TAKE-TWO SOFTWARE DISTRIBUTION AGREEMENT
(NORTH AMERICA)
THIS DISTRIBUTION AGREEMENT (this "Agreement") is made as of May 27, 1998,
by and between TAKE-TWO INTERACTIVE SOFTWARE, INC., a Delaware corporation
("T2"), with offices at 575 Broadway, New York, New York 10012, and GATHERING OF
DEVELOPERS I, LTD. ("Gathering"), a Texas limited partnership, with offices at
2700 Fairmount, Dallas, Texas 75201.
W I T N E S S E T H
WHEREAS, Gathering owns or controls the rights in and to the Game Titles
(as defined below); and
WHEREAS, T2 is engaged in the business of distributing, selling and
exploiting Software Devices (as defined below) and desires to distribute, sell
and otherwise exploit Software Devices embodying the Game Titles;
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, each of the parties do
hereby agree as follows:
ARTICLE 1
DEFINITIONS
The following terms shall, unless the context requires otherwise, have the
following meanings [whether such words shall appear in lower case or with the
first letter of each word capitalized] (the foregoing shall apply to all other
defined terms used in this Agreement):
(a) The term "Basic Term" means the period commencing on the date of full
execution of this Agreement and ending four (4) years later.
(b) The term "Bug" means a repeatable phenomenon of unintended events or
actions during the running of a Software Device (as defined below) under normal
conditions that results in:
(i) the software being unable to perform repeatedly and without
interruption;
(ii) a material failure of the software to conform to the technical
specifications in Exhibit "A";
(iii) a material detriment to the functionality of the software;
(iv) a material detriment to the visual representation or sound of the
software; or
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(v) the destruction or corruption of data.
(c) The term "Deliver," "Delivered" or "Delivery" means the physical
transfer to T2 of Distributed Products for each fully completed Game Title (as
defined below) as provided in this Agreement.
(d) The term "Delivery Date" means, with respect to each Game Title the
date set forth opposite such Game Title in Section 1(i) and other dates as may
be agreed to by the parties.
(e) The term "Distributed Product(s)" means Software Devices embodying a
Game Title; which Game Title and Software Devices are produced by or on behalf
of Gathering for the Game Machines, the distribution rights to which are granted
to T2 pursuant to Section 2(a), below.
(f) The term "Documentation" means the technical documentation for each
Game Title in accordance with Exhibit "A" attached hereto.
(g) The term "Exploitation Period" with respect to each Game Title covered
by the terms hereof means the date commencing on the date hereof and ending the
later to occur of (i) the expiration of the Basic Term, or (ii) the date which
is three (3) years following the initial release of each such Game Title in the
Territory by T2.
(h) The term "Game Machine(s)" shall mean the personal computer platform
devices and personal computer operating systems on which units of the Game
Titles are played, including, but not limited to, those containing and using the
operating systems of Windows(TM) and Macintosh(TM). Game Machine(s) shall not
include any other media or platform utilized for interactive video games,
including, but not limited to, (i) game console platforms such as Nintendo
64(TM), Sony PlayStation(TM), or Sega Genesis(TM) ("Console Platforms"); (ii)
standalone, network or other arcade games; or (iii) any other inter-active media
utilized for similar purposes such as satellite, Internet or cable distribution.
(i) The term "Game Title" or "Game Titles" means, individually or
collectively, as the context requires, the following computer software products
developed by or on behalf of Gathering and currently referred to as:
<TABLE>
<CAPTION>
Title Delivery Date Developer
----- ------------- ---------
<S> <C> <C> <C>
(i) Railroad Tycoon 2 December 31, 1998 PopTop Software, Inc.
(ii) Flight December 31, 1998 Terminal Reality, Inc.
(iii) Max Payne June 30, 1999 Apogee Software/3D Realms
(iv) FAKK 2 September 30, 1999 Ritual Entertainment, Inc.
(v) Unreal Based Game X December 31, 1999 Epic Megagames, Inc.
(vi) Rat Patrol June 30, 2000 Terminal Reality, Inc.
</TABLE>
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<TABLE>
<S> <C> <C> <C>
(vii) Stunts September 30, 1999 Terminal Reality, Inc.
(viii) Nocturne December 31, 1999 Terminal Reality, Inc.
(ix) Jazz Jackrabbit December 31, 1998 Epic Megagames, Inc.
(x) Next unnamed To be determined. unknown
</TABLE>
(j) The term "Gross Invoice Price" means the price listed on T2's invoice
to its customers for sales of Distributed Product(s).
(k) The term "Manual" means a document which describes in English the
operation and functions of the computer software and contains instructions for
using the Distributed Products. It must be written in a style calculated to be
understandable to an English reading end-user with little or no computer
experience and must contain information sufficient to enable such an end-user to
use the Distributed Product
(l) With respect to each Game Title, the term "Net Distribution Receipts"
means all sums actually received by T2 from its customers on sales of
Distributed Products for such Game Title less (i) any and all excise taxes,
value added or comparable or similar taxes paid or payable by T2, (ii) freight
and similar third party handling charges paid or payable by T2, and (iii)
returns, discounts, allowances or credits (inclusive of co-op, discounts and
allowances) on account of the sale of the Distributed Products for such Game
Title. For purposes hereof, T2 shall be deemed to have actually received payment
on an invoice from one of T2's customers upon actual receipt of such payment.
(m) With respect to each Game Title, the term "Net Monies" means
Gathering's share of Net Distribution Receipts.
(n) With respect to each Game Title, the term "Net Remaining Monies" means
the amounts payable to Gathering following T2's recoupment from Net Monies of
any amounts attributable to such Game Title advanced to Gathering under Section
5(a).
(o) The term "T2" means and includes without limitation all of the
following: Take Two Interactive Software, Inc. or any company owned or
controlled by, or under common control with, Take Two Interactive Software, Inc.
or any subsidiary, including Alliance Inventory Management, Inc., ("AIM") or
parent company of Take Two Interactive Software, Inc. For purposes hereof,
"control" shall mean the ownership of more than 51% of the voting interests of a
company or the power, direct or indirect, to direct or cause the direction of
the management and policies of any company whether through the ownership of
voting securities, by contract or otherwise. Gathering acknowledges that AIM
will be performing T2's obligations hereunder.
