SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________
Form 10-KSB
[X] Annual Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended June 30, 1996
OR
[ ] Transition Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File No.: 0-27828
WANDERLUST INTERACTIVE, INC.
(Name of Small Business Issuer in its charter)
Delaware 13-3779546
(State or other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification Number)
598 Broadway, New York, NY 10012
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 966-8887
Securities registered pursuant to Section 12(b) of the Exchange
Act: None
Securities registered pursuant to Section 12(g) of the Exchange
Act: Common Stock, par value $.01 per share
(Title of class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities 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 [X] No ___
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained herein, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ].
The issuer's revenues for its most recent fiscal year were
$50,000.
The aggregate market value of the shares of Common Stock held
by non-affiliates as reported by NASDAQ on September 17, 1996 was
approximately $17,736,700.
As of September 17, 1996, the Registrant had outstanding
3,763,719 shares of Common Stock, par value $.01 per share.
The proxy statement of the Registrant to be filed on or before
October 29, 1996 is incorporated into Part III herein by reference.
<PAGE>
PART I
ITEM 1. Business.
Wanderlust Interactive, Inc. (the "Company") was formed in May
1994 to create, develop, publish (to sell under its own name)
market and sell interactive multimedia software education and
entertainment titles on CD-ROM (Compact Disk Read Only Memory) for
use on multimedia personal computers (MPCs) using Microsoft
Windows-based CD-ROM playback systems. The Company is seeking to
develop a niche in the area of travel and culture games for the
MPC.
In May 1995, the Company entered into a license agreement with
MGM/UA Licensing and Merchandising, a division of Metro-Goldwyn-Mayer
Inc. ("MGM"), to use the Pink Panther character and other
related characters (collectively referred to as the "Pink Panther
characters") in two interactive multimedia CD-ROMs (the "License
Agreement"). On May 2, 1996, the License Agreement was amended to,
among other things, include a license to manufacture and market a
companion guide book to the Company's products which contain the
Pink Panther characters and the soundtrack audio CD to the
Company's licensed products. See "Licensing."
The Company completed its first product, a CD-ROM entitled
"Passport to Peril" which it has recently commenced marketing.
Otherwise it is primarily engaged in research and development
activities. It has generated limited revenues to date through
advances on royalties. During its fiscal year ended June 30, 1996
("Fiscal 1996"), the Company expended $1,274,183 on research and
development, an increase of $1,145,895 from its fiscal year ended
June 30, 1995 ("Fiscal 1995").
In connection with the Company's first title, which was
completed on September 23, 1996, the Company created the artwork,
sound, text, and programming features of this title. The Company
expects to satisfy its obligation under the License Agreement by
shipping over 25,000 copies of this title before October 31, 1996.
Products
The Company develops interactive multimedia software education
and entertainment titles for use on MPCs. The Company's initial
product format is CD-ROMs for the MPC. The Company is marketing
its initial products under the name "Intelligent Fun & Games." The
first two titles in the "Intelligent Fun & Games" series are
intended to be travel and culture titles, featuring the Pink
Panther characters. The Company entered into the License Agreement
under which the Company has the right to utilize the Pink Panther
characters for two CD-ROM titles. See "Licensing."
The interactive features of the Company's first product allows
the player to make decisions which govern the activities of the
Pink Panther. The Pink Panther can move around within each screen
and interact with different characters and objects, picking up
clues and items as he solves puzzles in order to reach his goal.
It is currently anticipated that each title developed by the
Company will include extensive animation, as well as photos, text
and sound. Each title is expected to include from 30 to 50 digital
pages (screens) and is expected to allow a player to play
approximately 30 or more hours to complete a game. The Company
completed its first title and recently began manufacturing and
selling it. It is anticipated that each title will be translated
into multiple languages. The Company commenced initial development
of the second title contemplated by the License Agreement in July
1996. See "Licensing."
In the first two titles, the Company plans to have the Pink
Panther visit different countries. As currently being developed,
the Company's products will enable the Pink Panther to eat, sleep,
drink, dress, speak, shop, worship, dance, learn, work and play
with the local citizens. Through this interaction it is expected
that the player will learn about lifestyles, customs, rituals,
food, clothing, religions and other aspects of the culture he is
visiting. The personalities of the Pink Panther and the other
characters are expected to be an integral part of the games, and a
humorous script and colorful animation are expected to further
enhance the entertainment value of the products.
Distribution
The Company intends to utilize distributors to market its
products to mass market retailers, specialty stores and directly to
consumers. Although MGM has a right of first negotiation and last
refusal to distribute the Company's products which contain the Pink
Panther characters, MGM did not exercise this right with regard to
the Company's first title.
The Company entered into a distribution agreement with BMG
Music d/b/a BMG Entertainment ("BMG") in May 1996 which provides
for distribution of the Company's products in the United States
(the "BMG Agreement"). The two year agreement, which may be
extended twice for two additional one-year periods, guarantees that
BMG will distribute 60,000 units of the Company's first product
during its initial term. As consideration, BMG shall retain a
distribution fee of 20% of its net sales (gross sales less credits
and returns). The BMG Agreement also grants BMG a right of first
refusal to distribute other products designed by the Company,
subject to MGM's right of first refusal to distribute the Company's
products containing the Pink Panther characters.
In addition to the BMG Agreement, the Company has entered into
ten international sub-license agreements to date to market its
products internationally. The countries or regions within which
the Company has concluded agreements include Brazil, Taiwan,
Finland, Israel, Denmark, Spain, Germany, Austria, Switzerland,
Sweden, Norway, Italy, The Netherlands and the Dutch-speaking
region of Belgium. Each agreement, which is exclusive for its
region, provides for minimum number of Units to be distributed,
which range from 30,000 units over a two-year period to 3,000 over
a one-year period; the royalties to be generated by these
agreements range from $6.00 per unit to $8.00 per unit.
In the United States, educational and entertainment CD-ROMs
are sold through computer stores, consumer electronics stores, toy
stores, book stores, music and video stores (collectively
"specialty stores") mail order catalogues, direct mailings to
consumers and mass merchants. Retailers of computer software such
as CD-ROMs have a limited amount of shelf space, and there is
intense competition among consumer software products for adequate
levels of shelf space and promotional support from retailers. To
the extent that the number of consumer software products and
computer operating systems increases, this competition for shelf
space may intensify. The Company's products will likely constitute
only a relatively small percentage of a retailer's sales volume,
and there can be no assurance that retailers will purchase the
Company's products or provide the Company's products with adequate
levels of shelf space.
The Company may develop products for the Internet once the
technology is available to allow on-line game playing of multimedia
entertainment software. There can be no assurance that the Company
will be able to develop on-line distribution capabilities on the
Internet.
Marketing and Sales
The Company relies on its President, its Vice President -Sales
and Marketing for North America, Vice President - Sales and
Marketing - International and General Marketing Manager for
marketing efforts. The Company believes that marketing to both
retail channels and to end users is important to the success of its
products. The Company believes that marketing to end users in the
United States will be the responsibility of the Company and
marketing to retailers throughout the world and end users outside
of the United States will be the responsibility of distributors.
The Company intends to, and expects its distributors will, employ
a variety of marketing techniques which may include in-store
promotions, direct mailings of catalogs and brochures, advertising
in multimedia, trade and general consumer publications, to promote
sales of its products. In addition, the Company intends to launch
an international public relations campaign to generate consumer
word-of-mouth support.
Product Development and Manufacturing
The Intelligent Fun & Games series is being developed in-house
with the Company's full-time employees plus free-lance artists,
animators, writers, programmers and researchers. The Company
maintains a scheduling and budgeting system designed to control
development costs through the creation of budgets and deadlines.
The Company's CD-ROMs, box and jewel case papers are presently
being manufactured by Sonopress, Inc., an independent, third party
manufacturer. Although there can be no assurance that Sonopress,
Inc. will manufacture the Company's products, management does not
anticipate having any difficulty engaging alternative manufacturers
of its products should it desire to.
Licensing
The Company believes that obtaining licenses for well-known
characters will be important to its success as it builds its
reputation during the next few years of its operations. In May
1995, the Company entered into the License Agreement with MGM for
use on two interactive multimedia CD-ROMs of the "Pink Panther"
character and other related characters from the Pink Panther
cartoon, including The Inspector, Boss Man, Dr. Von Schmarty, The
Ant and the Aardvark, The Little Old Lady, Manly Man, Dogfather,
Pugg, Louie and Voodooman (collectively referred to as the "Pink
Panther characters"). The License Agreement, which is
nonexclusive, is for four years and provides that MGM has a right
of first negotiation and last refusal with respect to distribution
of the Company's products which contain the Pink Panther characters
(the "Licensed Products") which it did not exercise for the first
title. The License Agreement also encompasses the design,
manufacturing and marketing of a companion guide book and audio
soundtrack CD to the Licensed Products.
The Company paid MGM $300,000 as a nonrefundable advance
royalty, which will be applied to future royalties due in respect
of the sale of the Licensed Products. The Company shall pay MGM (i)
12 1/2 % of the wholesale price for products sold in the United
States and 15% for products sold outside of the United States and
(ii) upon sales of the Licensed Products that are jointly sold
(bundled) with computer hardware systems, 50% of the Company's
revenues, less the cost of goods sold. The License Agreement also
provides that in the event the companion guide book and soundtrack
audio CD are sold separately from the CD-Rom, the Company shall pay
MGM an amount equal to 10% of the wholesale price of each of these
items. MGM has the right to approve the Company's software titles
that use the Pink Panther characters, which approval may be granted
or denied in MGM's sole discretion.
MGM does not own the rights to the Pink Panther theme music
and the Company did not elect to use such music for its first
title. At the present time, the Company has not determined to
license such music for its second title if such music should be
available to it.
Competition
The Company expects that the market for its interactive
multimedia software products is intensely competitive. The
principal competitive factors in the consumer interactive
multimedia software market include quality and originality of
products, price, brand name recognition, marketing capabilities,
access to distribution channels, ease of use and quality of support
services.
The Company expects to compete primarily against other
companies offering consumer interactive multimedia and
entertainment and educational software. Existing consumer
interactive multimedia software companies may broaden their product
lines or increase their focus to compete more directly with the
Company's products. These competitors include, among others,
Grolier Electronic Publishing, Inc., Broderbund Software, Inc.,
Mindscape International USA, Maxis, Inc., Discovery Communications
and Microsoft Corp. Potential new competitors, including computer
hardware or software manufacturers, diversified media companies and
publishing companies, may enter the consumer interactive multimedia
entertainment software market. The competition for retail shelf
space is also likely to increase due to the proliferation of
consumer software products. Most of the Company's existing and
future competitors have greater financial, technical, marketing,
sales and customer support resources, as well as greater name
recognition and greater access to consumers than the Company.
There can be no assurance that the Company will respond effectively
to this market or that competition will not develop technologies or
products that render the Company's products obsolete or less
marketable. In addition, increasing competition in the consumer
software market may cause prices to fall, which may materially
adversely affect the Company.
Intellectual Property Rights
The Company intends to make appropriate copyright
registrations with respect to, and take other actions necessary to
obtain and protect, its trademarks, copyrights, trade names, trade
dress and other intellectual property rights, if any, relating to
its products, although there can be no assurance that the Company
will be able to effectively do so. The Company has filed trademark
applications for "Wanderlust" and "Intelligent Fun & Games." There
is no assurance, however, that the Patent Office will allow such
filings to be registered.
The Company intends to treat its software as proprietary and
will rely primarily on a combination of trademark, copyright and
trade secret laws and employee and third-party nondisclosure
agreements to protect its intellectual property rights. Also, as
the number of software products in the industry increases and the
functionality of these products overlaps, software developers and
publishers may increasingly become subject to infringement claims.
There can be no assurance that third parties will not assert
infringement claims against the Company in the future with respect
to its proposed products.
Although the Company is not currently the subject of any
intellectual property litigation, management believes there has
been substantial litigation regarding copyright, trademark and
other intellectual property rights involving computer software
companies. Policing unauthorized use of the Company's products may
be difficult.
The Company may enter into transactions in countries where
intellectual property laws are not well developed or are poorly
enforced. Legal protection of the Company's rights may be
ineffective in such countries. Any claims or litigation, with or
without merit, could be costly and could result in a diversion of
management's attention, either of which could have a material
adverse effect on the Company. Adverse determinations in such
claims or litigation could also have a material adverse effect on
the Company.
The Company plans to enter into additional license agreements
with other companies for other well-known characters, but there is
no assurance that the Company will successfully negotiate or enter
into any such agreements.
Employees
As of August 20, 1996, the Company employed 26 people on a
full-time basis, including persons engaged in game design, writing,
research, sound, art, animation, computer programming, management
and administration. At August 20, 1996, the Company had engaged
approximately 30 persons as part-time and free-lance employees.
The Company believes that its relations with employees are
satisfactory.
ITEM 2. Property.
The Company currently leases two floors of loft space in New
York City pursuant to leases which expire in December 1996. In
September 1996, the Company entered into a sublease with an
unaffiliated party for premises located at 462 Broadway, New York,
New York (the "Sublease"). The Sublease terminates on March 31,
2001. For the first year, the Company's rent is $120,000, with
annual increases during the term. The space includes approximately
15,000 square feet. The Company believes this new space, to which
the Company intends to move into in December 1996, will be suitable
for its needs for the foreseeable future.
ITEM 3. Legal Proceedings
The Company is not currently a party to any claims or
lawsuits. The Company did not accept a subscription from one
person who sought to acquire 90,035 shares of Common Stock of the
Company (the "Common Stock") from the Company in a private
placement. This individual advanced the Company $27,000 which
amount the Company has attempted to return. This individual
refused to accept these funds and they are currently being held in
escrow by counsel to the Company for the benefit of this
individual. There is no assurance that this individual may not
have a claim against the Company due to the Company's failure to
accept this person's subscription agreement and failure to issue
him 90,035 shares of Common Stock. In March 1996, an attorney for
this individual contacted the Company and threatened the Company
with a lawsuit, but no lawsuit has been commenced as of the date
hereof.
PART II
ITEM 4. Submission of Matters to a Vote of Security Holders.
During the Company's fourth fiscal quarter ended June 30,
1996, no matters were submitted to a vote of the security holders
of the Company.
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
(a) The Common Stock is traded in the Over-the-Counter market
and is quoted on the NASDAQ System.
The following table sets forth, for the Company's last fiscal
quarter and from the inception of trading on March 21, 1996 until
the end of its fiscal quarter on March 31, 1996, the high and low
bid quotations for the Company's Common Stock. The market
quotations represent prices between dealers, do not include retail
markup, markdown or commissions and may not represent actual
transactions.
Quarter Ended High Bid Low Bid
June 30, 1996 7.50 5.375
March 31, 1996 7.50 5.75
On September 17, 1996, the closing bid price in the Over-the
- -Counter market for the Common Stock, as reported by NASDAQ, was
$7.00 and the closing bid for the Company's warrants to purchase an
additional 2,415,000 shares of Common Stock at $7.00 per share,
(the "Warrants"), as reported by NASDAQ, was $2.75. The Warrants
expire on March 20, 1999.
(b) On September 17, 1996, there were approximately 83
holders of record of the Common Stock. The Company believes that
there are significantly more beneficial holders of the Common Stock
as many of the shares of Common Stock are held in "street" name.
There were also approximately 11 holders of record of the Warrants.
(c) No cash dividends have been paid on the Common Stock, and
the Company does not anticipate paying cash dividends in the
foreseeable future.
ITEM 6. Plan of Operations.
The Company commenced operations in July 1994, has a limited
operating history and is in the development stage. During the next
12 months of operations, the Company is presently anticipating that
it will expand its product development activities, expand its sales
and marketing activities, move into its new offices and purchase
and/or lease additional equipment. In addition, the Company has
commenced marketing its first product.
During the next 12 months the Company also proposes to develop
two additional CD-ROM titles. The expenses for this development
are expected to consist mainly of salaries and fees of employees
and consultants and related activities. The Company may also
develop its own original characters and acquire licenses for other
characters. In addition, the Company may develop products in other
media formats, e.g. television, home video, music and books.
The Company expects to increase its sales and marketing
activities during the next 12 months. Such activities are expected
to include advertising, attendance at trade shows, public relations
activities and other marketing activities.
Since inception, the Company's activities have consisted
principally of raising capital, finalizing the License Agreement,
leasing office space, purchasing and/or leasing its equipment and
developing and marketing its first title.
During Fiscal 1996 the Company had revenues of $50,000 as
compared to no revenues in Fiscal 1995. During Fiscal 1996, the
Company incurred a net loss of $2,035,500, or $.72 per share, as
compared to a loss of $321,244, or $.14 per share, during Fiscal
1995.
Liquidity and Capital Resources
As of June 30, 1996, the Company had an accumulated deficit of
$2,356,824. At June 30, 1996, the Company had cash and cash
equivalents of $4,893,658, as compared to $721,968 as of June 30,
1995. The Company's working capital as at June 30, 1996 was
$4,287,387 as compared to $190,177 at June 30, 1995. At June 30,
1996, the Company's stockholders' equity was $4,897,161 as compared
to $333,901 at June 30, 1995.
The Company has significant requirements for capital to
continue to fund its activities. During Fiscal 1996, the Company
used $1,893,944 of funds as compared to the use of $249,974 during
Fiscal 1995. These funds were used to fund the Company's loss from
operations during both periods. During Fiscal 1996, the Company
used $531,359 of funds in investing activities as compared to the
use of $111,738 during Fiscal 1995. During both periods, the
Company used funds to pay an advance under the License Agreement
and to purchase equipment and fixtures, primarily computer
equipment. During Fiscal 1996, the Company generated $6,596,993
from financing activities as compared to generating $1,083,680 from
such activities during Fiscal 1995. These financing activities are
described below.
As a result of the Company's current financial condition,
management believes it has adequate resources to fund its current
activities for the next 12 months. After this period, unless the
Company has developed alternative financing arrangements, it will
likely be required to obtain additional capital to continue to fund
its activities. There is no assurance, however, that such
additional capital will be available, or if available, whether it
will be available on terms acceptable to the Company. Also, there
is no assurance that if the Company is presented with desirable
opportunities it may seek to acquire additional funding at an
earlier time.
Financings
The Company completed an initial public offering of securities
in March 1996 whereby it received a net amount of $6,220,070 from
the sale of 1,395,000 shares of Common Stock and Warrants to
purchase an additional 2,415,000 shares. Each Warrant entitles the
holder thereof to purchase one share of Common Stock at an initial
exercise price of $7.00 per share, until March 20, 1999, at which
time the Warrants will expire.
In December 1995, the Company completed a private offering of
securities in which seven and one-half units, each of which
consisted of 45,833 shares of Common Stock and 68,750 Warrants for
aggregate consideration of $378,750 (the "Bridge Financing") to
eight persons. A total of 343,746 shares of Common Stock and
515,624 Warrants were issued to these persons pursuant to the
Bridge Financing and the Company received net proceeds of
approximately $372,387.
In May 1995, the Company completed a private offering of
securities in which it sold an aggregate of 10.15 units to 31
investors, each $100,000 unit consisting of (i) 45,851 shares of
Common Stock and (ii) a two year unsecured non-negotiable
convertible debenture in the principal amount of $50,000, which
bears interest at the rate of eight percent per annum and is
convertible into shares of Common Stock at the rate of $2.16 per
share (the "Convertible Debenture"). The Company received net
proceeds of approximately $978,000 from this private placement.
<PAGE>
ITEM 7. Financial Statements.
The financial statements listed below are included on pages F-1
through F-15 following the signature page.
