitor 20" Capetronic
414. Monitor 20" Dell 20" Color Monitor
415. Monitor 20" HITACHI 20" COLOR MONITOR
416. Monitor 20" IBM Power Display 20"
417. Monitor 20" NCD 20" COLOR MONITOR
418. Monitor 20" Radius TPD20GS
419. Monitor 20" Radius TPD20GS
420. Monitor 20" Radius 20" B&W MONITOR
421. Monitor 20" Radius 20" B&W MONITOR
422. Monitor 20" Radius TPD20
423. Monitor 20" Radius TPD20GS
424. Monitor 20" Radius TPD20GS
425. Monitor 20" Radius TPD20GS
426. Monitor 20" Radius 20" Monitor B&W
427. Monitor 20" Radius 20" B&W Monitor
428. Monitor 20" RasterOps 20" COLOR MONITOR
429. Monitor 20" RasterOps
430. Monitor 20" Samsung Syncmaster 6C
431. Monitor 20" Sony 20SF
432. Monitor 20" Sony 20" COLOR MONITOR
433. Monitor 20" Sony 20" COLOR MONITOR
434. Monitor 20" Sony 20SF II
435. Monitor 20" Sony 20" COLOR MONITOR
436. Monitor 20" Sony 20SF II
437. Monitor 20" Sun GDM-20D10
438. Monitor 20" Sun GDM-20D10
439. Monitor 20" Sun GDM-20D10
440. Monitor 20" Sun GDM-20D10
441. Monitor 20" Sun GDM-20010
442. Monitor 20" Sun GDM-20D10
443. Monitor 20" Sun 20" COLOR MONITOR
444. Monitor 20" Sun 20" COLOR MONITOR
445. Monitor 20" Sun 20" COLOR MONITOR
446. Monitor 20" Sun 20" COLOR MONITOR
447. Monitor 20" Sun GDM-20010
448. Monitor 20" Sun GDM-20010

</TABLE>

-11-

<PAGE> 38

ASSET NAME MANUFACTURER MODEL
<S> <C> <C> <C>
449. Monitor 20" Sun GDM-20
450. Monitor 20" SUPERMAC 20" COLOR MONITOR
451. Monitor 21" KENSINGTON 21" B&W MONITOR
452. Monitor 21" Radius TPD21
453. Monitor 21" Samsung
454. Monitor 21" SGI SGI Monitor 21"
455. NTSC TV Generator Tektronix TSG100
456. Oscilloscope HP 54522A
457. Oscilloscope LECROY 350 MHZ OSCILLOSCOPE
458. Oscilloscope LECROY 350 MHZ OSCILLOSCOPE
459. Oscilloscope TEKTRONIC OSCILLOSCOPE
460. Oscilloscope Tektronix 2467B
461. Oscilloscope Tektronix TD5744A
462. Oscilloscope Tektronix 2465B - 400mhz
463. Oscilloscope Tektronix 2467BHD - 400mhz
464. Oscilloscope Tektronix
465. Overhead Projector 3M 900AJE
466. Photo CD Player Kodak
467. Photo CD Player Kodak
468. Power Supply - Dual PC Protek 3015
469. PowerUser Casette Tascam DA-30
470. PowerUserDisk Abekas 6100
Recorder
471. Printer EPSON EPSON LQ-1170
472. Printer HP Thinkjet
473. Printer HP Laserjet 5si mx
474. Printer HP Thinkjet
475. Printer Output Technology 850XL
476. Racks Various
477. RAID Disc Array FWB Hammer SL4-100W
478. Scanner Microtek Scanmaker IIXE
479. Server Apple Workgroup Server 9150
480. Shelving Various Book and storage shelves
481. Signal Generator Tektronix
482. Signal Generator Tektronix TSG131A
483. Signal Generator Tektronix
484. Signal Generator Tektronix TSG130A
485. Sparcstation Axil Axil 311
486. Sparcstation Axil Axil 311
487. Sparcstation AXIL Axil 230
488. Sparcstation Axil Axil 311
489. Sparcstation Axil Axil 311
490. Sparcstation AXIL SPARCSTATION
491. Sparcstation Axil Axil311
492. Sparcstation AXIL AXIL 311
493. Sparcstation Hyundai HWS2210
494. Sparcstation Hyundai HYUNDAI SPARC
495. Sparcstation Hyundai HYUNDAI SPARC
496. Sparcstation Hyundai HYUNDAI SPARC
497. Sparcstation Sun Sparc 10
498. Sparcstation Sun Sparc 10

</TABLE>

-12-

<PAGE> 39

ASSET NAME MANUFACTURER MODEL
<S> <C> <C> <C>

499. Sparcstation Sun Sparc 20
500. Sparcstation Sun SPARCSTATION 10
501. Sparcstation Sun Sparc 10
502. Sparcstation Sun SPARCSTATION LX
503. Sparcstation Sun Sparc 20
504. Sparcstation Sun Sparc 10
505. Sparcstation Sun Sparc 10
506. Sparcstation Sun Sparc 10
507. Sparcstation Sun SPARCSTATION 10
508. Sparcstation Sun Sparc 10
509. Sparcstation Sun Sparc 10
510. Sparcstation Sun Sparc 10
511. Sparcstation Axil 311
512. Speakers (2) Alesis Monitor 1
513. Speakers (2) B&W DM610
514. Speakers (2) Infinity SS2003
515. Speakers (2) JBL
516. Stereo CD Player Sony CDPK220
517. Stereo Receiver NAD 7240PE
518. Switches KALPANA ETHER SWITCHES
519. Switches KALPANA ETHER SWITCHES
520. Switches KALPANA ETHER SWITCHES
521. Switches KALPANA ETHER SWITCHES
522. Switches KALPANA ETHER SWITCHES
523. Synthesizer Yamaha DX-7
524. Tables Various Work and conference room tables
525. Tape Drive Alliance
526. Tape Drive ANDATACO EXT TAPE DRIVE
527. Tape Drive AVCOM EXT TAPE DRIVE
528. Tape Drive FALCON EXT TAPE DRIVE
529. Tape Drive Falcon
530. Tape Drive IBM 7208-001
531. Tape Drive Mass Microsystems Datapak 80
532. Tape Drive POWERUSER EXT TAPE DRIVE
533. Tape Drive Sun EXT TAPE DRIVE
534. Tape Drive Syquest E2135
535. Television Sony KV-20EKR20
536. Television 13" PANASONIC 13" TV
537. Television 13" Sony
538. Television 14" Hitachi CMT1455
539. Television 19" KTV
540. Television 19" Sony 19" TV
541. Television 20" Panasonic CT-20S20R
542. Television 20" Panasonic Color Television
543. Television 20" Panasonic CTP20665
544. Television 20" Panasonic 20" COLOR TV
545. Television 20" Panasonic
546. Television 20" Panasonic
547. Television 20" Proscan PS20111
548. Television 20" Proscan PS20112
549. Television 20" Proscan PS20111

