UNREAL ENGINE 3 LICENSE AGREEMENT

Exhibit 10.3

Execution Copy

UNREAL ^® ENGINE 3
LICENSE AGREEMENT

THIS UNREAL ^® ENGINE 3 LICENSE AGREEMENT (the “ Agreement ”) is entered into on January 14, 2005 by and between Epic Games, Inc., a Maryland corporation with its principal place of business at 5511 Capital Center Drive, #675, Raleigh, North Carolina 27606 (“ Epic ”), and Midway Home Entertainment Inc., a Delaware corporation with offices at 10110 Mesa Rim Road, San Diego, California 92121 (“ Licensee ”) (each a “ Party ” or, collectively, the “ Parties ”).

RECITALS

A. Epic is developing a proprietary computer program presently known as the Unreal Engine 3 (which includes, without limitation, the Unreal Editor 3) (the “ Unreal Engine 3 ”).

B. Licensee desires to enter into a nonexclusive, nontransferable license agreement with Epic pursuant to which Licensee will obtain the right to develop, market and sublicense Games using the Unreal Engine 3.

C. Epic and Licensee entered into that certain Master License Agreement dated July 15, 2004 (the “ First Master Agreement ”), pursuant to which Licensee paid Epic the sum of [       *       ] (the “ Initial Payment ”).

AGREEMENT

NOW, THEREFORE, for good and valuable consideration and in consideration of the mutual covenants and conditions herein contained, Epic and Licensee agree as follows:

1. DEFINITIONS . For the purposes of this Agreement, the terms set forth below shall be defined as follows:

     (a) The term “ Affiliates ” shall mean entities with [       *       ] or more common ownership or control.

     (b) The term “ Bug Fixes ” shall mean modifications or additions to the Licensed Technology which are intended to correct errors or other unwanted and unintended conditions that cause the Licensed Technology to fail, malfunction or operate in a manner other than as anticipated, but does not include Enhancements.

     (c) The term “ Claim ” shall have the meaning as set forth in Section 5(f)(i) .

     (d) The term “ Confidential Information ” shall have the meaning as set forth in Section 8(a) .

     (e) The term “ Control ” shall mean the beneficial ownership of more than [       *       ] of the outstanding voting securities of a company.

     (f) The term “ Demo Content ” shall mean any textures, models, fonts, sound effects, levels/maps, particle emitters, icons, brushes, static meshes, animated meshes, or other graphics or audio that are provided with the binary versions of the Unreal Engine or, from time to time, with updates to the binary versions of the Unreal Engine. The sole purpose of Demo Content is to demonstrate development

^* Information has been omitted from this document and filed separately with the SEC under a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

techniques using the Unreal Engine. Licensee does not have the right to release or publicly demonstrate any Demo Content in any version of their game without prior permission from Epic. Licensee acknowledges that Demo Content provided by Epic is strictly confidential and covered under the included non-disclosure agreement just as engine source code is.

     (g) The term “ Enhancements ” shall mean any technology developed by Licensee that is derived from or modifies the Licensed Technology and corrects, enhances or improves the Licensed Technology.

     (h) The term “ Epic Indemnitees ” shall have the meaning as set forth in Section 5(c)(i ).

     (i) The term “ Epic Trademarks ” shall have the meaning as set forth in Section 6(c) .

     (j) The term “ Executing Level Pack ” shall mean any set of levels, characters, weapons or other game features or items produced to extend the original storyline of the Game that does not require the Game to be installed in order to function.

     (k) The term “ Feature Addition ” shall have the meaning as set forth in Section 2(d)(i) .

     (l) The term “ First Master Agreement shall have the meaning as set forth in Recital C .

     (m) The term “ Franchise Licensed Product ” shall mean any Licensed Product that (i) is marketed using any of the following trademarks, or is a derivative work of any video game marketed using any of the following trademarks: MORTAL KOMBAT, GAUNTLET, SPY HUNTER, THE SUFFERING, AREA 51, RUSH, FEAR & RESPECT, NARC, BLITZ, SLUGFEST, BALLERS, or (ii) simulates the play of football, basketball or baseball.

