<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported): February 3, 1998
MULTIMEDIA GAMES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 0-28318 74-2611034
- --------------- ------------- -------------------
(State or other (File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
7335 S. Lewis Avenue, Suite 204, Tulsa, Oklahoma 74136
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (918) 494-0576
--------------
<PAGE> 2
Item 5. Other Events
On February 3, 1998, the Company learned that a complaint was filed on
February 2, 1998, by Network Gaming International Corporation ("NGI") in the
Federal District Court for the Northern District of Oklahoma (the "Court")
against the Company alleging, among other things, breach of contract,
misappropriation of trade secrets, fraud and interference with prospective
advantage. The Complaint, which seeks $62 million in damages and other specified
and unspecified relief, also names Gordon T. Graves, the Company's Chairman of
the Board, and Larry D. Montgomery, the Company's former President, as
individual defendants. On January 23, 1998, the Company had filed its own action
in the Court against NGI for breach of contract.
The dispute arises out of a series of related agreements entered into
between the parties in December 1995 and May and June 1996. In general, these
agreements contemplate the cross-licensing of certain intellectual property and
equipment distribution rights. In its January 23 complaint, the Company alleges
that NGI failed to perform certain obligations owed the Company under a
Licensing and Distribution Agreement wherein the Company granted certain rights
to NGI with respect to Canada and China and that NGI failed to perform certain
obligations owed the Company under a Licensing and Distribution Agreement
wherein NGI granted certain rights to the Company with respect to the United
States. In its February 2 complaint, NGI alleges just the opposite - that the
Company failed to perform the obligations owed by it to NGI under both
contracts.
These actions are in the very preliminary stages and no discovery has
yet been taken by either party. The Company intends to vigorously defend against
the claims of NGI and to prosecute its owns claims. Based upon the information
currently available to the Company, the Company believes that it will prevail on
the merits. However, the cost of defending the action could be substantial.
Item 7. Financial statements, Pro forma Financial Information and Exhibits.
Exhibit 99.1 Complaint For Breach of Contract and
Declaratory Relief filed by the Company in
the United States District Court for the
Northern District of Oklahoma on January 23,
1998.
Exhibit 99.2 Complaint filed by Network Gaming
International Corporation in the United
States District Court for the Northern
District of Oklahoma on February 2, 1998.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MULTIMEDIA GAMES, INC.
Dated: February 6, 1998 By: /s/ Frederick E. Roll
----------------------------------
Frederick E. Roll
Vice President - Finance and
Chief Financial Officer
<PAGE> 4
EXHIBIT INDEX
EXHIBIT NO.
- -----------
Exhibit 99.1 Complaint For Breach of Contract and Declaratory Relief
filed by the Company in the United States District Court for
the Northern District of Oklahoma on January 23, 1998.
Exhibit 99.2 Complaint filed by Network Gaming International
Corporation in the United States District Court for the
Northern District of Oklahoma on February 2, 1998.
<PAGE> 1
Exhibit 99.1
IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF OKLAHOMA
MULTIMEDIA GAMES, INC., A TEXAS )
CORPORATION, )
)
PLAINTIFF, )
)
v. )
)
NETWORK GAMING INTERNATIONAL )
CORPORATION, A CANADIAN )
CORPORATION, )
)
DEFENDANT, ) CASE NO. _______________
COMPLAINT FOR BREACH OF CONTRACT
AND DECLARATORY RELIEF
Plaintiff, Multimedia Games, Inc., ("Multimedia") for its Complaint
against defendant Network Gaming International Corporation ("NGI"), alleges and
states as follows:
PARTIES, JURISDICTION AND VENUE
1. Multimedia is a corporation formed and existing under the laws of the
State of Texas having its principal place of business in Tulsa, Oklahoma.
Multimedia is in the business of designing, developing, marketing and
maintaining various computer-based gaming systems, including, inter alia, a
system for the computer linking of high-speed computer bingo games at multiple
remote locations (the "MegaBingo System").
2. Network Gaming International Corporation ("NGI") is a foreign
corporation, formed and existing under the laws of Canada, with its principal
place of business in Vancouver, British Columbia, Canada. NGI is engaged in the
business of developing, marketing and distributing
<PAGE> 2
computer-based hardware and software systems for the electronic play of bingo
games. NGI was formerly known as AI Software, Inc. ("AIQ").
3. This Court may exercise jurisdiction over both the parties and the
subject matter of this action pursuant to 28 U.S.C. Section 1332.
4. Venue is proper in this District pursuant to 28 U.S.C. Section 1391.
FACTS
5. Multimedia adopts and realleges the allegations contained in paragraphs
1-4 of this Complaint.
