Document:

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                                                                    Exhibit 10.1

                         (CONFIDENTIAL PORTIONS OMITTED)

                                 RETAIL LICENSE
                         WARNER BROS. CONSUMER PRODUCTS
                                    #13247-SJ

LICENSE AGREEMENT made December 12, 2001, by and between Warner Bros. Consumer
Products, a Division of Time Warner Entertainment Company, L.P., whose address
is 4000 Warner Blvd., Burbank, CA 91522 (hereinafter referred to as "LICENSOR")
and BAM Entertainment, whose address is 333 West Santa Clara Avenue, Suite 930,
San Jose, CA 95113 Attention: Ray Musci hereinafter referred to as "LICENSEE").

                                   WITNESSETH:

The parties hereto hereby agree as follows:

1.      DEFINITIONS.

        As used in this Agreement the following terms shall have the following
respective meanings:

(a) "BRAND TEAM": Licensee shall appoint a group of individuals (the "Brand
Team"), who shall be dedicated to the development, marketing and sale of the
Licensed Products. The Brand Team shall include a "Brand Captain" who shall be
the primary contact for day-to-day communications with Licensor regarding the
Licensed Products. Within sixty (60) days after the execution of this Agreement,
Licensee shall submit to Licensor organizational charts showing the positions
and reporting structure of the key employees in Licensee's business prior to the
appointment of the proposed Brand Team. The lead members of the Brand Team shall
be appointed by no later than January 1, 2002. Licensor shall use good faith
efforts to appoint a specific contact person for the Brand Team and Licensed
Product review.

(b) "BUSINESS PLAN": Licensee shall, no later than January 15, 2002 for the U.S.
and no later than January 31, 2002 for all Regions outside U.S., submit to
Licensor for Licensor's prior written approval (based on commercially reasonable
standards), a business plan (the "Business Plan") for Licensee's activities
during the Term in connection with this Agreement. The Business Plan shall,
without limitation, address the following areas for each of the following
geographic regions ("Region(s)"): (1) United States, (2) Canada, (3) Argentina,
(4) Brazil, (5) Chile, (6) Mexico, (7) Rest of South and Central America and the
Caribbean, (8) UK, (9) France, (10), Italy, (11) Spain and Portugal, (12)
Germany, Austria and Switzerland, (13) Benelux, (14) Rest of Europe, Middle East
and Africa, (15) Southeast Asia:

        (i)    Projected sales of the Licensed Products (in units) categorized
               by Licensed Product, by Region;

        (ii)   Projected sales price of each Licensed Product for each Region
               (For countries outside of the United States, such sales price
               shall be provided in both US Dollars and in local currency);

        (iii)  Projected revenue forecast in US Dollars of each Licensed Product
               and each Region (For countries outside of the United States, such
               forecast shall be provided in both US Dollars and in local
               currency);

        (iv)   Projected market share of the Licensed Products for each Region;

        (v)    Overall marketing strategy and specific marketing strategies for
               each Region;

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        (vi)   Overall promotional plans and specific promotional plans for each
               Region;

        (vii)  Plans for participation in trade shows for each Region;

        (viii) Advertising and promotional budgets for each Licensed Product for
               each Region; and

        (ix)   Planned product development schedule and ship dates for each
               Licensed Product for each Region.

On or before September 30 of each calendar year during the Term, Licensee shall
submit for Licensor's prior written approval, not to be unreasonably withheld,
an updated version of the Business Plan addressing the above items for the
remainder of the Term. Any significant deviation during the Term from the most
recently approved Business Plan must be submitted to Licensor for prior written
approval. Licensor will use good faith efforts to provide marketing and
promotions updates to Licensee for the Licensed Property.

(c) "BUSINESS REVIEW": Licensee's Brand Team (as defined above) shall meet with
Licensor on a QUARTERLY BASIS (with more frequent meetings on an "as-needed"
basis) to discuss the implementation of the Business Plan, and results of the
business relating to the Licensed Products. Licensee shall initiate the Business
Review meetings by contacting the individual appointed by Licensor to act as
Licensor's primary contact ("Licensor Primary Contact") for communications with
Licensee regarding this Agreement. In the event the Licensor is unavailable,
Licensor shall appoint a second senior executive who shall act as the secondary
contact for communications with Licensee regarding this Agreement. Should
Licensor's Primary Contact or second senior executive not respond within ten
(10) business days, Licensor will forfeit the meeting for that quarter. At such
quarterly Business Reviews (and at such other times during the Term as Licensor
shall reasonably request), Licensee shall provide to Licensor:

        (i)    copies of all market research results relating to the Licensed
               Products or advertising therefor, including, without limitation,
               viability tests, commercial tests and line tests. Licensee shall
               also provide to Licensor access to Licensee's head of market
               research for purposes of interpretation of such market research
               results;

        (ii)   information, to the extent extractable from Licensee's computer
               systems on an automated basis, and in such form as Licensor shall
               reasonably request, regarding inventory movement, inventory
               on-hand, and sales results for each Licensed Product on a
               Region-by-Region and key retailer-by-key retailer basis;

        (iii)  market share data, in such form as Licensor shall reasonably
               request, including, without limitation, applicable PC data;

        (iv)   proposed development team for each title of the Licensed
               Products;

        (v)    proposed meetings or communications between Licensee and
               Licensor;

        (vi)   proposed co-marketing efforts to promote the sale of the Licensed
               Products;

        (vii)  right to visit developer at any time. Should Licensor want to
               review the Licensed Products currently being developed by the
               approved Developer, Licensor shall do so with approval of
               Licensee, which shall not be unreasonably withheld; and

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        (viii) detailed report outlining the marketing dollars spent and the
               total units sold in the given regions fro the previous quarter.

(d) CONTRACTUAL MARKETING COMMITMENT: Licensee shall spend $[*] in advertising
on the Cartoon Network Television and On-line mediums; $[*] of which will be
spent no later than December 21, 2002 and the remainder being spent over the
Term of this Agreement.

(e) "DEVELOPMENT TEAM": Licensee shall appoint a group of individuals (the
"Development Team") who shall be dedicated to the development of the Licensed
Products. Licensee must submit a minimum of three candidates and Licensor must
approve of one of these candidates with the final Development Team subject to
the prior written approval of Licensor in its sole discretion. The term
"Developer" shall be defined as an individual or team who individually or
together have extensive experience in developing entertainment software on the
relevant platforms that they are presenting for and have worked on at least two
development projects for game titles that have shipped.

(f) "LICENSED PRODUCT(S)": Line of video game products for the following
platforms:

        (i)    GameBoy Color

        (ii)   GameBoy Advance

        (iii)  Nintendo GameCube

        (iv)   Sony Playstation 2

        (v)    Sega DreamCast

        (vi)   MicroSoft Xbox

        (vii)  Palm O/S (cartridge based)

It is understood and agreed that Licensee may create a maximum of three (3)
original console products and five (5) original handheld products (not including
direct ports of each product) for each platform as set forth above. Any
additional products are subject to the prior written approval of Licensor.

(g) "LICENSED PROPERTY": The fictional cartoon characters as they appear in the
animated television series entitled "SAMURAI JACK" as follows: SAMURAI JACK and
AKU and including said characters' representations, names, likenesses and all
environmental settings, artwork and other materials associated therewith.
Without limitation to any other reservations, terms and conditions herein,
specifically excluded herefrom are rights to any and all other versions
including without limitation sequels, spin-offs or live action versions of said
series. Furthermore, no sound bites, voices, music or other audio is included
herein. If Licensee wishes to use any such elements, Licensee must separately
procure the necessary rights and any rights clearance or related fees arising
from same shall be at Licensee's sole expense.

(h) "MARKETING DATE": For purposes of subdivision 15(a)(vii), the Marketing Date
for the first GameBoy Advance product shall be no later than September 1, 2002
and for console platforms shall be no later than November 1, 2003.

(i) PRODUCTION DEVELOPMENT BUDGETS AND TIMEFRAMES: Licensee must submit
production development budgets and timelines by Licensed Product platforms as
set forth above in Paragraph (f) for Licensor's prior written approval.
Furthermore, Licensee must budget a minimum of $[*] for development for each
original console title with a development cycle of no less than eleven (11)
months. Licensee must budget a minimum of $[*] for development for each original
handheld title with a development defined as the time between submission of
Milestone 1 through submission of Milestone 11 (as set forth on Exhibit 2).

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(j) "SKU COMMITMENT": Licensee shall make and distribute no less than five (5)
original Licensed Products over the term of the agreement.

(k) "STYLE GUIDE": Any materials provided by Licensor to Licensee which sets
forth the style, format, characterization and any artwork depicting the Licensed
Property which has been approved by Licensor in writing.

(l) "TERRITORY":

        (i)    Worldwide excluding Brunei, China, Indonesia, Japan, Korea, Guam,
               Malaysia, Singapore, Thailand and Saipan;

        (ii)   In the event Licensee submits a distribution candidate for Japan
               by January 1, 2002, Licensor will in its sole discretion approve
               such partner and add Japan to the Territory. Licensee must also
               simultaneously submit a business plan to be approved by Licensor
               for the Territory including but not limited to the points
               referenced in Paragraph 1(a) above; and

        (iii)  In the event Licensee submits a distribution candidate for Korea
               by January 1, 2002, Licensor will in its sole discretion approve
               such partner and add Korea to the Territory. Licensee must also
               simultaneously submit a business plan to be approved by Licensor
               for the Territory including but not limited to the points
               referenced in Paragraph 1(a) above.

2.      GRANT OF LICENSE.

(a) Upon the terms and conditions hereinafter set forth, Licensor hereby grants
to Licensee and Licensee hereby accepts for the Term of this Agreement, as
hereinafter defined, a license to utilize the Licensed Property solely upon or
in connection with the manufacture, distribution and sale of the Licensed
Products solely for retail sale throughout the Territory; no license is granted
hereunder for the manufacture, distribution or sale of the Licensed Product(s)
for publicity purposes, for sale or gift in combination with other products or
services, as giveaways, as premiums used for the purpose of publicizing,
promoting or increasing sales of any other product(s) or service(s), or in
connection with any similar method of merchandising. Notwithstanding anything to
the contrary contained herein, Licensee may, i) distribute up to [*] units for
each game in the United States and [*] units for each game in International
territories of each Licensed Product for publicity purposes, as well as [*]
"time limited" or reduced feature "demo" versions, subject to Licensor's
approval rights set forth in Paragraph 10; and ii) on a case-by-case basis, with
prior written approval by Licensor, bundle Licensed Products with other
products.

(b) EXCLUSIVITY: The License granted herein shall be nonexclusive for the
Licensed Property with respect to the Licensed Product(s) in the Territory
during the Term, as hereinafter defined.

(c) Licensee specifically understands and agrees that no rights are granted
herein with respect to the Warner Bros. "shield" logo or trademark, or any other
trademark(s), logo(s) or copyrights owned by Licensor other than those
specifically set forth above in the Licensed Property, it being understood that
all rights in and to said properties are reserved exclusively to Licensor for
use and/or licensing as it deems appropriate to third party(s) of its choice.

(d) Notwithstanding anything to the contrary contained herein, including the
general prohibition on use of the Warner Bros.

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Shield, the Licensed Property shall also include the Warner Bros. Interactive
Entertainment Name/Logo (the "Name/Logo") as shall be provided by Licensor and
as such may be changed by Licensor from time to time. Licensee shall utilize the
Name/Logo on such Licensed Products and in such manner as Licensor shall
designate. The parties agree that, notwithstanding anything to the contrary
contained elsewhere in this Agreement, Licensee's use of the Name/Logo shall be
on a non-exclusive basis.

(e) Without limiting any other approval rights of Licensor as contained herein,
no television commercials may be utilized under this Agreement without the
specific prior written approval of Licensor.

(f) [*]

3.      TERM.

        The term ("Term") of the Agreement with respect to Licensed Product(s)
referred to above shall commence on July 1, 2001 and terminate on October 31,
2005.

4.      CONSIDERATION.

        In full consideration for the rights, licensed and privileges herein
grated to Licensee, Licensee shall pay to Licensor the following royalty
payments:

(a) GUARANTEED CONSIDERATION: For the rights herein granted the sum of $[*]
payable as follows:

<TABLE>
<CAPTION>
       DATE                                               AMOUNT
       ----                                               ------
       <S>                                                <C>
       Upon execution of this Agreement                   $[*]
       On or before March 1, 2002                         $[*]
       On or before July 1, 2002                          $[*]
       On or before November 1, 2002                      $[*]
       On or before March 1, 2003                         $[*]
       On or before July 1, 2003                          $[*]
</TABLE>

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        All Guaranteed Consideration paid by Licensee pursuant to this
Subparagraph (a) shall be applied against such royalties as are or have become
due Licensor under Subparagraph (b). No part of the Guaranteed Consideration
shall be repayable to Licensee.

(b) ROYALTY PAYMENTS: With respect to the Licensed Product(s) manufactured and
distributed during the term hereof, Licensee shall pay to Licensor a sum equal
to the following per Licensed Products title:

For Licensed Products i) - ii) [*]% of Net Sales;

For Licensed Products iii) - vi) [*]% of Net Sales for unit sales from 1 to
500,000; [*]% from 500,001 to 1,000,000; and [*]% from 1,000,001 and beyond; and

For Licensed Products vii) [*]% of Net Sales.

It is understood and agreed that for console products Licensee shall pay the
greater of the percent of net sales as set forth above, not to go below $[*] per
unit for the first four (4) months and $[*] thereafter.

It is understood and agreed that for handheld products Licensee shall pay the
greater of the percent of net sales as set forth above, not to go below $[*] per
unit for the first four (4) months and $[*] thereafter.

