<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the interim period ended June 30, 1996
[ ] Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the transition period from to
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Commission file number 333-02148
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MICROLEAGUE MULTIMEDIA, INC.
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(Name of Small Business Issuer in its Charter)
Delaware 23-2563090
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
750 Dawson Drive
Newark, Delaware 19713
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(302) 368-9990
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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.
Yes No X *
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As of August 14, 1996, the registrant had outstanding 3,927,667 shares
of Common Stock, par value $.01 per share.
Transitional Small Business Disclosure Format (check one):
Yes No
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* The issuer became subject to the reporting requirements of the Securities
Exchange Act of 1934 as amended, on May 23, 1996.
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MICROLEAGUE MULTIMEDIA, INC.
QUARTERLY REPORT ON FORM 10-QSB FOR THE INTERIM
PERIOD ENDED JUNE 30, 1996
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Balance Sheets, June 30, 1996 & December 31, 1995............... 3
Consolidated Statements of Operations, six months ended
June 30, 1996, and June 30, 1995......................................... 4
Consolidated Statements of Operations, quarters ended June 30, 1996 and
1995......................................................................... 5
Consolidated Statements of Cash Flows, six months ended
June 30, 1996 & 1995 .................................................... 6
Notes to Consolidated Financial Statements................................... 7
ITEM 2. Management Discussion and Analysis.................................. 8
PART II. OTHER INFORMATION
ITEM 5. Other Information
ITEM 6. Exhibits
<PAGE>
MICROLEAGUE MULTIMEDIA, INC..
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 & DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS June 30, 1996 Dec. 31, 1995
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(unaudited)
<S> <C> <C>
Cash and cash equivalents $1,190,279 $6,754
Accounts receivable, less allowance
for Sales Returns of $430, 000 1,122,128 1,763,124
and $444,000
Inventories 1,268,913 916,715
Royalty advances 548,717 295,702
Prepaid and other current assets 365,960 247,500
Income tax receivable 415,941 0
Deferred tax asset 342,976 208,300
Total Current Assets 5,254,914 3,438,095
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Property, plant and equipment, net 708,059 425,162
Capitalized software costs 461,678 370,021
Goodwill 733,710 771,210
Intangible assets 191,651 262,638
Other assets 129,265 107,413
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Total assets $7,479,277 $5,374,539
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable - bank $0 $2,281,372
Current portion of long-term debt 282,299 391,530
Accounts payable 1,113,522 1,109,625
Other accrued liabilities 381,877 238,813
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Total current liabilities 1,777,698 4,021,340
============ ============
Long-term debt 1,095,159 1,019,602
Deferred tax liability 238,671 192,000
Total liabilities 3,111,528 5,232,942
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Commitments and contingencies
Stockholders' equity:
Common Stock 39,297 26,749
Additional Paid-in Capital 7,398,000 2,057,158
Accumulated deficiency (3,069,548) (1,872,380)
Less: receivable from stockholders 0 (69,930)
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Total stockholders's equity 4,367,749 141,597
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Total liabilities and stockholders' equity $7,479,277 $5,374,539
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
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MICROLEAGUE MULTIMEDIA, INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 & JUNE 30, 1995
1996 1995
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(unaudited) (unaudited)
Net sales $1,989,128 $1,318,594
Cost of goods sold 1,308,801 968,140
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Gross profit 680,327 350,454
Operating expenses:
Product development 215,147 76,286
Selling 714,855 267,795
General & Admin 967,563 646,058
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Income from operations (1,217,238) (639,685)
Interest expense 143,574 114,592
Other income, net 0 4,054
Provision for income taxes, before
extraordinary items (367,825) 0
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Income before extraordinary items ($992,987) ($758,331)
Extraordinary items, net of tax effect 204,181 0
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Net (Loss) ($1,197,168) ($758,331)
============= ============
Net (Loss) per common share ($0.37) ($0.26)
Weighted average common
shares outstanding 3,227,177 2,901,845
The accompanying notes are an integral part of the
consolidated financial statements.
4
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MICROLEAGUE MULTIMEDIA, INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 & JUNE 30, 1995
1996 1995
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(unaudited) (unaudited)
Net sales $857,555 $726,640
Cost of goods sold 561,817 574,226
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Gross profit 295,738 188,414
Operating expenses:
Product development 173,619 69,495
Selling 523,756 166,162
General & Admin 450,775 245,398
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Income from operations (852,412) (292,641)
Interest expense 52,957 52,571
Other income, net 0 4,054
Provision for income taxes, before
extraordinary items (283,133) 0
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Income before extraordinary items (622,236) (349,266)
Extraordinary items, net of tax effect 204,181 0
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Net (Loss) ($826,417) ($349,266)
============= ============
Net (Loss) per common share
before extraordinary item ($0.18) -
Net (Loss) per common share ($0.24) ($0.12)
Weighted average common
shares outstanding 3,490,928 2,937,978
The accompanying notes are an integral part of the
consolidated financial statements.
5
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MICROLEAGUE MULTIMEDIA, INC.
CONSOLIDATED CASH FLOW STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 & 1995
<TABLE>
<CAPTION>
1996 1995
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(unaudited) (unaudited)
<S> <C> <C>
Net loss ($1,197,168) ($758,331)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 323,984 68,399
Provision for doubtful accounts 178,123 275,000
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable 341,070 (542,699)
(Increase) in inventories (352,199) (83,988)
(Increase) in royalty advances (253,015) (31,025)
(Increase) in other current assets (669,077) 49,580
(Increase) in other assets (5,021) (481,173)
Increase in accounts payable 3,897 373,092
Increase in other accrued liabilities 189,735 47,394
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Net cash used in operating activities (1,439,670) (1,083,751)
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Cash flows used in investing activities:
Purchase of property, plant and equipment (345,217) (74,401)
Net increase in other assets 0
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Net cash used in investing activities (345,217) (74,401)
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Cash flows provided by financing activities
Payments of receivables by stockholders (69,930) 0
Net borrowings (payments) of long-term debt (33,674) 690,560
Net increase in note payable - bank (2,281,372) 89,500
Net increase in common stock & a.p.i.c. 5,353,388 309,275
------------ -------------
Net cash provided by financing activities 2,968,422 1,089,335
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Net increase in cash and cash equivalents 1,183,525 (68,817)
Cash and cash equivalents, beginning of year 6,754 73,345
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Cash and cash equivalents, end of year $1,190,279 $4,528
Supplemental cash flow disclosures:
Cash paid during the period for interest $87,844 $55,481
Noncash, financing activities:
Conversion of notes payable to common stock $84,023 $237,500
Capital lease obligations 186,282
Bridge loan OID interest expense 249,847
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
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MICROLEAGUE MULTIMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business:
The unaudited interim financial statements for Microleague Multimedia,
Inc. (the "Company") include the operations of APBA Game Company
("APBA") and Ablesoft, Inc. ("Ablesoft"), two interactive multimedia
product companies which were acquired by the Company in 1995, as well as
those of Microleague and Ferraul Corp., doing business as FoxFire
Printing ("FoxFire"). However, these financial statements do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The Company
sells its products primarily through software retailers, mail order,
wholesale clubs and mass market merchandisers throughout the United
States. The Company also provides commercial printing, graphic design
and manufacturing services. All significant intercompany accounts and
transactions have been eliminated. In the opinion of management, all
adjustments which are of a normal and recurring nature necessary for a
fair presentation of these financial statements have been included.
Certain accounts have been reclassified from the prior year and prior
interim period presentation.
2. Inventory
Inventory, net of valuation allowances consisted of the following:
June 30, 1996 December 31, 1995
Raw materials............... $ 68,832 $ 24,695
Work-in-process............. 187,874 86,082
Finished goods.............. 1,012,207 805,938
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Total............... $1,268,913 $916,715
========== ========
3. Earnings Per Share
Net income per share of Common Stock for the six months ended June 30,
1996 and 1995 is computed based upon the weighted average number of
shares of Common Stock outstanding during the applicable period plus the
effect of common shares contingently issuable, primarily from the
exercise of stock options and warrants.
4. Stockholders' Equity
During the second quarter of 1996, the Company completed an initial
public offering of 1,173,000 Units consisting of one share of Common
Stock, $.01 par value per Share, and one Redeemable Warrant. Each
Redeemable Warrant entitles the Holder to purchase one Share of Common
Stock of the Company at an exercise price of $6.27 at any time through
May 23, 1999. Each Redeemable warrant will be redeemable at the option
of the Company at a price of $.10 per Redeemable Warrant at any time
upon not less than 45 days' prior written notice, if the last sale price
of the Common Stock exceeds $8.00 for not fewer than 10 of the 15
consecutive trading days ending on the third trading day prior to the
date on which the notice of redemption is given.