     (n) The term “ Game ” shall mean a video game Licensee or its Affiliate commences to develop (or engages a contractor to develop) using the Licensed Technology at any time during the [       *       ] after the date of this Agreement, all adaptations of such game to any video game platform (whether or not developed by Licensee or its Affiliate, and regardless of when developed), all localized versions of such game (whether or not developed by Licensee or its Affiliate, and regardless of when developed), all patches to such game (whether or not developed by Licensee or its Affiliate, and regardless of when developed), and all Executing Level Packs and all Non-Executing Level Packs (whether or not developed by Licensee or its Affiliate, and regardless of when developed). A “ Licensed Product ” means a version of a Game that contains any portion of the Licensed Technology.

     (o) The term “ Infringement Claim ” shall have the meaning as set forth in Section 5(c)(i)

     (p) The term “ Initial Payment ” shall have the meaning as set forth in Recital C .

     (q) The term “ Intellectual Property Rights ” shall mean any and all tangible and intangible and now known or hereafter existing (i) rights associated with works of authorship throughout the world, including but not limited to copyrights, moral rights, and mask-works; (ii) trademark and trade name rights and similar rights; (iii) trade secret rights; (iv) patents, designs, algorithms and other industrial property rights; (v) all other intellectual and proprietary rights (of every kind and nature throughout the world and however designated) (including without limitation logos, character rights, “rental” rights and rights of publicity or personality), whether arising by operation of law, contract, license or otherwise; and (vi) all registrations, applications, renewals, extensions, continuations, divisions or reissues thereof (including without limitation rights in any of the foregoing).

^* Information has been omitted from this document and filed separately with the SEC under a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

     (r) The term “ License Fee Royalty ” shall have the meaning as set forth in Section 3(b) .

     (s) The term “ Licensed Technology ” means the proprietary computer software program presently known as the Unreal Engine 3, as such program may exist for use with any and all video game platforms from time to time throughout its development and upon its completion and including all documentation pertaining thereto, all commercially available platform ports, and any improvements, enhancements, updates, fixes and other changes thereto which may, from time to time, at Epic’s sole option, be made available to Licensee or Epic’s licensees of the Licensed Technology generally and which are not marketed by Epic as separate stand-alone programs (collectively, “ Upgrades ”). Licensed Technology shall not include Third Party Software.

     (t) The term “ Licensee Indemnitees ” shall have the meaning as set forth in Section 5(d)(i) .

     (u) The term “ Milestone ” means one of the numbered tasks set forth in the table captioned “Milestones” in Exhibit B .

     (v) The term “ Net Receipts ” means [       *       ]

     (w) The term “ Non-Executing Level Pack ” shall mean any set of levels, characters, weapons or other game features or items produced to extend the original storyline of the Game that requires the Game to be installed in order to function.

     (x) The term “ Person ” shall mean a natural person, a corporation, an association, a partnership, a joint venture, a trust, a government or political department, subdivision, or agency, or any other entity.

     (y) The term “ Sequel ” shall mean a new product with an original storyline based on the Game’s Intellectual Property Rights.

     (z) The term “ Software Development Contractors ” shall have the meaning as set forth in Section 2(a) .

^* Information has been omitted from this document and filed separately with the SEC under a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

     (aa) The term “ Technology Completion ” shall have the meaning as set forth in Section 2(d)(i) .

     (bb) The term “ Territory ” shall refer to the world.

     (cc) The term “ Third Party Software ” shall refer to such software products of third parties unaffiliated with Epic that Epic has integrated into the Licensed Technology and typically delivers to its licensees of the Licensed Technology, and of which Epic gives Licensee notice in accordance with Section 2(d)(ii) .

     (dd) The term “ Unreal Engine 3 ” shall have the meaning as set forth in Recital A .

