EXHIBIT 10.23
CONFIDENTIAL TREATMENT REQUESTED
HEADS OF AGREEMENT
November 19, 1998
Gentlemen:
Whereas it is the desire of both parties, Activision, Inc. ("Activision") and
Interplay Entertainment Corp. ("Interplay"), to engage in a Distribution and
Sales Agreement, this interim document shall serve to define the key points of
our understanding. When and if signed below, this document shall constitute a
legally binding "Heads of Agreement," and both parties agree that this Heads of
Agreement will be followed by the preparation and execution within sixty (60)
days of a more formal agreement to be developed from the items contained below.
If no formal agreement is executed, then the terms of this Heads of Agreement
will govern the relationship of the parties.
1. Products: Two (2) Windows 95/98 operating system entertainment software
products, one based on the original "Star Trek" television
series universe owned and or controlled by Paramount Pictures
Corp. or its affiliates ("Paramount") entitled "Star Trek:
Klingon Academy" ("Klingon"), and the other currently being
developed by Xatrix Entertainment utilizing id Software's
"Quake 2" engine technology entitled "Kingpin: Life of Crime"
("Kingpin").
2. Territory: Worldwide.
3. Term: (a) With respect to each Product, [*] years from the
initial commercial shipment by Activision of such Product.
(b) At such time as the United States wholesale price for one
of the Products becomes less than [*] per unit (which pricing
shall be determined in accordance with the terms of Paragraph
11 below), [*] shall determine which one of the two Products
shall be removed from this Heads of Agreement upon its United
States wholesale price reaching less than $[*] per unit. Upon
the selected Product's reaching a United States wholesale
price of less than $[*] per unit, the Term of this Heads of
Agreement with respect to the selected Product shall expire
and all distribution rights (including sell-off rights, if any)
with respect to the selected Product shall revert to Interplay,
subject only to Activision's right to fulfill existing purchase
orders of its customers.
4. Rights Granted During the Interplay hereby grants to Activision the exclusive right and
Term: license to distribute, sub-distribute [*] and
* Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
sell the Products in the Territory during the Term,
through all currently known or hereafter developed retail and
direct channels of computer software distribution, but
specifically excluding OEM channels. [*]
5. Advance Payment: Within three (3) business days following: [*], Activision will
make a guaranteed cash payment to Interplay in the amount of
[*] Dollars ($[*]) as an advance fully recoupable against the
amounts required to be paid to Interplay pursuant to Paragraph
7(c) below (the "Advance"). [*]
6. Distribution Fee: Activision shall receive a distribution fee equal to [*]
percent ([*]%) with respect to Klingon, and [*] percent
([*]%) with respect to Kingpin, of all invoiced amounts
received by Activision from its distribution and sale of such
Products during the Term (the "Distribution Fee").
7. Order of Payments: Monies received by Activision from its distribution and sale
of the Products shall be disbursed between the parties in the
following order:
(a) First, to Activision for reimbursement of certain of its
costs and expenses, as specified in the last paragraph of
Paragraph 9 of this Heads of Agreement;
(b) Second, to Activision for payment of the Distribution Fee
set forth in Paragraph 6 above; and
(c) The balance to Interplay (subject to Activision's
recoupment in full of the Advance) in accordance with
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*Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Paragraph 8 of this Heads of Agreement. All amounts to be
paid or credited to Interplay will be adjusted to take into
account any actual price protections, xxxx-xxxxx or returns of
Products.
8. Reporting and Payment: (a) Interplay will be provided with net sales reports on a
Product by Product basis, showing the price protections,
xxxx-xxxxx and returns and market development program funds
(on both a consolidated and territory by territory basis) and
related net sales payments within [*] days after the end of
each month of sale of Products by Activision during the Term
and any applicable sell-off period.
(b) Interplay shall have customary audit and inspection
rights with respect to the net sales reports and net sales
payments referred to in Paragraph 8(a) above and, if
applicable, the manufacturing of the Products by Activision
pursuant to Paragraph 14(b). The specific terms of such audit
and inspection rights shall be set forth in the more formal
agreement.