7
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5. Extraordinary Items
In February 1996, the Company raised $800,000 through the sale of Bridge
Units, consisting of Bridge Notes due upon the earlier of the
consummation of the public stock offering or 12 months from the date of
issuance and Bridge Warrants to acquire 160,000 shares of Common Stock.
The Bridge Notes were repaid upon the closing of the Offering. The
Company incurred and extraordinary pre-tax charge to earnings in 1996 of
approximately $250,000 relating to deemed interest and deferred
financing costs resulting from its offering in February 1996 of the
Bridge Units.
The Company prepaid promissory notes issued by the Company to the
Interactive Multimedia Limited Partnership and to certain related
parties who own an interest in certain technology relating to two of the
Company's products and who are entitled to receive a royalty equal to
12% of the net cash proceeds from sales of those products. As result of
the prepayment of the notes totaling $224,590 and to terminate the
royalty rights of the aforementioned products, the Company incurred an
extraordinary pre-tax charge of approximately $90,000.
6. Subsequent Event
On July 3, 1996, 78,000 non-qualified stock options were issued to
employees of the Company under the Company's 1996 Equity Compensation
Plan. These options were issued with an exercise price equal to the
Company's closing common stock price on July 3, 1996 and vest in three
equal annual installments beginning on July 3, 1997. These options
expire on July 2, 2006.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations for the Six Months Ended June 30, 1996 as compared to the
Six Months Ended June 30 1995
Net sales increased 50%, or by $700,000, from approximately $1.3 million for the
six months ended June 30, 1995, to approximately $2.0 million for the six months
ended June 30, 1996. The increase is attributable to the Company's multimedia
product revenues, which increased by 91% or approximately $650,000. The
Company's publishing services group also increased its affiliate venture
publishing sales and its commercial printing sales by approximately 4% or
$30,000. As a result of increased sales through retail distribution channels,
the Company in 1996, provided for returns at approximately 18 % of gross sales,
as compared with 15% in 1995.
Costs of goods sold increased by 35%, or $350,000 from approximately $950,000
for the six months ended June 30, 1995, to approximately $1.3 million for the
six months ended June 30, 1996. As a percentage of net sales, cost of goods sold
decreased from approximately 70% in the first six months of 1995 to
approximately 65% for the first six months of 1996. The decrease in cost of
goods sold as a percentage of net sales is a result of an increase in software
sales in the Company's sales mix, which has a higher gross profit margin than
the Company's manufacturing and service sales, as well as a result of improved
efficiencies in production.
Development expenses increased by 190%, or by $140,000 from approximately
$75,000 for the six months ended June 30, 1995, to approximately $215,000 for
the six months ended June 30, 1996. This substantial increase in development
expenses is primarily due to the Company hiring additional development personnel
in 1996 including Ed Ringler, the Company's new vice president of development.
These expenses, which are net of the portion capitalized for software
development, were incurred as part of the Company's goal to improve the
consistency of new product flow. In this regard, the Company is currently
negotiating with Mr. Ringler to acquire the assets of Ringler Studios as well as
negotiating with Asylum Entertainment, Inc. to acquire its assets to upgrade the
Company's internal development capabilities.
Marketing and selling and expenses increased from approximately $250,000 for the
six months ended June 30, 1995 to approximately $700,000 in the six months ended
June 30, 1996. As a percentage of sales, marketing and selling, expenses
increased significantly from approximately 20% for the six months ended June 30,
1995 to approximately 35% for the six months ended June 30, 1996. The
significant increase is primarily due to: the Company attempting to gain more
control over its software distribution channel, breaking into new distribution
outlets through the establishment of private label programs, and establishing
MMI Online, the Company's new revenue center utilizing the Internet. To gain
more control over its primary distribution channel, the Company provided
significant marketing and development funds to retailers in the second quarter
to preserve shelf space for the fourth quarter, which is traditionally the
Company's best quarter for revenues. In terms of private label programs, the
Company entered into an original equipment manufacturer contract with GTE
Interactive in the second quarter, for which no revenue has yet been recognized,
but which the Company believes will produce revenues during the next 18 months.
Selling expenses also increased because of sales and promotional activities
generated during the second quarter of 1996 introducing new products of MMI
Online, the Company's new internet revenue center, designed to both increase
revenues as well as help dampen the impact of seasonality on the Company's
revenues. These products, which include among others, Danny Sheridan's Football
Pool `96 for Windows and APBA Football Challenge `96, will generate revenues in
the third and fourth quarters of 1996. In addition, increased sales personnel
and increased marketing activities to promote the Company's products and brand
names also contributed to the large increase in selling and marketing expenses.
The Company intends to continue to launch new marketing promotions.
9
<PAGE>
General and administrative expenses increased by 46%, or by approximately
$300,000, from approximately $650,000 for the six months ended June 30, 1995, to
approximately $950,000 for the six months ended June 30, 1996. This large
increase is primarily due to the Company hiring several personnel in finance and
administration, to facilitate the Company's expansion as well as to assist with
financial reporting. Amortization of goodwill and other intangible assets
related to the Ablesoft acquisition, which occurred on September 30, 1995,
represents 30% or approximately $90,000 of the increase in general and
administrative expenses from the six months ended June 30, 1995 as compared to
the six months ended June 30, 1996. In addition, the Company's establishment of
MMI Online as well as the increase in the Company's development personnel and
resources also contributed to the increase in general and administrative
expenses.
Interest expense increased by 25%, or by approximately $30,000, from
approximately $115,000 for the six months ended June 30, 1995, to approximately
$145,000 for the six months ended June 30, 1996. The increase is a result of the
Company increasing its line of credit facility from $1.9 million at December 31,
1994 to $2.35 million at December 31, 1995, as well as the debt of approximately
$475,000 incurred in connection with the Ablesoft acquisition, and $800,000 in
Bridge Notes issued in February, 1996.
As a result of the Company's acquisition of Ablesoft on September 30, 1995, the
Company converted to a C corporation from an S corporation on October 1, 1995.
Thus, for the six months ended June 30, 1995, the Company was not subject to
federal and state corporate income taxes. The effective tax rate for the six
months ended June 30, 1996 of approximately 27%, is primarily due to the effect
of deferred taxes offsetting the income tax provision at statutory rates.
In connection with the Company's sale of Bridge Notes in February 1996, which
raised approximately $800,000, the Company incurred approximately $250,000 in
deemed interest and deferred financing costs upon the Company's completion of
its initial public offering in May 1996. In addition, the Company also incurred
in May approximately $90,000 relating to premiums over principal relative to the
early retirement of certain partnership debt interests. These extraordinary
items have been reflected net of taxes at statutory rates, which approximate
40%.
Financial Condition
Liquidity and Capital Resources
The Company has historically not been able to generate sufficient cash flow to
fund operations. Prior to 1996, working capital deficiencies were funded
principally through private placements of securities. Prior to the completion of
these private placements, the Company relied primarily on cash flow from
operations and borrowings under its line of credit to finance its operations and
expansion. However, in February 1996, the Company raised an additional $800,000
through the sale of eight Bridge Units, each consisting of $100,000 principal
amount of Bridge Notes due upon the earlier of the consummation of this offering
or 12 months from the date of issuance thereof and Bridge Warrants to acquire
160,000 shares of Common Stock. The Company used these funds to fund its
operations, including product development, sales and marketing and
administrative expenses as well as transaction costs.
10
<PAGE>
In May 1996, the Company raised net proceeds of approximately $4,400,000 through
an initial public offering of 1,020,000 units, which were comprised of one
shares of common stock and one common stock purchase warrant. Pursuant to the
offering, in June 1996, the Company raised net proceeds of approximately
$770,000 through the sale of the underwriter's over-allotment option, in which
securities totaling an additional 15% relative to the initial public offering,
or 153,000 units, were sold. The Company has used approximately $2.4 million of
these proceeds to pay down bank debt and the aforementioned bridge loan notes.
The Company intends to use the remaining proceeds to fund product development,
redeem certain partnership interests, and to provide working capital for general
corporate purposes. The Company believes that the net proceeds of this offering,
together with cash on hand and anticipated cash flow from operations, will be
sufficient to meet its needs in connection with its planned business expansion
through the next eight to twelve months. However, the Company's working capital
requirements may change depending upon numerous factors, including without
limitation the anticipated need to finance increased inventory and accounts
receivable arising from the sale and shipment of anticipated new products. The
Company has a bank line of credit facility for $1 million, which is related to
its inventory and accounts receivable, currently in place.
As of June 30, 1996, the Company has payment commitments of approximately
$180,000 under various product development agreements, $620,000 under its
facility and vehicle leases, and $1.9 million under existing employment
agreements with certain officers of the Company.
