International Distribution Agreement

EXHIBIT 10.26


CONFIDENTIAL TREATMENT REQUESTED


INTERNATIONAL DISTRIBUTION AGREEMENT [Interplay's Logo]


This INTERNATIONAL DISTRIBUTION AGREEMENT (this "Agreement") is entered into effective February 10, 1999 (the "Effective Date") by and between INTERPLAY
-- ENTERTAINMENT CORP., a Delaware corporation whose principal place of business is at 16815 Von Karman Avenue, Irvine, California 92606 (hereinafter "Interplay"), and VIRGIN INTERACTIVE ENTERTAINMENT LIMITED, a corporation formed under the laws of England and Wales whose principal place of business is at 2 Kensington Square, London, England, W8 5 RB (hereinafter "Virgin"), with respect to the following recitals:


RECITALS
--------


A. VIE Acquisition Group, LLC, a Delaware limited liability company ("VIE Acquisition Group") of which VIE Acquisition Holdings, LLC, a Delaware limited liability company ("Holdings") is the only member, has acquired all of the capital stock and the underlying business of Virgin pursuant to that certain Sale and Purchase Agreement dated November 6, 1998 by and between Viacom International Inc. and Spelling Entertainment Group Inc., on the one hand, and VIE Acquisition Group, on the other hand (the "Viacom Transaction").


B. Interplay is a developer and publisher of computer game programs operable on various computer and video game consoles and systems.


C. Virgin has the necessary organization and expertise in the sale and distribution of computer software programs and video games in the Territory (as defined below).


D. Interplay desires to appoint Virgin, and Virgin is willing to accept such appointment, as distributor for the Products (as defined on Exhibit A
--------- hereto) in the Territory and on the terms and conditions set forth in this Agreement.


E. Contemporaneously herewith, Interplay and Holdings are entering into an Operating Agreement (the "Operating Agreement") with respect to the operation of VIE Acquisition Group, Interplay and Virgin are entering into a Product Publishing Agreement (the "Publishing Agreement") with respect to the publishing by Interplay of certain of Virgin's products in North America and certain other territories.


AGREEMENT


NOW, THEREFORE, in consideration of the foregoing recitals and the mutual agreements and promises set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:


1. APPOINTMENT.
-----------


(a) Appointment. Subject to restrictions imposed by third party
----------- licensors of Interplay, Interplay hereby appoints Virgin and Virgin hereby accepts appointment, as Interplay's exclusive (even as to Interplay) distributor with respect to the Products in the Territory during the Term subject to the rights reserved in Section 1(f) below. Subject to Interplay's election to perform such manufacturing function on a case-by-case basis, Interplay hereby grants Virgin a non-exclusive license to manufacture the Products or have the Products manufactured solely to facilitate Virgin's performance of its duties and exercise of its rights under Sections 2 and 5 hereof.


(b) Subdistributors. Virgin agrees that it will sell and distribute
--------------- the Products directly to the public and/or outright to wholesalers, dealers, subdistributors, on-line resellers, direct marketers and/or retailers for resale and distribution directly to the public on terms that are reasonable and customary in the interactive entertainment software industry. Virgin will not sell or distribute any of the Products to hawkers, street vendors, peddlers, or to any person, firm or other entity intending to use them for publicity purposes whether as gifts or otherwise, provided that Virgin will be permitted to distribute a reasonable number of demonstration copies of the Products for legitimate promotional purposes to the press, retailers and dealers. Should Virgin desire to undertake distribution and/or sale of any of the Products by any method or means not hereby authorized, Virgin shall first notify Interplay in writing of the particulars of such method or means and shall not proceed therewith unless and until Interplay gives its written consent, which may not be unreasonably withheld. Virgin shall ensure that its authorized subdistributors abide by all of the terms and provisions of this Agreement and Virgin shall not be relieved of any of its obligations to Interplay hereunder with respect to such subdistributor, including, without limitation, financial, marketing and reporting obligations. The parties expressly acknowledge that Virgin has and may hereafter establish or acquire certain wholly owned subsidiaries ("Virgin Subsidiaries") operating distribution companies in the various countries within the Territory and the appointment of such Virgin Subsidiaries as subdistributors is expressly permitted hereunder, provided that the payment to Interplay under this Agreement shall be based upon the wholesale price charged by such Virgin Subsidiary to its customers without regard to any inter-company charge or fee between Virgin and the Virgin Subsidiary, such that Interplay is not adversely impacted by such appointment of the Virgin Subsidiary as a subdistributor, whether or not Virgin's percentage ownership in any such Virgin Subsidiary changes in the future.