9. Activision's Activision will be responsible for performing the following
Responsibilities: distribution activities in the Territory:
(a) Confirmation testing of the Gold Masters of the Products
for the limited purpose of confirming that the Gold Masters
are error-free. In such regard, Interplay shall deliver a
Gold Master of each Product to Activision at least two (2)
weeks prior to the intended initial duplication date of such
Product as reasonably scheduled by Activision. For purposes
of this Heads of Agreement, a "Gold Master" of a Product is
defined as one or more optical discs containing all of the
assets, content and programs needed to use the Product, and
which is ready to be utilized in the manufacturing of Finished
Goods (as defined in Paragraph 14(a));
(b) Selling Products and soliciting Product orders, which
solicitation shall begin upon receipt by Activision's sales
department of all sales materials as requested by Activision
pursuant to Paragraph 10(h) below;
(c) Administering mailings and trade marketing programs,
including co-op ads, trade ads, end caps, in-store promotions
and other comparable market development programs, not to
exceed [*]% of amounts invoiced by Activision, and subject to
the prior written approval of Interplay, which approval shall
not
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*Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
be unreasonably withheld or delayed; and
(d) handling order entries, processing, warehousing, stock
balancing, shipping to customers, collection and reporting.
Activision shall bear all costs and expenses relating to such
distribution activities, except for (i) the costs of the
actual trade marketing programs pursuant to Paragraph 9(c),
and (ii) reasonable actual shipping and freight charges, which
shall be paid by Activision but then reimbursed to Activision
pursuant to Paragraph 7(a) from monies received by Activision
from its distribution and sale of the Products under this
Heads of Agreement.
10. Interplay's Responsibilities: Interplay will at its sole cost and expense perform the
following development and publishing activities during the
Term in the Territory:
(a) designing, developing and producing the Products,
including all software, programs, packaging, manuals and
associated user documentation and related materials required
to release the Products commercially, in conformance with
industry standards [*] as Interplay has done with its previously
released [*] PC products. Without limiting the foregoing,
Interplay shall be responsible for ensuring that the Products
receive all necessary approvals from Paramount (with respect to
Klingon) and id Software (with respect to Kingpin, if any
approval of id Software is applicable to Kingpin), and in this
regard, agrees to make any and all changes that may be
required by Paramount or id Software, if applicable, so as to
allow Activision to distribute the Products as set forth herein;
(b) correcting all significant bugs and errors found in the
Products as needed to have the Products deemed ready for "code
release" (i.e., the Product is in final form, without any
significant bugs or errors, and is ready to be manufactured
into Finished Goods) and at all times after the code release
of the Products during the Term;
(c) manufacturing Finished Goods for each Product in
accordance with the Purchase Orders submitted by Activision
pursuant to Paragraph 14(a);
(d) creating and executing advertising, marketing,
promotional and public relations programs for each Product in
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*Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
accordance with industry standards [*] entertainment
software products as Interplay has done with its
previously released [*] PC products;
(e) creating customary merchandising tools for specifically
targeted channels of distribution;
(f) localizing each Product and related packaging and
documentation into the [*] languages. Localizations into any
other languages shall be done to the extent deemed reasonably
and economically sensible by the mutual agreement of the
parties based upon the parties' good-faith sales forecasts for
the Products in those parts of the Territory in which such
localized versions of the Products would be distributed;
(g) providing complete end user support for all Products, the
level and quality of which is consistent with end user support
customarily provided by Interplay for its [*] entertainment
software products in the applicable country as Interplay has
done with its previously released [*] PC products; and
(h) providing to Activision at Activision's request a
reasonable number of demonstration units of the Products, not
to exceed [*] units per Product, and furnishing Activision, at
no cost, with reasonable quantities of descriptive materials,
product documentation and advertising literature, as
reasonably required to market and promote the sale of the
Products in the Territory.
11. Pricing of Products: Products will be priced in the Territory based upon the mutual
agreement of the parties after evaluating the pricing of
comparable products. If the parties are unable to agree upon
the pricing of a Product after good faith discussions, then
Activision will have the right to determine the pricing for
such Product in accordance with the standard practices by
which it generally determines the pricing for its own [*] PC
products (including, without limitation, the initial pricing
of such Product and any subsequent price reductions that take
into account the then current market conditions for such
Product); provided, however, that the Products may not be
initially priced less than Interplay's previously released
[*] PC products, which the parties agree to be $[*]
wholesale, without the mutual agreement of the parties.
