<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number: 0-27862
REALITY INTERACTIVE, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1781991
- -------------------------------------- --------------------------------------
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation of organization
SUITE 300
11200 WEST 78TH STREET
EDEN PRAIRIE, MINNESOTA 55344 (612) 996-6777
- -------------------------------------- --------------------------------------
Address of principal executive offices Registrant's telephone number
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
/X/ Yes / / No
At October 31, 1996, 4,677,407 shares of registrant's $.01 par value Common
Stock were outstanding.
Transitional Small Business Issuer Format / / Yes /X/ No
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FORM 10-QSB INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements............................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................ 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................... 10
SIGNATURES.................................................................. 11
EXHIBIT INDEX............................................................... 12
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-QSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties that may cause the
Company's actual results to differ materially from the results discussed in
the forward-looking statements. Factors that might cause such differences
include, but are not limited to, the uncertainty in growth of a development
stage company; limited growth of the market for multimedia education and
training products; lack of market acceptance of the Company's products;
inability of the Company to expand its marketing capability; inability of the
Company to diversify its product offerings; failure of the Company to respond
to evolving industry standards and technological changes; inability of the
Company to meet its future additional capital requirements; inability of the
Company to compete in the business education and training industry; loss of
key management personnel; inability to retain subject matter experts; failure
of the Company to secure adequate protection for the Company's intellectual
property rights; and the Company's exposure to product liability claims. The
forward-looking statements are qualified in their entirety by the cautions
and risk factors set forth in Exhibit 99.1, under the caption "Cautionary
Statement," to this Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1996.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REALITY INTERACTIVE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 271,269 $ 118,916
Short-term investments............................................. 6,664,403 0
Accounts receivable................................................ 108,117 18,237
Interest receivable................................................ 31,649 0
Inventory.......................................................... 89,231 28,359
Prepaid expenses................................................... 43,386 8,312
----------- ----------
Total current assets........................................... 7,208,055 173,824
----------- ----------
Fixed assets, net...................................................... 192,960 269,852
Restricted cash........................................................ 119,000 119,000
Other assets........................................................... 29,781 14,116
----------- ----------
Total assets................................................... $ 7,549,796 $ 576,792
----------- ----------
----------- ----------
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................... $ 136,050 $ 188,623
Accrued liabilities................................................ 71,720 90,417
Capitalized lease obligation....................................... 0 14,127
Notes payable...................................................... 0 201,002
Other current liabilities.......................................... 9,710 0
----------- ----------
Total current liabilities...................................... 217,480 494,169
Long-term liabilities.................................................. 0 0
----------- ----------
Total liabilities.............................................. 217,480 494,169
----------- ----------
Mandatorily redeemable convertible preferred stock, $.01 par value,
5,000,000 shares authorized; 0 and 726,900 shares outstanding...... 0 2,125,962
----------- ----------
Stockholders' equity (deficit):
Common stock, $.01 par value, 20,000,000 shares authorized;
4,677,407 and 1,643,611 shares outstanding.................... 46,774 16,436
Additional paid-in capital........................................ 15,391,620 1,384,397
Accumulated deficit during the development stage.................. (8,106,078) (3,444,172)
----------- ----------
Total stockholders' equity (deficit).......................... 7,332,316 (2,043,339)
----------- ----------
Total liabilities, mandatorily redeemable preferred stock
and stockholders' equity (deficit)......................... $ 7,549,796 $ 576,792
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to the financial statements.
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REALITY INTERACTIVE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- ------------------------
1996 1995 1996 1995
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues............................................... $ 93,677 $ 10,928 $ 341,784 $ 17,441
Cost of revenues....................................... 18,768 1,206 65,238 2,288
----------- ---------- ----------- -----------
Gross profit........................................... 74,909 9,722 276,546 15,153
----------- ---------- ----------- -----------
Operating expenses:
Sales and marketing................................ 712,912 238,500 1,859,101 545,113
Research and development........................... 678,085 175,502 1,598,251 738,627
General and administrative......................... 428,357 259,347 1,087,109 615,684
----------- ---------- ----------- -----------
Total operating expenses....................... 1,819,354 673,349 4,544,461 1,899,424
----------- ---------- ----------- -----------
Operating loss......................................... (1,744,445) (663,627) (4,267,915) (1,884,271)
----------- ---------- ----------- -----------
Other income (expense):
Interest income (expense), net..................... 104,551 (95,542) (61,035) (102,110)
Debt offering costs................................ 0 0 (113,486) 0
----------- ---------- ----------- -----------
Total other income (expense)................... 104,551 (95,542) (174,521) (102,110)
----------- ---------- ----------- -----------
Income before extraordinary loss................... $(1,639,894) $ (759,169) $(4,442,436) $(1,986,381)
Extraordinary loss from early retirement of debt....... 0 0 (219,470) 0
----------- ---------- ----------- -----------
Net Loss....................................... $(1,639,894) $ (759,169) $(4,661,906) $(1,986,381)
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Net loss per common and common equivalent share........ $ (.35) $ (.46) $ (1.34) $ (1.21)
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Weighted average common and common equivalent
shares................................................. 4,677,407 1,643,611 3,488,130 1,643,611
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
See accompanying notes to the financial statements.
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REALITY INTERACTIVE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------------
1996 1995
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................. $ (4,661,906) $(1,986,381)
Reconciliation of net loss to net cash used by operating activities:
Depreciation and amortization........................................ 90,000 60,525
Noncash interest expense related to warrants......................... 193,979 40,211
Extraordinary loss related to early retirement of debt (interest
expense related to warrants)....................................... 142,021 0
Changes in assets and liabilities:
Accounts receivable.................................................. (89,880) (6,350)
Interest receivable.................................................. (31,649) 0
Inventory............................................................ (60,871) (55,383)
Prepaid expenses..................................................... (35,074) (8,988)
Accounts payable..................................................... (52,577) 124,858
Accrued liabilities.................................................. (18,697) 9,077
Other current liabilities............................................ 11,059 0
------------ -----------
Net cash used by operating activities............................ (4,513,595) (1,822,431)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets, net of retirements............................. (279,266) (142,175)
Purchase of other assets................................................. (15,666) (8,229)
Purchase of short-term investments....................................... (10,164,404) 0
Sale of short-term investments........................................... 3,500,000 29,836
Cash restricted for operating leases..................................... 0 (119,000)
------------ -----------
Net cash used by investing activities............................ (6,959,336) (239,568)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease obligation................................... (15,471) (14,448)
Proceeds from convertible notes payable.................................. 2,800,000 951,002
Repayment of convertible notes payable................................... (2,774,997) 0
Repayment of notes payable............................................... (201,002) 0
Proceeds from sale leaseback of fixed assets............................. 266,157 0
Proceeds from initial public offering, net............................... 11,549,607 0
Proceeds from related party financing.................................... 0 320,000
Proceeds from issuance of preferred stock................................ 0 193,228
Proceeds from exercise of stock options.................................. 990 0
------------ -----------
Net cash provided by financing activities ....................... 11,625,284 1,449,782
------------ -----------
Net cash provided (used) during period....................................... 152,353 (612,217)
CASH AND CASH EQUIVALENTS:
Beginning of period...................................................... 118,916 527,461
------------ -----------
End of period............................................................ $ 271,269 $ (84,756)
------------ -----------
------------ -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest................................................... $ 88,867 $ 64,614
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to the financial statements.
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REALITY INTERACTIVE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Reality Interactive, Inc. (the "Company") was incorporated on May 24,
1994 to design, develop and market interactive multimedia knowledge solutions
primarily for sale to Fortune 2000 companies. The Company's strategy is to
identify industry standards and practices that create a need for
enterprise-wide education and training. The Company uses digital technology,
including animation, video, graphics, audio narration and formatted text, to
create its interactive multimedia knowledge solutions.
Basis of Presentation
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for
interim financial information. The preparation of financial statements in
accordance with generally accepted accounting principles require management
to make estimates and assumptions. Such estimates and assumptions affect the
reported amounts of assets and liabilities as well as disclosure of
contingent assets and liabilities at the date of the accompanying interim
financial statements, and the reported amounts of revenue and expenses during
the reporting period. In the opinion of management, the interim financial
statements include adjustments necessary for a fair presentation of the
results of operations for the interim periods presented. Operating results
for the nine months ended September 30, 1996 are not necessarily indicative
of the operating results to be expected for the year ending December 31, 1996.
Certain information and footnote disclosures normally included in
financial statements in accordance with generally accepted accounting
principles have been omitted. The statements should be read in conjunction
with the Company's annual financial statements included in its Registration
Statement on Form SB-2.
NOTE 2. INITIAL PUBLIC OFFERING
In April 1996, the Company completed an initial public offering (the
"IPO") of 2,200,000 units at a price of $5.75 per unit. Each unit sold
consisted of one share of Common Stock and one Redeemable Common Stock
Purchase Warrant to purchase one share of Common Stock. The sale of such
units resulted in gross proceeds of $12,650,000 and net proceeds of
$11,034,982 after payment of the underwriting discount and related expenses.
Upon the closing of the offering, all 726,900 outstanding shares of
Mandatorily Redeemable Convertible Preferred Stock were converted into
726,900 shares of Common Stock.
In May 1996, the Company issued an additional 100,000 units to its
underwriter to cover over-allotments, resulting in gross proceeds of $575,000
and net proceeds of $514,625 after payment of the underwriting discount and
related expenses.
NOTE 3. CONVERTIBLE NOTES PAYABLE
In January 1996, the Company closed a $2,800,000 convertible bridge note
financing (the "Bridge Notes") in a private placement, resulting in net
proceeds to the Company of $2,626,570 after payment of agent's commissions
and related expenses. The Bridge Notes provided for interest at 10% per
annum and matured on the earlier of July 31, 1996 or 30 days after the
effective date of an IPO. In connection with this financing, the Company
issued detachable warrants to purchase a total of 560,000 shares of Common
Stock to the purchasers of
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the Bridge Notes. The Bridge Notes were convertible into common stock at a
price equal to $3.94, which was 75% of $5.25 (the per share value assigned to
the Common Stock at the time of the IPO).
In May 1996, 30 days after the effective date of the IPO, the Company
made payments totaling $2,861,281 to repay the Bridge Notes, including
accrued interest of $86,285. Approximately $25,000 of the Bridge Notes were
converted to Common Stock at the time of this repayment, resulting in the
issuance of 6,346 shares. The Company recognized an extraordinary loss of
approximately $220,000 in its second quarter ended June 30, 1996 as a result
of the early repayment of the Bridge Notes.
NOTE 4. STOCK OPTIONS
Under the terms of the Company's 1994 Stock Incentive Plan, 700,000
shares of Common Stock have been reserved for issuance to officers, employees
and independent contractors upon the exercise of stock options. The Company
has granted a total of 464,850 options to its officers, employees and
independent contractors at prices ranging from $1.80 to $5.25 per share.
During the quarter ended June 30, 1996, an employee exercised an option to
purchase 550 shares of Common Stock at an exercise price of $1.80 per share.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following presentation of management's discussion and analysis of
the Company's financial condition and results of operation should be read in
conjunction with the Company's financial statements and notes contained
herein.
OVERVIEW
Reality Interactive, Inc. (the "Company") was formed in May 1994 to
design, develop and market interactive multimedia knowledge solutions
primarily for sale to Fortune 2000 companies. The Company is a development
stage company and, as a result, has undergone significant changes since its
inception as the focus of the Company's activities has shifted from
organization to product design and development to sales and marketing.
Accordingly, the Company's revenue and expenses for the periods presented
below are not necessarily indicative of future results.
The Company has been unprofitable since its inception and expects to
incur operating losses at least through 1997. During the period from May 24,
1994 (inception) through September 30, 1996, the Company incurred cumulative
losses of $8,106,078. The Company expects that its operating expenses will
continue to increase as it continues to develop new products and increase its
sales and marketing efforts. To become profitable, the Company must
significantly increase revenues. Future operating results will depend upon
many factors, including the demand for the Company's products, the level of
product and price competition, the Company's success in maturing its direct
sales force and indirect distribution channels, general economic conditions
and the ability of the Company to develop and market new products and to
control costs.
RESULTS OF OPERATIONS
REVENUES. Revenues were $93,677 for the quarter ended September 30,
1996, compared to revenues of $10,928 for the quarter ended September 30,
1995. For the nine month period ended September 30, 1996, revenues were
$341,784, compared to revenues of $17,441 for the comparable period of 1995.
The revenue increase was due primarily to increasing sales of the Company's
initial product, the ISO 9000 REGISTRATION SERIES, which was released as a
complete series in August 1995. The Company also generated approximately 47%
of its third quarter 1996 revenues from its second product, the QS-9000
COMPLIANCE SERIES, a four title interactive multimedia product that was
released in August 1996. The revenue results through September 30, 1996 are
less than the Company's original expectations as a result of unexpected
challenges associated with developing a direct sales force and longer than
expected sales cycles in corporate multi-site enterprises.
COST OF REVENUES. Cost of revenues were $18,768 for the quarter ended
September 30, 1996, compared to $1,206 for the quarter ended September 30,
1995. For the nine month period ended September 30, 1996, cost of revenues
were $65,238, compared to cost of revenues of $2,288 for the comparable
period of 1995. The increase in cost of revenues was primarily due to
royalties paid on an increasing level of sales. Royalties were paid to the
American Society for Quality Control ("ASQC"), a sales channel for the
Company, and Process Management International, the Company's subject matter
expert for its ISO 9000 REGISTRATION SERIES. Cost of revenues also includes
the cost of media duplication and packaging materials.