        The term "Net Sales" shall mean all monies billed or billable by
Licensee, from the exercise of its rights to distribute and sell Licensed
Product(s) in the Territory before any allowances or discounts which have been
deducted from the normal selling price, and any other payment charges
whatsoever, less the following items only:

        (i)    any sales, excise or value added taxes, which are separately
               stated, and which are required to be collected from customers as
               part of Net Sales, and which are payable to taxing authorities;

        (ii)   freight from retailers if separately invoiced;

        (iii)  quantity discounts; and

        (iv)   actual returns not exceeding [*]% of total sales.

        It is specifically understood and agreed that no deduction may be made
for any bad debts, or any reserves therefor, any manufacturing costs, importing
costs, selling costs, advertising costs, any real estate taxes, business license
taxes, net income taxes, franchise taxes, withholding taxes or any other taxes
not billed as part of net sales.

        Net Sales shall not include any sales by Licensee or its affiliated
companies to Licensee or its affiliated companies, the primary purpose of which
is the transfer of Licensed Product for eventual resale. Royalties as a result
of such sales shall be based upon and paid when the Licensed Product is
ultimately sold to the distributor, retailer, consumer or other unaffiliated
third party.

        Licensee will pay all taxes, customs, duties, assessments, excise except
as provided in sub-paragraph (i), and other charges levied upon the importation
of or assessed against the Licensed Product under this Agreement, as well as all
Licensees costs of doing business and Licensor shall have no liability therefor.

        Royalties shall be payable concurrently with the periodic statements
required in Paragraph 6 hereof except to the extent offset by Guaranteed
Consideration theretofore remitted. It is a material term and condition of this
Agreement that Licensee report net sales and report and pay royalties on a
country-by-country

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basis. In the event Licensee fails to do so, Licensor shall have the right to
terminate this Agreement, in accordance with the provisions of Paragraph 15
herein.

        Royalties earned in excess of the Guaranteed Consideration applicable to
the Term hereof shall not offset any Guaranteed Consideration required in
respect of the succeeding renewal term (if any); likewise, royalties earned in
excess of the Guaranteed consideration applicable to the renewal term shall not
offset any Guaranteed Consideration applicable to any prior term.

5.      RESERVATION OF RIGHTS; PREMIUMS.

(a) Licensor reserves all rights not expressly conveyed to Licensee hereunder,
and Licensor may grant licenses to others to use the Licensed Property, artwork
and textual matter in connection with other uses, services and products without
limitation.

(b) Notwithstanding anything to the contrary stated herein, Licensor, for itself
and its affiliates, specifically reserves the right, without limitation
throughout the world, to use, or license any third party(s) of its or their
choice to use the Licensed Property for the marketing, promotion, manufacture,
distribution and sale of products similar or identical to those licensed herein
in Paragraph 1(f) above including without limitation for sale through any
catalogue(s) or online website produced or distributed by or on behalf of
Licensor or its affiliated companies, or for sale or distribution in any
theaters, arenas or restaurants, or for sale or distribution in connection with
any home video product, including DVD or other formats, or for sale or
distribution in any retail stores operated by or on behalf of Licensor, its
affiliated companies or franchisees, or for sale or distribution in any
theme/amusement parks operated by or on behalf of Licensor or its licensees, Six
Flags, Movie World, or, their affiliated companies. In addition, Licensor
reserves the right to allow Six Flags and Movie World to manufacture (or have
manufactured by a third party) products similar or identical to those licensed
herein for distribution or sale in theme and/or amusement parks owned or
operated by Six Flags and/or Movie World. Further, Licensor reserves the right
to use, or license others to use, and/or manufacture products similar or
identical to those licensed herein for use as premiums.

(c) Licensee agrees that it will not use, or knowingly permit the use of, and
will exercise due care that its customers likewise will refrain from the use of,
the Licensed Products as a premium, except with the prior written consent of
Licensor. Subject to Licensor's prior written approval as aforesaid, Licensee
shall pay to Licensor a sum equal to [*]% of all premium sales. Any such
royalties on premium sales shall not offset the Guaranteed Consideration
hereunder. For purposes of this paragraph, the term "premium" shall be defined
as including, but not necessarily limited to, combination sales, free or
self-liquidating items offered to the public in conjunction with the sale or
promotion of a product or service, including traffic building or continuity
visits by the consumer/customer, or any similar scheme or device, the prime
intent of which is to use the Licensed Products in such a way as to promote,
publicize and or sell the products, services or business image of the user of
such item.

6.      PERIODIC STATEMENTS.

(a) Within thirty (30) days after the end of the first calendar quarter after
the date of execution of the License Agreement and promptly on the 15th day
after the end of each calendar month thereafter, Licensee shall furnish to
Licensor complete and accurate statements certified to be accurate by Licensee,
or if a corporation, by an officer of Licensee, showing with respect to all
Licensed Products distributed and sold by Licensee during the preceding calendar
month the (i) number of units; (ii) country in which manufactured, sold and/or
to which shipped; (iii) description (as such term is defined below) of the
Licensed

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Products; (iv) gross sales price; and (v) itemized deductions from gross sales
price, and net sales price together with any returns made during the preceding
calendar month. Such statements shall be in such formats as Licensor shall
require (which formats may be amended by Licensor from time to time), and shall
be furnished to Licensor whether or not any of the Licensed Products have been
sold during calendar month to which such statements refer. In the event Licensee
has Royalties earned in currencies other than in U.S. Dollars, then Licensee
shall convert said amounts into U.S. Dollars based upon the exchange rate
published by the Wall Street Journal as of the fifteenth day of the applicable
month or if such day shall fall on a non-business day then as of the first
business day following said fifteenth day. Receipt or acceptance by Licensor of
any of the statements furnished pursuant to this Agreement or of any sums paid
hereunder shall not preclude Licensor from questioning the correctness thereof
at any time, and in the event that any inconsistencies or mistakes are
discovered in such statements or payments, they shall immediately be rectified
and the appropriate payments made by Licensee. Upon demand of Licensor, Licensee
shall at its own expense, but not more than once in any twelve (12) month
period, furnish to Licensor a detailed statement by an independent certified
public accountant showing the (i) number of units; (ii) country in which
manufactured, sold and/or to which shipped; (iii) description of the Licensed
Products; (iv) gross sales price; and (v) itemized deductions from gross sales
price and net sales price of the Licensed Products covered by this Agreement
distributed and/or sold by Licensee up to and including the date upon which
Licensor has made such demand. For purposes of this Subparagraph, the term
"Description" shall mean a detailed description of the Licensed Products
including the nature of each of the Licensed Products, any and all names and
likenesses, whether live actors or animated characters, from the Licensed
Property utilized on the Licensed Products and/or any related packaging and/or
wrapping material, and any other components of the Licensed Property utilized on
the Licensed Products and/or any related packaging and/or wrapping material. In
the event Licensor is responsible for the payment of any additional third party
participations based on Licensee not reporting by character name and likeness as
provided above, Licensee shall be responsible for reimbursing Licensor for the
full amount of all such third party claims, including without limitation, the
participation itself, interest, audit and attorneys' fees. Licensee understands
and agrees that it is a material term and condition of this Agreement that
Licensee include the Description on all statements. In the event Licensee fails
to do so, Licensor shall have the right to terminate this Agreement, in
accordance with the provisions of Paragraph 15 herein.

(b) For the statements and payments required hereunder (please reference the
contract number(s) on all statements and payments) if the United States Postal
Service is used deliver to the following:

        WARNER BROS. CONSUMER PRODUCTS
        21477 Network Place
        Chicago, IL 60673-1214

        For the statements and payments required hereunder (please reference the
contract number(s) on all statements and payments) if sent by Federal Express or
any other Courier Service deliver to the following:

        BANK ONE
        Attention WBCP lockbox #21477
        525 West Monroe, 8th Floor Mail Room
        Chicago, IL 60661
        Telephone Number 312-732-5500

(c) Any payments which are made to Licensor hereunder after the due date
required therefor, shall bear interest at the then current prime rate as
published in the Wall Street Journal (New York edition), plus six (6%) percent
(or the maximum rate permissible by law, if less) from the date such payments
are due

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to the date of payment. Licensor's right hereunder to interest on late payments
shall not preclude Licensor from exercising any of its other rights or remedies
pursuant to this Agreement or otherwise with regard to Licensee's failure to
make timely remittances.

(d) Licensee hereby grants to Licensor (subject to any liens or security
interests granted by Licensee which are approved in writing by Licensor) a
first-priority lien and security interest in Licensee's inventory, contract
rights and accounts receivable, and all proceeds thereof, with respect to the
Licensed Products only. In the event of default, Licensee further agrees to
provide, at Licensor's request: (i) a letter of credit issued in favor of
Licensor from a financial institution as approved by Licensor in an amount up to
the Guaranteed Consideration; and/or (ii) such other form of security acceptable
to Licensor. Licensee agrees to execute all documentation as Licensor may
require in connection with perfecting such security interests.

7.      BOOKS AND RECORDS.

(a) Licensee shall keep, maintain and preserve (in Licensee's principal place of
business) for at least two (2) years following termination or expiration of the
Term of this Agreement or any renewal(s) hereof (if applicable), complete and
accurate records of accounts including, without limitation, purchase orders,
inventory records, invoices, correspondence, banking and financial and other
records pertaining to the various items required to be submitted by Licensee as
well as to ensure Licensee's compliance with local laws as required pursuant to
Paragraph 14(k) hereof. Such records and accounts shall be available for
inspection and audit at any time or times during or after the Term of this
Agreement or any renewal(s) hereof (if applicable) during reasonable business
hours and upon reasonable notice by Licensor or its nominees. Licensee agrees
not to cause or permit any interference with Licensor or nominees of Licensor in
the performance of their duties. During such inspections and audits, Licensor
shall have the right to take extracts and/or make copies of Licensee's records
as it deems necessary. Licensor agrees to keep confidential all information and
copies obtained by Licensor pursuant to this Paragraph other than with respect
to required disclosures in connection with disputes between the parties or as
otherwise required by law, court order or governmental process.

(b) The exercise by Licensor in whole or in part, at any time of the right to
audit records and accounts or of any other right herein granted, or the
acceptance by Licensor of any statement or statements or the receipt and/or
deposit by Licensor, of any payment tendered by or on behalf of Licensee shall
be without prejudice to any rights or remedies of Licensor and such acceptance,
receipt and/or deposit shall not preclude or prevent Licensor from thereafter
disputing the accuracy of any such statement or payment.

(c) If pursuant to its right hereunder Licensor causes an audit and inspection
to be instituted which thereafter discloses a deficiency between the amount
found to be due to Licensor and the amount actually received or credited to
Licensor, then Licensee shall, upon Licensor's demand, promptly pay the
deficiency, together with interest thereon at the then current prime rate from
the date such amount became due until the date of payment, and, if the
deficiency is more than [*]% of all royalties paid by Licensee during the period
covered by the audit, then Licensee shall pay the reasonable costs and expenses
of such audit and inspection.

8.      INDEMNIFICATIONS.

(a) During the Term, and continuing after the expiration or termination of this
Agreement, Licensor shall indemnify Licensee, BAM Entertainment Ltd and BAM
Studios (Europe) Ltd. (collectively, the "Licensee Parties") and shall hold
Licensee Parties harmless from any loss, liability, damage, cost or expense,
arising out of any claims or suits which may be brought or made against Licensee

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Parties by reason of the breach by Licensor of the warranties or representations
as set forth in Paragraph 13 hereof, provided that Licensee Parties shall give
prompt written notice, and full cooperation and assistance to Licensor relative
to any such claim or suit and provided, further, that Licensor shall have the
option to undertake and conduct the defense of any suit so brought. Licensee
Parties shall not, however, be entitled to recover for lost profits. Licensee
Parties shall cooperate fully in all respect with Licensor in the conduct and
defense of said suit and/or proceedings related thereto.

(b) During the Term, and continuing after the expiration or termination of this
Agreement, Licensee shall indemnify Licensor, Time Warner Entertainment Company,
L.P. ("TWE") and each of its affiliates and shall hold them harmless from any
loss, liability, damage, cost or expense arising out of any claims or suits
which may be brought or made against Licensor, TWE or any of its affiliates, by
reason of: (i) any breach of Licensee's covenants and undertakings hereunder;
(ii) any unauthorized use by Licensee of the Licensed Property; (iii) any use of
any trademark, or copyright, design, patent, process, method or device (except
to the extent such rights are granted in the Licensed Property used in
accordance with the terms of this Agreement); (iv) Licensee's non-compliance
with any applicable federal, state or local laws or with any other applicable
regulations; and (v) any alleged defects and/or inherent dangers (whether
obvious or hidden) in the Licensed Products or the use thereof.

(c) With regard to 8(b) above, Licensee agrees to obtain, at its own expense,
Comprehensive Commercial General Liability Insurance, including product
liability and contractual liability coverage providing adequate protection for
Licensor and Licensee against any such claims or suits in amounts no less than
three million dollars ($3,000,000) per occurrence, combined single limits.
Simultaneously with the execution of this Agreement, Licensee undertakes to
submit to Licensor a fully paid policy or certificate of insurance naming
Licensor, TWE and each of its affiliates as additional insured parties and,
requiring that the insurer shall not terminate or materially modify such policy
or certificate of insurance without written notice to Licensor at least twenty
(20) days in advance thereof. Such insurance shall at all times be primary and
not contributory with any insurance carried by Licensor, TWE or any of their
affiliates. Further the delivery of the policy or certificate, as provided in
this Paragraph 8(c) are material obligations of Licensee.

9.      ARTWORK; TRADEMARKS AND COPYRIGHTS.

        Licensee shall, within thirty (30) days of receiving an invoice, pay
Licensor for artwork executed for Licensee by Licensor (or by third parties
under contract to Licensor) for use in the development of the Licensed Products
and any related packaging, display and promotional materials at Licensor's
prevailing commercial art rates. The foregoing shall include any artwork that,
in Licensor's opinion, is necessary to modify artwork initially prepared by
Licensee and submitted for approval. Estimates of artwork charges are available
upon request.

