<PAGE>
 
                                                                   EXHIBIT 10.23

                       CONFIDENTIAL TREATMENT REQUESTED

                               HEADS OF AGREEMENT

November 19, 1998

Gentlemen:

Whereas it is the desire of both parties, Activision, Inc. ("Activision") and
Interplay Entertainment Corp. ("Interplay"), to engage in a Distribution and
Sales Agreement, this interim document shall serve to define the key points of
our understanding. When and if signed below, this document shall constitute a
legally binding "Heads of Agreement," and both parties agree that this Heads of
Agreement will be followed by the preparation and execution within sixty (60)
days of a more formal agreement to be developed from the items contained below.
If no formal agreement is executed, then the terms of this Heads of Agreement
will govern the relationship of the parties.

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1.      Products:                       Two (2) Windows 95/98 operating system entertainment software
                                        products, one based on the original "Star Trek" television
                                        series universe owned and or controlled by Paramount Pictures
                                        Corp. or its affiliates ("Paramount") entitled "Star Trek:
                                        Klingon Academy" ("Klingon"), and the other currently being
                                        developed by Xatrix Entertainment utilizing id Software's
                                        "Quake 2" engine technology entitled "Kingpin: Life of Crime"
                                        ("Kingpin").

2.      Territory:                      Worldwide.

3.      Term:                           (a)  With respect to each Product, [*] years from the
                                        initial commercial shipment by Activision of such Product.

                                        (b)  At such time as the United States wholesale price for one
                                        of the Products becomes less than [*] per unit (which pricing
                                        shall be determined in accordance with the terms of Paragraph
                                        11 below), [*] shall determine which one of the two Products 
                                        shall be removed from this Heads of Agreement upon its United 
                                        States wholesale price reaching less than $[*] per unit.  Upon 
                                        the selected Product's reaching a United States wholesale 
                                        price of less than $[*] per unit, the Term of this Heads of 
                                        Agreement with respect to the selected Product shall expire 
                                        and all distribution rights (including sell-off rights, if any) 
                                        with respect to the selected Product shall revert to Interplay, 
                                        subject only to Activision's right to fulfill existing purchase 
                                        orders of its customers.

4.      Rights Granted During the       Interplay hereby grants to Activision the exclusive right and
        Term:                           license to distribute, sub-distribute [*] and 
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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.

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                                        sell the Products in the Territory during the Term,
                                        through all currently known or hereafter developed retail and
                                        direct channels of computer software distribution, but
                                        specifically excluding OEM channels. [*] 

5.      Advance Payment:                Within three (3) business days following: [*], Activision will
                                        make a guaranteed cash payment to Interplay in the amount of
                                        [*] Dollars ($[*]) as an advance fully recoupable against the
                                        amounts required to be paid to Interplay pursuant to Paragraph
                                        7(c) below (the "Advance"). [*]

6.      Distribution Fee:               Activision shall receive a distribution fee equal to [*]
                                        percent ([*]%) with respect to Klingon, and [*] percent
                                        ([*]%) with respect to Kingpin, of all invoiced amounts
                                        received by Activision from its distribution and sale of such
                                        Products during the Term (the "Distribution Fee").

7.      Order of Payments:              Monies received by Activision from its distribution and sale
                                        of the Products shall be disbursed between the parties in the
                                        following order:

                                        (a)  First, to Activision for reimbursement of certain of its
                                        costs and expenses, as specified in the last paragraph of
                                        Paragraph 9 of this Heads of Agreement;

                                        (b)  Second, to Activision for payment of the Distribution Fee
                                        set forth in Paragraph 6 above; and

                                        (c)  The balance to Interplay (subject to Activision's
                                        recoupment in full of the Advance) in accordance with
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*Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
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                                        Paragraph 8 of this Heads of Agreement.  All amounts to be
                                        paid or credited to Interplay will be adjusted to take into
                                        account any actual price protections, mark-downs or returns of
                                        Products.