In the normal course of business, the Company evaluates potential acquisitions
and joint ventures that may complement the Company's business. While the Company
has no present plans, commitments or agreements with respect to any material
potential acquisitions or joint ventures other than as disclosed herein, the
Company may in the future consummate acquisitions or enter into joint ventures
which may require the Company to make additional capital expenditures, and such
expenditures may be significant.
Seasonality
The consumer electronics market is characterized by significant seasonal swings
in demand, which typically peak in the fourth quarter of each year. The seasonal
pattern is due primarily to the increased demand for software during the
year-end holiday buying season. The Company expects its net sales and operating
results to continue to reflect this seasonality. The Company's revenues may also
experience substantial variations as a result of a number of factors, such as
consumer preferences and introduction of competing titles by competitors. There
can be no assurance that the Company will achieve consistent profitability on a
quarterly or annual basis.
Inflation
The Company does not believe that inflation has had a material effect on its
results of operations in recent years. there can be no assurance, however, that
the Company' s business will not be affected by inflation in the future.
11
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other information
On May 23, 1996 the Company completed an initial public offering of
1,020,000 units, each unit consisting of one share of common stock
and one redeemable warrant. On June 6, 1996, the Company completed the
sale of the underwriters over-allotment related to the initial public
stock offering in which the Company sold an additional 153,000 units.
The Company received net proceeds of approximately $5.2 million from
the aforementioned sales of securities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 and Exchange Commission Regulation S-B.
10.31 Employment agreement dated June 27, 1996 between Microleague
Multimedia Inc. and Edward Ringler.
10.32 OEM Affiliate Venture Publishing agreement with GTE Interactive
11. Net loss per share calculations for the six months and the quarter
ended June 30, 1996.
12
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 14th day of August, 1996.
MICROLEAGUE MULTIMEDIA, INC.
By: /s/ Neil B. Swartz
-----------------------------------------
Neil B. Swartz
Chairman of the Board of Directors &
Chief Executive Officer
By: /s/ Peter R. Flanagan
-----------------------------------------
Peter R. Flanagan
Vice President and Chief Financial
Officer
13
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EMPLOYMENT AGREEMENT
This Agreement is made as of the 27th day of June, 1996 between
Microleague Multimedia, Inc., a Delaware corporation (the "Company"), and Edward
Ringler (the "Employee).
RECITALS
The Company desires to employ the Employee, and the Employee desires to
provide services to the Company, upon the terms and conditions hereinafter set
forth.
WITNESSETH
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment.
(a) The Company hereby employs the Employee and Employee hereby accepts
such employment. During the term of Employee's employment under this Agreement
(the "Employment Term") the Employee shall be an Executive Vice President for
New Business and Product Development of the Company and shall perform such
duties as are assigned by the CEO or President. Employee shall not be required
to perform his primary duties hereunder outside of a 35 mile radius of Orange
County, California, provided that Employee will respond to such requests for
travel as may from to time be made of him in performance of his duties.
(b) Employee represents to the Company that he is not subject or a
party to any employment agreement, non-competition covenant, non-disclosure
agreement or any other agreement, covenant, understanding or restriction of any
nature which would prohibit Employee from executing this Agreement and
performing fully his duties and responsibilities hereunder, or which would in
any manner, directly or indirectly, limit or affect the duties and
responsibilities which are now or in the future be assigned to Employee by the
Company.
2. Performance.
The Employee shall devote his entire business efforts to the
performance of his duties hereunder. Employee represents that Employee has
significant experience in development of multimedia computer software titles for
retail sale and acknowledges that the Company has hired Employee to manage
development of new software titles as evidenced in Appendix A. Employee also
represents that he has significant experience in successfully negotiating
licensing of software titles and content for software to be developed, and
acknowledges that the Company is relying on that experience and Employee's
industry contacts in entering into this Agreement.
<PAGE>
3. Term.
The Employment Term shall begin on the date hereof and shall continue
until June 27, 1999 unless terminated prior thereto in accordance with Sections
5 or 6.
4. Compensation for Employment.
(a) The basic annual rate of compensation of the Employee for his
employment service to the Company during the Employment Term shall be $97,500
(such amount, as adjusted in accordance with this Section 4, is referred to
herein as the "Salary"), which the Company shall pay to the Employee in equal
installments in accordance with the normal payroll policies of the Company.
(b) The Employee shall be eligible to receive a bonus in an amount
equal to at least $40,000 (the "Bonus) upon the achievement of the performance
milestone set forth in Exhibit A hereto.
(c) During the Employment Term, the Company shall provide the Employee
with such fringe benefits, including but not limited to medical and dental and
401K Plan contributions as are provided to other senior officers of the Company.
(d) The Company shall reimburse Employee for all expenses reasonably
incurred by Employee in performance of his duties, including but not limited to
any reasonable expenses incurred in connection with office space, phone, fax
lines, utility expenses, automobile and reasonable automobile expenses including
car telephone, Internet/On-Line accounts, subscriptions, office supplies, air
travel, hotel and car rental expenses. Employee shall be paid on the first day
of each month hereunder an expense advance of $2,000, and expenditures in any
month in excess of such advance shall be subject to the approval of the Company,
which approval will not unreasonably be withheld.
(e) Employee shall be granted upon inception of employment hereunder
options to purchase 25,000 shares of the Common Stock of the Company exercisable
at the market price of the Company's Common Stock the first day of employment
hereunder. Options to purchase 25,000 shares of the Common Stock of the
Company's shall vest immediately on the beginning date of the Employment Term,
and options to purchase 50,000 shares of the Common Stock of the Company shall
vest at the earlier of completion of products as discussed in Exhibit A, or,
after four (4) full years of the beginning date of the Employment Term, or
immediately upon any termination of the Employment term without Cause. Said
option shall be granted pursuant to the terms of the Company's 1996 Equity
Compensation Plan, shall be granted as incentive stock options under said Plan
within the meaning of Section 422 of the Internal Revenue Code, and shall be
subject to the terms and conditions of said Plan and the Company's standard
option agreement to be executed by all employees eligible to participate.
5. Termination Without Compensation.
(a) Total Disability. If the Employee becomes totally disabled (as
defined below), the Company may terminate the Employment Term by notice to the
Employee, and as of the termination date, the Company shall have no further
<PAGE>
liability or obligation to the Employee hereunder except as follows: the
Employee shall receive (i) any unpaid Salary and Fringe Benefits and Bonus, if
any, that have accrued through the date of termination; and (ii) whatever
benefits that he may be entitled to receive under any then existing disability
benefit plans of the Company, including any such plans included in the Fringe
Benefits. For the purposes hereof, the Employee shall be deemed to be "totally
disabled" if the Employee is considered totally disabled under any group
disability plan maintained by the Company and in effect at that time, or in the
absence of any such plan, under applicable Social Security regulations. In the
event of any dispute under this Section 5(a), the Employee shall submit to a
physical examination by a licensed physician mutually satisfactory to the
Company and the Employee, the cost of such examination to be paid by the
Company, and the determination of such physician shall be determinative.
(b) Death. If the Employee dies, this Employment Agreement shall
terminate on the date of death, and thereafter the Company shall not have any
further liability or obligation to the Employee, his executors, administrators,
heirs, assigns or any other person claiming under or through him except that the
Employee's estate shall receive any unpaid Salary and Fringe Benefits and Bonus,
if any, that have accrued through the date of termination.
(c) Cause. The Company may terminate the Employment Term for "cause" by
giving the Employee 30 days' notice of the termination date, and as of the
termination date, the Company shall not have any further liability or obligation
to the Employee, except that the Employee shall receive any unpaid Salary and
Fringe Benefits and Bonus, if any, that have accrued through the date of
termination, net of any liabilities that the Employee may have to the Company.
For purposes of this Agreement, "cause" shall mean the failure of the Employee
to (i) observe or perform (other than by reason of illness, injury or
incapacity) any of the material terms or provisions of this Agreement, (ii) the
failure to comply fully with the lawful directives of the Board or the
President, (iii) dishonesty, (iv) willful misconduct, (v) material neglect of
the Company's business, (vi) conviction of a felony or other crime involving
moral turpitude, (vii) misappropriation of funds or (viii) habitual insobriety.
In the case of a termination for "cause," the notice of termination shall
specify the basis for the Company's determination of "cause"; provided, however,
the in the case of conduct described in clauses (i), (ii) and (v) above, such
conduct shall constitute "cause" for the purposes of this paragraph (c) unless
(A) the CEO or President shall have given the Employee notice setting forth with
specificity (i) the conduct deemed to constitute "cause," (2) reasonable action
that would remedy the objectionable conduct, and (3) a reasonable time (not less
than 5 days) within which the Employee may take such remedial action and (B) the
Employee shall not have taken such specified remedial action within such
specified reasonable time.