(a)     TRADEMARKS:

        (i)    Licensee agrees that it will cause to appear indelibly and
               legibly on each of the Licensed Product(s) and all advertising
               material, tags, labels and devices bearing the Licensed Property,
               the following notice or such other notice as may be approved by
               Licensor:

               SAMURAI JACK AND ALL RELATED CHARACTERS AND ELEMENTS ARE
               TRADEMARKS OF AND (C) CARTOON NETWORK (s01)

               (The year date shall be as instructed by Licensor)

                                       10
<PAGE>

        (ii)   Licensee further agrees that it will not apply for or seek to
               obtain trademark registration for the Licensed Property and that
               Licensor may, at its option, apply for and obtain in its own name
               trademark registrations for the Licensed Product(s), and that,
               upon request, Licensee will furnish necessary specimens or
               facsimiles for such purpose free of cost, as well as evidence of
               the date of first shipment or sale of each Licensed Product in
               interstate or foreign or other federally regulable U.S. commerce
               and, if earlier, also in intrastate commerce.

        (iii)  Licensee agrees that if Licensee receives knowledge of the use of
               the Licensed Property by anyone other than Licensee on Licensed
               Product(s) or products confusingly similar thereto, Licensee will
               call such fact to the attention of Licensor. Licensor shall then
               have the option to institute legal proceedings to prevent such
               use, and Licensee shall cooperate and assist in the prosecution
               of any such action. If demanded by Licensor, Licensee shall join
               in or cooperate in the prosecution of any such legal proceeding
               as may be instituted by Licensor. Any such legal proceedings
               shall be solely at Licensor's expense. If Licensee is joined in
               such proceeding, Licensor shall indemnify and hold harmless
               Licensee from and against any claim, sanction, liability,
               damages, attorney's fees, judgments or orders of any kind arising
               out of such proceeding.

(b)     COPYRIGHTS:

        (i)    GAME PROGRAM: The copyright in and to the computer program
               (object and source code) for any game which is incorporated in
               the Licensed Product (herein the "Program") shall be owned as
               follows:

               (a)    If a program is created solely by Licensee or an approved
                      sublicensee under license or authority of Licensee without
                      any contribution by Licensor to the creation of that
                      Program in the form of programming effort, then the
                      copyright in and to such Program shall be owned solely by
                      Licensee;

               (b)    If a Program is created jointly by Licensee and Licensor,
                      then the copyright in and to such Program shall be owned
                      jointly by Licensor and Licensee.

        (ii)   AUDIO-VISUAL DISPLAY: The copyright in and to the images
               displayed on the screen and the sounds produced during the course
               of the game play, including all possible combinations and
               sequences thereof, in both the "attract mode" and the "play mode"
               and the underlying script for therefor (herein the "Audio-Visual
               Display") shall be owned as follows:

               (a)    The copyright in and to all elements of the Audio-Visual
                      Display constituting pre-existing material of Licensor
                      from Licensor's fictional cartoon characters as set forth
                      in Paragraph 1(a) "Licensed Property" such as, without
                      limitation, the characters portrayed in such television
                      series or any reproductions thereof (hereinafter
                      "Pre-Existing Material"), are acknowledged to be the sole
                      and exclusive property of Licensor and shall remain the
                      sole and exclusive property of Licensor;

               (b)    The copyright in and to all elements of the Audio-Visual
                      Display constituting original material created by Licensee
                      shall be the sole and exclusive property of Licensee.
                      Licensee retains sole and exclusive ownership of all of
                      Licensee's inventions, whether patented or not, trade
                      secrets and similar information and processes of a
                      confidential nature, and works of authorship,

                                       11
<PAGE>

                      whether copyrighted or not, whether manifested in the
                      Audio-Visual Display or not, and whether embodied in
                      hardware or software used to create the Audio-Visual
                      Display. Licensee shall be free to use and license others
                      to use elements of the Audio-Visual Display owned by
                      Licensee.

        (iii)  PACKAGING, ADVERTISING AND PROMOTIONAL MATERIALS: Except as
               otherwise provided herein, the copyrights in and to any original
               material, other than the Programs and the Audio-Visual Displays,
               which is created by or for Licensee for the purpose of packaging,
               advertising or promoting the Licensed Product(s), including but
               not limited to the enclosure for the Licensed Product(s), all
               cartons, containers, packing and wrapping material, tags, labels,
               imprints or other devices, and all advertising and promotional
               materials (all such material hereinafter referred to as the
               "Other Materials"), shall be owned solely and exclusively by
               Licensee. Providing that the copyright in and to all elements of
               the Other Materials that constitute Licensor's Pre-Existing
               Material, material furnished to Licensee by or on behalf of
               Licensor or any material that is derivative of the foregoing, is
               acknowledged to be owned solely and exclusively by Licensor and
               shall remain the sole and exclusive property of Licensor.

        (iv)   LIMITATIONS ON OWNERSHIP RIGHTS: The parties agree and
               acknowledge that each shall have the same right as any person or
               party with regard to any material incorporated in the Licensed
               Product(s), Other Materials, Programs, or Audio-Visual Displays
               which is in the public domain (provided that it has not entered
               into the public domain as the result of an act or omission in
               breach of this Agreement or any other written agreement by or
               between the parties hereto).

        (v)    ARTWORK: The Licensed Property shall be displayed or used only in
               such form and in such manner as has been specifically approved in
               writing by Licensor in advance and Licensee undertakes to assure
               usage of the trademark(s) and characters) solely as approved
               hereunder. Licensee further agrees and acknowledges that any and
               all Artwork (defined below) created, utilized, approved and/or
               authorized for use hereunder by Licensor in connection with the
               Licensed Products or which otherwise features or includes the
               Licensed Property shall be owned in its entirety exclusively by
               Licensor, excluding intellectual property rights in and to any
               elements that are wholly owned by Licensee and do not include the
               Licensed Property and what was not specifically created for the
               Licensed Product. "Artwork" as used herein shall include, without
               limitation, all pictorial, graphic, visual, audio, audio-visual,
               digital, literary, animated, artistic, dramatic, sculptural,
               musical or any other type of creations and applications, whether
               finished or not, including, but not limited to, animation,
               drawings, designs, sketches, images, tooling and tooling aids,
               illustrations, film, video, electronic, digitized or computerized
               information, software, object code, source code, on-line
               elements, music, text, dialogue, stories, visuals, effects,
               scripts, voiceovers, logos, one-sheets, promotional pieces,
               packaging, display materials, printed materials, photographs,
               interstitials, notes, shot logs, character profiles and
               translations, produced by Licensee or for Licensee, pursuant to
               this Agreement. Licensor reserves for itself or its designees all
               rights to use any and all Artwork created, utilized and/or
               approved hereunder without limitation. Licensee acknowledges
               that, as between Licensor and Licensee, the Licensed Property and
               Artwork and all other depictions expressions and derivations
               thereof, and all copyrights, trademarks and other proprietary
               rights therein are owned exclusively by Licensor and Licensee
               shall have no interest in or claim thereto, except for the
               limited right to use the same pursuant to this Agreement and
               subject to its terms and conditions.

        (vi)   WORK-MADE-FOR-HIRE: Licensee agrees and acknowledges that any
               Artwork created by Licensee or for Licensee hereunder is a "work
               made for hire" for Cartoon Network under the U.S. Copyright Act,
               and any and all similar provisions of law under

                                       12
<PAGE>

               other jurisdictions, and that Cartoon Network is the author of
               such works for all purposes, and that Cartoon Network is the
               exclusive owner of all the rights comprised in the undivided
               copyright and all renewals, extensions and reversions therein, in
               and to such works in perpetuity and throughout the universe.
               Licensee hereby waives and releases in favor of Cartoon Network
               all rights (if any) of "droit moral," rental rights and similar
               rights in and to the Artwork (the "Intangible Rights") and agrees
               that Cartoon Network shall have the right to revise, condense,
               abridge, expand, adapt, change, modify, add to, subtract from,
               re-title, re-draw, re-color, or otherwise modify the Artwork,
               without the consent of Licensee. Licensee hereby irrevocably
               grants, transfers and assigns to Licensor all right, title and
               interest, including copyrights, trademark rights, patent rights
               and other proprietary rights, it may have in and to the Artwork,
               in perpetuity and throughout the universe, and to all proprietary
               depictions, expressions or derivations of the Licensed Property
               created by or for Licensee. Licensee acknowledges that Licensor
               shall have the right to terminate this Agreement in the event
               Licensee asserts any rights (other than those specifically
               granted pursuant to this Agreement) in or to the Licensed
               Property or Artwork.

        Licensee hereby warrants that any and all work created by Licensee under
this Agreement apart from the materials provided to Licensee by Licensor is and
shall be wholly original with or fully cleared by Licensee and shall not copy or
otherwise infringe the rights of any third parties, and Licensee hereby
indemnifies Licensor and will hold Licensor harmless from, any such claim of
infringement or otherwise involving Licensee's performance hereunder. At the
request of Licensor, Licensee shall execute such form(s) of assignment of
copyright or other papers as Licensor may reasonably request in order to confirm
and vest in Licensor the rights in the properties as provided for herein. In
addition, Licensee hereby appoints Licensor as Licensee's Attorney-in-Fact to
take such actions and to make, sign, execute, acknowledge and deliver all such
documents as may from time to time be necessary to confirm in Licensor, its
successors and assigns, all rights granted herein. If any third party makes or
has made any contribution to the creation of Artwork authorized for use
hereunder, Licensee agrees to obtain from such party a full confirmation and
assignment of rights so that the foregoing rights shall vest fully in Licensor,
in the form of the Contributor's Agreement attached hereto as Exhibit 1 and by
this reference made a part hereof, prior to commencing work, and subject to the
prior written approval of Licensor, and subject to the prior written approval of
Licensor ensuring that all rights in the Artwork and Licensed Property arise in
and are assigned to Licensor. Promptly upon entering into each such
Contributor's Agreement, Licensee shall give Licensor a copy of such
Contributor's Agreement. Licensee assumes all responsibility for such parties
and agrees that Licensee shall bear any and all risks arising out of or relating
to the performance of services by them and to the fulfillment of their
obligations under the Contributor's Agreement.

        (vii)  USE OF THIRD PARTY CONTENT: Licensee shall not use any third
               party content or technology in the Licensed Product(s), including
               without limitation any audio elements from the soundtracks of any
               motion picture or television series based upon the Licensed
               Property without Licensor's prior written approval, and unless:
               (i) Licensee is expressly permitted to use such third party
               content or technology pursuant to written agreements with all
               third party rights holders; and (ii) Licensee has acquired for
               Licensee and Licensor all rights, permissions, clearances,
               releases or other authorizations necessary to use such third
               party content or technology in conjunction with the development
               and exploitation of the Licensed Products(s) anywhere in the
               Territory by Licensee or Licensor or by either party's licensees,
               successors or assigns in perpetuity. Licensee shall be
               responsible, in perpetuity, for all payments in connection with
               the use of third party content or technology, except as the
               parties mutually agree upon at such time as Licensor approves of
               the use of such third party content or technology. Licensee shall
               have the right to

                                       13
<PAGE>

               review all Licensee agreements with third parties to ensure their
               acceptability and Licensee shall deliver such agreements to
               Licensor within fourteen (14) business days of Licensor's request
               therefor. All such agreements provided to Licensor shall be
               considered Confidential Information pursuant to the provisions of
               Section 23 below.

10.     QUALITY OF LICENSED PRODUCT(S).

(a) Licensee agrees that the Licensed Product(s) shall be of high standard and
of such style, appearance and quality as shall be adequate and suitable to their
promotion, distribution and sale to the best advantage of Licensee and Licensor.
The quality and style of such product and its cartons and containers shall be
subject to Licensor's approval. To this end Licensee shall, before selling or
distributing any of the Licensed Product(s), furnish to Licensor free of cost
for its written approval as to quality and style, the materials specified in the
"MILESTONES" set forth on Exhibit 2 attached hereto. In the event that any
Milestone deliverable shall not have been approved, disapproved, or otherwise
commented upon within ten (10) business days after receipt thereof by Licensor,
then Licensee shall have the right to so notify Licensor of such fact by
facsimile or by overnight delivery service. In the event that Licensor fails to
then approve, disapprove or otherwise comment upon the submitted items within
five (5) business days after receipt by it of such communication, any items so
submitted shall be deemed to have been approved. Licensee shall, in addition,
thereafter furnish to Licensor free of cost, for its written approval, [*]
production samples of each such Licensed Product(s) together with their cartons
and containers including packaging and wrapping material, to ensure quality
control simultaneously upon distribution to the public. In addition, Licensee
shall provide Licensor with [*] catalogs which display all of Licensee's
products, not just the Licensed Products, if such catalogs exist. Further,
Licensor shall have the right to purchase any and all Licensed Products in any
quantity at the maximum discount price Licensee charges its best customer
purchasing the same quantity of Licensed Products under the same terms and
conditions for delivery during the same period of time in the same general
geographical area for sales throughout the same sales channel.

        After samples of Licensed Product(s) have been approved pursuant to this
paragraph, Licensee shall not depart therefrom in any material respect without
Licensor's prior written consent or add any additional element(s) such as
in-pack flyers, business reply cards and so on without Licensor's approval in
each case.

        Licensor shall have the right to withdraw its approval of samples if the
quality of any Licensed Product ceases to be acceptable.

(b) Any modification of a Licensed Product must be submitted in advance for
Licensor's written approval as if it were a new Licensed Product. Approval of a
Licensed Product which uses particular artwork does not imply approval of such
artwork for use with a different Licensed Product.

(c) Licensed Products must conform in all material respects to the final
production samples approved by Licensor. If in Licensor's reasonable judgment,
the quality of a Licensed Product originally approved has deteriorated in later
production runs, or if a Licensed Product has otherwise been altered, Licensor
may, in addition to other remedies available to it, require that such Licensed
Product be immediately withdrawn from the market.

(d) If any changes or modifications are required to be made to any material
submitted to Licensor for its written approval in order to ensure compliance
with Licensor's specifications or standards of quality, Licensee agrees promptly
to make such changes or modifications.