(c) Trademarks. Subject to Section 8(c), Interplay hereby grants to
---------- Virgin (a) an exclusive (even as to Interplay, except as hereinafter provided) license within the Territory to reproduce and use the trademarks and service marks used in connection with the Products (including, without limitation, the title and name of the Products), and (b) the non-exclusive license within the Territory to reproduce and use the Interplay name and logo and other Interplay publishing brands as designated by Interplay (collectively, the "Interplay Marks") in Virgin's advertising, marketing and other promotion of the Products solely in the Territory. Notwithstanding the foregoing, Interplay hereby reserves the right to reproduce and use the Interplay Marks in the Territory in connection with Interplay's exercise of the rights reserved in Section 1(f) below.


(d) Territory. For purposes of this Agreement, "Territory" shall
--------- mean Europe (including Scandinavia), CIS (former U.S.S.R), Africa and the Middle East. Interplay shall not distribute or publish any computer software programs or video games (whether or not constituting a


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"Product" hereunder) in the Territory except (i) through Virgin pursuant to this Agreement, (ii) as required by the provisions of those agreements entered into by Interplay prior to the date of this Agreement that are listed on Exhibit C hereto (but only until the current expiration dates of such agreements), and (iii) in connection with the electronic transmission of Products, OEM Transactions with respect to Products, sub-budget rights with respect to Products, merchandising of Products, and Licensed Derivative Works (as defined in paragraph (g) below), in each case only as permitted by Section 1(f).


(e) Localized Versions. Virgin may request that Interplay localize
------------------ one or more Products into one or more of German, French, Spanish or Italian. Interplay shall use its diligent efforts to comply with such request, at its expense, if such localization would be commercially viable, except that Interplay shall only be obligated to localize Products into Italian or Spanish if it deems appropriate in its sole discretion. Such localized version of a Product shall be added to the definition of "Products" hereunder.


(f) Reserved Rights. Only those rights with respect to the right to
--------------- distribute the Products in the Territory expressly granted in this Section 1 are licensed by Interplay to Virgin. All other rights, including, without limitation, all rights outside the Territory, all rights to translate and localize the Products, any electronic transmission rights, (including, without limitation, cable, the internet and any on-line services, but excluding electronic downloading of full versions of the Products in or to the Territory and/or acceptance or fulfillment of orders from within the Territory for shipments of Products to the Territory), any rights with respect to OEM Transactions (as hereafter defined), all "sub-budget" rights (which shall mean products which were initially released in the Territory at least [*] prior to such date and which are sold through non-traditional retail channels [including without limitation drug stores and food chains, etc.] at an expected retail price of less than [*] per unit), any and all other merchandising rights of any kind whatsoever, and rights with respect to Licensed Derivative Works, are specifically excluded from this Agreement and are retained and reserved by Interplay exclusively and worldwide. As a matter of clarity, Virgin may not fulfill direct online orders for Products to be shipped outside the Territory, but Virgin may forward such orders to Interplay to fulfill. Any distribution or use by Interplay of such reserved rights, including, without limitation, the use or authorization of others to use or exploit any of the Products, Interplay Marks (as defined below) and/or any portion of the copyrighted audiovisual works of or concerning the Products in any manner in connection with any articles of merchandise and product consistent with Interplay's reserved rights shall not be deemed unfair competition, interference or infringement of any of Virgin's rights hereunder.