6. Termination With Compensation.
The Company shall have the right to terminate the Employment Term
without cause at any time by giving the Employee 30 days' notice of the
termination date. Under such circumstances, the Company shall continue to pay to
the Employee the Salary through the end of the Employment Term, unvested stock
options granted pursuant to Section 4(c) hereof shall vest, and as of the
termination date, the Company shall not have any further liability or obligation
to the Employee. The Salary to be paid under Section 6 and the unvested options
which vest hereunder are referred to herein as the "Termination Compensation."
The Employee shall not be entitled to any Termination Compensation unless the
Employee executes and delivers to the Company after a notice of termination a
<PAGE>
release in a form satisfactory to the Company in its sole discretion by which
the Employee releases the Company from all obligations and liabilities of any
type whatsoever, except for the Company's obligations with respect to the
Termination Compensation. The parties hereto acknowledge that the Termination
Compensation to be provided under this Section 6 is to be provided in
consideration for the above-specified release. The Company's obligations under
the Section 6 shall be reduced by and to the extent of any non-passive earnings
from a source other than the Company that are received by or accrued for the
benefit of the Employee during the remainder of the Employment Term; provided,
however, that such obligations shall only be so reduced by any such earnings
if the Company, upon written request from the Employee, grants a waiver of its
rights under Section 6 hereunder.
7. Agreement Not to Compete.
(a) The Employee covenants that for the period beginning on the
termination of Employee's employment hereunder, or beginning at the end of the
term hereof in the event of a termination under Section 6 hereof, and ending on
the first anniversary of the date of such termination of employment or
employment term (the "Restricted Period"), he will not, directly or indirectly,
own, manage, operate, join, control, finance or participate in the ownership,
management, operation, control or financing of, or be connected as a partner,
principal, agent, representative, consultant or otherwise with or use or permit
his name to be used in connection with any business or enterprise engaged
directly or indirectly in competition with the business conducted by the Company
at any time in the development of sports or entertainment multi-media products
(the "Business"). It is recognized by the Employee and the Company that the
Business is and is expected to continue to be conducted throughout the world and
that more narrow geographical limitations of any nature on this non-competition
covenant (and the non-solicitation covenants set forth in Section 7(b) are
therefore not appropriate. The foregoing restriction shall not be construed to
prohibit the ownership by Employee as a passive investment of not more than five
percent (5%) of any class of securities of any corporation which is engaged in
any of the foregoing businesses having a class of securities registered pursuant
to the Securities Exchange Act of 1934.
(b) The Employee covenants that during the Restricted Period he will
not, either directly or indirectly, (i) solicit the business of any person who
or which is an exclusive customer of the Company; or (ii) solicit the employment
of any person who is employed by the Company on a full or part-time basis at the
time of termination of Employees's employment hereunder.
(c) The Employee recognizes and acknowledges that by reason of his
employment by the Company, he has had access to Confidential Information
relating to the Business. The Employee acknowledges that such Confidential
Information is a valuable and unique asset and covenants that he will not
disclose any such Confidential Information after the date hereof to any person
for any reason whatsoever, unless such information (i) is in the public domain
through no wrongful act of Employee, (ii) has been rightfully received from a
third party without restriction and without breach of this Agreement or (iii)
except as may be required by law.
(d) The Employee acknowledges that the restrictions contained in this
Sections 7 are reasonable and necessary to protect the legitimate interests of
the Parent and the Company, and that any violation will result in irreparable
injury to the Parent and the Company.
<PAGE>
(e) The Employee agrees that the Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits and
other benefits arising from any violation of this Section 7, which rights shall
be cumulative and in addition to any other rights or remedies to which the
Company may be entitled. In the event that any of the provisions of this Section
7 should ever be indicated to exceed the time, geographic, product or service,
or other limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic, product or service, or other limitations permitted by applicable
law.
(f) The covenants set forth in this Section 7 shall be in addition to
not in limitation of any similar covenants set forth in the Purchase Agreement.
8. Inventions, Designs and Product Developments.
All inventions, innovations, designs, ideas and product developments,
developed or conceived by the Employee, solely or jointly with others, whether
or not patentable or copyrightable, at any time during the Employment Term or
during his employment by the Company prior to the commencement of the Employment
Term and that relate to the actual or planned business activities of the Company
(collectively, the "Developments") and all of the Employee's right, title and
interest therein, shall be the exclusive property of the Company. The Employee
hereby assigns, transfers and conveys to the Company all of his right, title and
interest in and to any and all such Developments. The Employee shall disclose
fully, as soon as practicable and in writing, all Developments to the Board. At
any time and from time to time, upon the request of the Company, the Employee
shall execute and deliver to the Company any and all instruments, documents and
papers, give evidence and do any and all other acts that, in the opinion of
counsel for the Company, are or may be necessary or desirable to document such
transfer or to enable the Company to file and prosecute applications for and to
acquire, maintain and enforce any and all patents, trademark registrations or
copyrights under United States or foreign law with respect to any such
Developments or to obtain any extension, validation, reissue, continuance or
renewal of any such patent, trademark or copyright. The Company will be
responsible for the preparation of any such instruments, documents and papers
and for the prosecution of any such proceedings and will reimburse the Employee
for all reasonable expenses incurred by him in compliance with the provisions of
this Section 8.
9. Confidential Information.
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer or product information or technical or business information of
the Company. All such information, other than any information that is in the
public domain through no act or omission of the Employee or which he is
<PAGE>
authorized to disclose, is referred to collectively as the "Company
Information." During and after the Employment Term, the Employee shall not (i)
use or exploit in any manner the Company Information for himself or any person,
partnership, association, corporation or other entity other than the Company,
(ii) remove any Company Information, or any reproduction thereof, from the
possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company, and all Company
Information maintained by the Employee thereafter, shall remain at all times the
exclusive property of the Company. The Employee shall return to the Company all
Company Information, and reproductions thereof, whether prepared by him or
others, that are in his possession immediately upon request and in any event
upon the completion of his employment by the Company.
10. Remedies.
The Employee expressly acknowledges that the remedy at law for any
breach of Sections 7, 8 and 9 will be inadequate and that upon any such breach
or threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to the remainder of this
Section 10, the rights conferred upon the Company by the preceding sentence
shall not be exclusive of, but shall be in addition to, any other rights or
remedies which the Company may have at law, in equity or otherwise.
11. General.
(a) Governing Law. The terms of this Agreement shall be governed by the
laws of the State of Delaware.
(b) Company. For purpose of Sections 7, 8, 9 and 10, the term "Company"
shall be deemed to include any incorporated or unincorporated entities that are
controlled, directly or indirectly, by the Company through ownership, agreement
or otherwise.
(c) Binding Effect. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successors as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
(d) Notices. All notices required to be given under this Agreement
shall be in writing and shall be deemed to have been given when personally
delivered or when mailed by registered or certified mail, postage prepaid,
return receipt requested, or when sent by Federal Express or other overnight
delivery service, addressed as follows:
<PAGE>
TO EMPLOYEE:
Mr. Edward Ringler
1442 E. Lincoln Avenue
Orange, CA 92669
with a copy to:
Robert M. Bennett, Esq.
MELROSE LAW CENTER
316 South Melrose Drive, Suite 100
Vista, CA 92083-6632
TO THE COMPANY:
Microleague Multimedia, Inc.
750 Dawson Drive
Newark, DE 19713
Attn: Neil B. Swartz, Chairman
with a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Fax: 215-963-4663
Attn: Stephen M. Goodman, Esquire
(e) Entire Agreement; Modification. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the termination of the Employment Term
and of the Employee's employment by the Company, this Agreement shall continue
to bind the parties for so long as any obligations remain under the terms of
this Agreement.
(g) Waiver. No waiver of any breach of this Agreement shall be
construed to be a waiver as to succeeding breaches.
(h) Severability. If any provision of this Agreement or application
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability, shall
not affect any other provision or application of this Agreement which can be
given effect without the invalid or unenforceable provision or application and
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto dully executed this Agreement as of the day and year first written
above.
MICROLEAGUE MULTIMEDIA, INC.
By: /s/ Neil B. Swartz
----------------------------------
Neil B. Swartz, Chairman
/s/ Edward Ringler
----------------------------------
Edward Ringler
<PAGE>
EXHIBIT A
Vesting of Bonus Compensation
Bonus Options
Satisfactory Completion of New Football Game $10,000 15,000
Satisfactory Completion of New Basketball Game 10,000 15,000
Satisfactory Completion of New Hockey Game 10,000 15,000
Satisfactory Completion of 10 New Titles 10,000 5,000
The terms "Completion" and "New" as used within this Exhibit A shall refer to
any retail or online service or product acquired by Company, or developed
internally or externally for Company, which is or becomes ready for publication,
distribution or sale by Company or any third party after the beginning date of
the Employment Term. The term "10 New Titles" as used within this Exhibit A
shall exclude for counting purposes the "New Football, Basketball, and Hockey
Games" listed above but shall include any derivatives or conversions of them or
any other "New" retail or online service or product.