(p) The term "sku" means stock keeping unit.
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(q) The term "Software Device" means any device, whether now known or
unknown, on or by which computer software and its associated visual images, with
or without sound, may be embodied or recorded for later operation, manipulation
or communication to users, including without limitation semiconductor devices,
compact discs (or other type of optical disc), ROM Cartridges, cassettes, or
magnetic discs (whether floppy or otherwise) of any size, tapes, cartridges,
boards, cassettes, or other prerecorded devices whatsoever existing now or later
developed by which a computer or video game can be perceived, reproduced or
otherwise communicated directly or with the aid of a machine or device and which
are designed and used for use with the Game Machines.
(r) The term "Territory" means the United States and Canada and their
respective territories, possessions and military installations (including PX
Stores and Military Exchanges) wherever located.
ARTICLE 2
RIGHTS GRANTED
Subject to the terms of this Agreement, Gathering hereby grants and T2
hereby accepts the following exclusive rights:
(a) Distribution Rights:
(i) Gathering hereby engages T2, and T2 hereby accepts such
engagement, to act as Gathering's sole and exclusive distributor of
Distributed Products throughout the Territory and for the Exploitation
Period of each Game Title to be distributed hereunder for use on the Game
Machines. During the Exploitation Period for each Game Title, T2 may
distribute such Distributed Products through any and all means of standard
retail channels distribution, but in no event shall T2 distribute the
Distributed Products through "bundling" or OEM sales, or to end-users by
mail, over the air, telephone, satellite, cable, by electronic or digital
delivery systems, whether now known or hereafter devised, or any other
means which Gathering reasonably deems or may deem not to be standard
retail channels in accordance with the then applicable industry standard.
With respect to the distribution of the Distributed Products in the
Territory via end-user on-line distribution ("On-line Distribution") and
multi-player gaming, T2's right to engage in such distribution shall be
non-exclusive and shall not prohibit Gathering from also engaging in such
distribution. With respect to each Game Title, subject to On-line
Distribution and the terms of this Agreement, Gathering will not for itself
or knowingly permit any third party to sell or distribute Distributed
Products through standard retail channels of distribution in the Territory
during the Exploitation Period for such Game Title. With respect to each
Game Title other than Jazz Jackrabbit II, Gathering shall not offer or
promote the sale or knowingly allow third parties to offer, market or
distribute any of the Distributed Products outside of the Territory prior
to the initial release of such Game Title in the Territory by T2. With
respect to each Game Title, Gathering shall not offer or promote the sale
of a fully accessible version of such Game Title, other than through
On-line Distribution, in the Territory for a period of ninety (90) days
after the initial date of release of such Game Title without the prior
consent of T2. For purposes of this Agreement, a "fully accessible version"
of such Game Title
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shall not include shareware of such Game Title in which the full version of
such Game Title is encrypted. With respect to On-line Distribution, T2
shall receive a Fee of ten percent (10%) of gross income paid to T2 less
costs of goods sold for each individual Distributed Product sold thereby by
T2.
(ii) T2 shall have the right to use, publish and permit others to use
and publish Gathering's name as well as any names of or trademarks
associated with or embodied in any Game Title or any reproduction or
simulation thereof and, subject to any contractual restrictions of which
Gathering has advised T2 (and which are set forth on Schedule 2(a)(ii) and
as may be updated from time to time by Gathering), the script, speech,
images, characters, characterizations, designs, graphics, artwork, and
other characteristics associated with each Game Title as well as the name
of each Game Title in connection with the sale, advertising, distribution
and exploitation thereof.
(iii) The right, for advertising, publicity and promotional purposes,
to perform the Distributed Products publicly and to permit the reasonable
public performance thereof.
(iv) The right to use all artwork, textual material and other
materials used for or by Gathering in connection with such Distributed
Products, including advertising, packaging and wrapping materials
(collectively, "Packaging and Promotional Materials") created by Gathering
in connection therewith.
(b) (i) Gathering, or the developer of the Game Title, as the case may be,
shall own the copyright and other rights to the Game Software, and any
packaging, advertising and promotional material produced by Gathering and
delivered to T2 for any Game Title. Subject to the prior written approval of
Gathering and in the event T2 is called upon or required to produce any
packaging, advertising or promotional material for a Game Title, or make any
additions to, or new renderings, modifications or embellishments of, artwork
delivered by Gathering hereunder, T2 agrees to assign, and hereby assigns to T2
the copyright and other rights thereto, and agrees to execute such further
documentation as T2 may request to evidence such assignments.
(ii) Except as set forth in Section 2(a), as between Gathering and T2,
Gathering, or the developer of the Game Title, as the case may be, retains all
copyright, patent, trade secret, trademark and trade name rights in and to the
Distributed Products, including all packaging, designs, logos, slogans,
advertising materials and promotional materials and in all other materials
relating to the Game Software (collectively, "Gathering's Property"), and T2
will not have or acquire any right, title or interest therein under any
circumstance whatsoever. T2 further acknowledges that its use of Gathering's
Property shall inure to the benefit and be on behalf of Gathering; and use of
Gathering's Property will not create any right, title or interest by or for T2
therein. T2 shall not, during the Term of this Agreement or thereafter, attack
Gathering's, or the developer's of the Game Title, as the case may be, ownership
of Gathering's Property or the validity thereof, or apply for any registration
or file any document or take any action which would affect Gathering's, or the
developer's of the Game Title, as the case may be, ownership of Gathering's
Property or knowingly aid or abet anyone else in doing so, or use or authorize
the use of any trademark, trade name or words, symbols or combination thereof or
other designation identical with
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or confusingly similar to the trademarks and/or trade names which are part of
Gathering's Property. T2 will not alter, remove, obscure, erase or deface any
proprietary rights notices contained on or incorporated in any SKU related to
Gathering's Property or the packaging of any SKU. related to Gathering's
Property In the event T2 is called upon or required to produce any packaging,
advertising and promotional material for a Game Title, T2 will (i) in the event
such obligation or request comes from a person other than Gathering, notify
Gathering in writing of such obligation; and (ii) include thereon such
proprietary rights notices as may be designated and approved by Gathering.