OPERATING EXPENSES. The Company's operating expenses for the quarter
ended September 30, 1996 were $1,819,354, a 170% increase over operating
expenses of $673,349 for the quarter ended September 30, 1995. For the nine
months ended September 30, 1996, operating expenses were $4,544,461, a 139%
increase over operating expenses of $1,899,424 for the same period in 1995.
This increase in operating expenses between the periods noted for 1996 and
1995 was due primarily to the following:
(a) Sales and marketing expenses were $712,912 for the third quarter of 1996,
compared to $238,500 for the third quarter of 1995, a 199% increase. For
the nine months ended September 30, 1996, sales and marketing
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expenses were $1,859,101, compared to $545,113 for the same period in 1995,
a 241% increase. This increase between periods was due primarily to the
addition of new direct sales, telesales and marketing positions and the
expansion of direct marketing programs. The Company expects its sales and
marketing expenses to increase as a result of increasing travel
expenditures related to its direct sales force, and initiation of marketing
programs for newly released products, as well as products currently being
developed.
(b) Research and development expenses were $678,085 for the third quarter of
1996, compared to $175,502 for the third quarter of 1995, an 286% increase.
For the nine months ended September 30, 1996, research and development
expenses were $1,598,251, compared to $738,627 for the same period in 1995,
a 116% increase. This increase was attributed to the development of three
new products, the QS-9000 COMPLIANCE SERIES, a multi-title product dealing
with automotive quality standards, the ISO 14000 EMS CONFORMANCE SERIES, a
multi-title product dealing with environmental management standards and
POLLUTION PREVENTION, a one-title product dealing with the key concepts of
a pollution prevention program. The Company completed development of the
QS-9000 COMPLIANCE Series in August 1996. Management believes that the ISO
14000 CONFORMANCE SERIES and POLLUTION PREVENTION products will be released
during the fourth quarter of 1996. The Company expects its research and
development expenses to remain consistent with current levels, unless
additional projects, if any, are identified, which may require an increase
in staffing.
(c) General and administrative expenses were $428,357 for the third quarter of
1996, compared to $259,347 for the third quarter of 1995, a 65% increase.
For the nine months ended September 30, 1996, general and administrative
expenses were $1,087,109, compared to $615,684 for the same period in 1995,
a 77% increase. This increase was due primarily to increased travel,
office rent, depreciation expense, operating leases and professional fees.
The Company expects that its general and administrative expenses will
increase as it hires additional accounting staff and expands its office
space during the fourth quarter of 1996.
OTHER INCOME (EXPENSE). The Company's net other income was $104,551 for
the third quarter of 1996, compared to net other expense of $95,542 for the
third quarter of 1995. For the nine months ended September 30, 1996, net
other expense was $174,521, compared to net other expense of $102,110 for the
same period in 1995. This difference was primarily the result of interest
expense associated with the Company's Bridge Notes and amortization of
offering costs the Company incurred to obtain the Bridge Notes. The Company
also realized interest income of $104,551 and $221,811 in the third quarter
and first nine months of 1996 from the investment of Bridge Note and IPO
proceeds.
NET LOSS. Net loss was $1,639,894 for the third quarter of 1996,
compared to a net loss of $759,169 for the third quarter of 1995. For the
nine months ended September 30, 1996, net loss, after deducting extraordinary
losses of $219,470 from the early retirement of debt, was $4,661,906,
compared to a net loss of $1,986,381 for the same period in 1995. The
Company expects to continue to experience losses at least through 1997 as it
continues to incur substantial expenditures to develop its products and to
increase its sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments were
$6,935,672 as of September 30, 1996, compared to $118,916 as of December 31,
1995. The increase in cash, cash equivalents and short-term investments was
primarily attributed to the Company's IPO in April 1996. Also contributing
to the increase was lease financing of approximately $266,157 that was
obtained in a sale-leaseback of computer equipment in May 1996. The decrease
in cash and cash equivalents subsequent to the Company's IPO was due
primarily to the net loss from operations and repayment of Bridge Notes. See
Note 3 for further information on financing transactions.
Although the Company anticipates that it will experience operating
losses and negative cash flow from operations at least through 1997, and the
Company currently does not have bank financing available, the Company
believes that its current cash balances will be sufficient to meet its
working capital and capital
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expenditure needs through 1997. Thereafter, the Company may need to raise
additional funds to finance its operations. To the extent the Company's
revenues do not meet management's expectations, or the Company's growth
exceeds management's expectations, the Company may require additional
financing prior to the end of 1997. At such time, there can be no assurance
that debt or equity financing would be available on favorable terms or at all.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION
10.1 Copyright License Agreement between Reality Interactive,
Inc. and the American National Standards Institute dated
August 30, 1996, including Modifying Agreement
+ 10.2 ISO 14000 Marketing and Promotion Agreement between
Reality Interactive, Inc. and the American National
Standards Institute dated September 20, 1996
+ 10.3 ISO 14000 Marketing and Promotion Agreement between
Reality Interactive, Inc. and the Global Environment and
Technology Foundation dated September 6, 1996
+ 10.4 Distribution Agreement between Reality Interactive,
Inc. and Futuremedia PLC dated July 12, 1996
27.1 Financial Data Schedules
99.1 Cautionary Statement
+ Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, confidential
portions of this Exhibit have been deleted and filed seperately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
(b) REPORTS ON FORM 8-K
No Reports on Form 8-K were filed during the quarter ended
September 30, 1996
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REALITY INTERACTIVE, INC.
Dated: November 14, 1996 By /s/ Paul J. Wendorff
---------------------------------
Paul J. Wendorff
Its Chief Executive Officer
Dated: November 14, 1996 By /s/ Wesley W. Winnekins
---------------------------------
Wesley W. Winnekins
Its Chief Financial Officer
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EXHIBIT INDEX
Exhibit
No. Description Page No.
- ------- -------------------------------------------------------- --------
10.1 Copyright License Agreement between Reality Interactive,
Inc. and the American National Standards Institute dated
August 30, 1996, including Modifying Agreement.......... 13
+10.2 ISO 14000 Marketing and Promotion Agreement between
Reality Interactive, Inc. and the American National
Standards Institute dated September 20, 1996............ 25
+10.3 ISO 14000 Marketing and Promotion Agreement between
Reality Interactive, Inc. and the Global Environment and
Technology Foundation dated September 6, 1996........... 33
+10.4 Distribution Agreement between Reality Interactive, Inc.
and Futuremedia PLC dated July 12, 1996................. 41
27.1 Financial Data Schedules................................ 62
99.1 Cautionary Statement.................................... 63
+ Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, confidential
portions of this Exhibit have been deleted and filed seperately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
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EXHIBIT 10.1
COPYRIGHT LICENSE AGREEMENT
This COPYRIGHT LICENSE AGREEMENT (hereinafter referred to as the
"Agreement") is made and entered into as of this 30 day of August 1996, by
and between the American National Standards Institute Inc., a New York
corporation whose address for purposes of this agreement is 11 West 42nd
Street, New York, New York 10036 (hereinafter referred to as "Licensor"), and
Reality Interactive, Inc., whose address for purposes of this agreement is
Suite 300, 11200 West 78th Street, Eden Prairie, Minnesota 55344 (hereinafter
referred to as "Licensee").
WITNESSETH
WHEREAS, the International Organization for Standardization ("ISO") is
the proprietor of the copyright to certain international standards (the
"International Standards"); and
WHEREAS, the Licensor and the International Organization for
Standardization ("ISO") have the exclusive rights to reproduce, digitize,
package, sell and/or lease the ISO International Standards (hereinafter
referred to as the "ISO Standards") in the United States of America; and
WHEREAS, the Licensor, being the ISO member body for the United States
of America, is entitled to assign its rights to reproduce, digitize, package,
sell and/or lease the ISO Standards in the United States; and
WHEREAS, Licensee wishes to secure the non-exclusive rights to
reproduce, duplicate, digitize, package, distribute, sell and/or lease in the
United States of America only the Draft (DIS) and Approved ISO 14000 series
of Environmental Management Systems Standards identified in Appendix 1 hereto
(hereinafter referred to collectively as the "Licensed Standards") in
electronic digital format by including the Licensed Standards in Licensee's
digital multimedia product known as the ISO 14000 EMS Conformance Series
(hereinafter referred to as the "Product"); and
WHEREAS, Licensor is willing to convey such rights to Licensee upon the
terms and conditions hereinafter set forth.
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NOW, THEREFORE, in consideration of the premises and the mutual
covenants of the parties contained herein, it is hereby agreed as follows:
1. (a) The term of this Agreement shall initially be for three (3)
years commencing on August 30, 1996 and ending on August 29, 1999. Subject
to reaching agreement as to the royalty payments to be paid by Licensee to
Licensor, this Agreement shall be automatically renewed upon the other terms
and conditions set for herein unless, at least thirty (30) days before the
end of the existing term or any renewal term hereof, a party gives the other
party written notice of its election to terminate this Agreement at the end
of such period.
(b) Except as specified below, upon termination of this Agreement,
or any renewal period, Licensee shall immediately cease to reproduce,
duplicate, digitize, and package the Licensed Standards, and distribute, sell
and/or lease the Product. However, to the extent that, upon receipt of a
notice of termination of this Agreement, Licensee has previously entered into
subscription agreements that encompass the Product, then Licensee shall be
permitted to honor such agreements for a period of no longer than twelve (12)
months from the date of termination to this Agreement. During any such
period, Licensor shall remain obligated to deliver to Licensee a copy of any
revised Licensed Standard, and Licensee shall continue to make royalty
payments in accordance with Sections 4 and 5, and the terms of this agreement
shall remain in effect for the extended period.
2. (a) Subject to the terms and conditions set forth in this
agreement, Licensor hereby grants to Licensee the non-exclusive rights to
reproduce, duplicate, digitize, package, distribute, sell and/or lease the
licensed Standards in the United States of America only. Licensee shall only
exercise these rights by reproducing the Licensed Standards in electronic
digital format within the Product in a manner that Licensee, in its
discretion, determines to be appropriate.
(b) Subject to the terms and conditions set forth in the Agreement,
the Licensor grants to the Licensee only those rights specifically granted
pursuant to Paragraph 2(a) hereof. It is expressly understood that all
rights in the Licensed Standards not hereby granted to Licensee are reserved
to Licensor and ISO, including, but not limited to, all copyrights.
3. Licensor shall deliver to Licensee, free of charge, one (1) paper
hard copy of each draft (DIS) Licensed Standard, and one electronic PDF
format copy of each Licensed Standard when approved and published
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<PAGE>
by ISO and any renewal thereof, except that Licensor shall not be required to
deliver to Licensee copies of any Licensed Standard prior to the execution of
this Agreement. Licensee agrees to replace each draft (DIS) Standard within
the Product with the approved Licensed Standard within sixty days of receipt
of the each approved Licensed Standard, and shall cease distribution of the
copies of the Product which contain the draft (DIS) standard. Licensor shall
effect the delivery required hereunder by mailing a copy of each Standard,
via first class mail, to Licensee at the following address before or
immediately upon the general release of the standard to:
Reality Interactive, Inc.
Suite 300
11200 West 78th Street
Eden Prairie, Minnesota 55344
Attention: W. Winnekins, CFO
4. (a) In consideration for the rights herein granted, Licensee shall
pay to Licensor (in accordance with the payment schedule set forth in Section
5 hereof) an access fee of $410.00 per year for storing the Licensed
Standards in Licensee's electronic file, plus a royalty for each copy of the
Product distributed, sold and/or leased based on the following tiers:
Base Royalty: 205.00 per Product
- -------------
I: NUMBER OF PRODUCTS BASE ROYALTY FEE PER UNIT ROYALTY CALCULATION
DISTRIBUTED PER PRODUCT
up to 50 Base royalty fee $205.00
51 to 100 Base minus 10% $184.50
101 to 200 Base minus 20% $164.00
210 to 300 Base minus 25% $154.00
301 and over Base minus 30% $143.50
II: Networked User Schedule (based per scale)
-----------------------------------------
MULTIPLE END USERS/NUMBER OF AMOUNT ROYALTY CALCULATION
SIMULTANEOUS USERS PER PRODUCT
1 1.75 x base royalty fee $359.00
2 to 5 2.50 x base royalty fee $512.50
6 to 10 4.50 x base royalty fee $922.50
11 to 15 6.00 x base royalty fee $1,230.00
16 to 20 7.50 x base royalty fee $1,537.50
21 to 35 9.00 x base royalty fee $1,845.00
36 to 50 12.50 x base royalty fee $2,562.50
51 and over 75% x base royalty fee x TBD
number of simultaneous users
of networked users
15
<PAGE>
(b) It is expressly understood and agreed that the price to be
charged by Licensee for the Product shall be determined solely by Licensee.
(c) Any hard copies made shall be for the internal use of the
Licensee's customers only, and their number shall not exceed the number of
networked users as defined in Section 4(a) above. These copies may not be
sold, traded or given to third parties. Copies in addition to those allowed
may be purchased from the American National Standards Institute (ANSI), 11
West 42nd Street, New York, New York 10036 (telephone 212-642-4900), or be
authorized subject to execution of a Restricted Site License Copying
Agreement with ANSI. The Licensee shall ensure that this clause is included
in its Product along with the copyright citation in Section 10 herein.