<PAGE>
OEM AFFILIATE LABEL AGREEMENT
THIS OEM AFFILIATE LABEL AGREEMENT (the "Agreement") is entered into
this 19th day of June, 1996, by and between MICROLEAGUE MULTIMEDIA, INC., a
Pennsylvania corporation ("Company") and GTE INTERACTIVE MEDIA, a division of
GTE CORPORATION ("GTE-IM"). In consideration of the promises and the mutual
covenants and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Company and GTE-IM hereby agree as follows:
1. Definitions.
(a) "Company Products", as used herein, shall mean the products listed
in Exhibit A (Company Products-Frontline) and Exhibit B (Company
Products-General Admission) attached hereto.
(b) "Confidential Information", as used herein, shall mean all
information provided by one of the parties to the other party hereto which is
marked or indicated by the disclosing party to be confidential, including,
without limitation, technical information not included in user documentation
relating to Company Products, customer lists, marketing plans, financial
information and the terms of this Agreement.
(c) "Effective Date", as used herein, shall mean the date of execution
of this Agreement by both parties hereto.
(d) "Expiration Date", as used herein, shall mean the date that is
exactly one (1) year after the Effective Date.
(e) "Net OEM Price", as used herein, shall mean the price of each
Company Product for sale to any hardware manufacturer or other OEM entity, less
the following: (i) cost of goods (e.g., replicating, shrink wrapping and other
physical manufacturing costs); (ii) returns or refunds, (iii) discounts; and
(iv) only as to titles no. 1 through no. 20 in Exhibit B attached hereto, bad
debt. "Net OEM Revenue", as used herein, shall mean revenue from sales of the
Company Products based on the Net OEM Price.
"Proprietary Rights", as used herein, shall mean any and all rights
held by either party hereto, including, without limitation, patent, copyright,
mask work/topography/circuit layout rights, authors' rights, trademarks, trade
names, know-how and trade secrets, irrespective of whether such rights arise
under U.S. or international intellectual property, unfair competition or trade
secret laws.
(g) "Term", as used herein, shall mean the operative term of the
Agreement commencing on the Effective Date and ending on the Expiration Date.
(h) "Territoy", as used herein, shall mean the universe (or as
otherwise specifically limited by Exhibits A and B attached hereto), for OEM
sales only.
2. License Grant.
(a) License. Company hereby grants to GTE-IM and GTE-IM accepts, for
the Term, the following exclusive rights: (i) with respect to titles no. 1
through no. 14 in Exhibit A attached hereto, the exclusive right to contract
with OEMs for the "hard" bundling of such Company Products in the Territory and
the non-exclusive right to contract with related entities for the "soft" (e.g.,
soft-packs, single unit licenses) bundling of such Company Products in the
Territory, it being agreed and understood by GTE-IM that GTE-IM must receive
Company's approval to execute such "soft-pack" and single unit licenses with
respect to titles no. 1 through no. 14; (ii) with respect to titles no. 1
through 20 in Exhibit B attached hereto, the exclusive right to contract with
OEMs for the hard bundling of such Company Products in the
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<PAGE>
Territory and the non-exclusive right to contract with related entities for the
soft bundling of such Company Products in the Territory, it being agreed and
understood by Company that GTE-IM may execute such soft-pack and single unit
licenses with respect to titles no. 1 through no. 28 without receiving Company's
prior approval of same. It is expressly agreed and acknowledged by GTE-IM that
GTE-IM may not contract with the following entities with respect to any Company
Product: SoftKey, Expert, Cosmi and GT Interactive-Slash. It is expressly
agreed and acknowledged by Company that GTE-IM may book OEM contracts whose
terms extend up to (but no more than) two (2) calendar years beyond the Term.
(b) GTE-IM's Obligations. GTE-IM agrees to use its best efforts to
achieve maximum OEM sales of Company Products and agrees to establish an
adequate sales network therefor, consistent with good business ethics and in a
manner that shall reflect favorably on Company and on the goodwill and
reputation of Company.
(c) New Versions. In the event that any Company Product is superseded
by a new version of said Company Product, Company shall give GTE-IM written
notice of such new version. GTE-IM shall have the right to obtain the new
version of said Company Product by returning the gold master of the superseded
Company Product within thirty (30) days of such notice from Company. Upon
return of the superseded gold master, together with an order for the new version
of said superseded Company Product, Company shall ship to GTE-IM a gold master
version of the new Company Product, subject to the provisions of this Agreement,
and Company shall bear the costs of shipping and handling in connection
therewith.
3. Royalties.
(a) Royalty. In addition to the Advance, as of the date that GTE-IM has
actually collected One Hundred Thirty-Three Thousand Three Hundred Thirty-Three
and 33/100 Dollars ($133,333.33) in Net OEM Revenue (the "Revenue Threshold"),
GTE-IM shall pay to Company, within forty-five (45) days following the end of
each calendar quarter after the Revenue Threshold, a royalty equal to Seventy
Five Percent (75%) of the Net OEM Price on OEM sales of Company Products for
such calendar quarter (the "Royalty"), it being agreed and understood by Company
that GTE-IM shall have no obligation to pay any portion of the Royalty unless
and until GTE-IM meets the Revenue Threshold.
(b) Quarterly Payments. Royalty payments, based on the rates set forth
above, shall be made on a quarterly basis, it being agreed and understood by the
parties hereto that GTE-IM is not obligated to make royalty payments for any
quarter during which GTE-IM receives no net cash receipts from sales of Company
Products.
(c) Quarterly Reports. GTE-IM shall produce a written quarterly report
sent simultaneously to Company with any royalty payments to be made for said
quarter. Such quarterly report shall set forth in reasonable detail the manner
in which the subject royalty was calculated and shall also set forth gross sales
figures for the preceding quarter.
4. Advance/Guarantee.
(a) Advance. Subject to Company's delivery of those Company Products
scheduled for immediate delivery to GTE-IM upon execution of this Agreement,
GTE-IM shall pay a non-refundable advance of One Hundred Thousand and No/100
Dollars ($100,000.00) (the "Advance") directly to Company upon the mutual
execution of this Agreement.
(b) Guarantee. To the extent not then already paid to Company pursuant
to subsection 3(a) hereinabove, GTE-IM shall pay Company a total guarantee of
Two Hundred Thousand and No/Dollars ($200,000.00) (the "Guarantee"), to be
disbursed, only to the extent required, pursuant to the following
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<PAGE>
schedule: (i) Fifty Thousand and No/Dollars ($50,000.00) within thirty (30) days
after expiration of the Term; (ii) Fifty Thousand and No/Dollars ($50,000.00)
within thirty (30) days following the date that is exactly six (6) calendar
months after expiration of the Term; (iii) Fifty Thousand and No/Dollars
($50,000.00) within thirty (30) days following the date that is exactly twelve
(12) calendar months after expiration of the Term; and (iv) Fifty Thousand and
No/Dollars ($50,000.00) within thirty (30) days following the date that is
exactly eighteen (18) calendar months after expiration of the Term.
5. Public Relations. Company, at its sole cost and expense, shall be
responsible for any and all public relations activities associated with Company
Products. GTE-IM may undertake, at its sole cost and expense, public relations
activities in connection with Company Products, it being agreed and understood
that GTE-IM must receive Company's approval of any and all such proposed public
relations activities prior to GTE-IM undertaking same. A copy of any press
release issued by either party hereto in connection with Company Products shall
be sent at the time of said release to the non-issuing party.
6. Manufacturing. GTE-IM and/or the OEMs with whom GTE-IM contracts shall be
responsible for all costs associated with the manufacturing of Company Products,
including, without limitation, disc replication, costs of inserts, packaging,
boxing, shrink wrapping and shipping.
7. Company's Additional Duties.
(a) Delivery of Gold Masters. Pursuant to the schedule of delivery
dates set forth in Exhibit A attached hereto, Company shall submit to GTE-IM one
(1) copy of Company's gold master version of each Company Product (each, a "Gold
Master"), with said Gold Master to be suitable for the platforms listed on
Exhibit A. Company hereby agrees to immediately notify GTE-IM in writing upon
the occurrence of any circumstances which may delay or otherwise adversely
affect delivery of the Gold Masters. It is expressly agreed and acknowledged by
Company that time is of the essence with respect to the delivery of Company
Products, and any failure by Company to deliver Company Products pursuant to the
delivery schedule for same set forth in Exhibit A attached hereto shall afford
GTE-IM the termination rights set forth in Section 11 (Termination)
hereinbelow.