(iii) In the event T2 is called upon or required to produce any packaging,
advertising or promotional material for a Game Title, or make any additions to,
or new renderings, modifications or embellishments of, artwork delivered by
Gathering hereunder, Gathering shall have the right to approve such materials,
such approval not to be unreasonably withheld or delayed. If disapproval is not
received by T2 within twenty (20) business days after Gathering's receipt of the
item submitted for approval, then Gathering's approval of such matter shall be
deemed to have been given.
(iv) With respect to the Distributed Products, this Agreement only grants
to T2 a license to offer a license to such Distributed Products to T2's
customers and their Customers and does not transfer to T2 any right, title or
interest in or to any software therein, notwithstanding any "purchase" or "sale"
or similar language contained herein.
(c) With respect to the distribution of the Game Titles for Console
Platforms in North America, Europe, Israel, Australia and Africa, T2 shall
receive a right of first refusal to meet the material terms of distribution
deals offered by Gathering to third parties to distribute the Game Titles for
Console Platforms in the Territory. T2 shall have fifteen (15) days from receipt
of notice from Gathering setting forth the material terms upon which Gathering
anticipates offering third parties the right to distribute the Game Titles for
Console Platforms in the Territory to enter into an agreement with Gathering
which incorporates such material terms. In the event that T2 does not exercise
this right within fifteen (15) days, it will be deemed to have refused its right
of first refusal with respect to and only to such material terms.
ARTICLE 3
GATHERING'S OBLIGATIONS
(a) Gathering represents that it has designed or has had designed on its
behalf the computer software and Documentation for each of the Game Titles so
that they may be operated and perceived through the Game Machines. Gathering
will consider in good faith all changes requested by T2 before the product is
released.
(b) Gathering shall be solely responsible for the manufacture, advertising
and marketing of such Distributed Products, except as may be provided below.
Gathering will place such advertising in publications as it reasonably
determines, and may consult with T2 on a regular basis
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concerning such advertising plans. Gathering agrees to spend for the marketing
and advertising of Distributed Products a minimum of FIVE HUNDRED THOUSAND
DOLLARS ($500,000) for each Game Title distributed by T2 hereunder.
(c) Gathering shall manufacture or have manufactured the Distributed
Products pursuant to mutually agreeable specifications for packaging, design and
configuration. T2 shall, at its sole cost, ship or have shipped the Distributed
Products, F.O.B. at Gathering's storage facility or such other facility or
warehouse as Gathering may hereafter notify T2. T2 shall be responsible for
shipment and insurance of the Distributed Products to T2 and from T2 to
Gathering.
(d) Gathering and T2 shall, prior to the release of any Game Title, discuss
in good faith the projected sales for such title and based on Gathering's
projected sales for such title, Gathering shall thereafter deliver sufficient
quantities of such title to T2 to enable T2 to meet such sales projection.
Gathering agrees, at its expense, that it will use commercially reasonable
efforts to fill any orders for manufactured Distributed Products consistent with
such projected sale placed by T2. Notwithstanding the foregoing, or any other
provision to the contrary contained herein, T2 shall not be obligated to
maintain at its warehouse at any one time quantities of any title of a
particular Game Title in excess of that which is necessary to meet T2's
customers' orders for any consecutive four (4) month period.
(e) Gathering will place the machine, medium and other operating
requirements (such as minimum memory capacity) on each Distributed Product as
Gathering, at its reasonable determination, deems necessary. Gathering will
shrink-wrap all Distributed Products and will incorporate into the design of the
packaging all relevant bar code information.
(f) Gathering agrees to use its best efforts, consistent with prevailing
industry standards, to ensure that each Distributed Product in the different
configurations in which the Distributed Product is designated to run shall be
free of Bugs. Gathering agrees to conduct all testing using equipment designed
to operate in accordance with electrical and design standards as are normal in
the United States. T2 shall notify Gathering in writing if it discovers any Bugs
or defects in any Distributed Products. Gathering shall be responsible for all
costs associated with any recall or return on credit of Game Titles resulting
from Bugs in the Distributed Products.
(g) If applicable, Gathering agrees that all Distributed Product shall
be rated by the appropriate video game or software publishers rating committee
or board in such countries within the territory where video games or software
publisher ratings have been instituted by law, statute or regulation of such
country or where such a ratings have been accepted by a majority of the software
publishers within such country. The packaging embodying any Distributed Product
so rated shall have affixed to it the rating given by such applicable rating
board or agency.
(h) Title to all Distributed Products shall remain with Gathering while
in inventory at T2's warehouse facilities. Gathering shall have the right, on
not less than 72 hours prior notice to T2 to inspect its inventory at T2's
warehouse facilities during normal business hours. Upon shipment of any
Distributed Product by T2 to one of its customers, title to such Distributed
Product
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shall then be immediately transferred to and vest with T2 until delivery thereof
to a customer at which time title to such Distributed Product shall then be
transferred to and vest with such customer. In case any Distributed Product is
returned to T2 by one of T2's customers, title to such Distributed Product shall
vest with T2 upon such Distributed Product leaving such customer and shall
remain with T2 until such Distributed Product is restocked by T2 in its
inventory, at which time title to such Distributed Product shall return to
Gathering.
ARTICLE 4
T2'S OBLIGATIONS
T2 shall perform the following sales and distribution functions with
respect to Distributed Products:
(a) T2 shall use its best efforts, consistent with prevailing industry
standard, to sell and distribute the Distributed Products subject to the terms
of this Agreement. T2 shall sell the Distributed Products at wholesale price(s)
determined by Gathering in consultation with T2 prior to the scheduled release.
In addition, the sales policies (including discount rates and returns policies)
for Distributed Products shall be as mutually approved by Gathering, T2 and
Strategic Marketing Partners, Inc. ("SMP"), with such approval not to be
unreasonably withheld. Adjustments, discounts, credits, returns and settlements
afforded to trade customers shall be subject to Gathering's prior written
approval, with such approval not to be unreasonably withheld.
(b) Provide warehousing for Gathering's Distributed Products, fulfill
orders (i.e. provide "pick, pack and ship" services) and manage, process and
restock returns of Distributed Product, if any.