(d) Licensee shall provide to Licensor one complete set of the
Product at no charge.
5. The initial annual access fees shall be paid by Licensee to Licensor
upon execution of this Agreement, prorated from the signing of the Agreement
to the end of that calendar year. Each additional annual access fee shall be
paid to Licensor on the 15th day of April of each calendar year.
Additionally, the royalty payments required to be made by Licensee pursuant
to section 4 hereof shall be made quarterly by the 15th day of each April,
July, October and January for the preceding calendar quarter in which such
royalty accrued. Each payment shall be accompanied by a statement, certified
to by an officer of Licensee, setting forth (a) the total royalty payable to
Licensor and how it was computed, and (b) the total number of copies of the
Product distributed, sold and/or leased by the Licensee during the quarter.
Further, Licensee agrees at its expense to its independent public accountants
certify (and make any necessary payment adjustments) to the Licensor, every
fiscal year-end of the Licensee from the date hereof, the revenues derived by
the Licensee from the rights granted hereunder and the accuracy of the
payments made to the Licensor by the Licensee. Licensee further certifies it
does undergo an annual audit of all Product sales activity by an independent
public accountant, and in
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<PAGE>
the event that the Licensor requires the certification more frequently, upon
request by Licensor, and with reasonable notice, the Licensee shall make
available to Licensor the books and records of Licensee necessary to verify
the data supplied.
6. In reproducing, duplicating, digitizing, packaging, distributing,
selling and/or leasing the Licensed Standards within the Product, Licensee
shall be an independent contractor and not an agent or partner of Licensor.
Licensee warrants that at no time will it hold itself out as an agent or
partner of Licensor or otherwise suggest that it is authorized to act on
behalf of Licensor.
7. (a) Except as provided in Section 1, this Agreement may be
terminated by the parties only as follows:
(i) By written agreement of Licensor and Licensee
(ii) Insolvency of or the petition by or on the behalf of Licensee
for bankruptcy or reorganization under bankruptcy laws or any assignment for
the benefit of creditors;
(iii) By the Licensor, in the event of a material breach of this
Agreement by the Licensee (other than a payment default), if such breach is
not cured within ten (10) days after written notice of such breach; and
(iv) By Licensor in the event of a failure of the Licensee to make
royalty payments or provide accounting statements in accordance with Sections
4 and 5 and any such failure is not cured within thirty (30) days after
written notice thereof.
(b) Section 1 (b) shall survive the termination of this Agreement
for the period specified therein
8. Licensee shall indemnify Licensor and ISO, and otherwise hold it
harmless against any claim, action or proceeding brought against Licensor and
ISO by any person or persons resulting from or due to any action or inaction
by Licensee in digitizing the data, and in reproducing, duplicating,
packaging, distributing, selling and/or leasing the Licensed Standards within
the Product. Licensor shall indemnify Licensee, and otherwise hold it
harmless against any claim, action or proceeding brought against Licensee by
any person or persons claiming copyright infringement based Licensee's proper
use of the Licensed Standards as authorized under this agreement. The
foregoing shall not apply with respect to any claim, action or proceeding
-17-
<PAGE>
arising from a claim of defamation or other such claim, directly relative to
the content of the Licensed Standards which has not been altered by Licensee
and the parties hereby preserve all rights and remedies that they may have in
connection with any such claim, action or proceeding.
These indemnities shall include, but not be limited to, all
reasonable attorney's fees, costs and expenses incurred by Licensor or
Licensee, as the case may be, in defending any such claim, action or
proceeding.
9. The rights granted to Licensee herein shall not be assigned or
assignable, in whole or in part, without the prior express written permission
of Licensor.
10. Licensee will use its best efforts to assure that recipients of the
Licensed Standards do not thereafter engage in the unauthorized duplication,
reproduction or copying of the standards. This undertaking will be deemed
discharged by Licensee's written communication of the following notice to its
purchasers/lessees/subscribers in an conspicuous location within the Product,
provided that Licensee will notify Licensor of, and will pursue any suspected
or known violations of this section:
For ISO draft (DIS) 14000 standards:
- ------------------------------------
ISO DIS (insert designation)
(insert title)
"THIS DRAFT INTERNATIONAL STANDARD WAS DEVELOPED BY A TECHNICAL COMMITTEE OF
THE INTERNATIONAL ORGANIZATION FOR STANDARDIZATION (ISO). THE AMERICAN
NATIONAL STANDARDS INSTITUTE (ANSI), THE U.S. MEMBER OF ISO, PARTICIPATES IN
ISO'S TECHNICAL PROGRAM AND ADMINISTERS SECRETARIATS OF VARIOUS TECHNICAL
COMMITTEES AND SUBGROUPS. ANSI IS ALSO ISO'S EXCLUSIVE SALES AGENT IN THE
UNITED STATES FOR ALL ISO STANDARDS, DRAFT INTERNATIONAL STANDARDS, AND
COMMITTEE DRAFTS. THIS DRAFT INTERNATIONAL STANDARD IS BEING DISTRIBUTED BY
REALITY INTERACTIVE, INC. THROUGH AN ARRANGEMENT WITH ANSI.
"THIS MATERIAL IS REPRINTED FROM ISO DIS (INSERT DESIGNATION) WITH PERMISSION
OF THE AMERICAN NATIONAL STANDARDS INSTITUTE (ANSI) UNDER ANSI'S EXCLUSIVE
LICENSING AGREEMENT WITH THE INTERNATIONAL ORGANIZATION FOR STANDARDIZATION.
THIS DOCUMENT IS NOT AN APPROVED ISO INTERNATIONAL STANDARD. IT IS
DISTRIBUTED FOR REVIEW AND COMMENT AND MAY BE MODIFIED DURING THIS PROCESS.
IT IS SUBJECT TO CHANGE WITHOUT NOTICE AND MAY NOT BE REFERRED TO AS AN
INTERNATIONAL OR ISO STANDARD UNLESS AND UNTIL PUBLISHED AS SUCH.
COPYRIGHT BY THE INTERNATIONAL ORGANIZATION FOR STANDARDIZATION. NOT FOR
RESALE. NO PART OF THIS PUBLICATION MAY BE COPIED OR REPRODUCED IN ANY FORM,
ELECTRONIC RETRIEVAL SYSTEM OR OTHERWISE, OR BE MADE AVAILABLE ON THE
INTERNET, A PUBLIC NETWORK, BY SATELLITE OR OTHERWISE WITHOUT THE PRIOR
WRITTEN PERMISSION OF THE AMERICAN NATIONAL STANDARDS INSTITUTE, 11 WEST 42ND
STREET, NEW YORK, NY 10036, WHICH HOLDS REPRODUCTION RIGHTS IN THE UNITED
STATES.
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<PAGE>
For Approved ISO 14000 Standards:
- ---------------------------------
"THIS MATERIAL IS REPRINTED FROM ISO (INSERT DESIGNATION) WITH PERMISSION
OF THE AMERICAN NATIONAL STANDARDS INSTITUTE (ANSI) UNDER AN EXCLUSIVE
LICENSING AGREEMENT WITH THE INTERNATIONAL ORGANIZATION FOR
STANDARDIZATION. NOT FOR RESALE. NO PART OF ISO (INSERT DESIGNATION) MAY
BE COPIED OR REPRODUCED IN ANY FORM, ELECTRONIC REVIVAL SYSTEM OR
OTHERWISE, OR BE MADE AVAILABLE ON THE INTERNET, A PUBLIC NETWORK, BY
SATELLITE OR OTHERWISE WITHOUT THE PRIOR WRITTEN CONSENT OF THE AMERICAN
NATIONAL STANDARDS INSTITUTE, 11 WEST 42ND STREET, NEW YORK, NY 10036."
Additionally, the following must be included on the bottom of every page
of each Licensed Standard:
"-C- International Organization for Standardization. All rights reserved."
11. Licensor and Licensee agree that for the purpose of this Agreement,
Electronic Digital Format means the delivery of the Product via CD ROM, or
via a special video server network to PC workstations, or via a corporate
Intranet (Local Area Network (LAN)).
Licensor and Licensee further agree that for purposes of this
Agreement, "a corporate Intranet" means installation of a copy of the Product
by the Licensee's customer(s) on the customer's internal LAN system for use
only by the specified number of simultaneous users within the customer's
company, and only within the United States of America. No Internet, public
network, satellite or any other electronic delivery methods or use will be
permissible.
12. Licensor and Licensee covenant and agree that this written Agreement
constitutes the complete agreement between the parties, supersedes all prior
agreements with respect to the subjects hereof, and may not be amended or
modified, except by a writing signed by all parties hereto or by their duly
authorized representatives.
13. This Agreement shall be governed by and construed according to the
laws of the state of New York (exclusive of all conflicts of law rules and
principles).
14. Any and all notices required to be given hereunder shall be in
writing, shall be sent by registered or certified mail, return receipt
requested, addressed to the parties at their respective addresses specified
below and are effective when mailed. Alternatively, either a facsimile
transmittal, overnight messenger or courier or an "express mail" transmittal,
with a confirmation shall be acceptable. Either party may by like notice
specify a different address.
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<PAGE>
If to ANSI:
-----------
American National Standards Institute
11 West 42nd Street
New York, New York 10036
Attention: Vice President of Finance and Administration
If to Reality Interactive:
--------------------------
Reality Interactive, Inc.
Suite 300
11200 West 78th Street
Eden Prairie, Minnesota 55344
Attention: W. Winnekins, CFO
15. Except as provided in the last two sentences of this paragraph, if a
dispute for money damages shall arise under this Agreement, the parties
hereby confer exclusive jurisdiction to hear and resolve any such dispute for
money damages to the American Arbitration Association ("AAA") in the City and
State of New York, or the AAA in the City of Minneapolis, State of Minnesota,
at the option of the petitioner. The parties expressly waive the right to
litigate any such dispute for money damages in any other location or forum.
Either party shall have the right to seek provisional remedies in any court
having jurisdiction. In addition, Licensor and Licensee shall each have the
right to assert a cross-claim or third party claim against the other if a
lawsuit is commenced against Licensor and/or Licensee by a third party,
notwithstanding the exclusive arbitration provision.
16. Severability: The terms and conditions of this Agreement are
severable. If any condition of this Agreement is deemed to be illegal or
unenforceable under any rule of law, all other terms shall remain in force.
Further, the term and condition which is held to be illegal or unenforceable
shall remain in effect as far as possible and in accordance with the
intention of the parties.
17. Force Majuere: Neither party shall be responsible for any delay or
failure in performance resulting from acts beyond its control.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
AMERICAN NATIONAL STANDARDS
INSTITUTE, INC., LICENSOR
By: /s/ S. Mazza
---------------------------------
S. Mazza, President CEO
REALITY INTERACTIVE,
INC., LICENSEE
By: /s/ W.W. Winnekins
---------------------------------
W. W. Winnekins, CFO
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<PAGE>
APPENDIX 1
- ----------
ISO DRAFT (DIS) 14000 STANDARDS
- -------------------------------
ISO DIS 14001
ISO DIS 14004
ISO DIS 14010
ISO DIS 14011
ISO DIS 14012
APPROVED ISO 14000 STANDARDS
- ----------------------------
ISO 14001:1996
ISO 14004:1996
ISO 14010:1996
ISO 14011:1996
ISO 14012:1996
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<PAGE>
MODIFICATION TO ISO 14000 AGREEMENT
Agreement made and entered into as of this 30th day of September 1996,
by and between the American National Standards Institute Inc., a New York
corporation whose address is 11 West 42nd Street, New York, New York 10036
(hereinafter referred to as "Licensor"), and Reality Interactive, Inc., whose
address is Suite 300, 11200 West 78th Street, Eden Prairie, Minnesota 55344
(hereinafter referred to as "Licensee")
WITNESSETH:
Whereas, the parties entered into a Copyright License Agreement dated the
30th day of August 1996, hereinafter referred to as the "August 1996
Agreement"; and
Whereas, the parties herein intend to modify certain provisions of the
August 1996 Agreement; and
Whereas, the parties herein intend that the terms of the August 1996
Agreement remain in full force and effect except as modified herein.
NOW THEREFORE, the parties agree and consent to the following
modification:
1. Delete the second paragraph in Section 11 in its entirety and replace with:
"Licensor and Licensee furhter agree that for purposes of this Agreement, "a
corporate Intranet" means installation of a copy of the Product by the
Licensee's customer(s) on the customer's internal LAN system for use only by
the specified number of simultaneous users within the customer's company. No
Internet, public network, satellite or any other electronic delivery methods
or use will be permissible.
All other terms and conditions of the August 1996 Agreement remain unchanged.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Modification as of the
date first above written.
AMERICAN NATIONAL STANDARDS INSTITUTE
INC. (ANSI)
By /s/ S. Mazza
-----------------------------------------------
S. Mazza, President and Chief Executive Officer
REALITY INTERACTIVE, INC.
By /s/ W.W. Winnekins
-----------------------------------------------
W.W. Winnekins, CFO
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<PAGE>
EXHIBIT 10.2
ISO 14000 MARKETING AND PROMOTION AGREEMENT
THIS AGREEMENT is being entered into as of this 20th day of September,
1996, between REALITY INTERACTIVE, INC., a Minnesota corporation with its
principal office at Suite 300, 11200 West 78th Street, Eden Prairie,
Minnesota 55344 ("RII") and AMERICAN NATIONAL STANDARDS INSTITUTE, a New York
corporation, with its principal place of business at 11 WEST 42ND STREET, NEW
YORK, NY 10036 ("ANSI").