Title of Document Page
Independent Auditors' Report F-1
Balance Sheets
June 30, 1996 F-2
June 30, 1995
Statements of Operations - F-3
Years Ended June 30, 1996
and 1995
July 2, 1994 (inception)
to June 30, 1995
July 2, 1994 (inception)
to June 30, 1996 (cumulative)
Statements of Shareholders' Equity - F- 4
Years Ended June 30, 1996
and 1995
July 2, 1994 (inception)
to June 30, 1995
July 2, 1994 (inception)
to June 30, 1996 (cumulative)
Statements of Cash Flows - F- 6
Years Ended June 30, 1996
and 1995
July 2, 1994 (inception)
to June 30, 1995
July 2, 1994 (inception)
to June 30, 1996 (cumulative)
Notes to Financial Statements F- 8
ITEM 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
<PAGE>
PART III
Items 9, 10, 11 and 12 are incorporated herein by reference to
the Company's Proxy Statement to be filed on or prior to October
29, 1996.
ITEM 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Certificate of Incorporation, as amended, incorporated by
reference to the Company's Registration Statement on Form
SB-2, No. 333-00178 (the "Registration Statement").
3.2 By-Laws, as amended, incorporated by reference to Exhibit
3.2 to the Registration Statement.
4.1 Form of Underwriter's Warrant Agreement, including the
form of Underwriter's Warrant, incorporated by reference
to Exhibit 4.1 to the Registration Statement.
4.2 Form of Warrant Agreement between the Company and the
Warrant Agent, including form of Redeemable Warrant,
incorporated by reference to Exhibit 4.2 to the
Registration Statement.
4.3 Form of Convertible Debenture, incorporated by reference
to Exhibit 4.3 to the Registration Statement.
4.4 Form of Warrant issued in connection with the Bridge
Financing, incorporated by reference to Exhibit 4.4 to
the Registration Statement.
10.1 Employment Agreement between the Company and Catherine
Winchester dated November 7, 1995, incorporated by
reference to Exhibit 10.1 to the Registration Statement.
10.2 License Agreement between the Company and MGM/UA
Licensing and Merchandising, a division of Metro-Goldwyn
-Mayer Inc. ("MGM/UA"), dated May 25, 1995, as amended,
incorporated by reference to Exhibit 10.2 to the
Registration Statement.
10.3 Amendments to the License Agreement between the Company
and MGM/UA dated October 26, 1995, May 2, 1996 and May 31, 1996
10.4 Leases between the Company and M&M 598 of NY Corporation,
dated April 4, 1995 and December 13, 1995, incorporated
by reference to Exhibit 10.3 to the Registration
Statement.
10.5 Sublease between the Company and Greenpeace, Inc. dated
September 13, 1996 for the Company's premises located at
462 Broadway, New York, New York.
10.6 Stock Option Plan, as amended, incorporated by reference
to a Exhibit 10.4 to the Registration Statement.
10.7 Consulting Agreement between the Company and Richard S.
Melnick, dated November 1, 1995, incorporated by
reference to Exhibit 10.5 to the Registration Statement.
10.8 Financial Advisory and Consulting Agreement between the
Company and A.S. Goldmen & Co., Inc. incorporated, by
reference to Exhibit 10.6 to the Registration Statement.
10.9 Distribution Agreement between the Company and BMG Music
d/b/a BMG Entertainment, dated as of May 15, 1996.
10.10 Form of Sub-license Agreement entered into by the Company
and its international sub-licensees.
(b) Reports on Form 8-K
None.
cdidz\10k.96
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WANDERLUST INTERACTIVE, INC.
Dated: September 27, 1996 By: s/Catherine Winchester
Catherine Winchester,
President and Chief Executive
Officer (Principal Executive,
Financial and Accounting
Officer)
Pursuant to the requirement, of the Securities Exchange Act of
1934, as amended, the Company has duly caused this report to be
signed on its behalf by the following persons on behalf of the
Company and in the capacities and on the dates indicated:
Name Capacity Date
s/Catherine Winchester
Catherine Winchester President, September 27, 1996
Chief Executive
Officer and Director
(Principal Executive,
Financial and Accounting
Officer)
s/Richard S. Kalin
Richard S. Kalin Secretary and Director September 27, 1996
s/Richard S. Melnick
Richard S. Melnick Director September 27, 1996
cdkidz\10k.96
<PAGE>
Independent Auditors' Report
Board of Directors
Wanderlust Interactive, Inc.
New York, New York
We have audited the accompanying balance sheets of Wanderlust
Interactive, Inc. (a development stage company) ("Company") as of June
30, 1996 and 1995, and the related statements of operations, changes in
shareholders' equity and cash flows for the year ended June 30, 1996,
and the period July 2, 1994 (inception) to June 30, 1995. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Wanderlust
Interactive, Inc. (a development stage company) as of June 30, 1996 and
1995, and the results of its operations and its cash flows for the
period July 2, 1994 (inception) to June 30, 1995, and for the year ended
June 30, 1996, in conformity with generally accepted accounting
principles.
s/Drucker, Math & Whitman, P.C.
North Brunswick, New Jersey
September 3, 1996
F-1
<PAGE>
<TABLE>
<CAPTION>
Wanderlust Interactive, Inc.
(A Development Stage Company)
Balance Sheets
ASSETS
June 30, June 30,
1996 1995
--------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $4,893,658 $ 721,968
Prepaid expenses 24,000 -
---------- ---------
Total current assets 4,917,658 721,968
---------- ---------
Fixed assets, net 238,500 36,176
---------- ---------
Other assets:
License rights 300,000 75,000
Organization costs, net of amortization 4,452 5,936
Deferred loan costs, net of amortization 9,578 18,792
Security deposits and other 57,244 7,820
---------- ---------
371,274 107,548
---------- ---------
$5,527,432 $ 865,692
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 122,771 $ 24,291
Convertible debentures 507,500 -
------- ---------
Total current liabilities 630,271 24,291
Long-term debt, convertible debentures - 507,500
------- ---------
630,271 531,791
------- ---------
Commitments and contingency
Shareholders' equity:
Preferred stock, $.01 par value;
authorized, 100,000 shares;
issued and outstanding, none - -
Common stock, $.01 par value;
authorized, 10,000,000 shares;
issued and outstanding, 3,763,719 and 37,637 20,250
2,024,973 shares, respectively
Additional paid-in capital 7,216,348 634,895
Deficit accumulated during the
development stage ( 2,356,824) ( 321,244)
----------- ----------
4,897,161 333,901
---------- ----------
$5,527,432 $ 865,692
=========== ==========
See notes to financial statements. F-2
<PAGE>
<CAPTION>
Wanderlust Interactive, Inc.
(A Development Stage Company)
Statements of Operations
July 2, 1994
For the July 2, 1994 (inception) to
year ended (inception) to June 30, 1996
June 30, 1996 June 30, 1995 (Cumulative)
<S> <C> <C> <C>
Sales $ 50,000 $ - $ 50,000
------------ --------- ----------
Expenses:
Research and development 1,274,183 128,288 1,402,471
General and administrative 859,546 172,663 1,032,209
Interest expense(income),
net (48,149) 20,293 (27,856)
----------- ---------- ----------
2,085,580 321,244 2,406,824
----------- ---------- ----------
Net loss $2,035,580 $ 321,244 $2,356,824
=========== ========== ==========
Net loss per common stock
share $ .72 $ .14 $ .92
=========== ========== ==========
Weighted average shares
outstanding 2,825,802 2,279,519 2,552,660
=========== ========== ==========
See notes to financial statements. F-3
<PAGE>
<CAPTION>
Wanderlust Interactive, Inc.
(A Development Stage Company)
Statements of Changes in Shareholders' Equity
Deficit
accumulated
Additional during the Total
Common stock paid-in development shareholders'
Shares Amount capital stage equity
<S> <C> <C> <C> <C> <C>
July 2, 1994, issued for
cash, $.003 per share 666,928 $6,669 $ (4,669) $ 2,000
July 27, 1994, issued for
cash, $.15 per share 454,340 4,544 63,581 68,125
July 27, 1994, issued for
bonus, $.15 per share(a) 166,732 1,667 23,333 25,000
November 1994, issued for
cash, $.15 per share 20,840 208 2,917 3,125
December 1994, issued for
cash, $.18 per share 197,409 1,974 33,546 35,520
March 1995, issued for
interest, $.64
per share (a) 30,845 309 19,301 19,610
March 1995, issued
for services, $.64
per share (a) 22,509 225 14,085 14,310
May 1995, issued for
cash, $1.09 per share 465,370 4,654 502,846 507,500
Costs related to issu-
ance of common stock (20,045) (20,045)
Net loss, July 2, 1994
(inception) to June 30,
1995 ($321,244) (321,244)
--------- ------- -------- ---------- ---------
Balances,
June 30, 1995 2,024,973 $20,250 $634,895 ($321,244) $333,901
--------- ------- -------- ---------- ---------
(continued)
Per share and other amounts may not reconcile due to roundings.
(a) For issuances involving non-cash consideration, per share amounts were assigned based on cash
amounts proximate to the dates of the non-cash issuances.
See notes to financial statements. F-4
<PAGE>
<CAPTION>
Wanderlust Interactive, Inc.
(A Development Stage Company)
Statements of Changes in Shareholders' Equity
(Continued)
Deficit
accumulated
Additional during the Total
Common stock paid-in development shareholders'
Shares Amount capital stage equity
<S> <C> <C> <C> <C> <C>
Balances,
June 30, 1995 2,024,973 $20,250 $634,895 ($321,244) $333,901
--------- ------- -------- ---------- --------
December 1995,
issued for cash,
$1.09 per share 343,746 3,437 371,246 374,683
December 1995,
issued 515,624
warrants for cash,
$.01 per warrant 4,067 4,067
March 1996, issued for
cash, $5.00 per share 1,300,000 13,000 6,487,000 6,500,000
March 1996, issued
2,100,000 warrants
for cash, $.25 per
warrant 525,000 525,000
March 1996, issued
Underwriters
warrants for cash 20 20
April 1996, issued for
cash, $5.00 per share 95,000 950 474,050 475,000
April 1996, issued
315,000 warrants for
cash, $.25 per warrant 78,750 78,750
Costs related to
issuance of common
stock and warrants (1,358,680) (1,358,680)
Net loss for the year
ended June 30, 1996
(2,035,580) (2,035,580)
Balances, --------- ------- ---------- ----------- -----------
June 30, 1996 3,763,719 $37,637 $7,216,348 ($2,356,824) $ 4,897,161
========= ======= ========== =========== ===========
Per share and other amounts may not reconcile precisely due to roundings.
See notes to financial statements. F-5
<CAPTION>
Wanderlust Interactive, Inc.
(A Development Stage Company)
Statements of Cash Flows
July 2, 1994 July 2, 1994
For the year (inception) (inception) to
Ended June 30, to June 30, June 30, 1996
1996 1995 (Cumulative)
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss ($2,035,580) ($ 321,244) ($2,356,824)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Amortization and depreciation 116,579 3,299 119,878
Common stock issued for bonus - 25,000 25,000
Common stock issued for service - 14,310 14,310
Common stock issued for interest - 19,610 19,610
Change in:
Prepaid expenses (24,000) - (24,000)
Organization costs - (7,420) (7,420)
Security deposit (49,424) (7,820) (57,244)
Accounts payable and accrued
liabilities 98,481 24,291 122,772
---------- -------- ----------
Net cash used in operating activities (1,893,944) (249,974) (2,143,918)
---------- --------- -----------
Cash flows from investing activities:
Purchase of license (225,000) (75,000) (300,000)
Purchase of fixed assets (306,359) (36,738) (343,097)
---------- -------- ----------
Net cash used in investing activities (531,359) (111,738) (643,097)
See notes to financial statements.
F-6
<PAGE>
<CAPTION>
Wanderlust Interactive, Inc.
(A Development Stage Company)
Statements of Cash Flows
(Continued)
July 2, 1994 July 2, 1994
For the year (inception) (inception) to
Ended June 30, to June 30, June 30, 1996
1996 1995 (Cumulative)
<S> <C> <C> <C>
Cash flows from financing activities:
Issuance of common stock and warrants $6,598,840 $596,225 $7,195,065
Proceeds, notes payable - 507,500 507,500
Debt acquisition costs (1,847) (20,045) (21,892)
--------- --------- ---------
Net cash provided by financing
activities 6,596,993 1,083,680 7,680,673
--------- --------- ---------
Increase in cash and cash equivalents 4,171,690 721,968 4,893,658
Cash and cash equivalents, beginning 721,968 - -
---------- ---------- ----------
Cash and cash equivalents, ending $4,893,658 $ 721,968 $4,893,658
========== ========== ==========
Cash paid for interest $ 40,750 $ 210 $ 40,960
========== ========== ==========
See notes to financial statements.
</TABLE>
F-7
Wanderlust Interactive, Inc.
(A Development Stage Company)
Notes to Financial Statements
For the period July 2, 1994 (inception) to June 30, 1995
and for the year ended June 30, 1996
1. Summary of significant accounting policies and business
activity:
Business activity:
Wanderlust Interactive, Inc. ("Company"), a Delaware
corporation, was formed to create, develop, publish, market
and sell interactive multimedia software entertainment titles
on CD-ROM for personal computers. The Company was
incorporated in May, 1994 but had no transactions until July
2, 1994. The Company is considered to be in the development
stage as no significant revenues have been derived from
operations and the Company is primarily involved in research
and development activities.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Common stock split and reverse split:
In July, 1994, the Company effected a 20,000 for one stock
split. In connection with the public offering, the Company
effected a reverse stock split on a .83366 for 1 basis. The
stockholders' equity accounts and all share and per share data
retroactively reflect these splits.
Fixed assets:
Fixed assets consist primarily of computers, leasehold
improvements and furniture, and are stated at cost.
Amortization of leasehold improvements is provided on a
straight-line basis over the shorter of the estimated useful
lives of the improvements or the life of the lease.
Depreciation is provided on a straight-line basis over the
estimated useful life of the related assets.
F-8
<PAGE>
Wanderlust Interactive, Inc.
(A Development Stage Company)
Notes to Financial Statements (Continued)
For the period July 2, 1994 (inception) to June 30, 1995
and for the year ended June 30, 1996
1. Summary of significant accounting policies and business
activity (continued):
Organization costs:
Organization costs represent costs incurred in connection with
organizing the Company. These costs are being amortized on a
straight-line basis over 5 years.
Cash and cash equivalents:
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Deferred loan costs:
Deferred loan costs represent costs incurred in connection
with the issuance of convertible debentures. These costs will
be amortized on a straight-line basis through May, 1997, or
will be expensed upon payment or conversion of debentures.
Concentration of credit risk:
Financial instruments which subject the Company to
concentrations of credit risk consist of temporary cash
investments. The Company places its temporary cash investments
with high quality financial institutions.
Net loss per share:
Net loss per share is based on the weighted average number of
shares of common stock outstanding during the period. Common
stock issued for consideration below the initial public
offering price of $5.00 per share during the 12 months
preceding the date of the initial filing of a registration
statement with the Securities and Exchange Commission has been
included in the calculation of the weighted average as if they
were outstanding for the entire period.
F-9
<PAGE>
Wanderlust Interactive, Inc.
(A Development Stage Company)
Notes to Financial Statements (Continued)
For the period July 2, 1994 (inception) to June 30, 1995
and for the year ended June 30, 1996
2. Commitments and contingency:
In March 1996, the Company entered into a three year
employment agreement with an officer. The agreement provides
for a salary of $150,000 per year and bonuses related to the
development of and revenues generated for each title.
In May 1995, the Company entered into a four year nonexclusive
license agreement with Metro-Golden-Mayer Inc. ("MGM") which
provides for use of the "Pink Panther" character. The
agreement was amended in May 1996, and the Company has paid
$300,000 as a nonrefundable advance royalty, to be applied to
future royalties. The agreement provides for payment of the
greater of a percentage royalty on wholesale prices or an
absolute minimum per unit sold. The agreement also provides
for the shipment of minimum copies by certain due dates.
Failure to ship such minimum copies may cause termination of
the agreement. The agreement grants MGM a right of first
negotiation and last refusal in regards to distribution of the
licensed products. MGM also has the right to approve, at its
sole discretion, the Company's software titles that contain
the "Pink Panther" character.
In April 1995, the Company entered into a one year lease for
office space at an annual rental of $36,000. The lease
provides for a four year option at annual rentals ranging from
$37,800 to $43,758. In December, 1995, the Company entered
into a one year lease for additional office space at an annual
rent of $36,000, with options to renew similar to those
described. Rent expense for the period from July 2, 1994 to
June 30, 1995 was $44,423. Rent expense for the fiscal year
ended June 30, 1996 was $57,173.
In July, 1994, the Company effected a private placement of
common stock. The Company did not accept a subscription from
one person who sought to acquire 90,035 shares of common
stock. This individual advanced the Company $27,000 which
amount the Company has attempted to return. This individual
refused to accept these funds and such funds are currently
held in escrow. In March, 1996 an attorney on behalf of this
individual advised the Company that he intends to bring a
lawsuit against the Company. No such action has been brought
to date. There is no assurance that this individual may not
have a valid claim against the Company due to the Company's
failure to accept his subscription and failure to issue him
F-10
<PAGE>
Wanderlust Interactive, Inc.
(A Development Stage Company)
Notes to Financial Statements (Continued)
For the period July 2, 1994 (inception) to June 30, 1995
and for the year ended June 30, 1996
2. Commitments and contingency (continued):
90,035 shares of common stock. The Company believes it has
meritorious defenses against this claim and, if a lawsuit is
commenced, intends to vigorously defend itself.
3. Convertible debentures:
In May, 1995, the Company issued units consisting of
convertible debentures and common stock. An aggregate of
$507,500 of debentures payable and 465,374 shares of common
stock were issued to various investors in exchange for
$1,015,000. The debentures bear interest at the rate of 8%
(payable annually), and are due in May, 1997. The debentures
are convertible into common shares at the rate of $2.16 per
share.
4. Fixed assets, net:
June 30, June 30,
1996 1995
Computers $274,821 $ 1,002
Furniture 21,507 5,536
Leasehold improvements 46,768 30,200
-------- --------
343,096 36,738
Less accumulated depreciation
and amortization 104,596 562
------- -------
$238,500 $ 36,176
======== ========
5. Initial public offering:
In March and April, 1996, the Company closed an initial public
offering of common stock and redeemable warrants. A total of
1,395,000 shares of common stock and 2,415,000 redeemable
warrants were issued. The redeemable warrants are exercisable
at any time during a three year period commencing March 28,
1996 at an exercise price of $7.00 per share. The redeemable
warrants include an option whereby, under certain conditions,
the Company can redeem the warrants.
F-11
<PAGE>
Wanderlust Interactive, Inc.
(A Development Stage Company)
Notes to Financial Statements (Continued)
For the period July 2, 1994 (inception) to June 30, 1995
and for the year ended June 30, 1996
5. Initial public offering (continued):
In connection with the initial public offering, the investment
banker received, for nominal consideration, five year warrants
to purchase 130,000 shares of common stock and 210,000
redeemable warrants. These warrants are exercisable at any
time during a four year period commencing March 1997 for $6.00
per share of common stock and $.30 per redeemable warrant.
The Company has also agreed to utilize the services of the
investment banker on a consulting basis for two years at a
monthly fee of $2,000; the aggregate fee of $48,000 was paid
at closing.
6. Income taxes:
For income tax purposes, as of June 30, 1996 the Company has
deferred start-up costs approximating the financial accounting
net loss. Such costs will be amortized over five years
commencing when business begins for tax purposes. The
deferred start-up costs result in a deferred tax asset of
approximately $940,000, however, a valuation reserve has been
recorded for the full amount due to the uncertainty of
realization of the deferred tax asset.
7. Incentive stock option plans:
In 1994, the Company adopted an Incentive Stock Option Plan
("Plan"). In September, 1995, the Company amended the Plan.