(b) Testing. Company hereby agrees to test the operability of each
Company Product at its sole cost and expense in order to ensure that each Gold
Master is functional and fully operational by any and all relevant consumer and
industry standards. GTE-IM shall have the right, at its sole cost and expense,
to perform additional testing of Company Products.
(c) Acceptance of Gold Masters. GTE-IM shall notify Company within ten
(10) calendar days following receipt of the Gold Masters as to whether GTE-IM
shall accept said Gold Masters. If, in GTE-IM's reasonable discretion, GTE-IM
deems any of the Gold Masters unacceptable, GTE-IM shall promptly notify Company
in writing as to the specific grounds for rejection. GTE-IM and Company shall
work together in good faith to clarify what alterations and/or modifications may
be needed to be performed by Company to ensure that the given Company Product is
functional and fully operational by any and all relevant consumer and industry
standards. After any necessary alterations and/or modifications are performed,
Company shall resubmit a new Gold Master and this process shall be repeated
until such time as GTE-IM accepts the Gold Masters. Nothing herein shall be
construed as obligating Company to make non-technical alterations to any
Company Product; provided, however, GTE-IM reserves the right, in its sole and
absolute discretion, to refuse to accept and pay for any Company Product which
contains morally objectionable and/or offensive content.
(d) Technical Support. Throughout the Term, Company shall provide, at
its sole cost and expense, (i) as-needed technical support to consumers via
telephone and facsimile and (ii) as-needed instruction to GTE-IM and its
representatives for education and/or training as to the use of Company Products.
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<PAGE>
8. Intellectual Property Rights.
(a) Representations and Warranties. Company represents to GTE-IM that
(i) Company owns all necessary rights in and to the material contained in the
Company Products in order to grant GTE-IM the rights granted to it under this
Agreement, (ii) said Company Products do not infringe upon any copyright,
patent, mask work, trademark or other proprietary right of any third party and
(iii) Company has full authority to enter into this Agreement.
(b) Indemnification. Company agrees to protect, defend, indemnify and
hold harmless GTE-IM, its agents, directors, officers, employees and licensees
(collectively, "GTE-IM's Employees"), from and against any and all claims that
Company Products infringe the intellectual property rights of any third party.
(c) Restriction on Duplication. GTE-IM shall have no rights to
duplicate, translate, decompile, reverse engineer or adapt Company Products
without Company's prior written consent.
(d) Obligatign to Notify. GTE-IM shall promptly notify Company of any
unauthorized third-party duplication, distribution or use of Company Products
which comes to the attention of GTE-IM, and GTE-IM shall provide Company with
whatever reasonable assistance is necessary to stop such activities.
(e) Company Trademarks. GTE-IM shall not attempt to register any of
Company's trademarks, company names or trade names without Company's written
permission.
(f) Retention of Ownership. Nothing contained in this Agreement shall
be deemed to transfer ownership of intellectual property rights in the Company
Products from Company to GTE-IM. Company retains all rights to enforce its
patent, copyright, trademark, trade secret and other proprietary rights in and
to the Company products against infringements and misappropriation. On the
written request of Company, GTE-IM will promptly provide all reasonable
cooperation, at Company's expense, in connection with any enforcement activities
that Company may undertake during the Term.
9. Confidentiality.
(a) GTE-IM's Obligations. GTE-IM, on behalf of itself and its
employees, shall take all reasonable steps to safeguard the Company Products
distributed by it from any unauthorized use, duplication, sublicensing or
distribution.
(b) Joint Obligations. Each party hereto shall, on behalf of itself and
its employees and in consideration of the other party's Proprietary Rights,
retain all Confidential Information furnished by the other party hereto in
strictest confidence and shall not publish or disclose such Confidential
Information at any time during the Term of this Agreement or after its
termination.
10. Warranties.
(a) Operabilily. Company hereby warrants that all Gold Masters shall
operate substantially in accordance with the user documentation provided in
connection therewith. Company shall further make reasonable efforts to correct
any significant reproducible error in Gold Masters for which Company receives
written notice promptly after such error comes to the attention of GTE-IM,
provided such error relates to the proper functioning of Gold Masters and has
not been caused by negligence on the part of GTE-IM, computer malfunction or
other causes external to the Gold Masters.
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<PAGE>
(b) Freedom from Material Defects. Company hereby warrants that all
Gold Masters shall be free from material defects in materials and workmanship
under normal use for a period of ninety (90) days from the date of delivery by
Company to the GTE-IM.
(c) Applicability to New Versios. The warranties set forth in Sections
l0(a) and l0(b) shall also apply to any new versions of Company Products which
GTE-IM distributes in accordance with the terms and conditions of this
Agreement.
(d) No Waiver of Other Warranties. THE WARRANTIES CONTAINED IN SECTIONS
10(A), 10(B) AND 10(C) ARE IN ADDITION TO, AND NOT IN LIEU OF, ALL OTHER
WARRANTIES OR CONDITIONS, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
THOSE OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
11. Termination; Events of Termination. GTE-IM shall have the right to terminate
this Agreement for cause by written notice to Company at any time in the event
of any one or more of the following:
(i) any default by Company in the due observance or performance of any
term or condition of this Agreement (including, without limitation, delivery of
Company Products pursuant to the schedule of delivery dates set forth in Exhibit
A attached hereto), where such default shall have continued for a period of
thirty (30) days after written notice specifying the same shall have been given
by GTE-IM to Company;
(ii) any illegal, unfair or deceptive business practices or unethical
conduct whatsoever by Company, whether or not related to Company Products;
(iii) any sale of a majority interest in Company to a third party,
provided GTE-IM gives Company ninety (90) days' notice of termination, and
(iv) a receiver, liquidator, trustee or like official is appointed for
Company or any substantial portion of its property or Company files or consents
to any petition in bankruptcy or other insolvency proceedings or makes any
assignment for the benefit of creditors,
12. Limitatign of Remedies.
(a) Indemnification By Company. Company shall, at its sole cost and
expense, protect, defend, indemnify and hold GTE-IM and GTE-IM's Employees
harmless from and against any and all claims that (i) the Company Products
infringe or constitute wrongful use of any patent, copyright, trade secret or
other right of any third party or (ii) the Company Products are in any way
defective or do not conform to Company's published specifications, provided
GTE-IM gives Company prompt written notice of any such claim and provides
Company such reasonable cooperation and assistance as Company may request from
time to time in the defense thereof. Notwithstanding the foregoing, Company
shall have no obligation to defend or indemnify GTE-IM and/or GTE-IM's Employees
from and against any claim that is based on: (i) a grossly negligent or willful
act which is proven to be directly attributable to GTE-IM; (ii) the modification
by GTE-IM, or by a third party on behalf of GTE-IM, of the Company Products; or
(iii) the unauthorized combination of the Company Products with products or
materials of parties other than Company.
(b) Indemnification by GTE-IM. GTE-IM shall, at its sole cost and
expense, protect, defend, indemnify and hold Company and Company's agents,
licensees, employees, directors, officers and partners (collectively, "Company's
Employees") harmless from and against any claim that any part of the packaging
not previously approved in writing by Company infringes or constitutes wrongful
use of patent, copyright, trademark, trade name, trade secret or other right of
any third party based on a claim arising out of the breach of any of the
representations and warranties made and given by GTE-IM under
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<PAGE>
this Agreement. Notwithstanding the foregoing, GTE-IM shall have no obligation
to defend or indemnify Company and/or Company's Employees from and against any
claim that is based on a grossly negligent or willful act which is proven to be
directly attributable to Company.
13. Limitation on Liability. Notwithstanding anything to the contrary contained
herein, neither party hereto shall, under any circumstances, be liable to the
other party for consequential, incidental, or special damages, including but not
limited to lost profits, even it such party has been apprised of the likelihood
of such damages occurring.
14. Miscellaneous Provisions.
(a) Separability. In the event that any provision hereof shall be
held to be invalid by a court or other tribunal of competent jurisdiction, this
Agreement shall be considered divisible as to such provision and the remainder
of this Agreement shall remain valid and binding as though such provision were
not included herein.
(b) Entire Agreement. This Agreement, together with Exhibit A (Company
Products) attached hereto, contains the entire agreement between the parties
with respect to the subject matter herein contained and supersedes any prior
agreements between them relating to its subject matter, whether oral or written.