</TABLE>

-13-

<PAGE> 40

ASSET NAME MANUFACTURER MODEL
<S> <C> <C> <C>

550. Television 20" RCA
551. Television 20" Sony KV20
552. Television 20" Sony 20" TV
553. Television 20" Sony
554. Television 20" Sony
555. Television 20" Sony
556. Television 20" Sony KV20EXR20
557. Television 20" Sony
558. Television 20" Sony KV20
559. Television 20" Sony
560. Television 20" Sony KV20TSE2
561. Television 20" Sony
562. Television 20" Sony KV-20EKR20
563. Television 20" Sony KV20
564. Television 20" (Int'l) Sony PVM1944Q
565. Television 21" Panasonic
566. Television 27" NEWCOC
567. Television 27" Sony
568. Television 19" Sony KV-20TS30
569. Universal Counter HP 53131A
570. UPS American Power Conservation
571. VCR Panasonic AG-7500A
572. VCR Betacam Sony PVW2800
573. VCR VHS MITSUBISHI VHS VCR
574. VCR VHS Mitsubishi
575. VCR VHS Toshiba
576. Video CD Player BMB VCD-800
577. Video CD Stereo System Panasonic SAVC10K
578. Video Monitor Sony PVM1340Q
579. Video Monitor Sony PVM-1344Q
580. Video Monitor 13" Panasonic CT-1383Y
581. Video Monitor 13" Sony PVM-1344Q
582. Video Monitor 13" Sony
583. Video Monitor 13" Sony 13" TV MONITOR
584. Video Monitor 13" Sony 13" TV MONITOR
585. Video Monitor 13" Sony 13" TV MONITOR
586. Video Monitor 13" Sony 13" TV MONITOR
587. Video Monitor 13" Sony PVM-1344Q
588. Video Monitor 17" Sony 17" TV MONITOR
589. Video Monitor 19" Sony PVM-1944Q
590. Video Monitor 20" Panasonic CT-2083Y
591. Workstation HP 735
592. Workstation HP 735
593. Workstation HP 735
594. Workstation HP 735
595. Workstation IBM RISC SYSTEM/6000
596. Workstation IBM RISC SYSTEM/6000
597. X Terminal NCD
598. X Terminal NCD X TERMINAL BASE
599. X Terminal NCD MCX-L
600. X Terminal NCD MCX

</TABLE>

-14-

<PAGE> 41

ASSET NAME MANUFACTURER MODEL
<S> <C> <C> <C>

601. X Terminal NCD MCX
602. X Terminal NCD MCX-L
603. X Terminal NCD MCX
604. X Terminal NCD MCX-L

</TABLE>

-15-

<PAGE> 42

Exhibit A-2

3DO LEASED PHYSICAL ASSETS

ASSET DESCRIPTION MFG. MODEL ACQUISITION COST
------ --------------------- ---------- ------------------------------------------
<S> <C> <C> <C> <C>
1. CD-ROM Drive Apple CD300 $207
2. CD-ROM Drive NEC CDR-74 $239
3. Computer Apple 7100/80 $2,400
4. Computer Apple 7600/120 $2,500
5. Computer Apple 8100/80 $2,390
6. Computer Apple 9500/132 $3,100
7. Computer Apple Duo 230 $450
8. Computer Apple Duo 280 $600
9. Computer Apple Mac Quadra 610 $646
10. Computer Apple Mac Quadra 650 $2,200
11. Computer Apple Mac Quadra 660AV $2,300
12. Computer Apple Mac Quadra 800 $2,825
13. Computer Apple Mac Quadra 800 $2,825
14. Computer Apple Mac Quadra 800 $2,825
15. Computer Apple Mac Quadra 840 AV $2,900
16. Computer Apple Mac Quadra 950 $2,900
17. Computer Apple Power PC 9500/132 $3,100
18. Computer Apple Powerbook 145 $300
19. Computer Apple PowerMac 6100/60 $637
20. Computer Apple PowerMac 6100/60 $637
21. Computer Apple PowerMac 6100/80 $637
22. Computer Apple PowerMac 7100/66 $2,400
23. Computer Apple PowerMac 7100/66 $2,400
24. Computer Apple PowerMac 7100/80 $2,400
25. Computer Apple PowerMac 8100/110 $2,915
26. Computer Apple PowerMac 8100/110 $2,915
27. Computer Apple PowerMac 8100/110 $2,915
28. Computer Apple PowerMac 8100/80 $2,390
29. Computer Apple PowerMac 8100/80 $2,915
30. Computer Apple PowerPC 6100/66 $1,372
31. Computer Apple PowerPC 7100/66 $2,400
32. Computer Apple PowerPC 7100/66 $2,400
33. Computer Apple PowerPC $2,400
7100/66AV
34. Computer Apple PowerPC $2,400
7100/66AV
35. Computer Apple PPC 7100/66 $2,231
36. Computer Apple PPC 7100/66 $2,400
37. Computer Apple PPC 7100/66 $2,400
38. Computer Apple PPC 7100/66 $2,400
39. Computer Apple PPC 7100/80 AV $2,400
40. Computer Apple PPC 8100/110 $2,709
41. Computer Apple PPC 8100/80 $2,709
42. Computer Apple PPC 8100/80 $2,709
43. Computer Apple PPC 8100/80 $2,709
44. Computer Apple Quadra 610 $646