6. In or about the end of 1995, Multimedia and AIQ began negotiations with
respect to the licensing arrangements between them for the distribution of bingo
and other game software and related assets. In furtherance of these
negotiations, on or about December 19, 1995, the parties entered into two letter
agreements, one licensing Multimedia to distribute AIQ software and assets in
the United States Native American Indian market and the State of Texas; and, one
licensing AIQ to distribute Multimedia bingo and game software in Canada and
China. AIQ, through a change of name, became Network Gaming International
Corporation ("NGI"), which obtained all right, title and interest of AIQ under
its agreements with Multimedia.
7. One of the products that has been developed by Multimedia is a computer
hardware and software system that allows playing of a high-speed bingo game on
individual player station units and linking of various individual high-speed
bingo games at multiple remote locations. This product is marketed under the
trademark name "MegaMania." Multimedia has been granted a Notice of Allowance
for this name by the United States Patent and Trademark Office, and its final
registration approval is pending.
<PAGE> 3
8. In furtherance of their relationship, Multimedia provided to NGI the
specifications for the MegaMania software and system so that NGI could develop a
derivative game to be run on NGI's remote bingo host units, or their platform of
choice.
9. In January of 1996, NGI began to seek financing from various sources
for the completion of the high speed bingo systems. NGI informed potential
financing sources that the parties' "target" was to place five thousand (5,000)
units in 1996 and 1997 in American Indian casinos. NGI informed Multimedia that
the representation of this target was crucial to secure the financing despite
repeated protests from Multimedia that such target was impracticable and, in all
likelihood, unreachable.
10. During the spring of 1996, Multimedia and NGI continued to finalize
the details of their agreement and NGI continued to seek financial backing for
the proposed distribution alliance between the parties. The parties also
installed, in March, the first prototype model of high speed bingo game unit
(the "MB-1000" unit) and NGI's derivative version of the MegaMania software on
the Cheyenne Arapaho Tribe's Indian reservation in Concho, Oklahoma.
11. On or about May 10, 1996, NGI and Multimedia entered into a written
License and Distribution Agreement intended to represent a more definitive
statement of the parties rights and obligations initially set forth in the
December, 1995 Letter Agreement. This License and Distribution Agreement granted
to Multimedia the right and license to distribute the MB-1000 unit and the NGI
software on any American Indian Reservations within the United States and at any
location within the State of Texas, (the "Agreement").
<PAGE> 4
12. Pursuant to the Agreement, NGI agreed to make available to Multimedia
"all designs, drawings, diagrams, programming and source code, operations
manuals, and all other technology . . . pertaining to the MB-1000 and NGI
Software."
13. Under the Agreement, Multimedia itself agreed to, subject to market
conditions and availability of units, use commercially reasonable efforts to
obtain minimum order levels of 5,000 of the MB-1000 units in each of two
subsequent twelve (12) month periods. Each unit sold or leased by NGI/AIQ during
these periods was to be applied to reduce this marketing commitment. 14. The
parties agreed that after November 1, 1996, Multimedia would use commercially
reasonable efforts to increase the sales of MB-1000 units for joint play of the
MegaMania game, the NGI electronic bingo games and other future games. To date,
Multimedia is informed and believes that NGI still does not have a working
electronic bingo product. During this same time period, Multimedia was also
involved in a licensing agreement with Game Tech. NGI was aware of this
agreement and the restrictions it placed on Multimedia.
15. The initial MB-1000 units placed by Multimedia included NGI's version
of its MegaMania software. Due to poor design and systems failures in the NGI
software, changes were required to be made to the derivative MegaMania software.
These changes were required in order to maintain a working system. Multimedia
requested numerous times that NGI make the necessary changes to the software for
its version of MegaMania. After delays, Multimedia informed NGI that all
software changes needed to be implemented in all remote locations by July 15,
1996.
16. NGI failed to support their product and did not make revisions to the
NGI version of the MegaMania software in a timely fashion, despite numerous
complaints by Multimedia that the software was experiencing numerous problems.
Multimedia then requested the source code for the
<PAGE> 5
MegaMania software, so that Multimedia could itself correct the problems and
implement the necessary changes to maintain the system. NGI refused to provide
the source code, despite its obligation under the Agreement to do so. NGI's
failure to support its derivative version of MegaMania and its refusal to
provide Multimedia with the source code interfered with Multimedia's ability to
perform under the Agreement.
17. Due to the problems with NGI's software, Multimedia was, in some
instances, forced to replace the NGI version of MegaMania with Multimedia's
MegaMania software in order to insure that the MG-1000 units continued to
function properly for customers and within National Indian Gaming Commission
("NIGC") guidelines. Multimedia's ability to place MB-1000 units and NGI's
version of MegaMania were substantially reduced due to the problems caused by
NGI.