(c) Invoice and collect from customers for Distributed Products distributed
pursuant to this Agreement. T2 shall be solely responsible for extending credit
and assuming the risk of bad debts; provided that if Gathering requests in
writing that T2 extend credit (or additional credit) to a customer which T2
believes to be not worthy of such credit risk (or extended credit risk), then T2
shall so notify Gathering in writing and Gathering (and not T2) shall then be
solely responsible for any subsequent default in the payment of any obligation
by such customer and T2 shall have the right in such event, notwithstanding any
provision to the contrary contained herein, to deduct the amount of any unpaid
indebtedness resulting from such default in payment from Net Monies otherwise
payable hereunder.
(d) Provide Gathering with the monthly reports pursuant to Section 6(a)
regarding sales and inventory of Distributed Products including the information
as described in this Agreement and in Exhibit "C" attached to this Agreement and
incorporated herein by this reference. With respect to each Game Title,
notwithstanding anything to the contrary in this Section 4(d), all monthly
reports provided to Gathering by T2 shall be sufficient in recording all sales
and promotional distributions of units of Distributed Products, detailing with
reasonable specificity (i) the number of units of Distributed Products sold or
otherwise distributed; (ii) the Net Distribution Receipts, Net
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Monies, and Net Remaining Monies attributable thereto; and (iii) a complete
listing of all deduction and offsets from Net Remaining Monies, whether due to
recoupment of amounts attributable to such Game Title advanced to Gathering or
otherwise.
(e) Manage and implement co-op advertising programs and marketing displays
devised by Gathering in consultation with T2, and provide merchandising services
limited to placement and management of point-of-sale materials produced by
Gathering.
(f) Provide that the fire and theft insurance that T2 presently maintains
on its warehouse facilities shall, subject to the terms of such Policies, apply
to Distributed Products. In the event of a covered loss affecting any of the
Distributed Products, Gathering shall be entitled to share in any recovery under
such Policy as may be applicable to such Distributed Products lost or damaged,
provided that T2 shall be responsible for that portion of the deductible on such
policies as may be applicable to such Distributed Products lost or damaged and
for which coverage is sought, and further, T2 shall have no obligation to
Gathering beyond the stated provisions of its insurance policies. Gathering
shall be named as an additional insured under the foregoing policies which shall
provide for thirty day notice to Gathering prior to cancellation.
ARTICLE 5
CONSIDERATION
(a) Apportionment of Net Distribution Receipts: On sales of Distributed
Products in the Territory, Net Distribution Receipts derived from such sales
shall be apportioned as follows:
(i) First, T2 shall have the right, but not the obligation to retain,
as a reserve against charges, credits, or returns, such portion of Net
Distribution Receipts as shall be reasonable in T2's best business
judgment; provided, however, that (i) no such reserve shall exceed ten
percent (10%) of such accrued Net Distribution Receipts; and (ii) the
balance of each such reserve shall be distributed in accordance with
Section 5(a)(ii) and 5(a)(iii), not later than four (4) months after such
reserve is established. With respect to each Game Title and subject to
Section 5(a)(i)(ii), notwithstanding the foregoing, T2 shall be entitled to
an increase in returns reserve to a maximum of Fifteen Percent (15%) of the
Net Distribution Receipt during the last six (6) months of the Exploitation
Period for any Game Title, if T2 reasonably anticipates that the returns
reserve permitted by the preceding sentence will be insufficient to cover
returns of such Game Title during the subsequent months after the
termination of the Exploitation Period.
(iii) Second, with respect to each Game Title, except as set forth in
Section 5(b), T2 shall deduct from the Net Distribution Receipts
attributable to such Game Title after establishing the reserve, if any,
described in paragraph (i) and retain for its own account, a distribution
fee ("Fee") based on a percentage of the Gross Invoice Price from original
sales of units of the Distributed Products relating to such Game Title as
set forth below:
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Units of the Individual Distributed Products Percentage of Gross Invoice Price
-------------------------------------------- ---------------------------------
0 to 249,999 20%
250,000 to 399,999 15%
400,000 + 12%
T2 shall be responsible for paying from its own funds any and all fees,
royalties, revenues or other monies payable by Gathering to SMP up to a
maximum of three percent (3%) of gross invoice of each Game Title less an
allowance for returns and discounts that is actually paid for pursuant to
any representation agreement between Gathering and SMP with respect to such
Game Title (the "SMP Agreement"). T2 shall indemnify Gathering with respect
to any claims made against Gathering by or on behalf of SMP arising out of
the non-payment of such amounts to SMP, under the same terms and conditions
set forth in Article 8.
(iii) Third, with respect to each Game Title, up to Seventy Five
Percent (75%) of the balance of Net Distribution Proceeds remaining after
establishment of the reserve described in paragraph (i) above and payment
to T2 of its Fee shall be available as Net Monies out of which T2 may
recoup any unrecouped portion of any Guarantee payments attributable to the
Game Titles in accordance with Section 5(c).
(b) Notwithstanding the provisions of Section 5(a), on any Distributed
Products which are resold after being returned to T2 and restocked in T2's
warehouse, the Fee on such sale(s) shall be five percent (5%) of the Gross
Invoice Price from such sales.
(c) Guarantee::
(i) Subject to Section 5(c)(iv), below, T2 shall pay to Gathering
SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000) as a guarantee of
Net Monies hereunder ("Guarantee."). For Purposes of this Agreement, the
Guarantee shall be apportioned among the Game Titles on the basis of SEVEN
HUNDRED FIFTY THOUSAND DOLLARS ($750,000) per Game Title:
(ii) The Guarantee shall be paid by T2 to Gathering as follows:
(a) FIVE MILLION DOLLARS ($5,000,000) on or before May 27, 1998.
(b) ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS ($1,250,000)
paid to Gathering on the later to occur of (i) August 15,
1998, or (ii) upon delivery by Gathering to and accepted by
T2 of the Beta and Gold Master products of Jazz Jackrabbit
II, such acceptance not to be unreasonably withheld.
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(c) TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) paid to
Gathering upon the later to occur of (i) October 15, 1998,
or (ii) delivery by Gathering to and accepted by T2 of the
Beta product for Railroad Tycoon II, such acceptance not to
be unreasonably withheld.