(g) Licensed Derivative Works. [*]
-------------------------


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* Portions omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


(h) Performance Under Certain Distribution Agreements. Interplay
------------------------------------------------- hereby engages Virgin to perform on Interplay's behalf, and Virgin agrees to perform, Interplay's distribution and product supply obligations, to the extent arising after the date of this Agreement under those distribution agreements listed on Exhibit C-1 hereto (true and correct copies of which have previously been provided to counsel for Virgin) (the "Assumed Agreements"), to the extent pertaining to the distribution of computer software programs or video games in the Territory from and after the date hereof. As consideration for such performance by Virgin, Interplay shall pay Virgin a fee equal to the fee that would be payable to Virgin if the products actually distributed under the Assumed Agreements were instead Products distributed by Virgin pursuant to this Agreement. For purposes of clarity, Virgin shall not be entitled to receive any payments under guaranteed minimums that do not result from actual sales of products. In addition, Virgin shall, at Interplay's election, perform the manufacturing services set forth in Section 5(k) hereof with respect to the products provided under such agreements, and Interplay shall reimburse Virgin for the costs of such manufacturing services as set forth in Section 4(d) hereof and shall perform its obligations under Section 5(k) hereof with respect to such manufacturing services and otherwise assist Virgin as reasonably necessary to permit Virgin to timely perform such manufacturing services. In the absence of such an election, Interplay shall continue to manufacture and ship products to Virgin so as to permit Virgin to timely perform Interplay's obligations under the Assumed Agreements. This Agreement shall not constitute an agreement to subcontract Interplay's obligations under such agreements if such an agreement without the consent required or necessary of a third party would constitute a breach or violation thereof. If such a consent of a third party which is required in order to enter into such a subcontract is not obtained prior to the date hereof, Interplay and Virgin shall cooperate in any lawful arrangement to effectuate the intent of this Section.


2. ORDERING.
--------


(a) Orders. Virgin may order Products described on Exhibit A by means
------ of a written purchase order. With respect to new Product releases, the parties shall mutually agree upon the initial ship-in orders for all Products based upon expected demand for the particular Product and Virgin shall place a written purchase order in sufficient time to facilitate the release of such Product. In order to facilitate expected demand on an ongoing basis, Virgin shall provide to Interplay from time to time upon Interplay's written request non-binding forecasts of expected customer orders or customer demand for each of the Products available for the ensuing three month period.


(b) Interplay Acceptance. All orders for Products by Virgin shall be
-------------------- subject to acceptance by Interplay and shall not be binding on Interplay until the earlier of confirmation or shipment, and, in the case of acceptance by shipment, only as to the portion of the order actually shipped; provided, however, that Interplay agrees not to unreasonably withhold its acceptance of any order. In the event Virgin receives no rejection of an order within ten (10) business days after submitting an order, such order shall be deemed accepted by Interplay.


(c) Manufacturing. Once Interplay accepts an order from Virgin
------------- hereunder, Interplay shall, at its discretion, (i) manufacture such Products itself and ship such Products to


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Virgin, or (ii) place a manufacturing order with Virgin to manufacture the Products (or have the Products manufactured) on behalf of Interplay in accordance with Section 5(k) below, or (iii) any combination of the foregoing, to the extent necessary to satisfy such Virgin order.


(d) Pricing. The price to be paid by Virgin to Interplay for the
------- Products shall be a percentage of the Net Sales as specified on Exhibit B.
--------- Interplay shall provide Virgin with suggested wholesale prices for the Products.


(e) Controlling Terms. The terms and conditions of this Agreement
----------------- shall apply to each order for Products hereunder. Any terms or conditions appearing on the face or reverse side of any purchase order, acknowledgment, or confirmation that are different from or in addition to those required hereunder shall not be binding on the parties, even if signed and returned, unless both parties hereto expressly agree in a separate writing to be bound by such separate or additional terms and conditions.


(f) Title and Risk of Loss. Title to the Products shall remain with
---------------------- Interplay until such units are shipped to Virgin's warehouse(s) located in the Territory and title shall pass to Virgin upon delivery to Virgin's warehouse. It is anticipated that Interplay, or a third party duplicator, will ship the Products to Virgin's warehouse(s) located in the Territory where the Products will be held pending resale to Virgin's customers in the Territory. Interplay shall bear the risk of loss on shipments of the Products until delivery to the Virgin warehouse and Virgin shall bear the risk of loss thereafter.


