-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PVsM46UYS87z+8bT/zqsV2VH3igrQqNuc+cAGk9tGzj+vnBnKgfrNzAN5vUYFK5I P1+owVe6XhtKkQWFrD7Qhw== 0001170918-07-000675.txt : 20070814 0001170918-07-000675.hdr.sgml : 20070814 20070814162044 ACCESSION NUMBER: 0001170918-07-000675 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070630 FILED AS OF DATE: 20070814 DATE AS OF CHANGE: 20070814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERPLAY ENTERTAINMENT CORP CENTRAL INDEX KEY: 0001057232 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 330102707 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24363 FILM NUMBER: 071055499 BUSINESS ADDRESS: STREET 1: 1682 LANGLEY AVE CITY: IRVINE STATE: CA ZIP: 92614 BUSINESS PHONE: 3104321958 MAIL ADDRESS: STREET 1: 1682 LANGLEY AVE CITY: IRVINE STATE: CA ZIP: 92614 10-Q 1 fm10q-interplay.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 0-24363 INTERPLAY ENTERTAINMENT CORP. (Exact name of the registrant as specified in its charter) DELAWARE 33-0102707 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 N. CRESCENT DRIVE, BEVERLY HILLS, CALIFORNIA 90210 (Address of principal executive offices) (310) 432-1958 (Registrant's telephone number, including area code) 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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large accelerated filer [_] Accelerated filer [_] Non- accelerated filer [X] Indicate by check mark whether the registrant is shell company ( as defined in Rule 12b-2 of the Exchange Act) Yes [_] No [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. CLASS ISSUED AND OUTSTANDING AT JUNE 30, 2007 - ------------------------------ --------------------------------------- Common Stock, $0.001 par value 103,855,634 As of June 30, 2007, 103,855,634 shares of Common Stock of the Registrant were issued and outstanding. This includes 4,658,216 shares of Treasury Stock INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES FORM 10-Q JUNE 30, 2007 TABLE OF CONTENTS -------------- Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2007 (unaudited) and December 31, 2006.............................. 3 Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2007 and 2006 (unaudited)......................................................... 4 Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2007 and 2006 (unaudited)......................................................... 5 Notes to Condensed Consolidated Financial Statements (unaudited)......................................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................................ 17 Item 4. Controls and Procedures............................................. 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................... 18 Item 1A. Risk Factors........................................................ 18 Item 3. Defaults Upon Senior Securities..................................... 24 Item 6. Exhibits............................................................ 25 SIGNATURES................................................................... 26 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, ASSETS 2007 2006 ------------- ------------- Current Assets: (unaudited) Cash (Including cash held in escrow) ............. $ 2,992,000 $ 50,000 Trade receivables ................................ 1,827,000 227,000 Inventories ...................................... 8,000 8,000 Deposits ......................................... 4,000 4,000 Prepaid expenses ................................. 6,000 6,000 Other receivables ................................ 14,000 17,000 ------------- ------------- Total current assets ............................. 4,851,000 312,000 Property and equipment, net ........................ 1,000 3,000 Other assets ....................................... 8,000 8,000 ------------- ------------- Total assets .............................. $ 4,860,000 $ 323,000 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Account payable .................................. 4,954,000 5,659,000 Accrued royalties ................................ 199,000 170,000 Deferred income .................................. 415,000 460,000 Notes Payable .................................... $ 1,755,000 $ 2,121,000 ------------- ------------- Total current liabilities ................. 7,323,000 8,410,000 ------------- ------------- Commitments and contingencies Stockholders' Deficit: Preferred stock, $0.001 par value 5,000,000 shares authorized; no shares issued or outstanding, ................................ -- -- Common stock, $0.001 par value 150,000,000 shares authorized; 103,855,634 shares issued and outstanding ......................... 104,000 104,000 Paid-in capital .................................. 121,967,000 121,964,000 Accumulated deficit .............................. (124,508,000) (130,205,000) Accumulated other comprehensive income (loss) .... (26,000) 50,000 Treasury stock of 4,658,216 shares ............... 0 0 ------------- ------------- Total stockholders' deficit ............... (2,463,000) (8,087,000) ------------- ------------- Total liabilities and stockholders' deficit $ 4,860,000 $ 323,000 ============= =============
See accompanying notes. 3 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ---------------------------- 2007 2006 2007 2006 ------------- ------------- ------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues .................................... $ 5,812,000 239,000 $ 5,893,000 345,000 ------------- ------------- ------------- ------------- Cost of goods sold .......................... 2,000 146,000 6,000 152,000 ------------- ------------- ------------- ------------- Gross profit ............................. 5,810,000 93,000 5,887,000 193,000 ------------- ------------- ------------- ------------- Operating expenses: Marketing and sales ...................... 95,000 127,000 190,000 274,000 General and administrative ............... 332,000 422,000 594,000 837,000 ------------- ------------- ------------- ------------- Total operating expenses .............. 427,000 549,000 784,000 1,111,000 ------------- ------------- ------------- ------------- Operating income (loss) ..................... 5,383,000 (456,000) 5,103,000 (918,000) Other income (expense): Interest expense ....................... (11,000) (27,000) (41,000) (52,000) Other .................................. 95,000 2,543,000 635,000 2,501,000 ------------- ------------- ------------- ------------- Income (loss) before benefit for income taxes 5,467,000 2,060,000 5,697,000 1,531,000 Income taxes ................................ -- -- -- ------------- ------------- ------------- ------------- Net income (loss) ........................... $ 5,467,000 $ 2,060,000 $ 5,697,000 $ 1,531,000 ============= ============= ============= ============= Net income (loss) per common share: Basic .................................. $ 0.055 $ 0.020 $ 0.057 $ 0.015 ============= ============= ============= ============= Diluted ................................ $ 0.053 $ 0.021 $ 0.055 $ 0.015 ============= ============= ============= ============= Shares used in calculating net income (loss) per common share: Basic .................................. 99,197,000 99,197,000 99,197,000 99,197,000 ============= ============= ============= ============= Diluted ................................ 102,872,000 99,197,000 102,872,000 99,197,000 ============= ============= ============= =============
See accompanying notes. 4 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED JUNE 30, 2007 2006 ----------- ----------- Cash flows from operating activities: Net (loss) income ........................................ $ 5,697,000 $ 1,531,000 Adjustments to reconcile net (loss) income to cash (used) provided by operating activities: Depreciation and amortization .......................... 2,000 2,000 Additional paid in capital - option expense ............ 3,000 0 Reversal of prior years recorded liabilities .......................................... (515,000) 0 Changes in operating assets and liabilities: Trade receivables, net ................................... (1,600,000) 384,000 Inventories .............................................. -- -- Prepaid licenses and royalties Deposits ................................................. -- 4,000 Prepaid expenses ......................................... -- 49,000 Other current assets, net ................................ 3,000 (4,000) Other assets ............................................. -- 0 Accounts payable ......................................... (190,000) (2,662,000) ccrued royalties ......................................... 29,000 7,000 Note Payable ............................................. (366,000) 0 Advances from distributors ............................... (45,000) 419,000 Accumulated other compensation income .................... (76,000) (6,000) ----------- ----------- Net cash provided by (used in) operating activities 2,942,000 (276,000) ----------- ----------- Cash flows from investing activities: Purchase of property and equipment ....................... -- -- ----------- ----------- Net cash used in investing activities ............. -- -- ----------- ----------- Cash flows from financing activities: Repayment of current debt ................................ -- -- ----------- ----------- Issuance of stock to reduce debt ......................... 0 296,000 ----------- ----------- Net cash provided by (used in) financing activities ...... 0 296,000 ----------- ----------- Effect of exchange rate changes on cash ................ -- -- Net increase (decrease) in cash ........................ 2,942,000 20,000 ----------- ----------- Cash, beginning of period .................................. 50,000 122,000 ----------- ----------- Cash, end of period ........................................ $ 2,992,000 $ 142,000 =========== =========== Supplemental cash flow information: Cash paid for: Interest ............................................... $ 0 $ 0
See accompanying notes. 5 INTERPLAY ENTERTAINMENT AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Interplay Entertainment Corp. (which we refer to as the "Company" in these Notes) and its subsidiaries reflect all adjustments (consisting only of normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of the results for the interim period in accordance with instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States ("GAAP") for complete financial statements. The results of operations for the current interim period are not necessarily indicative of results to be expected for the current year or any other period. The balance sheet at December 31, 2006 has been derived from the audited consolidated financial statements at that date, but does not include all information and footnotes required by GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006 as filed with the U.S. Securities and Exchange Commission ("SEC"). FACTORS AFFECTING FUTURE PERFORMANCE AND GOING CONCERN STATUS The Company's independent public accountant included a "going concern" explanatory paragraph in his audit report on the December 31, 2006 consolidated financial statements which were prepared assuming that the Company will continue as a going concern. To reduce working capital needs, the Company has implemented various measures including a reduction of personnel, a reduction of fixed overhead commitments and cancellation or suspension of development on future titles. Management will continue to pursue various alternatives to improve future operating results and further expense reductions, some of which may have a long-term adverse impact on the Company's ability to generate successful future business activities. In addition, the Company continues to seek, external sources of funding including, but not limited to, a private placement or public offering of the Company's capital stock, the sale of selected assets, the licensing of certain product rights in selected territories, selected distribution agreements, and/or other strategic transactions sufficient to provide short-term funding, and potentially achieve the Company's long-term strategic objectives. Although the Company has had some success in licensing certain of its products in the past, no assurance can be given that the Company will do so in the future. The Company anticipates its current cash reserves, plus its expected generation of cash from existing operations, and assuming full receipt of the deferred consideration from the sale of "Fallout" (see Note 6) will only be sufficient to fund its anticipated expenditures through the end of the third quarter of 2008. Consequently, the Company expects that it will need to obtain additional financing or income. However, no assurance can be given that alternative sources of funding can be obtained on acceptable terms, or at all. These conditions, combined with the Company's historical operating losses and its deficits in stockholders' equity and working capital, raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that might result from the outcome of this uncertainty. INVOLUNTARY BANKRUPTCY On November 1, 2006 an involuntary petition under Chapter 7 of the Bankruptcy Code was filed in Federal Court by several of the Company's creditors. Involuntary bankruptcy is a process where a court appointed trustee is empowered to liquidate the non exempt property, if any, of the debtor. The Company had opposed the petition and on July 17, 2007 the petition was dismissed by the Court. Under the motion for dismissal the Company agreed to distribute approximately $2,900,000 held in escrow to certain creditors of the Company. These distributions were made in July 2007. 6 USE OF ESTIMATES The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing the condensed consolidated financial statements include, among others, sales returns and allowances, cash flows used to evaluate the recoverability of prepaid licenses and royalties, channel exposure and long-lived assets, and certain accrued liabilities related to litigation and the probability of what creditors can collect on previously recorded accruals and payables. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Interplay Entertainment Corp. and its wholly-owned subsidiaries, Interplay Productions Limited (U.K.), Interplay OEM, Inc., Interplay Co., Ltd., (Japan), the business of which was closed during the 4th quarter 2006 (immaterial to consolidated results), and Games On-line. All significant inter-company accounts and transactions have been eliminated. NOTE 2. COMMITMENTS AND CONTINGENCIES On July 17, 2007, a final order dismissing the involuntary bankruptcy case filed against the Company on or about November 1 , 2006, was entered by the United States Bankruptcy Court for the Central District of California (Santa Ana Division). In July 2007 the Company made distributions in compliance with the dismissal order, which paid off all outstanding litigation other than the following: In February 2, 2006 Michael Sigel filed an action against the Company for unauthorized use of image. Although the Company was never served with the lawsuit, a judgment has been issued by a Florida court granting legal fees to Mr. Sigel for an amount of $15,000. The Company is disputing the validity of the judgment obtained while involuntary proceedings against the Company were pending. In June 2007, a software developer, Bioware Corp., filed a claim in the involuntary bankruptcy proceedings against the Company, alleging unpaid royalties and attorney's fees in an amount of approximately $375,000 for the period between February 2003 through January 2004. The Company opposed the claim and the Bankruptcy Court has retained jurisdiction for the sole purpose of resolving the disputed claim with Bioware Corp. The Company has accrued an estimate for the aforementioned pending litigation. 7 NOTE 3. SEGMENT AND GEOGRAPHICAL INFORMATION The Company operates in one principal business segment, which is managed primarily from the Company's U.S. headquarters. Net revenues, exclusive of the "Fallout" intellectual property sale, by geographic regions were as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ---------------------------------------- ---------------------------------------- 2007 2006 2007 2006 ------------------ ------------------ ------------------ ------------------ AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ------- ------- ------- ------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS) North America .. $ 2 3% $ 2 1% $ 4 3% $ 46 13% International .. 60 97% 198 83% 139 97% 213 62% OEM, royalty and licensing .... 0 0 % 39 16% 0 0% 86 25% ------- ------- ------- ------- ------- ------- ------- ------- $ 62 100% $ 239 100% $ 143 100% $ 345 100% ======= ======= ======= ======= ======= ======= ======= =======