</TABLE>

-16-

<PAGE> 43

ASSET DESCRIPTION MFG. MODEL ACQUISITION COST
----- ---------------- -------------------------------------------------------
<S> <C> <C> <C> <C>
45. Computer Apple Quadra 610 $646
46. Computer Apple Quadra 610 $646
47. Computer Apple Quadra 610 $717
48. Computer Apple Quadra 610 $717
49. Computer Apple Quadra 610 $717
50. Computer Apple Quadra 610 $717
51. Computer Apple Quadra 650 $1,036
52. Computer Apple Quadra 650 $2,231
53. Computer Apple Quadra 650 $2,231
54. Computer Apple Quadra 660AV $2,300
55. Computer Apple Quadra 660AV $2,300
56. Computer Apple Quadra 660AV $2,300
57. Computer Apple Quadra 700 $2,100
58. Computer Apple Quadra 700 $2,100
59. Computer Apple Quadra 700 $2,100
60. Computer Apple Quadra 700 $2,100
61. Computer Apple Quadra 700 $2,100
62. Computer Apple Quadra 700 $2,100
63. Computer Apple Quadra 700 $2,100
64. Computer Apple Quadra 800 $2,260
65. Computer Apple Quadra 800 $2,825
66. Computer Apple Quadra 800 $2,825
67. Computer Apple Quadra 800 $2,825
78. Computer Apple Quadra 800 $2,825
79. Computer Apple Quadra 800 $2,825
70. Computer Apple Quadra 800 $2,825
71. Computer Apple Quadra 800 $2,825
72. Computer Apple Quadra 840AV $2,448
73. Computer Apple Quadra 840AV $3,108
74. Computer Apple Quadra 950 $1,543
75. Computer Apple Quadra 950 $1,543
76. Computer Apple Quadra 950 $2,580
77. Computer Apple Quadra 950 $2,580
78. Computer Apple Quadra 950 $2,580
79. Computer Apple Quadra 950 $2,580
80. Computer Compaq Prolinea 4/33 $772
81. Computer MSN 486DX/66 PCI $956
82. Computer MSN Pentium 60 PC $1,200
Clone
83. Computer MSN $772
84. Computer SGI Indy $6,461
85. Computer Laptop Apple Duo 230 $861
86. Computer Laptop Apple Duo 230 $1,695
87. Docking Station Apple Duo Dock $309
88. Docking Station Apple Duo Dock $309
89. Hard Drive Falcon $1,200
90. Hard Drive MICRONET EXT HD $201
91. Hard Drive Micronet EXT HD $201
92. Hard Drive Micronet $697
93. Hard Drive POWERUSER EXT HD $343
94. Hard Drive PowerUser PowerUser Pro $343

</TABLE>

-17-

<PAGE> 44

ASSET DESCRIPTION MFG. MODEL ACQUISITION COST
- ------ ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
95. Hard Drive PowerUser PowerUser Pro $343
96. Hard Drive PowerUser $343
97. Hard Drive PowerUser $343
98. Monitor 13" Apple 13" Color Monitor $207
99. Monitor 13" Panasonic CT1383-Y $175
100. Monitor 13" Sony PVM1344Q $471
101. Monitor 15" Radius 15RAM8-C $300
102. Monitor 16" Apple 16" Color $527
103. Monitor 16" Apple 16" Color $527
104. Monitor 16" Apple 16" Color Display $527
105. Monitor 16" Apple 16" Color Display $527
106. Monitor 16" Apple 16" Color Display $527
107. Monitor 16" Apple 16" Color Display $527
108. Monitor 16" Apple 16" Color Display $527
109. Monitor 16" Apple 16" Color Display $527
110. Monitor 16" Apple 16" Color Display $527
111. Monitor 16" Apple 16" Color Display $527
112. Monitor 16" Apple 16" Color Display $527
113. Monitor 16" Apple 16" Color Display $527
114. Monitor 16" Apple 16" Color Display $527
115. Monitor 16" Apple 16" Color Display $527
116. Monitor 16" Apple 16" Color Display $527
117. Monitor 16" Apple 16" Color Display $527
118. Monitor 16" Apple 16" Color Display $527
119. Monitor 16" Apple 16" Color Display $527
120. Monitor 16" Apple 16" Color Display $527
121. Monitor 16" Apple 16" Color Monitor $527
122. Monitor 17" Apple 16" Color Display $550
123. Monitor 17" Apple 17" Color Display $550
124. Monitor 17" Apple 17" Color Monitor $226
125. Monitor 17" Apple 17" Color Monitor $550
126. Monitor 17" Apple 17" Color Monitor $550
127. Monitor 17" Apple 17" Color Monitor $550
128. Monitor 17" Apple 17" Color Monitor $550
129. Monitor 17" Apple 17" Color Monitor $550
130. Monitor 17" Apple 17" Color Monitor $550
131. Monitor 17" Apple 17" Color Monitor $550
132. Monitor 17" Apple 17" Color Monitor $550
133. Monitor 17" Apple 17" Color Monitor $550
134. Monitor 17" Apple 17" Color Monitor $550
135. Monitor 17" Apple 17" Color Monitor $550
136. Monitor 17" Apple 17" Color Monitor $550
137. Monitor 17" Apple 17" Color Monitor $550
138. Monitor 17" Apple 17" Color Monitor $550
139. Monitor 17" Apple 17" Multiscan $550
140. Monitor 17" Apple AppleVision 1710 $600
141. Monitor 17" Apple AppleVision $600
1710AV
142. Monitor 17" Apple Multiscan 17 $550
143. Monitor 17" Radius 17" Color Monitor $351
144. Monitor 17" Sony 17" Color Monitor $359