(g) Interplay Cancellation. Interplay reserves the right to cancel or
---------------------- suspend any orders placed by Virgin and accepted by Interplay, or refuse or delay shipment thereof, (i) if Virgin fails to make payment as provided herein or in any invoice, or to comply with the terms and conditions of this Agreement and fails to cure such nonpayment or noncompliance within any applicable cure periods provided herein, or (ii) if Interplay no longer has the right to distribute the Product in the Territory.


(h) Delivery Schedule. Except as otherwise provided in Section 2(g)
----------------- herein, to the extent Interplay is responsible for shipping such order and subject to any longer period of time required by the manufacturer of the Product. With respect to personal computer products, Interplay shall ship an order within [*] of receipt of the order. With respect to products for use with video game console systems, Interplay shall cause the orders to be shipped to Virgin within the time frame specified by the first party licensor doing the manufacturing. Upon Virgin's request for a commercially reasonable delivery schedule, Interplay shall use diligent efforts to meet Virgin's requested delivery schedule. Interplay may make partial shipments of Virgin's orders to be separately invoiced and paid for when due.


3. PAYMENTS.
--------


(a) Payments. Payments for Products shall be made by Virgin to
-------- Interplay as specified in Exhibit B hereto for each of the Products sold or
--------- licensed by Virgin under this Agreement, subject to adjustment as set forth on Exhibit B. Interplay shall also pay to Virgin when due all fees and other - --------- moneys required to be paid by Interplay to Virgin pursuant to the provisions of Exhibit B attached hereto. - --------- * Portions omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


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(b) Payment Terms. Virgin and/or its authorized agent shall make
------------- payments hereunder with respect to any given order for the Products in the manner described in Exhibit B hereto. All payments required to be made by
--------- Virgin hereunder shall be made in British Pounds unless otherwise agreed to by Interplay and Virgin during the term of this Agreement. All such payments shall be made via bank wire transfer to Interplay's bank or via bank check to Interplay. In the event Virgin pays via bank wire transfer, Virgin will provide Interplay with a copy, via telefax, (confirmed in writing), of the bank wire transfer receipt within two (2) days of processing the transfer of funds. The banking instructions may be changed by Interplay by providing Virgin with written notice thereof. Interplay may charge interest on any past due amount at the rate of [*] per month compounded and calculated from the time the amount became past due until paid, or, if lower, the maximum rate permitted by law.


4. INTERPLAY'S OBLIGATIONS.
-----------------------


(a) Support and Training. Interplay shall, at the reasonable request
-------------------- of Virgin and at no cost to Virgin, provide reasonable technical support to Virgin regarding any questions that Virgin has with respect to the Products.


(b) Grey Market Prevention. Until this Agreement is terminated,
---------------------- Interplay shall not exploit, sell, license or distribute the Products in contravention of the sole and exclusive distribution rights set forth in Section 1 to any customer or licensee located in the Territory or to any customer or licensee who it has reason to believe will exploit, sell, license or distribute the Products in the Territory, commonly referred to as "grey market" activity. In the event grey market sales activity is deemed by Virgin to be a problem, Interplay agrees to use its best commercial efforts to eliminate such grey market sales.


(c) Shipping To Virgin. Interplay shall be responsible for all
------------------ packaging, freight and transportation charges to Virgin's warehouse(s) for the Products.


(d) Expense Reimbursements. Interplay shall pay for the approved
---------------------- marketing expenditures incurred by Virgin on Interplay's behalf in accordance with the Marketing Plan described in Section 5(c) below, and the direct costs of manufacturing the Products or having the Products manufactured and shipped to Virgin's warehouse under Section 5, in each case such payment to be made by way of deduction of amounts owed to Interplay in accordance with Exhibit B.
--------- Interplay shall not have any obligation to pay any other fee, expense or other amount to Virgin or Virgin's vendors for the services to be provided by Virgin under Section 5 or otherwise, except as expressly provided in Exhibit B.
---------


(e) Demo Version. Interplay shall use its reasonable efforts to
------------ provide Virgin with a demonstration version of each Product at least ninety (90) days prior to the scheduled completion of such Product (or as soon thereafter as possible), unless the parties agree otherwise. Interplay shall have the right to determine the content and features to be included in such demonstration versions.