FIRST CAUSE OF ACTION
(BREACH OF THE CONTRACT)
18. Multimedia adopts and realleges the allegations contained in
paragraphs 1-17 of the Complaint.
19. Pursuant to the Agreement, NGI had a duty to maintain its products and
make available to Multimedia all programming and source code for NGI software.
NGI refused to do so.
20. The actions of NGI in refusing to provide the source code for NGI's
version of MegaMania constitute a material breach of the Agreement.
21. Multimedia has been actually damaged as a direct result of this breach
by NGI in an amount to be proven at trial but believed to be in excess of Two
Hundred Fifty Thousand Dollars ($250,000.00).
<PAGE> 6
SECOND CAUSE OF ACTION
(DECLARATORY RELIEF)
22. Multimedia adopts and realleges the allegations contained in
paragraphs 1-22 of the Petition.
23. This is a matter of actual controversy between the parties that is
properly adjudicated pursuant to 28 U.S.C. Sections 2201, et seq.
24. The failure of NGI to correct technical errors and to provide source
code as required under the Agreement has caused significant problems with
Multimedia's customers and the function of the remote bingo stations placed by
Multimedia. In refusing to provide the required information, necessary for
Multimedia to properly service and support the units placed in various native
indian halls, NGI has wrongfully interfered with Multimedia's ability to place
units as called for under the Agreement.
25. Multimedia is entitled to a declaration of this Court that, based on
NGI's breaches of the Agreement, NGI has wrongfully interfered with Multimedia's
performance under the Agreement and, thus, NGI may not seek to declare
Multimedia in breach of the Agreement.
PRAYER FOR RELIEF
WHEREFORE, Multimedia prays that it be granted judgment in its favor and
against NGI as follows:
(a) Actual damages on its contractual claim to be proven at trial
but believed to be in excess of Two Hundred Fifty Thousand
Dollars ($250,000.00);
(b) A declaration of this Court that due to NGI's breach of the
Agreement, NGI has interfered with Multimedia's ability to
perform under the Agreement and may not now claim that
Multimedia is in breach thereof;
(c) An award of prejudgment and post-judgment interest and the
costs of bringing this action, including reasonable
attorneys' fees; and
(d) Such other relief as this Court deems just and proper.
<PAGE> 7
Respectfully submitted,
HALL, ESTILL, HARDWICK, GABLE,
GOLDEN & NELSON, P.C.
By:
-----------------------------------
Donald L. Kahl, OBA #4855
Heather E. Pollock, OBA#17333
320 South Boston Avenue
Suite 400
Tulsa, Oklahoma 74103-3708
(918) 594-0400
ATTORNEYS FOR PLAINTIFF
MULTIMEDIA GAMES, INC.
JURY TRIAL DEMANDED
<PAGE> 1
Exhibit 99.2
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OKLAHOMA
NETWORK GAMING INTERNATIONAL )
CORPORATION, a British Columbia, )
Canada corporation, )
)
Plaintiff, )
)
v. ) Case No._____________
)
MULTIMEDIA GAMES, INC., a Texas )
corporation, GORDON T. GRAVES, and )
LARRY D. MONTGOMERY, )
)
Defendants. ) JURY TRIAL DEMANDED
COMPLAINT
Network Gaming International Corporation ("NGI") for its claims against
Multimedia Games, Inc. ("MGAM"), and its officers Gordon T. Graves ("Graves"),
and Larry D. Montgomery ("Montgomery"), alleges and states:
PARTIES AND JURISDICTION
1. NGI, formerly known as A.I. Software, Inc, is a corporation founded
under the laws `of British Columbia, Canada, with its headquarters in Vancouver,
British Columbia, Canada.
2. MGAM is a Texas corporation with its corporate headquarters in
Tulsa, Oklahoma.
3. Graves at all times herein mentioned was Chairman of the Board,
Chief Executive Officer, and a Director of MGAM. He is a substantial shareholder
in MGAM who stood to benefit from the fraud alleged herein. He frequently visits
and works in Oklahoma, and his actions herein alleged occurred in Oklahoma, or
bore substantial contacts with Oklahoma.
<PAGE> 2
4. Montgomery at all times herein mentioned was President and a
Director of MGAM. He is a substantial shareholder in MGAM who stood to benefit
from the fraud alleged herein. He is a resident of Topeka, Kansas, but he worked
in Oklahoma and his actions herein alleged occurred in Oklahoma, or bore
substantial contacts with Oklahoma.