2. GRANT OF LICENSE; RESTRICTIONS; OBLIGATIONS .

     (a) Epic hereby grants to Licensee, and Licensee hereby accepts from Epic, a nonexclusive, nontransferable (except as set forth in Section 12 ), [       *       ] license, with the right to sublicense, within the Territory to (i) use and copy the Licensed Technology for the purpose of developing Games; (ii) use and distribute the Licensed Technology (in object code only) as an embedded component of Games; (iii) develop Enhancements for use in Games; and (iv) to utilize the Licensed Technology to manufacture, distribute and sell copies of Games. The foregoing license is a license of all Intellectual Property Rights in the Licensed Technology. Epic acknowledges that Licensee may use contractors in the exercise of its rights under the foregoing license including software development contractors (the “ Software Development Contractors ”); provided, however, that Licensee may not use the Persons set forth in Exhibit C for any software development pursuant to this Agreement. Exhibit C may be amended by Epic [       *       ] during the term of this Agreement to include the names of additional Persons, provided, however , Exhibit C shall not be deemed amended for purposes hereof until delivered to Licensee and shall not include any Software Development Contractors already in use by Licensee pursuant to this Agreement.

     (b) Nothing contained in this Agreement shall be construed to grant to Licensee the right to sell, disclose, distribute or sublicense the Licensed Technology apart from Games. Licensee acknowledges and agrees that it has no rights or claims of any type to the Licensed Technology except such rights as are created by this Agreement, and Licensee irrevocably waives and releases any claim to title and ownership rights (including trade secret and copyright ownership) in the Licensed Technology.

     (c) Epic hereby reserves all rights not expressly granted to Licensee in this Agreement. Licensee further acknowledges that Epic claims and reserves all rights and benefits afforded under federal copyright law in the Licensed Technology (including the program documentation of the Licensed Technology), as unpublished works. Any copying, modification, or distribution of such copyrighted works not expressly authorized by this Agreement is strictly forbidden.

     (d)  Licensed Technology Development and Delivery .

      (i) The parties acknowledge that as of the date of this Agreement the Unreal Engine 3 program is presently being developed by Epic for use on the personal computer, PlayStation 3 and Xenon (a/k/a Xbox 2) video game platforms. “ Technology Completion ” for each of the PlayStation 3, Xenon and personal computer platforms shall occur when (A) all of the tasks set forth under “Feature Additions” in Exhibit B (each a “ Feature Addition ”) are completed by Epic for the Licensed Technology on such platform and (B) if there is a platform proprietor for such platform, Epic has obtained the approval of such platform proprietor of the completed Licensed Technology as “middleware” suitable for inclusion in video games submitted for manufacture for

^* Information has been omitted from this document and filed separately with the SEC under a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

such platform; provided, however , that such completion shall be subject to Licensee’s approval (which approval shall not be unreasonably withheld or delayed) for the Licensed Technology on each such respective platform.

      (ii) Epic shall notify Licensee of the product name and licensor name of any Third Party Software promptly after Epic determines that the Third Party Software will be integrated into the Licensed Technology.

      (iii) Within [       *       ] after Licensee so requests from time to time, Epic shall deliver to Licensee the Licensed Technology, as it then exists, in complete source code and object code forms (including all documentation of the Licensed Technology and the use thereof that Epic possesses).

      (iv) Within [       *       ] , Epic shall provide Licensee’s employees or individual contractors (as designated in writing by Licensee from time to time) with access to Epic’s development source code and object code database for the Licensed Technology such that at all such times such individuals may obtain a copy of the Licensed Technology, as it then exists, in complete source code and object code forms (including all documentation of the Licensed Technology and the use thereof that Epic possesses).

     (e)  License Restrictions .

      (i) Licensee shall not (A) copy, modify, display or distribute to any person all or any part of the Licensed Technology, except as provided for herein; (B) disassemble, de-compile or reverse engineer the Licensed Technology, or any part thereof, except as permitted herein; (C) use or distribute the Licensed Technology separately from Games in any manner; or (D) license, sub-license, distribute, make available or disclose the Licensed Technology to any third party except as authorized in this Agreement.