----------

[*] Confidential portions omitted and filed separately with the Commission.

                                       14
<PAGE>

(e) Licensee shall permit Licensor to inspect Licensee's manufacturing
operations, testing and payroll records (including those operations and records
of any supplier or manufacturer approved pursuant to Paragraph 11(b) hereof)
with respect to the Licensed Products.

(f) Subject to the terms hereof, Licensee may utilize the Licensed Property for
such advertising, promotional and display materials for the Licensed Product(s)
as in its judgment will best promote the sale of said Licensed Product(s).
Licensee agrees that it will not use the Licensed Property or any reproduction
thereof in any advertising, promotional or display material or in any other
manner without Licensor's prior written approval. Without limiting the foregoing
no television commercials may be utilized under this License without the
specific prior approval of Licensor. In the event that any advertising,
promotional or display material submitted to Licensor shall not have been
approved, disapproved or otherwise commented upon within thirty (30) days after
receipt thereof by Licensor, then Licensee shall have the right to so notify
Licensor of such fact by facsimile or by overnight delivery service. In the
event that Licensor fails to then approve, disapprove or otherwise comment upon
the submitted items within ten (10) business days after receipt by it of such
facsimile or overnight delivery service any items so submitted shall be deemed
to have been approved. A reasonable number of production copies of all such
advertising, promotional and display materials will be furnished to Licensor
free of charge.

(g) To avoid confusion of the public, Licensee agrees not to associate other
characters or properties with the Licensed Property on the Licensed Products or
in any packaging, promotional or display materials unless Licensee receives
Licensor's prior written approval. Furthermore, Licensee agrees not to use the
Licensed Property (or any component thereof) on any business sign, business
cards, stationery or forms, nor as part of the name of Licensee's business or
any division thereof.

(h) Licensee shall use its best efforts to notify its customers of the
requirement that Licensor has the right to approve all promotional, display and
advertising material pursuant to this Agreement.

(i) It is understood and agreed that any animation used in electronic media,
including but not limited to animation for television commercials and character
voices for radio commercials, shall be produced by Cartoon Network pursuant to a
separate agreement between Licensee and Cartoon Network, subject to Cartoon
Network customary rates. Any payments made to Cartoon Network for such animation
shall be in addition to and shall not offset the Consideration set forth in
Paragraph 4 above.

(j) Licensor's approval of Licensed Product(s) (including without limitation,
the Licensed Products) themselves as well as promotional, display, and
advertising materials) shall in no way constitute or be construed as an approval
by Licensor of Licensee's use of any trademark, copyright and/or other
proprietary materials, not owned by Licensor.

11.     DISTRIBUTION; SUBLICENSE/MANUFACTURE.

(a) Licensee shall sell the Licensed Products either to jobbers, wholesalers,
distributors or retailers for sale or resale and distribution directly to the
public. Licensee shall not sell the Licensed Products through any cable home
shopping service or through electronic media, including on any on-line network
or service. If Licensee sells or distributes the Licensed Products at a special
price, directly or indirectly, to itself, including without limitation, any
subsidiary of Licensee (including any affiliated distributors) or to any other
person, firm, or corporation affiliated with Licensee or its officers, directors
or major stockholders, for ultimate sale to unrelated third parties,

                                       15
<PAGE>

Licensee shall pay royalties with respect to such sales or distribution, based
upon the price generally charged the trade by Licensee.

(b) Except as to materials set forth in Paragraph 9(b)(ii)(b), Licensee, BAM
Entertainment Ltd and BAM Studios (Europe) Ltd. (collectively, the "Licensee
Parties") shall not be entitled to sublicense any of the Computer Program or
Audio-Visual Display developed by Licensee pursuant to this Agreement. In the
event Licensee is not the manufacturer of the Licensed Products, Licensee
Parties shall, subject to the prior written approval of Licensor, which approval
shall not be unreasonably withheld, be entitled to utilize a third party
manufacturer in connection with the manufacture and production of the Licensed
Products, provided that such manufacturer shall execute a letter in the form of
Exhibit 3 attached hereto and by this reference made a part hereof. In such
event, Licensee Parties shall remain primarily obligated under all of the
provisions of this Agreement and any default of this Agreement by such
manufacturer shall be deemed a default by Licensee Parties hereunder. In no
event shall any such third party manufacturer agreement include the right to
grant any rights to subcontractors. Notwithstanding the foregoing, Licensor has
approved Microsoft, Nintendo and Sony as third party manufacturers and
Microsoft, Nintendo and Sony shall not be required to execute Exhibit 3.

12.     GOODWILL.

        Licensee recognizes the great value of the publicity and goodwill
associated with the Licensed Property and acknowledges: (i) such goodwill is
exclusively that of Licensor; and (ii) that the Licensed Property has acquired a
secondary meaning as Licensor's trademarks and/or identifications in the mind of
the purchasing public. Licensee further recognizes and acknowledges that a
breach by Licensee of any of its covenants, agreements or undertakings hereunder
will cause Licensor irreparable damage, which cannot be readily remedied in
damages in an action at law, and may, in addition thereto, constitute an
infringement of Licensor's copyrights, trademarks and/other proprietary rights
in, and to the Licensed Property, thereby entitling Licensor to equitable
remedies, and costs.

13.     LICENSOR'S WARRANTIES AND REPRESENTATIONS.

        Licensor represents and warrants to Licensee that:

(a) It has, and will have throughout the Term of this Agreement, the right to
license the Licensed Property to Licensee in accordance with the terms and
provisions of this Agreement; and

(b) The making of this Agreement by Licensor does not violate any agreements,
rights or obligations of any person, firm or corporation.

14.     LICENSEE'S WARRANTIES AND REPRESENTATIONS.

        Licensee represents and warrants to Licensor that, during the Term and
thereafter:

(a) It will not attack the title of Licensor (or third parties that have granted
rights to Licensor) in and to the Licensed Property or any copyright or
trademarks pertaining thereto, nor will it attack the validity of the license
granted hereunder;

(b) It will not harm, misuse or bring into disrepute the Licensed property, but
on the contrary, will maintain the value and reputation thereof to the best of
its ability;

(c) It will manufacture, sell, promote and distribute the Licensed Products in
accordance with the terms and intent of this Agreement, and in compliance with
all applicable government regulations and industry standards;

                                       16
<PAGE>

(d) It will not create any expenses chargeable to Licensor without the prior
written approval of Licensor in each and every instance. It will not cause or
allow any liens or encumbrances to be placed against, or grant any security
interest (except to Licensor as provided hereunder) in, the Licensed Property
and/or Licensee's inventory, contract rights and/or accounts receivables, and/or
proceeds thereof, with respect to the Licensed Products without Licensor's prior
written consent;

(e) It will protect to the best of its ability its right to manufacture, sell,
promote, and distribute the Licensed Products hereunder;

(f) It will at all times comply with all government laws and regulations,
including but not limited to product safety, food, health, drug, cosmetic,
sanitary or other similar laws, and all voluntary industry standards relating or
pertaining to the manufacture, sale, advertising or use of the Licensed
Products, and shall maintain its appropriate customary high quality standards
during the Term hereof. It shall comply with any regulatory agencies which shall
have jurisdiction over the Licensed Products and shall procure and maintain in
force any and all permissions, certifications and/or other authorizations from
governmental and/or other official authorities that may be required in response
thereto. Each Licensed Product and component thereof distributed hereunder shall
comply with all applicable laws, regulations and voluntary industry standards.
Licensee shall follow reasonable and proper procedures for testing that all
Licensed Products comply with such laws, regulations and standards. Licensee
shall permit Licensor or its designees to inspect testing records and procedures
with respect to the Licensed Products for compliance. Licensed Products that do
not comply with all applicable laws, regulations and standards shall
automatically be deemed unapproved and immediately taken off the market;

(g) It shall, upon Licensor's request, provide credit information to Licensor
including, but not limited to, fiscal year-end financial statements
(profit-and-loss statement and balance sheet) and operating statements;

(h) It will provide Licensor with the date(s) of first use of the Licensed
Products in interstate and intrastate commerce, where appropriate;

(i) It will, pursuant to Licensor's instructions, duly take any and all,
necessary steps to secure execution of all necessary documentation for the
recordation of itself as user of the Licensed Property in any jurisdiction where
this is required or where Licensor reasonably requests that such recordation
shall be effected. Licensee further agrees that it will at its own expense
cooperate with Licensor in cancellation of any such recordation at the
expiration of this Agreement or upon termination of Licensee's right to use the
Licensed Property. Licensee hereby appoints Licensor its Attorney-in-Fact for
such purpose;

(j) It will use its best efforts to manufacture, distribute and sell the
Licensed Product(s) throughout the Territory;

(k) It will not deliver or sell Licensed Product(s) outside the Territory or
knowingly sell Licensed Product(s) to a third party for delivery outside the
Territory;

(l) It shall at all times comply with all manufacturing, sales, distribution,
retail and marketing policies and strategies promulgated by Licensor from
time-to-time and of which Licensee has been notified;

(m) If requested by Licensor and such request can be filled in a commercially
reasonable manner, it will utilize specific design elements of the Licensed
Property provided to Licensee by Licensor on hangtags, labels, and other
materials.

                                       17
<PAGE>

15.     TERMINATION BY LICENSOR.

(a) Licensor shall have the right to terminate this Agreement without prejudice
to any rights which it may have, whether pursuant to the provisions of this
Agreement, or otherwise in law, or in equity, or otherwise, upon the occurrence
of any one or more of the following events (herein called "defaults"):

        (i)    Licensee defaults in the performance of any of its obligations
               provided for in this Agreement; or

        (ii)   Licensee shall have failed to deliver to Licensor or to maintain
               in full force and effect the insurance referred to in Paragraph
               8(b) hereof; or

        (iii)  Licensee shall fail to make any payment due hereunder on the date
               due; or

        (iv)   Licensee shall fail to deliver any of the statements hereinabove
               referred to or to give access to the premises and/or license
               records pursuant to the provisions hereof to Licensor's
               authorized representatives for the purposes permitted hereunder,
               and such failure shall continue for ten (10) days after written
               notice thereof is sent by Licensor to the Licensee; or

        (v)    Licensee shall fail to comply with any laws, regulations or
               voluntary industry standards as provided in Paragraph 14(f)
               hereof or any governmental agency or other body, office or
               official vested with appropriate authority finds that the
               Licensed Products are harmful or defective in any way, manner or
               form, or are being manufactured, sold-or distributed in
               contravention of applicable laws, regulations or standards, or in
               a manner likely to cause harm; or

        (vi)   Licensee shall be unable to pay its debts when due, or shall make
               any assignment for the benefit of creditors, or shall file any
               petition under the bankruptcy or insolvency laws of any nation,
               jurisdiction, county or place, or shall have or suffer a receiver
               or trustee to be appointed for its business or property, or be
               adjudicated a bankrupt or an insolvent; or

        (vii)  Licensee does not commence in good faith to manufacture,
               distribute and sell a Licensed Product throughout the Territory
               on or before the Marketing Date as defined in Paragraph 1(h).
               Such default and Licensor's resultant right of termination (or
               recapture) shall only apply to the specific regions/countries
               within the Territory in which or wherein Licensee fails to meet
               said Marketing Date requirement. Licensor shall also have the
               right to recapture rights hereunder with respect to any Regions
               as set forth in Paragraph 1(b) which do not have approved
               distributors in place six (6) months after the date of execution
               of this agreement; or

        (viii) Licensee shall manufacture, sell or distribute, whichever first
               occurs, any of the Licensed Product(s) without the prior written
               approval of Licensor as provided in Paragraph 10 hereof; or

        (ix)   Licensee undergoes a substantial change of management or control.
               The term "control" as used in the preceding sentence shall mean
               the right to exercise, directly or indirectly, more than fifty
               percent (50%) of the voting rights attributable to the shares of
               the controlled entity; or

        (x)    Licensee uses Artwork which has not been approved by Licensor in
               compliance with the provisions of Paragraph 9 hereof; or

        (xi)   A manufacturer approved pursuant to Paragraph 11(b) hereof shall
               sell Licensed Products to parties other than Licensee or engage
               in conduct, which conduct if engaged in by Licensee would entitle
               Licensor to terminate this Agreement; or

                                       18
<PAGE>

        (xii)  Licensee delivers or sells Licensed Products outside the
               Territory or knowingly sells Licensed Products(s) to a third
               party who Licensee knows intends to, or who Licensee reasonably
               should suspect intends to, sell or deliver such Licensed Products
               outside the Territory; or

        (xiii) Licensee uses any labor that violates any local labor laws and/or
               it uses prison, slave or child labor in connection with the
               manufacture of the Licensed Products; or

        (xiv)  Licensee has made a material misrepresentation or has omitted to
               state a material fact necessary to make the statements not
               misleading; or

        (xv)   Licensee shall breach any other agreement in effect between
               Licensee on the one hand and Licensor on the other.
               Notwithstanding the foregoing, excluded from this breach are
               Paragraphs 1(a) - (e) and (i) as set forth above.

(b) In the event any of these defaults occur, Licensor shall give notice of
termination in writing to Licensee by facsimile and certified mail. Licensee
shall have ten (10) days from the date of giving notice in which to correct any
of these defaults (except subdivisions (vii), (viii), (xii) and (xiv) above
which are not curable), and failing such, this Agreement shall thereupon
immediately terminate, and any and all payments then or later due from Licensee
hereunder (including Guaranteed Consideration) shall then be promptly due and
payable in full and no portion of those prior payments shall be repayable to
Licensee.