The Plan provides for the granting of options to purchase up
to 360,000 shares of common stock at an exercise price equal
to the fair market value of the common stock (110% of fair
market value for a holder of in excess of 10%) on the date of
the grant. As of June 30, 1996, options to purchase 360,000
shares of common stock at an average exercise price of $3.03
per share were outstanding. No options have been exercised to
date.
F-12
<PAGE>
Wanderlust Interactive, Inc.
(A Development Stage Company)
Notes to Financial Statements (Continued)
For the period July 2, 1994 (inception) to June 30, 1995
and for the year ended June 30, 1996
7. Incentive stock option plans (continued):
Plan activity during the period ended June 30, 1995 follows:
Shares Price
Outstanding at begining of period - -
Granted 65,023 $1.08
Exercised - -
Forfeited - -
======= =====
Outstanding at end of period 65,023 $1.08
======= =====
Options exercisable at June 30, 1995 - -
======= =====
Weighted average remaining
contractual life, years 5
======
Plan activity during the year ended June 30, 1996 follows:
Shares Price
Outstanding at begining of year 65,023 $1.08
Granted 380,028 3.56
Exercised - -
Forfeited 85,051 1.16
------- -----
Outstanding at end of year 360,000 3.03
======= =====
Options exercisable at June 30, 1996 8,000 $1.08
------- -----
Weighted average remaining
contractual life, years 4.5
======
F-13
<PAGE>
Wanderlust Interactive, Inc.
(A Development Stage Company)
Notes to Financial Statements (Continued)
For the period July 2, 1994 (inception) to June 30, 1995
and for the year ended June 30, 1996
7. Incentive stock option plans (continued):
In July, 1996, the Company adopted the 1996 Incentive Stock
Option Plan ("96 Plan"). The 96 Plan provides for the
granting of options to purchase up to 360,000 shares of common
stock at an exercise price equal to the fair market value of
the common stock (110% of fair market value for a holder of in
excess of 10%) on the date of the grant. In July, 1996,
options to purchase 25,000 shares of common stock at an
average exercise price of $6.875 per share were granted. No
options have been exercised to date.
8. Related party transactions:
During the period from July 2, 1994 (inception) to June 30,
1995, the Company incurred $56,475 of legal fees and
disbursements to a law firm. For the year ended June 30,
1996, legal fees and disbursements of $250,007 were incurred
to the same law firm. A partner in that firm is an
officer/shareholder/director. These fees were related
primarily to the raising of debt and equity capital, and
organization costs.
9. Bridge financing:
On December 29, 1995 the Company completed a private offering
of 343,746 shares of common stock and 515,624 redeemable
warrants for an aggregate consideration of $378,750. The
redeemable warrants provide for automatic conversion into an
equal number of warrants bearing the same rights as those
discussed in Note 5, "Initial public offering".
10. New authoritative accounting pronouncements:
The Financial Accounting Standards Board has issued Financial
Accounting Standard No. 123 "Accounting for Stock-Based
Compensation" ("FAS 123"). FAS 123 requires an entity to
adopt either a fair value based method of accounting for
stock-based compensation or to continue to measure
compensation cost as prescribed by the previously issued APB
Opinion No. 25, "Accounting for Stock Issued to Employees".
("APB 25"). Entities electing to remain with the accounting
F-14
<PAGE>
Wanderlust Interactive, Inc.
(A Development Stage Company)
Notes to Financial Statements (Continued)
For the period July 2, 1994 (inception) to June 30, 1995
and for the year ended June 30, 1996
10. New authoritative accounting pronouncements (continued):
prescribed by APB 25 must present pro forma disclosures of net
income and earnings per share as if the fair value based
method of accounting had been applied. The accounting
requirements of FAS 123 are effective for transactions entered
into in the Company's fiscal year beginning July 1, 1996. The
disclosure requirements of FAS 123 are effective for financial
statements for the Company's fiscal year beginning July 1,
1996. The pro forma disclosures required if the Company
elects to continue to account for compensation cost as
prescribed by APB 25 must include the effects of all awards
granted in the Company's fiscal year beginning July 1, 1995.
The Company's election under FAS 123 has not been determined
and the effect of adoption of FAS 123 on the Company's
financial statements has not been determined.
11. Disclosures about fair value of financial instruments:
The carrying amount of convertible debentures payable
approximates fair value because the interest rate approximates
market interest rates.
F-15
<PAGE>
Exhibit Index
10.3 Amendments to the License Agreement between the Company and
MGM/UA Licensing and Merchandising, a division of Metro-Goldwyn-
Mayer Inc., dated October 26, 1995, May 2, 1996 and May 31, 1996
10.5 Sublease between the Company and Greenpeace, Inc. dated
September 13, 1996 for the Company's premises located at 462
Broadway, New York, New York.
10.9 Distribution Agreement between the Company and BMG Music d/b/a
BMG Entertainment, dated as of May 15, 1996.
10.10 Form of sublicense agreement entered into by the Company
and its international distributors.
<PAGE>
Exhibit 10.3
AMENDMENT TO PINK PANTHER CONTRACT #6132
THIS AMENDMENT TO AGREEMENT, dated this 26th day of October 1995,
between MGM/UA LICENSING AND MERCHANDISING, a division of METRO-
GOLDWYN-MAYER INC., a Delaware corporation with its principal office
at 2500 Broadway Street, Santa Monica, California 90404-3061, U.S.A.
("MGM/UA") and WANDERLUST INTERACTIVE, INC. ("LICENSEE") is to evidence:
WHEREAS, pursuant to AGREEMENT # 6132 dated May 25, 1995, MGM/UA
and Licensee entered into a license agreement utilizing the property known
as the PINK PANTHER; and
WHEREAS, the parties wish to amend the Agreement in certain respects;
NOW, THEREFORE, the Agreement is amended as follows:
1. The release date of the first volume of the Licensed Products on
the Licensed Platforms as specified in Section 5.8 is changed to
October 31, 1996. The second volume shall be released on or before
April 30, 1997.
2. Except as expressly modified by this amendment, all terms and conditions
of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this amendment on
the date set forth above.
MGM/UA LICENSING AND MERCHANDISING
a Division of METRO-GOLDWYN-MAYER INC.
By s/SUSAN NOTARIDES
Executive Vice President
WANDERLUST INTERACTIVE, INC
By s/CATHERINE WINCHESTER
Chief Executive Officer
AMENDMENT TO PINK PANTHER CONTRACT # 6132
THIS AMENDMENT is entered into this 2nd day of May, 1996,
between MGM/UA LICENSING AND MERCHANDISING, a division of
METRO-GOLDWYN-MAYER INC., a Delaware corporation with its principal
office at 2500 Broadway Street, Santa Monica, California
90404-3061, U.S.A. ( "MGM/UA") and Wanderlust Interactive. Inc.
(" LICENSEE" ) .
WHEREAS, pursuant to contract #6132 dated May 25. 1995 (the
"Agreement"), MGM/UA granted to Licensee certain rights to utilize
the property known as the PINK PANTHER and related characters
("Licensed Property," as defined by Paragraph 1.11 of the
Agreement) in conjunction with Licensee's manufacture, distribution
and sale of certain Licensed Products (as defined by Paragraph 1.2
of the Agreement);
NOW, THEREFORE, the parties wish to amend the Agreement as
follows:
1. In addition to right to manufacture, distribute and sell
the Licensed Products, MGM hereby grants Licensee a non-exclusive
license to manufacture, distribute and sell the following
additional products (the "Additional Licensed Products") utilizing
the Licensed Property:
(a). a companion guide book to the Licensed Products (the
"Guidebook") and;
(b). the soundtrack audio CD to the Licensed Products ("Audio
CD") which may utilize the Licensed Property in its cover artwork
(i.e. inlay or booklet). For avoidance of doubt, nothing contained
in this subparagraph 1 (b). shall be construed to be a grant of
rights to any musical compositions or performances. For purposes of
clarity, Licensee shall be responsible for obtaining any rights or
licenses necessary to include any musical compositions or
performances in the Audio CD, including mechanical and
synchronization licenses.
2. In consideration for the right to manufacture,
distribute and sell the Additional Licensed Products, Licensee
shall pay MGM/UA the following royalties:
(a). If the Guidebook and Audio CD are sold as standalone
items, separate and apart from the Licensed Products, Licensee
shall pay MGM/UA an amount equal to ten percent (10%) of the
Wholesale Price of each Additional Licensed Product sold.
(b). If the Additional Licensed Product(s) are bundled with
the Licensed Products, the royalty rates set forth in Paragraph 3.1
(b), as amended, shall apply.
3. Paragraph 3.1 of the Agreement is hereby deleted in its entirety
and replaced by the following amended Paragraph 3:
"3. CONSIDERATION
3.1 Royalties. In consideration for the rights granted to it
under this Agreement, the Licensee agrees to pay MGM/UA the
following royalties:
(a). The Licensee agrees to pay MGM/UA the following
non-refundable Advance Royalty Amount ("Advance"), which shall be
set off as a credit against the royalties due MGM/UA under
subparagraphs 3.1(b):
Three Hundred Thousand Dollars ($300,000.00) less the
initial advance of Seventy Five Thousand Dollars
($75,000.00) shall be payable by Licensee concurrently
with Licensee's execution of this Amendment.
(b). Percentage royalties shall be computed as follows:
(i). In the United States: For the first One Hundred
Thousand (100,000) units of/the Licensed Products sold
in to a wholesaler or distributor that will itself
sell the Licensed Products to retail accounts, other
than bundled sales pursuant to (iv) below, Licensee
shall pay MGM/UA Twelve and one half percept (12.5%)
of the Wholesale Price.
(ii). In the United States: For sales of the Licensed
Products in excess of the first One Hundred Thousand
(100,000) units sold to a wholesaler or distributor
that will itself sell the Licensed Products to retail
accounts, other than bundled sales pursuant to (iv)
below, Licensee shall pay MGM/UA Fifteen Percent (15%)
of the Wholesale Price.
(iii). Outside the United States: For sales of the
Licensed Products to a wholesaler or distributor that
will itself sell the Licensed Products to retail
accounts, other than bundled sales pursuant to (iv)
below, Licensee shall pay MGM/UA Fifteen Percent (15%)
of the Wholesale Price.
(iv). As to sales of the Licensed Products bundled with
Computer hardware systems (i.e. sold as a single unit
without a separate price for the Licensed Products),
Licensee shall pay MGM/UA Fifty Percent (50%) of
Licensee's revenues after deducting cost of goods
sold.
(v). As to any Licensed Products that are sold by the
Licensee on an F.O.B. basis to a customer or
distributor located in a country other than the
country from which the Licensed Products are shipped
(for example, a shipment of Licensed Products F.O.B.
Hong Kong to a customer in the U.S.), the royalty
rate on such sales shall be five percentage points
higher than the applicable percentage royalty
specified in Section 3.1(b)(i), (ii) and (iii).
(vi). For any amounts paid or payable to Licensee with
respect to the Licensed Product(s) not resulting from
actual sales (including, but not limited to, the
Guarantee Shortfall as set forth in the agreement
between BMG Entertainment and Licensee regarding the
distribution of certain Wanderlust products in the
U.S.), Licensee shall pay MGM/UA twelve and one half
percent (12.5%) of all such amount(s) or $1.50 per
unit, whichever amount is greater.
(vii). All royalty computations under this Section 3.1
(b) an shall be made on the basis of the Wholesale
Price charged by the Licensee, or, if the Licensee
sells Licensed Products to a subsidiary or other party
controlled by the Licensee, on the basis of the
Wholesale Price for such Licensed Products charged by
such subsidiary or controlled party on resale of the
Licensed Products.
(c). All amounts due MGM/UA under this Agreement shall be
remitted by the Licensee to the following address:
METRO-GOLDWYN-MAYER INC.
P.O. BOX 4073
SANTA MONICA, CALIFORNIA 90411
ATTN: LICENSING & MERCHANDISING"
4. Licensee may sublicense the rights granted to it under the
Agreement for purposes of localizing the Licensed Products so long
as Licensee enters into a sublicense agreement with each of its
sub-licensees in the form of the attached "Sublicense Agreement"
without material change. Licensee will provide MGM/UA will copies
of all executed sub-licenses, as well as all statements and reports
of payments received from sub-licensees and/or distributors.
5. Except as expressly modified by this amendment, all terms and
conditions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this amendment
on the date set forth above.
MGM/UA LICENSING AND MERCHANDISING
a Division of METRO-GOLDWYN-MAYER INC.
By:s/SUSAN NOTARIDES, EXECUTIVE VICE PRESIDENT
WANDERLUST INTERACTIVE, INC.
By: s/Catherine Winchester, President
<PAGE>
AMENDMENT TO PINK PANTHER CONTRACT # 6132
THIS AMENDMENT TO AGREEMENT, dated this 31st day of May, 1996,
between MGM/UA LICENSING AND MERCHANDISING, a division of
METRO-GOLDWYN-MAYER INC., a Delaware corporation with its principal
office at 2500 Broadway Street, Santa Monica, California 90404-3061, U.S.A.
( "MGM/UA") and Wanderlust Interactive, Inc.("LICENSEE") is to evidence:
WHEREAS, pursuant to AGREEMENT # 6132 dated May 25, 1995,
MGM/UA and Licensee entered into a license agreement utilizing the
property known as the PINK PANTHER and related characters; and
WHEREAS, said agreement was amended by amendment agreements
dated October 26, 1995, and May 2, 1996, (said agreement, as
amended, being hereinafter referred to as the "Agreement"); and
WHEREAS, the parties wish to amend the Agreement in certain
respects;
NOW, THEREFORE, the Agreement is amended as follows:
1. The release date of the second volume of the Licensed Products
shall be October 31, 1997.
2. Except as expressly modified by this amendment, all terms and
conditions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this amendment
on the date set forth above.
MGM/UA LICENSING AND MERCHANDISING
a Division of METRO-GOLDWYN-MAYER INC.
By s/SUSAN NOTARIDES EXECUTIVE VICE PRESIDENT
WANDERLUST INTERACTIVE, INC.
By s/CATHERINE WINCHESTER,
CEO
<PAGE>
Exhibit 10.5
SUBLEASE AGREEMENT
The parties agree as follows:
Date of this
Sublease: September 13, 1996
Parties to this Overtenant: Greenpeace, Inc.
Sublease: Address for notices: 1436 U Street, N.W.
Washington, D.C. 20009
You, the Undertenant: Wanderlust Interactive, Inc.
Address for notices:
If there are more than one Overtenant or Undertenant, the
words "Overtenant" and "Undertenant" used in this
Sublease includes them.
Information from Landlord: 464 Broadway Associates
Over-Lease Address for notices: 527 Madison Avenue, Suite 2600
New York, New York 10022
Overtenant: Greenpeace, Inc.
Address for notices: 1436 U Street, N.W.
Washington, D.C. 20009
Date of Over-Lease: March 27, 1991
Term: Ten (10) yrs from: April 1, 1991 to: March 31,
2001. A copy of the Over-Lease is attached as an
important part of the Sublease.
Premises rented: 2. The southerly portion of the sixth floor of the
building known as 462 Broadway, New
York, New York as more particularly
known as Exhibit A annexed hereto.
Use of premises: 3. The premises may be used for general offices.
Rent: 4.
Security: 5.
Agreement to 6. Overtenant sublets the premises to you, the
lease and Undertenant, for the Term. Overtenant states that
pay rent: it has the authority to do so. You, the Under-
tenant, agree to pay the Rent and other charges as
required in the Sublease. You, the Undertenant,
agree to do everything required of you in the
Sublease.
Notices: 7.
Subject to: 8. The Sublease is subject to the Over-Lease. It is
also subject to any agreement to which the Over-
Lease is subject. You, the Undertenant, state
that you have read the Over-Lease and will not
violate it in any way.
Overtenant's 9. The Over-Lease describes the Landlord's duties.
duties: The Overtenant is not obligated to perform the
Landlord's duties. If the Landlord fails to
perform, you, the Undertenant, must send the
Overtenant a notice. Upon receipt of the notice,
the Overtenant shall then promptly notify the
Landlord and demand that the Over-Lease agreements
be carried out. The Overtenant shall continue the
demands until the Landlord performs.
Consent: 10. If the Landlord's consent to the Sublease is
required, this consent must be received within
_____ days from the date of this Sublease. If the
Landlord's consent is not received within this
time, the Sublease will be void. In such event
all parties are automatically released and all
payments shall be refunded to you, the Under-
tenant.
Adopting the 11. The provisions of the Over-Lease are part of this
Over-Lease and Sublease. All the provisions of the Over-Lease
exceptions: applying to the Overtenant are binding on you, the
Undertenant, except these:
a) These numbered paragraphs of the Over-
Lease shall not apply: 41, first
sentence of 44, 67, 69, 74, 75, 89, 104,
110, 111, 112.
No authority: 12. Subject to the provisions of the Consent Agreement
between and among Landlord, Overtenant and Under-
tenant (the "Consent"), (i) you, the Undertenant,
have no authority to contact or make any agreement
with the Landlord about the premises or the Over-
Lease and (ii) you, the Undertenant, may not pay
rent or other charges to the Landlord, but only to
the Overtenant.
Successors: 13. Unless otherwise stated, the Sublease is binding
on all parties who lawfully succeed to the rights
or take the place of the Overtenant or you, the
Undertenant. Examples are an assign, heir, or a
legal representative such as an executor of your
will or administrator of your estate.
Changes: 14. This sublease can be changed only by an agreement
in writing signed by the parties to the Sublease.
Signatures: OVERTENANT:
GREENPEACE, INC.
By: s/V. Johnson
You, the UNDERTENANT:
WANDERLUST INTERACTIVE, INC.
By: s/Catherine Winchester
<PAGE>
RIDER TO SUBLEASE AGREEMENT
BETWEEN GREENPEACE, INC. AND
WANDERLUST INTERACTIVE, INC.
15. If there shall be any conflict between any of the provisions
of this Rider and any of the terms of the printed portion of the
Sublease Agreement, all such conflicts shall be resolved in favor
of the provisions of this Rider.
16. (a) The term of this Sublease shall commence on the date that
Landlord grants its consent to this Sublease (the "Commencement
Date") and, unless sooner terminated as herein provided, shall end
on March 30, 2001.
(b) After the determination of the Commencement Date,
Undertenant agrees, upon demand of Overtenant, to execute,
acknowledge and deliver to Overtenant, an instrument, in form
satisfactory to Overtenant, setting forth the Commencement Date.
17. (a) Undertenant covenants and agrees to pay to Overtenant
fixed rent in the following amounts:
For the period commencing on the Commencement Date and ending
on August 31, 1997, an amount equal to the difference between (x)
$120,000 and (y) the product of $322.58 and the number of days from
and including September 1, 1996 to and including the date
immediately preceding the Commencement Date, in equal monthly
amounts of $10,000 (as adjusted as provided for in paragraph 17(c)
below;
(a) For the period commencing on September 1, 1997 and ending
on August 31, 1998, $124,800, in equal monthly amounts of $10,400;
(b) For the period commencing on September 1, 1998 and ending
on August 31, 1999, $129,792, in equal monthly amounts of $10,816;
(c) For the period commencing on September 1, 1999 and ending
on August 31, 2000, $134,983.68, in equal monthly amounts of
$11,248.64; and
(d) For the period commencing on September 1, 2000 and ending
on March 30, 2001, $81,890.13 (based on an annual amount of
$140,383.03), in equal monthly amounts of $11,698.59.