NOTE 4. REVERSAL OF CERTAIN PRIOR YEAR ACCRUALS AND ACCOUNTS PAYABLES During the six months ended June 30, 2007 the Company reversed certain accruals and accounts payables of approximately $500,000, net. It is the Company's policy to reverse outstanding accruals and accounts payables that have been outstanding for over 3 years and no attempt has been made by the vendor or claimant for that period of time to collect the outstanding balances. Additional adjustments were also made to existing balances through negotiated settlements with certain other creditors NOTE 5. EMPLOYEE STOCK OPTIONS STOCK-BASED COMPENSATION Effective January 1, 2006 the Company adopted SFAS No. 123(R), "SHARE-BASED PAYMENT" ("SFAS 123R"), which requires the measurement and recognition of compensation cost at fair value for all share-based payments, including stock options and restricted stock awards. The Company adopted SFAS 123R using the modified prospective transition method and, as a result, did not retroactively adjust results from prior periods. Under this transition method, stock-based compensation is recognized for: (1) expense related to the remaining non-vested portion of all stock awards granted prior to January 1, 2006 based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS 123") and the same straight-line attribution method used to determine the pro forma disclosures under SFAS 123; and (2) expense related to all stock awards granted on or subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. At June 30, 2007, the Company has one stock-based employee compensation plan. Stock-based employee compensation cost approximated $3,000 as reflected in net income for the quarter ended June 30, 2007. No employee stock options were granted during the six months ended June 30, 2007. 8 NOTE 6. SALE OF INTELLECTUAL PROPERTY On April 4, 2007 the Company entered into, an Asset Purchase Agreement (the APA) and a Trademark License Agreement ("the License Back ") with Bethesda Software LLC, a video game developer and publisher ("Bethesda") Regarding "Fallout", an intellectual property which was owned by the company (the IP). Although such agreements were signed on April 4, 2007 they were agreed not to be binding until the closing which occurred on April 9,2007. Under the APA, the Company sold all of its rights to the IP to Bethesda for a total amount of $5,750,000 payable to the Company, subject to various conditions, in three cash installments. An aggregate of $4,000,000 was paid in two installments through June 30,2007. The third and final payment to the Company is currently expected to be paid during the fourth quarter of 2007 in the amount of $1,750,000. Under the License Back, the Company obtained an exclusive license, under certain conditions, to use the IP for the purpose of developing an Interplay branded Fallout Massively Multiplayer Online Game ("MMOG). ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY STATEMENT Interplay Entertainment Corp., which we refer to in this Report as "we," "us," or "our," is a developer, publisher and licensor of interactive entertainment software and intellectual properties for both core gamers and the mass market. The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2006, as amended, and presumes that readers have access to, and will have read, the "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and other information contained in such Form 10-K, as amended. This Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and such forward-looking statements are subject to the safe harbors created thereby. For this purpose, any statements contained in this Form 10-Q, except for historical information, may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "estimate" or "continue" or the negative or other variations thereof or comparable terminology are intended to help identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties, as well as on certain assumptions. For example, any statements regarding future cash flow, revenue or expense expectations, including those forward-looking statements in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations", financing activities, future cash flows, cash constraints, sales or mergers and cost reduction measures are forward-looking statements and there can be no assurance that we will effect any or all of these objectives in the future. Specifically, the forward-looking statements in this Item 2 assume that we will continue as a going concern. Risks and Uncertainties that may affect our future results are discussed in more detail in the section titled "Risk Factors" in Item 1A of part II of this Form 10-Q. Assumptions relating to our forward-looking statements involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, our industry, business and operations are subject to substantial risks, and the inclusion of such information should not be regarded as a representation by management that any particular objective or plans will be achieved. In addition, risks, uncertainties and assumptions change as events or circumstances change. We disclaim any obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances occurring subsequent to the filing of this Form 10-Q with the SEC or otherwise to revise or update any oral or written forward- 9 looking statement that may be made from time to time by us or on our behalf. MANAGEMENT'S DISCUSSION OF CRITICAL ACCOUNTING POLICIES Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including, among others, those related to revenue recognition, prepaid licenses and royalties and software development costs. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. RESULTS OF OPERATIONS The following table sets forth certain selected consolidated statements of operations data, segment data and platform data for the periods indicated in dollars and as a percentage of total net revenues: 10 INTERPLAY ENTERTAINMENT CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended June 30 Six months ended June 30 ---------------------------------------------- --------------------------------------------- 2007 2006 2007 2006 --------------------- --------------------- -------------------- --------------------- (Dollars in thousands) % of Net % of Net % of Net % of Net Amount Revenues Amount Revenue Amount Revenues Amount Revenue -------- -------- -------- -------- -------- -------- -------- -------- Revenues ................... $ 5,812 100% $ 239 100% $ 5,893 100% $ 345 100% Cost of goods sold ......... 2 0% 146 61% 6 0% 152 44% -------- -------- -------- -------- -------- -------- -------- -------- Gross Profit ............. 5,810 100% 93 39% $ 5,887 100% 193 56% Operating Expenses: Marketing and sales ...... 95 2% 127 53% 190 3% 274 79% General and administrive . 332 6% 422 177% 594 10% 837 243% -------- -------- -------- -------- -------- -------- -------- -------- Total operating expenses 427 7% 549 230% 784 13% 1,111 322% -------- -------- -------- -------- -------- -------- -------- -------- Operating income (loss) .... 5,383 93% (456) -191% $ 5,103 87% (918) -266% Other income (expenses): Other income (expenses) .. 84 1% 2,516 1053% 594 10% 2,449 710% Income taxes ............. 0 0 -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) ........ 5,467 94% $ 2,060 862% $ 5,697 97% $ 1,531 444% ======== ======== ======== ======== ======== ======== ======== ======== Geographic Region - Net revenue excluding the sale of the "Fallout" Intellectual Property North America .............. 2 3% 2 1% 4 3% 46 13% International .............. 60 97% 198 83% 139 97% 213 62% Oem, royalty and licensing . 0 0% 39 16% 0 0% 86 25% -------- -------- -------- -------- -------- -------- -------- -------- $ 62 100% $ 239 100% $ 143 100% $ 345 100% ======== ======== ======== ======== ======== ======== ======== ======== Platform - Net revenue excluding the sale of the "Fallout" Intellectual Property Personal computers ......... $ 56 90% 85 36% 128 90% 107 31% Video game console ......... $ 6 10% 114 48% 15 10% 152 44% OEM, royalty and licensing . 0 0.0% 40 17% 0 0% 86 25% -------- -------- -------- -------- -------- -------- -------- -------- $ 62 100% $ 239 100% $ 143 100% $ 345 100% ======== ======== ======== ======== ======== ======== ======== ========
11 FALLOUT On April 4,2007 the Company entered into, an Asset Purchase Agreement ( the APA) and a Trademark License Agreement ("the License Back ") with Bethesda Software LLC, a video game developer and publisher( Bethesda") Regarding " Fallout", an intellectual property which was owned by the company (the IP). Although such agreements were signed on April 4, 2007 they were agreed not to be binding until the closing which occurred on April 9,2007. Under the APA, the Company sold all of its rights to the IP to Bethesda for a total amount of $5,750,000 payable to the Company, subject to various conditions, in three cash installments. An aggregate of $4,000,000 was paid in two installments through June 30,2007. The third and final payment to the Company is currently expected to be paid during the fourth quarter of 2007 in the amount of $1,750,000. Under the License Back , the Company obtained an exclusive license, under certain conditions, to use the IP for the purpose of developing an Interplay branded Fallout Massively Multiplayer Online Game ("MMOG). The Company is focused on securing funding for development of a Massively Multiplayer Online Game (MMOG) based on the popular Fallout franchise. Along with its strategy of leveraging its existing portfolio of intellectual gaming properties, the Company intends that Fallout MMOG will play a key roll in the future of the Company. Originally released by Interplay in 1997, Fallout places a player in the role of a vault dweller who ventures into a post-apocalyptic world of mutants, radiation and violence. The game has been widely hailed as an outstanding role-playing game. NORTH AMERICAN, INTERNATIONAL AND OEM, ROYALTY AND LICENSING NET REVENUES EXCLUSIVE OF THE SALE OF "FALLOUT" INTELLELECTUAL PROPERTY. Geographically, our net revenues for the three and six months ended June 30, 2007 and 2006 break down as follows: (in thousands) Three Months Ended June 30 2007 2006 Change % Change - ------------------------------ --------- --------- --------- --------- North America ................ $ 2 $ 2 $ (0) (0%) International ................ 60 198 (138) (70%) OEM, Royalty & Licensing ..... 0 39 (39) (100%) Net Revenues ................. $ 62 $ 239 $ (177) (74%) Six Months Ended June 30 2007 2006 Change % Change - ------------------------------ --------- --------- --------- --------- North America ................ $ 4 $ 46 $ (42) (91%) International ................ 139 213 (74) (35%) OEM, Royalty & Licensing ..... 0 86 (86) (100%) Net Revenues ................. $ 143 $ 345 $ (202) (59%) Net revenues for the three months ended June 30, 2007 were $62,000, a decrease of 74% compared to the same period in 2006. This decrease resulted from an 0% decrease in North American net revenues, a 100% decrease in OEM, royalty and licensing net revenues, and a 70% decrease in International net revenues. Net revenues for the six months ended June 30, 2007 were $143,000, a decrease of 59% compared to the same period in 2006 due to the decrease in back catalog sales. This decrease resulted from a 91% decrease in North America net revenues and 100% decrease in OEM, Royalty and licensing revenues and a 35% decrease in International net revenues due to the decrease in back catalog sales. North American net revenues for the three months ended June 30, 2007 were $2,000. The decrease in North American net revenues in 2007 was mainly due to a 0% decrease in back catalog sales. North America net revenues for the six months ended June 30, 2007 were $4,000. There was no significant change in North American net revenue in 2007. International net revenues for the three months ended June 30, 2007 were $60,000. The decrease in International net revenues for the three months ended June 30, 2007 was mainly due to a 70% decrease in back catalog sales. 12 International net revenues for the six months ended June 30, 2007 were $139,000. The decrease in International net revenue for the six months ended June 30,2007 was mainly due to a 35% decrease in back catalog sales. OEM, royalty and licensing net revenues for the three months ended June 30, 2007 were $0, a decrease of 100% as compared to the same period in 2006 due to a decrease in back catalog sales. OEM, royalty and licensing net revenues for the six months ended June 30, 2007 were $0, a decrease of 100% as compared to the same period in 2006 due to a decrease in back catalog sales. PLATFORM NET REVENUES Our platform net revenues for the three and six months ended June 30, 2007 and 2006 break down as follows: (in thousands) 13 Three Months Ended June 30 2007 2006 Change % Change - --------------------------------- -------- -------- -------- -------- Personal Computer ............... $ 56 $ 85 $ (29) (34%) Video Game Console .............. 6 114 (108) (94%) OEM, Royalty & Licensing ........ 0 40 (40) (100%) Net Revenues .................... $ 62 $ 239 $ (177) (74%) Six Months Ended June 30 2007 2006 Change % Change - --------------------------------- -------- -------- -------- -------- Personal Computer ............... $ 128 $ 107 $ 21 20% Video Game Console .............. 15 152 (137) (90%) OEM, Royalty & Licensing ........ 0 86 (86) (100%) Net Revenues .................... $ 143 $ 345 $ (202) (59%) PC net revenues for the three months ended June 30, 2007 were $56,000, a decrease of 34% compared to the same period in 2006. The decrease in PC net revenues in 2007 was primarily due to lower back catalog sales. Video game console net revenues were $6,000, a decrease of 94% for the three months ended June 30, 2007 compared to the same period in 2006, mainly due to lower back catalog sales. PC net revenues for the six months ended June 30, 2007 were $128,000, a increase of 20% compared to the same period in 2006. The increase in PC net revenues in the six months ended June 30, 2007 was primarily due to higher back catalog sales. Video Game console net revenues were $15,000, a decrease of 90% for the six months ended June 30, 2007 compared to the same period in 2006, mainly due to lower back catalog sales. COST OF GOODS SOLD; GROSS PROFIT MARGIN, EXCLUSIVE OF THE SALE OF "FALLOUT". Our net revenues exclusive of the sale of "Fallout" intellectual property, cost of goods sold and gross margin for the three and six months ended June 30, 2007 and 2006 breakdown as follows: (in thousands) Three Months Ended June 30 2007 2006 Change % Change - --------------------------------- -------- -------- -------- -------- Net Revenues .................... $ 62 $ 239 $ (177) (74%) Cost of Goods Sold .............. 2 146 (144) (99%) Gross Profit Margin ............. $ 60 $ 93 $ (33) (35%) Six Months Ended June 30 2007 2006 Change % Change - --------------------------------- -------- -------- -------- -------- Net Revenues .................... $ 143 $ 345 $ (202) (59%) Cost of Goods Sold .............. 6 152 (146) (96%) Gross Profit Margin ............. $ 137 $ 193 $ (56) (29%) Three Months Ended June 30 2007 2006 Change - ------------------------------------------- -------- -------- -------- Net Revenues .............................. 100% 100% 0% Cost of Goods Sold ........................ 3% 62% (59%) Gross Profit Margin ....................... 97% 38% 59% Six Months Ended June 30 2007 2006 Change - ------------------------------------------- -------- -------- -------- Net Revenues .............................. 100% 100% 0% Cost of Goods Sold ........................ 4% 44% (40%) Gross Profit Margin ....................... 96% 56% (40%) Cost of goods sold related to PC and video game console net revenues represents the manufacturing and related costs of interactive entertainment software products, including costs of media, manuals, duplication, packaging materials, assembly, freight and royalties paid to developers, licensors and hardware manufacturers. Cost of goods sold related to royalty-based net revenues primarily represents third party licensing fees and royalties paid by us. Typically, cost of goods sold as a percentage of net revenues for video game console products is higher than cost of goods sold as a percentage of net revenues for PC based products due to the relatively higher manufacturing and royalty costs associated with video game console and affiliate label products. We also include in the cost of goods sold the amortization of prepaid royalty and license fees paid to third party software developers. We expense prepaid royalties over a period of six months commencing with the initial shipment of the title at a rate based upon 14 the number of units shipped. We evaluate the likelihood of future realization of prepaid royalties and license fees quarterly, on a product-by-product basis, and charge the cost of goods sold for any amounts that we deem unlikely to realize through future product sales. Our cost of goods sold decreased 99% to $2,000 in the three months ended June 30, 2007 compared to the same period in 2006. The decrease was mainly due to lower back catalog sales.. Our cost of goods sold decreased 96% to $6,000 in the six months ended June 30, 2007 compared to the same period in 2006. The decrease was mainly due to lower back catalog sales Our gross margin increased to 97% for the three months ended June 30, 2007 from 38% in the comparable period in 2006. Our gross margin increased to 96% for the six months ended June 30, 2007 period from 56% in the comparable 2006 period. MARKETING AND SALES Our marketing and sales expense for the three months ended June 30, 2007 and 2006 breakdown as follows: (in thousands) Marketing and Sales 2007 2006 Change % Change - ---------------------------------- -------- -------- -------- -------- Three Months Ended June 30 ....... $ 95 $ 127 $ 32 (25%) - ---------------------------------- -------- -------- -------- -------- Six Months Ended June 30 ......... $ 190 $ 274 $ 84 (30%) - ---------------------------------- -------- -------- -------- -------- Marketing and sales expenses primarily consist of advertising and retail marketing support, sales commissions, marketing and sales personnel, customer support services and other related operating expenses. Marketing and sales expenses for the three months ended June 30, 2007 were $95,000, a 25% decrease as compared to the 2006 period. Marketing and sales expenses for the six months ended June 30, 2007 were $190,000 a 30% decrease as compared to the same period during 2006 GENERAL AND ADMINISTRATIVE Our general and administrative expense for the three and six months ended June 30, 2007 and 2006 breakdown as follows: (in thousands) General and Administrative 2007 2006 Change % Change - ---------------------------------- -------- -------- -------- -------- Three Months Ended June 30 ....... $ 332 $ 422 $ (90) (21%) - ---------------------------------- -------- -------- -------- -------- Six Months Ended June 30 ......... $ 594 $ 837 $ (243) (29%) - ---------------------------------- -------- -------- -------- -------- General and administrative expenses primarily consist of administrative personnel expenses, facilities costs, professional fees, bad debt expenses and other related operating expenses. General and administrative expenses for the three months ended June 30, 2007 were $332,000, a 21% decrease as compared to the same period in 2006. The decrease is mainly due to decreases in personnel costs and general expenses. General and administrative expenses for the six months ended June 30, 2007 were $594,000 a 29% decrease as compared to the same period in 2006. The decrease is mainly due to decreases in personnel costs and general expenses as a result of a reduction in administrative personnel and CEO compensation during 2007. OTHER EXPENSE (INCOME), NET Our other expense (income) for the three months ended June 30, 2007 and 2006 breakdown as follows: (in thousands) Other (Income) Expenses 2007 2006 Change % Change - ---------------------------------- -------- -------- -------- -------- Three Months Ended June 30 ....... $ (84) $ (2,516) $ 2,432 (97%) - ---------------------------------- -------- -------- -------- -------- Six Months Ended June 30 ........ $ (594) $ (2,449) $ 1,855 (75%) - ---------------------------------- -------- -------- -------- -------- 15 Other income for the three months ended June 30, 2007 consists primarily of net income related to negotiated settlements in the amount of $85,000, interest expense on debt in the amount of $11,000, foreign currency exchange transactions gains and losses, and rental income in the amount of $10,000. Other income for the six months ended June 30,2007 was $594,000, of which approximately $500,000 consisted of reversal and adjustments to certain accrual and accounts payables as compared to $2,449,000 of income in the same period in 2006. The decrease is attributable to various settlements in 2007 and reversal of a smaller amount of prior year accruals. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2007, we had a working capital deficit of approximately $2.5 million, and our cash balance was approximately $3 million, of which $2.9 million was held in escrow for the benefit of certain creditors. We have sold " Fallout" to a third party and the third and final payment to us is currently expected to be paid during the fourth quarter of 2007 in the amount of $1,750,000, while we have obtained the License Back to allow us to create, develop and exploit a "Fallout" Massively Multiplayer Online Game (MMOG). We currently have no cash reserves and are only able to pay current liabilities. We cannot continue in our current form without obtaining additional financing or income. If we do not receive sufficient financing or income we may (i) liquidate additional assets, (ii) sell the company (iii) seek protection from our creditors including the filing of voluntary bankruptcy, and/or (iv) continue operations, but incur material harm to our business, operations or financial conditions. These conditions, combined with our historical operating losses and our deficits in stockholders' equity and working capital, raise substantial doubt about our ability to continue as a going concern. Additionally, we have reduced our fixed overhead commitments, and cancelled or suspended development on future titles and scaled back certain marketing programs associated with the cancelled projects. Management will continue to pursue various alternatives to improve future operating results. We continue to seek external sources of funding, including but not limited to, incurring debt, the sale of assets or stock, the licensing of certain product rights in selected territories, selected distribution agreements, and/or other strategic transactions sufficient to provide short-term funding, and potentially achieve our long-term strategic objectives. Historically, we have funded our operations primarily from the sale of or royalties generated by licensing of our intellectual property rights and distribution fee advances of our products. Our primary capital needs have historically been working capital requirements necessary to fund our operations. Our operating activities provided cash of $2,942,000 during the six months ended June 30, 2007, primarily attributable to sale of intellectual property, licensing and distribution net of expenditures. We entered into various licensing agreements during the second quarter of 2007 under which we licensed others to exploit games that we have intellectual property rights to. We expect in the remainder of 2007 to enter into similar license arrangements to generate cash for the Company's operations. Currently the Company has no internal development of new titles. We are planning to exploit the License Back of "Fallout" MMOG and are reviewing the avenues for securing financing of at least $30 million to fund its production. If operating revenues are not sufficient to fund our operations, no assurance can be given that alternative sources of funding could be obtained on acceptable terms, or at all. These conditions, combined with our deficits in stockholders' equity and working capital, raise substantial doubt about our ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result from the outcome of this uncertainty. There can be no guarantee that we will be able to meet all contractual obligations or liabilities in the future, including payroll obligations. 16 OFF BALANCE SHEET ARRANGEMENTS We do not have any off-balance sheet arrangements under which we have obligations under a guaranteed contract that has any of the characteristics identified in paragraph 3 of FASB Interpretation No. 45 "Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". We do not have any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets. We also do not have any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument. We have no obligations, including a contingent obligation arising out of a variable interest (as referenced in FASB Interpretation No. 46, Consolidation of Variable Interest Entities, as amended) in an unconsolidated entity that is held by, and material to, us, where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with us. CONTRACTUAL OBLIGATIONS The following table summarizes certain of our contractual obligations under non-cancelable contracts and other commitments at June 30, 2007, and the effect such obligations are expected to have on our liquidity and cash flow in future periods: (in thousands) Less Than 1 - 3 3 - 5 More Than Contractual Obligations Total 1 Year Years Years 5 Years - ----------------------- --------- --------- --------- --------- --------- Lease Commitments (1) . 7 -- 7 -- -- - ----------------------- --------- --------- --------- --------- --------- Total ................ 7 -- 7 -- -- - ----------------------- --------- --------- --------- --------- --------- (1) We have a lease commitment at the Beverly Hills office through April 2008. We also have a lease commitment at our French representation office through February 28, 2008 with an option for the Company to take up to an additional 6 years. Our current cash reserves plus our expected cash from existing operations assuming full receipt of the deferred consideration from the sale of "Fallout" will only be sufficient to fund our anticipated expenditures through the end of the third quarter of 2008. We will need to continue to consummate certain sales of assets and/or raise additional financing to meet our contractual obligations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not have any derivative financial instruments as of June 30 ,2007. However, we are exposed to certain market risks arising from transactions in the normal course of business, principally the risk associated with foreign currency fluctuations. We do not hedge our interest rate risk, or our risk associated with foreign currency fluctuations. INTEREST RATE RISK Currently, we do not have a line of credit, but we anticipate we may establish a line of credit in the future. FOREIGN CURRENCY RISK Our earnings are affected by fluctuations in the value of our foreign subsidiary's functional currency, and by fluctuations in the value of the functional currency of our foreign receivables. We recognized gains of $40,000 and $2,000 during the six months ended June 30, 2007 and 2006 respectively, primarily in connection with foreign exchange fluctuations in the timing of payments received on accounts receivable which have been from Interplay Productions Ltd. ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and interim Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer 17 and interim Chief Financial Officer concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, in ensuring that information required to be disclosed is recorded, processed, summarized and reported within the time period specified in the SEC's rules and forms and in timely alerting him to material information required to be included in this report. There were no changes made in our internal controls over financial reporting that occurred during the six months ended June 30, 2007 that have materially affected or are reasonably likely to materially affect these controls. Our management, including the Chief Executive Officer and Interim Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material errors. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations on all internal control systems, our internal control system can provide only reasonable assurance of achieving its objectives and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, and/or by management override of the control. The design of any system of internal control is also based in part upon certain assumptions about the likelihood of future events, and there can be no can provide only reasonable, not absolute assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in circumstances, and/or the degree of compliance with the policies and procedures may deteriorate. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information required in this Item 1 is incorporated herein by reference to the information in "Note 2. Commitments and Contingencies" to our condensed consolidated financial statements located in Item 1, Part 1 of this Report. ITEM 1A. RISK FACTORS RISK FACTORS Our future operating results depend upon many factors and are subject to various risks and uncertainties. These major risks and uncertainties are discussed below. There may be additional risks and uncertainties which we do not believe are currently material or are not yet known to us but which may become such in the future. Some of the risks and uncertainties which may cause our operating results to vary from anticipated results or which may materially and adversely affect our operating results are as follows: RISKS RELATED TO OUR FINANCIAL RESULTS WE CURRENTLY HAVE A NUMBER OF OBLIGATIONS THAT WE ARE UNABLE TO MEET WITHOUT GENERATING ADDITIONAL INCOME OR RAISING ADDITIONAL CAPITAL. IF WE CANNOT GENERATE ADDITIONAL INCOME OR RAISE ADDITIONAL CAPITAL IN THE NEAR FUTURE, WE MAY BECOME INSOLVENT, FAIL TO OBTAIN APPROPRIATE RELIEF FROM BANKRUPTCY, AND/OR BE MADE BANKRUPT AND/OR OUR STOCK MAY BECOME ILLIQUID OR WORTHLESS. As of June 30, 2007, our cash balance included approximately $2.9 million held in escrow for the benefit of certain creditors. Our outstanding and current liabilities totaled approximately $4.8 million. The $2.9 million held in escrow was utilized to reduce outstanding liabilities subsequent to June 30, 2007. If we do not receive sufficient financing or sufficient funds from our operations we may (i) liquidate assets, (ii) seek or be forced into bankruptcy and/or obtain appropriate relief from bankruptcy and/or, (iii) continue operations, but incur material harm to our business, operations or financial condition. These measures could have a material adverse effect on our ability to continue as a 18 going concern. Additionally, because of our financial condition, our Board of Directors has a duty to our creditors that may conflict with the interests of our stockholders. When a Delaware corporation is operating in the vicinity of insolvency, the Delaware courts have imposed upon the corporation's directors a fiduciary duty to the corporation's creditors. Our Board of Directors may be required to make decisions that favor the interests of creditors at the expense of our stockholders to fulfill its fiduciary duty. For instance, we may be required to preserve our assets to maximize the repayment of debts versus employing the assets to further grow our business and increase shareholder value. If we cannot generate enough income from our operations or are unable to locate additional funds through financing, we will not have sufficient resources to continue operations. WE HAVE A HISTORY OF LOSSES, AND MAY HAVE TO FURTHER REDUCE OUR COSTS BY CURTAILING FUTURE OPERATIONS TO CONTINUE AS A BUSINESS. For the six months ended June 30, 2007, our net income from operations was $5.7 million. During the second quarter we had a one-time sale of the intellectual property "Fallout" which was sold to Bethesda in the amount of $5.75 million, However we have incurred significant net losses in previous years. Although for the year ended December 31, 2006, our net income was $3.1 million, $4.5 million of our revenue was recognized from the reversals of certain settlements, reversal of reserves and prior year payables, (which did not generate cash flow). As of June 30, 2007 we had an accumulated deficit of $125 million. Our ability to fund our capital requirements out of our available cash and cash generated from our operations depends on a number of factors. Some of these factors include the progress of our licensees' product distributions and licensing of our intellectual property, the rate of growth of our business, and our commercial success. If we cannot generate positive cash flow from operations, we will have to continue to reduce our costs and raise working capital from other sources. These measures could include selling or consolidating certain operations or assets, and delaying, canceling or scaling back product development and marketing programs. These measures could materially and adversely affect our ability to publish successful titles, and may not be enough to permit us to operate profitability, or at all. OUR ABILITY TO EFFECT A FINANCING TRANSACTION TO FUND OUR OPERATIONS COULD ADVERSELY AFFECT THE VALUE OF YOUR STOCK. We expect to consummate a financing transaction to receive additional liquidity. This additional financing may take the form of raising additional capital through public or private equity offerings or debt financing. To the extent we raise additional capital by issuing equity securities, we cannot be certain that additional capital will be available to us on favorable terms and our stockholders will likely experience substantial dilution. Our certificate of incorporation provides for the issuance of preferred stock however we currently do not have any preferred stock issued and outstanding. Any new equity securities issued may have greater rights, preferences or privileges than our existing common stock. Material shortage of capital will require us to take drastic steps such as reducing our level of operations, disposing of selected assets, effecting financings on less than favorable terms or seeking protection under federal bankruptcy laws. RISKS RELATED TO OUR BUSINESS WE BELIEVE THERE MAY HAVE BEEN OR MAY BE ABOUT TO BE A SALE BY TITUS INTERACTIVE SA (PLACED IN INVOLUNTARY BANKRUPTCY IN JANUARY, 2005) OF A MAJORITY OF OUR VOTING STOCK. Titus owned approximately 58 million shares of common stock and had majority ownership of us. If Titus has sold its interest in us, the new shareholders can control substantially all matters requiring stockholder approval, including the election of directors, subject to our stockholders' cumulative voting rights, and the approval of mergers or other business combination transactions. If there remains a concentration of voting power, it could discourage or prevent a change in control that otherwise could result in a premium in the price of our common stock. Further, any sale by Titus, if it has occurred or occus, may not be favorable to our other stockholders and could have the effect of making any business combination, or a sale of all of our shares as a whole, more difficult. We have not been contacted by any new shareholder(s) as of the date of this filing. 