5. Jurisdiction is proper in this Court under 28 U.S.C. Section 1332.
COMPANY BACKGROUND
6. In or about April of 1995, NGI was in the business of developing,
manufacturing, and distributing certain computer-based hardware and software
systems. NGI possessed certain computer software for electronic bingo and it was
further developing such software (the "AIQ Software"). The AIQ Software was
dynamic in that it was continuously under development and undergoing
refinements. NGI possessed, or had access to, unique computer programming
capabilities for electronic bingo that enabled such continuing development of
software. NGI also had unique skills in the selection of hardware for its
software.
7. In or about April 1995, MGAM was in the business of developing and
distributing certain computer-based hardware and software systems for the
distribution, play, and reporting of bingo games on American Indian reservation
bingo halls throughout the United States ("Bingo Halls").
8. In or about April of 1995, MGAM utilized satellites for television
broadcast of its paper bingo game to Bingo Halls. MGAM also had what it called
MegaMania, an electronic bingo game, that used an electronic or computer player
station ("EPS"). MegaMania's profit earning capability was severely restricted
because MGAM lacked its own electronic player stations and, more importantly, it
lacked a high quality computer network software that would enable it to exploit
<PAGE> 3
the advantage of MegaMania and other electronic bingo games, i.e., numerous
simultaneous players of the game at numerous sites.
NEGOTIATIONS, MISREPRESENTATIONS AND AGREEMENTS
9. On or about January 1, 1995, MGAM's immediate plans were to run its
MegaMania bingo game on equipment owned by third parties in Bingo Halls.
10. Under these circumstances and prior to developing a relationship
with NGI, MGAM was essentially not profitable. For its fiscal year ended
September 30, 1993, MGAM lost. $898,946.00, and for its fiscal year ended
September 30, 1994, it lost $1,447,394.00. For the fiscal year ended September
30, 1995, MGAM showed a profit of $505,000.00, but this resulted from the sale
of interests in intellectual property. For the fiscal year, September 30, 1996,
MGAM had a profit of $40,000.00, but this also resulted from the sale of
interests in intellectual property. Consequently, through September 30, 1996
MGAM was not earning a profit on its bingo operation. After the dealings with
NGI alleged herein and MGAM's acquisition of rights for NGI, MGAM was able to
show a profit as of September 30, 1997 of $1,311,000.00.
11. In April 1995, Mr. Henry Jung ("Jung," the General Manager of NGI,
contacted MGAM, and thereafter met with Graves and Gary Watkins, Vice President
of MGAM, in Tulsa, Oklahoma at MGAM's headquarters. They negotiated, and caused
to be executed by MGAM and NGI, a Representation Letter dated April 26, 1995.
12. The Representation Letter set forth a specific representation made
by Graves and Watkins to Jung that MGAM would within one year place 5,000
electronic player stations that utilized the AIQ Software in Bingo Halls. (Later
charity bingo halls in the state of Texas were added.)
<PAGE> 4
13. Because of this representation made to Jung, NGI was willing to
grant to MGAM an exclusive right to utilize and distribute the AIQ Software in
specified areas.
14. Thereafter MGAM provided specifications for the MegaMania
electronic bingo game, which were to be incorporated in the further development
of the AIQ Software.
15. In October, 1995, MGAM advised of a test site to be used for the
MegaMania game in conjunction with the AIQ Software.
16. NGI thereafter delivered to MGAM's offices in December, 1995,
twenty electronic player stations which it paid for and sent with its then
developed AIQ Software to be used in operating the MegaMania game.
17. As of December 29, 1995, two Letter Agreements were entered between
MGAM and NGI concerning their business relationship. In one such letter MGAM
agreed, subject to market conditions, to place a minimum of 5,000 player
stations in calendar year 1996, and 5,000 player stations in calendar year 1997,
all subject to commercially reasonable efforts. Further, the parties agreed to
keep all intellectual property information confidential, except to the extent
that disclosure was required under applicable securities and corporate laws.
These provisions were also represented to NGI prior to their being made a part
of an agreement.
18. In January, 1996, the twenty units previously delivered for testing
were moved to the Lucky Star Casino in Concho, Oklahoma, and placed in service.
19. Given MGAM's representations and agreements, on or about February
22, 1996, NGI provided to MGAM a manual of procedures it developed entitled
"MegaMania Bingo Server Operations Manual," dated February 22, 1996. This had
stamped on it provisions for confidentiality.
<PAGE> 5
20. Thereafter, further negotiations occurred between MGAM and NGI.
These culminated in two agreements: A "License and Distribution Agreement,"
dated May 10, 1996 (the "LDA1") and a "License and Distribution Agreement,"
dated June 10, 1996 (the "LDA2").