RECITALS
WHEREAS, RII is the producer and publisher of a certain environmental
standards product published in electronic digital format and known as the ISO
14000 EMS Conformance Series (the "Series");
WHEREAS, the Series will be comprised of five separate titles
(individually, the "Title") as follows:
UNDERSTANDING ISO 14000
GETTING STARTED WITH ISO 14000
BUILDING AND IMPLEMENTING AN EMS FOR ISO 14000
INTERNAL AUDITING AND MANAGEMENT REVIEW FOR ISO 14000
PROJECT PLANNING FOR ISO 14000
The Titles and Series are collectively referred to herein as the "Product";
WHEREAS, ANSI desires to market and promote environmental training and
education materials including interactive multimedia products;
WHEREAS, RII is willing to grant ANSI the right to market and promote the
Product and to allow ANSI to earn a Promotion Royalty in accordance with the
terms and conditions as set forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the recitals and the mutual
agreements and acknowledgments made herein, the parties agree as follows:
1. APPOINTMENT. RII grants to ANSI the nonexclusive right, under
the terms of this Agreement, to market and promote the Product in the United
States (the "Territory") employing such marketing and promotion programs as
identified in EXHIBIT A, or employing other programs as deemed appropriate by
the parties.
2. USE OF TRADEMARKS AND ADVERTISING. ANSI and RII agree to allow
each other to advertise and use the trade names, trademarks, images,
likenesses or other information of each other ("Approved Materials") for
product packaging, normal advertising and promotion in the Territory. In
connection with the use of ANSI's Approved Materials, RII will only use such
Approved Materials when preceded with the wording "In association with".
ANSI and RII will have the right to review and approve each others initial
use of its Approved Materials, and any future changes thereof, prior to
marketing and selling the Product. Upon reasonable notice, each party may
withdraw or modify such authorization. The respective use of these
trademarks are identified as EXHIBIT B AND C.
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<PAGE>
3. PROMOTION ROYALTY. ANSI shall be entitled to a Promotion
Royalty of (***)% on each unit of the Product sold by RII up to $(***).
Thereafter, ANSI shall be entitled to a Promotion Royalty of (***)% on each
unit of the Product sold by RII. The amount of the Promotion Royalty shall
be calculated based on Net Receipts. As used herein, "Net Receipts" means
the gross revenues that RII receives from sales of the Product by any means
or distribution channels, less sales discounts, returns, postage, freight or
other actual shipping charges.
4. PAYMENT. The Promotion Royalty payment required to be made by
RII pursuant to section 3 herein shall be made quarterly by the 30th day of
each April, July, October and January for the preceding calendar quarter in
which such Promotion Royalty accrued. All payments will be made in U.S.
dollars and shall be accompanied by a statement, certified to by an officer
of RII, setting forth (a) the total Promotion Royalty payable to ANSI and how
it was computed, and (b) the total Net Receipts and number of copies of the
Product distributed, sold and/or leased by RII during the quarter. Further,
RII agrees at its expense to have its independent public accountants certify
(and make any necessary adjustments) to ANSI, every fiscal year-end of RII
from the date hereof, the Net Receipts derived by RII and the accuracy of the
payments made to ANSI. In the event that ANSI requires the certification
more frequently, upon request by ANSI, and with reasonable notice, RII shall
make available to ANSI the books and records of RII necessary to verify the
data supplied.
5. TERM AND TERMINATION. The term of this Agreement is three years
from the date of its execution. The term may be extended by mutual consent
of the parties. This Agreement may not be terminated by either party during
its term except for good cause. Good cause shall mean a material breach of
this Agreement. Neither party may terminate for cause unless it notifies the
other party of any alleged material breach in writing and the breach has not
been cured within 30 calendar days from the mailing date of such notice.
This Agreement will terminate automatically in the event either party ceases
to do business, in the event of either party's bankruptcy, insolvency, or
assignment for the benefit of creditors.
Upon termination of this Agreement, ANSI shall return any Product, as well as
copies of promotional materials, marketing literature, written information
and reports pertaining to the Product that have been supplied by RII. At the
same time, RII shall cease using any references to or selling any products
with the ANSI Approved Materials, including packaging and any collateral
marketing materials. Within ten (10) business days of notice of termination,
RII shall gather and destroy, from its own stock as well as from all of its
distribution channels, all copies of the product, its packaging, and all
collateral marketing materials which may contain any information referring or
related to ANSI.
6. PRICE OF PRODUCT. RII retains the right to establish the
retail price of any Title and of the Series (the "Retail Price") and to
adjust the Retail Price from time to time.
7. QUALITY AND WARRANTIES. RII warrants that the digital media on
which the Product is distributed is free from defects in materials and
workmanship. EXCEPT AS SPECIFICALLY PROVIDED IN THE PRECEDING SENTENCE, RII
MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, WITH RESPECT
TO THE PRODUCT, INCLUDING ITS CONTENT, QUALITY, PERFORMANCE, MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. This section shall not limit RII's
liability with respect to intellectual property rights and indemnification.
RII shall extend its standard warranty to purchasers of the Product, a copy
of which is attached as EXHIBIT D, in the form in which it appears on the
Product Registration Card packaged with the Product. ANSI shall not
represent that RII makes any warranty other than this standard warranty.
*** Denotes confidential information that has been omitted from the exhibit and
filed seperately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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<PAGE>
8. OWNERSHIP AND PROPRIETARY RIGHTS. RII represents and warrants
that (i) it has all rights in and to copyrights, trade secrets and trademarks
associated with the Product under this Agreement, (ii) the use of the
literary and artistic materials and ideas contained or embodied in the
Product, containers and advertising materials, if any, furnished to ANSI by
RII in accordance with the terms of this Agreement, will not violate any law,
or infringe upon, or violate any rights of any person, firm or corporation,
and (iii) RII has no knowledge of any litigation, proceeding or claim pending
or threatened against RII which may materially affect RII's rights in and to
the Product, or the works and performances embodied thereon, the copyrights
pertaining thereto, or the rights, licenses and privileges granted to ANSI
hereunder.
9. INDEMNIFICATION. Each party shall defend, indemnify and hold
the other party and its officers, agents and employees harmless against any
liability, claim, damage, suit or expense (including reasonable attorney's
fees) caused by the first party's acts or omissions, including without
limitation, claims based on: (i) the first party's infringement of a patent,
copyright, trademark or any other intellectual property right; (ii) bodily
injury, death or damage to property caused by the first party; (iii) the
first party's conflicts of interests, fraud or criminal conduct; (iv) the
first party's non-compliance with applicable laws or regulations; (v) the
first party's failure to compensate or comply with any applicable labor
standards with respect to the first party's employees, agents or independent
contractors; and (vi) the first party's breach of this Agreement, or any
representation or warranty contained in this Agreement.
10. RELATIONSHIP OF PARTIES. During the term of this Agreement,
the relationship between RII and ANSI is that of independent contractors.
Under no circumstances shall any of the employees of one party be deemed the
employees, agents or partners of the other for any purpose.
11. CONFIDENTIALITY. Any proprietary business information or data,
written, oral or otherwise, disclosed by one party to the other
("Confidential Information") shall remain the property of the disclosing
party. The parties agree to hold all such Confidential Information in strict
confidence and not to disclose same to any third party without the disclosing
party's prior written consent. Upon expiration or termination of this
Agreement, each party shall return to the other all such Confidential
Information in its possession. RII shall permit ANSI to share such
Confidential Information with GETF only during the term of their mutual
partnership, as well as during the term of ANSI's and GETF's relationship
with RII in connection with the marketing and promotion of the Product.
12. NOTICE. All notices shall be in writing and will be delivered
personally, by confirmed facsimile transmission, by certified mail, or
overnight courier, to the addresses specified below:
If to ANSI: ANSI If to RII: Reality Interactive, Inc.
11 West 42nd Street Suite 300
New York, NY 10036 11200 West 78th Street
Attn: VP of Finance and Admin Eden Prairie, MN 55344
Telephone: (212) 642-4900 Attn: Wes Winnekins, CFO
Fax: (212) 398-0023 Telephone: (612) 996-6777
Fax: (612) 996-6799
Notice will be effective only upon receipt.
13. MISCELLANEOUS.
(a) ASSIGNMENT, AMENDMENT AND SEVERABILITY. Neither this
Agreement nor any rights hereunder or interest herein may be assigned by
either party without the prior written consent of the other. This Agreement
and the Exhibits hereto constitute the entire agreement between RII and ANSI.
In the event any provision of this Agreement is found to be void or
unenforceable, all remaining provisions of this Agreement will remain in full
force and effect.
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<PAGE>
(b) GOVERNING LAW. This Agreement and the relationship between
the parties hereto will be governed by and construed in accordance with the
laws of the State of Minnesota.
(c) MODIFICATION. No modification, amendment, supplement to or
waiver of any provision of this Agreement shall be binding upon the parties
hereto unless made in writing and duly signed by all parties.
(d) ARBITRATION. All disputes arising out of or relating to
this Agreement shall be submitted to arbitration by the American Arbitration
Association ("AAA") in the City of Minneapolis, Minnesota, or the AAA in the
City and State of New York, at the option of the petitioner. In no event
shall the arbitrator have the power to include any element of punitive,
incidental or consequential damages in the arbitration award. Judgment on
the arbitration award in accordance with this Agreement may be entered in any
state or federal court of competent jurisdiction.
IN WITNESS WHEREOF, the parties have caused the Agreement to be executed as
of the date written above.
REALITY INTERACTIVE, INC. AMERICAN NATIONAL STANDARDS
INSTITUTE
BY /s/ Wesley W. Winnekins BY /s/ Sergio Mazza
----------------------------- -----------------------------
ITS Chief Financial Officer ITS President and Chief Executive Officer
--------------------------- --------------------------------------
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<PAGE>
EXHIBIT A
ANSI/RII PARTNERING OPPORTUNITIES
PRODUCT OPPORTUNITIES
- ---------------------
Web links between our respective Internet locations
MARKETING OPPORTUNITIES
- -----------------------
ANSI featured in Reality PR efforts with Schwartz Communications
-29-
<PAGE>
EXHIBIT B
ANSI TRADEMARKS
In Association with [LOGO] ANSI
-30-
<PAGE>
EXHIBIT C
RII TRADEMARKS
(APPROVED MATERIALS)
[LOGO] REALITY INTERACTIVE (TM)
REAL TOOLS FOR ACCELERATED LEARNING (TM)
[LOGO] REALITY INTERACTIVE (TM)
REAL TOOLS FOR ACCELERATED LEARNING (TM)
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<PAGE>
EXHIBIT D
STANDARD WARRANTY
Licensor warrants that the optical media on which the Product is
distributed is free from defects in materials and workmanship. Licensor will
replace defective media at no charge, provided you return the defective item
with dated proof of payment to Licensor within ninety (90) days of the date
of delivery. This is your sole and exclusive remedy for any breach of
warranty. EXCEPT AS SPECIFICALLY PROVIDED ABOVE, LICENSOR MAKES NO WARRANTY
OR REPRESENTATION, EITHER EXPRESSED OR IMPLIED, WITH RESPECT TO THE PRODUCT,
INCLUDING ITS CONTENT, QUALITY, PERFORMANCE, MERCHANTABILITY, OR FITNESS FOR
A PARTICULAR PURPOSE. IN NO EVENT WILL LICENSOR BE LIABLE FOR DIRECT,
INDIRECT, SPECIAL; INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE
OR INABILITY TO USE THE PRODUCT OR DOCUMENTATION. EVEN IF ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. IN NO CASE SHALL LICENSOR'S LIABILITY EXCEED
THE AMOUNT OF THE LICENSE FEE PAID. THE WARRANTY AND REMEDIES SET FORTH
ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHERS, ORAL OR WRITTEN, EXPRESS OR
IMPLIED. Some states do not allow the exclusion or limitation of implied
warranties or limitation of liability for incidental or consequential
damages, so that the above limitation or exclusion may not apply to you.
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<PAGE>
EXHIBIT 10.3
ISO 14000 MARKETING AND PROMOTION AGREEMENT
THIS AGREEMENT is being entered into as of this 6th day of September, 1996,
between REALITY INTERACTIVE, INC., a Minnesota corporation with its principal
office at Suite 300, 11200 West 78th Street, Eden Prairie, Minnesota 55344
("RII") and GLOBAL ENVIRONMENT AND TECHNOLOGY FOUNDATION, a non-profit Virginia
corporation, with its principal place of business at 7010 Little River Turnpike,
Suite 300, Annandale, Virginia 22003 ("GETF").