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*Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
12. Ownership: Interplay has and shall retain all rights of ownership in and
to the Products, any and all modifications, enhancements and
derivative works thereof and all intellectual property rights
embodied therein and related thereto; provided that except as
set forth in Paragraphs 3(b) and 13, Interplay shall not have
the right, during the Term of this Heads of Agreement, to
sell, lease, license, publish or otherwise distribute the
Products in the Territory to or through any person or business
entity other than Activision. Activision will not obscure
Interplay's intellectual property legal notices included on
the Products or marketing or promotional materials.
13. OEM Distribution by With respect to each Product hereunder, Interplay shall have
Interplay: the right to license the Products (including, without
limitation, abbreviated or so-called "OEM lite" versions of
the Products) for manufacture and distribution to third party
OEM hardware or peripheral product manufacturers, aggregators
and service providers (e.g., hotels, airlines or cruise ships)
solely for ultimate distribution of the Products in
pre-packaged combinations with such third party's (or such
third party's customers') hardware or peripheral products,
subject to Activision's sole and absolute right to approve of
such license in each instance where the distribution of the
Product under such OEM agreement will commence within the
first [*] days following the initial commercial shipment of
such Product by Activision. For OEM agreements where
distribution of the Product will commence after such [*] day
period, no approval from Activision shall be required;
provided, however, Interplay shall only enter into OEM
agreements in connection with the Products during such period
in accordance with the customary terms and conditions
(including, without limitation, per unit pricing after taking
into account the then current market conditions for the
applicable Product) pursuant to which it has entered into OEM
agreements for its previously released [*] PC products.
Without limiting the foregoing, in no event shall Interplay
enter into any agreement for the distribution of the Products
as a compilation in combination with other software products
or as part of a package containing optical disks or other
storage media incorporating any images or text or otherwise
for ultimate distribution to end users except in pre-packaged
combinations with third party hardware or peripheral products.
14. Orders: (a) Finished goods for each Product will be requested by
Activision by means of a written purchase order (the "Purchase
Order") specifying the number of units of each Product so
ordered. Purchase Orders shall be based on the verbal or
written
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*Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
orders or indications of interests for such Product that
are received by Activision from its customers, as well as
Activision's reasonable expectation of reorders. Interplay
shall supply Activision with such Product units on optical
discs in jewel cases contained inside a full retail box
packaging, including related product documentation, warranties
and a user guide ("Finished Goods") in accordance with the
specifications of such Purchase Order and consistent with the
terms of this Heads of Agreement. Finished Goods shall be
delivered by Interplay FOB Activision's warehouse or other
principal warehouse location designated by Activision in the
respective territory of Activision. Interplay shall use its
best commercial efforts to deliver the Finished Goods by the
reasonable delivery dates set forth in the corresponding
Purchase Order and failure to do so shall be deemed a material
breach by Interplay. [*]
(b) In addition to the foregoing, if Interplay does not
fulfill a Purchase Order on a timely basis, then in lieu of
canceling the Purchase Order, Activision may engage in good
faith discussions with Interplay regarding the reasons why the
Purchase Order was not timely fulfilled, the proposed
solutions for fulfilling such late Purchase Order and the
procedures to be implemented by Interplay in order to insure
that future Purchase Orders will be timely fulfilled. [*]
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*Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
15. Product Completion: (a) Interplay shall provide to Activision an "Alpha" version
of each Product for review by no later than [*] for Klingon
and [*] for Kingpin, a "Beta" version by no later than [*]
for Klingon and [*] for Kingpin, and a "Code Release" version
ready for manufacturing into Finished Goods units by no later
than [*] for Klingon and [*] for Kingpin (as such terms "Alpha,"
"Beta" and "Code Release" are commonly understood in the entertainment