21. Under LDA1, NGI granted to MGAM, among other things, the right and
license to distribute, sub-distribute, license, sub-license, assemble, market,
and otherwise exploit the MB-1000 and the AIQ Software. ("MB-1000" was a
designation for a computer hardware configuration that could support and run the
AIQ Software for electronic bingo, but it did not define a particular piece of
hardware.) The MB-1000 was intended to be used by individual players in Bingo
Halls, while the software utilized to run the MB-1000 was the AIQ Software. The
aforesaid rights granted to MGAM were exclusive, except for NGI's right to
jointly market and distribute the electronic bingo system, and pertained to the
State of Texas and all American Indian Reservations residing on United States'
lands.
22. In LDA2, MGAM granted to NGI, among other things, the right and
license to distribute, sub-distribute, license, sub-license, market and
otherwise exploit the MegaBingo system separately and in conjunction with MGAM
in certain defined territories, largely representing Canada and China. This
right granted to NGI was exclusive except for MGAM's right to jointly market and
distribute the MegaBingo system.
23. In the negotiations leading to LDA1 and LDA2, MGAM through Graves
and Montgomery, both of whom were in Oklahoma during the relevant times, made
the following representations to NGI through Jung, who was in Vancouver, in
various telephone conversations in April and May, 1996 with the intent that NGI
rely thereon which it did:
<PAGE> 6
a. That MGAM during each of two (2) twelve (12) month periods (i.e.,
November 1, 1996 - October 31, 1997, and November 1, 1997 - October 31, 1998),
would use commercially reasonable efforts to obtain a minimum of 5,000 orders
for MB-1000 electronic player stations in each of such periods. (Initially
Montgomery hesitated on representing this, but after talking to Graves he made
the representation to Jung over the telephone.)
b. That MGAM would join with NGI and jointly and separately develop and
execute strategies and plans to market and distribute the MB-1000.
c. That MGAM after November 1, 1996 would use commercially reasonable
efforts to increase sales of the MB-1000 for joint play of the MegaMania game,
the [NGI] electronic bingo games, the "pull-tabs" and/or future games or
products.
d. That during the term of the Agreement, MGAM would keep NGI fully
informed through a joint committee of the progress of its relevant work and any
pending or contemplated transactions.
e. That MGAM intended to participate meaningfully in "distribution
committee" meetings pertaining to the ongoing progress and development of the
joint efforts to be undertaken.
f. That MGAM would hold in the strictest of confidence all technical
specifications, trade secrets (if any), and other proprietary information,
materials or property pertaining to the MB-1000 and that the same would be used
solely for the purpose of the LDA1.
9. That MGAM would make available to NGI all designs, drawings,
diagrams, programming, and source codes, operations manuals, and all of their
technology, property, assets, and rights, including game rights and know-how
pertaining to the MegaBingo system for use by NGI in fulfilling rights acquired
under the LDA2.
<PAGE> 7
h. That MGAM would join with NGI in jointly marketing and distributing
the MegaBingo system in certain areas of Canada and the Republic of China as
envisioned in LDA2.
24. The aforesaid representations in paragraph "23" were false.
Moreover, at the time the aforesaid false representations were made, MGAM did
not intend to fulfill them. Rather, MGAM, Graves, and Montgomery knew that MGAM
intended to take the trade secrets of NGI, which included the AIQ Software, and
utilize them in the development of MGAM's own software for subsequent
implementation in its electronic player stations., and those jointly developed
through the LDA1. Further, MGAM had no intentions to perform under the LDA2, as
it represented. MGAM, Graves, and Montgomery concealed all these intentions from
NGI at all pertinent times.
25. The NGI trade secrets shared with MGAM included:
a. The AIQ Software;
b. Hardware specifications provided by NGI and NGI agents to
MGAM;
c. A grouping of software programs developed for or used by
NGI in its electronic bingo player stations that was provided to MGAM for its
use under the Letter Agreement;
d. Operational procedures and information contained within the
"MegaMania Bingo Server Operations Manual" dated February 22, 1996, provided to
MGAM under the Letter Agreement;
e. Electronic bingo software development techniques and
compilations developed for and used by NGI; and
f. Information provided by NGI consultants to MGAM as part of
joint operations under the LDA1.
(hereinafter collectively the "NGI Trade Secrets").
<PAGE> 8
PARTIAL PERFORMANCE OF LDA1
26. In response to MGAM's requests in June, 1996, an additional
twenty-five (25). electronic player stations were delivered by NGI to Concho,
and twenty-five (25) electronic player stations were delivered by NGI to the
Creek Nation bingo facility in Tulsa, Oklahoma.