(b) Fixed rent shall be paid by Undertenant directly to
Landlord without notice or demand therefore and without setoff,
offset or deduction of any kind whatsoever, in lawful money of the
United States, at the address of Landlord set forth in the
Overlease or at such other address as may be designated by Landlord
from time to time, five (5) days prior to the first day of each
month during the term of this Sublease. Such payment of fixed rent
directly to Landlord shall be deemed payment of the fixed rent due
hereunder. In the event that Overtenant shall be required to pay
any late charge or any other amount to Landlord because of
Undertenant's failure to pay the fixed rent hereunder directly to
Landlord when provided for herein, any such charge or amount shall
be paid by Undertenant to Overtenant on demand as additional rent
hereunder. Notwithstanding the foregoing, since Overtenant has,
pursuant to the provisions of Section 69(b) of the Lease, paid the
fixed rent for the last three months of the Overlease in advance,
Subtenant shall pay the fixed rent under this Sublease for such
three months directly to the Overtenant. In the event that
Overtenant shall not have paid to Landlord the difference between
the fixed rent under the Overlease and the fixed rent under this
Sublease, and Undertenant shall have paid such amounts to Landlord
pursuant to the provisions of the Consent, Undertenant shall have
the right to offset against the fixed rent hereunder payable
directly to Overtenant the amount so paid by Undertenant to
Landlord.
(c) The sum of $10,000, representing the installment of fixed
rent for the first month of the term of this Sublease after the
expiration of the Rent Holiday Period (as hereinafter defined), is
due and payable at the time of the execution and delivery of this
Sublease. In the event that the Rent Commencement Date (as
hereinafter defined) shall occur on a day other than the first day
of a calendar month, Undertenant shall pay to Overtenant, on the
first day of the month next succeeding the month during which the
Rent Commencement Date shall occur, a sum equal to $322.58,
multiplied by the number of calendar days in the period from and
including the Rent Commencement Date to and including the last day
of the month in which the Rent Commencement Date shall occur. Such
payment, together with the sum paid by Undertenant upon the
execution of this Lease, shall constitute payment of the fixed rent
hereunder for the period from the Rent Commencement Date to and
including the last day of the next succeeding calendar month.
(d) Provided Undertenant is not then in default in the
observance and performance of any of the terms, covenants and
conditions of this Sublease on Undertenant's part to be observed
and performed, Undertenant shall be entitled to a conditional rent
holiday and shall not be required to pay any portion of the fixed
rent for the period (the "Rent Holiday Period") for the first four
months of this Sublease, but during such four month period
Undertenant shall otherwise be required to comply with all of the
other terms, covenants and conditions of the Overlease and this
Sublease on Undertenant's part to be observed and performed. The
day next following the expiration of the Rent Holiday Period is
referred to herein as the "Rent Commencement Date". If at any time
during the term of this Sublease Undertenant shall be in default in
the observance and performance of any of the other terms, covenants
and conditions of the Overlease and this Sublease on Undertenant's
part to be observed and performed, then the total sum of the fixed
rent so conditionally excused by the foregoing provisions of this
Section shall become immediately due and payable by Undertenant to
Overtenant.
18. (a) Article 40 of the Overlease is hereby changed to provide
that the Base Tax Year (as defined therein) shall mean the year
commencing July 1, 1996 and ending June 30, 1997. Undertenant
shall pay to Overtenant, as additional rent hereunder, 8.33 percent
(8.33%) of the excess of real estate taxes (as defined in the
Overlease) for any fiscal tax year over such real estate taxes for
the Base Tax Year. Undertenant shall also pay to Overtenant, as
additional rent, 8.33% percent (8.33%) of any costs and expenses,
including counsel fees, incurred by Landlord as described in
paragraph (d) of Article 40 of the Overlease.
(b) Payment of additional rent pursuant to Section 18(a)
above shall be made within five (5) days after demand, which demand
shall be accompanied by the statement furnished by Landlord to
Overtenant relating to such charges.
19. Except as otherwise provided in this Sublease, including,
specifically, Section 11(a), the terms, provisions and conditions
contained in the Overlease are incorporated in this Sublease by
reference and are made a part hereof as if herein set forth at
length, and Overtenant shall have all of the rights, but none of
the obligations of Landlord under such incorporated provisions. If
there shall be any inconsistency between the provisions of the
Overlease so incorporated herein and the express provisions of this
Sublease, such provisions of this Sublease shall govern.
20. Overtenant shall have no obligation to and shall not render or
perform any services for Undertenant (including without limitation,
furnishing of heat, electricity, air conditioning, ventilation,
elevator service, cleaning, painting, water, condenser water,
rebuilding, repainting or restoring the space sublet hereunder in
case of damage or destruction by fire or other casualty and any
other service required to be furnished and performed by Landlord
under the Overlease), and Undertenant shall look solely to Landlord
for such services and performance. If Undertenant shall have duly
requested from the Landlord the performance of any such obligation
and the Landlord shall fail to perform the requested obligation,
Overtenant agrees to make such request in its name on Undertenant's
behalf at no cost to Undertenant. Landlord shall in no event be
liable to Undertenant, nor shall the obligations of Undertenant
hereunder be impaired or the performance thereof be excused because
of any failure or delay on the part of the Landlord in performing
any obligation unless such failure or delay results from
Overtenant's default under the Overlease or from Overtenant's
negligence or willful misconduct.
21. Whenever any provision of the Overlease requiring Landlord to
give notice to the Overtenant thereunder has been incorporated
herein by reference, such notice by Overtenant to Undertenant shall
for purposes hereunder be deemed timely given if given to
Undertenant within five (5) business days after receipt by
Overtenant of notice from Landlord unless otherwise expressly
provided hereinafter to the contrary.
22. Whenever any provision of the Overlease which has been
incorporated herein by reference requires Overtenant as tenant
under the Overlease to take any action within a certain period of
time after notice from Landlord, then, upon notice from Overtenant
to Undertenant, Undertenant shall take such action within said
certain period of time minus seven (7) days, provided, however, in
no event shall Undertenant have less than five (5) days to take
such action, whether under this Sublease, the Overlease or
otherwise.
23. Each party covenants and agrees not to do or suffer or permit
anything to be done or fail to be done which would result in a
default under or cause the Overlease to be terminated.
24. Undertenant represents that it has inspected the premises
sublet hereunder (the "Sublet Premises") and agrees to take the
same "as is" in its present condition. Undertenant acknowledges
that no representations with respect to the condition thereof have
been made and that Overtenant shall have no obligation to perform
any work or prepare the Sublet Premises for Undertenant's
occupancy. Any work required by Undertenant to prepare the Sublet
Premises for its occupancy shall be paid for by Undertenant and
shall be subject to all of the conditions set forth in the
Overlease.
25. Undertenant shall obtain and keep in full force and effect
during the term of this Sublease, at its sole cost and expense,
such policies of insurance and in such form as are required by the
Overlease. Such policies of insurance, in addition to naming as
insured parties those parties specified by the Overlease, shall
name Overtenant as an additional insured.
26. Each party represents and warrants to the other that Rafe B.
Evans of Walker, Malloy & Company, Inc. and Kenneth Fishel of
Legacy Real Estate were the sole brokers responsible for bringing
about this Sublease, and each party shall indemnify and hold the
other party harmless against any claims, losses, damages,
liabilities, costs and expenses (including attorneys' fees)
resulting from the claims of any broker or brokers or finder or
finders which shall involve a breach of the foregoing
representation and warranty.
27. Whenever in this Sublease consent of Overtenant is required,
the consent of Landlord shall also be required therefor. If
Landlord should refuse such consent, Overtenant shall be released
from any obligation to grant its consent whether or not Landlord's
refusal is arbitrary or unreasonable.
28. If Undertenant shall default in the performance of any of
Undertenant's obligations under this Sublease or under the
provisions of the Overlease, and such default shall continue beyond
the grace period provided for in this Sublease, Overtenant, without
thereby waiving such default, may, at Overtenant's option, perform
the same for the account and at the expense of Undertenant. If
Overtenant makes any expenditures or incurs or incurs any
obligations for the payment of money, including, without
limitation, attorneys' fees, in instituting, prosecuting or
defending any action or proceeding, by reason of any default of
Undertenant under this Sublease, such sums paid or obligations
incurred, with interest thereon at a rate equal to 5% above the
prime interest rate on unsecured loans charged by Citibank, N.A.,
on loans of ninety (90) days announced as in effect from time to
time during any period for which computation of interest is made
hereunder, shall be deemed to be additional rent hereunder and
shall be paid by Undertenant to Overtenant on demand.
29. Neither Overtenant nor its agents, representatives or
employees shall be liable to Undertenant, its agents,
representatives, employees, contractors or licensees, and
Undertenant shall save Overtenant, its agents, representatives and
employees and Landlord harmless from and against all loss, cost,
liability, claim, damage and expense, including, without
limitation, reasonable attorneys' fees, penalties and fines
incurred in connection with or arising from any injury to
Undertenant or to any other person or for any damage to, or loss
(by theft or otherwise) of, any of Undertenant's property and/or of
the property of any other person, irrespective of the cause of such
injury, damage or loss, except if such injury, damage or loss is
caused by the gross negligence or willful misconduct of Overtenant.
Undertenant agrees to indemnify and save Overtenant, its agents,
representatives or employees and Landlord harmless from and against
all loss, cost, liability, claims, damage and expense (including,
without limitation, reasonable attorneys' fees), penalties and
fines, incurred in connection with or arising from (a) any default
by Undertenant in the observance or performance of any of the
terms, covenants or conditions of this Sublease on Undertenant's
part to be observed or performed, or (b) the use or occupancy or
manner of use or occupancy of the Sublet Premises by Undertenant or
any person claiming through or under Undertenant, or (c) the
condition of the Sublet Premises, or (d) any acts, omissions or
negligence of Undertenant or any such person, or the contractors,
agents, representatives, employees, servants, visitors or licensees
of Undertenant or any such person, in or about the Sublet Premises
or the building either prior to, during, or after the expiration of
the term of this Sublease. If any action or proceeding shall be
brought against Overtenant or Landlord by reason of any such claim,
Undertenant, upon notice from Overtenant, agrees to resist or
defend such action or proceeding and to employ counsel therefor
reasonably satisfactory to Overtenant; it being understood that
counsel for Undertenant's insurance company shall be deemed to be
satisfactory to Overtenant. Undertenant shall pay to Overtenant on
demand all sums which may be owing to Overtenant by reason or the
provisions of this Section 29. Overtenant's obligations under this
Section 29 shall survive the termination of this Sublease.
30. (a) All notices, demands or requests to Overtenant or
Undertenant made pursuant to, under or by virtue of this Sublease
must be in writing and sent to the party to which the notice,
demand or request is being made by personal delivery, nationally
recognized overnight courier service or postage prepaid, certified
or registered mail, return receipt requested, as follows:
To Overtenant: Greenpeace, Inc.
1436 U Street, N.W.
Washington, D.C. 20009
Attn: Deputy Executive Director
with a copy to Goldfarb & Fleece
its attorney: 345 Park Avenue
New York, New York 10154
Attn: Richard A. Walderman, Esq.
To Undertenant: Wanderlust Interactive, Inc.
464 Broadway
New York, New York 10013
with a copy to Kalin & Banner
its attorney: 757 Third Avenue
New York, New York 10017
Attn: Richard S. Kalin, Esq.
(b) Any such notice, demand or request shall be deemed to have
been rendered or given on the date received, in the case of
personal delivery or nationally recognized courier service, or on
the date which is three (3) business days after mailing.
(c) The persons designated for receipt of such notices,
demands or requests and the addresses to which they shall be given
or made may be changed or supplemented by notice given to each of
the other parties listed in paragraph (a) above and such changes
shall take effect three (3) business days after such notice is
given.
(d) Notices by a party may be given by such party's attorney.
31. Undertenant has deposited with Landlord the sum of $20,000,
which will be held by Landlord as a security deposit (the "Security
Deposit") pursuant to the provisions of Article 31 of the Lease
(which Article 31 is deemed reinserted in the Lease in accordance
with the provisions of the Consent). Promptly after the delivery
of the Security Deposit (or any remaining portion of the Security
Deposit if any part of the Security Deposit shall have been applied
by Landlord pursuant to the provisions of Article 31 of the Lease)
by Landlord to Overtenant, and provided that Undertenant shall not
be in default under this Sublease, Overtenant shall return the same
to Undertenant. Notwithstanding the foregoing, in the event that
Overtenant shall have paid any amount to Landlord pursuant to the
Lease based on any failure by Undertenant to properly observe or
perform any of the terms, covenants or conditions of this Sublease
or the Lease on the part of Undertenant to be observed or performed
including, but not limited to, any default in the payment when due
of any monthly installment of the fixed rent or of any additional
rent, upon the delivery of the Security Deposit (or the remaining
portion thereof) by Landlord to Overtenant, Overtenant shall have
the right to retain therefrom the amount theretofore paid by
Overtenant to Landlord.
32. This Sublease is conditioned upon Overtenant obtaining the
written consent of Landlord to this Sublease, to the extent
required under the Overlease. Undertenant shall cooperate with
Overtenant to obtain such consent and shall provide all information
concerning Undertenant that Landlord shall reasonably request. If
such consent is refused or if Landlord shall otherwise fail to
grant such consent within thirty (30) days from the date hereof,
then either party may, by written notice to the other, given at any
time prior to the granting of such consent, terminate and cancel
this Sublease, whereupon Overtenant shall refund to Undertenant any
rent paid in advance hereunder together with Undertenant's security
deposit. Upon the making of such refunds, neither party hereto
shall have any further obligation to the other under this Sublease,
except to the extent that the provisions of this Sublease expressly
survive the termination of this Sublease.
33. Overtenant represents to Undertenant that:
(i) The copy of the Overlease annexed to this Sublease as
Exhibit A, as amended by the Consent, is a true and complete copy
of the Overlease.
(ii) Overtenant has not received any notice of default by
Overtenant under the Overlease, which default remains uncured.
(iii) To the best of Overtenant's knowledge, no event has
occurred which, with the giving of notice by Landlord or the
passage of time, or both, would be deemed a default by Overtenant
under the Overlease.
GREENPEACE, INC.
By: s/ Venola Johnson
Name: Venola Johnson
Title: Deputy Director
WANDERLUST INTERACTIVE, INC.
By: s/ Catherine Winchester
Name: Catherine Winchester
Title: President
cdkidz\sublsrid
<PAGE>
Exhibit 10.9
DISTRIBUTION AGREEMENT
by and between
BMG MUSIC dibla BMG ENTERTAINMENT
and
WANDERLUST INTERACTIVE, INC.
DATED AS Of MAY 15, 1996
- -1-
<PAGE>
Table of Contents
PART I - DISTRIBUTION
1. Term
2. Basic Services
3. Ordering/Title/Ownership
4. Distnbution Fee/Net Sales/Net Proceeds/Reserves/Payment
5. Returns/Procedure/Non-BMG Product(s)
5A. Guarantee(s)
6. Excess Inventory
7. Deleted Products
8. Sale Of Products By BMG
9. Marketing/Advertising/Promotion
10. Trademarks
PART II - INVENTORY MANAGEMENT
11. Purchase/Processing/Placement/Special Elements
12. Price/Additional Terms
PART III - GENERAL
13. Applicability
14. Statements/Accounting/Audit/Payments/Collateral 1 5
15. Force Majeure
16. Termination
17. Owner's Representations, Warranties, Covenants And
Indemnification
18. Owner's Relationship To BMG
19. Key Personnel
20. Notices
21. Assignment
22. Waivers and Remedies
23. Headings
24. Investigation
25. Entire Agreement
26. Severability
27. Governing Law
28. Counterparts
Schedule 1 - Owner's Product(s)
Schedule 2 - Owners Customer(s)
Exhibit A - Price Schedule for Warehouse Services
Exhibit B- Non-BMG Products
Exhibit C - Marketing Plan
Exhibit D - Parental Advisory Logo
- -2 -
<PAGE>
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 15th day of May, 1996, by and between BMG
Music, d/b/a BMG Entertainment, a New York general partnership,
having an office at 1540 Broadway, New York, New York 100364093
("BMG") and Wanderlust Interactive, Inc., a Delaware corporations
having an office at 598 Broadway, New York, New York 10012
("Owner").
In consideration of the representations, warranties, covenants and
mutual promises contained herein and subject to the terms and
conditions hereinafter set out, the parties hereto agree as
follows:
PART I - DISTRIBUTION
TERM
(a) The Term of this Agreement is the two (2) year period
commencing on the date first written hereinabove ("Initial
Period"), unless terminated or extended as provided herein.
(b) Owner grants to BMG two (2) separate, consecutive options to
extend the Term ("Option(s)") for two (2) additional one (1) year
period(s) ("Additional Period(s)"). The first Option(s) is to
extend the Initial Period for an additional one (1) year period
commencing immediately following the expiration of the Initial
Period ("First Additional Period") and the second Option(s) is to
extend the First Additional Period(s) for an additional one (1)
year period commencing immediately following the expiration of the
First Additional Period ("Second Additional Period").
Notwithstanding the immediately preceding two (2) sentences, BMG
shall not be entitled to exercise the first Option(s) once Owner
has elected, if at all, to terminate the Term pursuant to Paragraph
5A(a)(ii) hereof. Moreover, the first Option(s) shall not be
exercised prior to the expiration of the Penetration Period. Except
as otherwise provided in the immediately preceding sentence in
respect of the first Option(s), each Option(s) shall be exercised,
if at all, by written notice from BMG to Owner prior to the
expiration of the applicable Period.
(c) The Initial Period and any Additional Period(s) constitute the
"Term". As used herein, "Contract Year" means the twelve month
period commencing on the month and day first written hereinabove of
any year and ending on the day immediately preceding such day of
the following year.
2. BASIC SERVICES
(a) As used herein
(i) Except as otherwise provided in Paragraph 2(b) hereof, "Owners
Product(s)" means the interactive multimedia software product (all
PC formats) including all upgrades and revised editions, now or
hereafter known or developed, derived from "Master(s)" owned or
controlled, in whole or in part, directly or indirectly by Owner,
as same is more fully described in Part A of Schedule 1 attached
hereto and by this reference incorporated herein.
(ii) "Master(s)" means the original material object in which sounds
(with and without images) and images (with and without sound) are
fixed by any method now known or later developed and from which
sounds and/or images can be perceived, reproduced or otherwise
communicated, either directly or with the aid of a machine, device
or process
- -3-
<PAGE>
(including, without limitation, so-called "gold" masters, Sony
1610/1630 (presequenced and fully edited or compact disc/DAT
masters and their equivalents).
(b) (i) Notwithstanding anything to the contrary contained herein,
if during the Term Owner continues to possess distribution rights
in respect of the other interactive multimedia software product
more fully described in Part B of Schedule 1 ("Owner's Product(s)
#2) and/or possesses (or comes to possess) distribution rights in
respect of other interactive multimedia software products
("Additional Owner's Product(s)"), Owner shall afford BMG a "right
of first offers" to distribute Owner's Product(s) #2 and/or the
Additional Owner's Product(s) under this Agreement provided,
however, that solely with respect to Owner's Product(s) #2 and such
right of first offer shall be subject to the Right of first
negotiations and a right of last refusal which Owner has heretofore
afforded MGM in connection with the distribution of same. Owner's
Product(s) #1 and any Owner's Product(5) #2 and any Additional
Owner's Product(s) are sometimes herein referred to individually
and collectively as "Owner's Product(s)". Any Additional Owner's
Product(s) as of the date hereof are more fully described in Part
C of Schedule 1. The "Right of first offer" shall operate in the
manner described in Paragraph 2(e) below.