      (ii) Licensee agrees not to remove or destroy any copyright notices, trademarks or other proprietary or confidential legends or markings placed upon or contained within the Licensed Technology or on any other materials provided by Epic related to the Licensed Technology. Subject to the approval of any third parties with applicable approval rights (e.g., Sony, Microsoft, Nintendo), Licensee further agrees to place such copyright and trademark notices as are set forth in Exhibit A on the packaging of the Licensed Products, in the legal notice screen of the Licensed Products, and on any other materials on which Licensee uses the Epic Trademarks (as defined below) pursuant to this Agreement and to use the Epic Trademarks in accordance with Exhibit A .

     (f)  Licensee’s Obligations and Representations . Licensee agrees, as regards the conduct of that portion of its business that relates to the Licensed Products: (i) to conduct such business in a manner that does not disparage the Licensed Technology and the good name, goodwill and reputation of Epic; (ii) not to make false or misleading representations with regard to Epic or the Licensed Technology; (iii) not to publish or employ or cooperate in the publication or employment of any misleading or deceptive advertising material relating to Epic or the Licensed Technology; and (iv) not to make representations, warranties or guarantees to customers, or to the trade, with respect to the specifications, features or capabilities of the Licensed Technology which are inconsistent with the literature distributed by Epic. Licensee agrees to notify Epic of the title of each Game (which may be a working or tentative title) promptly after the development of such Game is commenced.

^* Information has been omitted from this document and filed separately with the SEC under a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

3. PAYMENTS; TAXES; RECORDS .

     (a)  Development Fee Payment . During each of the [       *       ], at the end of each [       *       ] Licensee shall pay Epic a non-refundable fee set forth for such [       *       ] in Exhibit B; provided, however, that for each [       *       ] :

      (i) if by the end of such [       *       ] , Epic has committed a material breach of any of the provisions of this Agreement and has failed to remedy such breach within [       *       ] of notice of such breach by Licensee, then Licensee shall have the right to withhold the payment of such fee for such [       *       ] until such breach has been remedied by Epic;

      (ii) if the Milestone associated with such [       *       ] (as set forth in Exhibit B) or any Milestone(s) associated with prior [       *       ] (as set forth in Exhibit B ) has not then been completed by Epic and approved by Licensee (which approval has not been unreasonably withheld or delayed), then Licensee shall have the right to withhold the payment of such fee for such [       *       ] until such Milestone(s) has (have) been completed by Epic and approved by Licensee; and

      (iii) [       *       ]

     (b)  License Fee Royalty Payments . For each copy of a Licensed Product sold by Licensee, its affiliate or its licensee, Licensee shall accrue for Epic’s account a royalty equal to (i) [       *       ] if the Licensed Product is a Franchise Licensed Product, or (ii) [       *       ] if the Licensed Product is not a Franchise Licensed Product (such royalty being the “ License Fee Royalty ”). Licensee will render a statement of account to Epic of its Net Receipts received in each [       *       ] within [       *       ] , beginning with the [       *       ] during which Licensee receives Net Receipts and continuing for so long as Licensee receives such amounts. The statement will show the number of copies of the Licensed Products sold and the Net Receipts associated therewith, any returns of the Licensed Products (these include, without limitation, defective allowances granted in lieu of returns), reserves, charges, and the royalties payable to Epic, provided that information regarding Licensed Product copies sold by or returned to a licensee of Licensee shall be included in the report generated after the end of the [       *       ] in which Licensee received from that licensee such report of Licensed Product copies sold or distributed and returned for that licensee. The amount of royalties payable to Epic shall be determined by taking the royalty calculated in accordance with the first sentence of this Section 3(b) and deducting credits for price protection (i.e., the difference between the License Fee Royalty paid for a copy and the License Fee Royalty for such copy recalculated after price protection has been granted for such copy) and credits for returns (i.e., the License Fee Royalty paid for a returned copy). Each such statement shall be accompanied by the payment to Epic of the License Fee Royalty for such [       *       ] . The License Fee Royalties paid by Licensee to Epic shall be non-refundable.