</TABLE>

-18-

<PAGE> 45

ASSET DESCRIPTION MFG. MODEL ACQUISITION COST
- ------ -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
145. Monitor 17" Sony 17" Color Monitor $359
146. Monitor 17" Sony 17SFII $429
147. Monitor 17" Sun $359
148. Monitor 20" Radius TPD20GS $316
149. Monitor 20" SGI 20" Color Monitor $933
150. Printer HP Laserjet 4Si $1,867
151. Printer HP Laserjet 4Si $2,448
152. Server Apple WORKGROUP $3,346
SERVER
153. Sparcstation Sun Sparc 20 $12,877
154. Sparcstation Sun Sparc 20 $13,453
155. Sparcstation Sun Sparc 20 $13,453
156. Sparcstation Sun Sparc 20 $13,453
157. Sparcstation Sun Sparc 20 $13,889
158. Sparcstation Sun Sparc 20 $14,699
159. Sparcstation Sun Sparc 20 $14,699
160. Sparcstation Sun Sparc 20 $14,817
161. Sparcstation Sun Sparc 20 $16,262
162. Sparcstation Sun Sparc 20 $16, 262
163. Sparcstation Sun Sparc 5 $5,231
164. Sparcstation Sun Sparcstation 1+ $8,475
165. Sparcstation Sun SPARCSTATION $13,889
20
166. Television 13" Panasonic CT1383-Y $175
167. Television 13" Panasonic $223
168. Video Monitor Sony PVM-1354Q $398
169. Video Monitor 19" Sony PVM-1954Q $343
170. Workstation SGI Indy 150 Mhz $8,475
171. X Terminal NCD MCX $503
172. X Terminal NCD MCX $503
173. X Terminal NCD MCX-L $558
174. X Terminal NCD X TERMINAL $503
BASE
175. X Terminal NCD X TERMINAL $503
BASE
176. X Terminal NCD X TERMINAL $503
BASE
177. X Terminal NCD X TERMINAL $503
BASE
178. X Terminal NCD X TERMINAL $503
BASE
179. X Terminal NCD X TERMINAL $659
BASE
180. X Terminal NCD X TERMINAL $772
BASE
181. X Terminal NCD $503
182. Video Monitor 13" Panasonic 13" TV Monitor $175
183. Video Monitor 13" Panasonic CT-1384VY $175
184. Video Monitor 13" Panasonic CT-1383Y $175
185. Video Monitor 13" Panasonic 13" TV MONITOR $175
186. Video Monitor 13" Panasonic 13" TV MONITOR $175

</TABLE>

-19-
<PAGE> 46

ASSET DESCRIPTION MFG. MODEL ACQUISITION COST
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
187. Video Monitor 13" Panasonic BTS1370Y $175
188. Video Monitor 13" Panasonic CT-1383Y $175
189. Video Monitor 13" Panasonic 13" TV MONITOR $175
190. Video Monitor 13" Panasonic CT-1383VY $175
191. Video Monitor 13" Panasonic 13" TV MONITOR $175
192. Video Monitor 13" Panasonic CT-1383Y $175
193. Video Monitor 13" Panasonic 13" TV MONITOR $175
194. Video Monitor 13" Panasonic $175
195. Video Monitor 13" Panasonic CT-1383VY $175
196. Video Monitor 13" Panasonic CT-1383VY $175
197. Video Monitor 13" Panasonic CT-1383Y $175
198. Video Monitor 13" Panasonic CT-1383Y $175
199. Video Monitor 13" Panasonic $175
200. Video Monitor 13" Sony 13" TV MONITOR $343
201. Video Monitor 13" Sony 13" TV MONITOR $343
202. Video Monitor 13" Sony PVM-1351Q $343
203. Video Monitor 13" Sony $343
204. Video Monitor 13" Sony 13" TV MONITOR $343
205. Video Monitor 13" Sony DVM-1354Q $343
206. Video Monitor 13" Sony PVM-1354Q $343
207. Video Monitor 13" Sony $343

</TABLE>

-20-

<PAGE> 47

Exhibit A-3

MPEGXpress(TM) Inventory

1.0 All physical inventory related to 3DO's MPEGXpress(TM) product line
owned by 3DO as of the close date.

-21-

<PAGE> 48

Exhibit A-4

3DO INTANGIBLE ASSETS

1. Definitions

1.1 As used herein, the term "M2 TECHNOLOGY" refers to 3DO's
technical data, methods, processes, formulae, inventions, discoveries, software,
technology, and other technical information regarding the interactive,
multimedia hardware system (featuring a *** bus architecture and operating in
conjunction with one or more PowerPC 602 microprocessors) and related software
API which is the subject of that certain Technology Licensing Agreement which
3DO and Matsushita Electric Industrial Co. Ltd. ("MEI") executed on December 7,
1995 (the "M2 License") and amendments to that agreement dated April 24, 1996
and March 2, 1997.

It should be noted that the M2 Technology which 3DO licensed to MEI
pursuant to the M2 License is expressly limited to: (i) such technology as 3DO
had developed as of December 7, 1995, that is necessary for the development,
manufacture, sale or use of any of the M2 system designs that 3DO is required to
provide MEI under the M2 License and/or the development, manufacture, sale or
use of any M2-compatible software products, (ii) such additional deliverable
items and related technology as 3DO is required to develop under the M2 License,
and (iii) such Improvements and Adaptations (as such terms are defined below) as
3DO, at its discretion, elects to develop in furtherance of the M2 License.

1.2 As used herein, the term "ADAPTATION" refers to any modification
of the M2 Technology developed by 3DO that is required in order for any class or
type of M2 Hardware Product to be used in another class or type of M2 Hardware
Product (e.g., modification of a consumer M2 *** for development of an M2 car
navigation product, etc.).

1.3 As used herein, the term "IMPROVEMENT" refers to any
modification of the M2 Technology developed by 3DO that increases the design
efficiency, and/or manufacturing efficiency, while preserving compatibility and
reducing the cost of any M2 Hardware Product.

1.4 As used herein, the term "M2 HARDWARE PRODUCT" refers to any
hardware product, device or system (whether or not designed for any consumer
and/or commercial application) that satisfies all of the following criteria: (1)
is developed and distributed by or for MEI or any authorized hardware
sublicensee of MEI; (ii) incorporates M2 Technology or any Improvements or
Adaptations thereof (or any portion of any of the foregoing) or is developed
with the use of the M2 Technology or any Improvements or Adaptations thereof (or
any portion of any of the foregoing); and (iii) if capable of executing or
otherwise operating with interactive applications software products (except to
the extent designed to comply with industry recognized standards that are not
video game standards, such as VCD 2.0), only executes or otherwise operates M2
Software Products, and cannot execute or otherwise operate with any other
proprietary interactive applications software.