(ii) If BMG exercises its right of first offer, BMG shall perform
(and continue to perform) distnbution services in respect of all of
the applicable Owners Product(s) (including, without limitation,
Owners Product(s) distributed by BMG prior to the date upon which
BMG exercises such right and any Owner's product(s) in respect of
which BMG exercises such right) for a minimum period of two (2)
years commencing immediately following the date upon which BMG
exercises such right. Accordingly, if BMG exercises such right in
respect of Owners Product(s) #2, BMG shall distribute Owner's
Product(s) #1 and #2 for two (2) years (two (2) additional years of
distribution in the case of Owner's Product #1)) from the date upon
which BMG exercises such right.
(c) (i) During the Term, BMG shall perform for Owner "distribution
services" (as more fully described herein, including, without
limitation, in Paragraph 2(d) hereof) related to the distribution
of the applicable Owner's Product(s) within the fifty United
States, its territories and possessions and Puerto Rico
("Territory") by customary means through normal channels to
retailers with so-called "store-doors" (as such term is commonly
understood in the retail industry) and to wholesalers and
distributors selling to retailers with store-doors and military
channels including AAFES (the central distribution point in
Atlanta, Georgia), and Owner shall rely exclusively on BMG
therefor. During the Term and throughout the Territory, BMG shall
also perform such distribution services, exclusively, through
so-called "catalogs" specializing in computer software products and/or
hardware products (e.g., "MAC World", "PC World" and "Tiger
Direct") and book fairs and club channels (e.g., Scholastic) and
Home Shopping, and Owner shall rely exclusively upon BMG therefor.
(ii) Notwithstanding anything to the contrary contained herein, BMG
and Owner agree that, during the Term and throughout the Territory:
(A) both BMG and Owner, non-exclusively, shall be entitled to
distribute Owner's Product(s) and perform distribution services in
connection therewith through general catalog merchants (other than
the catalog channels described in Paragraph 2(c)(i) hereof), home
bundling, direct sales to consumers (other than through the club
channels described in Paragraph 2(b)(i) hereof) and as premiums
provided, however, that all such distribution services performed by
Owner are "direct" (i.e., not through any Customer(s) in respect of
which BMG possesses exclusive distribution rights hereunder) and
provided further that any distribution by BMG pursuant to this
Paragraph 2(c)(ii) shall be subject to Owner's consent (which
consent shall not be unreasonably withheld), and (B) Owner reserves
the right to distribute Owner's Product(s) through the channels
through which distribution rights are not granted BMG hereunder.
(d) (i) Without limiting any provision herein, as used in Paragraph
2(c) "distribution services" shall include the following; (A)
solicitation and servicing of Customer(s) (as defined herein),
acceptance, processing and fulfillment of orders from Customer(s);
(B) physical distribution of Owner's Product(s); (C) processing of
returns of Owner's Product(s) for scrap or return to inventory; (D)
inventory control and warehousing of Owner's Product(s); (E)
invoicing Customer(s); (F) collecting from Customer(s); and (G)
crediting Customer(s).
(ii) If with BMG's prior written consent any Owner's Product(s) is
distributed during the Term, by someone other than BMG, the
applicable Owner's Product(s) shall be appropriately marked or
otherwise modified by Owner, at Owner's sole cost and expense, (or
by BMG (at Owner's sole cost and expense) if Owner fails to
undertake same) in a manner consistent with BMG's then current
practices to remove BMG's name therefrom (or by covering BMG's name
with a non-removable sticker) and otherwise preclude same being
returned to BMG or otherwise minimize the likelihood of same being
confused with Owner's Product(s) distributed by BMG. If Owner fails
to remove same or pay for the modification of same. BMG shall bill
Owner for such charges and Owner shall pay such invoice in
accordance with Paragraphs 14(b) and (c).
(e) Provided that the Term of this Agreement has not been
terminated, the "right of first offers" shall operate as follows:
Owner shall notify BMG, in writing, of the availability of Owner's
Product(s) #2 and any Additional Owner's Product(s) and the
material terms (which Owner shall determine in its reasonable and
sound business judgment) of any offer which Owner may desire to
make to, or accept from, any third party with respect to the
distribution of the Owner's Product(s) #2 and/or any Additional
Owner's Product(s) ("Owner's Notice"). Within fifteen (15) business
days after receipt by BMG of Owner's Notice, BMG shall notify
Owner, in writing, of its intention, if any, to exercise this right
of first offer. If BMG shall fail to respond to Owner's Notice
within such fifteen (15) business day period, or shall notify Owner
that BMG is unwilling to accept the terms of the offer set forth in
Owner's Notice, then Owner shall be free to make to or accept from
any third party the offer set forth in Owner's Notice without
obligation to BMG. In the event BMG notices Owner of its
willingness to accept the terms of the offer set forth in Owner's
Notice, BMG shall enter into a written amendment to this Agreement
(as promptly as possible with the fifteen (15) business day period
immediately following BMG's notice to Owner) incorporating terms no
more favorable to Owner than the terms set forth in the Owner's
Notice. Owner agrees not to enter into any agreement with any third
party on terms more favorable to such third party than the terms of
the offer set forth in the applicable Owner's Notice. The rights of
first offer described in this Paragraph shall apply to each
different offer which Owner makes to or receives from any third
party, regardless of the date when any such offer or offers are
made or whether there are several offers to or from the same party
or a different party on the same or different terms. Owner agrees
to notify BMG of the terms of any offers which Owner makes,
receives or desires to accept from any third party so that BMG may
determine whether such offer is more favorable and elect to accept
the same or not, as provided herein. If an agreement with a third
party has not been fully executed within ninety (90) days, either
after BMG has notified Owner of its unwillingness to accept the
offer as set forth in the applicable notice, or after expiration of
such fifteen (15) business day period referred to above during
which BMG has failed to respond the notice, then Owner shall again
offer such rights to BMG in the manner provided herein.
3. Ordering/ Title/Ownership
(a) In consultation with Owner, EMG shall order from owner such
quantities of Owner's Product(s) as BMG requires hereunder and
Owner shall manufacture and deliver (or cause to be manufactured
and delivered), at Owner's sole cost and expense, such quantities
of Owner's Product(s) (within the time-frame designated by BMG to
meet the scheduled release date(s) for Owner's Product(s)), freight
prepaid, to BMG's warehouse in Duncan, South Carolina or any other
place designated by BMG ("Warehouse"). BMG will hold Owner's
Product(s) at the Warehouse in inventory until the applicable
Owner's Product(s) is sold or otherwise disposed of in accordance
with the provisions hereof. Owner's Product(s) will be deemed sold
at the time Owner's Product(s) are shipped by BMG from the
Warehouse to its sub-distributors, distributors, retailers, agents,
merchants or other persons with whom BMG may do business
(hereinafter individually and collectively, "Customer(s)").
(b) Owner shall retain title to, and ownership of, Owner's
Product(s) delivered to the Warehouse until sold (as described in
Paragraph 3(a) hereof) or otherwise disposed of by BMG in
accordance with the provisions hereof. However, while Owner's
Products) are in BMG's possession at the Warehouse, BMG shall
assume the risk of loss or damage to the Owner's Product(s). The
risk assumed by BMG shall be limited to the cost of manufacturing
replacements for the applicable Owner's Product(s).
4. Distribution Fee/Net Sales/Net Proceeds/Reserves/Payment
(a) For services rendered under this Part I, BMG shall retain a
distribution fee of twenty (20%) percent of Net Sales
("Distribution Fee") before any and all deductions for any "Special
discounts" (as defined herein) offered by Owner (which discounts
shall be at Owner's sole cost and expense). As used herein, "Gross
Sales" shall mean the total amount invoiced and payable by BMG's
Customer(s) for Owner's Product(s) sold hereunder: and "Net Sales"
shall mean Gross Sales ti) less credits issued and reserves
established hereunder, (ii) plus reserves liquidated hereunder.
(b) "Net Proceeds" shall mean Net Sales less the Distribution Fee.
(c) Except as otherwise provided herein, Net Proceeds shall be
payable by BMG to Owner in respect of Owner's Product(s) sold
hereunder sixty (60) days after the last day of the calendar month
during which Owner's Product(s) is sold by BMG. Net Proceeds
payments shall be accompanied by a statement rendered in accordance
with BMG's regular accounting practices.
(d) (i) BMG shall have the right to establish a reserve with
respect to each calendar month of the Term. With respect to Gross
Sales in respect of the initial "sell-in" period for a particular
Owner's Product(s), the reserve shall not exceed thirty (30%)
percent of the Gross Sales of such Owners Product(s) for that
period. With respect to Gross Sales in respect of any other period
for such particular Owner's Product(s), the reserve shall not
exceed twenty (20%) percent of the Gross Sales for that period. The
reserve established with respect to each period shall be maintained
for a period of six (6) months and liquidated at the end of the
applicable six (6) month period hereunder. Liquidated reserves
shall be accounted and paid to Owner at the same time and in the
same manner as Net Proceeds are accounted and paid to Owner for
sales of Owners Product(s) in the month in which such reserves are
liquidated. Notwithstanding the immediately preceding provisions of
this Paragraph 4(d), upon notice to Owner BMG may adjust the
reserves (and the duration of any liquidation period) upward and
downward if in BMG's reasonable judgment, BMG determines that the
current level of the reserves (and the duration of any liquidation
period) does not favorably comport with BMG's actual or reasonably
foreseeable returns experience.
(ii) Notwithstanding anything, to the contrary contained herein,
for each of the final twelve (12) calendar months of the Term, the
amount of the reserve shall be the percentage established pursuant
to Paragraph 4(d)(i) of the higher of (A) Gross Sales for the month
concerned, or (B) the average monthly Gross Sales for the twelve
months immediately preceding the final twelve (12) months of the
Term.
(a) Owner will accept from BMG all returns of Owner's Product(s)
hereunder physically received from Customer(s) during the Term and
during the period ending nine (9) months after the last day of the
Term ("Post-Term Returns Period").
(b) Any services rendered by BMG in connection with returned
Owner's Product(s) will be at the applicable per unit price set
forth in Exhibit A attached hereto and by this reference
incorporated herein. BMG shall invoice Owner for such services and
Owner shall pay such invoice in accordance with Paragraphs 14(b)
and (c) hereof.
(c) (i) Owners Product(s) returned to BMG shall be returned to the
inventory of Owner's Product(s) in BMG's custody, except that,
unless BMG and Owner otherwise agree, in writing, BMG shall be
entitled to scrap (A) any Owner's Product(s) returned with the
shrink wraps container or other packaging material breached to the
extent that Owner's Product(s) could have been removed therefrom;
and (B) any Owner's Product(s) which in BMG's judgment is not in
saleable condition. BMG will scrap Owner's Product(s) at the
applicable per unit price set forth in Exhibit A. BMG shall invoice
Owner for such scrapping and Owner shall pay such invoice in
accordance with Paragraphs 14(b) and (c) hereof.
(ii) Notwithstanding anything to the contrary contained in
Paragraph 5(c) hereof, BMG shall give good faith consideration to
a request made by Owner (from time to time, in respect of returns
of a particular Owner's Product(s) in excess of five thousand
(5,000) units in a given Contract Year) that BMG, to the extent
practicable, retain (rather than scrap) a reasonable number of the
returns of such Owner's Product(s) which would otherwise have been
scrapped. Such retention shall be for a reasonable period in order
to afford Owner an opportunity to elect to return such Owner's
Product(s) to BMG's inventory of Owner's Product(s) without
refurbishment to refurbish, at Owner's sole cost and expense, such
Owners Product(s) prior to returning such Owner's Product(s) to
inventory, or to remove the returned Owner's Product(s) from the
Warehouse for storage purposes (at Owner's sole cost and expense of
removal and storage). If Owner makes such request or election, BMG
shall advise Owner of any additional charges applicable to BMG's
retention of such Owner's Product(s) or returning same to inventory
and to removing and storing same. BMG's retention of Owners
Product(s) shall be subject to Owners payment of such additional
charges.
(d) (i) As used herein, "Non-BMG Product(s)" shall mean any and all
Owners Product(s) existing prior to the commencement of the Term
which are not manufactured or distributed by BNIG hereunder
(including, without limitation, Owner's Product(s) listed in
Exhibit B attached hereto and by this reference incorporated
herein) and/or any and all Owner's Product(s) which are not
distributed by BMG hereunder. Except as otherwise agreed by BMG, in
writing, Owner shall direct all customers (including, without
limitation, BMG's Customer(s)) that returns of Non-BMG Product(s)
shall not be sent to the Warehouse. Ownerr, rather than BMG, shall
be solely responsible for returns of Non-BMG Product(s) and the
issuance of credit(s) or other payments to such customers with
respect to returns of. Non-BMG Product(s) (and Owner shall notify
its customers and other third parties to such effect). The
provisions of Paragraphs 5(c) and 5(d)(ii) shall also apply to
Non-BMG Product(s).
(ii) In order to enable BMG to distinguish Owner's Product(s) (and
returns of Owner's Product(s)) manufactured and distributed
hereunder from any Non-BMG Product(s), (and returns of Non-BMG
Product(s)), Owner shall insure that each Owner's Product(s)
distributed hereunder is readily distinguishable from Non-BMG
Product(s). BMG shall advise Owner of, and Owner shall incorporate
such elements (including separate UPC numbers for such Owner's
Product(s) hereunder) or make such modifications to Owner's
Product(s) hereunder as BMG deems reasonably necessary.
(e) BMG will perform refurbishing services with respect to Owner's
Product(s) at the applicable per unit prices set forth in Exhibit
A. BMG shall invoice Owner for such services and Owner shall pay
such invoice in accordance with Paragraphs 14(b) and (c) hereof.
(f) (i) Notwithstanding anything to the contrary contained herein,
BMG shall retain all reserves established during the twelve (12)
month period preceding the last day of the Term and apply such
reserves against credits issued during such period and/or the
Post-Term Return Period. Within thirty (30) days following the end of
the Post-Term Return Period, a final determination of returns and
credits issued shall be made by BMG. If credits issued by BMG
exceed reserves retained by BMG, Owner promptly shall pay BMG the
value of the Net Proceeds of that difference, and if at the end of
the Post-Term Return Period such reserves exceed credits issued,
BMG promptly shall pay Owner the value of the Net Proceeds of that
difference.
(ii) The provisions of Paragraph 5(f)(i) shall not be applicable
hereunder if Owner and BMG enter into a written agreement with a
"New Distributor" whereunder New Distributor agrees to accept all
returns of Owner's Product(s) and be fully responsible for
crediting BMG's Customer(s) at the prices and in accordance with
the terms of the then applicable BMG returns policy; and to fully
indemnify BMG in connection therewith. In good faith, BMG shall
negotiate and enter into such agreement with New Distributor in a
form reasonably satisfactory to BMG in accordance with its
customary business practices. BMG shall fully liquidate the
reserves established hereunder once any such agreement is executed,
subject to Owner's payment of all outstanding amounts due to BMG.
"New Distributor" means a "major distribution company", acting as
Owner's new distributor, which agrees, upon and after the
expiration of the Term, to accept all returns of Owner's
Product(s), to be solely and fully responsible for crediting BMG's
Customer(s) at the prices and in accordance with the terms,
prescribed under BMG's then applicable returns policy and to
indemnify BMG and hold PMG harmless from any and all claims against
BMG and from any losses, claims, costs, liabilities or damages
(including attorneys' fees) arising out of or connected with a
breach by such company of such agreement.
(g) BMG shall not be obligated to accept returns of Owner's
Product(s) after the expiration of the Post-Term Returns Period. If
BMG elects to accept any returns of Owners Product(s) within ninety
(90) days subsequent to the expiration of the Post-Term Returns
Period, BMG shall invoice Owner for the value of the Net Proceeds
of such returns and for all applicable per unit charges set forth
in Exhibit A related thereto and Owner promptly shall pay such
invoice.
5A. GUARANTEE(s)
(a) BMG extends to Owner the following guarantees only with respect
to the Owner's Product(s) #1 ("Guarantee(s)"):
(i) BMG guarantees that sixty thousand (60,000) units ("Guarantee
Units") of Owner's Product(s) #1 shall be distributed hereunder
within the two (2) year period following the initial commercial
release date of Owner's Product(s) #1 ("Guarantee Period"), as
follows:
(A) If in the accountings rendered by BMG in respect of Owner's
Product(s) #1 during the applicable Guarantee Period BMG accounts
in respect of a number of units less than the Guarantee Units
("Reported Units"), then BMG, upon Owner's written demand (made
within sixty (60) days after the expiration of such Guarantee
Period), shall credit to Owner's account the applicable "Guarantee
Shortfall";
(B) For purposes hereof, the "Guarantee Shortfall" means the value
determined by multiplying (x) the difference between the Guarantee
Units and the Reported Units for Owner's Product(s) #1 times (y)
the "Guarantee Profits". The "Guarantee Profits" means the
difference between (x) the average per unit amount invoiced (BMG
having approved, for this purpose only, the net price (after all
discounts) per unit selected by Owner and paid to BMG by its
Customer(s) for Owner's Product(s) #1) and (y) the average per unit
amount of the direct costs incurred by Owner, or BMG on behalf of
Owner, in respect of the following ("Shortfall Costs")
manufacturing costs and expenses for Owner's Product(s) #1,
distribution fee for Owner's Product(s) #1, and royalties otherwise
payable by Owner to third parties in respect of Owner's Product(s)
#1. Owner agrees to furnish BMG with written notice of the
Shortfall Costs on or before the initial distribution of Owner's
Product(s) #1.
(ii) In addition, BMG guarantees that within three (3) months
("Penetration Periods") following the initial commercial release
date for Owner's Product(s) #1, Owner's Product(s) #1 shall be
distributed to forty (40%) percent ("Penetration Percentage") of
the accounts listed in Schedule 2 attached hereto and by this
reference incorporated herein ("Penetration Accounts"). If Owner
affords BMG a four (4) month selling cycle for Owners Product(s) #1
and BMG fails to distribute Owners Product(s) #1 to the Penetration
Percentage of the Penetration Accounts within the Penetration
Periods, Owner shall be entitled to terminate the Term of this
Agreement by written notice to BMG within ten (10) days following
the last day of the Penetration Periods. BMG's right of first offer
pursuant to Paragraph 2(e) shall not be exercisable if the Term of
this Agreement has been terminated.
(b) The Guarantee(s) is subject at all times to Owner's having
timely fulfilled all of its obligations hereunder (including,
without limitation, Owner's obligations to timely deliver Owner's
Product(s) within the time-frame required to meet the scheduled
release date(s) therefor; to timely furnish BMG with written notice
of the Shortfall Costs, to timely furnish and agree with BMG on a
marketing plan (including the marketing budget), as same is more
fully described in Paragraph 9(a) hereof, for Owner's Product(s) #1
and to timely implement the Marketing Plan ("Marketing Plan")). As
agreed, the Marketing Plan for Owner's Product(s) #1 shall be
attached hereto and made a part hereof as Exhibit C.
6. EXCESS INVENTORY
On or about the last day of each month (the "Last day") after the
first six months of the Term, BMG shall determine from BMG's books
and records on a selection-by-selection basis and by each
configuration thereof the amount of any excess inventory (i.e.,
more than a one (1) year supply, as determined in accordance with
BMG's standard business practices) in BMG's possession or control
as of each such last day and shall report such determination to
Owner. Owner, at Owner's election, shall either remove for storage
purposes only (at Owner's sole cost and expense of removal and
storage) such excess inventory within thirty (30) days of BMG's
report under this Paragraph, or pay BMG within such thirty (30) day
period for each month thereafter that any excess inventory is
retained or controlled by BMG an amount equal to the number of
units of excess inventory retained multiplied by Ten ($.10) Cents
(the "Excess Inventory Charge"). Notwithstanding any contrary
provision contained herein if Owner fails to remove any excess
inventory or pay the Excess Inventory Charge on a timely basis,
BMG, subject to the provisions embodied in Paragraph 14(g) hereof,
shall scrap such excess inventory at the applicable per unit price
set forth in Exhibit A for scrapping. BMG shall invoice Owner for
such scrapping and Owner shall pay such invoice in accordance with
Paragraphs 14(b) and (c) hereof.