(d) FIVE HUNDRED THOUSAND DOLLARS ($500,000) paid to Gathering
upon the later to occur of (i) October 15, 1998, or (ii)
delivery by Gathering to and accepted by T2 of the Gold
Master product for Railroad Tycoon II, such acceptance not
to be unreasonably withheld.
(e) FIVE HUNDRED THOUSAND DOLLARS ($500,000) paid to Gathering
upon the later to occur of (i) October 15, 1998 or (ii)
delivery by Gathering and acceptance by T2 of the Gold
Master product for Fly!, such acceptance not be unreasonably
withheld.
ARTICLE 6
ACCOUNTINGS
(a) With respect to each Game Title, statements as to the calculation of
Net Monies hereunder ("Statements") shall be sent by T2 to Gathering within
forty-five (45) days following the end of each monthly period together with
payment of Net Remaining Monies for such Game Title, if any, earned by Gathering
hereunder during such monthly period.
(b) Net Monies in respect of sales hereunder outside of the United States
shall be computed in the national currency in which T2 is paid and shall be
credited to Gathering's account hereunder at the same rate of exchange as T2 is
paid (or T2's account is credited), and shall be proportionately subject (based
on T2's Fee rate hereunder) to any taxes imposed on the remittance of the
receipts derived from the sale of Distributed Products from the country in which
the sale is made to the United States to the extent actually paid or incurred by
T2. In the event T2 shall not receive payment in United States dollars in the
United States (because the remittance of such monies to the United States is
prohibited or restricted by law or other regulations) in respect of any such
sales, Net Monies in respect thereof shall not be credited to Gathering's
account hereunder. T2 shall, however, if T2 is able to do so, accept such
payments in foreign currency and deposit such foreign currency in a foreign bank
or other depository, at Gathering's expense and in Gathering's name, such
portion thereof, if any, as shall equal the Net Monies which would have actually
been payable to Gathering hereunder in respect of such sales had such payments
been made to T2 in United States currency in the United States. Deposit as
aforesaid shall fulfill T2's obligations hereunder as to such sales.
(c) All Statements and all other accountings rendered by T2 hereunder shall
be conclusive, final, and binding on Gathering, shall constitute an account
stated, and shall not be
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subject to any question for any reason whatsoever unless specific written
objection, stating the basis thereof, is given by Gathering to T2 within two (2)
years after the date rendered. No action, suit, or proceeding of any nature in
respect of any Statement or other accounting rendered by T2 hereunder may be
maintained against T2 unless such action, suit, or proceeding is commenced
against T2 in a court of competent jurisdiction within three hundred sixty (360)
days after the date of T2's written notice delivered to Gathering rejecting
Gathering's objection.
(d) T2 shall maintain, at its executive offices, which are presently in New
York, New York, books of account concerning sales of the Distributed Products
hereunder. Gathering, or its representatives, may, at Gathering's sole expense,
examine T2's said books (no more often than twice a year) relating to the sale
of the Distributed Products hereunder, solely for the purpose of verifying the
accuracy thereof, only during T2's normal business hours and upon reasonable
prior written notice. Such books relating to any particular statement may be
examined as aforesaid only within two (2) years after the date rendered.
Gathering shall notify T2 in writing within ninety (90) days after completing
such examination if Gathering believes that T2's books are not accurate, and
supply T2 with a report including a description of any and all alleged
inaccuracies contained therein. Gathering, T2 and their respective
representatives shall keep all information obtained in such examination
confidential and to use such information solely for the purpose of this Section.
If any additional monies are shown to be payable by T2 to Gathering based upon
an examination and such amount shown due exceeds five percent (5%) of the Net
Monies previously paid by T2 in relation to the particular Statement(s) which
may be the subject of the examination, T2 shall reimburse the reasonable costs
of such examination and fees and expenses related thereto, as and when paid by
Gathering, plus interest at the lesser of (a) a rate of five percent over the
Prime Rate charged by NationsBank, N.A., plus three percent (3%), or the maximum
lawful rate on such unpaid amount to be computed from the first date such monies
were to have been accounted for.
(e) With respect to any claim by Gathering that additional monies are
payable by T2 to Gathering pursuant to this Agreement based upon an examination
by Gathering to T2's books and records, T2 shall not be deemed in breach of this
Agreement unless within forty-five (45) days after T2's receipt of Gathering's
written claim that additional monies are due and payable together with a copy of
the examination report prepared in connection with such examination, T2 shall
neither: (i) pay such additional monies so claimed by Gathering, nor (2) contest
such claim, in whole or in part, by written notice to Gathering specifying in
reasonable detail the grounds for contesting such claim. In the event T2 shall
so contest any such claim, T2 shall not be deemed in breach of this contract
unless such claim shall have been reduced to a judgment by a court of competent
jurisdiction or resolved by binding arbitration and T2 shall have failed to pay
Gathering the amount thereof within three (3) business days after Gathering
shall have received notice of the entry of such final non-appealable judgment.
(f) T2 has not made and does not hereby make any representation or warranty
with respect to the quantity of sales (if any) of Distributed Products embodying
the Game Titles which T2 may sell. Gathering recognizes and acknowledges that
the sale of Distributed Products is speculative and agrees that T2's judgment
with regard to the sales of any of its Distributed Products and with regard to
the marketing, promotion, advertising and exploitation of the Distributed
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Products shall be binding and conclusive upon Gathering absent gross negligence
or willful misconduct on the part of T2. Gathering warrants and agrees that it
will not make any claim, nor shall any liability be imposed upon T2 based upon
any claim, that more sales could have been made or that better business could
have been done than what was actually made or done by T2, or that better prices
or terms could have been obtained so long as T2 has complied, in all material
respects, with its obligations hereunder and in a manner consistent with
industry practice.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
(a) T2 hereby warrants and represents that
(i) This Agreement has been duly authorized, executed and delivered by
T2; T2 has the full power and authority to enter into this Agreement and to
perform its obligations hereunder and is free to enter into this Agreement;
this Agreement constitutes the valid and binding obligation of T2,
enforceable in accordance with its terms; the making of this Agreement by
T2 does not violate any agreement, right or obligation existing between T2
on the one hand, and any other person, firm or corporation, on the other
hand.