8.      Reporting and Payment:          (a)  Interplay will be provided with net sales reports on a
                                        Product by Product basis, showing the price protections,
                                        mark-downs and returns and market development program funds
                                        (on both a consolidated and territory by territory basis) and
                                        related net sales payments within [*] days after the end of
                                        each month of sale of Products by Activision during the Term
                                        and any applicable sell-off period.

                                        (b)  Interplay shall have customary audit and inspection
                                        rights with respect to the net sales reports and net sales
                                        payments referred to in Paragraph 8(a) above and, if
                                        applicable, the manufacturing of the Products by Activision
                                        pursuant to Paragraph 14(b).  The specific terms of such audit
                                        and inspection rights shall be set forth in the more formal
                                        agreement.

9.      Activision's                    Activision will be responsible for performing the following
        Responsibilities:               distribution activities in the Territory:

                                        (a)  Confirmation testing of the Gold Masters of the Products
                                        for the limited purpose of confirming that the Gold Masters
                                        are error-free.  In such regard, Interplay shall deliver a
                                        Gold Master of each Product to Activision at least two (2)
                                        weeks prior to the intended initial duplication date of such
                                        Product as reasonably scheduled by Activision.  For purposes
                                        of this Heads of Agreement, a "Gold Master" of a Product is
                                        defined as one or more optical discs containing all of the
                                        assets, content and programs needed to use the Product, and
                                        which is ready to be utilized in the manufacturing of Finished
                                        Goods (as defined in Paragraph 14(a));

                                        (b)  Selling Products and soliciting Product orders, which
                                        solicitation shall begin upon receipt by Activision's sales
                                        department of all sales materials as requested by Activision
                                        pursuant to Paragraph 10(h) below;

                                        (c)  Administering mailings and trade marketing programs,
                                        including co-op ads, trade ads, end caps, in-store promotions
                                        and other comparable market development programs, not to
                                        exceed [*]% of amounts invoiced by Activision, and subject to
                                        the prior written approval of Interplay, which approval shall
                                        not 
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*Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
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                                        be unreasonably withheld or delayed; and

                                        (d)  handling order entries, processing, warehousing, stock
                                        balancing, shipping to customers, collection and reporting.

                                        Activision shall bear all costs and expenses relating to such
                                        distribution activities, except for (i) the costs of the
                                        actual trade marketing programs pursuant to Paragraph 9(c),
                                        and (ii) reasonable actual shipping and freight charges, which
                                        shall be paid by Activision but then reimbursed to Activision
                                        pursuant to Paragraph 7(a) from monies received by Activision
                                        from its distribution and sale of the Products under this
                                        Heads of Agreement.

10.     Interplay's Responsibilities:   Interplay will at its sole cost and expense perform the
                                        following development and publishing activities during the
                                        Term in the Territory:

                                        (a)  designing, developing and producing the Products,
                                        including all software, programs, packaging, manuals and
                                        associated user documentation and related materials required
                                        to release the Products commercially, in conformance with
                                        industry standards [*] as Interplay has done with its previously 
                                        released [*] PC products.  Without limiting the foregoing, 
                                        Interplay shall be responsible for ensuring that the Products 
                                        receive all necessary approvals from Paramount (with respect to
                                        Klingon) and id Software (with respect to Kingpin, if any
                                        approval of id Software is applicable to Kingpin), and in this
                                        regard, agrees to make any and all changes that may be
                                        required by Paramount or id Software, if applicable, so as to
                                        allow Activision to distribute the Products as set forth herein;

                                        (b)  correcting all significant bugs and errors found in the
                                        Products as needed to have the Products deemed ready for "code
                                        release" (i.e., the Product is in final form, without any
                                        significant bugs or errors, and is ready to be manufactured
                                        into Finished Goods) and at all times after the code release
                                        of the Products during the Term;

                                        (c)  manufacturing Finished Goods for each Product in
                                        accordance with the Purchase Orders submitted by Activision
                                        pursuant to Paragraph 14(a);

                                        (d)  creating and executing advertising, marketing,
                                        promotional and public relations programs for each Product in
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*Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
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                                        accordance with industry standards [*] entertainment
                                        software products as Interplay has done with its
                                        previously released [*] PC products;