7. DELETED PRODUCTS
(a) Owner shall have the right to delete Owners Product(s) from
Owner's catalog and, subject to Owner having fulfilled all of its
then outstanding and reasonably foreseeable obligations to BMG
hereunder, remove and sell same as so-called Cut-outs. Owner shall
give BMG notice of the date on which a particular Owner's
Product(s) is to be deleted from Owner's catalog and Owner shall
have thirty (30) days from that date to remove, at Owner's expense,
deleted Owner's Product(s) from the Warehouse. Prior to any such
removal, the deleted Owner's Product(s) will be appropriately
marked by BMG (at Owner's expense) as cutouts in a manner
consistent with BMG's then current practices to distinguish the
inventory of deleted and cut-out Owner's Product(s) from the
inventory of Owner's Product(s) which has not been deleted and cut-out.
Upon such deletion, marking and removal the applicable Owner's
Product(s) will no longer be subject to the terms and conditions of
this Agreement.
(b) Notwithstanding anything to the contrary contained herein, if
Owner does not remove Owner's Product(s) deleted pursuant to the
immediately preceding Paragraph, BMG shall have the right to scrap
same (without any further obligation to Owner) at the applicable
per unit price set forth in Exhibit A for scrapping. BMG shall
invoice Owner for such scrapping and Owner shall pay such invoice
in accordance with Paragraphs 14(b) and (c) hereof.
8. SALE OF PRODUCTS BY BMG
(a) (i) The suggested retail list price, "list category" or "net
price" in the case of CD-Roms, whichever is applicable, of Owner's
Product(s) shall be established by Owner in Owner's sole discretion
and Owner agrees to price Owner's Product(s) fairly and
competitively. However, in order to permit necessary efficiencies
in day-to-day operations, Owner shall not change the suggested
retail list price, or"list category" or "net price" of any specific
Owners Product(s) without giving BMG written notice at least one
(1) calendar month prior to the effective date of the change. In
conjunction with any change of the suggested retail list price,
"list category or "net price" of any specific Owner's Product(s),
Owner simultaneously shall change the catalogue number (or its
equivalent) of such specific Owner's Product(s). In order to
reflect the new catalogue number, BMG shall modify (by stickering
and reshrinkwrapping (or otherwise altering and repackaging)) such
specific Owner's Product(s) at the applicable per unit prices for
restickering and reshrinkwrapping set forth in Exhibit A (or at the
applicable per unit price established by BMG for any other type of
alteration and repackaging). BMG shall invoice Owner for such
charges and Owner shall pay such invoice in accordance with
Paragraphs 14(b) and (c) hereof.
(ii) Owner shall consult with BMG in good faith before establishing
the "net price" for any Owner's Product(s) subject to the
Guarantee(s).
(b) The Customer(s) to whom and, except as otherwise expressly
provided in Paragraph 8(c) hereof, the terms of sale (including
prices to Customer(s), discounts, free goods, credit and dating,
returns policy and percentage limitations on returns) at which BMG
sells, Owner's Product(s) hereunder, and the local advertising
allowances (if any) allowed by BMG at BMG's sole cost and expense,
etc.) shall be established by BMG in its sole discretion. BMG shall
advise Owner of BMG's current terms of sale and its advertising
policies.
(c) From time to time Owner may elect to offer to BMG's Customer(s)
discounts greater than any standard discounts then given by BMG
("special discounts"). BMG shall offer special discounts to its
Customer(s), on Owners behalf, provided that Owner will bear all
costs and expenses, including dating, associated with such excess
discounts and that with respect to any special discount, Owner
shall give BMG such reasonable advance written notice of the
special discount to be offered so as to permit BMG to implement the
special discount in an efficient manner consistent with BMG's
administration of sales ("special discounts").
(d) Owner shall be solely responsible for securing (and Owner
agrees to timely secure) any and all perrnissions, authorizations,
clearances, licenses, releases and other rights required (or
reasonably deemed necessary by BMG) to enable BMG to distribute
Owner's Product(s) without infringing upon the rights of, or
incurring any liability to, any third party(ies). In addition,
Owner shall be solely responsible for timely paying (and Owner
agrees to timely pay) any and all sums due or otherwise required to
be paid to third party(ies) in respect of any such permissions,
authorizations, clearances, licenses, releases and other rights
(including without limitation, payments to developers, copyright
proprietors, publishers, writers, artists, producers and
engineers). Upon BMG's reasonable request, if at all, from time to
time during the Term Owner shall furnish BMG with documentation
evidencing that Owner has secured any and all sudh permissions,
authorizations, clearances, licenses, releases and rights and has
timely paid all sums due to third party(ies) in respect thereof.
(e) (i) Without prejudice to any other rights which BMG may possess
at law or hereunder, BMG may reject a particular Owner's Product(s)
for distribution hereunder if BMG determines that: (A) Owner's
Product(s) advocates an illegal activity; (B) Owner's Product(s) is
patently offensive or obscene; (C) Owner's Product(s) violates any
governmental regulation or law (including, without limitation, a
regulation or law relating to ethical, religious, moral or
political conception); (D) Owner's Product(s) violates the personal
property or other rights of a person, firm or corporation; or (E)
that the distribution of Owner's Product(s) would constitute a
breach of any of Owner's warrantees, representations or covenants
herein or constitute the potential defamation or libel of any
person.
(ii) Any such determination by BMG shall be based on the good faith
opinion of BMG's counsel applying the same standards used in making
such types of determination with respect to other products
distributed by BMG.
(iii) BMG shall furnish Owner with written notice of any
determination to reject (specifying the basis therefor) Owner's
Product(s) under this Paragraph. If within fourteen (14) days after
such notice Owner fails to furnish BMG with a modified sample of
the Rejected Owner's Product(s) satisfactory to BMG, BMG shall have
no obligation to distribute the Rejected Owner's Product(s).
(f) Owner agrees to identify and label newly released Owner's
Product(s) with "explicit Iyrics" by affixing the Parental Advisory
Logo ("Logo") to same in accordance with the standards established
by the Recording Industry Association of America ("RIAA") under the
Parental Advisory Program ("Program"). The current standards are
set forth in Exhibit D attached hereto and by this reference
incorporated herein. The initial decision to identify and label a
particular Product(s) rests with Owner. If BMG determines that
Owner has failed to affix the Logo to Owner's Product(s), when
appropriate, BMG shall be entitled to affix the Logo, at Owner's
sole cost and expense, to Owner's Product(s). Any such
determination by BMG shall be based solely on the good faith
opinion of BMG's counsel applying the same standards used when
making such types of determination with respect to other products
distributed by BMG.
9. MARKETING/ADVERTISING/PROMOTION
(a) (i) In accordance with the Marketing Plan, Owner agrees to
timely develop, undertake, implement and otherwise perform and pay
for (and to be solely responsible for developing, undertaking
implementing and otherwise performing and paying for) all
marketing, advertising, promotion and publicity (and any special
program costs and expenses related thereto) in connection with
Owner's Product(s). The Marketing Plan shall include Owner's
proposals with respect to advertising and otherwise publicizing
Owner's Product(s), generating positive reviews in influential
major media oriented concems, furnishing BMG (on or before the
dates mutually agreed by BMG and Owner) with sell-sheets for
Owner's Product(s), and otherwise creating a demand for Owner's
Product(s) at retail and incentivizing sell-through at retail.
(ii) Notwithstanding the foregoing, BMG on behalf of Owner, agrees
to facilitate the placement and verification, all in accordance
with BMG's advertising policies and/or the Marketing Plan (at
Owner's sole cost and expense) of, Owner requested or approved
advertisements and promotions (including, without limitation,
"co-op ads" and "instore promotions").
(iii) Owner shall consult with BMG, in good faith, regarding the
retail packaging design and layout for Owner's product(s).
(iv) If BMG pays for any such costs and expenses under the
Marketing Plan for which Owner is responsible BMG shall invoice
Owner for same and Owner shall pay same in accordance with
Paragraphs 14(b) and (c) hereof.
(b) At no cost to BMG Owner shall deliver (or cause to be
delivered) to BMG reasonable quantities (approximately fifteen
hundred (1500) copies per SKU) of promotional copies of Owner's
Product(s) for promotion and sales solicitation.
(c) BMG and Owner shall mutually agree on an initial release
schedule for each specific Owner's Product(s) and, subject to the
conditions embodied in Paragraph 5A(b) hereof, BMG shall use its
reasonable efforts to ship thirty thousand (30,000) units of
Owner's Product(s) #1 within sixty (60) days of such "street date"
therefor.
(d) In the performance of its services hereunder, BMG shall have
the right:
(i) to advertise, distribute and sell Owner's Product(s) during the
Term and throughout the Territory and to cause others to do so;
(ii) to use and to authorize others to use solely in connection
with BMG's performance of its distribution services hereunder the
names, likenesses sobriquets, photographs, biographies and
facsimile signatures of each of the artists and characters whose
performances or characters are embodied in Owner's Product(s), the
producers of Owner's Product(s) and Owner ("Identification")
provided, however, that to the extent that Owner notifies BMG, in
writing, that its rights to use any particular Identification are
limited or otherwise restricted by any third party (including
Owner's licenser), BMG's use pursuant to this Paragraph 9(d)(ii)
shall be limited or restricted to the same extent following such
notice;
(iii) to perform Owner's Products(s) publicly and to permit public
performances thereof in any medium and by any means whatsoever,
whether now or hereafter known.
10. TRADEMARKS
(a) Owner hereby represents and warrants that Owner is the
exclusive owner or authorized licensee of all trademarks, trade
names and logos used by Owner in connection with the Owner's
Product(s) and that no other person or entity has any adverse
interest therein. BMG hereby recognizes the rights of Owner to all
such trademarks, trade names and logos and BMG agrees not to use
any such trademarks, trade names and logos other than in connection
with the marketing and sale of Owners Product(s) hereunder Owners
submission of any "Materials" which includes trademarks, trade
names and logos shall be deemed to be instructions to BMG for BMG
to use such trademarks, trade names and logos as submitted.
(b) No trademark (including the BMG logo) owned and or exclusively
controlled by BMG shall be used by Owner other than pursuant to
BMG's express written consent and license to use same and then only
in accordance with BMG's specific instructions and requirements (e
g., the following trademark legend must appear wherever the BMG
logo appears: "The BMG logo is a trademark of BMG Music"). Without
BMG's prior written consent, the BMG logo shall not appear in
connection with Owner's Product(s) greater in size or prominence
than the size of any logo or other trademark employed by Owner. Any
unauthorized manufacture, duplication or distribution of BMG's
property (including, without limitation, its copyrights and
trademark rights and interests) will be considered nothing less
than copyright infringement, trademark infringement
misrepresentation and unfair competition in violation of federal
and state laws and BMG will seek the appropriate judicial relief.
PART II - INVENTORY MANAGEMENT
11. DELIVERY/PROCESSING/PLACEMENT/SPECIAL ELEMENTS
(a) Owner shall consult with BMG in advance respecting quantities
of Owner's Product(s) and Material(s) to be delivered to the
Warehouse and the allocation of such quantities as among BMG's
Warehouse locations, and the final decision on both questions shall
be subject to BMG's approval. Deliveries shall be made f.o.b. the
Warehouse location(s) so determined.
(b) In order to enable BMG to distinguish Owner's Product(s) (and
returns of Owner's Product(s)) manufactured and distributed
hereunder from any "Non-BMG Product(s)", Owner shall insure that
each Owner's Product(s) distributed hereunder is readily
distinguishable from Non-BMG Product(s) BMG shall advise Owner of,
and Owner shall incorporate such elements (induding separate UPC
numbers for such Owner's Product(s) hereunder) or make such
modifications to Owner's Product(s) hereunder as BMG deems
reasonably necessary.
(c) Owner shall have printed on all jackets, containers and
graphics on Owner's Product(s) manufactured or caused to be
manufactured by BMG and/or distributed by BMG hereunder the
language "Manufactured and Distributed in the United States by BMG
Distribution, a unit of BMG Entertainment."
(d) BMG shall place Owner's Product(s) manufactured pursuant to
this Paragraph in the location in BMG's Warehouse where it holds
the Owner's Product(s) pursuant to Part I of this Agreement Such
placement of Owner's Product(s) shall be deemed "delivery for
purposes of this Agreement.
(e) All of Owner's Product(s) delivered hereunder will be available
for distribution subject only to the restrictions which are
expressly provided herein or in respect of which Owner furnishes
BMG with written notice. Following such notice, the applicable
Owner's Product(s) shall be subject to said restrictions.
12. PRICES/ADDITIONAL TERMS
(a) For services rendered by BMG to Owner under this Agreement and
in accordance with Paragraphs 14(b) and (c), Owner shall pay to BMG
for Owner's Product(s) delivered hereunder, the prices, f.o.b.
Warehouse, set forth in Exhibit A attached hereto and by this
reference incorporated herein. Exhibit A also set forth in
specificity certain obligations of the parties and additional
prices for certain services (including, without limitation, BMG's
distribution of Owner's Product(s) supplied by Owner to third
party(ies) for promotional purposes).
(b) BMG shall have the right, not more than once within any twelve
(12) month period of the Term, to increase the prices set forth in
Exhibit A, however, no such increase shall exceed one hundred
(100%) percent of the amount by which BMG's costs (fairly allocated
per configuration per unit), including without limitation, the
costs of purchasing and/or obtaining finished goods, raw materials,
labors services and/or power, shall have increased (using the date
first written hereinabove as the benchmark for the first increase,
if any, and the date of the subsequent increase as the benchmark
for any subsequent increase(s)).
PART III - GENERAL
13. APPLICABILITY
The provisions of this Part III shall apply to the provisions of
Parts I and II hereof.
14. STATEMENTS/ACCOUNTING/AUDIT/PAYMENTS/COLLATERAL
(a) All statements and other accountings rendered by BMG shall be
binding upon Owner and not subject to any objections by Owner for
any reason whatsoever, unless such specific objection is made in
writing, stating the basis thereof and delivered to BMG within one
(1) year from the date such statement is rendered.
(b) BMG shall invoice Owner (in full or in part) monthly for all
amounts due hereunder and Owner shall pay BMG within thirty (30)
days of the date of each invoice.
(c) Notwithstanding any contrary provision contained herein, BMG
shall be entitled to deduct (in full or in part) any amounts
invoiced (or to be invoiced) pursuant to Paragraphs 14(b) and (c)
hereof from any and all sums then owed by BMG to Owner under this
Agreement including, without limitation, any Net Proceeds otherwise
payable to Owner hereunder.
(d) At any time that Net Proceeds become payable if such Net
Proceeds are in a negative amount, then Owner promptly shall pay
BMG such Net Proceeds, plus any other amounts then due.
(e) Owner may, at Owner's own expense, appoint an independent
certified public accountant to inspect, examine and audit BMG's
books and records insofar as such books and records relate to the
accountings and payments rendered by BMG to Owner hereunder. Such
inspection shall be made on not less than thirty (30) days nor
written notice during normal business hours, but not more than once
in any twelve-month period during the Term hereof and no more than
once with respect to any statement rendered hereunder, and not
between November 1 and February 28 of any Contract Year. Owner
shall propose to BMG, in writing, accompanied by appropriate
documentation any adjustments to such payments which Owner in good
faith believes to be necessary no later than ninety (90) days after
completion of the auditor's field work. Any audit (including all of
the auditor's field work and the submission of Owner's proposed
adjustments) conducted by Owner shall be completed within the time-frame
agreed by Owner and BMG prior to the commencement of same,
but in no event later than one (1) year following such commencement
- - unless and to the extent delays are occasioned solely by BMG's
action or inaction.
(f) Any amount determined to be due from one party to the other
party hereunder, if not paid on the due date, shall bear interest
at a rate per annum equal to the prime rate charged by Chase
Manhattan Bank as of the due date. Such amount due (including
interest) shall be applied against, in the case of amounts due from
Owner to BMG, any Net Proceeds otherwise payable by BMG to Owner
hereunder.
(g) If Owner requests that BMG render manufacturing services to
Owner in connection with Owner's Product(s) or if BMG in its sound
commercial judgment determines that BMG has for whatever reason, a
substantial monetary exposure with respect to Owner and Owner's
Product(s), then Owner, upon request, agrees to negotiate in good
faith with BMG the terms and conditions of a security agreement
therefor.
15. FORCE MAJEURE
In the event of any act of God or force majeure, such as strikes,
lock-outs, accidents, fires, delays in manufacturing, delays of
carriers, delays in delivery of materials, labor controversy,
government actions, war or any other causes beyond their control,
neither party shall be responsible for delay in performance
hereunder nor shall incur liability to the other due to the
resulting inability to perform provided that the party relying on
such events of force majeure gives notice to the other party of the
cause and anticipated duration, within thirty (30) days of the
occurrence.
16. TERMINATION
(a) Either party hereto shall have the right, in addition to any
other rights it may have at law or hereunder, to terminate the Term
with immediate effect (i) in the event of a material breach or
default by the other party of any representation, warranty,
covenant or obligation under this Agreement which in the good faith
judgment of the party seeking to terminate the Term, would
interfere with the exercise of its rights hereunder and which
breach or default has not been cured within thirty (30) days after
prompt written notice (specifying the nature of such breach or
default) has been given to such breaching or defaulting party by
the party seeking to terminate the Term; or (ii) in the event of a
force majeure as set out above which continues for a period in
excess of one hundred and eighty (180) days.
(b) In addition, either party hereto shall have the right, in
addition to any other rights it may have at law or hereunder, to
terminate the Term with immediate effect, by written notice to the
other party, if any of the following occur: (i) the dissolution of
the other party or the liquidation of the other party's assets;
(ii) the filing by or against the other party of a petition for
liquidation or reorganization under Title 11 of the United States
Code as now or hereafter in effect or under any similar statute
relating to insolvency, bankruptcy, liquidation or reorganization;
(iii) the appointment of a trustee, receiver or custodian for the
other party or for any of the other party's property; (iv) the
other party's making of an assignment for the benefit of creditors;
(v) the other party's commission of any act for or in bankruptcy;
(vi) or the other party's becoming insolvent; or (vii) if as of
December 31, 1997 Gross Shipments of Owner's Product(s) #1
hereunder are less than eighty thousand (80,000) units ("Minimum
Shipment Threshold"). In determining whether the Minimum Shipment
Threshold has been achieved consideration shall be given to orders
in the system as of December 31, 1997 for Owner's Product(s) #1
scheduled to ship on or just after December 31, 1997.
(c) Unless otherwise expressly agreed by BMG and Owner in writing,
upon termination of the Term for any reason whatsoever.