16.     FINAL STATEMENT UPON TERMINATION OR EXPIRATION.

        Licensee shall deliver, as soon as practicable, but not later than
thirty (30) days following expiration or termination of this Agreement, a
statement indicating the number and description of Licensed Products on hand
together with a description of all advertising and promotional materials
relating thereto. Following expiration or termination of this Agreement,
Licensee shall immediately cease any and all manufacturing of the Licensed
Product. However, if Licensee has complied with all the terms of this Agreement,
including, but not limited to, complete and timely payment of the Guaranteed
Consideration and Royalty Payments, then Licensee may continue to distribute and
sell its remaining inventory, on a non-exclusive basis only, for a period not to
exceed sixty (60) days following such termination or expiration (the "Sell-Off
Period"), subject to payment of applicable royalties thereto. In no event,
however, may Licensee distribute and sell during the Sell-Off Period an amount
of Licensed Products that exceeds the average amount of Licensed Products sold
during any consecutive sixty (60) day period during the Term. In the event this
Agreement is terminated by Licensor for any reason under this Agreement,
Licensee shall be deemed to have forfeited its Sell-Off Period. If Licensee has
any remaining inventory of the Licensed Products following the Sell-Off Period,
Licensee shall, at Licensor's option, make available such inventory to Licensor
for purchase at or below cost, deliver up to Licensor for destruction said
remaining inventory or furnish to Licensor an affidavit attesting to the
destruction of said remaining inventory. Licensor shall have the right to
conduct a physical inventory in order to ascertain or verify such inventory
and/or statement. In the event that Licensee refuses to permit Licensor to
conduct such physical inventory, Licensee shall forfeit its right to the
Sell-Off Period hereunder or any other rights to dispose of such inventory. In
addition to the forfeiture, Licensor shall have recourse to all other legal
remedies available to it.

17.     PAYMENTS AND NOTICES.

        Except as otherwise specifically provided herein, all notices which
either party hereto is required or may desire to give to the other shall be
given by addressing the same to the other at the address set forth above, or at
such other address as may be designated in writing by any such party in a notice
to the other given in the manner prescribed in this paragraph. All such

                                       19
<PAGE>

notices shall be sufficiently given when the same shall be deposited so
addressed, postage prepaid, in the United states mail and/or when the same shall
have been delivered, so addressed, by facsimile or by overnight delivery service
and the date of transmission by facsimile, receipt of overnight delivery service
or two business days after mailing shall for the purposes of this Agreement be
deemed the date of the giving of such notice.

18.     NO PARTNERSHIP, ETC.

        This Agreement does not constitute and shall not be construed as
constitution of a partnership or joint venture between Licensor and Licensee.
Neither party shall have any right to obligate or bind the other party in any
manner whatsoever, and nothing herein contained shall give, or is intended to
give, any rights of any kind to any third persons.

19.     NO SUBLICENSING/NON-ASSIGNABILITY.

        This Agreement shall bind and inure to the benefit of Licensor, its
successors and assigns. This Agreement is personal to Licensee. Licensee shall
not sublicense, franchise or delegate to third parties its rights hereunder
(except as set forth "in Paragraph 11(b) hereof). Neither this Agreement nor any
of the rights of Licensee hereunder shall be sold, transferred or assigned by
Licensee and no rights hereunder shall devolve by operation of law or otherwise
upon any receiver, liquidator, trustee or other party.

20.     BANKRUPTCY RELATED PROVISIONS.

(a) The parties hereby agree and intend that this Agreement is an executory
contract governed by Section 365 of the U.S. Bankruptcy Code (the "Bankruptcy
Code").

(b) In the event of Licensee's bankruptcy, the parties intend that any royalties
payable under this Agreement during the bankruptcy period be deemed
administrative claims under the Bankruptcy Code because the parties recognize
and agree that the bankruptcy estate's enjoyment of this Agreement will (i)
provide a material benefit to the bankruptcy estate during its reorganization
and (ii) deny Licensor the benefit of the exploitation of the rights through
alternate means during the bankruptcy reorganization.

(c) The parties acknowledge and agree that any delay in the decision of trustee
of the bankruptcy estate to assume or reject the Agreement (the "Decision
Period") materially harms Licensor by interfering with Licensor's ability to
alternatively exploit the rights granted under this Agreement during a Decision
Period of uncertain duration. The parties recognize that arranging appropriate
alternative exploitation would be a time consuming and expensive process and
that it is unreasonable for Licensor to endure a Decision Period of extended
uncertainty. Therefore, the parties agree that the Decision Period shall not
exceed sixty (60) days.

(d) Licensor, in its interest to safeguard its valuable interests (including,
without limitation, its intellectual property rights in the Licensed property),
has relied on the particular skill and knowledge base of Licensee. Therefore,
the parties acknowledge and agree that in a bankruptcy context this Agreement is
a license of the type described by Section 365(c)(1) of the Bankruptcy Code and
may not be assigned without the prior written consent of the Licensor.

21.     CONSTRUCTION AND DISPUTE RESOLUTION.

        This Agreement shall be construed in accordance with the laws of the
State of California of the United States of America without regard to its
conflicts of laws provisions. Any and all controversies, claims or disputes
arising out of or related to this Agreement or the interpretation, performance
or breach thereof, including, but not limited to, alleged violations of

                                       20
<PAGE>

state or federal statutory or common law rights or duties, and the determination
of the scope or applicability of this agreement to arbitrate ("Dispute"), except
as set forth in subparagraphs (b) and (c), below, shall be resolved according to
the procedures set forth in subparagraph (a), below, which shall constitute the
sole dispute resolution mechanism hereunder:

(a) ARBITRATION: In the event that the parties are unable to resolve any Dispute
informally, then such Dispute shall be submitted to final and binding
arbitration. The arbitration shall be initiated and conducted according to
either the JAMS Streamlined (for claims under $250,000) or the JAMS
Comprehensive (for claims over $250,000) Arbitration Rules and Procedures,
except as modified herein, including the Optional Appeal Procedure, at the Los
Angeles office of JAMS, or its successor ("JAMS") in effect at the time the
request for arbitration is made (the "Arbitration Rules"). The arbitration shall
be conducted in Los Angeles County before a single neutral arbitrator appointed
in accordance with the Arbitration Rules. The arbitrator shall follow California
law and the Federal Rules of Evidence in adjudicating the Dispute. The parties
waive the right to seek punitive damages and the arbitrator shall have no
authority to award such damages. The arbitrator will provide a detailed written
statement of decision, which will be part of the arbitration award and
admissible in any judicial proceeding to confirm, correct or vacate the award.
Unless the parties agree otherwise, the neutral arbitrator and the members of
any appeal panel shall be former or retired judges or justices of any California
state or federal court with experience in matters involving the entertainment
industry. If either party refuses to perform any or all of its obligations under
the final arbitration award (following appeal, if applicable) within thirty (30)
days of such award being rendered, then the other party may enforce the final
award in any court of competent jurisdiction in Los Angeles County. The party
seeking enforcement shall be entitled to an award of all costs, fees and
expenses, including attorneys' fees, incurred in enforcing the award, to be paid
by the party against whom enforcement is ordered.

(b) INJUNCTIVE RELIEF: Notwithstanding the foregoing, either party shall be
entitled to seek injunctive relief (unless otherwise precluded by any other
provision of this Agreement) in the state and federal courts of Los Angeles
County.

(c) OTHER MATTERS: Any Dispute or portion thereof, or any claim for a particular
form of relief (not otherwise precluded by any other provision of this
Agreement), that may not be arbitrated pursuant to applicable state or federal
law may be heard only in a court of competent jurisdiction in Los Angeles
County.

22.     WAIVER, MODIFICATION, ETC.

        No waiver, modification or cancellation of any term or condition of this
Agreement shall be effective unless executed in writing by the party charged
therewith. No written waiver shall excuse the performance of any acts other than
those specifically referred to therein. The fact that the Licensor has not
previously insisted upon Licensee expressly complying with any provision of this
Agreement shall not be deemed to be a waiver of Licensor's future right to
require compliance in respect thereof and Licensee specifically acknowledges and
agrees that the prior forbearance in respect of any act, term or condition shall
not prevent Licensor from subsequently requiring full and complete compliance
thereafter. If any term or provision of this Agreement is held to be invalid or
unenforceable by any court of competent jurisdiction or any other authority
vested with jurisdiction, such holding shall not affect the validity or
enforceability of any other term or provision hereto and this Agreement shall be
interpreted and construed as if such term or provision, to the

                                       21
<PAGE>

extent the same shall have been held to be invalid, illegal or unenforceable,
had never been contained herein. Headings of paragraphs herein are for
convenience only and are without substantive significance.

23.     CONFIDENTIALITY.

        The Artwork and the materials and information supplied to one party by
the other hereunder constitute, relate to, contain and form a part of
confidential and proprietary information of the disclosing party, including, but
not limited to, Style Guides, design elements, character profiles, unpublished
copyrighted material, release dates, marketing and promotional strategies,
information about new products, properties and characters, the terms and
conditions of this Agreement, and other information which is proprietary in
nature or is a trade secret (collectively, the "Proprietary Information"). The
parties acknowledge and agree that the Proprietary Information is highly
confidential and that disclosure of the Proprietary Information will result in
serious harm to the owner thereof. Among other damage, unauthorized disclosure
of the Proprietary Information will (i) damage carefully planned marketing
strategies, (ii) reduce interest in the Licensed Property, (iii) make unique or
novel elements of the Licensed Property susceptible to imitation or copying by
competitors, infringers or third parties prior to Licensor's release of the
information or materials, (iv) damage proprietary protection in undisclosed or
unpublished information or materials, and (v) provide unauthorized third parties
with materials capable of being used to create counterfeit and unauthorized
merchandise, audio-visual products or other products, all of which will
seriously damage the parties' rights and business. Except as expressly approved
in writing by the owner of the Proprietary Information, the other party shall
not reproduce or use the Proprietary Information of the other party and shall
not discuss, distribute, disseminate or otherwise disclose the Proprietary
Information or the substance or contents thereof, in whole or in part, in its
original form or in any other form, with or to any other person or entity other
than employees of the parties and, in the case of Licensee, third parties who
have executed a Contributor's Agreement (as provided in Paragraph 9(b)) or third
party manufacturer's agreement (as provided in paragraph 11(b)) and been
approved by Licensor as provided hereunder, and such employees and third parties
shall be given access to the Proprietary Information only on a "need-to-know"
basis. The foregoing restrictions shall not apply to any information which, (i)
at the time of disclosure, is in the public domain or which, after disclosure,
becomes part of the public domain by publication or otherwise through no action
or fault of the receiving party; (ii) information which the receiving party can
show was in its possession at the time of disclosure and was not acquired,
directly or indirectly, from the other party; (iii) information which was
received from a third party having the legal right to transmit the same; (iv)
information which is independently developed, conceived, or created without use
of or reference to any Proprietary Information of the other party; or (v)
information which is disclosed pursuant to valid court order or other legal
process.

24.     ENTIRE AGREEMENT.

        This Agreement constitutes the entire Agreement between the parties
concerning the subject matter hereof and cancels and supersedes any prior
understandings and agreements between the parties hereto with respect thereto.
There are no representations, warranties, terms, conditions, undertakings or
collateral agreements, expressed, implied or statutory, between the parties
other than as expressly set forth in this Agreement.

25.     ACCEPTANCE BY LICENSOR.

        This instrument, when signed by Licensee, shall be deemed an application
for license and not a binding agreement unless and until accepted by Warner
Bros. Consumer Products by signature of a duly authorized officer and the
delivery of such a signed copy to

                                       22
<PAGE>

Licensee. The receipt and/or deposit by Warner Bros. Consumer Products of any
check or other consideration given by Licensee and/or delivery of any material
by Warner Bros. Consumer Products to Licensee shall not be deemed an acceptance
by Warner Bros. Consumer Products of this application. The foregoing shall apply
to any documents relating to renewals or modifications hereof.

        IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the day and year first above written.

AGREED AND ACCEPTED:                         AGREED AND ACCEPTED:

LICENSOR:                                    LICENSEE:

WARNER BROS. CONSUMER PRODUCTS,              BAM ENTERTAINMENT
a Division of Time Warner
Entertainment Company, L.P.

By:   /s/  Gary R. Simon                     By:  /s/  Raymond C. Musci
      -------------------------------             ------------------------------
      Gary R. Simon
      Senior Vice President, Business
      and Legal Affairs

Date:        12/12/01                        Date:  Nov. 20, 2001
      -------------------------------              -----------------------------

                                       23
<PAGE>

                               EXHIBIT 1 #13247-SJ

                             CONTRIBUTOR'S AGREEMENT

I, __________________________, the undersigned ("Contributor"), have been
engaged by BAM ENTERTAINMENT ("Licensee") to work on or contribute to the
creation of Licensed Products, described as _______________________, by Licensee
under an agreement between Licensee and Warner Bros., a division of Time Warner
Entertainment Company, L.P., c/o Warner Bros. Consumer Products, a division of
Time Warner Entertainment Company, L.P. ("Warner") dated ___________________.

I understand and agree that the Licensed Products, and all artwork or other
results of my services for Licensee in connection with such Licensed Products
("Work") is a "work made for hire" for Cartoon Network and that all right, title
and interest in and to the work shall vest and remain with Cartoon Network I
reserve no rights therein. Without limiting the foregoing, I hereby assign and
transfer to Cartoon Network all other rights whatsoever, in perpetuity
throughout the universe which I may have or which may arise in me or in
connection with the Work. I hereby waive all moral rights in connection with
such Work together with any other rights which are not capable of assignment. I
further agree to execute any further documentation relating to such transfer or
waiver or relating to such Work at the request of Cartoon Network or Licensee,
failing which Cartoon Network is authorized to execute same as my
Attorney-in-Fact.

                                             By:
                                                --------------------------------
                                             signature

                                             -----------------------------------
                                             print name

                                             -----------------------------------
                                             address

                                             -----------------------------------

                                             -----------------------------------

                                             -----------------------------------
                                             country

                                             -----------------------------------
                                             date

Warner Bros. Consumer Products:

By:
   --------------------------------
Date:
     ------------------------------

                                       24
<PAGE>

                              EXHIBIT 2 #132477-SJ

MILESTONE 1         CONCEPT DESIGN: General description of proposed program,
                    game play and overall look and feel. Includes user
                    interface, list of characters to be used; game engine and
                    limitations; and competitive analysis.