     (c)  Taxes . All amounts payable under this Agreement are exclusive of all sales, use, value-added, withholding, and other taxes and duties. Epic will pay all taxes and duties, except for those excluded in the preceding sentence, assessed in connection with this Agreement and its performance by

^* Information has been omitted from this document and filed separately with the SEC under a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

any authority within or outside of the U.S., except for taxes payable on Licensee’s net income. To the extent necessary to comply with the laws, rules and regulations of the United States, and any treaties between the United States and any countries outside the United States in the Territory, Epic agrees to pay or Licensee shall be entitled to withhold foreign withholding taxes at the applicable rate set forth in such treaties payable by Epic to such foreign countries; provided, however, that within [       *       ] the date of any payment of such foreign withholding tax withheld by Licensee in respect of any payment herein, Licensee shall furnish to Epic the original or a copy of a receipt evidencing payment thereof in a form acceptable to the government of the foreign country or other relevant local tax authority, certifying the fact that such tax has been duly paid and account to Epic for its pro-rata share of such tax credit, if any. Without limiting the aforesaid, if for any reason Licensee does not withhold such taxes, then Epic agrees to pay said taxes within [       *       ] . Notwithstanding anything to the contrary contained herein, if Epic wishes Licensee to withhold the lowest amount possible of the taxes from the advances and royalties paid for the services rendered by Epic hereunder, Epic may complete the appropriate Internal Revenue Service forms.

     (d)  Records . For a period of [       *       ] after the date of each report sent by Licensee pursuant to Section 3(b) , Licensee shall keep books and records in reasonable detail to support the calculations set forth in such report and Epic may, at any time during Licensee’s normal business hours (but on not less than [       *       ] written notice, not more than [       *       ] , and not in a manner disruptive of Licensee’s business), use certified public accountants (whether employees of Epic or its affiliates or an accounting firm selected by Epic) to inspect such records and books for the purposes of verifying the calculation of royalty payments under such report. Licensee agrees that substantially all its direct sales data at the invoice level will be available at the audit location. Licensee agrees that it will, at its expense, make all such existing data files on a worldwide basis available at the audit location, and agrees to cooperate with Epic and the auditors to obtain access to other important information and documents. Such inspection shall be at Epic’s expense, to verify information regarding amounts payable to Epic pursuant to this Agreement; provided that Licensee shall reimburse Epic on a prompt basis for the cost of such audit in the event such audit reveals that the amount paid to Epic during the period covered by such audit is less than the amount actually due for such period by an amount greater than [       *       ] of such amount actually due for such period. Licensee shall immediately pay any such unpaid amount actually due.

4. TECHNICAL SUPPORT . Epic shall use commercially reasonable efforts to provide Upgrades, which enhance the performance of the Licensed Technology and technical support via phone, fax and e-mail (private and/or public mailing lists). Epic’s support obligation shall terminate [       *       ] after the initial public release of the last Game. Epic agrees to provide initial training for Licensee’s creative staff (artists, level designers, etc.) on site at Licensee’s or its contractor’s offices at Epic’s expense during the [       *       ] period after the date of this Agreement. Licensee may, at its option, send a reasonable number of programmers/software engineers to Epic’s office at Licensee’s cost and expense for initial programmer training after such [       *       ] period.