                                        (e)  creating customary merchandising tools for specifically
                                        targeted channels of distribution;

                                        (f)  localizing each Product and related packaging and
                                        documentation into the [*] languages. Localizations into any 
                                        other languages shall be done to the extent deemed reasonably 
                                        and economically sensible by the mutual agreement of the 
                                        parties based upon the parties' good-faith sales forecasts for 
                                        the Products in those parts of the Territory in which such 
                                        localized versions of the Products would be distributed;

                                        (g)  providing complete end user support for all Products, the
                                        level and quality of which is consistent with end user support
                                        customarily provided by Interplay for its [*] entertainment
                                        software products in the applicable country as Interplay has
                                        done with its previously released [*] PC products; and

                                        (h)  providing to Activision at Activision's request a
                                        reasonable number of demonstration units of the Products, not
                                        to exceed [*] units per Product, and furnishing Activision, at
                                        no cost, with reasonable quantities of descriptive materials,
                                        product documentation and advertising literature, as
                                        reasonably required to market and promote the sale of the
                                        Products in the Territory.

11.     Pricing of Products:            Products will be priced in the Territory based upon the mutual
                                        agreement of the parties after evaluating the pricing of
                                        comparable products.  If the parties are unable to agree upon
                                        the pricing of a Product after good faith discussions, then
                                        Activision will have the right to determine the pricing for
                                        such Product in accordance with the standard practices by
                                        which it generally determines the pricing for its own [*] PC
                                        products (including, without limitation, the initial pricing
                                        of such Product and any subsequent price reductions that take
                                        into account the then current market conditions for such
                                        Product); provided, however, that the Products may not be
                                        initially priced less than Interplay's previously released
                                        [*] PC products, which the parties agree to be $[*]
                                        wholesale, without the mutual agreement of the parties.
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*Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
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12.     Ownership:                      Interplay has and shall retain all rights of ownership in and
                                        to the Products, any and all modifications, enhancements and
                                        derivative works thereof and all intellectual property rights
                                        embodied therein and related thereto; provided that except as
                                        set forth in Paragraphs 3(b) and 13, Interplay shall not have
                                        the right, during the Term of this Heads of Agreement, to
                                        sell, lease, license, publish or otherwise distribute the
                                        Products in the Territory to or through any person or business
                                        entity other than Activision. Activision will not obscure
                                        Interplay's intellectual property legal notices included on
                                        the Products or marketing or promotional materials.

13.     OEM Distribution by             With respect to each Product hereunder, Interplay shall have
        Interplay:                      the right to license the Products (including, without
                                        limitation, abbreviated or so-called "OEM lite" versions of
                                        the Products) for manufacture and distribution to third party
                                        OEM hardware or peripheral product manufacturers, aggregators
                                        and service providers (e.g., hotels, airlines or cruise ships)
                                        solely for ultimate distribution of the Products in
                                        pre-packaged combinations with such third party's (or such
                                        third party's customers') hardware or peripheral products,
                                        subject to Activision's sole and absolute right to approve of
                                        such license in each instance where the distribution of the
                                        Product under such OEM agreement will commence within the
                                        first [*] days following the initial commercial shipment of 
                                        such Product by Activision.  For OEM agreements where 
                                        distribution of the Product will commence after such [*] day 
                                        period, no approval from Activision shall be required; 
                                        provided, however, Interplay shall only enter into OEM 
                                        agreements in connection with the Products during such period 
                                        in accordance with the customary terms and conditions 
                                        (including, without limitation, per unit pricing after taking
                                        into account the then current market conditions for the
                                        applicable Product) pursuant to which it has entered into OEM
                                        agreements for its previously released [*] PC products.
                                        Without limiting the foregoing, in no event shall Interplay
                                        enter into any agreement for the distribution of the Products
                                        as a compilation in combination with other software products
                                        or as part of a package containing optical disks or other
                                        storage media incorporating any images or text or otherwise
                                        for ultimate distribution to end users except in pre-packaged
                                        combinations with third party hardware or peripheral products.