(ii) No consents of any third parties are required for T2 to enter
into and perform this Agreement.
(iii) T2 has no arrangement or interest, which is inconsistent or in
conflict with this Agreement, or which would prevent, limit, or impair, in
any way, either T2's or Gathering's performance of any of the covenants or
duties herein set forth.
(iv) T2 is experienced in the distribution of video games and has
sufficient qualified personnel to carry out its obligations hereunder.
(b) Gathering hereby represents and warrants that:
(i) This Agreement has been duly authorized, executed and delivered by
Gathering; Gathering has the full power and authority to enter into this
Agreement and to perform its obligations hereunder and is free to enter
into this Agreement; this Agreement constitutes the valid and binding
obligation of Gathering, enforceable in accordance with its terms; the
making of his Agreement by Gathering does not violate any agreement, right
or obligation existing between Gathering on the one hand, and any other
person, firm or corporation, on the other hand; and except for the SMP
Agreement, Gathering has not heretofore granted any rights to the Game
Titles to any other person, party or company for use in the Territory in
connection with the Distributed Products for the Game Machines.
(ii) Except for the SMP Agreement, no consents of any third parties
are required for Gathering to enter into this Agreement or grant the rights
granted herein to T2.
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(iii) All Game Titles are or shall be original and neither the
computer software nor the Documentation thereto, or any part of any
character, object, sound or music embodied in Software, infringes or shall
infringe upon any common law or statutory rights of any third party
including, without limitation, contractual rights, patents, copyrights,
mask-work rights, trade secrets, rights of privacy or other intellectual
property rights.
(iv) Subject to the SMP Agreement, the Game Titles shall be free of
all liens and encumbrances and there are and will be no claims, demands or
actions pending or threatened with respect thereto.
(v) In connection with materials supplied by or developed by Gathering
for use in any Game Titles, Gathering shall be solely responsible for and
shall pay all sums due all parties entitled to receive Net Monies in
connection with the sale and exploitation of the Distributed Products.
Subject to the terms of this Agreement, all monies payable to Gathering
include all Net Monies due Gathering and such parties. Gathering shall be
solely responsible for and shall pay all costs incurred in the creation,
development and design of any Game Titles, including, without limitation
the Documentation therefor. With respect to each Game Title, Gathering
shall be responsible for paying any development fees or royalties owed to
such developer of such Game Title in accordance with the terms and
conditions of the publishing agreement by and between Gathering and the
developer for such Game Title.
(vi) With respect to each Game Title, the Amended and Restated Rights
Agreement for Computer Video Games by and between Gathering and the
developer of such Game Title are in full force and effect as of Wednesday,
May 27, 1998. With respect to each Game Title, Gathering has acquired all
rights with respect to such Game Title to publish such Game Titles pursuant
to the terms and conditions of the respective Amended and Restated
Agreement Regarding Rights to Computer Games between Gathering and the
developer of such Game Title and to grant to T2 the right to distribute
such Game Title in accordance with the terms hereof.
(c) Gathering makes no warranties or representations with respect to the
Distributed Products to any end-user thereof other than as set forth in the
limited warranty provided by Gathering for each Distributed Product; Gathering
makes no warranty, express, implied, statutory or otherwise with respect to the
Distributed Products including but not limited to the implied warranties of
merchantability and fitness for a particular purpose, each of which is hereby
disclaimed.
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ARTICLE 8
INDEMNIFICATION
(a) T2 shall indemnify, defend and hold harmless Gathering, and its
partners, officers, employees, agents, successors and assigns ("Gathering
Indemnitees") from and against any and all demands, claims, damages, judgments,
costs, (including reasonable attorneys' fees), penalties and liabilities based
upon, relating to, or arising out of a breach or failure of any of T2's
agreements, representations or warranties hereunder, including, without
limitation, any claims brought by third parties alleging that any intellectual
property rights contained in a Game Title infringes upon the rights of such
third party. Upon notice from Gathering of any such claim, demand or action
being advanced or commenced, T2 agrees to adjust, settle or defend the same at
T2's sole cost and expense. Each Gathering Indemnitee shall have the right, but
not the obligation, to participate, at its own expense and using its own
counsel, in the defense of any such claim, and, in such event, the parties
hereto shall cooperate with each other in the defense of any such action, suit
or proceeding hereunder.
(b) Gathering shall indemnify, defend and hold harmless T2, and its
officers, employees, agents, successors and assigns ("T2 Indemnitees") against
any and all demands, claims, damages, judgments, costs, (including reasonable
attorneys' fees), penalties and liabilities based upon, relating to, or arising
out of a breach or failure of any of Gathering's agreements, representations or
warranties hereunder, including, without limitation, any claims brought by third
parties alleging that any intellectual property rights contained in a Game Title
infringes upon the rights of such third party. Upon notice from T2 of any such
claim, demand or action being advanced or commenced, Gathering agrees to adjust,
settle or defend the same at Gathering's sole cost and expense. Each T2
Indemnitee shall have the right, but not the obligation, to participate, at its
own expense and by its own counsel, in the defense of any such claim, and, in
such event, the parties hereto shall cooperate with each other in the defense of
any such action, suit or proceeding hereunder.
(c) IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO
BE INDEMNIFIED PURSUANT TO THIS ARTICLE 8 SHALL BE INDEMNIFIED AND HELD HARMLESS
FROM AND AGAINST ALL DAMAGES AND INSTANCES AS TO WHICH INDEMNITY IS PROVIDED FOR
UNDER THIS ARTICLE 8 NOTWITHSTANDING THAT ANY SUCH DAMAGES OR INSTANCES ARISING
OUT OF OR RESULT FROM THE ORDINARY, STRICT, SOLE, OR CONTRIBUTORY NEGLIGENCE OF
SUCH PERSON AND REGARDLESS OF WHETHER ANY OTHER PERSON (INCLUDING THE OTHER
PARTY TO THIS AGREEMENT) IS OR IS NOT ALSO NEGLIGENT.
(d) With respect to any claims between the parties hereto, the
non-prevailing party shall indemnify the prevailing party for all reasonable
attorneys fees incurred by such prevailing party with respect to such claim.
