Japan Joint Venture Agreement

BETWEEN


SIERRA ON-LINE, INC.


AND


PIONEER ELECTRONIC CORPORATION


DATED AS OF JULY 12, 1995 2
CONTENTS Section 1. Organization of Company......................................... 1


1.1 Formation of Company............................................ 1


1.2 Name............................................................ 2


1.3 Principal Office of the Company................................. 2


1.4 Purposes and Nature of Business................................. 2


1.5 Term............................................................ 3


1.6 Liability of Parties to Third Parties; Reliance by Third-Party
Creditors....................................................... 3


1.6.1 Liability of Parties............................... 3


1.6.2 Reliance by Third Parties.......................... 3


Section 2. Contributions to the Company.................................... 3


2.1 Initial Capital Contributions................................... 3


2.2 Fund Contribution Commitment.................................... 4


2.3 Additional Contributions........................................ 4


2.4 Default in Monetary Obligations................................. 4


2.5 Contributions in Kind........................................... 5


2.5.1 Sierra Game Titles................................. 5


2.5.2 Enabling Technology................................ 5


2.5.3 Services........................................... 5


2.5.4 Operational Contacts............................... 5


2.6 Company Capital................................................. 6


2.7 Loans........................................................... 6


TABLE OF CONTENTS PAGE i 3 Section 3. Management...................................................... 6


3.1 The Board....................................................... 6


3.1.1 Appointment........................................ 6


3.1.2 Term............................................... 7


3.1.3 Removal............................................ 7


3.1.4 Board Meetings..................................... 7


3.1.5 Manner of Acting by the Board...................... 7


3.1.6 Voting of the Board................................ 8


3.1.7 Unanimous Voting of the Board...................... 8


3.2 President....................................................... 10


3.2.1 Appointment........................................ 10


3.2.2 Term............................................... 10


3.2.3 Removal............................................ 10


3.3 Auditors........................................................ 10


3.4 Rights of Parties............................................... 11


3.5 Compensation.................................................... 11


Section 4. Company's Dealings With Parties or Affiliates................... 11


4.1 Right of Company to Deal With Parties or Affiliates............. 11


4.2 Cross License of Sierra Titles and Company Titles............... 11


4.3 Distribution Agreement.......................................... 15


4.4 Other Business of Parties....................................... 17


4.5 Company-Developed Technology.................................... 17


Section 5. Distributions and Allocations................................... 18


5.1 Distributions................................................... 18


TABLE OF CONTENTS PAGE ii 4
5.2 Limitations on Distributions.................................... 18


Section 6. Indemnification................................................. 18


6.1 Indemnification................................................. 18


6.2 Nonexclusivity of Rights........................................ 18


6.3 Indemnification of Officers, Employees and Agents............... 18


Section 7. Dissolution of Company; Special Withdrawal Right................ 19


7.1 Events Causing Dissolution...................................... 19


7.2 Liquidation..................................................... 20


7.2.1 Payment............................................ 20


7.2.2 No Right to Assets................................. 20


7.2.3 Enabling Technology................................ 20


7.2.4 Rights to Company-Developed Products and Technology 21


7.2.5 Use of Other Party's Name.......................... 21


7.3 Buy-Out Option.................................................. 21


7.4 Termination Payment............................................. 21


Section 8. Books, Records and Accounting................................... 22


8.1 Books and Records............................................... 22


8.2 Fiscal Year..................................................... 22


8.3 Bank Accounts................................................... 22


8.4 Annual Budget................................................... 23


8.4.1 Annual Budget Planning............................. 23


8.4.2 Review of Annual Performance....................... 23


8.5 Annual Business Plan............................................ 23


TABLE OF CONTENTS PAGE iii 5 Section 9. Dispute Resolution.............................................. 24


9.1 General......................................................... 24


9.2 Unassisted Settlement........................................... 24


9.3 Arbitration and Costs........................................... 24


9.4 Costs........................................................... 24


Section 10. Miscellaneous................................................... 25


10.1 Confidentiality................................................. 25


10.2 Press Releases.................................................. 25


10.3 Governing Law................................................... 25


10.4 Assignment...................................................... 25


10.5 Construction.................................................... 26


10.6 Counterparts.................................................... 26


10.7 No Partnership.................................................. 26


10.8 Entire Agreement................................................ 26


10.9 Notices......................................................... 26


10.10 Waivers......................................................... 28


10.11 Attorney Fees................................................... 28


10.12 Choice of Language.............................................. 28


10.13 Exhibits........................................................ 28


TABLE OF CONTENTS PAGE iv 6
JOINT VENTURE AGREEMENT


This Joint Venture Agreement, dated as of July 12, 1995 (the "Effective Date"), is made and entered into by and between Sierra On-Line, Inc., a corporation organized under the laws of the State of Delaware, U.S.A. ("Sierra"), and Pioneer Electronic Corporation, a corporation organized under the laws of Japan ("Pioneer"). Sierra and Pioneer are sometimes referred to herein collectively as the "Parties" and individually as a "Party". The definitions of certain terms used in this Agreement are set forth in Exhibit A.