RECITALS
WHEREAS, RII is the producer and publisher of a certain environmental
standards product published in electronic digital format and known as the ISO
14000 EMS Conformance Series (the "Series");
WHEREAS, the Series will be comprised of five separate titles
(individually, the "Title") as follows:
UNDERSTANDING ISO 14000
GETTING STARTED WITH ISO 14000
BUILDING AND IMPLEMENTING AN EMS FOR ISO 14000
INTERNAL AUDITING AND MANAGEMENT REVIEW FOR ISO 14000
PROJECT PLANNING FOR ISO 14000
The Titles and Series are collectively referred to herein as the "Product";
WHEREAS, GETF desires to market and promote ISO 14000 information including
environmental training and education materials such as interactive multimedia
products;
WHEREAS, GETF and the American National Standards Institute (ANSI) have
formed "ISO 14000 Integrated Solutions" (IIS), which includes an on-line website
that provides education, training and information to American industry and
government about the changing dynamics of international environmental management
standards;
WHEREAS, RII is willing to grant GETF the right to market and promote the
Product and to allow GETF to earn a Promotion Royalty in accordance with the
terms and conditions as set forth herein;
WHEREAS, GETF has determined that the RII Product meets GETF's criteria for
products that GETF is willing to be associated with and this assiciation is
granted to RII on the basis of the terms and conditions set forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the recitals and the mutual
agreements and acknowledgments made herein, the parties agree as follows:
1. APPOINTMENT. RII grants to GETF the nonexclusive right, under
the terms of this Agreement, to market and promote the Product on a worldwide
basis (the "Territory") employing such marketing and promotion programs as
identified in EXHIBIT A, or employing other programs as deemed appropriate by
the parties.
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2. PROMOTION ROYALTY. GETF shall be entitled to a Promotion Royalty
of (***)% on each unit of the product sold by RII up to Net Receipts of $(***).
Thereafter, GETF shall be entitled to a Promotion Royalty of (***)% on each unit
of the product sold by RII in excess of $(***) of Net Receipts. In addition to
the above terms, GETF shall be entitled to a Promotion Royalty of (***)% on Net
Receipts realized as a direct result of its sales efforts in which Joe Cascio or
another GETF employee actively participates in a sale closed by RII. As used
herein, "Net Receipts" means the net revenues that RII receives from sale of the
Product by any means or distribution channels, exclusive of demonstration or
promotional copies, sales discounts, returns, postage, freight or other actual
shipping charges.
(***)
3. PAYMENT. On or before the 30th day after the end of each month
during the term of this Agreement, RII shall submit to GETF a report of the Net
Receipts for the Product during the previous month along with a payment of the
Promotion Royalty for such Net Receipts if such Production Royalty is in excess
of the amounts paid in connection with clause 2 of this Agreement. All payments
will be made in U.S. dollars.
4. TERM AND TERMINATION. The term of this Agreement is three years
from the date of its execution. The term may be extended by mutual consent of
the parties. This Agreement may not be terminated by either party during its
term except for good cause. Good cause shall mean a material breach of this
Agreement. Neither party may terminate for cause unless it notifies the other
party of any alleged material breach in writing and the breach has not been
cured within 30 calendar days from the mailing date of such notice. This
Agreement will terminate automatically in the event either party ceases to do
business, in the event of either party's bankruptcy, insolvency, or assignment
for the benefit of creditors.
Upon termination of this Agreement, GETF shall return any Product, as well as
copies of promotional materials, marketing literature, written information and
reports pertaining to the Product that have been supplied by RII. At the same
time, RII shall cease using any references to or selling any products with the
GETF/IIS logos, including packaging and any collateral marketing materials.
Within ten (10) business days of notice of termination, RII shall gather and
destroy, from its own stock as well as from all of its distribution channels,
all copies of the product, its packaging, and all collateral marketing materials
which may contain any information referring or related to GETF and/or IIS.
5. PRICE OF PRODUCT. RII retains the right to establish the retail
price of any Title and of the Series (the "Retail Price") and to adjust the
Retail Price from time to time.
6. MARKETING POLICIES; PRODUCT SUPPORT. GETF agrees to use its
reasonable best efforts to market and promote the Products as defined in EXHIBIT
A. GETF will promptly respond to any inquiries that it receives on the Product.
RII agrees to maintain a responsive customer support function. RII also agrees
to provide GETF with a starter package of all materials necessary to market the
Product including Demo CD's, advertising flyers etc. GETF agrees to purchase
additional marketing materials, if necessary, at a price equal to RII's cost to
produce such materials.
*** Denotes confidential information that has been omitted from the exhibit and
filed seperately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
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7. QUALITY AND WARRANTIES. RII warrants that the digital media on
which the Product is distributed is free from defects in materials and
workmanship. EXCEPT AS SPECIFICALLY PROVIDED IN THE PRECEDING SENTENCE, RII
MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO
THE PRODUCT, INCLUDING ITS CONTENT, QUALITY, PERFORMANCE, MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. This section shall not limit RII's liability
with respect to intellectual property rights and indemnification. RII shall
extend its standard warranty to purchasers of the Product, a copy of which is
attached as EXHIBIT E, in the form in which it appears on the Product
Registration Card packaged with the Product. GETF shall not represent that RII
makes any warranty other than this standard warranty.
8. USE OF TRADEMARKS AND ADVERTISING. With their prior review and
written approval, GETF and RII agree to allow each other to advertise and use
the trade names, trademarks, images, likenesses or other information of each
other ("Approved Materials") for product packaging, normal advertising and
promotion. Upon reasonable notice, each party may withdraw or modify such
authorization. The respective use of these trademarks are identified as EXHIBIT
C AND D.
9. OWNERSHIP AND PROPRIETARY RIGHTS. RII represents and warrants
that (i) it has all rights in and to copyrights, trade secrets and trademarks
associated with the Product under this Agreement, (ii) the use of the literary
and artistic materials and ideas contained or embodied in the Product,
containers and advertising materials, if any, furnished to GETF by RII in
accordance with the terms of this Agreement, will not violate any law, or
infringe upon, or violate any rights of any person, firm or corporation, and
(iii) RII has no knowledge of any litigation, proceeding or claim pending or
threatened against RII which may materially affect RII's rights in and to the
Product, or the works and performances embodied thereon, the copyrights
pertaining thereto, or the rights, licenses and privileges granted to GETF
hereunder.
10. INDEMNIFICATION. Each party (in the case of GETF, "Party"
refers to IIS as well as to GETF) shall defend, indemnify and hold the other
Party and its officers, agents and employees harmless against any liability,
claim, damage, suit or expense (including reasonable attorney's fees) caused by
the first Party's acts or omissions, including without limitation, claims based
on: (I) the first Party's infringement of a patent, copyright, trademark or any
other intellectual property right; (ii) bodily injury, death or damage to
property caused by the first Party; (iii) the first Party's conflicts of
interests, fraud or criminal conduct; (iv) the first Party's non-compliance with
applicable laws or regulations; (v) the first Party's failure to compensate or
comply with any applicable labor standards with respect to the first Party's
employees, agents or independent contractors; and (vi) the first Party's breach
of this Agreement, or any representation or warranty contained in this
Agreement.
11. RELATIONSHIP OF PARTIES. During the term of this Agreement, the
relationship between RII and GETF is that of independent contractors. Under no
circumstances shall any of the employees of one party be deemed the employees of
the other for any purpose.
12. CONFIDENTIALITY AND NONDISCLOSURE. Any specifications,
samples, computer programs, technical information, lists of customers or
potential customers, business plans or other proprietary business information or
data disclosed by one party to the other during the term of this Agreement,
whether written, oral or otherwise, ("Confidential Information") shall remain
the property of the disclosing party. The parties agree to hold all such
Confidential Information in strict confidence and not to disclose same to any
third party, with the exception of IIS issues being discussed with ANSI, without
the disclosing party's prior written consent. Upon expiration or termination of
this Agreement, each party shall return to the other all such Confidential
Information in its possession.
13. NOTICE. All notices shall be in writing and will be delivered
personally, by confirmed facsimile transmission, by certified mail, or
overnight courier, to the addresses specified on the following page:
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If to GETF: GETF If to RII: Reality Interactive, Inc.
7010 Little River Turnpike, 11200 West 78th Street,
Suite 300 Suite 300
Annandale, VA 22003-9998 Eden Prairie, MN 55344
Attn: Kenneth Whitt Attn: Wes Winnekins, CFO
Telephone: (703) 750-6401 Telephone: (612) 996-6777
Fax: (703) 750-6506 Fax: (612) 996-6799
Notice will be effective only upon receipt.
14. MISCELLANEOUS.
(a) ASSIGNMENT, AMENDMENT AND SEVERABILITY. Neither this Agreement
nor any rights hereunder or interest herein may be assigned by either party
without the prior consent of the other, except to a parent, subsidiary or
affiliate of the assigning party. This Agreement and the Exhibits hereto
constitute the entire agreement between RII and GETF. In the event any
provision of this Agreement is found to be void or unenforceable, all
remaining provisions of this Agreement will remain in full force and effect.
(b) GOVERNING LAW. This Agreement and the relationship between the
parties hereto will be governed by and construed in accordance with the laws
of the State of Minnesota.
(c). MODIFICATION. No modification, amendment, supplement to or
waiver of any provision of this Agreement shall be binding upon the parties
hereto unless made in writing and duly signed by all parties.
(d) ARBITRATION. All disputes arising out of this Agreement and
relating to any relationships created hereby will be subject to binding
arbitration. The party seeking arbitration must serve the other party by
certified mail with a written demand for arbitration setting forth the
question for arbitration. Arbitration will be held before a single
arbitrator in the State of Virginia, if arbitration is sought by RII or in
the State of Minnesota if arbitration is sought by GETF. Arbitration will be
pursuant to the rules of the American Arbitration Association, except as
modified by this Agreement. In no event may the arbitrator award punitive
damages. The prevailing party will be entitled to reimbursement from the
other party for all expenses, costs and attorneys' fees incurred in the
arbitration. The parties consent to the jurisdiction of the state and
federal courts in Virginia and the state and federal courts in Minnesota, as
the case may be, for any action to enforce the award of the arbitrator.
IN WITNESS WHEREOF, the parties have caused the Agreement to be executed as of
the date written above.
REALITY INTERACTIVE, INC. GLOBAL ENVIRONMENTAL
TECHNOLOGY FOUNDATION
BY /s/ Wesley W. Winnekins BY /s/ Kenneth W. Whitt
-------------------------------- --------------------------------
ITS Chief Financial Officer ITS Chief Financial Officer
-------------------------------- --------------------------------
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EXHIBIT A
GETF MARKETING, PROMOTION AND ENDORSEMENT COMMITMENTS
1. GETF/IIS will include RII materials in all of its information packages and
will present and demonstrate the Product to appropriate audiences.
2. GETF/IIS will endorse the Product and agree to put both logos on the CD-ROM
and Product packaging.
3. GETF/IIS agree to include video segments of Joe Cascio into the Product and
demo CD.
4. GETF/IIS agree to allow Joe Cascio quotations in RII developed marketing and
advertising materials.
5. GETF/IIS agree to work with RII's public relations firm regarding the
marketing, promotion and endorsement of the Product.
6. GETF/IIS agree to provide prominent links to RII, IIS and GNET websites.
7. RII will be kept informed of Joe Cascio's (and other GETF employees) travel
schedules and, when possible, RII may schedule a sales call or seminar for
Joe Cascio or other GETF employees to participate in. GETF agrees to allow
Joe Cascio to participate in a minimum of 7 such sales calls during the
course of each year.
8. RII will have access to GETF's database for direct mail and other marketing
programs.
9. RII materials will be featured at all GETF conferences and seminars.
10. GETF agrees to make Joe Cascio available for 3 international sales calls.
RII will make every effort to schedule these calls in conjunction with
GETF's ongoing activities.
RII agrees to pay all of GETF travel costs and related expenses providing
that such travel was not previously scheduled for other GETF activities and
is specifically requested by RII.
During the term of this Agreement, GETF and RII may modify the aforementioned
activities at the agreement of both parties.
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EXHIBIT B (NOT USED)
EXHIBIT C
GETF TRADEMARKS
[LOGO] Global Environment & Technology Foundation
[LOGO]
ANSI/GETF ISO 14000 Integrated Solutions (IIS) (TM)
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EXHIBIT D
RII TRADEMARKS
[LOGO] REALITY INTERACTIVE (TM)
REAL TOOLS FOR ACCELERATED LEARNING (TM)
[LOGO] REALITY INTERACTIVE (TM)
REAL TOOLS FOR ACCELERATED LEARNING (TM)
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EXHIBIT E
STANDARD WARRANTY
Licensor warrants that the optical media on which the Product is
distributed is free from defects in materials and workmanship. Licensor will
replace defective media at no charge, provided you return the defective item
with dated proof of payment to Licensor within ninety (90) days of the date
of delivery. This is your sole and exclusive remedy for any breach of
warranty. EXCEPT AS SPECIFICALLY PROVIDED ABOVE, LICENSOR MAKES NO WARRANTY
OR REPRESENTATION, EITHER EXPRESSED OR IMPLIED, WITH RESPECT TO THE PRODUCT,
INCLUDING ITS CONTENT, QUALITY, PERFORMANCE, MERCHANTABILITY, OR FITNESS FOR
A PARTICULAR PURPOSE. IN NO EVENT WILL LICENSOR BE LIABLE FOR DIRECT,
INDIRECT, SPECIAL; INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE
OR INABILITY TO USE THE PRODUCT OR DOCUMENTATION. EVEN IF ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. IN NO CASE SHALL LICENSOR'S LIABILITY EXCEED
THE AMOUNT OF THE LICENSE FEE PAID. THE WARRANTY AND REMEDIES SET FORTH
ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHERS, ORAL OR WRITTEN, EXPRESS OR
IMPLIED. Some states do not allow the exclusion or limitation of implied
warranties or limitation of liability for incidental or consequential
damages, so that the above limitation or exclusion may not apply to you.