Any warranty, representation, promise or condition not incorporated herein shall
not be binding upon either party. No modification, renewal, extension or waiver
of this Agreement or any of its provisions shall be binding unless made in
writing and signed by the parties hereto, including modifications to Exhibit A
(Company Products) attached hereto.
(c) Independence of Parties. Nothing in this Agreement shall be
construed as creating a partnership or joint venture between the parties or
making GTE-IM an agent or employee of Company. In all of its operations
hereunder, Company shall conduct its business as an independent contractor at
its own cost and expense and shall have no authority to make any representation
or warranty on behalf of GTE-IM. Company shall be responsible for any
withholding taxes, payroll taxes, disability insurance payments, unemployment
taxes and other similar taxes or charges on the payments received by Company
hereunder.
(d) Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of California, except as to copyright
and trademark matters which shall be governed by the laws of the United States
and any applicable international conventions.
(e) Arbitration, Any and all disputes, disagreements and questions of
interpretation concerning or arising under the terms of this Agreement shall be
resolved by arbitration pursuant to the Federal Arbitration Act and the
Voluntary Labor Arbitration Rules of the American Arbitration Association.
Either party may initiate an arbitration proceeding at any time by giving thirty
(30) days' notice to the other party. The arbitrator shall have the power and
authority to interpret, apply or determine compliance with this Agreement only
insofar as shall be necessary to the determination of the dispute presented. The
arbitrator shall not have the power or authority to add to, detract from, or
alter in any way the provisions of this Agreement. The decision of the
arbitrator shall be final and binding upon the parties and shall be enforceable
in courts of proper jurisdiction.
(f) Waiver. Failure or delay on the part of Company or GTE-IM to
exercise any right, power or privilege hereunder shall not operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege preclude any other or further exercise thereof.
(g) Notices. Any notice, report, demand or other communication provided
for hereunder by either party to the other party hereto shall be in writing in
the English language and sent by first-class registered or certified airmail,
or by telex, facsimile or other electronic transmission addressed to the
6
<PAGE>
appropriate party at the following addresses, until changed by notice in writing
by either party hereto to the other party:
If to GTE-IM:
Mr. Jason Salecki
Director, OEM Sales
GTE Interactive Media
2035 Corte Del Nogal, #200
Carlsbad, California 92009
Telephone: (619) 431-8801
Facsimile: (619) 431-8755
with a copy to:
Timothy J. Cahill, Esq.
Cahill & Co., Inc.
MGM Plaza
2450 Broadway Avenue, Suite 550
Santa Monica, California 90404
Telephone: (310) 315-6355
Facsimile: (310) 315-6337
If to Company:
Mr. John Ferretti
President, COO
MicroLeague Multimedia, Inc.
750 Dawson Drive
Newark, Delaware 19713
Telephone: (302) 368-9990
(717) 872-6567
Facsimile., (302) 368-9219
(717) 871-9959
If sent by airmail, notice shall be effective fourteen (14) days from the date
of deposit with the post office. If sent by electronic transmission, notice
shall be effective one (1) day after transmission.
(h) Assignment. This Agreement shall not be assignable or transferable
by Company unless prior written consent is obtained from GTE-IM and provided
that any such approved assignee or transferee agrees in writing to be bound by
all of the terms, conditions, and obligations of this Agreement, including the
confidentiality provisions of this Agreement. GTE-IM may assign this Agreement
at any time, without receipt of Company's consent, to any entity which acquires
all or part of GTE-IM, or which is acquired in whole or in part by GTE-IM, or
which is controlled directly or indirectly by GTE-IM, or which entity controls,
directly or indirectly, GTE-IM ("GTE-IM Affiliate"), or which owns or is owned
by any GTE-IM Affiliate, so long as such transaction was not entered into as a
subterfuge to avoid the obligations and restrictions of the Agreement.
(i) Government Approval. If government approval is required before
this Agreement is legally enforceable, then such government approval is a
condition precedent to the validity of this Agreement. GTE-IM shall have no
obligations under this Agreement until such government approval has been
obtained and evidence of such approval has been received by GTE-IM. To the
extent that any governmental entity requires changes to be made to the terms of
this Agreement or the relationship between the parties, either party may, on ten
(10) day's written notice to the other, terminate this Agreement without
liability.
7
<PAGE>
(j) Right to Audit. The information contained in a royalty report shall
be conclusively deemed correct and binding upon Company, resulting in the loss
of all further audit rights with respect to such report, unless specifically
challenged by written notice from Company within ninety (90) days from the date
that such report was delivered by GTE-IM to Company. GTE-IM agrees to allow
Company's representatives to audit and analyze any relevant accounting records
of GTE-IM at GTE-IM's premises to verify accurate and full accounting for
payment of all monies due Company hereunder. Any such audit shall be permitted
during normal business hours upon ten (10) days' written notice to GTE-IM of
Company's written request therefor. Only one (1) audit may be carried out in a
given six (6) month period.
(k) Force Majeure. Neither party hereto shall be deemed to be in
default of this Agreement to the extent that performance of its obligations or
attempts to cure any breach are delayed or prevented by reason of any act of
God, fire, natural disaster, earthquake, act of government, shortages of
material or supplies or any other cause beyond the control of such party,
provided that such party gives the other party written notice promptly thereof
and, in any event, within fifteen (15) days of discovery thereof. In such an
event, the time for performance or cure shall be extended for a period equal to
the duration of the event, but not in excess of six (6) months.
IN WITNESS WHEREOF, Company and GTE-IM each has caused this Agreement to be
executed as of the date first set forth above.
GTE INTERACTIVE MEDIA, MICROLEAGUE MULTIMEDIA, INC.,
a division of GTE CORPORATION a Pennsylvania corporation
By: Paul E. XXXXXXXX By: XXXXXXXXXX
Its: Group VP/CEO Its: President 6-19-96
8
<PAGE>
EXHIBIT A
COMPANY PRODUCTS-FRONTLINE
<TABLE>
<CAPTION>
Products Delivery Dates Platforms Territory
- -------- -------------- --------- ---------
<S> <C> <C> <C>
1. MicroLeague Baseball 7/24/96 CD-ROM World
2. MicroLeague Baseball Preview 7/24/96 CD-ROM World
3. MicroLeague Football 1/1/97 CD-ROM World
4. MicroLeague Football Preview 1/l/97 CD-ROM World
5. MicroLeague Basketball 2/15/97 CD-ROM World
6. MicroLeague Hockey 2/15/97 CD-ROM World
7. Hooves of Thunder Execution CD-ROM World*
8. Teachers Toolbox Execution CD-ROM World
9. Card Collector Execution CD-ROM World
10. Comic Book Collector Execution CD-ROM World
11. Winning Edge Execution CD-ROM World
12. T.V. Guide Crossword Puzzle Execution CD-ROM World
13. First Impression Execution CD-ROM World
14. Wild Card Execution CD-ROM World
</TABLE>
*(excluding Korea and Taiwan)
9
<PAGE>
EXHIBIT B.
COMPANY PRODUCTS-GENERAL ADMISSION
<TABLE>
<CAPTION>
Products Delivery Dates Platforms Territory
- -------- -------------- ----------- --------
<S> <C> <C> <C>
1. Action Soccer Execution CD-ROM North Amedca
2. Quarter Pole Execution CD-ROM World
3. Realm of the Paladin Execution CD-ROM World
4. Sabre Team Execution CO-ROM North America
5. General Admission Football Execution CD-ROM World
6. Soccer Kid Execution CD-ROM North America
7. TV Guide Multimedia Crossword Execution CD-ROM World
8. Twisted Mini Golf Execution CD-ROM World
9. General Admission Baseball Execution CD-ROM World
10. Ultimate Cards Execution CD-ROM World
ii. Sports Pinball Baseball Execution CD-ROM World
12. Sports Pinball Basketball Execution CD-ROM World
13. Sports Pinball Football Execution CD-ROM World
14. Sports Pinball Hockey Execution CD-ROM World
15. Atlas of the U.S. Presidents Execution CD-ROM World
16. Readees Digest Multimedia Crossword Execution CD-ROM World
17. D-Day Execution CD-ROM World
18. Family Circus - Our House Execution CD-ROM World
19. World Vista Atlas Execution CD-ROM World
20, American Vista Atlas Execution CD-ROM World
21. Bible Lands, Bible Stories Execution CD-ROM World
22. Wildcard Gin Rummy Execution CD-ROM World
</TABLE>
10
<PAGE>
(EXHIBIT B, ctd.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
23. Wildcard Power Pinochle Execution CD-ROM World
24. Wildcard Finesse Bridge Execution CD-ROM World
25. Winning Edge Scoring System Execution CD-ROM World
26. Brix Execution CD-ROM North America
27. U.S. Vista Atlas Execution CD-ROM World
28. Family Circus: On Vacation Execution CD-ROM World
</TABLE>
11
<PAGE>
MICROLEAGUE MULTIMEDIA, INC.