19 THE LACK OF ANY CREDIT AGREEMENT HAS RESULTED IN A SUBSTANTIAL REDUCTION IN THE CASH AVAILABLE TO FINANCE OUR OPERATIONS. We are currently operating without a credit agreement or credit facility. There can be no assurance that we will be able to enter into a new credit agreement or that if we do enter into a new credit agreement, it will be on terms favorable to us. WE CONTINUE TO OPERATE WITHOUT A CHIEF FINANCIAL OFFICER, WHICH MAY AFFECT OUR ABILITY TO MANAGE OUR FINANCIAL OPERATIONS. We are presently without a CFO, and Mr. Caen assumed the position of interim-CFO and continues as CFO . OUR BUSINESS AND INDUSTRY IS BOTH SEASONAL AND CYCLICAL. IF WE FAIL TO DELIVER OUR PRODUCTS AT THE RIGHT TIMES, OUR SALES WILL SUFFER. Our business is highly seasonal, with the highest levels of consumer demand occurring in the fourth quarter. Our industry is also cyclical. The timing of hardware platform introduction is often tied to the year-end season and is not within our control. As new platforms are being introduced into our industry, consumers often choose to defer game software purchases until such new platforms are available, which would cause sales of our products on current platforms to decline. This decline may not be offset by increased sales of products for the new platform. THE UNPREDICTABILITY OF FUTURE RESULTS MAY CAUSE OUR STOCK PRICE TO REMAIN DEPRESSED OR TO DECLINE FURTHER. Our operating results have fluctuated in the past and may fluctuate in the future due to several factors, some of which are beyond our control. These factors include: o demand for our products and our competitors' products; o the size and rate of growth of the market for interactive entertainment software; o changes in personal computer and video game console platforms; o the timing of announcements of new products by us and our competitors and the number of new products and product enhancements released by us and our competitors; o changes in our product mix; o the number of our products that are returned; and o the level of our international and original equipment manufacturer royalty and licensing net revenues. Many factors make it difficult to accurately predict the quarter in which we will ship our products. Some of these factors include: o the uncertainties associated with the interactive entertainment software development process; o approvals required from content and technology licensors; and o the timing of the release and market penetration of new game hardware platforms. THERE ARE HIGH FIXED COSTS TO DEVELOPING OUR PRODUCTS. IF OUR REVENUES DECLINE BECAUSE OF DELAYS IN THE DISTRIBUTION OF OUR PRODUCTS, OR IF THERE ARE SIGNIFICANT DEFECTS OR DISSATISFACTION WITH OUR PRODUCTS, OUR BUSINESS COULD BE HARMED. Although for the year ended December 31, 2006, our net income was $3.1 million, $4.5 million was from one time non recurring events, and we have incurred significant net losses in previous years and $4.5 million did not generate cash flow. Our losses in the past stemmed partly from the significant costs we incurred to develop our entertainment software products, product returns and price concessions. Moreover, a significant portion of our operating expenses is relatively fixed, with planned expenditures based largely on sales forecasts. At the same time, most of our products have a relatively short life cycle and sell for a limited period of time after their initial release, usually less than one year. Relatively fixed costs and short windows in which to earn revenues mean that sales of new products are important in enabling us to recover our development costs, to fund operations and to replace declining net revenues from older products. Our failure to accurately assess the commercial success of our new products, and our delays in licensing existing products could reduce our net. 20 IF OUR PRODUCTS DO NOT ACHIEVE BROAD MARKET ACCEPTANCE, OUR BUSINESS COULD BE HARMED SIGNIFICANTLY. Consumer preferences for interactive entertainment software are always changing and are extremely difficult to predict. Historically, few interactive entertainment software products have achieved continued market acceptance. Instead, a limited number of releases have become "hits" and have accounted for a substantial portion of revenues in our industry. Further, publishers with a history of producing hit titles have enjoyed a significant marketing advantage because of their heightened brand recognition and consumer loyalty. We expect the importance of introducing hit titles to increase in the future. We cannot assure you that our licensing of products will achieve significant market acceptance, or that we will be able to sustain this acceptance for a significant length of time if we achieve it. We believe that our future revenue will continue to depend on the successful production of hit titles on a continuous basis by us or our licensees. Because we and our licensees introduce a relatively limited number of new products in a given period, the failure of one or more of these products to achieve market acceptance could cause material harm to our business. Further, if our or are licensees' products do not achieve market acceptance, we could be forced to accept substantial product returns or grant significant pricing concessions to maintain our or our licensees' relationship with retailers and our or our licensees' access to distribution channels. If we or our licensees are forced to accept significant product returns or grant significant pricing concessions, our business and financial results could suffer material harm. WE HAVE A LIMITED NUMBER OF KEY MANAGEMENT AND OTHER PERSONNEL. THE LOSS OF ANY SINGLE MEMBER OF MANAGEMENT OR KEY PERSON OR THE FAILURE TO HIRE AND INTEGRATE CAPABLE NEW KEY PERSONNEL COULD HARM OUR BUSINESS. Our business requires extensive time and creative effort to produce and market. Our future success also will depend upon our ability to attract, motivate and retain qualified employees and contractors, particularly software design and development personnel. Competition for highly skilled employees is intense, and we may fail to attract and retain such personnel. Alternatively, we may incur increased costs in order to attract and retain skilled employees. Our executive management team currently consists of CEO and interim CFO Herve Caen. Our failure to recruit or retain the services of key personnel, including competent executive management, or to attract and retain additional qualified employees could cause material harm to our business. OUR INTERNATIONAL SALES EXPOSE US TO RISKS OF UNSTABLE FOREIGN ECONOMIES, DIFFICULTIES IN COLLECTION OF REVENUES, INCREASED COSTS OF ADMINISTERING INTERNATIONAL BUSINESS TRANSACTIONS AND FLUCTUATIONS IN EXCHANGE RATES. Our net revenues from international sales accounted for approximately 97% of our total net video game revenues for the six months ending June 30, 2007 and 62% for 2006.To the extent our resources allow, we intend to continue to expand our direct and indirect sales, marketing and product localization activities worldwide. Our international sales are subject to a number of inherent risks, including the following: o recessions in foreign economies may reduce purchases of our products; o translating and localizing products for international markets is time consuming and expensive; o accounts receivable are more difficult to collect and when they are collectible, they may take longer to collect; o regulatory requirements may change unexpectedly; o it is difficult and costly to staff and manage foreign operations; o fluctuations in foreign currency exchange rates; o political and economic instability; and o delays in market penetration of new platforms in foreign territories. These factors may cause material declines in our future international net revenues and, consequently, could cause material harm to our business. A significant, continuing risk we face from our international sales and operations stems from currency exchange rate fluctuations. Because we do not engage in currency hedging activities, fluctuations in currency 21 exchange rates have caused significant reductions in our net revenues from international sales and licensing due to the loss in value upon conversion into U.S. Dollars. We may suffer similar losses in the future. OUR OR OUR LICENSEES' CUSTOMERS HAVE THE ABILITY TO RETURN PRODUCTS OR TO RECEIVE PRICING CONCESSIONS AND SUCH RETURNS AND CONCESSIONS COULD REDUCE OUR NET REVENUES AND RESULTS OF OPERATIONS. We are exposed to the risk of product returns and pricing concessions with respect to our or our licensees' distributors. Our or our licensees' distributors allow retailers to return defective, shelf-worn and damaged products in accordance with negotiated terms, and also offer a 90-day limited warranty to end users that products will be free from manufacturing defects. In addition, our or our licensees' provide pricing concessions to customers to manage customers' inventory levels in the distribution channel. Our or our licensees' distributors could be forced to accept substantial product returns and provide pricing concessions to maintain relationships with retailers and their access to distribution channels. RISKS RELATED TO OUR INDUSTRY INADEQUATE INTELLECTUAL PROPERTY PROTECTIONS COULD PREVENT US FROM ENFORCING OR DEFENDING OUR PROPRIETARY TECHNOLOGY. We regard our software as proprietary and rely on a combination of patent, copyright, trademark and trade secret laws, employee and third party nondisclosure agreements and other methods to protect our proprietary rights. We own or license various copyrights and trademarks, and hold the rights to one patent application related to one of our titles. While we provide "shrink-wrap" license agreements or limitations on use with our software, it is uncertain to what extent these agreements and limitations are enforceable. We are aware that some unauthorized copying occurs within the computer software industry, and if a significantly greater amount of unauthorized copying of our interactive entertainment software products were to occur, it could cause material harm to our business and financial results. Policing unauthorized use of our products is difficult, and software piracy can be a persistent problem, especially in some international markets. Further, the laws of some countries where our products are or may be distributed either do not protect our products and intellectual property rights to the same extent as the laws of the United States, or are weakly enforced. Legal protection of our rights may be ineffective in such countries, and as we leverage our software products using emerging technologies such as the internet and online services, our ability to protect our intellectual property rights and to avoid infringing others' intellectual property rights may diminish. We cannot assure you that existing intellectual property laws will provide adequate protection for our products in connection with these emerging technologies. We lack resources to defend proprietary technology. WE MAY UNINTENTIONALLY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH COULD EXPOSE US TO SUBSTANTIAL DAMAGES OR RESTRICT OUR OPERATIONS. o As the number of interactive entertainment software products increases and the features and content of these products continue to overlap, software developers increasingly may become subject to infringement claims. Although we believe that we make reasonable efforts to ensure that our products do not violate the intellectual property rights of others, it is possible that third parties still may claim infringement. From time to time, we receive communications from third parties regarding such claims. Existing or future infringement claims against us, whether valid or not, may be time consuming and expensive to defend. Intellectual property litigation or claims could force us to do one or more of the following: cease selling, incorporating or using products or services that incorporate the challenged intellectual property; o obtain a license from the holder of the infringed intellectual property, which license, if available at all, may not be available on commercially favorable terms; or o redesign our interactive entertainment software products, possibly in a manner that reduces their commercial appeal. Any of these actions may cause material harm to our business and financial results. 22 OUR BUSINESS IS INTENSELY COMPETITIVE AND PROFITABILITY IS INCREASINGLY DRIVEN BY A FEW KEY TITLE RELEASES. IF WE ARE UNABLE TO DELIVER KEY TITLES, OUR BUSINESS MAY BE HARMED. Competition in our industry is intense. New videogame products are regularly introduced. Increasingly, profits and revenues in our industry are dominated by certain key product releases and are increasingly produced in conjunction with the latest consumer and media trends. Many of our competitors may have more finances and other resources for the development of product titles than we do. If our competitors develop more successful products, or if we do not continue to develop consistently high-quality products, our revenue will decline. IF WE FAIL TO ANTICIPATE CHANGES IN VIDEO GAME PLATFORMS AND TECHNOLOGY, OUR BUSINESS MAY BE HARMED. The interactive entertainment software industry is subject to rapid technological change. New technologies could render our current products or products in development obsolete or unmarketable. Some of these new technologies include: o operating systems; o new media formats; o releases of new video game consoles; o new video game systems by Sony, Microsoft, Nintendo and others. We must continually anticipate and assess the emergence of, and market acceptance of, new interactive entertainment software platforms well in advance of the time the platform is introduced to consumers. Because product development cycles are difficult to predict, we must make substantial product development and other investments in a particular platform well in advance of introduction of the platform. If the platforms for which we develop new software products or modify existing products are not released on a timely basis or do not attain significant market penetration, or if we develop products for a delayed or unsuccessful platform, our business and financial results could suffer material harm. New interactive entertainment software platforms and technologies also may undermine demand for products based on older technologies. Our success will depend in part on our ability to adapt our products to those emerging game platforms that gain widespread consumer acceptance. Our business and financial results may suffer material harm if we fail to: o anticipate future technologies and platforms and the rate of market penetration of those technologies and platforms; o obtain licenses to develop products for those platforms on favorable terms; or o create software for those new platforms on a timely basis. OUR SOFTWARE MAY BE SUBJECT TO GOVERNMENTAL RESTRICTIONS OR RATING SYSTEMS. Legislation is periodically introduced at the state and federal levels in the United States and in foreign countries to establish a system for providing consumers with information about graphic violence and sexually explicit material contained in interactive entertainment software products. In addition, many foreign countries have laws that permit governmental entities to censor the content of interactive entertainment software. We believe that mandatory government-run rating systems eventually will be adopted in many countries that are significant markets or potential markets for our products. We may be required to modify our products to comply with new regulations, which could delay the release of our products in those countries. Due to the uncertainties regarding such rating systems, confusion in the marketplace may occur, and we are unable to predict what effect, if any, such rating systems would have on our business. In addition to such regulations, certain retailers have in the past declined to stock some of our products because they believed that the content of the packaging artwork or the products would be offensive to the retailer's customer base. While to date these actions have not caused material harm to our business, we cannot assure you that similar actions by our distributors or retailers in the future would not cause material harm to our business. 23 RISKS RELATED TO OUR STOCK SOME PROVISIONS OF OUR CHARTER DOCUMENTS MAY MAKE TAKEOVER ATTEMPTS DIFFICULT, WHICH COULD DEPRESS THE PRICE OF OUR STOCK AND INHIBIT OUR ABILITY TO RECEIVE A PREMIUM PRICE FOR YOUR SHARES. Our Certificate of Incorporation, as amended, provides for 5,000,000 authorized shares of Preferred Stock. Our Board of Directors has the authority, without any action by the stockholders, to issue up to 4,280,576 shares of preferred stock and to fix the rights and preferences of such shares. 719,424 shares of Series A Preferred Stock was issued to Titus in the past, which amount has been fully converted into our common stock. In addition, our certificate of incorporation and bylaws contain provisions that: o eliminate the ability of stockholders to act by written consent and to call a special meeting of stockholders; and o require stockholders to give advance notice if they wish to nominate directors or submit proposals for stockholder approval. These provisions may have the effect of delaying, deferring or preventing a change in control, may discourage bids for our common stock at a premium over its market price and may adversely affect the market price, and the voting and other rights of the holders, of our common stock. OUR COMMON STOCK MAY BE SUBJECT TO THE "PENNY STOCK" RULES WHICH COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK. "Penny stocks" generally include equity securities with a price of less than $5.00 per share, which are not traded on a national stock exchange or on NASDAQ, and are issued by a company that has tangible net assets of less than $2,000,000 if the company has been operating for at least three years. The "penny stock" rules require, among other things, broker dealers to satisfy special sales practice requirements, including making individualized written suitability determinations and receiving a purchaser's written consent prior to any transaction. In addition, additional disclosure in connection with trades in the common stock are required, including the delivery of a disclosure schedule prescribed by the SEC relating to the "penny stock" market. These additional burdens imposed on broker-dealers may discourage them from effecting transactions in our common stock, which may make it more difficult for an investor to sell their shares and adversely affect the market price of our common stock. OUR STOCK IS VOLATILE The trading price of our common stock has previously fluctuated and could continue to fluctuate in response to factors that are largely beyond our control, and which may not be directly related to the actual operating performance of our business, including: o general conditions in the computer, software, entertainment, media or electronics industries; o changes in earnings estimates or buy/sell recommendations by analysts; o investor perceptions and expectations regarding our products, plans and strategic position and those of our competitors and customers; and o price and trading volume volatility of the broader public markets, particularly the high technology sections of the market. ITEM 3. DEFAULTS UPON SENIOR SECURITIES We had received several notices of default on payment on principal and interest from Warner Bros. Entertainment Inc. on an Amended and Restated Secured Convertible Promissory Note, dated April 30, 2002, with an original principal sum of $2,000,000. All amounts as of June 30,2007 have been paid in full. 24 ITEM 6. EXHIBITS (a) Exhibits - The following exhibits, other than exhibit 32.1 which is being furnished herewith, are filed as part of this report: EXHIBIT NUMBER EXHIBIT TITLE ------- -------------------------------------------------------------- 10.49 Trademark License Agreement by and between Bethesda Softworks LLC and the Company as of April 4, 2007 (incorporated herein by reference to Exhibit 10.49 to Form 8-K filed on April 12, 2007). 