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EXHIBIT 10.4
DISTRIBUTION AGREEMENT
REALITY INTERACTIVE AND FUTUREMEDIA PLC
________________________________________________________________________________
THIS AGREEMENT is made on July 12, 1996
BETWEEN Reality Interactive, Inc. a public company, incorporated in Minnesota
and having its registered office at 11200 West 78th Street, Suite 300, Eden
Prairie MN 55344 and whose principal place of business is at 11200 West 78th
Street, Suite 300, Eden Prairie MN 55344 (the "Company"), which expression where
the context so requires shall include its successors and assigns,
AND Futuremedia PLC, a public company registered in England and having its
registered office at Media House, Arundel Road, Walberton, Arundel, West Sussex,
BN18 0QP, and whose principal place of business is at Media House, Arundel Road,
Walberton, Arundel, West Sussex, BN18 0QP (the "Distributor"),
WHEREBY IT IS AGREED as follows:
1 APPOINTMENT
The Company hereby appoints the Distributor (and the Distributor hereby
accepts the appointment) as its non-exclusive distributor in the territory
described in Schedule A hereto (the "Territory") for the promotion,
marketing and distribution of the products more particularly described in
Schedule B-1 hereto (the "Products"). Distributor shall have the right to
name and license resellers to distribute the Products as long as
Distributor and such reseller execute a distribution agreement in
substantially the same form as this Agreement.
If Distributor meets the revenue targets more particularly described in
Schedule G hereto (the Distributor Discount Schedule), Distributor can
convert its nonexclusive appointment into an exclusive appointment for
calendar year 1997. If such revenue targets are not met by Distributor then
the appointment for calendar year 1997 shall remain as a nonexclusive
appointment subject to termination in accordance with Clauses 2, 7 or 11.
Localization issues, if any, shall be covered in Schedule B-2.
2 PERIOD
Subject to the terms and conditions of the Agreement, this Agreement shall
continue in force until December 31, 1997 from the Effective Date of this
Agreement but subject to earlier termination in accordance with Clause 7 or
Clause 11.
This Agreement shall automatically continue after the end of the said
initial period for successive annual terms provided the parties agree to
an annual revision of the Business Plan attached as Schedule C on or before
December 31 preceding the renewal term, unless terminated by either party
by giving to the other not less than six months prior notice to expire at
the end of the said initial period or prior to the expiration of any
subsequent annual renewal term.
3 DISTRIBUTOR'S OBLIGATIONS
The Distributor agrees with the Company:
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(a) To use its reasonable endeavours to promote, market and distribute the
Products in the Territory as part of the Distributor's range of interactive
multimedia products as more particularly described in the Business Plan
attached as Schedule C:
(i) To devote sufficient time, energy and expertise to market,
supply, deliver, install, set-up, commission, instruct
customers in the use of, provide contractual field support,
warranties and help-line facilities for the Products;
(ii) To permit an audit of all records relating to revenues and
collections derived from the sale of Products;
(iii) Not to undertake representation of any software system which
may be competitive to or dilute efforts in the marketing etc
of the Products..
(b) To give the Company, upon the signing of this Agreement and calendar
monthly thereafter during the term of this Agreement, (1) a written but
non-binding forecast outlining the quantities of Products that the
Distributor proposes to sell during the next calendar month in the format
attached as Schedule D-1; (2) a written but non-binding forecast outlining
the quantities of Products that the Distributor proposes to sell during the
next 6 months in the format attached as Schedule D-2; and (3) a written
marketing report outlining Distributor's activities in the preceding month
and proposed activities for the subsequent month as well as other relevant
marketing information in the format attached as Schedule D-3. .
(c) To supply the Products at prices agreed with the Company, and to pay a
royalty based on a percentage of sales revenues received by the Distributor
as detailed in the Business Plan attached as Schedule C.
(d) Not in any manner to pledge the credit of the Company or to receive any
money on behalf of the Company and not to make any warranty or other
representation regarding the Products other than as authorised by the
Company in writing from time to time.
(e) Upon the termination of this Agreement for any reason to return to the
Company and at the cost of the Distributor all materials supplied to the
Distributor by the Company relating to the Products including all magnetic
and optical materials embodying or containing the Products, and all
documentation forming part of or relating to or concerning the Products,
except that the Distributor shall be able to retail stocks of Products then
held or on order together with related documentation.
(f) Not to modify, amend or in any other way interfere with the Products or
any names, notices or copyright marks which may appear therein except as
may be required to correct errors which may appear in the textual material
associated with or forming a part of the Products from time to time, and in
the event such an alteration is made to notify the Company of the
alteration promptly.
(g) To co-operate with the Company or its nominees in the instruction and
training of the employees of the Distributor in connection with (i) the
procedures necessary to enable them to comply with the requirements of this
Agreement, and (ii) the operation and use of the Products. Distributor
shall be required, at its own expense, to have a person responsible for
customer support attend training on Company's Products for the purposes of
performing customer support. What constitutes "training" for this Clause
shall be agreed to between the parties.
(h) Not without written authority from the Company to copy or reproduce the
Products or any part thereof and upon the termination of this Agreement to
return to the Company and at cost of the Company all brochures, pamphlets
and materials supplied to the Distributor by the Company relating to the
Products.
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(i) Not to modify, amend or in any other way interfere with the Products or
any names, notices or copyright marks which may appear thereon except as
may be required to correct errors which may appear in the textual material
associated with or forming a part of the Products from time to time, and in
the event such alteration is made to notify the Company of the alteration
promptly.
(j) To supply the Company with reseller and customer information as
reasonably requested by the Company including a complete list of registered
customers with all essential contact information.
(k) To be responsible for and obtain any license, permits or other such
legal or regulatory requirements for importing the Products into the
Territory.
4 COMPANY'S OBLIGATIONS
The Company agrees with the Distributor:
(a) To supply the Distributor with such information, know-how and technical
data concerned with the Products as is reasonably necessary or appropriate,
in the opinion of the Company, to the Distributor's activities in supplying
the Products in the Territory and which shall come into the Company's
possession or control and which the Company is free to disclose.
(b) In the Company's sole discretion, to make its sales and technical
support personnel (or those of its nominees) available to the Distributor
by telephone or otherwise.
(c) To give serious consideration to any modifications to the Products
suggested by the Distributor without being under any obligation to
incorporate any such modifications into the Products.
(d) To supply the Distributor with examples in English of publicity
materials, catalogues and price lists available to the Company from time to
time as the Distributor shall reasonably require and the Distributor shall
be entitled to reproduce the same or parts thereof in its own publicity and
other materials.
(e) Upon termination of this Agreement for any reason, the Company shall if
so required by the Distributor fulfill any orders for the Product from the
Distributor outstanding at the date of termination.
5 SHIPPING, CUSTOMS, TITLE, LIMITATION, WARRANTIES
(a) Risk of loss or damage to the Products shall pass to the Distributor
upon delivery to the carrier as specified by Distributor. Company will not
ship orders without Distributor's delivery and carrier instructions.
Distributor shall be responsible for cost of shipping any ordered Products.
Order procedures, payment procedures and payment terms shall be more
particularly described in Schedule
(b) The Company hereby excludes to the maximum extent permitted by law any
liability arising in tort, contract or otherwise for:
(i) Consequential loss or damage caused by or arising out of the use
of the Products or occurring in respect of the Products;
(ii) Loss, injury or damage due to fair wear and tear, or to negligent
or improper installation, use, maintenance, storage or handling of the
Products on the part of any person, firm or company other than the
Company and its employees.
(c) Under no circumstances shall either party be liable to the other for
any damages in excess of the aggregate amount of purchases that have
exchanged between the parties under this Agreement.
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(d) Company authorises Distributor to pass through to its customers the
standard warranties as set forth in its standard license agreement attached
as Schedule E. All such warranty claims shall be made promptly in writing
and shall state the nature and details of the claim, the date the cause of
the claim was first observed and the registration number of the Products
concerned. All such warranty claims must be received by Company not later
than 15 days after the expiration of the warranty period for such customer
as provided to customer in Company's standard license Agreement. Company
shall have no obligations to Distributor or Distributor's resellers or
customers under this Clause if (1) the Products have not been properly
installed, used or maintained in accordance with Company's product
documentation; (2) the Products have been modified in any manner or are
used or combined with other products not supplied by Company and without
the prior written consent of Company; or (3) The Products have been
distributed to a customer with any warranties or representations oral or
written, made by Distributor beyond those expressly set forth in Company's
standard license agreement (Schedule E).
e. THE WARRANTIES SET FORTH IN THIS CLAUSE AND IN COMPANY'S STANDARD
LICENSE AGREEMENT, SCHEDULE E ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS
OR IMPLIED, WHICH ARE HEREBY DISCLAIMED AND EXCLUDED BY COMPANY, INCLUDING
WITHOUT LIMITATION ANY WARRANTY OR MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE AND ALL OBLIGATIONS OR LIABILITIES ON THE PART OF
COMPANY ARISING OUT OF OR IN CONNECTION WITH THE DISTRIBUTION, USE, REPAIR
OR PERFORMANCE OF THE PRODUCTS.
(f) THE SOLE AND EXCLUSIVE REMEDIES FOR BREACH OF ANY AND ALL WARRANTIES
AND THE SOLE REMEDIES FOR COMPANY'S LIABILITY OF ANY KIND (INCLUDING
LIABILITY FOR NEGLIGENCE OR PRODUCTS LIABILITY) WITH RESPECT TO THE
PRODUCTS AND SERVICES COVERED BY THIS AGREEMENT AND ALL OTHER PERFORMANCE
BY COMPANY UNDER THIS AGREEMENT SHALL BE LIMITED TO THE REMEDIES PROVIDED
IN COMPANY'S STANDARD LICENSE AGREEMENT , ATTACHED HERETO AS SCHEDULE E.
6 INTELLECTUAL PROPERTY RIGHTS
(a) The Distributor shall have no right, title or interest in any patent
related to the Products or any trade mark or name used in connection with
the Products, or the copyright in the Products or in any drawing,
specification or other document relating to the Products except as provided
in this Agreement and the Distributor agrees to enter into at the Company's
expense such license agreements in respect of such rights and interest as
the Company may reasonably request from time to time, and to cease any and
all use of such rights upon termination of this Agreement whatever the
cause or reason for such termination, except to the extent necessary to
enable the Distributor to dispose of any stocks of Products then remaining
or on order.
(b) The Company warrants the Company has all necessary rights to enable the
Company to enter into this Agreement and to grant to the Distributor the
distribution and other rights contained in this Agreement.
(c) The Company has no actual knowledge of any present claim by any third
party that the Products infringe any patents, registered designs, trade
marks, copyright or similar rights existing or registered in any of the
countries in the Territory.
7 TERMINATION
(a) This Agreement shall terminate upon expiry of any notice given under
Clause 2.
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(b) Without prejudice to any other remedy that may be available for the
breach or nonperformance of any of the obligations herein contained, either
party shall be entitled immediately to terminate this Agreement forthwith
without compensation by notice to the other if the other shall:
(i) Commit a breach of any of its obligations hereunder and shall not
remedy such breach (if the same is capable of remedy) within thirty
(30) days of being required to do so by notice;
(ii) Pass a resolution, or have an order made, for its winding-up
(except for the purpose of and followed by an amalgamation or
reconstruction).
8 FORCE MAJEURE
The Company shall not be liable to the Distributor for any loss or damage
which may be suffered by the Distributor as a direct or indirect result of
the supply of the Products by the Company being prevented, hindered or
delayed, and the Distributor shall not be liable to the Company in respect
of any delay or failure by the Distributor in carrying out any of its
obligations hereunder, in either case by reason of war, riot, civil
disturbance, act of God, strike, lock-out, trade dispute or labour
disturbance, accident, breakdown of plant or machinery, fire, flood,
difficulty in obtaining workmen, materials or transport or any other
circumstances whatsoever outside the control of the party concerned.
9 MISCELLANEOUS
(a) This Agreement is personal to the Distributor who shall not assign or
transfer to any other person, form or company any of its rights or
obligations hereunder.
(b) Each of the parties hereto is an independent contractor and nothing
herein contained shall be deemed to create a partnership, joint venture or
the relationship of principal and agent, between the parties.
10 WAIVER
The failure by either party to require strict performance by the other of
any provision hereof shall not waive or diminish the right of that party to
require strict performance of the provision thereafter nor shall any such
failure waive or diminish the right of the party to require strict
performance of any other provision hereof.
11 ALTERATIONS
If any governmental or other authority (including without limitation the
Commission of the European Communities)(hereinafter together called the
"Authority") requires any alteration (hereinafter called the "Alteration")
to be made to this Agreement or to any agreement made under this Agreement
as a condition of granting approval, clearance or exemption of this
Agreement or to any agreement made under this Agreement, then the parties
hereto shall within one month of both parties having notice of the
Alteration confer together for the purpose of making the Alteration and any
other alteration, change or other action which they consider necessary
(hereinafter called the "Consequential Alterations"). In the event that
either party shall not agree to the Alteration or the Consequential
Alterations within two months from the date on which both parties had
notice of the Alteration, then either party shall be entitled to terminate
this Agreement or any agreement made under this Agreement by giving not
less than one month's notice to the other party.
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12 ENTIRETY OF AGREEMENT
Except as provided in this Agreement and Schedules A to G inclusive hereto
embody the entire understanding between the parties with respect to the
distribution of the Products in the Territory to the entire exclusion of:
(a) Any term or conditions appearing on or referred to in the Distributor's
orders or the Company's acknowledgment thereof.