14.     Orders:                         (a)  Finished goods for each Product will be requested by
                                        Activision by means of a written purchase order (the "Purchase
                                        Order") specifying the number of units of each Product so
                                        ordered. Purchase Orders shall be based on the verbal or
                                        written 
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*Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
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                                        orders or indications of interests for such Product that 
                                        are received by Activision from its customers, as well as
                                        Activision's reasonable expectation of reorders. Interplay
                                        shall supply Activision with such Product units on optical
                                        discs in jewel cases contained inside a full retail box
                                        packaging, including related product documentation, warranties
                                        and a user guide ("Finished Goods") in accordance with the
                                        specifications of such Purchase Order and consistent with the
                                        terms of this Heads of Agreement.  Finished Goods shall be
                                        delivered by Interplay FOB Activision's warehouse or other
                                        principal warehouse location designated by Activision in the
                                        respective territory of Activision. Interplay shall use its
                                        best commercial efforts to deliver the Finished Goods by the
                                        reasonable delivery dates set forth in the corresponding
                                        Purchase Order and failure to do so shall be deemed a material
                                        breach by Interplay. [*]

                                        (b)  In addition to the foregoing, if Interplay does not
                                        fulfill a Purchase Order on a timely basis, then in lieu of
                                        canceling the Purchase Order, Activision may engage in good
                                        faith discussions with Interplay regarding the reasons why the
                                        Purchase Order was not timely fulfilled, the proposed
                                        solutions for fulfilling such late Purchase Order and the
                                        procedures to be implemented by Interplay in order to insure
                                        that future Purchase Orders will be timely fulfilled.  [*] 
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*Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
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15.     Product Completion:             (a) Interplay shall provide to Activision an "Alpha" version
                                        of each Product for review by no later than [*] for Klingon 
                                        and [*] for Kingpin, a "Beta" version by no later than [*] 
                                        for Klingon and [*] for Kingpin, and a "Code Release" version 
                                        ready for manufacturing into Finished Goods units by no later 
                                        than [*] for Klingon and [*] for Kingpin (as such terms "Alpha," 
                                        "Beta" and "Code Release" are commonly understood in the entertainment 
                                        software industry). In the event Interplay fails to deliver to 
                                        Activision an acceptable Alpha, Beta or Code Release version of any 
                                        Product within [*] days of the date such version is due, then Activision 
                                        shall engage in good faith discussions with Interplay regarding the 
                                        reasons for the failed delivery and Interplay's plans for actually 
                                        delivering such acceptable version.  [*]


                                        (b)  [*] 

16.     Representations, Warranties     Interplay hereby represents and warrants that (a) Interplay is
        and Covenants:                  duly incorporated, valid and existing and in good standing
                                        under the laws of the jurisdiction in which it is
                                        incorporated, and that it has the full rights, power, legal
                                        capacity and authority to enter into this Heads of Agreement,
                                        and to carry out the terms hereof; (b) this Heads of Agreement
                                        has been executed by Interplay's duly authorized
                                        representative and is a valid, legally binding and enforceable
                                        obligation of Interplay; (c) no consent of any person or
                                        entity not a party to this Agreement is required or necessary
                                        for Activision to carry out 
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                                        its obligations hereunder; (d) [*]; (e) [*]; (f) it will 
                                        not grant distribution rights in, license or sell the Products 
                                        to any party other than Activision except as specified in
                                        Paragraphs 3(b) and 13; (g) [*]; (h) Interplay will
                                        provide a warranty for the end users of the Products, and
                                        it will be solely responsible for fulfilling all duties
                                        and obligations under such warranty; (i) Interplay has not
                                        made an assignment for the benefit of creditors or filed a
                                        petition in bankruptcy and will not make such assignment
                                        or file such petition during the Term of this Heads of
                                        Agreement; (j) [*]; (k) prior to the effectiveness of this 
                                        Heads of Agreement, Interplay has entered into an agreement 
                                        for a $37,500,000 line of credit, which effectively decreases 
                                        by $1,000,000 on each of February 15, March 15, and April 15, 
                                        without any other positive or negative financial covenants, [*]; 
                                        and (l) the Products, whether completed or in any state of 
                                        development, are copyrightable and otherwise constitute 
                                        "intellectual property" within the meaning of Section 101(35a) 
                                        of the United States Bankruptcy Code. Except as set forth in this
                                        Paragraph 16, Interplay disclaims any and all implied warranties.