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<PAGE>
(e) Gathering shall obtain and maintain at its own expense, reasonable
product liability insurance and errors and omission insurance from a recognized
and qualified insurance company naming T2 as insured in the amount of at least
One Million Dollars ($1,000,000) per occurrence and Two Million Dollars
($2,000,000) in the aggregate against any claims, suit, loss or damage arising
out of any personal injury or property damage or infringement of the computer
software and/or the Game Titles and/or the Documentation thereto, or any part of
any character, object, sound or music embodied in the Game Title, upon any
common law or statutory rights of any third party, including, without
limitation, contractual rights, patents, copyrights, mask-work rights, trade
secrets, right to privacy and other intellectual property rights. Such policy
shall be non-scancellable except after thirty (30) days' prior written notice to
T2. T2 shall be named as an additional insured on such policy. As proof of such
insurance, a fully-paid certificate of insurance will be submitted to T2 by
Gathering within a reasonable time after the execution of this Agreement.
ARTICLE 9
EXPIRATION OR TERMINATION OF AGREEMENT
(a) In the event that Gathering, for reasons within its control, fails to
Deliver a Game Title referred to in this Agreement to T2 by a date which is
sixty (60) days after the Delivery Date (the "Post Delivery Date"), or Gathering
otherwise materially breaches this Agreement with respect to a Game Title
hereunder and such breach is not cured within thirty (30) days after receipt of
notice from T2 of such breach, then, without in any way limiting any of T2's
other rights and remedies in such event, and notwithstanding any provision to
the contrary contained herein, T2 shall have the right at its sole election to
terminate this Agreement with respect only to the undelivered Game Title and/or
Game Title to which Gathering's material breach relates, upon written notice to
Gathering (the "Termination Notice"). In such event, notwithstanding any
provision to the contrary contained herein, but only with respect to the Game
Title which is the subject of the Termination Notice, Gathering shall pay to T2
an amount equal to any unearned and unrecouped portion of the Guarantee
theretofore paid by T2 to Gathering hereunder attributable to such undelivered
Game Title. All such amounts as described above shall be paid to T2 by the
Gathering within ninety (90) days following T2's written request therefor.
(b) (i) In the event T2 materially breaches this Agreement with respect to
a Game Title hereunder and such breach is not cured (which may include, at
Gathering's election, the appointment of a substitute distributor acceptable to
Gathering to perform T2's obligations hereunder with respect to such Game Title)
within thirty (30) days after receipt of notice from Gathering of such breach,
then, without in any way limiting any of Gathering's other rights and remedies
in such event, and notwithstanding any provision to the contrary contained
herein, Gathering shall have the right at its sole election to terminate this
Agreement, but only with respect to such Game Title to which T2's material
breach relates, upon written notice to T2.
(ii) Upon any subsequent two (2) material breaches by T2 of this Agreement
which such breaches are not cured within thirty (30) days after receipt of
notice from Gathering of such breach, then, without in any way limiting any of
Gathering's other rights and remedies in such
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event, and notwithstanding any provision to the contrary contained herein,
Gathering shall have the right at its sole election to terminate this Agreement.
(c) In the event either party to this Agreement files a petition in
bankruptcy or is adjudged a bankruptcy, or if a petition in bankruptcy is filed
against such party and is not dismissed within sixty (60) days of the
institution of such proceeding, or if such party becomes insolvent, or makes an
assignment for the benefit of creditors, or if any receiver appointed for such
party or its business is not discharged within sixty (60) days (for convenience,
the "bankrupt or insolvent party"), the other party shall have the right to
terminate this Agreement, upon written notice to the bankrupt or insolvent
party.
(d) Upon expiration of the Term of this Agreement, all exclusive rights
granted to T2 herein shall forthwith revert to Gathering with the following
consequences:
(i) T2 shall continue to pay all Net Monies which become due and
payable.
(ii) Gathering shall thereafter be free to engage others to distribute
the Game Titles or to distribute them itself.
(iii) T2 shall not thereafter advertise, distribute or sell
Distributed Products, and will cease all display, advertising and use of
Gathering's Property, except that T2 may sell off, market, advertise,
distribute and sell existing inventories of the Distributed Products for a
period of twelve (12) months, subject to all the other terms and conditions
hereof. T2 shall deliver to Gathering a complete and accurate statement
indicating the number, description and whereabouts of all units of the
Distributed Products in T2's inventory as of the date of the expiration of
the Term update such list on a monthly basis.
(iv) T2 shall return to Gathering all materials and any copies or
reproductions thereof furnished to T2 by Gathering hereunder or give
satisfactory evidence of their destruction.
ARTICLE 10
NOTICES
All notices, statements and/or payments to be given to the parties
hereunder shall be addressed to the parties at the addresses set forth on the
first page hereof or at such other address as the parties shall designate to
each other in writing from time to time. All notices shall be in writing and
shall either be served by personal delivery (to an officer of each company),
mail, or facsimile (if confirmed by mail or personal delivery of the hard copy),
all charges prepaid. Except as otherwise provided herein, such notices shall be
deemed given when personally delivered, all charges prepaid, or on the date five
(5) days following the date of mailing, except that notices of change of address
shall be effective only after the actual receipt thereof.
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ARTICLE 11
EUROPEAN NEGOTIATIONS
T2 and Gathering shall continue to negotiate in good faith a publishing
agreement for Europe, Israel, Africa, Middle East, Australia and New Zealand
which, if entered into, shall include the following terms.
(a) At Gathering's request, T2 shall house a team of Gathering
representatives in its Windsor, UK offices. This team:
(i) Oversees the marketing of all Gathering titles published in
Europe.
(ii) Monitors and learns the selling process throughout Europe for all
Gathering titles.
(iii) Is paid for by Gathering.
(iv) May set-up a corporate subsidiary or other entity for Gathering
in Europe.
(b) The existing agreement/understanding between T2 and Gathering with
respect to certain European publishing rights for the interactive software video
games referred to as Max Payne, Railroad Tycoon 2 and Aviator shall be extended
to include an additional seven (7) interactive software video games not included
therein. T2 shall pay Gathering $2.8 million in non-refundable guarantees in two
equal payments of $1.4 million due July 15, 1998 and September 15, 1998;
provided that the advance will be recoupable only to the extent of $400,000 with
respect to each of the seven (7) additional games.