10.50 Asset Purchase Agreement by and between Bethesda Softworks LLC and the Company dated as of April 4, 2007. 31.1 Certificate of Herve Caen, Chief Executive Officer of Interplay Entertainment Corp. pursuant to Rule 13a-14(a) of the Securities and Exchange Act of 1934, as amended. 31.2 Certificate of Herve Caen, Interim Chief Financial Officer of Interplay Entertainment Corp. pursuant to Rule 13a-14(a) of the Securities and Exchange Act of 1934, as amended. 32.1 Certificate of Herve Caen, Chief Executive Officer and Interim Chief Financial Officer of Interplay Entertainment Corp. pursuant to Rule 13a-14(b) of the Securities and Exchange Act of 1934, as amended. 25 SIGNATURES Pursuant to the requirements 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. INTERPLAY ENTERTAINMENT CORP. Date: August 14, 2007 By: /s/ HERVE CAEN --------------------------------------- Herve Caen, Chief Executive Officer and Interim Chief Financial Officer (Principal Executive and Financial and Accounting Officer) 26 EX-10 2 ex10-50.txt EX-10.50 EXHIBIT 10.50 ASSET PURCHASE AGREEMENT - BY AND BETWEEN - INTERPLAY ENTERTAINMENT CORP. - AND - BETHESDA SOFTWORKS LLC DATED AS OF APRIL 4, 2007 ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT (this "AGREEMENT") is entered into as of April 4, 2007 (the "EFFECTIVE Date") between BETHESDA SOFTWORKS LLC, a Delaware limited liability company (the "PURCHASER"), and INTERPLAY ENTERTAINMENT CORP., a Delaware corporation (the "SELLER"). Purchaser and Seller are sometimes referred to herein individually as a "PARTY" and collectively as the "PARTIES." RECITALS: A. On June 29, 2004, Seller and Purchaser entered into an Exclusive Licensing Agreement, amended August 19, 2004 (as amended to date, the "EXCLUSIVE LICENSING AGREEMENT"), whereby Purchaser acquired exclusive, worldwide, perpetual unrestricted intellectual property rights in and to all future uses of every kind to the brand and interactive entertainment software property known as "FALLOUT" and to the "FALLOUT" trademark, to the extent expressly provided for under the Exclusive Licensing Agreement. Through and as a result of the Exclusive Licensing Agreement, Purchaser has the unfettered right, subject to license royalties, to use and exploit the Fallout Intellectual Property (defined below) and is prepared to purchase actual legal ownership of all right, title, and interest in and to the Fallout Intellectual Property and in the other Acquired Assets (defined below). B. The Seller and Purchaser entered into arms' length negotiations for the sale of the Fallout Intellectual Property which would eliminate risk to the Seller concerning the timing and amount of any royalties, if any, to be paid in the future under the Exclusive Licensing Agreement, and provide the Seller the fair value of the Fallout Intellectual Property to the extent Purchaser does not already effectively have it under the Exclusive Licensing Agreement, and would eliminate Purchaser's potential future royalty obligations to the Seller. C. On November 1, 2006, while the negotiations between the Seller and Purchaser were ongoing, four petitioning creditors filed an involuntary bankruptcy petition under Chapter 7 of Title 11 of the United States Bankruptcy Code (the "BANKRUPTCY CODE") against Seller (the "INVOLUNTARY PETITION") in the United States Bankruptcy Court for the Central District of California, Case No. 06-11994 TA (the "BANKRUPTCY CASE"), and on November 30, 2006, Seller answered the Involuntary Petition in the Bankruptcy Case by filing an Answer of Alleged Debtor To Involuntary Petition seeking to dismiss the Bankruptcy Case. D. The Seller desires, based on the fair value of the Acquired Assets, to monetize the benefit of its bargain with Purchaser under the Exclusive Licensing Agreement by converting the possibility of contingent future payments from Purchaser into certain amounts to be paid to the Seller by Purchaser as provided in this Agreement. Seller recognizes the uncertainties of receiving further advances and/or future game royalties under the Exclusive Licensing Agreement, and Purchaser is willing to acquire from Seller, as permitted under Sections 303(f) and 549(b) of the Bankruptcy Code, all right, title and interest in such Acquired Assets, for the cash consideration described herein, which the Parties agree represent the fair value of the Acquired Assets. E. Purchaser and Seller enter into this Agreement in good faith and for bona fide business reasons and purposes. AGREEMENT: NOW, THEREFORE, in consideration of the promises and mutual covenants and agreements set forth in this Agreement, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows: ARTICLE I DEFINITIONS Capitalized terms used but not otherwise defined in this Agreement have the respective meanings given thereto in EXHIBIT A to this Agreement. 2 ARTICLE II PURCHASE AND SALE; CLOSING 2.1 ACQUIRED ASSETS. Upon the terms and subject to the conditions of this Agreement, and effective upon the Closing Date, (x) Seller hereby irrevocably sells, assigns, transfers, conveys and delivers to Purchaser on the Closing Date, and (y) Purchaser hereby purchases, acquires and accepts from Seller, all of Seller's right, title and interest in and to all of the Acquired Assets. As used herein, the term "ACQUIRED ASSETS" shall mean, collectively, the Purchased Intellectual Property, the other Assets identified on PART 2.1 OF THE DISCLOSURE SCHEDULE, and the Enforcement Rights. 2.2 ASSUMED LIABILITIES. Upon and subject to the terms, conditions, representations, and warranties of Seller contained herein, and subject to SECTION 2.3, Purchaser agrees, effective at the time of Closing, to assume only the following liabilities (collectively, the "ASSUMED LIABILITIES"): all filing fees for transferring ownership of the Fallout Intellectual Property arising and accruing on and after the Closing and for maintaining and continuing to pursue for Purchaser's benefit any registrations or applications relating to the Fallout Intellectual Property. 2.3 EXCLUDED LIABILITIES. Notwithstanding any provision in this Agreement or anything herein or otherwise to the contrary, Purchaser is assuming only the Assumed Liabilities and is not assuming, nor will Purchaser be obligated to pay, perform, or discharge any other liability or obligation of Seller or any Affiliate of Seller or of any predecessor stockholder, or other owner of all or part of Seller or any Affiliate of Seller (collectively, the "SELLER GROUP"), of any kind or nature whatsoever, whether direct or indirect, known or unknown, absolute or contingent, presently in existence or accrued, or arising or asserted after the date hereof or on or after the Closing (collectively, the "EXCLUDED LIABILITIES"). Any and all such other liabilities and obligations shall be retained by and remain obligations and liabilities of the Seller Group. 2.4 CLOSING. The consummation of the purchase and sale of the Acquired Assets in accordance with this Agreement and the closing of the other transactions provided for hereunder (the "CLOSING") shall take place at 10:30 a.m., local time, at the offices of DLA Piper US LLP, 1775 Wiehle Avenue, Suite 400, Reston, Virginia 20190 on APRIL 6, 2007, or at such other later time and place as the Parties shall agree in writing, subject in each case to satisfaction or waiver by the Seller and Purchaser, as applicable, of the conditions precedent to closing set forth in SECTION 6.1 and SECTION 6.2, respectively. The actual date of the Closing shall be referred to as the "CLOSING DATE" and the Closing shall be deemed effective as of 12:01 a.m. on the Closing Date. The Parties hereby agree to deliver at the Closing such documents, certificates of officers and other instruments as are set forth elsewhere in this Agreement and as may reasonably be required to effect the transfer by the Seller of the Acquired Assets to the Purchaser and to vest full title in and to the Acquired Assets in Purchaser, free and clear of any and all Encumbrances. All events which shall occur at the Closing shall be deemed to occur simultaneously. 2.5 SELLER'S CLOSING DELIVERIES. At the Closing, Seller will deliver to Purchaser (in addition to a duly executed copy of this Agreement, together with all final exhibits, annexes, and schedules hereto) the following, with all documents and instruments below to be duly executed by the Seller where appropriate and notarized where indicated in the exhibits, annexes, or schedules to this Agreement: (a) the Trademark License Agreement, in the form attached hereto as EXHIBIT B-1 (the "LICENSE BACK Agreement"); (b) the Special Rules System License Agreement, in the form attached hereto as EXHIBIT B-2 (the "SPECIAL RULES LICENSE AGREEMENT"); (c) the bill of sale, in the form attached hereto as EXHIBIT B-3 (the "BILL OF SALE"); (d) the instrument of assignment and assumption, in the form attached hereto as EXHIBIT B-4 (the "INSTRUMENT OF ASSIGNMENT AND ASSUMPTION"); (e) the applicable assignment agreements designated by the Purchaser, in the forms attached hereto as EXHIBIT C-1 and EXHIBIT C-2 (the "ASSIGNMENTS"), respectively; 3 (f) a power of attorney in the form attached hereto as EXHIBIT C-3; (g) all tangible embodiments of the Purchased Intellectual Property, including, without limitation, the Software and Documentation included in the Purchased Intellectual Property, but with respect to Third Party Intellectual Property Rights only to the extent Seller has the right in connection therewith to provide same; (h) all other tangible and intangible property included in the Purchased Intellectual Property, but with respect to Third Party Intellectual Property Rights only to the extent Seller has the right in connection therewith to provide same; (i) an officer's and secretary's closing certificate in form and substance acceptable to Purchaser; (j) the Escrow Agreement, in the form attached hereto as EXHIBIT D; and (k) such other instruments, documents, certificates and closing deliverables as Purchaser may reasonably request or may require in connection with this Agreement and the transactions provided for herein. 2.6 PURCHASER'S CLOSING DELIVERIES. At the Closing, Purchaser will deliver to the Seller (in addition to a duly executed copy of this Agreement, together with all final exhibits, annexes, and schedules hereto) the following, with all documents and instruments below to be duly executed by the Purchaser where appropriate and notarized where indicated in the annex, schedules, or exhibits to this Agreement: (a) the License Back Agreement; (b) the Special Rules License Agreement; (c) the Bill of Sale; (d) the Instrument of Assignment and Assumption; (e) the Trademark Assignment Agreement; (f) the Copyright Assignment Agreement; (g) the Escrow Agreement; and (h) the First Installment, payable upon the Closing under SECTION 2.7 below. 2.7 PURCHASE PRICE. In addition to the Assumed Liabilities, the purchase price for the Acquired Assets (together, the "PURCHASE PRICE") shall be Five Million Seven Hundred Fifty Thousand and 00/100 Dollars ($5,750,000.00), payable in three installments as provided herein, upon the terms and conditions set forth in this Agreement and in reliance on the representations, warranties, covenants and agreements of Seller. At the Closing, the Acquired Assets automatically will be transferred to, and all right, title and interest therein immediately vested in, the Purchaser. (a) FIRST INSTALLMENT. The Purchaser shall deliver the sum of TWO MILLION AND 00/100 DOLLARS ($2,000,000.00) of the Purchase Price (the "FIRST INSTALLMENT") in immediately available U.S. dollar-denominated funds by wire transfer as follows: (i) TWO HUNDRED THOUSAND AND 00/100 DOLLARS ($200,000.00) to an account as specified on the Payment Schedule attached hereto and (ii) ONE MILLION EIGHT HUNDRED THOUSAND AND 00/L00 DOLLARS ($1,800,000.00) to a separate segregated escrow account ("ESCROW ACCOUNT") established pursuant to the Escrow Agreement (at EXHIBIT D), as specified in the PAYMENT SCHEDULE attached hereto, with said funds to be used to obtain full and complete releases, releases of liens, satisfactions of judgments or discharges of liabilities (in the form of the releases attached to the Escrow Agreement) as to all of the Encumbrances listed in PART 2.7(A) OF THE DISCLOSURE SCHEDULE as promptly as practicable following the Closing Date. (b) SECOND INSTALLMENT. Upon entry by the court in the Bankruptcy Case of a conditional order of dismissal in a form reasonably satisfactory to the Purchaser ("CONDITIONAL ORDER"), the Purchaser shall deliver the sum of TWO MILLION AND 00/100 DOLLARS ($2,000,000.00) of the Purchase Price the "SECOND INSTALLMENT") in immediately available U.S. dollar-denominated funds by wire transfer to the 4 Escrow Account, with said funds to be used to satisfy the requirements of the Conditional Order. In the event the Bankruptcy Case is not dismissed pursuant to a final, non-appealable order (FINAL DISMISSAL ORDER") within ninety (90) days from the date of issuance of the Conditional Order, any funds remaining in the Escrow Account shall thereafter be distributed only as directed by the court in the Bankruptcy Case. (c) THIRD INSTALLMENT. The balance of the Purchase Price in the sum of ONE MILLION SEVEN HUNDRED AND FIFTY THOUSAND AND 00/100 DOLLARS ($1,750,000.00) shall be due, owing, and payable ninety (90) days following issuance of a Final Dismissal Order ("THIRD INSTALLMENT DATE") on condition that (i) the Seller provided written evidence, reasonably satisfactory to Purchaser, that the Encumbrances listed in PART 2.7(A) OF THE DISCLOSURE SCHEDULE have been released, satisfied or discharged in full and releases of liens and satisfactions of judgments have been filed with all applicable courts, Secretaries of State or other entities, (ii) no new bankruptcy or insolvency proceedings against Seller have been filed, (iii) no Encumbrances or challenges of any kind exist or have arisen with respect to Purchaser's clear title and ownership of the Acquired Assets, and (iv) the Seller then remains in compliance with all of its covenants under this Agreement and all related agreements. If such conditions are met to Purchaser's satisfaction, then the Purchaser shall deliver ONE MILLION SEVEN HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($1,750,000.00) in immediately available U.S. dollar-denominated funds by wire transfer as specified on the Payment Schedule attached hereto (the "THIRD INSTALLMENT"). Whether or not the contingent Third Installment is earned, paid or released, if at any time any Encumbrances or any challenges to Purchaser's clear title and ownership of any of the Acquired Assets arise after the Third Installment Date, the Seller shall take immediate action to resolve and fully discharge and cause to be released any and all such Encumbrances and/or challenges and ensure to Purchaser's satisfaction that there are no Encumbrances on Purchaser's clear title to and unencumbered ownership of the Acquired Assets. 2.8 EXCLUSIVE LICENSING AGREEMENT. Effective automatically upon Closing, Purchaser shall have no obligations to pay any consideration under the Exclusive Licensing Agreement, and the Exclusive Licensing Agreement shall be deemed superseded by this Agreement and in the event of a conflict of meaning, the terms of this Agreement shall control; PROVIDED, HOWEVER, that if in connection with or as the result of any bankruptcy proceeding or liquidation, dissolution, or in connection with any other insolvency proceeding, fraudulent conveyance claim, or other claim or action, any court, bankruptcy trustee, or other applicable Person causes this Agreement and the transactions hereunder to be voided, nullified, or otherwise unwound or overturned for any reason under federal or state law, then notwithstanding anything herein or otherwise to the contrary, (x) all of Purchaser's licenses, rights and other privileges under the Exclusive Licensing Agreement automatically shall be reinstated and deemed for all purposes to have remained in full force and effect and not to have been superseded or otherwise impacted in any way by this Agreement, and (y) any and all payments made under this Agreement automatically shall be deemed to be and constitute royalty payments that may become due and payable to the Seller and advance payments recoverable against and applied to any and all payment obligations of Purchaser to the Seller in accordance with the Exclusive Licensing Agreement. With respect to such advance payments, Purchaser shall be deemed to be and constitute a secured creditor of the Seller and shall be entitled to a first priority lien over all of the Fallout Intellectual Property and entitled hereby to make such security interest filings under applicable federal or state law (including but not limited to with the United States Patent and Trademark Office and Copyright Office and with any and all corresponding or similar bodies outside of the United States) with respect to all registered Fallout Intellectual Property as it may deem necessary or appropriate to perfect such security interests. Without limiting the foregoing, any obligation by the Purchaser to pay royalties or any other monies under the Exclusive Licensing Agreement if reinstated is void. To the fullest extent possible, the Seller shall waive all claims to royalties or any other monies that ever may be due under the Exclusive Licensing Agreement and hereby accepts the payments made under this Agreement to constitute full payment of royalties or other monies due thereunder. 