WEIGHTED SHARES OUTSTANDING
QUARTER ENDED JUNE 30,1996
<TABLE>
<CAPTION>
DAYS WEIGHTED
# OF SHARES AVERAGE
QUARTER ENDED JUNE 30,1996 SHARES O/S SHARES 0
- --------------------------------------------------- ----------- ---------------- -------------
<S> <C> <C> <C>
BALANCE 3/31/96 2,756,667 *52/91 1,575,238
MAY 23, I.P.O. 1,020,000
-----------
3,776,667 *14/91 581,026
JUNE 6 - OVERALLOTMENT 153,000
-----------
BALANCE 6/30/96 3,929,667 *25/91 1,079.579
=========== =========
3,235,843
AVERAGE STOCK PRICE FOR QTR FOR T-STOCK METHOD
APRIL 1 TO IPO (MAY 23) $5.70 *52/91 $3.26
MAY 23 TO MAY 31 $6.46 *9/91 $0.64
JUNE 1 TO JUNE 30 $6.54 *30/91 $2.16
---------
$6.05
3,235,843
ADD: TREAS. STOCK METHOD FOR GLEKLEN WARRANTS
68,000 WARRANTS X $1.68, DIVIDED BY AVG. PRICE OF $6.05 PER SHARE,
EQUALS 18,883 SHARES BOUGHT BACK OUT OF 68,000 ISSUED
49,117 *91/91 49,117
ADD: SWARTZ & FERRETTI OPTIONS
USING TREAS. STOCK METHOD
95,000 OPTIONS X $1.55, DIVIDED BY AVG. PRICE OF $6.05 PER SHARE,
EQUALS 24,339 SHARES BOUGHT BACK OUT OF 95,000 ISSUED
70,661 *91/91 70,661
ADD: GUARRANTOR OPTIONS
USING TREAS. STOCK METHOD
140,000 OPTIONS X $2.84, DIVIDED BY AVG. PRICE OF $6.05 PER SHARE
EQUALS 65,719 SHARES BOUGHT BACK OUT OF 140,000 ISSUED
74,281 *91/91 74,281
ADD: FRITZ LIGHT OPTIONS
USING TREAS. STOCK METHOD
36,400 OPTIONS X $2.08, DIVIDED BY AVG. PRICE OF $6.05 PER SHARE,
EQUALS 12,514 SHARES BOUGHT BACK OUT OF 36,400 ISSUED
23,886 *91/91 23,886
COMMON STOCK WARRANTS-MAY
USING TREAS. STOCK METHOD
1,020,000 WARRANTS X $6.27, DIVIDED BY AVG. PRICE OF $6.05
EQUALS 990,000 SHARES BOUGHT BACK OUT OF 1,020,000 ISSUED
ANTI - DILUTIVE
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMON STOCK WARRANTS-JUNE
USING TREAS. STOCK METHOD
1,020,000 WARRANTS X $6.27, DIVIDED BY AVG. PRICE OF $6.05
EQUALS 977,890 SHARES BOUGHT BACK OUT OF 1,020,000 ISSUED
COMMON STOCK WARRANTS-JUNE ANTI - DILUTIVE
USING TREAS. STOCK METHOD
153,000 WARRANTS X $6.27, DIVIDED BY AVG. PRICE OF $6.05
EQUALS 146,684 SHARES BOUGHT BACK OUT OF 1,020,000 ISSUED
BRIDGE WARRANTS ANTI - DILUTIVE
USING TREAS. STOCK METHOD
160,000 WARRANTS X $3, DIVIDED BY AVG. PRICE OF $6.05
EQUALS 73,339 SHARES BOUGHT BACK OUT OF 160,000 ISSUED
86,661 *39/91 37,140
----------------
3,490,928
================
</TABLE>
<PAGE>
MICROLEAGUE MULTIMEDIA, INC.
WEIGHTED SHARES OUTSTANDING
SIX MONTHS ENDED JUNE 30,1996
<TABLE>
<CAPTION>
DAYS WEIGHTED
# OF SHARES AVERAGE
SIX MONTHS ENDED JUNE 30,1996 SHARES O/S SHARES 0
- --------------------------------------------------- ----------- ------------- -------------
<S> <C> <C> <C>
JAN. 1 THRU MAY 22 2,756,667 *142/181 2,162,689
MAY 23, I.P.O. 1,020,000
-----------
3,776,667 *14/181 292,118
JUNE 6 - OVERALLOTMENT 153,000
-----------
BALANCE 6/30/96 3,929,667 *25/181 542,772
================
2,997,579
AVERAGE STOCK PRICE FOR QTR FOR T-STOCK METHOD
JAN. 1 THROUGH MAY 22 $5.50 *142/181 $4.31
MAY 23 TO MAY 31 $6.46 *9/181 $0.32
JUNE 1 TO JUNE 30 $6.54 *30/181 $1.08
----------------
T-STOCK AVG. PRICE FOR PERIOD $5.72
================
2,997,579
ADD: TREAS. STOCK METHOD FOR GLEKLEN WARRANTS
68,000 WARRANTS X $1.68, DIVIDED BY AVG. PRICE OF $5.72 PER SHARE,
EQUALS 19,972 SHARES BOUGHT BACK OUT OF 68,000 ISSUED
48,028 *181/181 48,028
ADD: SWARTZ & FERRETTI OPTIONS
USING TREAS. STOCK METHOD
95,000 OPTIONS X $1.55, DIVIDED BY AVG. PRICE OF $5.72 PER SHARE,
EQUALS 25,743 SHARES BOUGHT BACK OUT OF 95,000 ISSUED
69.257 *181/181 69.257
ADD: GUARRANTOR OPTIONS
USING TREAS. STOCK METHOD
140,000 OPTIONS X $2.84, DIVIDED BY AVG. PRICE OF $5.72 PER SHARE
EQUALS 69,511 SHARES BOUGHT BACK OUT OF 140,000 ISSUED
70,489 *181/181 70,489
ADD: FRITZ LIGHT OPTIONS
USING TREAS. STOCK METHOD
36,400 OPTIONS X $2.08, DIVIDED BY AVG. PRICE OF $5.72 PER SHARE,
EQUALS 13,236 SHARES BOUGHT BACK OUT OF 36,400 ISSUED
23,164 *181/181 23,164
COMMON STOCK WARRANTS-MAY
USING TREAS. STOCK METHOD
1,020,000 WARRANTS X $6.27, DIVIDED BY AVG. PRICE OF $5.72
EQUALS 990,000 SHARES BOUGHT BACK OUT OF 1,020,000 ISSUED
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ANTI - DILUTIVE
COMMON STOCK WARRANTS-JUNE
USING TREAS. STOCK METHOD
1,020,000 WARRANTS X $6.27, DIVIDED BY AVG. PRICE OF $5.72
EQUALS 977,890 SHARES BOUGHT BACK OUT OF 1,020,000 ISSUED
ANTI - DILUTIVE
COMMON STOCK WARRANTS-JUNE
USING TREAS. STOCK METHOD
153,000 WARRANTS X $6.27, DIVIDED BY AVG. PRICE OF $5.72
EQUALS 146,684 SHARES BOUGHT BACK OUT OF 1,020,000 ISSUED
ANTI - DILUTIVE
BRIDGE WARRANTS-MAY
USING TREAS. STOCK METHOD
160,000 WARRANTS X $3, DIVIDED BY AVG. PRICE OF $5.72
EQUALS 73,395 SHARES BOUGHT BACK OUT OF 160,000 ISSUED
86,605 *39/181 18,661
----------------
3,227,177
================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001010395
<NAME> MICROLEAGUE MULTIMEDIA, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,190,279
<SECURITIES> 0
<RECEIVABLES> 1,552,128
<ALLOWANCES> 430,000
<INVENTORY> 1,268,913
<CURRENT-ASSETS> 5,254,914
<PP&E> 1,132,287
<DEPRECIATION> (424,228)
<TOTAL-ASSETS> 7,479,277
<CURRENT-LIABILITIES> 1,777,698
<BONDS> 0
0
0
<COMMON> 39,297
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,479,277
<SALES> 857,555
<TOTAL-REVENUES> 0
<CGS> 561,817
<TOTAL-COSTS> 1,148,150
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (905,369)
<INTEREST-EXPENSE> 52,957
<INCOME-PRETAX> (905,369)
<INCOME-TAX> (283,133)
<INCOME-CONTINUING> (622,236)
<DISCONTINUED> 0
<EXTRAORDINARY> (204,181)
<CHANGES> 0
<NET-INCOME> (826,417)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> .00
</TABLE>