(c) Such agreement shall include no less favorable terms than as set forth
in the draft of the Heads of Agreement attached hereto as Exhibit D.
(d) T2 shall receive a right of first refusal to meet the terms of certain
publishing deals offered by Gathering to third parties to publish and distribute
in Europe certain products not solely or jointly published by Gathering in
Europe over the next 5 years.
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ARTICLE 12
CONFIDENTIAL INFORMATION
Each party hereto shall keep in confidence and not disclose to any third
party, without the written permission of the other party the terms of this
Agreement and the proprietary information of each party made known to the other
under this Agreement. This requirement of confidentiality shall not apply to
information that is (i) in the public domain through no wrongful act of the
receiving party; (ii) rightfully received by the receiving party from a third
party who is not bound by a restriction of nondisclosure; (iii) already in the
receiving party's possession without restriction as to disclosure; or (iv) is
required to be disclosed by applicable rules and regulations of government
agencies or judicial bodies. For purposes of this Agreement, all information
provided to T2 by or on behalf of Gathering shall be deemed confidential and
proprietary information.
ARTICLE 13
MISCELLANEOUS
(a) This Agreement shall inure to the benefit of, and shall be binding
upon, the successors and assigns of each party hereto. Notwithstanding the
foregoing, neither party shall assign any rights or obligations hereunder
without the prior written consent of the other party; provided, however, that
Gathering may assign to another party its rights to receive Net Monies pursuant
to Section 6 of this Agreement.
(b) The entire understanding between the parties hereto relating to the
subject matter hereof is contained herein. There are no representations,
warranties, terms, conditions, undertakings or collateral agreements, express,
implied or statutory, between the parties other than expressly set forth in this
Agreement. This Agreement cannot be changed, modified, amended or terminated
except by an instrument in writing executed by both T2 and Gathering. The
Exhibits annexed hereto constitute a part of this Agreement. The headings and
captions used herein are inserted for convenience of reference only and shall
not affect the construction or interpretation of this Agreement. This Agreement
shall not be deemed effective, final or binding upon Gathering or T2 until
signed by each of them. Only the final, executed Agreement is admissible as the
written agreement between the parties and prior drafts, if any, incorporating
revisions or original language may not be used, and shall not be admissible as
evidence for any purpose in any litigation that may arise between the parties.
This Agreement shall be deemed to have been drafted by all the parties hereto,
since all parties were assisted by their counsel in reviewing and agreeing
thereto, and no ambiguity shall be resolved against any party by virtue of its
participation in the drafting of this Agreement.
(c) No waiver, modification or cancellation of any term or condition of
this Agreement shall be effective unless executed in writing by the party
charged therewith. No written waiver shall excuse the performance of any act
other than those specifically referred to therein and shall not be deemed or
construed to be a waiver of such terms or conditions for the future or any
subsequent
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breach thereof. Except as otherwise provided in this Agreement, all rights and
remedies herein or otherwise, including, but not limited to those set forth in
Article 9, shall be cumulative and none of them shall be in limitation of any
other right or remedy.
(d) This Agreement does not constitute and shall not be construed as
constituting a partnership or joint venture between Gathering and T2. Neither T2
nor Gathering shall have any right to obligate or bind the other in any manner
whatsoever, and nothing herein contained shall give or is intended to give any
rights of any kind to any third persons.
(e) Any dispute hereunder shall be submitted to binding arbitration
pursuant to the rules of the American Arbitration Association, applying Texas
law, without regard to choice of law provisions, with three arbitrators. Any
such proceeding shall take place in Dallas, Texas.
(f) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which shall constitute but one and
the same document.
(g) The expiration of this Agreement shall not impair the rights or
obligations of either party hereto which shall have accrued hereunder prior to
such expiration or termination. Without limiting the generality of the preceding
sentence, the provisions of Articles 5, 6, 7, 8, 9, 10, 11, 12 and 13 shall
survive the termination of this Agreement.
(h) Each of the parties hereto agrees to execute all such further
instruments and documents and to take all such further action as the other party
may reasonably require in order to effectuate the terms and purposes of this
Agreement as stated herein.
(i) If any provision of this Agreement shall be held or deemed to be
invalid, inoperative or unenforceable in any jurisdiction or jurisdictions,
because of conflicts with any constitution, statute, rule or public policy or
for any other reason, such circumstance shall not have the effect of rendering
the provision in question unenforceable in any other jurisdiction or in any
other case or circumstance or of rendering any other provisions herein contained
unenforceable to the extent that such other provisions are not themselves
actually in conflict with such constitution, statute or rule of public policy,
but this Agreement shall be reformed and construed in any such jurisdiction or
case as if such invalid, inoperative or unenforceable provision had never been
contained herein and such provision reformed so that it would be enforceable to
the maximum extent permitted in such jurisdiction or in such case.
(j) Within thirty (30) days of the execution of this Agreement, Gathering
shall file or have filed on its behalf a UCC-1 Financing Statement in order to
perfect a security interest in its general intangibles, inventory, equipment,
receivables and other physical assets of Gathering, in favor of T2, except for
those assets consisting of any of Gathering's rights under the respective rights
agreements with the developers of the respective Game Titles. Immediately upon
its recoupment of the Guarantee, T2 shall release such UCC-1 Financing Statement
and the security interests created thereby and any and all obligations and
liabilities of Gathering to T2 related thereto or arising therefrom.
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IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
27th day of May, 1998.
GATHERING OF DEVELOPERS I, LTD.
(Gathering)
By: Gathering of Developers, Inc.
(a Texas corporation),
its general partner
Address:
2700 Fairmount
Dallas, Texas 75202
fax: (214) 871-7934
By: /s/ Michael S. Wilson
------------------------
Michael S. Wilson,
Chief Executive Officer
TAKE TWO INTERACTIVE SOFTWARE, INC.
(T2)
Address:
575 Broadway
New York, New York 10012
fax: (212) 941-2997
By: /s/ Ryan A. Brant
------------------------
Name: Ryan A. Brant
Title: President and CEO
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