5 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to the Purchaser that, on and as of the Effective Date and as of the Closing, the statements contained in sections 3.1 through 3.22 of this ARTICLE III are true and correct in all respects, except as set forth in the Seller's Disclosure Schedule attached hereto (the "DISCLOSURE SCHEDULE"). 3.1 DUE INCORPORATION. Seller is a corporation duly organized, validly existing and in good standing under the applicable laws of the State of Delaware. Seller has all requisite corporate power and authority to own, lease and operate its properties and to carry on and operate its business, operations, and affairs as now conducted and to enter into this Agreement and all agreements and instruments to be entered into or delivered under this Agreement by the Seller (collectively, the "ANCILLARY AGREEMENTS") and to perform and discharge its obligations hereunder and under all Ancillary Agreements. Seller is duly licensed or qualified as a foreign corporation in good standing in the State of California. 3.2 AUTHORITY; NO VIOLATION; BINDING OBLIGATION. (a) All corporate actions necessary to authorize the execution and delivery by Seller of this Agreement and the Ancillary Agreements and the performance of its obligations hereunder and thereunder have been duly taken. (b) The execution, delivery, and performance of this Agreement and the Ancillary Agreements and the performance of Seller's covenants and agreements herein and therein contained do not and will not (i) contravene or conflict with or constitute a violation of any provision of applicable law binding upon or applicable to the ownership of the Acquired Assets or the Seller's business; (ii) conflict with, result in a breach of, constitute a default under or give rise to any right of termination, cancellation or acceleration of any right or obligation of Seller relating to the Acquired Assets or Assumed Liabilities or to a loss of any benefit relating to the Acquired Assets or Assumed Liabilities to which Seller is entitled under any provision of any agreement, contract or other instrument or relating to any of the Acquired Assets; (iii) result in the creation or imposition of any Encumbrance on any Acquired Asset; or (iv) conflict with or violate any provision of the articles of incorporation, bylaws, or other governing documents of the Seller as in effect immediately prior to the Closing. (c) This Agreement and each of the Ancillary Agreements are legal, valid and binding obligations of Seller. (d) Seller has not received any notice of non-compliance not previously corrected with respect to the Acquired Assets under any applicable law. 3.3 LITIGATION. Except for the Bankruptcy Case and Encumbrances identified in PART 2.7(A) OF THE DISCLOSURE SCHEDULE, there are no Legal Proceedings pending, or to the knowledge of the Seller, threatened against or relating to the Seller in connection with this Agreement or any of the Acquired Assets, whether at law, in equity, or before any governmental authority, nor is there a basis for any of the foregoing. Seller is not, in connection with the Acquired Assets, in default with respect to any judgment, injunction, order or decree of any court or any governmental authority, instrumentality, or court by which it or any of the Acquired Assets is bound or subject. 3.4 TITLE TO ACQUIRED ASSETS. Except for the Encumbrances identified in PART 2.7(A) OF THE DISCLOSURE SCHEDULE, Seller has good and marketable title to the Acquired Assets, free and clear of any Encumbrances, and at the Closing, Purchaser will receive good and marketable title to the Acquired Assets, free and clear of any Encumbrances, except for the Encumbrances identified in PART 2.7(A) OF THE DISCLOSURE SCHEDULE. 3.5 INSURANCE CLAIMS. There are no pending insurance claims for losses related to the Acquired Assets. 3.6 OWNERSHIP. The Seller owns or otherwise has valid and legally enforceable rights by license to use the Purchased Intellectual Property. The Seller is the sole owner of all of the Purchased Intellectual Property. 6 3.7 INBOUND LICENSES AND RIGHTS. Set forth in PART 3.7 OF THE DISCLOSURE SCHEDULE is a list and brief description of all Third Party Intellectual Property Rights used in connection with the Fallout Intellectual Property as of the Closing Date, and identifies any licenses or other agreements relating thereto, true, correct and complete copies of which licenses or other agreements are annexed to PART 3.7 OF THE DISCLOSURE SCHEDULE. The Seller has not breached any of the licenses or other agreements governing such Third Party Intellectual Property Rights, and, to the knowledge of the Seller, no other party to those agreements has breached those agreements. No Third Party Intellectual Property of any kind or nature is as of the Closing Date or historically has been used by the Seller in connection with the Fallout Intellectual Property. No part of the Purchased Intellectual Property has been placed in (or is otherwise subject to) any escrow arrangement of any kind for the benefit of any third party. 3.8 NO RESTRICTIONS. Other than under the Exclusive Licensing Agreement and the Encumbrances identified in PART 2.7(A) OF THE DISCLOSURE SCHEDULE, the Purchased Intellectual Property is free of any and all royalty and other payment obligations and other Claims or Encumbrances and, without limiting the generality of the foregoing, is not subject to any limitations or restrictions on Seller's use. There is no Legal Proceeding, order, agreement or other similar arrangement that prohibits or restricts the Seller (x) from using the Purchased Intellectual Property or developing, licensing, transferring or otherwise exploiting any Software, properties, or other assets relating to the Fallout Intellectual Property anywhere in the world or (y) from any use of the Purchased Intellectual Property anywhere in the world (except that this representation is made only to the Seller's knowledge with respect to Third Party Intellectual Property Rights). No Person has any rights in the Fallout Intellectual Property or in any of the other Purchased Intellectual Property that could cause any reversion or renewal of rights in favor of that Person or termination of the Seller's or, following the Closing, the Purchaser's rights in the Fallout Intellectual Property or in any of the other Purchased Intellectual Property. 3.9 EFFECT OF CLOSING. Upon and after the Closing, the Purchaser will be the sole owner of, and will have valid and marketable title to, the Purchased Intellectual Property, and will have the full right to use, license and transfer the Purchased Intellectual Property in the same manner and on the same terms that the Seller had immediately prior to the Closing. The Seller is not legally bound by any agreements or obligations under which the occurrence of the Closing would (i) obligate the Seller or the Purchaser to license or otherwise grant rights to any other Person in any Fallout Intellectual Property (in any case, whether owned or used by the Seller or Purchaser), (ii) entitle any Person to a release of any source code escrow, (iii) result in any Claim or other Encumbrance on the Purchased Intellectual Property, (iv) give rise to any right of any third party to terminate, or impair in any material manner, any Third Party Intellectual Property Rights included in the Purchased Intellectual Property or otherwise contravene or conflict with Purchaser's right to enjoy the benefit of the Third Party Intellectual Property Rights, or (v) otherwise increase any burdens or decrease any rights relating to the Fallout Intellectual Property or any of the other Purchased Intellectual Property in any material manner. 3.10 PERFECTION OF OWNERSHIP RIGHTS. With respect to the Fallout Intellectual Property: (a) ASSIGNMENTS. PART 3.10 OF THE DISCLOSURE SCHEDULE separately lists all other written assignments, if any, Seller has obtained to establish the Seller's ownership rights in the Fallout Intellectual Property. (b) EFFECT OF ASSIGNMENTS. In each case in which the Seller has acquired ownership of any material Intellectual Property from any Person, other than a license of the Third Party Intellectual Property Rights, the Seller has obtained a valid and enforceable assignment sufficient to irrevocably transfer the applicable rights in that Intellectual Property to the Seller. If the Seller has so acquired Registered Intellectual Property, the Seller has, when required by applicable law, duly recorded each of these assignments with the appropriate governmental agency, and listed these assignments in PART 3.10(B) OF THE DISCLOSURE SCHEDULE. 7 3.11 REGISTERED INTELLECTUAL PROPERTY. PART 3.11 OF THE DISCLOSURE SCHEDULE separately lists (x) all Registered Intellectual Property included within the Purchased Intellectual Property, as well as (y) certain additional Fallout Intellectual Property. (a) FEES AND APPLICATIONS. All necessary registration, maintenance, renewal, and annuity fees and taxes due as of the Closing Date, have been paid, and all necessary documents have been filed, in connection with the Registered Intellectual Property. In connection with the Registered Intellectual Property, all registrations are in force and all applications for the same are pending in good standing, and no actions for reissuance, reexamination or opposition are pending or threatened with respect to any issued registrations or pending applications. (b) LIST OF MAINTENANCE ACTIONS. PART 3.11(B) OF THE DISCLOSURE SCHEDULE accurately and completely lists all actions that, as of the Closing Date, must be taken within ninety (90) days after the date of this Agreement relating to the payment of any fees or taxes or the filing of any documents necessary or appropriate to maintain, perfect or renew any Registered Intellectual Property with an official office (e.g., patent or trademark office). 3.12 VALIDITY. All registered copyrights, trademarks, and service marks (and all applications related to any of the foregoing) included in the Fallout Intellectual Property are subsisting and valid under applicable law for those respective categories of Intellectual Property. There are no facts or circumstances that would render any of the Purchased Intellectual Property invalid or unenforceable, except that with respect to the Third Party Intellectual Property, this representation is made only to the Seller's knowledge. 3.13 OUTBOUND LICENSES AND RIGHTS. PART 3.13 OF THE DISCLOSURE SCHEDULE lists all agreements, if any, under which the Seller has licensed or otherwise granted rights in any of the Purchased Intellectual Property to any Person. PART 3.13 OF THE DISCLOSURE SCHEDULE also lists separately any of the following related to the Fallout Intellectual Property: (i) any exclusive rights granted to any third Person; (ii) any source code escrow or other form of delivery or disclosure of any source code to or for the benefit of any Person; or (iii) any other agreements to which Seller is a party that give other Persons the right to use, market or otherwise exploit or commercialize any of the Fallout Intellectual Property or related products or services. 3.14 INDEMNITY AGREEMENTS. The Seller has not agreed to indemnify, defend or otherwise hold harmless any other Person with respect to Damages resulting or arising from any of the Purchased Intellectual Property, except under those agreements summarized or described in PART 3.14 OF THE DISCLOSURE SCHEDULE. 3.15 NO VIOLATION OF THE SELLER'S RIGHTS. To the knowledge of the Seller, no Person has infringed or misappropriated any of the Fallout Intellectual Property, except for fan websites, blogs and other sites referencing nominally one of the FALLOUT games without the consent of Seller. Immediately after the Closing (subject to making any filings necessary to perfect rights), the Purchaser will have sole rights to bring actions for infringement or misappropriation of the Fallout Intellectual Property. The Seller has not commenced or threatened any Legal Proceeding, or asserted any allegation or claim, against any Person for infringement or misappropriation of the Purchased Intellectual Property or breach of any agreement involving the Purchased Intellectual Property, except as indicated in PART 3.15 OF THE DISCLOSURE SCHEDULE. 3.16 NO VIOLATION OF THIRD PARTY RIGHTS. The Seller's creation, use, sale, license, or other transfer of the Purchased Intellectual Property does not infringe or misappropriate any other Person's Intellectual Property and, to the Seller's knowledge, after the Closing, Purchaser's use of the Purchased Intellectual Property (including, without limitation, the development, license, transfer, or other exploitation of any Software, properties, or other assets relating to the Fallout Intellectual Property anywhere in the world) will not infringement or misappropriate any other Person's Intellectual Property. The Seller has not received notice (in writing or otherwise) of any pending or threatened Legal Proceeding or any written allegation or claim in which any Person alleges that the Seller, any of the Purchased Intellectual Property, or any use, sale, license, transfer, development, or other exploitation thereof has violated any Person's Intellectual Property rights and, to Seller's knowledge, no basis for any such actual or threatened Legal Proceeding, claim or allegation exists. There are no pending or threatened disputes between the Seller and 8 any other Person relating to the Purchased Intellectual Property. 3.17 PROPRIETARY INFORMATION AND CONFIDENTIALITY. The Seller has taken commercially reasonable and appropriate steps to protect and preserve its trade secrets and all other confidential information included in or relevant to the Purchased Intellectual Property. To the Seller's knowledge, none of its (or any Affiliate's) current or former employees, consultants, independent contractors, or other agents have any rights in or to the Fallout Intellectual Property. 3.18 NO SPECIAL ADVERSE CIRCUMSTANCES. None of the Fallout Intellectual Property was developed using any government or university funding or facilities, nor was it obtained from a governmental entity or university. The Seller is not a member of, and is not obligated to license or disclose any Intellectual Property to, any official or de facto standards setting or similar organization or to any organization's members. None of the Fallout Intellectual Property (or any of the other Purchased Intellectual Property embedded or contained in or linking to any of the Fallout Intellectual Property includes any Software of the type commonly referred to as "open source software," "freeware" or "shareware," or that is subject to any form of "GNU," "Mozilla," or other public license or open source license, rights or other obligations. 3.19 NO BROKERS OR FINDERS. No person, firm or corporation has or will have as a result of any action of Seller or Seller's officers, employees, agents or representatives, any right, interest or valid claim for any commission, fee or other compensation as a finder or broker, or for acting in any similar capacity in connection with this Agreement or any of the transactions provided for herein or in any of the Ancillary Agreements. 3.20 ACCURACY OF MATERIAL FACTS. No representation, warranty or covenant of Seller contained in this Agreement or in any of the Ancillary Agreements, or the attached exhibits, annexes, or schedules or in any certificate furnished or to be furnished to Purchaser pursuant to this Agreement or any of the Ancillary Agreements or in connection with the transactions contemplated hereby or thereby, when read together, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained herein and therein, taken as a whole, not misleading in light of the circumstances under which such statements were made. 3.21 INTENT. The transactions provided for herein are being undertaken in good faith and are not being undertaken with any intent to hinder, delay, defraud, or mislead any past, present, or future creditors of the Seller. The Purchase Price for the Acquired Assets represents fair value and was negotiated at arms' length between the Seller and Purchaser. 3.22 RELIANCE. The foregoing representations and warranties are made by the Seller with the knowledge and expectation that Purchaser is materially relying thereon in connection with the transactions provided for in this Agreement, including, without limitation, the purchase of the Acquired Assets. REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser represents and warrants to the Seller that, on and as of the Effective Date and as of the Closing, the statements contained in section 3.23 of this ARTICLE III are true and correct in all respects. 