MILESTONE 2         PRODUCTION SCHEDULE: Schedule of delivery dates for all
                    major milestones, including localization and manufacturing
                    dates.

MILESTONE 3         FUNCTIONAL DESIGN SPECIFICATION/DESIGN DOCUMENT AND
                    TECHNICAL DOCUMENT: Detailed description of the program
                    including: synopsis; interface, navigation and logic
                    flowchart; level designs and maps; and art style/design.
                    Technical Document should include bios/details about the
                    team working on the project, description of tools used to
                    complete the project, and risk/contingency analysis.

MILESTONE 4         SCRIPT:  Dialogue script.

MILESTONE 5         TECHNOLOGY DEMO (PRE-ALPHA): First look at prelim models and
                    gameplay elements in the game engine.

MILESTONE 6         CHARACTER ART AND ANIMATION:

MILESTONE 7         INTERFACE, BACKGROUND, ENVIRONMENTAL ART

MILESTONE 8         MUSIC AND AUDIO: All music and sound effects to be used in
                    product must be submitted separately for approval.

MILESTONE 9         ALPHA: Initial combination of all product elements and art
                    in a usable working prototype.

MILESTONE 10        BETA: Almost final version of the License Product(s) that is
                    a fully functional, nearly bug-free disk that incorporates
                    finalized art and game play.

MILESTONE 11        GOLDEN MASTER CANDIDATE: Final disk that results from
                    Milestone 10 which includes a fully tested program
                    containing all elements and game play.

                                       25
<PAGE>

                               EXHIBIT 3 #13247-SJ

WARNER BROS. CONSUMER PRODUCTS
4000 Warner Boulevard
Bridge Building 156 South - 4th Floor
Burbank, CA 91522

Re:  Approval of Third Party Manufacturer

Gentlemen:

        This letter will serve as notice to you that pursuant to Paragraph 11(b)
of the License Agreement dated ______________, 2000 between you and BAM
ENTERTAINMENT, we have been engaged as the manufacturer for Licensee in
connection with the manufacture of the Licensed Products as defined in the
aforesaid License Agreement. We hereby acknowledge that we may not manufacture
Licensed Products for, or sell or distribute Licensed Products to, anyone other
than Licensee. We hereby further acknowledge that we have received a copy and
are cognizant of the terms and conditions set forth in said License Agreement
and hereby agree to observe those provisions of said License Agreement which are
applicable to our function as manufacturer of the Licensed Products. It is
expressly understood that we are obligated to comply with all local laws,
including without limitation, labor laws, wage and hour laws and
anti-discrimination laws and that you or your representatives shall, at anytime,
have the right to inspect our facilities and review our records to ensure
compliance therewith. It is understood that this engagement is on a royalty free
basis and that we may not subcontract any of our work without your prior written
approval.

        We understand that our engagement as the manufacturer for Licensee is
subject to your written approval. We request, therefore, that you sign in the
space below, thereby showing your acceptance of our engagement as aforesaid.

                                             Very truly yours,

                                                 -------------------------------
                                                 manufacturer/company name
                                             By:
                                                 -------------------------------
                                                 signature

                                                 -------------------------------
                                                 print name

                                                 -------------------------------
                                                 address

                                                 -------------------------------

                                                 -------------------------------

                                                 -------------------------------
                                                 country

                                                 -------------------------------
                                                 date

                                                 -------------------------------
                                                 product(s) manufacturing

AGREED TO AND ACCEPTED:
WARNER BROS. CONSUMER PRODUCTS,
a Division of Time Warner
Entertainment Company, L.P.

By:
   --------------------------------
    Gary R. Simon
    Senior Vice President, Business
    and Legal Affairs

-----------------------------------
Date

                                       26<PAGE>
                                                                     Exhibit 4.1

                              AMENDED AND RESTATED
                    SPARTON CORPORATION STOCK INCENTIVE PLAN
                             DATED OCTOBER 24, 2001

                                    ARTICLE 1
                      ESTABLISHMENT AND PURPOSE OF THE PLAN

         1.1 Establishment of the Plan. Sparton Corporation, an Ohio corporation
(the "Company"), established an incentive compensation plan known as the
"Sparton Corporation Stock Incentive Plan" (the "Plan") pursuant to the approval
of the shareholders at the annual meeting of shareholders on October 27, 1999.
The Plan permits the granting of stock options, stock appreciation rights,
restricted stock and other stock-based awards to key employees of the Company
and its subsidiaries.

         1.2 Purpose of the Plan. The purpose of the Plan is to promote the
long-term success of the Company for the benefit of the Company's shareholders,
through stock-based compensation, by aligning the personal interests of the
Company's key employees with those of its shareholders. The Plan is also
designed to allow key employees to participate in the Company's future, as well
as to enable the Company to attract, retain and reward such individuals. The
proposed amendments to the Plan will allow nonemployee directors to participate
in the Company's future and assist the Company in attracting quality individuals
to act in such capacity.

         1.3 Amendment and Restatement. Subject to ratification by the
affirmative vote of holders of a majority of shares of the Company's Common
Stock present and entitled to vote at the 2001 Annual Meeting of Shareholders,
the Amended and Restated Plan shall be effective as of the date of that meeting
(the "Effective Date")

         1.4 Term of Plan. No Awards shall be granted pursuant to the Plan on or
after the tenth anniversary of the Effective Date ( "Termination Date") ,
provided that Awards granted prior to the Termination Date may extend beyond
that date, and Cash Payment Rights and Reload Options may be effected pursuant
to the terms of Awards granted prior to the Termination Date.

                                    ARTICLE 2
                                   DEFINITIONS

         For purposes of this Plan, the following terms shall have the meanings
set forth below:

         2.1 "Award" shall mean any award under this Plan of any Options, Stock
Appreciation Rights, Restricted Stock and Performance Shares.

         2.2 "Award Agreement" shall mean an agreement evidencing the grant of
an Award under this Plan. Awards under the Plan shall be evidenced by Award
Agreements that set forth the details, conditions and limitations for each
Award, as established by the Committee and shall be subject to the terms and
conditions of the Plan.

         2.3 "Award Date" shall mean the date that an Award is made, as
specified in an Award Agreement.

         2.4 "Board" shall mean the Board of Directors of the Company.

         2.5 "Code" shall mean the Internal Revenue Code of 1986, as amended.

<PAGE>

         2.6 "Committee" shall mean the Committee as specified in Article 3, if
appointed by the Board to administer the Plan. If no Committee is appointed,
"Committee" shall mean the Board. The Board shall be responsible for the
administration of the Plan for the benefit of the Nonemployee Directors.
References to the Committee concerning the administration of the Plan shall
refer to the Board if the Participant or proposed Participant is a Nonemployee
Director.

         2.7 "Common Stock" shall mean the Common Stock, $1.25 par value per
share, of the Company.

         2.8 "Disability" shall mean permanent and total disability as
determined under the rules and guidelines established by the Committee for
purposes of the Plan.

         2.9 "Employee Participant" shall mean an employee of the Company or its
Subsidiaries who holds an outstanding Award granted under the Plan.

         2.10 "Fair Market Value" shall mean the closing price per share of the
Common Stock for such date on the New York Stock Exchange ( "NYSE" ) . If no
sale of shares of Common Stock is reflected on the NYSE on a date, "Fair Market
Value" shall be determined on the next preceding day on which there was a sale
of shares of Common Stock reported by the NYSE.

         2.11 "Incentive Stock Option" or "ISO" shall mean an option to purchase
shares of Common Stock granted under Article 6, which is designated as an
Incentive Stock Option and is intended to meet the requirements of Section 422
of the Code.

          2.12 "Insider" shall mean an employee who is an officer (as defined in
Rule 16a-1(f) of the Exchange Act) or director of the Company, or holder of more
than ten percent (10%) of its outstanding shares of Common Stock.

         2.13 "Nonemployee Director" shall mean a person who satisfies (1) the
definition of "Nonemployee Director" within the meaning set forth in Rule
16b-3(b) (3), as promulgated by the Securities and Exchange Commission (the
"SEC") under the Securities Exchange Act of 1934 (the "Exchange Act") , or any
successor definition adopted by the SEC, and (2) the definition of "outside
director" within the meaning of Section 162(m) of the Code.

         2.14 "Nonemployee Director Participant" shall mean a person who
satisfies the definition described in Paragraph 2.13 above and holds an
outstanding Award granted under the Plan.

         2.15 "Nonqualified Stock Option " or "NQSO" shall mean an option to
purchase shares of Common Stock, granted under Article 6, which is not an
Incentive Stock Option.

         2.16 "Option" means an Incentive Stock Option, a Nonqualified Stock
Option, or a Reload Option.

         2.17 "Option Price" shall mean the price at which a share of Common
Stock may be purchased by a Participant pursuant to an Option, as determined by
the Committee.

          2.18 "Participant" shall mean, alternatively, an employee of the
Company or a Subsidiary, or a Nonemployee Director who holds an outstanding
Award granted under the Plan.

          2.19 "Performance Shares" shall mean an Award granted under Article 9
of this Plan evidencing the right to receive Common Stock or cash of an
equivalent value at the end of a specified performance period.

         2.20 "Permitted Transferee" means (i) the spouse, children or
grandchildren of a Participant (each an "Immediate Family Member"), (ii) a trust
or trusts for the exclusive benefit of the Participant and/or one or more
Immediate Family Members, or (iii) a partnership or limited liability company
whose only partners or members are the Participant and/or one or more Immediate
Family Members.

         2.21 "Reload Option" shall mean an Option that is awarded under the
conditions of Section 6.5 of the Plan.

<PAGE>

         2.22 "Retirement" shall mean the termination of a Participant's
employment with the Company or a Subsidiary after the Participant attains
retirement age as established by the Committee at the time an Award is made.

         2.23 "Restricted Stock" shall mean an Award granted to a Participant
under Article 8 of this Plan.

         2.24 "Stock Appreciation Right" or "SAR" shall mean an Award granted to
a Participant under Article 7 of this Plan.

         2.25 "Subsidiary" shall mean any corporation in which the Company owns
directly, or indirectly through subsidiaries, at least fifty percent (50%) of
the total combined voting power of all classes of stock, or any other entity
(including, but not limited to, partnerships and joint ventures) in which the
Company owns at least fifty percent (50%) of the combined equity thereof.

         2.26 "Termination of Employment" shall mean the termination of an
Employee Participant's employment with the Company or a Subsidiary. An Employee
Participant employed by a Subsidiary shall also be deemed to incur a Termination
of Employment if the Subsidiary ceases to be a Subsidiary and the Participant
does not immediately thereafter become an employee of the Company or another
Subsidiary.

         2.27 "Termination of Directorship" shall mean the termination of the
Nonemployee Director's status as a member of the Board of Directors of the
Company, as a result of the resignation from office by the Nonemployee Director,
the death of the Nonemployee Director during an unexpired term of office, the
removal of the Nonemployee Director by action of the Board of Directors, or the
expiration of a term of office.

                                    ARTICLE 3
                                 ADMINISTRATION

         3.1 The Committee. The Plan shall be administered by the Board or, if
appointed by the Board to administer the Plan, a Committee designated by the
Board consisting of not less than three (3) directors who shall be appointed
from time to time by the Board, each of whom shall qualify as a Nonemployee
Director. If a Committee is not appointed to administer the Plan, the Board
shall be substituted for the Committee wherever the Committee is referred to in
the Plan. Notwithstanding the appointment of a Committee under the terms of the
Plan, only the Board shall have the authority to grant an Award to a Nonemployee
Director.

         3.2 Board and Committee Authority. Subject to the Company's Code of
Regulations, Bylaws and the provisions of this Plan, the Board and the Committee
shall have full authority to grant Awards to Nonemployee Directors and/or key
employees, respectively, of the Company or a Subsidiary:

                  (a) To select the key employees and/or Nonemployee Directors
         of the Company or a Subsidiary to whom Awards may be granted under the
         Plan;

                  (b) To determine whether and to what extent Options, Stock
         Appreciation Rights, Restricted Stock, and Performance Shares, or any
         combination thereof are to be granted under the Plan;

                  (c) To determine the number of shares of Common Stock to be
         covered by each Award;

                  (d) To determine the terms and conditions of any Award
         Agreement, including, but not limited to, the Option Price, any vesting
         restriction or limitation, any vesting schedule or acceleration
         thereof, or any forfeiture restrictions or waiver thereof, regarding
         any Award and the shares of Common Stock relating thereto, based on
         such factors as the Committee shall determine in its sole discretion;

                  (e) To determine whether, to what extent and under what
         circumstances grants of Awards are to operate on a tandem basis and/or
         in conjunction with or apart from other cash compensation arrangement
         made by the Company other than under the terms of this Plan;

<PAGE>

                  (f) To determine under what circumstances an Award may be
         settled in cash, Common Stock, or a combination thereof; and

                  (g) To determine to what extent and under what circumstances
         shares of Common Stock and other amounts payable with respect to an
         Award shall be deferred.

         The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (including any Award Agreement) and to
otherwise supervise the administration of the Plan. A majority of the Committee
shall constitute a quorum, and the acts of a majority of a quorum at any
meeting, or acts reduced to or approved in writing by a majority of the members
of the Committee, shall be the valid acts of the Committee. The interpretation
and construction by the Committee of any provisions of the Plan or any Award
granted under the Plan shall be final and binding upon the Company, the Board
and Participants, including their respective heirs, executors and assigns. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or an Award granted
hereunder. Notwithstanding the foregoing, without the prior approval of the
Company's shareholders, neither the Committee nor the Board of Directors shall
have the authority to lower the exercise price of an option previously granted,
whether by means of the amendment of previously granted Awards or the
replacement or regrant, through cancellation, of previously granted Awards.