software industry). In the event Interplay fails to deliver to
Activision an acceptable Alpha, Beta or Code Release version of any
Product within [*] days of the date such version is due, then Activision
shall engage in good faith discussions with Interplay regarding the
reasons for the failed delivery and Interplay's plans for actually
delivering such acceptable version. [*]
(b) [*]
16. Representations, Warranties Interplay hereby represents and warrants that (a) Interplay is
and Covenants: duly incorporated, valid and existing and in good standing
under the laws of the jurisdiction in which it is
incorporated, and that it has the full rights, power, legal
capacity and authority to enter into this Heads of Agreement,
and to carry out the terms hereof; (b) this Heads of Agreement
has been executed by Interplay's duly authorized
representative and is a valid, legally binding and enforceable
obligation of Interplay; (c) no consent of any person or
entity not a party to this Agreement is required or necessary
for Activision to carry out
-8-
*Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
its obligations hereunder; (d) [*]; (e) [*]; (f) it will
not grant distribution rights in, license or sell the Products
to any party other than Activision except as specified in
Paragraphs 3(b) and 13; (g) [*]; (h) Interplay will
provide a warranty for the end users of the Products, and
it will be solely responsible for fulfilling all duties
and obligations under such warranty; (i) Interplay has not
made an assignment for the benefit of creditors or filed a
petition in bankruptcy and will not make such assignment
or file such petition during the Term of this Heads of
Agreement; (j) [*]; (k) prior to the effectiveness of this
Heads of Agreement, Interplay has entered into an agreement
for a $37,500,000 line of credit, which effectively decreases
by $1,000,000 on each of February 15, March 15, and April 15,
without any other positive or negative financial covenants, [*];
and (l) the Products, whether completed or in any state of
development, are copyrightable and otherwise constitute
"intellectual property" within the meaning of Section 101(35a)
of the United States Bankruptcy Code. Except as set forth in this
Paragraph 16, Interplay disclaims any and all implied warranties.
17. Governing Law: Substantive laws of California shall apply, and the parties
consent to the exclusive jurisdiction of the courts in Los
Angeles County, USA.
18. Confidentiality: Any information, records, documents, descriptions or other
disclosures of whatsoever nature or kind which are made or
disclosed by one party to the other, or are learned or
discovered
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*Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
by a party in the course of performing its obligations
under this Heads of Agreement and not known by or available
to the public at large, including the terms of this Heads
of Agreement, shall be received by such party in
confidence. Such party shall not disclose or make use of
any such information nor shall it authorize anyone else to
make use thereof without the prior written consent of the
other party, unless required by law. Neither party shall
have any confidentiality obligation with regard to any
information independently developed by such party.
19. Termination: This Heads of Agreement may be terminated for breach upon
thirty (30) days prior notice to the breaching party. In case
of an expiration of the Term or an early termination of this
Heads of Agreement as a result of an uncured breach by
Interplay, Activision may continue to sell off Products in its
possession on a non-exclusive basis for a period of [*] from
such termination or early expiration date.
20. Indemnification. Each party (the "Indemnifying Party") hereby agrees to
indemnify, defend and hold the other party and its successors
harmless from any and all claims, demand, actions, losses,
liabilities, costs, expenses or damages of any kind or nature
(including, but not limited to reasonable attorneys fees)
arising out of any misrepresentation or breach or default in
connection with any of the representations, warranties,
agreements, covenants and obligations made by the Indemnifying
Party pursuant to this Heads of Agreement. Notwithstanding
anything herein to the contrary, in no event shall either
party be liable to the other for indirect, special or
consequential damages.
21. Entire Agreement: This Heads of Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof,
and any and all written or oral agreements previously existing
between the parties are expressly canceled. Each party
acknowledges that it is not entering into this Heads of
Agreement on the basis of any representations not expressly
contained herein. Any modifications of this Heads of Agreement
must be in writing and signed by both parties hereto. Any such
modification shall be binding only if and when signed by each
party's officers.