RECITALS


A. Sierra is a developer, publisher and distributor of computer games and other software products principally for use on personal computers.


B. Pioneer is engaged in various aspects of the consumer electronic entertainment business worldwide.


C. Sierra and Pioneer want to enter into a joint business arrangement under which they will jointly form a separate legal entity to develop, produce, publish, distribute, localize and license computer games and other software products in Japan and the rest of Asia.


AGREEMENT


For and in consideration of the mutual covenants contained in this Agreement, the Parties agree as follows:


SECTION 1. ORGANIZATION OF COMPANY


1.1 FORMATION OF COMPANY


As soon as practicable following the Effective Date, the Parties shall form a "Kabushiki-Kaisha" corporation under the Commercial Code and other Applicable Laws of Japan (the "Company") to perform the activities of the Company specified in this Agreement. The Company's organizational documents ("Company Organization Documents") shall provide for a single class of voting common stock, include the provisions necessary to implement the terms and conditions set forth in this Agreement and be in a form approved by both Parties. Pioneer shall be responsible for taking all steps necessary to form the Company including filing, registration and notification required by all Applicable Laws in Japan. All costs reasonably incurred by Pioneer in forming the Company shall be reimbursed to Pioneer by the Company as soon as possible following the formation of the Company.


JOINT VENTURE AGREEMENT PAGE 1


7
1.2 NAME


The name of the Company shall be either Sierra On-Line Pioneer Inc. or Sierra Pioneer Inc.


1.3 PRINCIPAL OFFICE OF THE COMPANY


The principal office of the Company shall be located at Meguro-ku or Shibuya-ku, Tokyo, Japan or such other location approved by the Parties from time to time.


1.4 PURPOSES AND NATURE OF BUSINESS


The purposes of the Company shall be limited to:


(a) localize, publish, distribute and license in Japan and Asia the computer games and other software products acquired under license from Sierra pursuant to the License Agreement described in Section 4.2;


(b) develop, produce, publish, distribute and license new computer game and software product titles for personal computers, arcade and video game computers, 32-bit systems, super density discs and other emerging platforms;


(c) adapt, convert and port the computer games and software products described in clauses (a) and (b) above for use with different computer platforms (e.g., from MS DOS platforms to arcade and video game machines and 32-bit systems) and publish, distribute and license such games and products in Japan and Asia and, through Sierra, the remainder of the world;


(d) localize, publish, distribute and sublicense third-party computer games and software products in Japan and Asia and, through Sierra, the remainder of the world for personal computers, arcade and video game computers, 32-bit systems, super density discs and other emerging platforms;


(e) develop other lines of business related to the activities described in clauses (a) through (d) above (e.g., develop, publish and sell hint books for such games and products and develop and sell merchandise that uses characters or other recognizable aspects of such games and products);


(f) sublicense to Sierra the right to localize, port, publish, distribute and license outside Japan and Asia the games and products described in clauses (b) through (e) above;


(g) engage in any other lawful business activity that is approved in advance by the Board subject to the terms of this Agreement; and


(h) engage in all other acts and things necessary, proper or advisable to effect and carry out such purposes of the Company and to operate its business.


JOINT VENTURE AGREEMENT PAGE 2 8
1.5 TERM


The Company shall commence upon formation after the Effective Date of this Agreement and shall continue in perpetuity unless and until earlier terminated and dissolved pursuant to Section 7.1 of this Agreement. This Agreement shall terminate upon the earlier of (i) dissolution of the Company or (ii) termination as provided in this Agreement.


1.6 LIABILITY OF PARTIES TO THIRD PARTIES; RELIANCE BY THIRD-PARTY CREDITORS


1.6.1 LIABILITY OF PARTIES


Except as otherwise provided by Applicable Laws or in this Agreement, no Party shall be personally liable for any debt, obligation or liability of the Company, whether arising in contract or otherwise, solely by reason of being an owner of Shares in the Company.


1.6.2 RELIANCE BY THIRD PARTIES


This Agreement is entered into between the Parties for the exclusive benefit of the Parties and their permitted successors and assigns. Specifically (but not by way of limitation), this Agreement is not intended for the benefit of any creditor of the Company or any other person. Except to the extent provided by Applicable Laws, and then only to that extent, no such creditor or third party shall have any rights under this Agreement or under any other agreement between the Company and either Party, either with respect to any contribution to the Company or otherwise.