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-22-

<PAGE> 49

1.5 As used herein, the term "M2 SOFTWARE PRODUCT" refers to any
software product (whether or not designed for any consumer and/or commercial
application) that satisfies all of the following criteria: (i) is developed and
distributed by or for MEI or any authorized software sublicensee of MEI; (ii) is
compatible with any M2 Hardware Product; and (iii) incorporates M2 Technology or
any improvements or Adaptations thereof (or any portion of any of the foregoing)
or is developed with use of the M2 Technology or any Improvements or Adaptations
thereof (or any portion of any of the foregoing).

1.6 As used herein, the term "M2 DERIVATIVE TECHNOLOGY" refers to
technical data, methods, processes, formulae, inventions, discoveries, and other
technology and technical information developed by 3DO after December 7, 1995 and
derived from the M2 Technology (but not constituting an Improvement or
Adaptation).

1.7 As used herein, the term "OTHER TECHNOLOGY" refers to technical
data, methods, processes, formulae, inventions, discoveries, and other
technology and technical information developed by 3DO, but not constituting M2
Technology, an Improvement or Adaptation, and/or M2 Derivative Technology.

2. Assets to be Contributed and Rights to be Sublicensed to Samsung

2.1 Intangible Assets to be Assigned (e.g., patents, copyrights,
mask work rights, and trade secret rights)

(a) M2 Technology (as listed in Attachment A). Samsung's and
its Affiliates' right to use and exploit the M2 Technology shall be limited by
and subject to the sublicensed rights set forth below.

(b) Improvements and Adaptations of the M2 Technology developed
by 3DO (as listed in Attachment B). Samsung's and its Affiliates' right to use
and exploit any such Improvements and/or Adaptations shall be limited by and
subject to the sublicensed rights set forth below.

(c) M2 Derivative Technology developed by 3DO (as listed in
Attachment C). There shall be no restriction upon Samsung's and its Affiliates'
right to use and exploit such M2 Derivative Technology, except as set forth
below.

(d) Other Technology developed or owned by 3DO that was part of
the Systems business (as listed in Attachment D). There shall be no restriction
upon Samsung's and its Affiliates' right to use and exploit such Other
Technology.

-23-

<PAGE> 50

2.2 Rights to be Sublicensed to Samsung

(a) 3DO shall grant Samsung an exclusive worldwide,
royalty-free, perpetual license to: (1) use, modify, create derivative works,
and otherwise exploit the M2 Technology (and Improvements and Adaptations
thereof) in connection with the development, manufacture, sale and/or
distribution of any computing devices (as distinguished from video game
systems), and in connection with the development, manufacture, sale and/or
distribution of applications software products developed using an API other than
the M2 API, which software products are not designed or intended for use with
any video game system; and (ii) practice and otherwise exploit 3DO's
intellectual property rights relating to the M2 Technology (or any portion
thereof) in connection with the development, manufacture, sale and/or
distribution of any such computing devices, and in connection with the
development, manufacture, sale and/or distribution of applications software
products developed using an API other than the M2 API, which software products
are not designed or intended for use with any video game system. Such sublicense
will permit the development and distribution of, among other things,
semiconductor devices and board level products.

(b) 3DO shall grant Samsung an exclusive, worldwide,
royalty-free, perpetual license to: (i) use, modify, create derivative works,
and otherwise exploit the M2 Technology (and Improvements and Adaptations
thereof) in connection with the development, manufacture, sale, lease, license
and/or distribution of any development and authoring systems (including
development and authoring software, tools and utilities) that are designed and
intended for the development of hardware products that are not M2 Hardware
Products and/or the development of software products that are not M2 Software
Products (collectively, "Non-M2 Authoring Systems"); and (ii) practice and
otherwise exploit 3DO's intellectual property rights relating to the M2
Technology (or any portion thereof) in connection with the development,
manufacture, sale, lease, license and/or distribution of any Non-M2 Authoring
Systems. Such sublicense will permit the development and distribution of
semiconductor devices, system software and authoring tools and utilities.

(c) 3DO shall grant Samsung an exclusive, royalty-free,
perpetual license to: (1) use, modify, create derivative works, and otherwise
exploit the M2 Technology (and Improvements and Adaptations thereof) in
connection with the development and manufacture of arcade and location-based
entertainment devices (including integrated utility firmware) that are only
distributed outside of Japan, and in connection with such development,
manufacture and distribution of applications software products that are intended
for use with such arcade and location-based entertainment devices and that are
developed using an API other than the M2 API; and (ii) practice and otherwise
exploit 3DO's intellectual property rights relating to the M2 Technology (or any
portion thereof) in connection with the development and manufacture of such
arcade and location-based entertainment devices that are on1y distributed
outside of Japan, and in connection with such development, manufacture and
distribution of applications software products that are intended for use with
such arcade and location-based entertainment devices and that are developed
using an API other than the M2 API.

-24-

<PAGE> 51

2.3 Restrictions Regarding M2 Technology and M2 Derivative
Technology Developed By 3DO.

(a) Samsung and its Affiliates shall not have the right to
manufacture (or authorize any third party to manufacture) any of the specific
ASICs incorporated in the M2 Specifications (i.e., ***, ***, ***, ***, Bridgit,
Babette, DENC, Splitter Jr., Venturi, VisaLite, Visa, and/or Splitter).

(b) Samsung and its Affiliates shall not have the right to
develop and distribute (or authorize any third party to develop and distribute)
any video game system incorporating the M2 Technology (or any Improvement or
Adaptation thereof), or any of the M2 chipsets or other components or subsystems
for incorporation into a video game platform. Such restriction shall not apply
with respect to any M2 Derivative Technology that has been previously disclosed
by 3DO to MEI pursuant to MEI's Right of First Negotiation under the M2 License.
***.

(c) Samsung and its Affiliates shall not have the right to
develop and distribute (or authorize any third party to develop and distribute)
any authoring systems designed or intended for the development of M2 Hardware
and/or M2 Software Products.