27. From July, 1996 to October, 1996 revisions to the AIQ Software were
requested by MGAM which NGI provided.
28. From November 1, 1996 to in or about June 30, 1997, MGAM installed
approximately 962 MB-1000 units in Bingo Halls that ran the AIQ Software.
29. These actions enabled MGAM to establish a base of electronic player
stations that it owned in Bingo Halls upon which it could later in furtherance
of its scheme effect a substitution of its "own" software, and gave MGAM time to
utilize further the trade secrets of NGI to develop its own software referred to
as MGAM-2000, MegaMania Software.
FIRST CLAIM FOR RELIEF, BREACH OF LDA1
30. For its first claim for relief, NGI incorporates the allegations in
paragraphs 1 through 29, above.
31. The LDA1 included a promise by MGAM that it would do each of the
things that it represented in the negotiations leading to LDA1, which are set
forth in paragraph 23 at "a" through "f." MGAM has breached each of the
provisions in the LDA1 addressed in sub-paragraphs "a" through "f." Each such
failure constitutes a breach of the LDA1.
32. On July 18, 1997 MGAM wrote to NGI and referred for the first time
in a communication with NGI to its "MGAM-2000 MegaMania software."
<PAGE> 9
33. NGI has since learned that the MGAM-2000 MegaMania software was
marketed beginning on or about July 1, 1997, by MGAM to Bingo Halls as a
substitute for the AIQ Software which was operating on the MB-1000.
34. NGI immediately advised MGAM that it regarded the use and
substitution of the MGAM-2000 MegaMania software as violation of the LDA1.
35. The LDA1 did not afford to MGAM any right to substitute any
independently developed software in previously installed or newly ordered
MB-1000 units or for the AIQ Software. Despite this, MGAM has reportedly
replaced all of the AIQ Software and has ceased making the required payments to
NGI under the LDA1.
36. Any so-called excuse or justification for substitution of the AIQ
Software was feigned and brought about by MGAM as shown by its own admissions in
current litigation. The Department of Justice ("DOJ") filed a complaint that
concerned MGAM's equipment placed in certain Bingo Halls on December 31, 1997.
Thereafter, MGAM filed its Complaint for Declaratory Relief on January 5, 1998
in the United States District Court for the Northern District of Oklahoma
(the"DJ Complaint"). In the DJ Complaint, MGAM has alleged:
a. On January 30,1997, NIGC Commissioner Phil Hogan, NIGC
Acting General Counsel Penny Coleman, NIGC Field Investigator Tim
Harper, and NIGC Director of Enforcement Alan Fedman participated in a
teleconference with Multimedia officials regarding the January 30
meeting with the DOJ that was requested by Commissioner Hogan. ["NIGC"
stands for the National Indian Gaming Commission, the agency entrusted
by Congress to interpret the Indian Gaming Regulatory Act, 25 U.S.C.
Sections 2701, et seq. ("IGRA"). The IGRA is the governing law
concerning gaming in Bingo Halls.] During that teleconference,
representatives of the NIGC made suggestions on what modifications
could be made to the original MegaMania to satisfy the concerns of the
DOJ. Multimedia officials were informed by the NIGC representatives
that the DOJ insisted upon the following changes to the MegaMania game:
<PAGE> 10
1. The elimination of the electronic random number
generator, despite the clear language of 25 U.S.C. Section
2703(7)(A)(i)(II) permitting "electronically determined" numbers;
2. The elimination of shotgun Bingo, despite the fact
that this is a traditional form of Bingo predating the IGRA;
3. Additional human participation in the form of
marking or daubing one's own card(s) and calling Bingo.
b. As a result of the January 30, 1997, teleconference with
NIGC representatives, Multimedia undertook extensive and expensive
revisions to the original MegaMania. On February 11, 1997, Multimedia
wrote to the NIGC and Mr. Lewis with a list of proposed changes. That
same week, Multimedia informed the dozens of Indian tribes using the
original MegaMania of Multimedia's intent to modify MegaMania to
address DOJ concerns. On April 1, 1997, Multimedia reiterated to the
NIGC the changes which it would make to the original version of the
MegaMania game.
37. Despite MGAM's knowledge on January 30, 1997, as revealed in its
own allegation, quoted above, MGAM did not inform NGI of any necessity for
changes to the AIQ Software and that such changes would be needed by July 15,
1997, until on or about April 21, 1997. MGAM did not Provide specifications for
changes until May 7, 1997, and such information to effect the necessary charges
in the field was incomplete. Further, MGAM did not advise of additional changes
it had agreed to in its fax of July 23, 1997 to NIGC.