3.23 AUTHORITY; NO VIOLATION; BINDING OBLIGATION. (a) All corporate actions necessary to authorize the execution and delivery by Purchaser of this Agreement and the Ancillary Agreements and the performance of its obligations hereunder and thereunder have been duly taken. (b) The execution, delivery, and performance of this Agreement and the Ancillary Agreements and the performance of Purchaser's covenants and agreements herein and therein contained do not and will not conflict with or violate any provision of the articles of incorporation, bylaws, or other governing documents of the Purchaser as in effect immediately prior to the Closing. (c) This Agreement and each of the Ancillary Agreements are legal, valid and binding obligations of Purchaser. 9 ARTICLE IV INDEMNIFICATION AND SURVIVAL 4.1 SURVIVAL OF OBLIGATIONS. All representations, warranties, covenants, and obligations of the Parties contained in this Agreement or in any of the Ancillary Agreements shall, except as otherwise expressly set forth elsewhere in this Agreement or in any of the Ancillary Agreements, remain in full force and effect following the Closing Date. 4.2 INDEMNIFICATION. (a) The Seller agrees to indemnify, defend and hold harmless the Purchaser and all of the Purchaser's Affiliates, and each of their respective parents, stockholders, members, directors, officers, agents and employees (collectively, the "INDEMNITEES") from and against any action brought against any of the Indemnitees with respect to any claim, demand, cause of action, Liability, Claim or Encumbrance, including, without limitation, reasonable attorneys' fees (collectively, "LOSSES"), to the extent (x) such Losses are based upon, connected with, or arise out of (x) any actual or alleged breach, violation, or contravention of, or inaccuracy in, in each case as applicable, any of the Seller's representations, warranties, covenants, agreements, or undertakings in or under this Agreement, any of the Ancillary Agreements, or any certificate, exhibit, annex, or schedule; or (y) any Excluded Liabilities. (b) With respect to the Seller's indemnification obligations hereunder, each party agrees to: (i) give the other party prompt written notice of any claim, action, suit or proceeding for which the first party is seeking indemnity; and (ii) reasonably cooperate with the other party with respect to the defense of the action. A party may participate, at its own cost, in the defense and settlement of such action through counsel of its choice. In no event may the Seller settle any such action in a manner that adversely affects the rights of Purchaser or any of the Indemnitees, without Purchaser's express prior written consent. (c) No Indemnitee (other than the Purchaser) may make any claim for indemnification hereunder without the prior approval of the Purchaser, in its sole discretion. The representations, warranties, covenants, and obligations of the Seller on the one hand, and the rights and remedies (including the indemnification and other remedies described in this ARTICLE IV) of, or that may be exercised by, any Indemnitee on the other hand, will not be limited or otherwise affected by or as a result of, any information furnished to, or any investigation made by or knowledge of, such Indemnitee or any Indemnitee's representatives or agents. The indemnification remedies (and all other remedies available to Purchaser and the Indemnitees at law or in equity) contained in this Agreement shall be non-exclusive. (d) In addition to any rights of offset or setoff that Purchaser may have at common law or otherwise, any indemnification obligations hereunder of the Seller to Purchaser or any other Indemnitee may, in the sole discretion of Purchaser, be offset or setoff by Purchaser against (x) any other amount otherwise payable to the Seller or any of the Seller's Affiliates by Purchaser under this Agreement, any Ancillary Agreement, or any other agreement between the Seller and Purchaser or (y) any other monetary obligation of Purchaser to the Seller or any of the Seller's Affiliates. ARTICLE V COVENANTS 5.1 FURTHER ASSURANCES. In addition to the Seller's obligations elsewhere herein, following the Closing, the Seller, without further consideration of any kind, shall execute and deliver, or cause to be executed and delivered, such other instruments, and take, or cause to be taken, such other action, as shall reasonably be requested by Purchaser or its Affiliates to effectively carry out the other terms and provisions of this Agreement benefiting the Purchaser including, without limitation, all instruments and actions necessary to remove, satisfy, discharge and release any Encumbrances or challenges relating to the Acquired Assets as required in this Agreement and to ensure that Purchaser has clear title to and unencumbered ownership of all the Acquired Assets. Seller shall use its best efforts to assist Purchaser and Purchaser's Affiliates in effecting a smooth transition in ownership and operation of the Acquired Assets after the Closing Date, without any obligation by Seller to make payments to any party in connection with providing such assistance. 10 5.2 TRANSITIONAL MAINTENANCE OF ASSETS. To provide an appropriate transition period for Purchaser to assume responsibility for maintenance of the Purchased Intellectual Property, Seller represents and warrants that all official office actions (E.G., copyright, patent, or trademark offices) due (without payment of extension fees) within 30 days of the Closing Date, of which Seller is aware, including, without limitation, paying maintenance fees or annuities and responding to office actions and other correspondence from any applicable official office (E.G., copyright, patent, or trademark offices), have been completed and filed (including payment of all applicable fees) as of the Closing Date. 5.3 REGISTERED INTELLECTUAL PROPERTY. Seller will provide to Purchaser within a reasonable time following a request therefor (but in any event not later than 30 days following the Closing Date, unless otherwise agreed), Seller's complete files (in any format or media now existing) for the Registered Intellectual Property and any other relevant documents, if any, in Seller's possession that relate to obtaining or maintaining any of the Purchased Intellectual Property. 5.4 ASSIGNMENT OF RIGHTS UNDER EMPLOYEE AGREEMENTS. In order to protect Purchaser's interest in the Acquired Assets and under this Agreement and the Ancillary Agreements, Seller hereby (x) sells, assigns, transfers and conveys to Purchaser all rights of Seller under and to enforce the terms of any and all third party confidentiality undertakings and any and all IP assignment obligations, solely as they relate to or are connected with the Acquired Assets or the Purchased Intellectual Property, and (y) agrees to assist Purchaser in any reasonable efforts to enforce such agreements, obligations, arrangements. 5.5 TRANSFER TAXES. All excise, sales, value added, use, registration, stamp, documentary, transfer and similar Taxes, levies, charges and fees (including all real estate transfer Taxes) incurred in connection with this Agreement and the transactions contemplated hereby shall be paid solely by Seller. Seller shall also be solely responsible for the filing of any Tax returns with respect to such transfer and similar Taxes, and promptly shall provide written evidence of such payments and copies of all such filings to Purchaser. 5.6 HOLD HARMLESS. Seller covenants and agrees that it will (and that it will cause the other members of the Seller Group to) promptly pay and discharge, as they become due and payable, and promptly perform in accordance with their respective terms, all and each of the Excluded Liabilities, it being expressly understood and agreed that Purchaser is assuming no liabilities or obligations of Seller or other members of the Seller Group other than the Assumed Liabilities identified herein and in the Instrument of Assignment and Assumption. 5.7 CONFIRMING EFFECTIVE DELIVERY OF THE PURCHASED INTELLECTUAL PROPERTY. Without limitation to the Seller's obligations under SECTION 5.1, promptly after being requested to do so by the Purchaser either in preparation for the Closing (in which case the Purchaser agrees to hold items delivered by the Seller solely for delivery pursuant to the Closing or return them to the Seller if the Closing does not occur) or after the Closing, or both, the Seller will: (a) TITLE. Sign and deliver and have notarized all documents and instruments, and take all other actions required by this Agreement, for the purpose of (i) correcting or confirming title to the Purchased Intellectual Property prior to the Closing in the name of the Seller, and/or (ii) enabling the Purchaser to file applications or registrations on and after the Closing in the name of the Purchaser or Affiliates of the Purchaser with any governmental agency relating to the Purchased Intellectual Property; (b) INTERIM FEES AND FILINGS. For period of 30 days after the Closing Date, take all actions, if any, requested by the Purchaser without being liable for the payment of any fees to any governmental agency, filing or maintenance of applications or registrations, or other actions before or with any governmental agency concerning Registered Intellectual Property or other Purchased Intellectual Property for any actions that are within the scope of SECTION 5.1. 5.8 CONFIDENTIALITY. The Seller will keep confidential and not, directly or indirectly, disclose to anyone or use or misappropriate for the Seller's own benefit or for the benefit or any other person, (a) all 11 trade secrets and other non-public information or documents included within or relating to the Purchased Intellectual Property, and (b) any non-public information about the Purchaser that the Seller or its representatives may obtain or may have obtained in the course of the transactions contemplated by this Agreement. The Seller agrees not to make any such information public or otherwise act or omit to act in a manner that would reasonably be expected to impair in any material respect the intended benefits of this covenant to the Purchaser. This covenant is in addition to, and does not limit, the rights of the Purchaser as the purchaser and owner of the Purchased Intellectual Property as of the Closing Date. Notwithstanding the foregoing, this SECTION 5.8 shall not restrict Seller from maintaining any records or making any disclosures that may be required and mandated by applicable law or governmental authority, provided, however, that prior to making any such disclosures, the Seller will provide reasonable advance notice to Purchaser so as to permit Purchaser to review the proposed form and contents of such disclosure and, to the extent deemed appropriate by Purchaser, to allow Purchaser to seek an appropriate protective order to prevent or limit such disclosure. Notwithstanding the foregoing, this Agreement may be described in or filed with any required federal securities filings of Seller. 5.9 PROHIBITION ON FUTURE FILINGS AND REGISTRATIONS. Nothing contained in this Agreement shall be construed as providing the Seller with any retained right, title, or other interest of any kind in or to any of the Acquired Assets. Seller recognizes and acknowledges that the Purchased Intellectual Property and all rights therein and all goodwill pertaining thereto solely and exclusively belong to Purchaser effective automatically upon the Closing and that all uses of the Purchased Intellectual Property shall inure to the benefit of Purchaser. In addition to its obligations under and of the Ancillary Agreements or under any other agreements, Seller agrees (x) not to directly or indirectly attack or impair the title of Purchaser to the any of the Purchased Intellectual Property, the validity of this Agreement, or any of Purchaser's current or future registrations or applications relating to any of the Purchased Intellectual Property (or any derivates thereof) in any jurisdiction; and (y) not to file any state, federal, or foreign applications to register (1) any of the Purchased Intellectual Property constituting trademarks, trade names, service marks, copyrights, or the like, in whole or in part, or (2) any confusingly similar trademarks, trade names, service marks, copyrights, or the like, in any jurisdiction. 5.10 MERCHANDISING RIGHTS. From and after the Closing, Purchaser authorizes Seller to exclusively manufacture, have manufactured, sell and distribute the pre-existing Fallout interactive entertainment software games, "FALLOUT", "FALLOUT 2", "FALLOUT TACTICS", and "BROTHERHOOD OF STEEL" ("PRE-EXISTING FALLOUT GAMES"), and Purchaser shall have no financial interest in the sales of such Pre-existing Fallout Games by or on behalf of Seller. All packaging, advertising and promotional materials used by or on behalf of Seller in connection with the Pre-existing Fallout Games shall be submitted by Seller to Purchaser for Purchaser's written approval prior to its use, and Seller shall not use or authorize the use of any such packaging, advertising or promotional material unless Purchaser has approved in writing in advance such material, such approval not to be unreasonably withheld, it being understood and agreed that all packaging, advertising and promotional materials for the Pre-Existing Fallout Games shall not use, refer to, trade upon, reflect the look and feel of or otherwise exploit any of the Fallout games or products, including but not limited to their packaging, advertising and promotional materials, developed by or for the Purchaser or its licensees. 5.11 MOTION TO DISMISS BANKRUPTCY CASE. The Seller shall file the motion to dismiss the Bankruptcy Case referenced in section 2.7 on or before May 1, 2007. 5.12 PART 3.13 DISCLOSURE SCHEDULE. If Purchaser is not satisfied with the disclosures made in Part 3.13 of the Disclosure Schedule by the Closing Date, Purchaser shall be entitled to void this Agreement and shall not be required to proceed with the Closing. 12 ARTICLE VI GENERAL PROVISIONS 6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER. The obligations of Purchaser to consummate the Closing are subject to the following express conditions precedent (all or any of which may be waived in whole or in part by Purchaser in its sole discretion), having been fulfilled on or before the Closing Date: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Seller contained herein shall be true and correct in all respects on and as of the Closing Date. (b) PERFORMANCE; DELIVERIES. Seller shall have performed and observed in all respects all covenants, obligations and conditions herein required to be performed or observed by Seller on or prior to the Closing Date; and Seller shall have delivered to Purchaser all deliveries described, set forth or provided for SECTION 2.5. (c) ABSENCE OF MATERIAL CHANGES. There shall not have been any material adverse change affecting Seller or its business or any of the Acquired Assets. (d) NO LITIGATION. No Legal Proceeding or Claim or other proceeding or investigation, whether administrative or judicial, shall be threatened or pending against Seller or Purchaser that, in the reasonable opinion of Purchaser or its counsel, presents a reasonable possibility that the transactions contemplated by this Agreement could be enjoined or prevented, or that the right of Purchaser to acquire, retain or use all of the Acquired Assets, if and when the same are acquired, without additional costs would be adversely affected 6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER. The obligations of the Seller to consummate the Closing hereunder are subject to the following express condition precedent (all or any of which may be waived in whole or in part by the Seller in its sole discretion), having been fulfilled on or before the Closing Date: Purchaser shall have performed and observed in all material respects all covenants, obligations and conditions herein required to be performed or observed by Seller on or prior to the Closing Date; and Purchaser shall have delivered to Seller all deliveries provided for SECTION 2.6, PROVIDED, HOWEVER, that the Purchase Price shall be deliverable upon and not prior to the Closing. ARTICLE VII GENERAL PROVISIONS 7.1 SURVIVAL OF OBLIGATIONS. All representations, warranties, covenants, and obligations of the Parties contained in this Agreement or in any of the Ancillary Agreements shall, except as otherwise expressly set forth elsewhere in this Agreement, remain in full force and effect for five years following the Closing Date. 7.2 GOVERNING LAW; JURISDICTION; VENUE. This Agreement shall be governed by and construed in accordance with the substantive laws of the State of Delaware, USA, without regard to principles of conflict of laws. Each party agrees that sole and exclusive jurisdiction and venue for any action or litigation arising from or relating to this Agreement shall be an appropriate federal or state court located in the State of Maryland. The U.N. Convention on Contracts for the International Sale of Goods shall not apply to this Agreement or to any dispute arising out of this Agreement. 7.3 ALL AMENDMENTS IN WRITING. No supplement, modification, or amendment of this Agreement shall be binding, unless executed in writing by a duly authorized representative of each party to this Agreement intended to be bound thereby. 7.4 ENTIRE AGREEMENT. This Agreement (including the exhibits, annexes, and schedules hereto and other documents referred to herein as having been delivered or furnished by either party to the other hereunder) constitutes the entire Agreement and supersedes all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. 