22. Bankruptcy: In the event Interplay is subject to a voluntary or
involuntary filing for protection under Federal bankruptcy
laws, Interplay agrees not to attempt to or actually reject,
rescind or terminate this Agreement or its obligations
hereunder. The parties
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* Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
acknowledge and agree that this Agreement is intended to and
shall be subject to the terms and conditions of Section 365(n)
of the United States Bankruptcy Code and Activision shall be
afforded all of the protections of a "licensee" under such
Section. [*]
23. Assignment: (a) The rights and obligations of either party under this
Heads of Agreement cannot be transferred, assigned to a third
party, by a third party, operation of law or otherwise,
without the prior written consent of the other party (not to
be unreasonably withheld), provided that an assignment by
either party of its rights and/or obligations hereunder to any
person acquiring such party by merger or acquiring all or
substantially all of such party's assets shall not require the
written consent of the other party. This Agreement shall
survive and be binding upon any successor or assign in the
event of a sale or change in control of a party or the merger
of a party with or into another party.
(b) Activision may grant some or all of its distribution
rights and/or obligations under this Heads of Agreement to one
or more wholly-owned subsidiaries without the consent of
Interplay, provided that Activision will remain liable for the
performance of any of the obligations of this Heads of
Agreement by such subsidiary and that Activision's
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*Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Distribution Fee as well as amounts payable to Interplay will
be paid on the basis of the price charged by such wholly-owned
subsidiary in connection with the Products irrespective of any
charges or allocations between Activision and such
wholly-owned subsidiary.
24. Additional Provisions: The more formal agreement to be executed by the parties will
contain additional representations, warranties and covenants
as are customary for a transaction of this nature and such
other provisions to which the parties may agree.
If this Heads of Agreement sets forth your understanding, please sign this
document where indicated below. This Agreement may be signed in counterparts and
delivered by facsimile.
AGREED TO AND ACCEPTED:
ACTIVISION, INC. INTERPLAY ENTERTAINMENT CORP.
By: /s/ Xxxxx X. Xxxxx By: /s/ Xxxxx Xxxxx
----------------------------- --------------------------
Name: Xxxxx X. Xxxxx Name: Xxxxx Xxxxx
----------------------
Title: Co-Chairman Title: CEO
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Date: 11/20/98 Date: 11/20/98
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AMENDMENT NO. 1
TO
HEADS OF AGREEMENT
This Amendment No. 1 to Heads of Agreement ("Amendment No. 1") is entered
into effective as of November 23, 1998, by and between Interplay Entertainment
Corp. ("Interplay") and Activision, Inc. ("Activision"), as follows:
R E C I T A L S
A. Interplay and Activision entered into that certain Heads of Agreement
dated November 19, 1998 (the "Agreement").
B. The parties desire to modify the Agreement to provide Activision with
the right to assume control of the development and completion of one or more of
the Products in certain additional limited circumstances, on the terms and
conditions as more specifically set forth below.
C. Each term not otherwise defined in this Amendment No. 1 shall have the
meaning ascribed to it in the Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. A new Paragraph 15(b) is added to the Agreement as follows:
"(b) Activision also shall have the right to assume control of the
development and completion of one or more of the Products (including,
without limitation, control by Activision in Interplay's stead of the
development of Kingpin by Xatrix Entertainment, which control shall
include, without limitation, the right to make all required payments to
Xatrix Entertainment in connection with such development), and to offset
all reasonable costs incurred by Activision in connection therewith against
payments due to Interplay hereunder, if the line of credit agreement
specified in Paragraph 16(k) expires or is terminated prior to the
completion of development of the Products and at the time of such
expiration or termination Interplay has not entered into a substitute line
of credit or other financing containing terms and conditions that are
sufficient to allow Interplay to fully perform its obligations hereunder."
2. Old Paragraph 15(b) is renumbered as Paragraph 15(c), and the following
words are added to the end of this Paragraph: "or Section 15(b)."
3. The parties agree that all other terms and conditions contained in the
Agreement shall remain in full force and effect.
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1
on the date specified below.
Activision, Inc. Interplay Entertainment Corp.
By /s/ Xxxxxxxx Xxxxxxxx By /s/ Xxxxxxxxxxx X. Xxxxxxxxxx
------------------------------- --------------------------------------
Name Xxxxxxxx Xxxxxxxx Name Xxxxxxxxxxx X. Xxxxxxxxxx
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Title Senior Vice President, Title President
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Business Affairs and General
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counsel
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Date 11/23/98
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