5. WARRANTIES; INDEMNITY .

     (a)  Epic’s Warranties . Epic represents and warrants that (i) it has the power and authority to enter into this Agreement and to fully perform its respective obligations hereunder; (ii) this Agreement has been executed by its duly authorized representative; (iii) it is under no contractual or other legal obligation which would interfere in any way with the full, prompt, and complete performance of its obligations pursuant to this Agreement; (iv) it has the right to grant the licenses set forth in this Agreement; and (v) the Licensed Technology, to the best of Epic’s knowledge, does not, and shall not, contain any programming devices (e.g., viruses, key locks, back doors, etc.) which would (A) disrupt the use thereof or any software or system with which the Licensed Technology is used; (B) destroy or

^* Information has been omitted from this document and filed separately with the SEC under a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

damage data or make data inaccessible or delayed, except for routines necessary to the ordinary functioning of the Licensed Technology; or (C) allow Epic or its subcontractors to access Licensed Products distributed under this Agreement in a manner which is different from access by an ordinary user or player. Epic will indemnify and defend Licensee, its affiliates, and their officers, directors, employees, agents, customers, and sub-licensees from, and hold them harmless from, any loss, damage, liability, and expense (including reasonable attorneys’ fees) suffered or incurred by any of them arising out of any demand, claim, or legal proceeding containing allegations that, if true, would constitute a breach by Epic of its representations and warranties in this Section 5(a) .

     (b)  Warranty Limitations . Epic’s warranties do not include any warranty (i) that the functions performed by the Licensed Technology will meet Licensee’s requirements; nor (ii) that the operation of the Licensed Technology will be bug free or error free in all circumstances; nor (iii) that any defects in the Licensed Technology can or will be corrected. Epic’s warranties shall not apply to the extent the Licensed Technology has been modified without Epic’s written consent.

     (c)  Special Warranty as to Non-infringement . Epic represents and warrants that (i) the Licensed Technology is original; (ii) the Licensed Technology and Epic Trademarks shall not infringe any Intellectual Property Rights of any third party; and (iii) Licensee’s and its affiliates and sublicensees’ exercise of the license rights granted by Epic pursuant to this Agreement will not infringe, misappropriate or otherwise violate any valid and subsisting Intellectual Property Rights owned by persons other than Licensee.

      (i) Covenant to Defend . Epic, at its own expense and subject to the terms and conditions of this Section 5(c) , will defend claims brought against Licensee or its affiliates or their officers, directors, employees, agents, customers or sublicensees (the “ Epic Indemnitees ”) by third parties that any of the following activities constitutes infringement, misappropriation or violation of an Intellectual Property Right under the laws of the United States, Canada, any country of the European Union or Japan (an “ Infringement Claim ”): the exercise of the rights and licenses granted under this Agreement, EXCEPT to the extent such claim is based upon or arises out of: (A) any alteration or modification of the Licensed Technology created by any person other than Epic; (B) the operation of or use of the Licensed Technology in combination with any other software or device; (C) any failure by Licensee, or others acting under Licensee’s authority or control, to comply with Licensee’s obligations under this Agreement; or (D) any descriptions of customizations to the Licensed Technology that Licensee requests Epic to perform (as opposed, for example, to the manner in which Epic chooses to implement such customizations).

      (ii) Epic Defense . Licensee shall advise Epic promptly of the existence of an Infringement Claim, upon learning of the assertion of the claim against Licensee (whether or not litigation or other proceeding has been filed or served); and Licensee shall permit Epic to have the sole right to control the defense and settlement of all such claims, in litigation or otherwise, so long as no such settlement adversely affects Licensee’s, its affiliates or its licensee’s ability to exercise the license rights under this Agreement without Licensee’s prior consent or admits to any wrong doing by the Epic Indemnitees. No such settlement shall be binding unless approved in advance by Licensee; such approval shall not be unreasonably withheld. No delay on the part of Licensee in notifying Epic will relieve Epic from any obligation hereunder unless (and then solely to the extent) Epic is actually prejudiced as a result of thereof. Licensee will have the right to participate in the defense of the claim with separate counsel of its own choice at its own expense.

      (iii) Infringement Injunctions Obtained by Third Parties . If an Infringement Claim of which Epic was notified in accordance with this Section 5(c) is s