(b) Any prior understanding, agreement, representation, warranty or dealing
by or between the parties in such respect.
The parties hereby confirm that there is no agreement, expressed or
implied, which is in contradiction to this Agreement. No modification or
addition to this Agreement shall be binding unless made in writing and
signed on behalf of each party hereto by a duly authorised representative.
13 CONFIDENTIALITY
The Distributor shall at all times during the continuance of this Agreement
and after its termination:
(a) Use its best endeavours to keep all Restricted Information confidential
and accordingly not to disclose any Restricted Information to any other
person.
(b) Not use any Restricted Information for any purpose other than the
performance of the obligations under this Agreement.
(c) Any Restricted Information may be disclosed by the Distributor to:
(i) Any customers or prospective customers;
(ii) Any governmental or other authority or regulatory body;
(iii) Any employees of the Distributor or for any aforementioned
persons;
to such extent only as is necessary for the purposes contemplated by
this Agreement, or as is required by law and subject in each case to
the Distributor using its best endeavours to ensure that the person in
question keeps the same confidentiality and does not use the same
except for the purposes for which the disclosure is made.
(d) Any Restricted Information may be used by the Distributor for any
purpose, or disclosed by the Distributor to any other person, to the extent
only that:
(i) It is at the date hereof, or hereafter becomes public knowledge
through no fault of the Distributor (provided that in doing so the
Distributor shall not disclose any Restricted Information which is not
public knowledge);
(ii) It can be shown by the Distributor, to the reasonable
satisfaction of the Company, to have been known to it prior to its
being disclosed by the Company to the Distributor.
(e) In this clause Restricted Information means any information which is
disclosed to the Distributor by the Company pursuant to or in connection
with this Agreement (whether orally or in writing, and whether or not such
information is expressly stated to be confidential or marked as such).
46
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14 NOTICES
(a) Any notice required or authorised to be given hereunder shall be in
writing and shall be served by facsimile or first class prepaid airmail
letter and shall (unless a different address is notified in writing by one
party to the other by due notice under this Clause) be addressed in the
case of the Company to:
REALITY INTERACTIVE, INC.
11200 West 78th Street, Suite 300
Eden Prairie, MN 55344 USA
FAX: +1 612 996 6799
TEL: +1 612 996 6777
marked for the attention of the Director of International Sales with a
copy to the Chief Financial Officer
And in the case of the Distributor to:
FUTUREMEDIA PLC
Media House, Arundel Road, Walberton, Arundel, West Sussex, BN18 0QP
FAX: +44 1243 555020
TEL: +44 1243 555000
marked for the attention of the Director of Sales & Marketing with a
copy to the Chief Financial Officer
(b) Any such notice shall be deemed to be served, in the case of a
facsimile, at the opening of office hours of the recipient party on the
next working day of the recipient party after the day of dispatch and , in
the case of first class prepaid letter, five days after the date of proved
posting.
15 PROPER LAW
The construction, validity and performance of this Agreement shall be
governed by and construed in all respects by the laws of the state of
Minnesota and the parties hereby submit to the nonexclusive jurisdiction
of the Minnesota state or federal courts.
47
<PAGE>
SCHEDULE A
THE TERRITORY
"Territory" shall include:
The United Kingdom and Ireland
48
<PAGE>
SCHEDULE B-1
THE PRODUCTS AND US RETAIL PRICE LIST
"Products" shall include the following:
ISO 9000 Registration Series (5 titles) and the QS 9000 Series (4 titles) and
any localized versions for the UK market
US RETAIL PRICE FOR THE PRODUCTS:
PRODUCT NAME US PRICE
ISO 9000 Series (5 CD Set) $4,995.00
Title 1 $ 99.00
Title 2 $1,295.00
Title 3 $1,795.00
Title 4 $1,795.00
Title 5 $ 895.00
QS 9000 Series (4 CD Set) $3,595.00
Title 1 $ 995.00
Title 2 $ 995.00
Title 3 $ 995.00
Title 4 $ 995.00
All the above US Retail Prices are in US dollars.
49
<PAGE>
SCHEDULE C
BUSINESS PLAN CONTAINING
DISTRIBUTOR AND ROYALTY PAYMENTS TO THE COMPANY
FUTUREMEDIA BUSINESS PLAN OUTLINE FOR REALITY INTERACTIVE
1. COMPANY INFORMATION
A. Contact information (e.g. address, phone, fax, email, website)
1. Key contacts between the company and Reality Interactive:
Key contact: Mats Johansson, Director, Sales and Marketing
Phone: 44-1243-555-000
Fax: 44-1243-555-020,
Compuserve: 100444,3271
Website: http://ourworld.compuserve.com/homepages/futuremediaplc
Mats Johannson: responsible person for the relationship
Philip Lingard, Norman Burton: strategic
John Pemberton and Alison Russell, product champions (marketing report)
Clare Willington, pre-sales support (forecasts)
Caroline Rees, post-sales support (logistics of product going into customer
site)
B. Company Background
2. History
Founded in 1982
NASDAQ in 1993
Multimedia production since 1982; UK distribution business started in 1987; 1992
Futuremedia took over Thorn-EMI interactive multimedia business in the UK; 800
installations of products in the UK (550 customers have purchased the SPC
product); more than 50% of Ford's Q1's suppliers are Futuremedia customers; Ford
approved "blanket purchase order" supplier; 30% of revenue derived from custom
production and 70% of revenue from packaged sales
2. Structure of Organization
Two separate legal organizations: Futuremedia PLC (parent company and custom
business); LaserMedia (UK) Ltd. (child of Futuremedia and focus on packaged
software distribution business; functionally the business is organized and runs
as one business);
Management structure:
Directors: Board Directors: Norman Burton and Philip Lingard; Mats Johannson
(likely to join board); Jon Pascoe, Controller, Hilary Channing, Human Resources
and Quality, Richard Bunning, Creative Director, Gary Allman, Production
Manager, Ashley Hawes, Operations Manager (Logistics, MIS)
3. # of employees: 45 fulltime and 5 contractors (in UK)
4. Branches and affiliations:
Wholly owned Germany subsidiary (15 employees)
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Wholly owned Dutch subsidiary
Wholly owned American subsidiary (warehouse in Pittsburgh)
Affiliates: Italy (MT&C), Portugal (Multilaser), Denmark (IMS)
Various subdistributors and resellers in the UK
12 distributors for their products throughout world
II. FINANCIAL INFORMATION
A. Revenue for Last 3 year (TBD)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year ending April 1996 Year ending April 1995 Year ending April 1994
Turnover in $USD $5.5M $7.4M $5.8M
</TABLE>
B. Key Changes in Financial Strategy
1994-95 was a disappointing year; 95-96 complete turn around in the UK
C. Banking References
Lloyd's Bank PLC, 10 East Street, Chichester, West Sussex PO19 1HJ
D. Accounting Firm
Ernst and Young (Southampton office), Trevor Denny (engagement partner)
E. Public or Private
Futuremedia is a public LTD company; on the NASDAQ: FMDAY
III. SALES
A. Staffing
1. Head Sales Manager: Mats Johannson
2. Organization of Sales Team
a. Number: 6 salespeople: 3 major account
(industry-based: IT, Financial Services,
Manufacturing, Rest of Industry), major custom and
package; and 3 package (geographically based North,
South and Middle); in addition Mats, Norman and Philip
do strategic sales
b. Richard Bunning and Ashley Hawes also originate
customer contact
i. Indirect : Caroline Rees (looking to build
aggressively)
-channels: based on historical accident
-looking for particular verticals and
particular geographies
-Health service vertical
1. Sales Strategies (by product) QS 9000
c. Direct
i. Target Customers: 3 areas: Automobile
manufacturers (current customers), automobile
manufacturers (not current customers), public
open learning centers, training and enterprise
councils
Key customers: Ford, Vauxhall (GM), AVD (commercial vehicles of GM), Rolls
Royce, Zetec (PCB's), Lucas, CMB (metal packaging), Jaguar, Peugeot, Toyota,
Rover
51
<PAGE>
The plan is for one-off sales of QS to get sales started for September 30th
revenue goals of $25k; larger sales looking to sell preconfigurations; longterm:
site and enterprise licenses
Other modes of providing revenue:
rental sale: rotating library
Ford Open Learning Centers are likely target
Hardware, after sales support
The target for Reality's ISO 9000 target is Service sector; Unilever is big
customer for Futuremedia and is likely target for Reality's ISO 9000 products
Sales Cycle (12 point sales process)
i. Made contact and established need/timescale
ii. Sent details and budgetary proposal
iii. Customer has applied for budget
iv. Product demonstrated
v. formal proposal submitted
vi. Budget approval confirmed
vii. Key influencers involved
viii. Futuremedia shortlisted
ix. Spend approved
x. Written confirmation is received (e.g.
signed LOI)
xi. Purchase Order or signed Agreement received
xii. Futuremedia accepts order
b. Indirect Sales Channels (just starting to develop using
Caroline Rees)
i. Motivation and Management of Channel
ii. Sales Tools for Channel
4. Sales Goals (by product; use Exhibit F-2: 6-month rolling
forecast template)
d. First Quarter: $25K by September 30
e. 1996: $100k by December 31, 1996
f. 1997: $250-300k for 1997
IV. MARKETING
A. Staffing
1. Marketing Manager: Mats Johannson
2. Organization of Marketing Team
John Pemberton (quality products and exhibits and product introduction process),
Clare Willington (HR development product and pre-sales support), Alison Russell
(PR and business development products), Julie MacDonald (administrative
assistant)
a. Leads generation (mail shots and followups to targeted
sectors with action)
b. Public relations (1 PR release per week, comprehensive
PR database)
c. Advertising (very little; does not find that it pays;
but is re-evaluating)
d. Product marketing (product literature, packaging)
a. Support for sales team
52
<PAGE>
-proposal templates, pricing, hardware, products for
demonstration, mobile telephones (internet is not
yet available for sales people)
-there is a "movement" schedule to keep track of
sales people's "movements"
-service team works with sales to generate leads and
help in sales process
-sales tools (interactive multimedia use stories,
demo disk)
-success stories, case studies
Database for all customer contacts ("Tracker")
B. Key Stategies and Goals
2. Leads generation (e.g. number generated from small targeted
direct mail (e.g. 1000 (250 per week for 4 weeks)),
telemarketing (follow-up from direct mail), trade shows: and
follow-up over the phone (repeat follow-up)(John Pemberton)
and external contractors
3. Public relations (in house)(e.g. number of press releases,
number of speaking engagements, placement of quotes in key
periodicals, number of articles/reviews)
4. Product Marketing Schedule (Calendar)
July 1: First mailshot to be produced to all customers of LaserMedia who
purchased SPC and other Ford Automotive courses
July 3-10: Telemarketing campaign to follow up mailshot, send demo disks and
organise demonstration visits
July 1-8: first press release to be out by this time; identify what is required
in the sales training sessions
July 9-10: Training for generic sales; distribution kits sent for by email to
Randy Boyer
July 10: Updated UK/Ireland automotive suppliers database to be completed by
this date for Ford and General Motors
July 17: Proposed mailshot to all non-customer Ford automotive suppliers plus
TEC's , LEC's and open learning centres; Targeted campaign to obtain press
coverage in relevant journals and newspapers.
July 24- August 6: Telemarketing follow-up, sending requested demo disks and
making demo visit appointments for salesmen
July 31: Target to have all product literature at the printers
Mid-August: Revise marketing plan based on initial feedback; check exhibitions
and roadshows that are currently taking place and analyse worthiness of
involvement; Also advertising discussions, press coverage and initial feedback.
September 1: Complete customer and non-customer mailshot to all companies who
have been previously contacted throughout the campaign, including product
literature
September 18-30: Telemarketing follow-up to complete mailshot
October 1996: Complete review of telemarketing and mailshot campaigns to date
and feedback discussions; revise marketing plan based on feedback
Public Relations Ideas for QS 9000:
a. Regular press releases at each stage of campaign especially if we are
present at various Quality Exhibitions
b. Investigate cost, availability and worth of quality exhibitions to get
contacts; use Reality Booth if needed
c. Create press campaign for September periodicals on Quality
53
<PAGE>
d. Invite people to Media House (office) for special promo/preview days on the
product; provide lunch and demonstrations of the product and what it can do
for a company; combine with the invitation of representations from the 3
car companies with their company cars (top of range) and have them
displayed at Media House for the day;
e. Q & A session could be arranged on the benefits of the product and the
importance of complying
4. Trade Shows and Conferences
Milia (February in Cannes), HRD (March in Birmingham), Multimedia (June in
London), Technology-based Learning (August in London)plus ad hoc conferences as
the need requires
a. Key Subject Matter trade shows (industry quality show,
HRD)
b. Key Technology trade shows (Milia, Multimedia 96)
c. Coordination needed with Reality (e.g. 10 foot booth,
promotional materials to be ordered, $ needed)(HRD 97,
March 97): may need access to Reality Booth; personnel
needed?
3. Customer Success Stories (targeting different user profiles,
different industries, etc.)Futuremedia wants to participate
in proactive Enterprise Knowledge Center program to
proactively target the "right" success stories
4. Seminars: ?
5. Internet strategies: ?
6. Timetable on spreadsheet
V. ROYALTIES PAID TO REALITY
The royalty rate paid to Reality shall be based on the discount rate as
described in Schedule G. Any premiums above the introductory prices shall be
shared with Reality on a 50-50 basis.