(f) Marketing Spend. With respect to each Product which is initially
--------------- released by Interplay under this Agreement, Interplay agrees to spend in the Territory at least [*] of its projected Net Sales (less the Return Reserve) for such Product in the European market


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*Portions omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


on marketing and advertising for such Product (the "Minimum Marketing Spend"). All marketing and advertising costs incurred in favor of third parties by or on behalf of Interplay in the Territory shall be applied toward meeting Interplay's obligation hereunder, including, without limitation, print, television, radio and other advertising, special marketing events to promote the Products and coop and MDF funds. Any portion of the Minimum Marketing Spend not spent by Interplay during any calendar year during the term of this Agreement shall be added to the Minimum Marketing Spend for the succeeding calendar year. For purposes of the preceding sentence, expenditures shall be deemed to have occurred as and to the extent that the marketing activity for which the expenditure is payable is undertaken, not when the cost thereof is actually paid.


(g) OEM Transaction Restriction. Interplay hereby agrees not to ship
--------------------------- any versions of the Products for any platform in OEM Transactions within [*] of the initial release of such Product on such platform in the Territory without the approval of Virgin (which approval may be withheld by Virgin in the exercise of its sole discretion), except for "Limited Versions" (as hereinafter defined). For the purposes of this Agreement, (a) "OEM Transactions" shall be defined as the sale, license or other distribution of one or more Products, either directly or through software aggregators, to ultimately be sold only with or in conjunction with one or more hardware products without separate charge if (as applicable) (i) during the first [*] following the initial release of such Product on such platform in the Territory, the combined hardware and software products have an expected retail price of at least $[*] or (ii) thereafter, the combined hardware and software products have an expected retail price of at least [*]% of the suggested retail price of the Product, and (b) "Limited Versions" shall be defined as versions of a Product having less than approximately [*] of the total game play experience of the full retail version of such Product (e.g., levels, missions, game play features).


(h) Release Schedule and Beta Versions. Interplay will deliver to
---------------------------------- Virgin alpha and beta versions of each Product as it becomes available and a projected Product release schedule as such schedule may be updated from time to time to allow Virgin to prepare for and manage the release of the Products in the Territory. "Alpha" and "beta" shall be defined as such terms are
----- ---- customarily defined in the interactive entertainment software industry. Virgin acknowledges and agrees that the Product release schedule is confidential information of Interplay and may not be disclosed to third parties, provided that Virgin may make such disclosures as are consistent with the implementation of the Marketing Plan for each such Product.


5. VIRGIN'S RIGHTS AND OBLIGATIONS.
-------------------------------


Virgin shall have the following rights, duties and obligations:


(a) Distribution. Virgin shall -use commercially diligent efforts to
------------ sell and distribute the Products in the Territory. Nothing herein shall be deemed to preclude Virgin from marketing or distributing competing products in the Territory.


(b) Marketing and Sales Force. Virgin shall maintain and manage a
------------------------- marketing, distribution and sales force to actively promote the distribution of the Products throughout the Territory, such sales force to have sufficient size, skill, training, experience and resources to service the entire Territory in a professional manner consistent with the commercially recognized industry


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* Portions omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.


standards. The foregoing shall not obligate Virgin to maintain a sales office or sales personnel in any given country other than the United Kingdom, Germany, France and Spain.


(c) Marketing. Virgin shall provide marketing of the Products in the
--------- Territory on behalf of Interplay and at Interplay's direction in accordance with a marketing plan to be approved by Interplay for each Product. Virgin shall provide to Interplay a twelve (12) month general marketing plan for Interplay's reasonable approval, such general marketing plan to be delivered to Interplay within thirty (30) days of the Effective Date and to be updated on a quarterly basis for Interplay's reasonable approval. The general marketing plan will include, without limitation, all projected sales, promotional activities, including, among others, advertising, public relations, trade shows and direct mailings, for all Products under this Agreement. In addition to the foregoing general marketing plan, Virgin will provide ...