                                    ARTICLE 4
                        COMMON STOCK SUBJECT TO THE PLAN

         Subject to adjustment as provided in Section 12.1, the maximum
aggregate number of shares of Common Stock which may be issued under this Plan
shall not exceed 760,000 shares, which may be either unauthorized and unissued
Common Stock or issued Common Stock reacquired by the Company ("Plan Shares").
Determinations as to the number of Plan Shares that remain available for
issuance under the Plan shall be made in accordance with such rules and
procedures as the Committee shall determine from time to time. If an Award
expires unexercised or is forfeited, canceled, terminated or settled in cash in
lieu of Common Stock, the shares of Common Stock that were theretofore subject
(or potentially subject) to such Award may again be made subject to an Award
Agreement; provided, however, that any such shares subject to a forfeited or
canceled Award shall not again be made subject to an Award Agreement to any
Participant who received, directly or indirectly, any of the benefits of
ownership of the securities underlying such Award, excluding the right to vote
such shares. In addition, Shares from the following sources shall be added to
the number of Plan Shares available for issuance under the Plan:

                  (1) Any Shares of the Company's Common Stock surrendered in
         payment of the exercise price of Options or to pay the tax withholding
         obligations incurred upon the exercise of Options; and

                  (2) Shares withheld to pay the Option Price or tax withholding
         obligations.

                                    ARTICLE 5
                                   ELIGIBILITY

         The persons who shall be eligible to receive Awards under the Plan
shall be such key employees or Nonemployee Directors of the Company or a
Subsidiary as the Committee or, in the case of the Nonemployee Directors, the
Board shall select from time to time. In making such selections, the Committee
shall consider the nature of the services rendered by the proposed participants,
their present and potential contribution to the Company's success and the
success of the particular Subsidiary or division of the Company by which they
are employed, and such other factors as the Board and/or Committee in its
discretion shall deem relevant. Participants may hold more than one Award, but
only on the terms and subject to the restrictions set forth in the Plan and
their respective Award Agreements.

<PAGE>

                                    ARTICLE 6
                                  STOCK OPTIONS

         6.1 Options. Options may be granted alone or in addition to other
Awards granted under this Plan. Each Option granted under this Plan shall be
either an Incentive Stock Option (ISO) or a Nonqualified Stock Option (NQSO) .

         6.2 Grants. The Committee shall have the authority to grant to any
Participant one or more Incentive Stock Options, Nonqualified Stock Options, or
both types of Options. To the extent that any Option does not qualify as an
Incentive Stock Option (whether because of its provisions or the time or manner
of its exercise or otherwise), such Option or the portion thereof which does not
qualify shall constitute a separate Nonqualified Stock Option.

         6.3 Incentive Stock Options. Anything in the Plan to the contrary
notwithstanding, no term of this Plan relating to Incentive Stock Options shall
be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be so exercised, so as to disqualify the Plan under
Section 422 of the Code, or, without the consent of the Participants affected,
to disqualify any Incentive Stock Option under such Section 422. An Incentive
Stock Option shall not be granted to an individual who, on the date of grant,
owns stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or to a Nonemployee Director. The
aggregate Fair Market Value, determined on the Award Date of the shares of
Common Stock with respect to which one or more Incentive Stock Options (or other
incentive stock options within the meaning of Section 422 of the Code, under all
other option plans of the Company) granted on or after January 1, 1987, that are
exercisable for the first time by a Participant during any calendar year shall
not exceed the $100,000 limitation imposed by Section 422(d) of the Code.

         6.4 Terms of Options. Options granted under the Plan shall be evidenced
by Award Agreements in such form as the Committee shall, from time to time
approve, which Agreement shall comply with and be subject to the following terms
and conditions:

                  (a) Employee Participant's Agreement. Each Employee
         Participant shall agree to remain in the continuous employ of the
         Company for a period of at least twelve (12) months from the Award Date
         or until Retirement, if Retirement occurs prior to twelve (12) months
         from the date of the Option. Such Agreement shall not impose upon the
         Company any obligation to retain the Participant in its employ for any
         period.

                  (b) Option Price. The Option Price per share of Common Stock
         purchasable under an Option shall be determined by the Committee at the
         time of grant but shall be not less than one hundred percent (100%) of
         the Fair Market Value of the Common Stock at the Award Date.

                  (c) Option Term. The term of each Option shall be fixed by the
         Committee, but no Option shall be exercisable more than ten (10) years
         after the date the Option is granted.

                  (d) Exercisability. Except as provided in Section 12.2, no
         Option shall be exercisable either in whole or in part prior to the
         first anniversary of the Award Date. Thereafter, an Option shall be
         exercisable at such time or times and subject to such terms and
         conditions as shall be determined by the Committee and set forth in the
         Award Agreement. If the Committee provides that any Option is
         exercisable only in installments, the Committee may at any time waive
         such installment exercise provisions, in whole or in part, based on
         such factors as the Committee may determine.

                  (e) Method of Exercise. Subject to whatever installment
         exercise and waiting period provisions apply under subsection (d)
         above, Options may be exercised in whole or in part at any time during
         the term of the Option, by giving written notice of exercise to the
         Company specifying the number of shares to be purchased. Such notice
         shall be accompanied by payment in full of the purchase price in such
         form as the Committee may accept. Notwithstanding the foregoing, an
         Option shall not be exercisable with respect to less than 100 shares of
         Common Stock unless the remaining shares covered by an Option are fewer
         than 100 shares. If and to the extent determined by the Committee in
         its sole discretion at or after grant, payment in full or in part may
         also be made in the form of Common Stock owned by the Participant (and
         for which the Participant has good title free and clear of any liens
         and encumbrances, and with respect to any shares of Common Stock
         acquired upon the exercise of an Option, has been held by the Optionee
         for a period of at least six (6)

<PAGE>

         consecutive months) or Restricted Stock, or by reduction in the number
         of shares issuable upon such exercise based, in each case, on the Fair
         Market Value of the Common Stock on the last trading date preceding
         payment as determined by the Committee (without regard to any
         forfeiture restrictions applicable to Restricted Stock). No shares of
         stock shall be issued until payment has been made. A Participant shall
         generally have the right to dividends or other rights of a shareholder
         with respect to shares subject to the Option when the person exercising
         such option has given written notice of exercise, has paid for such
         shares as provided herein, and, if requested, has given the
         representation described in Section 13.1 of the Plan. Notwithstanding
         the foregoing, if payment in full or in part has been made in the form
         of Restricted Stock, an equivalent number of shares of Common Stock
         issued on exercise of the Option shall be subject to the same
         restrictions and conditions, and during the remainder of the
         Restriction Period [as defined in Section 8.3(a)], applicable to the
         shares of Restricted Stock surrendered therefor.

                  (f) Transferability of Options. No Option may be sold,
         transferred, pledged, assigned, or otherwise alienated or hypothecated,
         other than by will or by the laws of descent and distribution,
         provided, however, the Committee may, in its discretion, authorize all
         or a portion of a Nonqualified Stock Option to be granted to an
         optionee to be on terms which permit transfer by such optionee to a
         Permitted Transferee, provided that (i) there may be no consideration
         for any such transfer (other than the receipt of or interest in a
         family partnership or limited liability company), (ii) the stock option
         agreement pursuant to which such options are granted must be approved
         by the Committee, and must expressly provide for transferability in a
         manner consistent with this Section 6.4(f), and (iii) subsequent
         transfers of transferred options shall be prohibited except those in
         accordance with Section 6.4(i). Following transfer, any such options
         shall continue to be subject to the same terms and conditions as were
         applicable immediately prior to transfer. The events of termination of
         service of Sections 6.4(g), (h), and (i) hereof, and the tax
         withholding obligations of Section 13.3 shall continue to be applied
         with respect to the original optionee, following which the options
         shall be exercisable by the Permitted Transferee only to the extent,
         and for the periods specified in Sections 6(g), (h), and (i). The
         Company shall not be obligated to notify Permitted Transferee(s) of the
         expiration or termination of any option. Further, all Options shall be
         exercisable during the Participant's lifetime only by such Participant
         and, in the case of a Nonqualified Stock Option, by a Permitted
         Transferee. The designation of a person entitled to exercise an Option
         after a person's death will not be deemed a transfer.

                  (g) Termination of Employment for Reasons other than
         Retirement, Disability, or Death. Upon Termination of Employment for
         any reason other than Retirement or on account of Disability or death,
         each Option held by the Employee Participant shall, to the extent
         rights to purchase shares under such Option have accrued at the date of
         such Termination of Employment and shall not have been fully exercised,
         be exercisable, in whole or in part, at any time within a period of not
         more than thirty (30) days following Termination of Employment, as
         specified in the Award Agreement, subject, however, to prior expiration
         of the term of such Options and any other limitations on the exercise
         of such Options in effect at the date of exercise. Whether an
         authorized leave of absence or absence because of military or
         governmental service shall constitute Termination of Employment for
         such purposes shall be determined by the Committee, which determination
         shall be final and conclusive.

                  (h) Termination of Employment for Retirement or Disability.
         Upon Termination of Employment by reason of Retirement or Disability,
         each Option held by such Employee Participant shall, to the extent
         rights to purchase shares under the Option have accrued at the date of
         such Retirement or Disability and shall not have been fully exercised,
         remain exercisable in whole or in part, for a period of not more than
         three (3) years following such Termination of Employment, as specified
         in the Award Agreement, subject, however, to prior expiration according
         to its terms and other limitations imposed by the Plan. If the Employee
         Participant dies after such Retirement or Disability, the Participant's
         Options shall be exercisable in accordance with Section 6.4(i) below.

                  (i) Termination of Employment for Death. Upon Termination of
         Employment due to death, each Option held by such Participant or
         Permitted Transferee shall, to the extent rights to purchase shares
         under the Options have accrued at the date of death and shall not have
         been fully exercised, be exercisable, in whole or in part, by the
         personal representative of the estate of the Participant or Permitted
         Transferee or by any person or

<PAGE>

         persons who shall have acquired the Option directly from the
         Participant or Permitted Transferee by bequest or inheritance only
         under the following circumstances and during the following periods: (i)
         if the Participant dies while employed by the Company or a Subsidiary,
         at any time within six (6) months after his death, or (ii) if the
         Participant dies during the extended exercise period following
         Termination of Employment specified in Section 6.4(h), at any time
         within the longer of such extended period or six (6) months after
         death, subject, however, in any case, to the prior expiration of the
         term of the Option and any other limitation on the exercise of such
         Option in effect at the date of exercise.

                  (j) Termination of Directorship. Upon Termination of
         Directorship, each Option held by such Nonemployee Director Participant
         shall, to the extent rights to purchase shares under the Option have
         accrued at the date of such termination and shall not have been fully
         exercised, remain exercisable in whole or in part, for a period of not
         more than three (3) years following such Termination of Directorship,
         as specified in the Award Agreement, subject, however, to prior
         expiration according to its terms and other limitations imposed by the
         Plan. If the Nonemployee Director dies after the termination of his or
         her Directorship and during the period described in the foregoing
         sentence, to the extent rights to purchase shares under the Option have
         accrued and have not been fully exercised as of the date of death, the
         Nonemployee Director Participant's Options shall be exercisable in
         accordance with Section 6.4(i) above.

                  (k) Termination of Options. Any Option that is not exercised
         within whichever of the exercise periods specified in Sections 6.4(g),
         (h), (i) or (j) is applicable shall terminate upon expiration of such
         exercise period.

                  (l) Purchase and Settlement Provisions. The Committee may at
         any time offer to purchase an Option previously granted, based on such
         terms and conditions as the Committee shall establish and communicate
         to the Participant at the time that such offer is made. In addition, if
         an Award Agreement so provides at the Award Date or is thereafter
         amended to so provide, the Committee may require that all or part of
         the shares of Common Stock to be issued with respect to the exercise of
         an Option, in an amount not greater than the Fair Market Value of the
         shares that is in excess of the aggregate Option Price, take the form
         of Performance Shares or Restricted Stock, which shall be valued on the
         date of exercise on the basis of the Fair Market Value of such
         Performance Shares or Restricted Stock determined without regard to the
         deferral limitations and/or forfeiture restrictions involved.

         6.5 Reload Options. Without in any way limiting the authority of the
Committee to make grants hereunder, and in order to induce employees to retain
ownership of shares of Common Stock, the Committee shall have the authority (but
not an obligation) to include within any Award Agreement a provision entitling
the Participant to a further Option (a "Reload Option") in the event the
Participant exercises the Option evidenced by the Award Agreement, in whole or
in part, by surrendering shares of Common Stock previously owned by the
Participant, in accordance with this Plan and the terms and conditions of the
Award Agreement. A Reload Option shall entitle a Participant to purchase a
number of shares of Common Stock equal to the number of such shares so delivered
upon exercise of the original Option and, in the discretion of the Committee,
the number of shares, if any, tendered to the Company to satisfy any withholding
tax liability arising in connection with the exercise of the original Option. A
Reload Option shall: (a) have an Option Price of not less than one hundred
percent (100%) of the per share Fair Market Value of the Common Stock on the
date of grant of such Reload Option; (b) have a term not longer than the
remaining term of the original Option at the time of exercise thereof; (c)
become exercisable in the event the shares acquired upon exercise of the
original Option are held for a minimum period of time established by, the
Committee; and (d) be subject to such other terms and conditions as the
Committee may determine.

<PAGE>

                                    ARTICLE 7
                            STOCK APPRECIATION RIGHTS

         7.1 Grant of SARs. The Committee may approve the grant of Stock
Appreciation Rights ("SARs") that are related to Options only. A SAR may be
granted only at the time of grant of the related Option. A SAR will entitle the
holder of the related Option, upon exercise of the SAR, to surrender such
Option, or any portion thereof to the extent unexercised, with respect to the
number of shares as to which such SAR is exercised, and to receive payment of an
amount computed pursuant to Section 7.2. Such Option will, to the extent
surrendered, then cease to be exercisable. Subject to Section 6.4, a SAR granted
hereunder will be exercisable at such time or times, and only to the extent that
a related Option is exercisable, and will not be transferable except to the
extent that such related Option may be transferable.