VI. PRODUCT FULFILLMENT
Futuremedia will create a bill of materials for building Reality product
VII. LOCALIZATION EXPERIENCE
A. Futuremedia's Experience: All Ford multimedia products have been
localized into German, Spanish, Portuguese, Dutch; Italian, American,
German and Portuguese; Hydro Aluminum products have been localized
into French, Italian, German, Danish, Swedish
B. Futuremedia's Resources: They have access to translators with
technical background; translations checked by locals (and validated
with local TV station from a video perspective)
54
<PAGE>
SCHEDULE D-1
MONTHLY SALES FORECAST TEMPLATE
See attached spreadsheet templates for ISO 9000 and QS 9000 (These forecasts are
due between the 10th and 20th of every month.)
55
<PAGE>
SCHEDULE D-2
6-MONTH ROLLING FORECAST
See attached spreadsheet templates for ISO 9000 and QS 9000 (These forecasts are
due between the 10th and 20th of every month.)
56
<PAGE>
SCHEDULE D-3
MONTHLY MARKETING REPORT
(This report is due between the 10th and 20th of every month.)
KEY MARKETING EVENTS THAT HAPPENED IN PREVIOUS MONTH:
Trade Shows:
Press Releases:
Product Launches:
Public Relations Activities:
KEY MARKETING EVENTS FOR NEXT MONTH:
Planned Trade Shows:
Planned Press Releases:
Planned Product Launches:
Planned Public Relations Activities:
IMPORTANT FUTURE MARKETING ACTIVITIES (MORE THAN ONE MONTH AWAY):
Planned Trade Shows:
Planned Press Releases:
Planned Product Launches:
Planned Public Relations Activities:
Distributor Requests for Reality in the United States related to
Marketing/Marketing Support:
57
<PAGE>
SCHEDULE E
STANDARD LICENSE AGREEMENT
[use Futuremedia's standard end user license agreement here]
58
<PAGE>
SCHEDULE F
PURCHASE ORDER PROCEDURE, ROYALTY PAYMENTS PROCEDURE, PAYMENT TERMS,
COMPANY CONTACT DETAILS
PRODUCT ORDER PROCEDURES:
The following procedures will apply when ordering product from Reality
Interactive:
1. Product is ordered once every 30 days via fax to: SALES ADMINISTRATION
MANAGER, REALITY INTERACTIVE, +1 (612) 996-6799 WITH A COPY TO RANDY BOYER,
DIRECTOR OF INTERNATIONAL SALES VIA EMAIL); product is supplied at cost;
invoices payable by Distributor within 30 days.
During the first week of every month, Distributor shall provide monthly royalty
statements against which Company will invoice Futuremedia America, Inc.
Futuremedia America, Inc. will settle the royalty payments within seven days of
Company receiving payment from its customers (average payment is 35 days) but no
more than 50 days from Futuremedia invoicing its customers. Distributor will pay
for shipment and insurance.
2. Reality Interactive's payment terms: wire transfers are preferred.
Wire transfers to Reality Interactive can be made as follows:
Bank: First Bank, N.A.
Eden Prairie, MN 55344 USA
(612) 942-2847
ABA #: 091000022
Account #: 173100140149
3. Orders for marketing materials should be in writing and faxed or emailed to
Peter Kelley, Field Communications Specialist (fax: +1 612 996 6799; email:
[email protected])
REALITY INTERACTIVE CONTACT DETAILS:
Distributor should primarily communicate with Reality through the following
person:
Randy Boyer, Director, International Sales
Randy Boyer's Contact Details:
Internet: [email protected] (communication via internet is preferred means)
Phone: +1 612 996 6789
Fax: +1 612 996 6799
Reality's Intranet: (online as of August 1, 1996 to provide significant amount
of information for International Distributor)
Reality's Corporate Website: http://www.realtools.com
59
<PAGE>
SCHEDULE G
DISTRIBUTOR DISCOUNT SCHEDULE
The discount rate shall be (***)%. The discount rate shall be increased to
(***)% for calendar year 1997 if Distributor provides $(***) of revenue to
Company on or before December 31, 1996. The discount rate for 1998 shall be
separately negotiated between the parties but in no event shall be less than
(***)%.
*** Denotes confidential information that has been omitted from the exhibit and
filed seperately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934.
60
<PAGE>
AS WITNESSED this Agreement has been signed on behalf of each of the parties the
day and year first above written.
SIGNED for and on behalf of
REALITY INTERACTIVE, INC.
Signature: /s/ Wesley W. Winnekins
-----------------------------------
Name printed: Wesley W. Winnekins
-----------------------------------
Title: Chief Financial Officer
-----------------------------------
Date: July 12, 1996
-----------------------------------
SIGNED for and on behalf of
FUTUREMEDIA PLC
Signature: /s/ Philip Lingard
-----------------------------------
Name printed: Philip Lingard
-----------------------------------
Title: Operations Director
-----------------------------------
Date: July 12, 1996
-----------------------------------
61
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 271,269
<SECURITIES> 6,664,403
<RECEIVABLES> 139,766
<ALLOWANCES> 0
<INVENTORY> 89,231
<CURRENT-ASSETS> 7,208,055
<PP&E> 400,466
<DEPRECIATION> 207,506
<TOTAL-ASSETS> 7,549,796
<CURRENT-LIABILITIES> 217,480
<BONDS> 0
0
0
<COMMON> 46,774
<OTHER-SE> 7,285,542
<TOTAL-LIABILITY-AND-EQUITY> 7,549,796
<SALES> 93,677
<TOTAL-REVENUES> 93,677
<CGS> 18,768
<TOTAL-COSTS> 18,768
<OTHER-EXPENSES> 1,819,354
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,639,894)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,639,894)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,639,894)
<EPS-PRIMARY> (.35)
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
CAUTIONARY STATEMENT
Reality Interactive, Inc. (the "Company"), or persons acting on behalf of
the Company, or outside reviewers retained by the Company making statements
on behalf of the Company, or underwriters, from time to time make, in writing
or orally, "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. When used in conjunction with an identified
forward-looking statement, this Cautionary Statement is for the purpose of
qualifying for the "safe harbor" provisions of such sections and is intended
to be a readily available written document that contains factors which could
cause results to differ materially from such forward-looking statements.
These factors are in addition to any other cautionary statements, written or
oral, which may be made or referred to in connection with any such
forward-looking statement.
The following matters, among others, may have a material adverse effect
on the business, financial condition, liquidity, results of operations or
prospects, financial or otherwise, of the Company. Reference to this
Cautionary Statement in the context of a forward-looking statement or
statements shall be deemed to be a statement that any or more of the
following factors may cause actual results to differ materially from those in
such forward-looking statement or statements:
DEVELOPMENT STAGE COMPANY. The Company was incorporated in May 1994,
first began to ship the complete series of its initial product in August
1995, and accordingly, has only a limited history of operations. The
Company's prospects for success must be considered in light of the problems,
expenses, difficulties, complications and delays frequently encountered in
connection with the formation and development of a new business in a
competitive industry. In addition, due to the uncertainty in growth of a
development stage company and the rate of change in the industry perceived by
the Company, the Company is uncertain of the time frame or amount of funding
required to accomplish its business objectives.
DEVELOPING MARKET; MARKET ACCEPTANCE. The market for educating and
training businesses has historically been served by consultants,
instructor-led training and training publications such as books, manuals and
tapes. Currently, there is little use of interactive multimedia education
and training products by businesses, and many of the Company's potential
customers do not own or have access to multimedia compatible equipment. The
Company's future success will depend upon, among other factors, the extent to
which companies acquire multimedia equipment compatible with the Company's
products and adopt and use interactive multimedia education and training
programs. In addition, the Company's success will depend in part on its
ability to market and sell multiple copies of its products to large corporate
customers. In the event that adoption and use of multimedia equipment
compatible with the Company's products do not become widespread, the number
of potential customers of the Company will be limited. There can be no
assurance that the Company's products or the prices the Company charges for
its products will be acceptable to the market or that the Company will be
able to sell multiple copies to large corporate customers.
LIMITED MARKETING CAPABILITY. The Company currently has a small sales
and marketing staff and limited number of strategic alliances relating to
distribution of its products. There can be no assurance that the Company
will be able to build a suitable sales force or enter into satisfactory
marketing alliances with third parties, or that its sales and marketing
efforts will be successful.
DEPENDENCE ON DIVERSIFICATION OF PRODUCT OFFERINGS. The Company
currently has a limited number of product offerings, and purchasers of the
Company's products are not required to purchase additional products.
Accordingly, the Company's products represent non-recurring revenue sources,
and the success of the Company is dependent, in part, on its ability to
develop sustained demand for its current products and to develop and sell
additional products. There can be no assurance that the Company will be
successful in developing and maintaining such demand or in developing and
selling additional products.
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<PAGE>
DEPENDENCE ON EVOLVING INDUSTRY STANDARDS. The Company's initial product
offerings prepare businesses for adherence to worldwide management standards.
The failure of the Company to enhance its products in a timely manner to
changes in the standards, the lack of public acceptance of such standards or
the delay in introduction of or enhancement to such standards would
materially adversely affect the Company's operations.
TECHNOLOGICAL CHANGE. The industry in which the Company competes is
characterized by rapid technological change. The introduction of products
embodying new technology can render existing products and product formats
obsolete and unmarketable. The Company's success will depend on its ability
to anticipate changes in technology and to develop and introduce new and
enhanced products in a timely manner in response to technological changes, or
if products or product enhancements by the Company do not achieve market
acceptance, the Company's business would be materially adversely affected.
FUTURE ADDITIONAL CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL
BE AVAILABLE. If the Company is unable to generate substantial revenues from
its operations or if the Company's expenses exceed expectations, the Company
will likely require additional funds to meet its capital requirements. The
Company does not currently have available bank financing. The Company may be
required to raise additional funds through public or private financings,
including equity financings, or through collaborative arrangements. There
can be no assurance that additional financing would be available on favorable
terms, or at all. If funding is not available when needed or on acceptable
terms, the Company may be forced to curtail its operations significantly or
cease operations and abandon its business entirely.
COMPETITION. The business education and training industry is highly
competitive. A large number of companies are currently developing
interactive, multimedia-based training, educational and instructional aids.
Competitors also include national, regional and local accounting firms
engaged in industrial consulting and instructor-led training and companies
which market training tools such as books, videos and audio tapes. Some of
the Company's existing competitors, as well as a number of potential
competitors, have larger technical staffs, more established marketing and
sales organizations, and greater financial resources than the Company. There
can be no assurance the Company will be able to compete successfully with
such companies, or at all.
FLUCTUATIONS IN OPERATING RESULTS. The Company's future operating
results may vary substantially from quarter to quarter. At its current stage
of operations, the Company's quarterly revenues and results of operations may
be materially affected by the timing of the development and market acceptance
of the Company's products. Generally, operating expenses will be higher
during periods in which product development costs are incurred and marketing
efforts are commenced. Due to these and other factors, including the general
economy, stock market conditions and announcements by the Company or its
competitors, the market price of the securities offered hereby may be highly
volatile.
DEPENDENCE ON KEY PERSONNEL; LACK OF EMPLOYMENT AND NONCOMPETITION
AGREEMENTS. The success of the Company is dependent in large part upon the
ability of the Company to attract and retain key management and operating
personnel. Qualified individuals are in high demand and are often subject to
competing offers. In the future, the Company will need to hire additional
skilled personnel in the areas of research and development, sales and
marketing. There can be no assurance that the Company will be able to attract
and retain the qualified personnel needed for its business. The Company has
no employment or noncompetition agreements with any of its management or
other personnel.
DEPENDENCE ON ABILITY TO RETAIN SUBJECT MATTER EXPERTS. The Company's
product development strategy requires the Company to retain third-party
subject matter experts to perform research and development functions by
providing accurate and informative content for the Company's products. There
can be no assurance that the Company will be able to continue to attract and
retain qualified subject matter experts required to develop new products and
enhance existing products. The inability of the Company to attract and
retain such experts could have a material adverse effect on the Company and
its prospects.
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<PAGE>
INTELLECTUAL PROPERTY. The Company regards its multimedia products as
proprietary and relies primarily on a combination of statutory and common law
copyright, trademark and trade secret laws, customer licensing agreements,
employee and third-party nondisclosure agreements and other methods to
protect its proprietary rights. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain or use the Company's
products or technology without authorization, or to develop similar products
or technology independently. If unauthorized use or copying of the Company's
product were to occur to any substantial degree, the Company's business and
results of operations could be materially adversely affected. There can be
no assurance that the Company's means of protecting its proprietary rights
will be adequate or that the Company's competitors will not independently
develop similar products.
The Company believes that developers of multimedia products may
increasingly be subject to such claims as the number of products and
competitors in the industry grows and the functionality of such products in
the industry overlaps. Any such claim, with or without merit, could result
in costly litigation and could have a material adverse effect on the Company.
LACK OF PRODUCT LIABILITY INSURANCE. The Company may face a risk of
exposure to product liability claims in the event that use of its products is
alleged to have resulted in damage to its customers. The Company does not
currently carry product liability insurance. There can be no assurance that
such insurance will be available on commercially reasonable terms, or at all,
or that such insurance, even if obtained, would adequately cover any product
liability claim. A product liability or other claim with respect to
uninsured liabilities or in excess of insured liabilities could have a
material adverse effect on the business and prospects of the Company.
65