17.     Governing Law:                  Substantive laws of California shall apply, and the parties
                                        consent to the exclusive jurisdiction of the courts in Los
                                        Angeles County, USA.

18.     Confidentiality:                Any information, records, documents, descriptions or other
                                        disclosures of whatsoever nature or kind which are made or
                                        disclosed by one party to the other, or are learned or
                                        discovered 
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*Portions omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
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                                        by a party in the course of performing its obligations
                                        under this Heads of Agreement and not known by or available
                                        to the public at large, including the terms of this Heads
                                        of Agreement, shall be received by such party in
                                        confidence. Such party shall not disclose or make use of
                                        any such information nor shall it authorize anyone else to
                                        make use thereof without the prior written consent of the
                                        other party, unless required by law. Neither party shall
                                        have any confidentiality obligation with regard to any
                                        information independently developed by such party.

19.     Termination:                    This Heads of Agreement may be terminated for breach upon
                                        thirty (30) days prior notice to the breaching party. In case
                                        of an expiration of the Term or an early termination of this
                                        Heads of Agreement as a result of an uncured breach by
                                        Interplay, Activision may continue to sell off Products in its
                                        possession on a non-exclusive basis for a period of [*] from 
                                        such termination or early expiration date.

20.     Indemnification.                Each party (the "Indemnifying Party") hereby agrees to
                                        indemnify, defend and hold the other party and its successors
                                        harmless from any and all claims, demand, actions, losses,
                                        liabilities, costs, expenses or damages of any kind or nature
                                        (including, but not limited to reasonable attorneys fees)
                                        arising out of any misrepresentation or breach or default in
                                        connection with any of the representations, warranties,
                                        agreements, covenants and obligations made by the Indemnifying
                                        Party pursuant to this Heads of Agreement.  Notwithstanding
                                        anything herein to the contrary, in no event shall either
                                        party be liable to the other for indirect, special or
                                        consequential damages.

21.     Entire Agreement:               This Heads of Agreement constitutes the entire agreement
                                        between the parties pertaining to the subject matter hereof,
                                        and any and all written or oral agreements previously existing
                                        between the parties are expressly canceled. Each party
                                        acknowledges that it is not entering into this Heads of
                                        Agreement on the basis of any representations not expressly
                                        contained herein. Any modifications of this Heads of Agreement
                                        must be in writing and signed by both parties hereto. Any such
                                        modification shall be binding only if and when signed by each
                                        party's officers.

22.     Bankruptcy:                     In the event Interplay is subject to a voluntary or
                                        involuntary filing for protection under Federal bankruptcy
                                        laws, Interplay agrees not to attempt to or actually reject,
                                        rescind or terminate this Agreement or its obligations
                                        hereunder.  The parties 
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                                        acknowledge and agree that this Agreement is intended to and
                                        shall be subject to the terms and conditions of Section 365(n)
                                        of the United States Bankruptcy Code and Activision shall be
                                        afforded all of the protections of a "licensee" under such
                                        Section. [*] 

23.     Assignment:                     (a)  The rights and obligations of either party under this
                                        Heads of Agreement cannot be transferred, assigned to a third
                                        party, by a third party, operation of law or otherwise,
                                        without the prior written consent of the other party (not to
                                        be unreasonably withheld), provided that an assignment by
                                        either party of its rights and/or obligations hereunder to any
                                        person acquiring such party by merger or acquiring all or
                                        substantially all of such party's assets shall not require the
                                        written consent of the other party. This Agreement shall
                                        survive and be binding upon any successor or assign in the
                                        event of a sale or change in control of a party or the merger
                                        of a party with or into another party.