(i) Owner shall remove (at Owners expense) from BMG's Warehouse
and/or any other applicable location designated by BMG all of
Owner's Product(s) and Materials in BMG's possession and/or control
within thirty (30) days following the effective date of such
expiration or termination ("termination date") and notwithstanding
the expiration or termination of the Term shall purchase, as and if
not theretofor purchased by Owner, all of BMG's inventory of
Owner's Product(s). Owner shall accept the return of all Owner's
Product(s) returned by BMG's Customer(s) from time to time
thereafter and repurchase from BMG such Owner's Product(s) for an
amount equal to the value of Net Proceeds of the credit given by
BMG to its Customer(s) for such returned Owner's Product(s)
returned. Owner's Product(s) returned to BMG's Warehouse after the
initial removal of Owners Product(s) by the Owner shall be removed
by the Owner, at the Owner's expense, within thirty (30) days
following BMG's written request to Owner to do so. Prior to such
removal of Owner's Product(s) by Owner the particular Owners
Product(s) concerned shall be appropriately marked or otherwise
modified by BMG (at Owner's expense) in a manner consistent with
BMG's current practices to remove BMG's name therefrom and
otherwise preclude same being returned to BMG. BMG shall be
entitled to scrap Owners Product(s) and Materials not so removed or
paid for by Owner. Such scrapping shall be at the applicable per
unit price set forth in Exhibit A. BMG shall Invoice Owner therefor
and Owner shall pay such invoice in accordance with Paragraphs
14(b) and (c) hereof;
(ii) all unshipped orders for Owner's Product(s) shall be canceled
without liability, except that Owner shall remain liable for
work-in-process under Part Il;
(iii) BMG shall immediately cease soliciting orders for and
thereafter distributing Owner's Product(s), using Owner's
trademarks and trade names and shall remove from its advertising
any reference to Owners Product(s) and the distributorship covered
herein;
(iv) the expiration, termination or cancellation of the Term or the
revocation of this Agreement will not discharge Owner or BMG from
their obligation to pay any amounts owing hereunder. As long as any
amount so owing to BMG by the Owner has not been paid in full, BMG
will have the right to reimburse itself from amounts owed to the
Owner hereunder, without prejudice to the other rights of BMG.
17. OWNER'S REPRESENTATIONS, WARRANTIES, COVENANTS AND
INDEMNIFICATION
(a) Owner represents, warrants and covenants as follows:
(i) Owner has the exclusive right to produce, mechanically record,
promote, advertise, manufacture, distribute and sell Owner's
Product(s) during the Term and in the Territory and Owner is
possessed of the full right to enter into this Agreement:
(ii) In performing services in accordance with the provisions of
this Agreement BMG will not violate the rights of any third person
or entity;
(iii) That no other person whatsoever has the right to perform the
services to be performed by BMG hereunder;
(iv) Except as otherwise expressly provided herein to the contrary,
Owner has paid and will pay all costs and expenses (including
without limitation, the costs and expenses of development,
production and recording) relating to Owner's Product(s);
(v) There is no claim or legal proceeding in respect of any of
Owner's Product(s).
(vi) Owner is the owner or licensee of all rights relating to
Owner's Product(s) by virtue of valid contracts;
(vii) Owner has not sold, assigned, transferred, leased, conveyed
or granted a security interest in, or otherwise disposed of, and
will not sell, assign, transfer, lease, convey or grant a security
interest in and to any of Owner's Product(s), adverse to or
derogatory to the rights of BMG herein, nor is there any lien or
encumbrance upon any of Owner's Product(s);
(viii) Except as otherwise expressly provided herein, Owner is and
will continue to be the owner or licensee of all rights relating to
the Owner's Product(s) and Materials during the Term and throughout
the Territory;
(ix) Owner owns or possesses the right to use and to authorize
others to use the Identification in the manner provided herein;
(x) During the Term, Owner (and any person deriving rights from
Owner) shall not do or authorizes any person to do anything
inconsistent with, or which might diminish or impair any of BMG's
rights hereunder or violate the rights of any third parties;
(xi) With respect to the production, manufacture, distribution and
sale of Owner's Product(s) and all amounts paid by Owner to BMG
hereunder, Owner shall pay all taxes and all third party
obligations required to be paid by Owner inclusive of, but not
limited to, obligations to artists, producers, developers, writers,
composers, lyricists and publishers, and all Federal and State
sales and use taxes, property taxes and all other applicable taxes
of any nature. With respect to any payments that may become due to
any union having jurisdiction or under any collective bargaining
agreement including without limitation, A.F.T.R A., the A. F. of
M., and their Music Performance Trust Fund and Special Payments
Fund, which payments arise out of the production, manufacture,
distribution and sale of Owner's Product(s) hereunder, BMG will not
be responsible therefor and any obligations for such payments will
be satisfied by Owner. BMG shall have no obligation (except as
expressly contained herein) for the payment of monies in connection
with BMG's exercise of rights granted by Owner to BMG, including,
without limitation, any obligation for the payment of sums in
connection with the clearance of rights in respect of Owner's
Product(s) or publishing royalties; and
(xii) Prior to BMG's distribution of Owner's Product(s) Owner shall
have fully tested the gold master(s) for Owner's Product(s) and
Owner's Product(s) will operate in accordance with commonly
accepted standards for operation of such products, will be free
from any significant programming errors or anomalies, and will
operate and run in a reasonable and efficient business manner.
Should any significant programming error or anomaly or
nonconformity be detected, Owner shall, at it sole cost and
expense, promptly replace any defective Owners Product(s) with a
corrected version of Owner's Product(s). Owner shall use its best
efforts to complete such replacement in a timely manner. In the
event that it is necessary to replace Owner's Product(s) which have
been distributed with copies which do not contain a significant
error or anomaly or nonconformity, or to refund any part of any
fees or costs in connection with the use of copies of Owner's
Product(s), Owner shall promptly reimburse BMG for all reasonable
costs incurred in replacing copies of Owner's Product(s) or for all
refunds given, as well as all reasonable costs of removing all
copies of Owner's Product(s) from the channels of distribution. BMG
shall be entitled to offset any payments due to Owner under this
Agreement (or any other agreement) against any sums owned by Owner
to BMG pursuant to this Paragraph.
(xiii) Owner shall provide reasonable technical support of BMG and
for endusers of Owner's Product(s).
(b) BMG and Owner each ("the Indemnitor") does hereby indemnify and
agree to hold the other, it successors and assigns and any of its
officers, directors, employees, representatives and/or agents or
each of them ("the Indemnitee") harmless at all times from and
against any and all losses claims costs, expenses, liabilities and
damages (including without limitation, reasonable fees and
disbursements of counsel incurred by BMG in any action or
proceeding between Owner and BMG or between BMG and any third party
or otherwise) arising out of or connected with any breach or
alleged breach by the Indemnitor of this Agreement or any
agreement, warranty, representation, promise, covenant or any
obligation by the Indemnitor (including without limitation, in the
case of Owner, all of OwneKs obligations under Paragraphs 8(d) and
17(a)(xi). Prompt written notice will be given to the Indemnitor of
any claim, action or proceeding to which the foregoing indemnity
relates and the Indemnitor shall have the right to participate in
the defense thereof at the Indemnitor's expense. The Indemnitor
shall reimburse the Indemnitee on demand for any payment made by
the Indemnitee at any time in connection with any liability or
claim to which the foregoing indemnity relates, provided that such
liability results from a judgment on the merits against the
Indemnitee or a settlement entered into by the Indemnitee with the
consent (not to be unreasonably withheld) of the Indemnitor.
Pending the determination of any such claim, without limitation of
BMG's remedies and rights, BMG, as Indemnitee, may withhold
payments and deduct sums from any monies accruing or payable to
Owner hereunder in an amount reasonably related to such claim,
provided, however, that if Owner shall obtain and post an
undertaking (as defined, as of the date of this Agreement in
Section 2501(1) of the Civil Practice Law and Rules (CPLR) of the
State of New York) in an amount which BMG, in its sole judgment but
in good faith, deems reasonably sufficient to secure BMG for
Owner's liabilities hereunder, then BMG shall not have the right to
withhold and reserve monies as set forth in this Paragraph. If BMG
has withheld and reserved any monies pursuant to this Paragraph
with respect to any claim and if said claim has not been followed
by commencement of an action or proceeding within twelve (12)
months or if a claim is dismissed, defeated or discharged within
twelve (12) months, BMG will release such monies without prejudice
to its rights to again withhold and reserve monies in the future if
any action or proceeding is later commenced.
18. OWNER'S RELATIONSHIP TO BMG
(a) In performing Owner's obligations hereunder and in performing
any services in connection herewith, Owner is and shall be deemed
an independent contractor, and nothing herein contained shall in
any way constitute Owner, or any of Owner's officers, directors or
employees, an agent or employee of BMG.
(b) (i) Without BMG's express prior written consent, Owner shall
neither disclose, or authorize the disclosure of any information of
a confidential nature learned as a result of this Agreement or the
operation thereof, nor in any way or in any form publicize or
advertise in any manner any of the terms, conditions or obligations
contained in this Agreement.
(ii) Owner will keep strictly confidential information with respect
to the terms, conditions and obligations of this Agreement, except
that Owner may disclose same:
(A) to the extent required by law, regulation or legal process or
any regulatory agency, subject to the terms and conditions
contained in Paragraph 18(b)(lli);
(B) to Owner's employees, representatives, legal, professional
advisors and affiliates who need to know the information for the
purpose of performing their duties and obligations hereunder; or
(C) if at the time of disclosure it is in the public domain other
than as a result of Owner's breach of this Agreement.
(iii) In the event that any of Owner's representatives are
requested pursuant to, or become compelled by, applicable law,
regulation, except with respect to Owner's obligations to comply
with the Securities Act and regulations promulgated thereunder, or
legal process to disclose this Agreement or any of its terms, Owner
will provide BMG with prompt written notice so that BMG may seek a
protective order or other appropriate remedy or, in BMG's sole
discretion, waive compliance with the terms of this Agreement. In
the event that no such protective order or other remedy is
obtained, or that BMG waives compliance with the terms of this
Agreement, Owner will furnish only that portion of this Agreement
or its terms which Owner is advised by counsel is legally required
and cooperate, at Owner's sole cost and expense, with BMG's efforts
to obtain reliable assurance that confidential treatment will be
accorded this Agreement and its terms.
19. KEY PERSONNEL
BMG has entered into this Agreement because of its trust and
confidence in Catherine Winchester (the "Key Personnel"). It is
understood and agreed that the bearing of continuing and primary
responsibility by the Key Personnel for Owner's development A&R,
marketing and promotion activities throughout the Term is a vital
part of this Agreement. In the event of the death or incapacity of
any of the Key Personnel, or in the event that any of them shall
cease for whatever reason such A&R, marketing and promotion
responsibility, BMG shall have the right, without prejudice to any
other rights it may have, to terminate this Agreement by giving
written notice to Owner, effective immediately.
20. NOTICES
All notices from one party to the other hereunder will, unless
herein indicated to the contrary, be in writing and shall be
addressed as follows.
TO OWNER: Wanderlust Interactive, Inc 598 Broadway New York, New
York 10012 Attention; Catherine Winchester with a courtesy copy to
Richard Kalin, Esq., c/o Kalin & Banner, 757 Third Avenue, 7th
Floor, New York, New York 10017
TO BMG: BMG MUSIC
1540 Broadway
New York, New York 10036 6758
Attn: Vice President, Legal & Business Affairs (BMG
Distribution)
with a copy to Vice President, Finance (BMG Distribution)
or to such other address as the addressee may designate in writing.
Any notice shall be sent (in order of preference) by certified or
registered mail, return receipt requested, or by personal delivery
or air express or telefax to the teleFax number of the party to be
served or regular mail and shall be deemed complete when same
(containing whatever information may be required hereunder) is
deposited in any United states mail box addressed as aforesaid,
except that (a) all materials personally delivered or sent by
telefax shall be deemed served when actually received by the party
to whom addressed, (b) air express materials shall be deemed served
on the day of delivery to the air express company, (c) notices of
change of address shall be effective only from the date of its
receipt, and (d) accounting statements shall be sent by regular
mail and shall be deemed rendered when deposited in any United
States mail box.
21. ASSIGNMENT
Owner shall not have the right to assign the Agreement or any of
its rights or obligations thereunder. BMG may, at its election,
assign the Agreement or any of its rights or obligations hereunder
to its parent, subsidiary or affiliated company or any person
acquiring all or substantially all of its assets or with whom BMG
may merge. The foregoing shall in no way limit BMG's right to
assign or license in the ordinary course of business.
22. WAIVERS AND REMEDIES
No waiver of any provision of or default under this Agreement shall
affect Owner's or BMG's right, as the case may be, thereafter to
enforce such provision or to exercise any right or remedy in the
event of any other default, whether or not similar. To the extent
permitted by, and subject to the mandatory requirements of all
applicable laws, rules and regulations, each and every right, power
and remedy herein specifically given to either party or otherwise
in this agreement shall be cumulative and shall be in addition to
every other right, power and remedy herein specifically given or
now or hereafter existing at law, in equity or by statute, and each
and every right, power and remedy whether specifically herein given
or otherwise existing may be exercised from time to time and as
often and in such order as may be deemed expedient by such party,
and the exercise or the beginning of the exercise of any power or
remedy shall not be construed to be a waiver of the right to
exercise at the same time or thereafter any other right, power or
remedy. No delay or omission by either party in the exercise of any
right, remedy or power or in the pursuit of any remedy shall impair
any such nght, remedy or power or be construed to be a waiver of
any default of the part of such party or to be an acquiescence
therein. No express or implied waiver by either party of any breach
or default hereunder by the other party shall in any way be, or be
construed to be, a waiver of any future or subsequent breach or
default hereunder by such other party.
23. HEADINGS
The headings and captions preceding the text of the various
provisions of this Agreement are inserted solely for reference and
shall not constitute a part of this Agreement nor affect its
meaning construction or effect. Every word or phrase defined herein
shall, unless herein specified to the contrary, have the same
meaning throughout this Agreement. As used herein, wherever
applicable, the singular shall include the plural and the plural
shall include the singular, the masculine shall include the
feminine and the feminine shall include the masculine.
24. INVESTIGATION
BMG shall have no obligation whatsoever to make any investigation
of the facts relevant to any agreement, warranty or representation
made by Owner herein. Neither the furnishing by Owner nor the
receipt by BMG of any document shall impair BMG's absolute rights
to rely, to have relied, and to continue to rely on any warranties
or representations made by Owner herein in connection with such
document or the contents thereof.
25. ENTIRE AGREEMENT
This Agreement contains the entire and only agreement between the
parties with respect to the subject matter hereof. This Agreement
supersedes all previous agreements or arrangements between the
parties relating to the subject matter hereof. No amendment
modification, waiver or discharge of this Agreement or any
provision hereof shall be binding unless signed by BMG's and
Owner's authorized signatories.
26. SEVERABILITY
If any term or other provision of this Agreement is invalid illegal
or incapable of being enforced by any rule of law or public policy,
all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect, so long as the
economic or legal substance of the transactions contemplated hereby
is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to eject the
original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the greatest
extent possible.
27. GOVERNING LAW
This Agreernent shall be construed under the internal laws of the
State of New York applicable to contracts to be performed wholly
therein, and both parties agree that only the New York courts shall
have jurisdiction over this contract and any controversies arising
out of this contract shall be brought by the parties to the Supreme
Court of the State of New York, County of New York, and they hereby
grant jurisdiction to that Court.
28. COUNTERPARTS
This agreement may be executed in one or more counterparts and by
the different parties hereto in separate counterparts, each of
which when executed shall be deemed to be an original but all of
which taken together shall constitute one and the same agreement.
Facsimile signatures on this Agreement shall be deemed original for
all purposes.
IN WITNESS WHEREOF the parties have caused this Agreement to be
executed by their duly authorized representatives as of the day and
year first above mentioned.
BMG MUSIC, a New York general partnership
By: BERTELSMANN MUSIC GROUP. INC.,
a Delaware corporation, a/general partner
By: s/Alan D. Reuben
Title: Senior V.P. Sales & Distributing
Date: May 15, 1996
WANDERLUST INTERACTIVE, INC., a Delaware corporation (Owner)
By: s/Catherine Winchester
Title: President and CEO
Date: May 15, 1996
[Schedules Omitted]
<PAGE>
Exhibit 10.10
PANTHER SUBLICENSE AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of this of
, 1996, by and between WANDERLUST INTERACTIVE, INC., a Delaware
corporation ("Licensor"), whose address is 598 Broadway 9th
Floor, New York, NY 10012 and .
W I T N E S S E T H
WHEREAS, Licensor has developed and manufactured, distributes
and sells interactive entertainment computer software and related
Product utilizing the Pink Panther cartoon character and related
characters, which characters are owned and/or controlled by
MGM/UA Licensing and Merchandising, a division of Metro-Goldwyn-
Mayer Inc. ("MGM/UA") (collectively the "Licensed Product");
WHEREAS, Licensee desires to manufacture, distribute and sell
the Licensed Product in its Territory and Language.
NOW, THEREFORE, the Parties do hereby agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following definitions
shall apply:
1.1 "Characters" shall mean the Pink Panther, The Inspector,
Boss Man, Dr. Von Schmarty, The Ant and The Aardvark, The Little
Old Lady, Manly Man, Dogfather, Pugg, Louie, and Voodooman.
1.2 "Computer" shall mean any device which acts upon an
embodied Computer Software so as to communicate it to the user,
whether separate from or integral to the embodiment.
1.3 "Computer Software" shall mean any computer software
containing full and complete computer code, including the source
code, the assembly code, the object code and such data files and
other files as are deemed necessary for such computer software to
achieve its functional purpose.
1.4 "Educational Entertainment Software" shall mean Computer
Software containing an interactive cultural exploration type game
which uses and/or incorporates any of the Characters.
1.5 "Licensed Platforms" shall mean Microsoft Windows 3.1 and
Windows 95. The Computer Software shall be stored and delivered
on CD-ROM.
1.6 "Licensed Product" shall mean an Educational
Entertainment Software Multimedia volumes currently titled "The
Pink Panther's Passport to Peril" utilizing the Characters, but
only on the Licensed Platforms.
1.7 "MGM Name and Logo" shall mean the names MGM and Metro-Goldwyn
- -Mayer and the MGM lion logo attached hereto as Exhibit B.
1.8 "Multimedia" shall mean a form of Computer Software that
combines two or more of the following: video, audio,
photographs, text, graphics, animation and computer programs,
stored in digital form on magnetic or optical media which can be
displayed on a video display screen and with which the user can
interact.
1.9 "Term" shall mean the period commencing on the date of
execution of this Agreement, and expiring on the earlier of
, unless terminated earlier in accordance with
the terms and conditions herein. Licensee will have the right to
extend this license for one (1) year based on achieving the
minimum guarantee, as described in section 3.1(c).
1.10 "Territory and Language" shall mean , and only in
the language. Licensor will not appoint any
distributors to sell the English version of the product in the
territory, nor will Licensor sell the English version of the
product directly in the territory.
"Wholesale Price" shall mean Licensee's gross receipts before
any deductions.
" Sublicensing Territory" shall mean all countries
2.GRANT OF LICENSE
2.1 Licensor grants and Licensee accepts, subject to the
terms herein set forth, during the Term, the exclusive license in
the Territory and Language to manufacture, distribute and sell
the localized version of the Licensed Product as approved in
writing by Licensor and/or MGM/UA. Licensee shall use the MGM
Name and Logo on the packaging of all copies of the Licensed
Product manufactured, distributed and sold by Licensor and solely
for such purpose Licensor and MGM/UA grant and Licensee accepts
the exclusive license to use the MGM Name and Logo on the
Licensed Product in such manner and placement as specified by
Licensor. Licensee shall not use the MGM Name and Logo for any
other purpose, including, without limitation, advertising and
promotion of the Licensed Product, without the prior written
permission of Licensor and MGM/UA.
2.2 The grant of license contained in Section 2.1 does not
extend to any rights in or to any derivative works, including,
without limitation, sequels, remakes, characters, likenesses or
voices of any actual persons whether or not embodied in the
Licensed Product.
2.3 All rights whatsoever in the Licensed Product and the
Characters not specifically granted herein are reserved to
Licensor and/or MGM/UA and may be freely exercised at any time by
Licensor and/or MGM/UA without accounting to Licensee and without
any claim, charge or encumbrance in favor of Licensee; Licensee
shall have no rights whatsoever in the Licensed Product and the
Characters except as explicitly set forth herein.