         7.2 Payment of SAR Amount. Upon the exercise of a SAR, a Participant
shall be entitled to receive payment from the Company in an amount determined by
multiplying (i) the difference between the Fair Market Value of a share of
Common Stock on the date of exercise over the Option Price, by (ii) the number
of shares of Common Stock with respect to which the SAR is exercised. At the
discretion of the Committee, the payment upon SAR exercise may be in cash, in
shares of Common Stock of equivalent value, or in some combination thereof.

         7.3 Nontransferability. No SAR may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. Further, all SARs shall be exercisable, during
the Participant's lifetime, only by such Participant.

                                    ARTICLE 8
                                RESTRICTED STOCK

         8.1 Awards of Restricted Stock. Shares of Restricted Stock may be
issued either alone or in addition to other Awards granted under the Plan. The
Committee shall determine the eligible persons to whom, and the time or times at
which, grants of Restricted Stock will be made, the number of shares to be
awarded, the price (if any) to be paid by the Participant, the time or times
within which such Awards may be subject to forfeiture, the vesting schedule and
rights to acceleration thereof, and all other terms and conditions of the
Awards. The Committee may condition the grant of Restricted Stock upon the
achievement of specific business objectives, measurements of individual or
business unit or Company performances, or such other factors as the Committee
may determine. The provisions of Restricted Stock awards need not be the same
with respect to each Participant, and such Awards to individual Participants
need not be the same in subsequent years.

         8.2 Awards and Certificates. A prospective Participant selected to
receive a Restricted Stock shall not have any rights with respect to such Award,
unless and until such Participant has executed an Award Agreement evidencing the
Award and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the applicable terms and conditions of such Award.
Further, such Award shall be subject to the following conditions:

                  (a) Acceptance. Awards of Restricted Stock must be accepted
         within a period of 20 days (or such shorter period as the Committee may
         specify at grant) after the Award Date, by executing an Award Agreement
         and by paying whatever price (if any) the Committee has designated for
         such shares of Restricted Stock.

                  (b) Legend. Each Participant receiving a Restricted Stock
         Award shall be issued a stock certificate in respect of such shares of
         Restricted Stock. Such certificate shall be registered in the name of
         such Participant, and shall bear an appropriate legend referring to the
         terms, conditions, and restrictions applicable to such Award,
         substantially in the following form:

         "The transferability of this certificate and the shares of stock
         represented hereby are subject to the terms and conditions (including
         forfeiture) of the Sparton Corporation Stock Incentive Plan and related
         Award Agreement entered into between the registered owner and the
         Company, dated _________________. Copies of such Plan and Agreement are
         on file in the offices of the Company."

<PAGE>

                  (c) Custody. The Committee may require that the stock
         certificates evidencing such shares be held in custody by the Company
         until the restrictions thereon shall have lapsed, and that, as a
         condition of any award of Restricted Stock, the Participant shall have
         delivered a duly signed stock power, endorsed in blank, relating to the
         Common Stock covered by such Award.

         8.3 Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to this Plan shall be subject to the following restrictions and
conditions:

                  (a) Restriction Period. Subject to the provisions of this Plan
         and the Award Agreement, during a period set by the Committee
         commencing with the Award Date and expiring not less than four (4)
         consecutive years thereafter (the "Restriction Period") , the
         Participant shall not be permitted to sell, transfer, pledge, or assign
         shares of Restricted Stock awarded under this Plan. Subject to these
         limits, the Committee, in its sole discretion, may provide for the
         lapse of such restrictions in installments and may accelerate or waive
         such restrictions in whole or in part, based on service, performance
         and/or such other factors or criteria as the Committee may determine.

                  (b) Rights as Shareholder. Except as provided in this
         subsection (b) and subsection (a) above, the Participant shall have,
         with respect to the shares of Restricted Stock, all of the rights of a
         holder of shares of Common Stock of the Company including the right to
         receive any dividends. The Committee, in its sole discretion, as
         determined at the time of Award, may permit or require the payment of
         dividends to be deferred. If any dividends or other distributions are
         paid in shares of Common Stock, such shares shall be subject to the
         same restrictions on transferability and forfeitability as the shares
         of Restricted Stock with respect to which they were paid.

                  (c) Termination of Employment. Subject to the applicable
         provisions of the Award Agreement and this Article 8, upon Termination
         of Employment for any reason during the Restriction Period, all
         Restricted Shares still subject to restriction will vest or be
         forfeited in accordance with the terms and conditions established by
         the Committee as specified in the Award Agreement.

                  (d) Lapse of Restrictions. If and when the Restriction Period
         expires without a prior forfeiture of the Restricted Stock, the
         certificates for such shares shall be delivered to the Participant.

                                    ARTICLE 9
                               PERFORMANCE SHARES

         9.1 Award of Performance Shares. Performance Shares may be awarded
either alone or in addition to other Awards granted under this Plan. The
Committee shall determine the eligible persons to whom and the time or times at
which Performance Shares shall be awarded, the number of Performance Shares to
be awarded to any person, the duration of the period (the "Performance Period")
during which, and the conditions under which, receipt of the Performance Shares
will be deferred, and the other terms and conditions of the Award in addition to
those set forth in Section 9.2, as specified in the Award Agreement. The
Committee may condition the grant of Performance Shares upon the achievement of
specific business objectives, measurements of individual or business unit or
Company performance, or such other factors or criteria as the Committee shall
determine. The provisions of the award of Performance Shares need not be the
same with respect to each Participant, and such Awards to individual
Participants need not be the same in subsequent years.

         9.2 Terms and Conditions. Performance Shares awarded pursuant to this
Article 9 shall be subject to the following terms and conditions:

                  (a) Nontransferability. Subject to the provisions of this Plan
         and the related Award Agreement, Performance Shares may not be sold,
         assigned, transferred, pledged or otherwise encumbered during the
         Performance Period. At the expiration of the Performance Period, share
         certificates or cash of an equivalent value (as the Committee may
         determine in its sole discretion) shall be delivered to the
         Participant, or his legal representative, in a number equal to the
         shares covered by the Award Agreement.

<PAGE>

                  (b) Dividends. Unless otherwise determined by the Committee at
         the time of Award, amounts equal to any cash dividends declared during
         the Performance Period with respect to the number of shares of Common
         Stock covered by a Performance Share Award will not be paid to the
         Participant.

                  (c) Termination of Employment. Subject to the provisions of
         the Award Agreement and this Article 9, upon Termination of Employment
         for any reason during the Performance Period for a given Award, the
         Performance Shares in question will vest or be forfeited in accordance
         with the terms and conditions established by the Committee at or after
         grant.

                  (d) Accelerated Vesting. Based on service, performance and/or
         such other factors or criteria as the Committee may determine and set
         forth in the Award Agreement, the Committee may, at or after grant,
         accelerate the vesting of all or any part of any award of Performance
         Shares and/or waive the deferral limitations for all or any part of
         such Award.

                                   ARTICLE 10
                      TERMINATION OR AMENDMENT OF THE PLAN

         The Board may at any time amend, discontinue or terminate this Plan or
any part thereof (including any amendment deemed necessary to ensure that the
Company may comply with any applicable regulatory requirement); provided,
however, that, unless otherwise required by law, the rights of a Participant
with respect to Awards granted prior to such amendment, discontinuance or
termination, may not be impaired without the consent of such Participant and,
provided further, without the approval of the Company's shareholders, no
amendment may be made which would (i) increase the aggregate number of shares of
Common Stock that may be issued under this Plan (except by operation of Section
12.1); (ii) change the definition of individuals eligible to receive Awards
under this Plan; (iii) decrease the option price of any Option to less than one
hundred percent (100%) of the Fair Market Value on the date of grant for an
Option; or (iv) extend the maximum option period under Section 6.4(c) of the
Plan. The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but, subject to Section 12.2, no such amendment
or other action by the Committee shall impair the rights of any Participant
without the Participant's consent. Awards may not be granted under the Plan
after the Termination Date, but Awards granted prior to such date shall remain
in effect or become exercisable pursuant to their respective terms and the terms
of this Plan.

                                   ARTICLE 11
                                  UNFUNDED PLAN

         This Plan is intended to constitute an "unfunded" plan for incentive
and deferred compensation. With respect to any payment not yet made to a
Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general creditor of the
Company.

                                   ARTICLE 12
                              ADJUSTMENT PROVISIONS

         12.1 Antidilution. Subject to the provisions of this Article 12, if the
outstanding shares of Common Stock are increased, decreased, or exchanged for a
different number or kind of shares or other securities, or if additional shares
or new or different shares or other securities are distributed with respect to
such shares of Common Stock or other securities, through merger, consolidation,
sale of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other distribution with respect to such shares of Common Stock or other
securities, an appropriate and proportionate adjustment may be made in (i) the
maximum number and kind of shares provided in Article 4 of the Plan, (ii) the
number and kind of shares or other securities subject to the then outstanding
Awards, and (iii) the price for each share or other unit of any other securities
subject to the then outstanding Awards.

<PAGE>

         12.2 Change in Control. Notwithstanding Section 12.1, upon dissolution
or liquidation of the Company, or upon a reorganization, merger, Change in
Control, or consolidation or merger of the Company with one or more corporations
as a result of which the Company is not the surviving corporation, or upon the
sale of all or substantially all the assets of the Company, all Awards then
outstanding under the Plan will be fully vested and exercisable and all
restrictions will immediately cease, unless provisions are made in connection
with such transaction for the continuance of the Plan and the assumption of or
the substitution for such Awards of new Awards covering the stock of a successor
employer corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices. A Change in Control
means the first to occur of any one of the following events:

                  (a) Any "person, " as such term is used in Sections 13 (d) and
         14 (d) (2) of the Securities Exchange Act of 1934, as amended ("Act"),
         other than the Company or a Subsidiary, or a trustee of an employee
         benefit plan sponsored solely by the Company or a Subsidiary is or
         becomes, other than by purchase from the Company, the "beneficial
         owner" (as such term is defined in Rule 13d-3 under the Act), directly
         or indirectly, of shares of Common Stock or other securities of the
         Company representing twenty percent (20%) or more of the combined
         voting power of the Company's then outstanding voting securities,
         excluding any such beneficial holders as of the Effective Date of this
         Plan;

                  (b) During any period of two (2) consecutive years,
         individuals who at the beginning of such period were members of the
         Board cease for any reason to constitute at least a majority of the
         Board, unless each new director was nominated or elected by a vote of
         at least two-thirds of the directors then still in office who were
         directors at the beginning of the period; or

                  (c) Any other event or series of events which, notwithstanding
         any other provision of this definition, is determined by the Board to
         constitute a Change in Control of the Company for purposes of this
         Plan.

         12.3 Adjustments by Committee. Any adjustments pursuant to this Article
12 will be made by the Committee, whose determination as to what adjustments
will be made and the extent thereof will be final, binding, and conclusive. No
fractional interest will be issued under the Plan on account of any such
adjustments. Only cash payments will be made in lieu of fractional shares.

                                   ARTICLE 13
                               GENERAL PROVISIONS

         13.1 Legend. The Committee may require each person purchasing shares
pursuant to an Award under the Plan to represent to and agree with the Company
in writing that the Participant is acquiring the shares without a view to
distribution thereof. In addition to any legend required by this Plan, the
certificates for such shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer.

         All certificates for shares of Common Stock delivered under the Plan
shall be subject to such stock transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other requirements
of the Securities and Exchange Commission, any stock exchange upon which the
Stock is then listed, any applicable Federal or state securities law, and any
applicable corporate law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such restrictions.

         13.2 No Right to Employment. Neither this Plan nor the grant of any
Award hereunder shall give any Employee Participant or other employee any right
with respect to continuance of employment by the Company or any Subsidiary, nor
shall there be a limitation in any way on the right of the Company or any
Subsidiary by which an employee is employed to terminate his or her employment
at any time.

         13.3 Withholding of Taxes. The Company shall have the right to deduct
from any payment to be made pursuant to this Plan, or to otherwise require,
prior to the issuance or delivery of any shares of Common Stock or the payment
of any cash hereunder, payment by the Participant of any Federal, state or local
taxes required by law to be withheld. Unless otherwise prohibited by the
Committee, each Participant may satisfy any such withholding tax

<PAGE>

obligation by any of the following means or by a combination of such means: (a)
tendering a cash payment; (b) authorizing the Company to withhold from the
shares otherwise issuable to the Participant a number of shares having a Fair
Market Value as of the "Tax Date", less than or equal to the amount of the
withholding tax obligation; or (c) delivering to the Company unencumbered shares
owned by the Participant having a Fair Market Value, as of the Tax Date, less
than or equal to the amount of the withholding tax obligation. The "Tax Date"
shall be the date that the amount of tax to be withheld is determined.

         13.4 No Assignment of Benefits. No Option, Award or other benefit
payable under this Plan shall be subject in any manner to anticipation,
alienation, attachment, sale, transfer, assignment, pledge, encumbrance or
charge, and any attempt to anticipate, alienate, attach, sell, transfer, assign,
pledge, encumber or charge, any such benefits shall be void, and any such
benefit shall not in any manner be liable for or subject to the debts,
contracts, liabilities, engagements or torts of any person who shall be entitled
to such benefit, nor shall it be subject to attachment or legal process for or
against such person.

         13.5 Governing Law. This Plan and actions taken in connection herewith
shall be governed and construed in accordance with the laws and in the courts of
the state of Michigan.

         13.6 Application of Funds. The proceeds received by the Company from
the sale of shares of Common Stock pursuant to Awards granted under this Plan
will be used for general corporate purposes.

         13.7 Rights as a Shareholder. Except as otherwise provided in an Award
Agreement, a Participant shall have no rights as a shareholder of the Company
until he or she becomes the holder of record of Common Stock.

              ----------------------------------------------------

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