SECTION 2. CONTRIBUTIONS TO THE COMPANY


2.1 INITIAL CAPITAL CONTRIBUTIONS


Each Party shall contribute the following amounts to the Company ("Initial Capital Contribution") upon the formation of the Company and shall receive the following percentage of the authorized and issued Shares:


INITIAL CAPITAL
PARTY CONTRIBUTION SHARE PERCENTAGE
----- --------------- -----------------
Sierra 153,000,000 yen 51%

Pioneer 147,000,000 yen 49%

2.2 FUND CONTRIBUTION COMMITMENT


In addition to the Initial Capital Contributions, the Parties shall make additional Capital Contributions or Loans pro rata in accordance with their respective number of Shares (i) in such amounts as shall be determined by the President as provided in Section 3.2 or (ii) upon a majority vote of the Board upon the occurrence of a Trigger Event or (iii) up to a maximum of 20 million yen per Party in any fiscal year in the absence of a Trigger Event upon a majority vote of the Board or


JOINT VENTURE AGREEMENT PAGE 3 9 (iv) upon the unanimous vote of the Board, in each case subject to a maximum aggregate contribution (whether by Loan or Capital Contribution and including the Initial Capital Contribution) of Five Hundred Twenty Million Four Hundred Eight Thousand One Hundred Japanese Yen (520,408,100 yen) in the case of Sierra and Five Hundred Million Japanese Yen (500,000,000 yen) in the case of Pioneer. The Trigger Events are the following:


(a) If the Company's working capital is insufficient to enable the Company to operate and perform in the ordinary course of business in accordance with the Annual Budget (or the Revised Annual Budget, if applicable) for such fiscal year; or


(b) The Company has insufficient resources to fund any capital expenditure identified in the Annual Budget (or the Revised Annual Budget, if applicable) for such fiscal year.


2.3 ADDITIONAL CONTRIBUTIONS


Any call for Capital Contributions or Loans in excess of or in any manner other than those specified in Sections 2.1 or 2.2 above shall be subject to the approval of each contributing Party.


2.4 DEFAULT IN MONETARY OBLIGATIONS


In the event of any default by a Party in the performance of its monetary obligations under Section 2.1 or 2.2 of this Agreement, the other Party may demand in writing that such default be cured. If the defaulting Party shall fail to cure the default within ten (10) days after receipt of such demand, the other Party may, on behalf of the defaulting Party, advance to the Company the amount remaining in default. Such advance shall be treated as a loan to the defaulting Party bearing interest at the rate of fifteen percent (15%) or at the maximum rate permitted by Applicable Laws, whichever is less, computed and compounded daily. The loan shall be payable ten (10) days after demand for payment is received by the defaulting Party from the advancing Party. The advancing Party shall have a preferred right of distribution with respect to any such amounts advanced and no distributions or payments in liquidation shall be made by or on behalf of the Company to the defaulting Party until such amount together with interest has been repaid in full. The rights of the advancing Party set forth in this Section 2.4 are in addition to, and not in lieu of, any other rights or remedies afforded under this Agreement, by law or otherwise on account of the default.


2.5 CONTRIBUTIONS IN KIND


2.5.1 SIERRA GAME TITLES


Sierra will license and provide to the Company the computer games and software of Sierra and its Affiliates as provided in the License Agreement described in Section 4.2 below.


2.5.2 ENABLING TECHNOLOGY


In addition to their respective Capital Contributions, Loans and the licenses described in Section 4.2 below, each Party shall also license and provide to the Company during the


JOINT VENTURE AGREEMENT PAGE 4 10 term of this Agreement on a non-exclusive, non-transferable, non-sublicensable, royalty-free basis and solely for the internal use by the Company in the development of the Company's games and products all development tools and enabling technology reasonably useful for the creation and development of the software products in the areas of computer games, consumer education, edutainment or other similar consumer software products for use on personal computers, video game machines and any new or emerging platform, such as 32-bit CD-ROM game machines, that such Party is now or hereafter legally and contractually entitled to so license or sublicense to the Company. A list of such tools and enabling technology that as of the Effective Date each Party is entitled to license or sublicense to the Company is set forth in Exhibit C. The Company shall be obligated to keep all such tools and technology confidential as provided in Section 10.1 and limit access to such tools and technology to persons who have a need to know. The Parties shall notify the Company of any and all third party royalties that will arise out of the Company's use of their respective tools and technology and if the Company proceeds to use such items, the Company shall pay or reimburse the licensing Party for any and all third party royalties due on the Company's use of the same.


