Glossary

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Accredited investor

Individual meeting the SEC criteria for investors who do not need as much protection by virtue of certain qualifications.

Advance

Amount paid, generally to fund production, and recouped from royalties.

Agent

1. An employee or partner having the authority to act on behalf of the company or partnership; 2. Party hired to sell the goods and services of another.

Ancillary products

Often denotes merchandise but not entertainment related to a game, such as hint books, T-shirts, and figurines .

Angel investor

An individual, usually affluent, who provides capital to one or more start-up companies.

Assignment of invention

Document transferring rights in intellectual property.

At will

Form of employment where either party may terminate at any time for any reason.

Back-end

Compensation received after a product has earned a profit.

Basis

Purchase price used to determine tax liabilities.

Blue Sky laws

State regulations governing the sale of securities designed to protect investors from fraud.

Board

Corporation's board of directors.

Boilerplate

Standardized or form contract language.

Break-even

Point at which a game's publisher recoups its total costs.

Bylaws

Set of rules establishing.

C-corporation

A business which is a separate legal entity from its owners .

Chapter 7

Chapter of the U.S. Bankruptcy code governing liquidation after bankruptcy.

Cliff vesting

Vesting plan in which most of the ownership accrues in a lump toward the end of the vesting schedule.

COBRA

Plan allowing departing employees to pay to continue coverage under the company's health plan, for a certain time period and under certain conditions.

COI

Certificate of Incorporation.

Completion bond

A bond issued by an insurance company to guarantee completion of a project by a contractor.

Consideration

Legal term for compensation that a party receives in exchange for its obligations under a contract.

Content

Intellectual property surrounding the story, audiovisual elements, gameplay, characters , and so forth.

Corporate veil

Legal protection of corporate owners and officers from personal liability for cor-poration's debts .

Counterparty

The "other guy" in a contract.

Cross-collateralize

Application of revenues from one product to recoup investment or losses in another.

Cumulative voting

A voting system allowing minority shareholders more power by consolidating all of their board of director votes for a single candidate, as opposed to having to divide their votes among different candidates and seats.

Damages

Financial or other penalties paid by a wrongdoer to the wrongdone.

Derivative work

New work based on another copyright.

Directors

Members elected by corporation's shareholders to oversee company, including selecting officers and payment of dividends .

Distributor

For product: the middleman between the manufacturer and the retailer; For entertainment: the middleman between the producer and the display.

Dividends

Taxable payment to shareholders declared by a corporation's board of directors and paid out of company's current or retained earnings.

Double tax

Refers to C-corporation's obligation to pay income tax at the corporate level in addition to shareholder's obligation to pay tax on distributions or appreciations in share value.

Due diligence

Investigation into material facts, operations, and assets of a target company by prospective purchaser.

Earn-out

Point at which publisher begins paying royalties.

Entertainment

Films, television shows, books, amusement park rides, comic books, and so forth, based on an intellectual property.

Entity

Form of business organization.

Equity

Ownership interest in a corporation in the form of common stock or preferred stock.

Exercise price

The price specified in an option contract at which the full contract may be exercised.

General partner

Investor in a partnership who manages the business and is liable for its debts.

Gray market

Sale of trademarked goods through unauthorized channels.

Guarantee

The minimum amount of royalties to be paid to a licensor under a license. Generally non-recoupable.

Indemnification

Agreement by one party to pay certain specified losses or damages incurred by another party.

Injunction

A court order prohibiting a person from doing something or requiring a person to do something.

Instrument

A document creating a legal right or obligation.

IP

Intellectual property.

IRR

The rate of return that would make the present value of future cash flows plus the final market value of an investment or business opportunity equal the current market price of the investment or opportunity.

Legend

A notice that materials contain +C27-protected intellectual property.

License

A permission to use an intellectual property right within a defined time, context, market line, or territory.

Licensee

Party acquiring the license.

Licensor

Party granting the license.

Limited liability

Investor cannot lose more than the amount invested.

Limited partners

Investors in a partnership who are not directly involved in management and are liable only to the extent of their investments.

LLC

Limited Liability Company. Type of company where owners and managers receive the limited liability and (usually) tax benefits of an S-corporation without S-corporation restrictions.

LOI

Letter of intent.

Long form

The long version of a contract; generally refers to the expanded version of a contract originally drafted as a short form binding agreement.

LTCG

Long term capital gains.

Mark

A word, name , symbol, or device or any combination thereof used to identify and distinguish goods or services and to indicate their source.

Megillah

Everything.

Member

Owner of an LLC interest.

Mod

Modification of game components for non-commercial use.

Moral rights

Rights given in some countries to an author that survive sale or license.

NDA

Non-disclosure agreement.

Non- compete

Contract restricting a party's ability to compete in a certain market under certain conditions.

NPV

The present value of an investment's future net cash flows minus the initial investment.

Offering

A sale of newly issued securities.

Officer

An executive of a company who shares legal liability with the company for her actions.

OI

Ordinary income.

Options

The right to acquire something at a later date under prespecified terms and conditions.

Passive investment

Investment made by one who does not play an active role in the management of the business.

Pass-through

A business organization that pays no entity-level tax.

Payment priority

The hierarchy of which debts are repaid first.

Pitch build

Demo or prototype materials built to pitch a game.

Pre-emptive rights

The right of current shareholders to maintain their ownership percentage by buying a proportional number of shares of any future issue of common stock.

Preferred stock

Stock that carries a specific dividend to be paid before any dividends are paid to common stock holders, and which receives payment priority over common stock in the event of a liquidation.

Private placement

Direct sale of securities not requiring SEC registration, provided the securities are bought for investment purposes rather than resale.

Pro rata

In direct proportion.

Property

A set of copyrights and trademarks constituting a licensable chunk of content, for instance, "Batman."

R&D

Research and development.

Recoup

Recover costs.

Representation

A guarantee that a particular fact is as stated or promised .

Reversion

The right to regain assets or rights upon specified terms and conditions.

Right of first refusal

The right to have an exclusive first look to decide whether to purchase a given asset or right.

Right of last refusal

The right to match the final offer to buy an asset or right.

Rights fee

License fee paid up front. Usually supplemented with back-end participation.

SBC stock

Small business corporation stock. Qualifies for special reduced taxes.

S-corporation

A form of corporation enjoying pass-through taxation allowed by the IRS for most companies having 75 or fewer shareholders.

Secured debt

Loan backed by a pledge of other assets.

Security

An investment instrument issued by a company as evidence of debt or equity.

SKU

Stock-keeping unit.

Spread

Difference between any two prices.

Statutory

Mandated by law.

Sublicense

License granted to a third party by a licensee.

Subscribe

Agree to buy securities in an offering.

Sweat equity

Paying for ownership with work instead of cash.

Turnaround

Fees that may be due to the licensor if licensed rights revert to the owner.

Unaccredited investor

An individual who does not meet the SEC criteria of an accredited investor.

Unsecured debt

Loan not backed by a pledge of other assets.

USPTO

United States Patent and Trademark Office.

Vest

Become exercisable (options) or no longer subject to company's repurchase (stock).

Warrants

A certificate, usually given along with a security, allowing the owner to buy a set number of other securities at a set price.

Warranty

A guarantee that a fact is true as stated or promised.

Work for hire

Copyrightable works of authorship created for and assigned to another party.

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