38. MGAM's delay and omissions in providing information concerning
allegedly required changes in the AIQ Software was part of its scheme to create
a feigned excuse for its implementation of its "own" MGAM-2000 MegaMania
software in lieu of the AIQ Software and/or the MB-1000. Moreover, MGAM cannot
contend that bugs or problems with NGI's software
<PAGE> 11
required its replacement, because it has admitted in the DJ Complaint as late as
December, 1997, its own "substitute" software did not work properly.
39. NGI believes that the development by MGAM of any so-called
MGAM-2000 MegaMania software or any software that replaces the AIQ Software, or
that replaces the MB-1000 was developed by MGAM based upon discussions with NGI
programmers and MGAM's wrongful misappropriation of the NGI Trade Secrets.
40. MGAM further breached the provisions in LDA1 concerning maintaining
information in strictest confidence and using it solely for the purpose of the
LDA1.
41. As of January 1, 1998, MGAM had:
a. terminated the use of the AIQ Software; and
b. continued to use the MB-1000 units and to install
additional MB-1000 or its so-called replacement with
the MGAM-2000 MegaMania software without compensation
to NGI.
42. By virtue of the alleged breaches, NGI has been denied the
opportunity to earn profits from its electronic bingo game, which was to have
been installed and promoted pursuant to LDA1. NGI has estimated its damages from
the loss of current and future payments due it under LDA1 in the approximate
amount of $62,214,600.00, subject to discounting future payments back to the
date of judgment.
SECOND CLAIM FOR RELIEF; MISAPPROPRIATION OF TRADE SECRETS
43. For its second claim for relief, NGI incorporates the allegations
of paragraphs 1 through 42.
<PAGE> 12
45. NGI has been damages through such misappropriation in an amount to
be proven at trial.
46. MGAM should be enjoined from further misappropriation of the trade
secrets and from her use and disclosure of the same.
THIRD CLAIM FOR RELIEF; BREACH OF LDA2
47. For its third claim for relief, NGI incorporates the allegations in
paragraphs 1 through 24, above.
48. As a result of the negotiations referred to in paragraph 23, NGI
and MGAM entered into LDA2. Under LDA2, MGAM granted to NGI the right and
license to distribute, sub-distribute, license, sublicense, market, and
otherwise exploit the MegaBingo system separately and in conjunction with MGAM
in Canada and China. Further, NGI undertook a commitment to use commercially
reasonable efforts to enter into sublicense agreements of the MegaBingo system
with a minimum of 240 gaming halls during each of two subsequent 12-month
periods (i.e., November 1, 1996 - October 31, 1997 and November 1, 1997 -
October 31, 1998).
49. In or about October, 1996, Jung informed Graves of an opportunity
for a linked bingo game in British Columbia, which was the exact opportunity
envisioned by LDA2. Thereafter, a joint presentation concerning such game was
made by NGI and MGAM to the British Columbia Gaming Commission in or about
November, 1996.
50. Thereafter, on July 23, 1997, MGAM gave a second presentation in
British Colombia of a prototyped linked bingo game, which failed to operate
properly. At that time, MGAM did have a linked bingo game that would have
satisfied the criteria of the determining authority for the British
<PAGE> 13
Columbia, a linked bingo game that would have satisfied the criteria of the
determining authority for the British Columbia.
51. NGI alleges and believes that MGAM had no intention of presenting a
workable system, in order to scuttle any opportunity for achieving placement of
systems within British Columbia.
52. Thereafter, in or about December, 1997, Henry Jung advised MGAM of
an opportunity in the Province of Saskatchewan, for a linked bingo system that
would serve 150 locations.
53. Jung confirmed that the information he sent relative to
Saskatchewan was received and distributed within MGAM.
54. No response was made to NGI by MGAM with respect to this
opportunity in Saskatchewan.
55. By its actions, MGAM has breached LDA2, and thereby damaged NGI in
an amount to be proven at trial.
FOURTH CLAIM FOR RELIEF: FRAUD
56. For its fourth claim for relief, NGI incorporates the allegations
in paragraphs 1 through 55, above.
57. NGI has been damaged by the fraud of MGAM in an estimated amount of
$62,214,600.00 (subject to discounting future cash flows), the expectation value
of its contract with MGAM.
58. Punitive damages should be awarded for the fraud and deceit of MGAM
in an amount to be awarded by the jury.
<PAGE> 14
FIFTH CLAIM FOR RELIEF: BREACH OF FIDUCIARY DUTY
59. For its fifth claim for relief, NGI incorporates the allegations in
paragraphs 1 through 55, above.