(d) Samsung and its Affiliates shall not have the right to
develop and distribute (or authorize any third party to develop and distribute)
any M2-compatible peripheral device.

(e) Samsung and its Affiliates shall not have the right to
develop and distribute (or authorize any third party to develop and distribute)
any M2-compatible software products.

2.4 M2 Derivative Technology to be developed by Samsung or its
Affiliates in the future (the "Samsung Derivative Technology"). There shall be
no restrictions on the Samsung's and its Affiliates' right to use and exploit
(and to authorize third parties to use and exploit) any Samsung Derivative
Technology, subject only to the following:

(a) Samsung and its Affiliates must disclose to 3DO, and 3DO
will disclose to MEI, any such Samsung Derivative Technology that is designed
for incorporation into an advanced, interactive video game platform, and, at
MEI's request, negotiate with MEI for a license of such Samsung Derivative
Technology in accordance with MEI's Right of First Negotiation under the M2
License.

(b) Samsung and its Affiliates shall not have the right to use
or exploit the Samsung Derivative Technology, directly or indirectly, in
connection with the development and distribution of any video game system, or
any semiconductor device or other component or subsystem designed for
incorporation into an advanced, interactive video game platform, without first
fulfilling, its disclosure and negotiation obligations described in Section
2.4(a), above.

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-25-

<PAGE> 52

2.5 Non-Derivative Technology to be developed by Samsung or its
Affiliates in the future (the "Samsung Technology"). There shall be no
restrictions on Samsung's and its Affiliates' right to use and exploit (and to
authorize third parties to use and exploit) any Samsung Technology.

-26-

<PAGE> 53

Exhibit A-4
Attachment A

M2 TECHNOLOGY

1.0 ASICs

1.1 ***
1.2 ***
1.3 *** (***)
1.4 Bridgit (including Nubus Interface)
1.5 Babette
1.6 DENC
1.7 Splitter Jr.
1.8 Venturi
1.9 VisaLite
1.10 Visa
1.11 Splitter

2.0 Systems

2.1 *** (NTSC/PAL)
2.2 *** (NTSC/PAL)
2.3 *** (NTSC/PAL)
2.4 Mac NuBus Development System (NTSC/PAL)
2.5 ***
2.6 ***
2.7 *** (NTSC/PAL)
2.8 *** (NTSC/PAL)
2.9 ***

3.0 Peripherals

3.1 Standard controller
3.2 M2 extended controller
3.3 Mouse
3.4 Splitter
3.5 ***
3.6 ***

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-27-

<PAGE> 54

3.7 ***

4.0 System ROM Technology

Boot code
***
***
***
***
***
***
***
Storage manager application
No-Disc application
System menu application

5.0 System Software

*** for removable media
Kernel including *** architecture User-level exception
handing *** I/O System with support for *** *** Shell
***
*** as needed for supported devices
MemDebug
LumberJack
Drivers
***
***
Timer driver
***
***
Microslot driver StorageCard driver Proxy
driver HostFS driver HostConsole driver
HostCD driver ***

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
-28-

<PAGE> 55

***
Serial port driver
Folios
Audio Folio
Beep Folio
FSUtilities Folio
Icon Folio
IFF Folio
Script Folio
International folio
JString folio
Compression folio
Requestor folio
Font folio
Graphics
Display Manager

6.0 Development System Tools

Link3DO/Dump3DO
Comm3DO for Mac to dev card communications
System Interface header files

Libraries
Graphics
Command List Toolkit
Graphic framework library
(including BSDF) 3D pipeline
library 2D graphics library
Mercury library
Data Streaming Data Streaming library
*** Data subscriber *** *** ***
Audio subscriber
Music library
I/O library
Font library
***

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-29-

<PAGE> 56

CreateM2Make
***
User Startup 3DO
Graphics tools
Converters
***
***
***
***
***
Texture and UTF tools
Texture Library
Data Streaming tools
Audio tools
SquashSound
AIFF sample set
PatchMaker
Video Tools
***
Font Builder
KFontViewer
***

7.0 Build Tools and Utilities

ROM build tools
OS build tools
CD relocation tool: Laytool
***
Online help tool(s)

8.0 Engineering tools

All design materials related to the following DSP software:
***

9.0 Hardware Diagnostics

***
***
***
***

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-30-

<PAGE> 57

***
ControlPad
***
***
Serial Interface
***
***

10.0 Developer Documentation (as supplied by 3DO)

11.0 Supplemental Technology

11.1 EZ Flix decode library
11.2 EZ Flix encoder
11.3 EZ Flix Subscriber
11.4 Post Pro
11.5 ***
11.6 ***

12.0 Others

12.1 ***

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-31-

<PAGE> 58

Exhibit A-4
Attachment B

IMPROVEMENTS AND ADAPTATIONS

1.0 ***

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-32-

<PAGE> 59

Exhibit A-4
Attachment C

M2 DERIVATIVE TECHNOLOGY

1.0 ***

Hardware Reference Design
System Software
***

2.0 ***

***
***
***
***
***
***
Device Drivers
***

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-33-

<PAGE> 60

Exhibit A-4
Attachment D

OTHER TECHNOLOGY

1.0 ***

2.0 ***

3.0 Digital Video Products

MPEGXpress 1000/1250 (MPEGI Mac)
MPEGXpress 2500 (MPEG2 PC/Mac)
ACXpress (AC-3 encode PC)
SIC chip

4.0 ***

***
***
Related software

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-34-

<PAGE> 61

Exhibit B

3DO EMPLOYEES

1) ***
2) ***
3) ***
4) ***
5) ***
6) ***
7) ***
8) ***
9) ***
10) ***
11) ***
12) ***
13) ***
14) ***
15) ***
16) ***
17) ***
18) ***
19) ***
20) ***
21) ***
22) ***
23) ***
24) ***
25) ***
26) ***
27) ***
28) ***
29) ***
30) ***
31) ***
32) ***
33) ***
34) ***
35) ***

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-35-

<PAGE> 62

36) ***
37) ***
38) ***
39) ***
40) ***
41) ***
42) ***
43) ***
44) ***
45) ***
46) ***
47) ***
48) ***
49) ***
50) ***
51) ***
52) ***
53) ***
54) ***
55) ***
56) ***
57) ***
58) ***
59) ***
60) ***
61) ***
62) ***

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-36-

<PAGE> 63

Exhibit C

ALLOCATION OF PURCHASE PRICE

To be mutually agreed upon prior to close.