2.5.3 SERVICES


In addition, each Party shall contribute development, marketing and management support to the Company at no charge. Pioneer shall transfer experienced and qualified administrative staff and content producers from Pioneer or its Affiliates to the Company and shall provide the Company with access to the third-party software developers with whom Pioneer and its Affiliates have been working to perform work for the Company on the same terms and conditions used with Pioneer. Each Party shall also provide the Company at no charge access to and use of the facilities of such Party that are useful for the Company's development and publication of products (e.g., Pioneer's or Sierra's audiovisual digital recording studios).


2.5.4 OPERATIONAL CONTACTS


Sierra, at its own expense, shall appoint one or more of its employees to be dedicated solely to the activity of acting as the liaison and coordinator between Sierra and the Company regarding the conduct of the Company's business and the Company's dealings with Sierra pursuant to Section 4.


2.6 COMPANY CAPITAL


(a) No Party shall be paid interest on any Capital Contribution.


(b) No Party shall have the right to withdraw, or receive any return of, its Capital Contributions or Loans, except as may be specifically provided in this Agreement. No Party shall have priority over the other Party, either as to the return of its Capital Contributions or Loans or as to profits, losses or distributions, except as otherwise specifically provided in this Agreement or under Applicable Laws.


JOINT VENTURE AGREEMENT PAGE 5 11
(c) Under circumstances requiring a return of any Capital Contribution or Loan, no Party shall have the right to receive property, other than cash, except as may be specifically provided in this Agreement.


2.7 LOANS


After a request for an additional contribution to the Company (other than the Initial Capital Contribution) is made as provided above, the Parties shall discuss whether all or any portion of such contribution shall be made in the form of a Loan. Upon the majority decision of the Board, each Party may advance the approved portion in the form of a Loan, subject to such terms and conditions as may be established by the Board with respect to such Loans (e.g., interest rate, liquidation preference and the like). In addition to such contributions, the Company may borrow money from the Parties pro rata in accordance with the number of Shares they own at such times and in such amounts and upon such terms as shall be determined by a unanimous vote of the Parties or the Board. No such Loan shall increase the interest of the Party making the Loan in the capital of the Company, or affect any Party's Shares or share of the profits, losses and distributions of the Company.


SECTION 3. MANAGEMENT


3.1 THE BOARD


The business of the Company shall be conducted in accordance with policies, decisions, guidelines and budgets made or approved by the Board, subject to the terms of this Agreement.


3.1.1 APPOINTMENT


The Board shall be composed of five (5) Directors. Sierra shall designate three (3) Directors and Pioneer shall designate two (2) Directors. Sierra and Pioneer shall each vote their Shares or otherwise cause the appointment or election of the Directors designated by the other Party as provided above. The initial Directors shall be:


Designated by Sierra: Mr. Michael Brochu
Mr. Al Higginson
Mr. Kenneth Williams


Designated by Pioneer: Mr. Kimihiko Sugano
Mr. Hajime Wada


3.1.2 TERM


Each Director shall hold office for a term expiring on his or her death, resignation or removal from office or upon the expiration of such shorter term as may be required under Applicable Laws.


JOINT VENTURE AGREEMENT PAGE 6 12
3.1.3 REMOVAL


Any Party may at any time remove and replace any of the Directors designated by it by giving written notice of the replacement to the other Party. Sierra and Pioneer shall each vote their Shares or otherwise cause the removal and replacement of a Director designated by the other Party as requested by that Party.


3.1.4 BOARD MEETINGS


The Company shall hold regular quarterly Board meetings. In addition, any Director may call a meeting of the Board by giving all other Directors notice thereof at least ten (10) Business Days in advance of the meeting or such shorter notice as agreed upon in writing by all Directors. All meetings of the Board shall be held at the principal office of the Company or at such other place as may be determined by the Board. To the extent permitted under Applicable Laws, a meeting of the Board may be held by conference telephone or similar communications equipment by means of which all Directors participating in the meeting can hear each other at the same time; participation by such means shall constitute presence at such meeting. There shall be a quorum if at least one (1) Director designated by each Party is in attendance. Minutes shall be kept of each Board meeting and provided to all Directors.


3.1.5 MANNER OF ACTING BY THE BOARD


To the extent permitted by Applicable Laws and subject to the terms of this Agreement, the Board may act by consensus, by adoption pursuant to vote taken at a meeting of the Board (any Director designated by a Party may vote by proxy for any Director(s) designated by such Party who is absent), or by written instrument signed by all Directors or signed by at least one (1) Director designated by each Party.


3.1.6 VOTING OF THE BOARD


On each matter put to a vote of the Board, each Director present in person or by proxy at the meeting shall be entitled to cast a vote. Except for the matters described in Section 3.1.7 below, any matter put to a vote shall be deemed adopted by the Board upon receiving the affirmative vote of three (3) D ...