60. By virtue of the representation letter, the Letter Agreements, and
LDA1 and LDA2, NGI commenced to place its trust in and confidence in the
integrity and fidelity of MGAM as early. As April, 1995, which continued through
the date when NGI first learned of the surreptitious activities of MGAM in
replacing the AIQ Software.
61. Through this breach of trust MGAM has breached a fiduciary duty
owed to NGI for which breach NGI has been damaged in an estimated amount of
$62,214,600.00, subject to discounting future cash flows.
SIXTH CLAIM FOR RELIEF: CONSTRUCTIVE FRAUD
62. For its sixth claim for relief, NGI incorporates the allegations in
paragraphs 1 through 61, above.
63. By virtue of the relationship of trust existing between the
parties, MGAM constructively defrauded NGI, and by such acts, NGI has been
damaged in an estimated amount of $62,214,600.00 (subject to discounting future
cash flows).
SEVENTH CLAIM FOR RELIEF: INTERFERENCE WITH PROSPECTIVE ADVANTAGE
64. For its seventh claim for relief, NGI incorporates the allegations
in paragraphs 1 through 61, above.
65. Through the promises and representations made to NGI by MGAM
commencing in April, 1995, MGAM materially interfered with the prospective
advantage that NGI had from its developing bingo technologies, which it could
otherwise have exploited to its advantage.
<PAGE> 15
66. From such interference, NGI has been damaged in an amount to be
proven at trial.
67. Punitive damages should be awarded against MGAM for its reckless
and grossly negligent conduct in interfering with the prospective advantage of
NGI.
EIGHTH CLAIM FOR RELIEF: UNJUST ENRICHMENT
68. For its eighth claim for relief, NGI incorporates the allegations
in paragraphs 1 through 67, above.
69. By virtue of its relationship with NGI, and in particular, its
having secured the AIQ Software, MGAM was enabled to launch effectively its
MegaMania electronic bingo game. In particular, MGAM was able to create a
network for its games significantly in advance of any other competitor. This
enabled MGAM to achieve a market capitalization of December 30, 1997 of
$77,217,894.00.
70. Such market capitalization and other benefits accruing to MGAM were
unjust in view of its action as alleged above, and its benefits and profits
should be disgorged and paid over to NGI in an estimated amount of
$61,241,778.00.
NINTH CLAIM FOR RELIEF: BREACHES OF CONTRACT
71. For its ninth claim for relief, NGI incorporates the allegations in
paragraphs 1 through 42, above.
72. NGI invoiced MGAM for the 25 machines sent from California to the
Creek Nation Bingo Hall in Tulsa, Oklahoma in the original amount of $78,875.00,
which sum was due on November 30, 1996. $38,875.00 remains to be paid on this
invoice, which sum is now due and payable.
<PAGE> 16
73. Of the initial 25 machines delivered by NGI to MGAM, a total sum of
$1,157,746.00 is due and owed to NGI by MGAM.
74. The failure to pay the sums referenced in paragraphs 72 and 73
constituted breaches of agreements between NGI and MGAM.
75. A further sum of $28,000.00 is owed to NGI from MGAM for software
support under LDA1.
WHEREFORE, NGI prays for judgment against MGAM and asks that the Court
award the following relief along with NGI's attorney fees and prejudgment
interest:
a. On the First Claim for Relief, damages in the amount of
$62,214,600.00, with an appropriate discount for the future payments included in
such sum;
b. On the Second Claim for Relief, damages in an amount to be proven at
trial and for a preliminary and permanent injunction enjoining the further use,
or disclosure of the NGI Trade Secrets;
c. On the Third Claim for Relief, for damages in an amount to be proven
at trial;
d. On the Fourth Claim for Relief, for damages in the amount
$62,214,600.00, with a discount for future payments and for punitive damages;
e. On the Fifth Claim for Relief, for damages in the amount of
$62,214,600.00, with an appropriate discount for the future payments included in
such sum;
f. On the Sixth Claim for Relief, for damages in the amount of
$62,214,600.00, with an appropriate discount for the future payments included in
such sum;
g. On the Seventh Claim for Relief, for damages to be proven at trial,
and for punitive damages as determined by the jury;
<PAGE> 17
h. On the Eighth Claim for Relief, for damages in an amount of
$61,241,778.00; and
i. On the Ninth Claim for Relief, for damages in the amount of
$182,621.00.
DEMAND FOR JURY
A trial is demanded on all claims herein except that for injunctive
relief.
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Laurence L. Pinkerton (OBA #7168)
Judith A. Finn (OBA #2923)
PINKERTON & FINN, P.C.
2000 First Place
15 East 15th Street
Tulsa, Oklahoma 74103-4367
(918) 587-1800
Attorneys for Plaintiff