-37-

<PAGE> 64

Exhibit D

DISCLOSURE SCHEDULE

[Please See Attached Materials]

-38-

<PAGE> 65

Exhibit D-1

AGREEMENTS TO BE ASSIGNED BY 3DO

PARTIES: MojoSoft, Ltd. and The 3DO Company
AGREEMENT TYPE: Software Development Agreement
DATE: October 19, 1995
DESCRIPTION: Development of software integrating
3DO's MPEG1 technology with Apple
Computer's "QuickTime" Codec.

-39-

<PAGE> 66

Exhibit D-2

AGREEMENTS REQUIRING THIRD-PARTY APPROVAL
PRIOR TO ASSIGNMENT BY 3DO

ORIGINAL LICENSOR: ***
AGREEMENT TYPE: ***
DATE: ***
DESCRIPTION: ***

ORIGINAL LICENSOR: DOLBY LABORATORIES LICENSING CORPORATION
AGREEMENT TYPE: AC-3 Decoder Implementation Agreement
DATE: On or about August 7, 1995
DESCRIPTION: Describes the parties' collaborative development of an
implementation of Dolby AC-3 technology for use by
companies licensed by Dolby to produce hardware products
incorporating Dolby AC-3.
Non-exclusive, non-transferable license to use Dolby's
know-how relating to its AC-3 technology and copyrighted
works implementing its AC-3 encoder and decoder functions
to develop, make, use and sell integrated circuit
hardware and/or software implementation thereof.

Assignment requires written consent.

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-40-

<PAGE> 67

ORIGINAL LICENSOR: DOLBY LABORATORIES LICENSING CORPORATION
AGREEMENT TYPE: Digital Audio System License Agreement - Professional
Encoders.
DATE: April 12, 1996
DESCRIPTION: Non-exclusive, non-transferable license to use Dolby's
know-how relating to its AC-3 digital audio system
and copyrighted works implementing its AC-3 encoder and
decoder functions in connection with the design,
development, manufacture and distribution of software or
hardware product(s) providing AC-3 encoding solutions.

Assignment requires prior written consent.

ORIGINAL LICENSOR: ***
AGREEMENT TYPE: ***
DATE: ***
DESCRIPTION: ***

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-41-

<PAGE> 68

Exhibit D-3

LITIGATION SUMMARY

OTHER PARTY: CIRRUS LOGIC, INC.

Description of Joint Development and [Non-Exclusive] License
Agreement: Agreement between 3DO and Cirrus regarding the parties' joint
development of a semiconductor device that integrates: (1)
Cirrus' core VGA Logic (i.e., controller, bus interface,
buffer, digital to analog converter, 2D acceleration logic,
video functions and other related components) and (2) 3DO's
"3D Engine" technology (i.e., memory controller, bus interface,
3D setup engine and 3D rendering engine and related components
of 3DO's BDA semiconductor device).

Description 3DO served Cirrus with a notice of default based on
of Claims: Cirrus' failure to timely pay sums due to 3DO under the
referenced agreement. Cirrus elected not to attempt to serve
its breach and, instead, filed a complaint to rescind such
agreement. 3DO has responded and filed a cross-complaint
alleging breach of contract by Cirrus and seeking payment
of all sums owed by Cirrus under the agreement.

Cirrus, in its initial complaint, alleged that the 3DEngine
infringes one or more unidentified third-party patents.
Subsequently, in its "First Request For Admissions", Cirrus
requested 3DO to acknowledge that the 3DEngine infringes
U.S. Patent Nos. 4,727,365; 4,811,245; 4,974,176; and
5,367,615.

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-42-

<PAGE> 69

Exhibit D-4

PATENTS AND PATENT APPLICATIONS

REFERENCE NO.: 3040 CON (UNITED STATES)
METHOD FOR CONTROLLING A SPRYTE RENDERING PROCESSOR

Issue Date: January 21, 1997
Patent No.: 5,596,693
Current Status: Issued

REFERENCE NO.: 3040 (PCT)
METHOD FOR CONTROLLING A SPRYTE RENDERING PROCESSOR

Application Filed: November 2, 1992
PCT Application No.: PCT/US92/09350
Current Status: Pending - potentially applicable only with respect to
Brazil, Europe and Japan

REFERENCE NO.: 3050 (UNITED STATES)
RESOLUTION ENHANCEMENT FOR VIDEO DISPLAY USING MULTI-LINE INTERPOLATION

Issue Date: January 2, 1996
Patent No.: 5,481,275
Current Status: Issued

***

REFERENCE NO.: 4230 (UNITED STATES)
METHOD AND APPARATUS FOR PROCESSING IMAGE DATA

Patent Issued: November 5, 1996

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-43-

<PAGE> 70

Patent No.: 5,572,235
Current Status: Issued

REFERENCE NO.: 4255 (UNITED STATES)
DISPLAY LIST MANAGEMENT MECHANISM FOR REAL-TIME CONTROL OF BY-THE-LINE
MODIFIABLE VIDEO DISPLAY SYSTEM

Patent Issued: March 26, 1996
Patent No.: 5,502,462
Current Status: Issued

***

REFERENCE NO.: 4270 (PCT)
PLAYER BUS APPARATUS AND METHOD

Application Filed: November 2, 1992
PCT Application No.: PCT/US92/09384
Current Status: Pending - potentially applicable only with respect to
Japan

REFERENCE NO.: 4310 CIP (UNITED STATES)
METHOD AND APPARATUS FOR GAMMA CORRECTION BY MAPPING TRANSFORMING AND
DEMAPPING

Patent Issued: April 18, 1995
Patent No.: 5,408,267
Current Status: Issued

REFERENCE NO.: 4320 (UNITED STATES)
AMPLITUDE ADAPTIVE FILTER

Patent Issued: January 30, 1996
Patent No.: 5,488,576
Current Status: Issued

REFERENCE NO.: 4330 (UNITED STATES)