13 7.5 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. Purchaser may freely assign any of its rights or delegate or novate any of its obligations under this Agreement to any Affiliate or to any third party without the prior consent of Seller. Seller may not assign this Agreement or any of its rights or obligations under this Agreement without the prior written consent of Purchaser. Nothing in this Agreement, expressed or implied, is intended or will be construed to confer upon any Person other than the Parties and their respective successors and assigns permitted by this SECTION 7.5 any right, remedy or claim under or by reason of this Agreement. 7.6 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto expressly acknowledge and agree that the Acquired Assets are special and unique and that a breach of any of the terms or provisions of this Agreement in respect to the sale and purchase thereof will result in irreparable injury for which there is no adequate remedy at law, and therefore, notwithstanding anything herein or otherwise to the contrary, Purchaser shall be entitled to equitable relief and specific performance to compel compliance hereunder, without the requirement for posting any bond or security. 7.7 WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 7.8 NOTICES. All notices and other communications required or permitted to be given under this Agreement shall be in writing and delivered by overnight courier or by confirmed facsimile during the regular business hours of the recipient to the addresses or facsimile numbers set forth below or to such other addresses specified by the applicable party: If to Purchaser: Vlatko Andonov, President Bethesda Softworks LLC 1370 Piccard Drive, Suite 120 Rockville, MD 20850 Fax: (301) 926-8010 with a copy to: J. Griffin Lesher Executive Vice President -Legal ZeniMax Media Inc. 1370 Piccard Drive, Suite 120 Rockville, MD 20850 Fax: (301) 990-7025 If to the Seller: Herve Caen, Chief Executive Officer Interplay Entertainment Corp. 100 North Crescent Drive, Suite 324 Beverly Hills, CA 90210 Fax: (310) 432-1959 7.9 EXPENSES. Except where otherwise expressly provided for in this Agreement, each Party hereto shall pay its own costs and expenses, including, without limitation, the fees and expenses of its respective attorneys and accountants, in connection with this Agreement and the transactions contemplated herein, whether or not the Closing takes place. 7.10 WAIVER. Any term or provision of this Agreement may be waived, or the time for its performance may be extended, by the Party or Parties entitled to the benefit thereof. Any such waiver will be validly and sufficiently authorized for the purposes of this Agreement if, as to any Party, it is authorized in writing by an authorized representative of such Party. The failure of any Party hereto to enforce at any time any provision of this Agreement will not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of any Party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement will be held to constitute a waiver of any other or subsequent breach. 14 7.11 ENTIRE AGREEMENT. The parties have read this Agreement, together with the Ancillary Agreements and all exhibits, annexes, and schedules hereto (collectively, the "TRANSACTION AGREEMENTS"), and further agree that they collectively constitute the complete and entire agreement of the Parties relating to the sale, assignment, transfer, conveyance and delivery of the Acquired Assets (including, without limitation, the Purchased Intellectual Property) from the Seller to Purchaser, and supersede all and merge all previous communications, agreements, understandings or letters of intent (in each case, oral or written) between or among any of the Parties hereto regarding the subject matter hereof. No representations, warranties, statements, understandings, agreements, or commitments of any kind made by any Party that are not expressly stated herein (or in any other Transaction Agreements) shall be binding on such Party. 7.12 SEVERABILITY. In the event that any provision of this Agreement is held invalid by a court with jurisdiction over the parties, such provision shall be deemed to be restated to be enforceable, in a manner which reflects, as nearly as possible, the original intentions of the parties in accordance with applicable law. The remainder of this Agreement shall remain in full force and effect. 7.13 CONSTRUCTION; INTERPRETATION. (a) HEADINGS. Titles, captions, and other headings to sections in this Agreement have been inserted for convenience of reference only and are not intended to be a part of or to affect in any way the meaning, construction, or interpretation of this Agreement. (b) EXHIBITS; ANNEXES; SCHEDULES. This Agreement is deemed to include all of the exhibits, annexes, and schedules hereto, which expressly are made a part hereof and incorporated herein and will be construed with and as an integral part of this Agreement to the same extent as if they were set forth verbatim herein. Except as otherwise indicated, all references in this Agreement to "Sections," "Schedules," "Annexes," and "Exhibits" are intended to refer to Sections, Schedules, Annexes, and Exhibits to this Agreement. (c) GENDER AND NUMBER. For the purpose of this Agreement, whenever the context requires or permits: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include the masculine and feminine genders. As used in the Agreement, the words "include" and "including," and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words "without limitation." (d) MUTUAL DRAFTING. The Parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement, it being agreed that all Parties participated jointly and equally in the drafting hereof. 7.14 COUNTERPARTS. This Agreement may be executed in one or more counterparts, including facsimile counterparts, each of which will be considered an original instrument, but all of which will be considered one and the same agreement, and will become binding when one or more counterparts have been signed by each of the Parties hereto and delivered to each of the Parties. * * * * * 15 IN WITNESS WHEREOF, the parties hereto have executed and delivered this ASSET PURCHASE AGREEMENT with legal and binding effect as of the date and year first above written. PURCHASER: BETHESDA SOFTWORKS LLC By: /s/ Vlatko Andonov ---------------------------------------- Printed Name: Vlatko Andonov Title: President SELLER: INTERPLAY ENTERTAINMENT CORP. By: /s/ Herve Caen ---------------------------------------- Printed Name: Herve Caen Title: Chief Executive Officer 16 EXHIBIT A CERTAIN DEFINED TERMS An "AFFILIATE" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such first Person within the meaning of the Securities Exchange Act of 1934, as amended. "AFFILIATE" means "CLAIM" means any claim, security interest, encumbrance, lien, mortgage, indenture, security agreement, pledge, charge, escrow, option, right of first refusal, judgment, order or other Liability or restriction of any kind (whether arising by contract or by operation of law). "COMMERCIALLY AVAILABLE TECHNOLOGY" means third party technologies, products and services that are commercially available, including without limitation, software that is subject to "shrinkwrap", "clickwrap", "open source" or other standard or mass market license agreements. "DAMAGES" means any loss, damage, injury, Liability, claim, demand, settlement, judgment, award, fine, penalty, tax, fee (including, without limitation, fees and expenses of attorneys, accountants, financial advisors and other experts and other expenses of litigation), charge, costs (including reasonable costs of investigation) or expenses of any nature. "DOCUMENTATION" means, as applicable, product, technical, repair, marketing and user documentation and any succeeding changes thereto as of the Closing Date, including, without limitation, all specifications as set forth in Seller's product manuals; installation, maintenance, operating and customer or end-user manuals, instructions and diagnostics; system administrative materials, configuration guides, marketing and sales brochures and literature, and product guides and any similar or related documentation. When used to in connection with the term Software the term "Documentation" means, as applicable, programming and user documentation, maintenance and test specification, system descriptions and other similar documentation relating to the creation, use or operation of the Software. "ENCUMBRANCE" means any lien (including, without limitation, any tax, mechanic's, warehouseman's, laborer's, or landlord's liens), mortgage, claim, pledge, charge, security interest, equitable interest, right of use, right of co-existence, encumbrance, defects, claims, or conditions to or restrictions on use, transfer or assignment, or any other restrictions of any kind. "ENFORCEMENT RIGHTS" means any and all claims, demands, rights, and causes of action for infringement, misappropriation, or misuse of any of the Purchased Intellectual Property, past, present and future, and any and all of the proceeds and rights to proceeds from the foregoing, in each case whether existing, accrued, or unpaid or whether hereafter arising, coming into existence, or accruing. "FALLOUT INTELLECTUAL PROPERTY" means any and all Intellectual Property in or relating or connected in any way with (and to all future uses of every kind) the brand and interactive entertainment software game property known as "FALLOUT". Without limiting the generality of the foregoing, the term Fallout Intellectual Property includes, without limitation, the "FALLOUT" trademark for all classes and uses worldwide, any and all rights to any and all "FALLOUT" video games, all "FALLOUT"-related characters, and all uses of all "FALLOUT" connected or related trademarks and brand (subject only to licensing rights granted under the License Back Agreement), and including, without limitation, the rights to all add-ons, expansion packs and combinations of same, however packaged or sold, hint books and strategy guides, and any prequels, sequels, or derivative products of any of the foregoing, and any and all rights to the "FALLOUT" brand, including, without limitation, to merchandising and sublicensing rights. "INTELLECTUAL PROPERTY" means all of the following anywhere in the world and all legal rights, title, or interest in the following arising under the laws of the United States, (including any state), and any other country (including any subdivision thereof), or international treaty regime, whether or not filed, perfected, registered or recorded and whether now or later existing, filed, issued or acquired, including all renewals: 17 (i) all patents and applications for patents of all classes and types and all related reissues, reexaminations, divisions, renewals, extensions, provisionals, continuations and continuations in part; (ii) all copyrights, copyright registrations and copyright applications, copyrightable works, and all other corresponding rights; (iii) all trade dress and trade names, logos, Internet addresses and domain names, trademarks and service marks (including, without limitation, any common law or prior use rights that may exist with respect related to any of the foregoing) and related registrations and applications, including any intent to use applications, supplemental registrations and any renewals or extensions, all other indicia of commercial source or origin, and all goodwill of the Seller's business associated with any of the foregoing; (iv) all inventions (whether patentable or not and whether or not reduced to practice), invention disclosures, invention notebooks, file histories, know how, technology, technical data, trade secrets, confidential business information, manufacturing and production processes and techniques, research and development information, financial, marketing and business data, pricing and cost information, business and marketing plans, and customer, distributor, reseller and supplier lists and information, correspondence, records, and other documentation, and other proprietary information of every kind; (vii) all Software; (viii) all databases and data collections and all rights in the same; (ix) all rights of paternity, integrity, disclosure, and withdrawal, and any other rights that may be known or referred to as "moral rights," in any of the foregoing; (x) any rights analogous to those set forth in the preceding clauses and any other proprietary rights relating to intangible property; (xi) all tangible embodiments of any of the foregoing, in any form and in any media, in the possession of the Seller (or other Persons engaged or retained by the Seller); (xii) all versions, releases, upgrades, derivatives, enhancements and improvements of any of the foregoing; and (xiii) all statutory, contractual and other claims, demands, and causes of action for royalties, fees, or other income from, or infringement, misappropriation or violation of, any of the foregoing, and all of the proceeds from the foregoing that are accrued and unpaid as of, and/or accruing after, the date of this Agreement. ."LEGAL PROCEEDING" means any action, suit, litigation, arbitration proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation threatened, commenced, brought, conducted or heard by or before, or otherwise involving any court or other governmental agency or any arbitrator or arbitration panel. "LIABILITY" means any liability, loss, debt, or obligation of any kind (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due). "PERSON" means any individual, corporation, partnership, limited liability company, trust, other form of business or investment entity, and any foreign, federal, state or local government or governmental agency of any kind. "PURCHASED INTELLECTUAL PROPERTY" means, collectively: (x) all of the Fallout Intellectual Property owned by, created by, or licensed by or to the Seller, as existing as of the Closing Date, and (y) all of the Third Party Intellectual Property Rights. 18 "REGISTERED INTELLECTUAL PROPERTY" means Fallout Intellectual Property that is the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by any governmental or quasi-governmental agency or non-governmental registrar (whether provisional, supplemental, or otherwise), anywhere in the world as of the Closing Date. "SOFTWARE" means computer software programs and software systems, including, without limitation, SOFTWARE compilations, software implementations of algorithms, software tool sets, firmware, development tools, files, compilers, and software models and methodologies regardless of the stage of development and all media on which any of the foregoing is recorded and all media on which any of the foregoing are recorded and all related programming and user documentation, including, without limitation, all records, technical drawings, and data relating to the foregoing, and in each and every case whether in source code, object or executable code or human readable form, or any translation or modification thereof that substantially preserves its original identity. As used herein, the term Software does not include Commercially Available Technology. "TAX" means any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, value-added, franchise, capital, paid-up capital, profits, greenmail, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind or nature whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any governmental authority (domestic or foreign) responsible for the imposition of any such tax. "THIRD PARTY INTELLECTUAL PROPERTY RIGHTS" means Intellectual Property owned by any third party and licensed to Seller or any of its Affiliates as of the Closing Date for use in connection with Fallout, including without limitation Commercially Available Technology and the third party Intellectual Property listed in the Disclosure Schedule. With respect to any Third Party Intellectual Property Rights, use of the term "purchase" or "sale" in this Agreement shall mean the purchase or sale of Seller's interest (E.G., through transfer, assignment of a license, etc.) by Purchaser. 19 EX-31 3 ex31-1p.txt EX 31.1 EXHIBIT 31.1 Certification of CEO Pursuant to Securities Exchange Act Rules 13a-15(e) and 15d-14(e) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Herve Caen, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Interplay Entertainment Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2007 /S/ HERVE CAEN ----------------------------- Herve Caen Chief Executive Officer EX-31 4 ex31-2p.txt EX 31.2 EXHIBIT 31.2 Certification of Interim CFO Pursuant to Securities Exchange Act Rules 13a-15(e) and 15d-15(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Herve Caen, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Interplay Entertainment Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the egistrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2007 /S/ HERVE CAEN ------------------------------- Herve Caen Interim Chief Financial Officer EX-32 5 ex32-1p.txt EX 32.1 EXHIBIT 32.1 CERTIFICATION PURSUANT TO SECURITIES EXCHANGE ACT RULES 13a-14(b) AND 15d-14(b) AS ADOPTED PURSUANT SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE) Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officer of Interplay Entertainment Corp., a Delaware corporation (the "Company"), does hereby certify with respect to the Quarterly Report of the Company on Form 10-Q for the quarter ended June 30, 2006 as filed with the U.S. Securities and Exchange Commission (the "10-Q Report") that, to the best of the undersigned's knowledge: (1) the 10-Q Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the 10-Q Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 14 , 2007 /S/ HERVE CAEN ------------------------------- Herve Caen Chief Executive Officer and Interim Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----