                                        (b)  Activision may grant some or all of its distribution
                                        rights and/or obligations under this Heads of Agreement to one
                                        or more wholly-owned subsidiaries without the consent of
                                        Interplay, provided that Activision will remain liable for the
                                        performance of any of the obligations of this Heads of
                                        Agreement by such subsidiary and that Activision's
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                                        Distribution Fee as well as amounts payable to Interplay will
                                        be paid on the basis of the price charged by such wholly-owned
                                        subsidiary in connection with the Products irrespective of any
                                        charges or allocations between Activision and such
                                        wholly-owned subsidiary.

24.     Additional Provisions:          The more formal agreement to be executed by the parties will
                                        contain additional representations, warranties and covenants
                                        as are customary for a transaction of this nature and such
                                        other provisions to which the parties may agree.
</TABLE>

If this Heads of Agreement sets forth your understanding, please sign this
document where indicated below. This Agreement may be signed in counterparts and
delivered by facsimile.

AGREED TO AND ACCEPTED:

ACTIVISION, INC.                    INTERPLAY ENTERTAINMENT CORP.

By:      /s/ Brian G. Kelly         By:      /s/ Brian Fargo
    -----------------------------         --------------------------
Name: Brian G. Kelly                Name:    Brian Fargo
                                          ----------------------
Title: Co-Chairman                  Title:   CEO
                                           -----------------
Date:    11/20/98                   Date:    11/20/98
      -----------------                     ------------------

                                      -12-
<PAGE>
 

                                AMENDMENT NO. 1
                                       TO
                               HEADS OF AGREEMENT

     This Amendment No. 1 to Heads of Agreement ("Amendment No. 1") is entered
into effective as of November 23, 1998, by and between Interplay Entertainment
Corp. ("Interplay") and Activision, Inc. ("Activision"), as follows:

                                R E C I T A L S

     A.  Interplay and Activision entered into that certain Heads of Agreement
dated November 19, 1998 (the "Agreement").

     B.  The parties desire to modify the Agreement to provide Activision with
the right to assume control of the development and completion of one or more of
the Products in certain additional limited circumstances, on the terms and
conditions as more specifically set forth below.

     C.  Each term not otherwise defined in this Amendment No. 1 shall have the
meaning ascribed to it in the Agreement.

     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

     1.  A new Paragraph 15(b) is added to the Agreement as follows:

          "(b)  Activision also shall have the right to assume control of the
     development and completion of one or more of the Products (including,
     without limitation, control by Activision in Interplay's stead of the
     development of Kingpin by Xatrix Entertainment, which control shall
     include, without limitation, the right to make all required payments to
     Xatrix Entertainment in connection with such development), and to offset
     all reasonable costs incurred by Activision in connection therewith against
     payments due to Interplay hereunder, if the line of credit agreement
     specified in Paragraph 16(k) expires or is terminated prior to the
     completion of development of the Products and at the time of such
     expiration or termination Interplay has not entered into a substitute line
     of credit or other financing containing terms and conditions that are
     sufficient to allow Interplay to fully perform its obligations hereunder."

     2.  Old Paragraph 15(b) is renumbered as Paragraph 15(c), and the following
words are added to the end of this Paragraph:  "or Section 15(b)."

     3.  The parties agree that all other terms and conditions contained in the
Agreement shall remain in full force and effect.

                                       1
<PAGE>
 
     IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1
on the date specified below.

Activision, Inc.                    Interplay Entertainment Corp.

By   /s/ Lawrence Goldberg          By     /s/ Christopher J. Kilpatrick
  -------------------------------       --------------------------------------
Name     Lawrence Goldberg          Name       Christopher J. Kilpatrick
    -----------------------------         ----------------------------------
Title Senior Vice President,        Title      President
      ----------------------------        --------------------
      Business Affairs and General 
      ----------------------------
      counsel
      ----------------------------

Date  11/23/98
    ------------------

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