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-44-

<PAGE> 71

METHOD AND APPARATUS FOR DIGITAL MULTIPLICATION BASED ON SUMS AND DIFFERENCES OF
FINITE SETS OF POWERS OF TWO

Issue Date: March 28, 1995
Patent No.: 5,402,369
Current Status: Issued

REFERENCE NO.: 4340 (UNITED STATES)
MULTI-PHASE FILTER/DAC

Issue Date: May 28, 1996
Patent No.: 5,521,946
Current Status: Issued

***

REFERENCE NO.: 4370 (PCT)
REAL TIME DECOMPRESSION AND POST-DECOMPRESS MANIPULATION OF COMPRESSED
FULL-MOTION VIDEO CARTRIDGE

Application Filed: September 23, 1994
Serial No.: PCT/US95/11863
Current Status: Pending - potentially applicable only with respect to
Europe

REFERENCE NO.: 4380 (UNITED STATES)
METHOD AND APPARATUS FOR AUDIO DATA COMPRESSION AND DECOMPRESSION

Issue Date: April 1, 1997
Serial No.: __________________
Current Status: Issued

REFERENCE NO.: 4390 (UNITED STATES)
DECOMPRESSOR AND COMPRESSOR FOR SIMULTANEOUSLY DECOMPRESSING AND COMPRESSING
A PLURALITY OF PIXELS IN A PIXEL ARRAY IN A DIGITAL IMAGE DIFFERENTIAL PULSE
CODE MODULATION

Application Filed: November 14, 1994

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-45-

<PAGE> 72

Serial No.: 08/338,427
Current Status: Pending - allowed; issuance fee paid

***

REFERENCE NO.: 4410 (PCT)
METHOD AND APPARATUS FOR DETECTING AND MODIFYING DITHER/VERTICAL STRIPE
PATTERNS FOR A VIDEO SIGNAL

Application Filed: May 8, 1996
Serial No.: PCT/US96/06480
Current Status: Pending - designated "all countries" in initial PCT
application

***

REFERENCE NO.: 4510 (PCT)
CONFIGURABLE VIDEO DISPLAY SYSTEM HAVING LIST-BASED CONTROL MECHANISM FOR
BY-THE- LINE AND BY-THE-PIXEL MODIFICATION OF DISPLAYED FRAMES AND METHOD OF
OPERATING SAME

Application Filed: May 8, 1996
Serial No.: PCT/US96/06438
Current Status: Pending - designated "all countries" in initial PCT
application

***

REFERENCE NO.: 4520 (PCT)
METHOD OF CONTROLLING AN MPEG DECODER

Application Filed: May 8, 1996
Serial No.: PCT/US96/06510
Current Status: Pending - designated "all countries" in initial PCT
application

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-46-

<PAGE> 73

***

REFERENCE NO.: 4550 (PCT)
METHOD AND APPARATUS FOR MANAGING SNOOP REQUESTS USING SNOOP ADVISORY CELLS

Application Filed: May 8, 1996
Serial No.: PCT/US96/06480
Current Status: Pending - designated "all countries" in initial PCT
application

***

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

-47-

<PAGE> 1

EXHIBIT 11.01

THE 3DO COMPANY

COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
---------------------------------
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Net income (loss)........................................... $13,271 $(34,668) $(46,262)
======= ======== ========
Weighted average number of shares outstanding: Common stock
(1)(2).................................................... 27,662 25,456 22,697
Number of common stock equivalents as a result of stock
options outstanding....................................... 1,441 -- --
------- -------- --------
Total....................................................... 29,103
======= ======== ========
Net income (loss) per common share.......................... $ 0.46 $ (1.36) $ (2.04)
======= ======== ========
</TABLE>

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

(1) This schedule should be read in conjunction with Note A, "Summary of the
Company and Significant Accounting Policies. Net Income (Loss) Per Share" in
the Notes to Consolidated Financial Statements.

(2) The computation for net income (loss) per share for the years ended March
31, 1997, 1996 and 1995, includes 23,264 shares, 90,090 shares and 490,090
shares, respectively, of common stock to be issued under the stock incentive
program, described in Note J in the Notes to Consolidated Financial
Statements.

<PAGE> 1

EXHIBIT 21.01

THE 3DO COMPANY

SUBSIDIARIES OF THE REGISTRANT

<TABLE>
<CAPTION>
LEGAL NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
- ----------------------------------------------------------------------------------------------
<S> <C>
The 3DO Company California
Studio 3DO K.K. Japan
3DO Europe, Ltd. United Kingdom
</TABLE>

All subsidiaries of the Registrant are wholly owned and conduct business
under their legal names.

<PAGE> 1

EXHIBIT 23.01

THE 3DO COMPANY

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
The 3DO Company:

We consent to incorporation by reference in the registration statements
(Nos. 33-71620, 33-80872, 33-84250, 33-84248, 33-96560, 33-96562 and 333-20877)
on Form S-8 and the registration statement (No. 333-11119) on form S-3 of The
3DO Company of our report dated May 14, 1997 except as to Note Q, which is as of
June 23, 1997, relating to the consolidated balance sheets of The 3DO Company
and subsidiaries as of March 31, 1997 and 1996, and their related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended March 31, 1997, which report appears in the
March 31, 1997, annual report on Form 10-K of The 3DO Company.

San Jose, California
June 25, 1997

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 14,395
<SECURITIES> 19,222
<RECEIVABLES> 4,708
<ALLOWANCES> 4,279
<INVENTORY> 915
<CURRENT-ASSETS> 35,907
<PP&E> 27,268
<DEPRECIATION> 20,587
<TOTAL-ASSETS> 44,954
<CURRENT-LIABILITIES> 21,840
<BONDS> 0
0
0
<COMMON> 284
<OTHER-SE> (164)
<TOTAL-LIABILITY-AND-EQUITY> 44,954
<SALES> 92,350
<TOTAL-REVENUES> 92,350
<CGS> 7,989
<TOTAL-COSTS> 69,130
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 628
<INCOME-PRETAX> 17,346
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,075
<DISCONTINUED> 17,346
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,271
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46

</TABLE>