3. CONSIDERATION
3.1 In consideration for the rights granted to it under this
Agreement, the Licensee agrees to pay Licensor the following
advance and royalties:
(a) Advance. The Licensee agrees to pay Licensor the
following non-refundable advance royalty amount ("Advance"),
which shall be set off as a credit against the royalties due
Licensor hereunder:
dollars (U.S.$ ) shall be payable
by Licensee within seven (7) days of Licensee's execution
of this Agreement; dollars (U.S.$ ) within
seven (7) days of receipt of English Gold Master;
dollars (U.S.$ ) within seven days of completion of
gold master or December 31, 1996, whichever is
sooner.
(b)Royalties. Percentage royalties shall be computed as
follows:
(i)Licensee shall pay Licensor a royalty of US$
per unit.
(ii)In the case of sales of the Licensed Product as
part of a self-liquidation program approved by Licensor
and/or MGM/UA, Licensor shall pay Licensee twenty percent
(20%) of the gross unit sales of the Licensed Product
sold by Licensee.
(c)Minimum Guarantee. Licensee guarantees to Licensor that
sales of localized product shall total a minimum of 3,000 units
for the first twelve (12) month period of this agreement. At the
end of the first twelve months of this agreement, If Licensee
fails to achieve the sales guarantee, Licensee will have the
right to pay the outstanding balance to Licensor and maintain
rights to the product for an additional 12 months. Failure of
Licensor to meet this sales guarantee will result in Licensor
obtaining the exclusive right of distribution of the localized
product, and Licensor will be free to identify new distribution
partners within the territory.
(d) All amounts due Licensor under this Agreement shall be
remitted by the Licensee to the following address:
WANDERLUST INTERACTIVE, INC.
598 BROADWAY, 9TH FLOOR
NEW YORK, NEW YORK 10012
ATTN: Anne Nizou or Catherine Winchester
(e) Sublicensing Fee: Licensor agrees to pay a one US dollar
(US$1.00) per unit Sublicensing fee to Licensee for sales of
Licensed product in the Sublicensing Territory.
3.2 Licensee agrees that it shall not, without the written
consent of Licensor and/or MGM/UA, which consent shall be granted
or withheld in Licensor's and/or MGM/UA's sole discretion:
(a) Sell or otherwise distribute any Licensed Product at a
so-called premium, or to third parties which Licensee has reason
to believe intend to sell or distribute the Licensed Product at
Premiums. "Premiums" for purposes hereof shall mean sale or
distribution of the Licensed Product in connection with the
following kinds of promotional activities: self-liquidator
programs; joint merchandising programs; giveaways; sales
incentive programs; door openers; traffic builders; and any other
kinds of promotional programs designed to promote the sale of the
Licensed Product or other goods or services of the Licensee or a
third party.
(b) Attempt to structure sales, distribution, or marketing
plans for the purpose of enhancing their revenues at the expense
of Licensor and/or MGM/UA; more particularly, Licensee shall not
make or attempt to utilize Tier Sales for the purpose of lowering
the revenue base for determining Licensor's royalty share. A
"Tier Sale" for purposes hereof shall mean a sale by Licensee or
a related party to a related party for the purpose of further
distribution.
4. ACCOUNTING PROVISIONS
4.1 Licensee agrees to forward to Licensor, with a copy to
MGM/UA, within thirty (30) days after the end of each calendar
quarter ("Royalty Period"), commencing with the first calendar
quarter during which any unit of Licensed Product is sold, a
report (the "Accounting Statement") of the number of units of
Licensed Product sold within such Royalty Period and the royalty
amount due for the sale of such units. Each such Accounting
Statement shall include a detailed cumulative report, certified
by Licensee's chief financial officer as accurate, of the
following information concerning each Licensed Product:
(a)The number of Licensed Product held in inventory at the
start and at the close of the Royalty Period, distributed to
customers during the Royalty Period, and returned to Licensee
during the Royalty Period.
(b)The gross unit sales for each Licensed Platform of the
Licensed Product.
(c)The royalties due to Licensor with respect to the Royalty
Period.
(d)Any applicable currency exchange rates used to calculate
recoupment and remittances to Licensor, if applicable.
(e)A certificate from the Licensee's disk manufacturer
documenting the number of disks manufactured of the Licensed product for
the Royalty period.
(f)At no time during the extension period of the contract shall
a quarterly payment be less than fifteen percent (15%) of the 3,000 unit
guarantee, on a cumulative basis.
(g)All royalties due to Licensor shall accrue upon sale of the
Licensed Product, regardless of the time of collection by the Licensee,
less credits for actual merchandise returns not exceeding, in any
quarterly accounting period, fifteen percent (15%) of the Licensee's
gross of the Licensed Product during such accounting period. For
purposes of this Agreement, a unit of Licensed Product shall be deemed
"sold" as of the date on which such item is billed, invoiced, shipped or
paid for, whichever first occurs.
4.2 Licensee agrees that accompanying each such Accounting Statement
shall be payment of the amounts then due to Licensor for such Royalty
Period, less any unrecouped portion of the Advance. Such payment shall
be in US Dollars.
4.3 The receipt or acceptance by Licensor and/or MGM/UA of any
Accounting Statements furnished pursuant to this Agreement, or the
receipt or acceptance of any royalty payments made, shall not preclude
Licensor and/or MGM/UA from questioning their accuracy at any time. If
any inconsistencies or mistakes are discovered in such statements or
payments, appropriate adjustments shall be made immediately by the
parties.
4.4 Licensee agrees to keep accurate books of account and records
covering all sales and royalties due under this Agreement and to permit
Licensor and MGM/UA and their respective agents and representatives to
inspect such books of account and records, and to make copies thereof,
during reasonable business hours (upon prior reasonable written notice)
for the purpose of verifying the reports provided hereunder. At
Licensor's and/or MGM/UA's request, Licensee shall provide an authorized
employee to assist in the examination of the Licensee's records.
4.5 There shall be no deduction whatsoever from the royalties owed
to Licensor for including, without limitation, uncollectable accounts,
or for taxes, fees, assessments, or other expenses of any kind which may
be incurred or paid by the Licensee in connection with: (i) royalty
payments due Licensor; (ii) the manufacture, sale, distribution or
advertising of the Licensed Product in the Territory and Language;
and/or (iii) the transfer of funds or royalties or the conversion of any
currency into U.S. dollars. It shall be the Licensee's sole
responsibility at its expense to obtain the approval of any governmental
authorities and to take whatever steps may be required to: (a) effect
the payment of royalties to Licensor; (b) minimize or eliminate the
incidence of taxes, fees, or assessments which may be imposed; and
(c) enable Licensee to commence or continue doing business in the
Territory and Language. Licensee shall comply in any and all respects
with all applicable laws and regulations.
5. CONTENT AND QUALITY OF LOCALIZATION OF LICENSED PRODUCT
5.1 Licensee shall bear the sole responsibility and expense for
preparation of the translation and recording of the script for the
localized version of the Licensed Product in the Territory and Language.
Licensor and Licensee agree to use their best efforts to conform to the
Localization Schedule of Events as set forth in Exhibit "A" attached
hereto. Failure to adhere to this schedule by either party may be viewed
as a material breach of this Agreement, and may cause Section 8.1 to be
enacted. The translation, script recording and all other items created
in connection with the localization of the Licensed Product
(collectively, the "Localized Materials"), the Licensed Product and all
related materials as manufactured, advertised, sold or distributed by
Licensee under this Agreement shall be of first class quality. Without
limiting the foregoing, Licensee will maintain a policy of first-class
standards regarding all Localized Materials and the manufacturing,
distribution and sale of the Licensed Product, which will in no manner
reflect adversely upon the Licensed Product.
5.2 The content, quality and style of all Localized Materials,
Licensed Product, artwork, packaging and wrapping material, cartons,
containers, tags, labels and all other devices used in connection
therewith and all advertising, promotional and display material, if any,
for the Licensed Product will be subject to the prior written approval
of Licensor and MGM/UA, which approval may be given or withheld in
Licensor's and MGM/UA's sole discretion.
5.3 All translations of written material used on or in connection
with the Localized Materials, Licensed Product and/or advertising
materials shall be accurate, and the Licensee, when submitting the
Localized Materials, Licensed Product and/or advertising materials for
approval, shall provide Licensor with English translations of all such
written materials. At all reasonable times and upon reasonable notice,
Licensor and/or MGM/UA shall have access, at no cost (except for
shipping costs) to any Localized Materials, of whatever character, which
Licensee may cause to be made or created with respect to the Licensed
Product.
5.4 Licensee agrees that it will use its best efforts to promote
actively and effectively and to manufacture, sell and distribute each of
the Licensed Product in the Territory and Language during the Term of
this Agreement. Licensee agrees that it will use marketing efforts
which are at least equal to those made to promote its other Product in
the Territory and Language. Licensee shall not undertake or authorize
any television, radio or other media promotion without prior written
approval of Licensor and/or MGM/UA. Licensee agrees to submit a sales
and marketing plan to Licensor for approval, as indicated in the
localization schedule (exhibit A).
5.5 Licensee shall, at Licensee's cost, insert in the packaging of
the Licensed Product, any consumer response forms requested by Licensor.
5.6 Licensee shall in no event manufacture, sell or otherwise
distribute any Licensed Product and/or Localized Materials without
having obtained all approvals by Licensor and/or Licensee, in each and
every instance required hereunder. Licensee acknowledges and agrees
that MGM/UA shall have the right (but not the obligation) to approve any
and/or all of the items requiring approvals of Licensor hereunder, which
right may be exercised by MGM/UA at any time upon giving Licensor and
Licensee written notice. MGM/UA's receipt of any and all items
furnished hereunder in connection with such approvals or otherwise by
Licensee shall not in any way constitute a waiver or satisfaction of any
of Licensor's obligations to MGM/UA pursuant to that certain Pink
Panther License Agreement dated as of May 25, 1995 as amended from time
to time (the "Master License Agreement"); nor shall MGM/UA be deemed to
have actual or constructive knowledge of the contents of such items.
6. TRADEMARK AND COPYRIGHT
6.1 Licensee agrees to execute and deliver to Licensor and/or
MGM/UA, in such form as Licensor and/or MGM/UA may reasonably request,
all instruments necessary in the Territory and Language to effectuate
copyright, service mark and trademark protection or to record Licensee
as a registered user of any trademarks or to cancel such registration,
and if Licensee fails to execute such instruments, Licensee hereby
appoints Licensor as Licensee's attorney-in-fact to do so on Licensee's
behalf.
6.2 Licensee acknowledges and agrees that (a) all copyrights,
trademarks, and service marks and rights to the same referred to in this
Section 6 in the name of and/or owned by MGM/UA shall be and remain the
sole and complete property of MGM/UA; (b) Licensee shall not at any time
acquire or claim any right, title or interest of any nature whatsoever
in any copyright, trademark or service mark owned or controlled by
MGM/UA by virtue of this Agreement or of Licensee's uses thereof in
connection with the Licensed Product and the Characters; and (c) any
right, title or interest in or relating to any such copyright, trademark
or service mark, including, without limitation, the Localized Materials
which comes into existence as a result of, or during the term of, the
exercise by Licensee of any right granted to it hereunder shall
immediately vest in MGM/UA.
6.3 Licensee agrees to assist Licensor and/or MGM/UA to the extent
necessary to protect any of Licensor's and MGM/UA's respective rights to
the Licensed Product and the Localized Materials. Licensee shall notify
Licensor and MGM/UA in writing of any infringements and imitations by
other of the Licensed Product on Product similar to those covered in
this Agreement which may come to the Licensee's attention. MGM/UA shall
have the right to commence action to enforce its proprietary rights and
prosecute any such infringement, and Licensee agrees to fully cooperate
in any such action. With regard to any infringements of Licensee's
rights hereunder by third parties, or with regard to any unauthorized
imitations by third parties of the Licensed Product and/or Characters,
Licensee may, but only to the extent any such action is specifically
approved in writing by Licensor and MGM/UA in advance: make demands or
claims, bring suit, and/or effect settlements (collectively, to make
"Licensee Claims"); provided that Licensor and MGM/UA shall have the
right to participate fully at their respective own expense in any
litigation or other activity relating to any Licensee Claim.
Notwithstanding anything herein to the contrary, in no event shall
Licensee have the right, without the specific prior written consent of
Licensor and/or MGM/UA: to acknowledge the validity of any third
party's claim (collectively, "Third Party Claims") regarding any aspect
of the Licensed Product, or to take any other action which might impair
the ability of MGM/UA to contest said Third Party Claim if MGM/UA so
elects.
6.4 Licensee acknowledges that the Characters, MGM Names and Logo
and the Licensed Product have extensive goodwill, publicity, recognition
and secondary meaning in the public in the Territory. Licensee agrees
that any works (including, any copyright therein), characters, roles,
artwork, trade names, trademarks and tangible materials relating to or
embodying any portion of the Licensed Product and the Localized
Materials, the Characters, MGM Names and Logo and all goodwill,
publicity, recognition or secondary meaning accruing to the foregoing,
including any characters, created in whole or in part by Licensee, its
agents, contractors or employees, shall vest immediately and irrevocably
in MGM/UA as owner and employer upon creation, free and clear of any
right, title, charge, lien, encumbrance, limitation or claim in favor of
Licensee.
6.5 The following copyright and trademark notices must be
permanently affixed on the Licensed Product and on all packaging, tags,
advertising and promotions for the Licensed Product which have been
permitted and approved in writing by Licensor and MGM/UA in a reasonably
prominent position in the following order and in the manner specified:
(a)"199_ [year first placed on sale or used in the Territory
and Language] METRO-GOLDWYN-MAYER PICTURES, INC. All Rights Reserved.
Licensed by MGM/UA L&M, TM used by Permission."
(b)Such additional trademark, copyright and design notices as
may be specified by MGM/UA from time to time.
(c)1996 Wanderlust Interactive, Inc. All Right Reserved.
Wanderlust, Intelligent Fun and Games and the Wanderlust logo are
trademarks of Wanderlust Interactive, Inc.
7. REPRESENTATIONS AND WARRANTIES
7.1 Licensee hereby warrants and represents to Licensor that:
(a) This Agreement has been duly authorized, executed and
delivered by Licensee;
(b) Licensee has the full power and authority to enter into
this Agreement and to perform its obligations hereunder;
(c) This Agreement constitutes the valid and binding
obligation of Licensee, enforceable in accordance with its terms;
(d) The making of this Agreement by Licensee does not violate
any agreement, right or obligation existing between Licensee and any
other person, firm or corporation;
(e) That all ideas, creations, materials and intellectual
property furnished by Licensee in connection with the Localized
Materials will be Licensee's own creation (except for matters in the
public domain or for material which is licensed hereunder; and
(f) That the Localized Materials and the manufacture,
advertisement, distribution, sale, and other exploitation thereof
hereunder will not infringe upon or violate any rights of any third
party of any nature whatsoever; provided that the immediately preceding
clause shall not refer to any cause of action, allegation or claim of
infringement or violation of any third party's rights based upon the
Localized Materials except to the extent due to Licensee's breach of the
terms hereof.
7.2 Licensor hereby represents and warrants to Licensee that:
(a) This Agreement has been duly authorized, executed and
delivered by Licensor;
(b) Licensor has the full power and authority to enter into
this Agreement and to perform its obligations hereunder; and
(c) This Agreement constitutes the valid and binding
obligation of Licensor, enforceable in accordance with its terms.
8. BREACH AND TERMINATION.
8.1 Except as set forth below in Section 8.2 and 8.3, Licensor may
terminate this Agreement by notice to the Licensee in the event of
breach or default of any term or condition of this Agreement, if such
Licensee does not cure the applicable breach or default to the
Licensor's satisfaction within fifteen (15) business days after
receiving such termination notice; should such breach or default not be
completely cured, this Agreement shall then be deemed automatically
terminated without any further notice or other action by the Licensor.
8.2 This Agreement shall be automatically terminated with no cure
period permitted and no required notice or other action if any of the
following events occur:
(a) Should Licensee (i) become insolvent or be unable to pay
its debts as they become due, (ii) make an assignment for the benefit of
its creditors, (iii) acquiesce in the filing of a petition for
Licensee's bankruptcy, the appointment of a receiver or trustee or
liquidator for Licensee, the distress or other forced sale of a
substantial part of Licensee's assets, or the convening of a meeting of
Licensee's creditors, (iv) seek the protection for itself of any
applicable bankruptcy or insolvency law, or (v) take, do or omit to do
any action which has the purpose or effect of substantial cessation of
Licensee's business as a first-class product manufacturer or distributor
in the Territory and Language.
(b) Any assignment, sublicense or transfer by Licensee in
violation of the provisions of Section 12 below.
(c) Any breach or default by Licensor of the terms of the
Master License Agreement remaining uncured after the relevant cure
period, if any, therein, in which event MGM/UA shall have the election
to require that this Agreement be assigned to MGM/UA and Licensee hereby
accepts and consents to such assignment.
8.3 After any order for relief under the U.S. Bankruptcy Code (or
foreign law equivalent) is entered against the Licensee, the Licensee
must assume or reject this Agreement within sixty (60) days after the
order for relief is entered. If the Licensee does not assume this
Agreement within such sixty (60) day period, Licensor may, at its sole
option, terminate this Agreement by giving written notice to the
Licensee, without further liability on the part of Licensor.
8.4 Upon the termination of this Agreement pursuant to this Section
8, all royalties on sales previously made, and all advances and/or
minimum guarantees hereunder (whether or not yet accrued), shall become
immediately due and payable to Licensor.
8.5 Upon expiration or termination of this Agreement, Licensee
shall immediately cease all further manufacture, distribution,
advertisement, sale, rental and use of the Localized Materials, Licensed
Product, the Characters therein and related materials and the use of all
copyrights, trademarks and servicemarks. Within thirty (30) days after
the date of expiration or termination of this Agreement, Licensee shall
submit to Licensor a statement containing the following information (the
"Final Inventory Statement"):
(a) A statement attesting to the destruction or delivery to
Licensor of all molds, masters or other material used for the
manufacture of the Localized Materials and the Licensed Product; and
(b) A statement of the number, location and description of all
unsold copies of the Licensed Product in inventory or in process, either
in Licensee's own or anyone else's possession, on the date, of said
expiration or termination (the "Closing Inventory") and the total unit
cost of the Closing Inventory. Licensor and/or MGM/UA shall have the
right of access to Licensee's and/or any third parties' warehousing,
other facilities and books and records to take physical inventory to
ascertain or verify the accuracy of the information contained in the
Final Inventory Statement. Licensor and/or MGM/UA shall have the right
and option to purchase all or any part of the Closing Inventory at the
actual net per-unit cost to Licensee. Licensor and/or MGM/UA may
exercise such option, if at all, by notice to that effect to Licensee
("Purchase Notice"): (i) Specifying the amounts and description of the
Closing Inventory Licensor elects to purchase and designating the points
where such amounts of Closing Inventory should be shipped and the manner
of shipment, and (ii) Accompanied by payment to Licensee of the total
unit cost of the amount of Closing Inventory Licensor elects to
purchase; said Purchase Notice shall be given to Licensee no later than
thirty (30) days after service to Licensor of a proper Final Inventory
Statement. Within ten (10) days after service to Licensee of said
Purchase Notice, Licensee shall ship the amounts of Closing Inventory
Licensor elects to purchase f.o.b. to the points designated by Licensor,
by the manner of shipment designated by Licensor, at Licensor's expense.
Notwithstanding anything to the contrary hereinabove set forth, only to
the extent Licensor elects not to purchase any or all of the Closing
Inventory, and only in the event this Agreement has expired by the
passage of time and not been theretofore terminated by Licensor:
Licensee shall have a period of One hundred twenty (120) days ("Sell-Off
Period"), commencing on service to Licensee of the Purchase Notice or on
expiration of Licensor's option to purchase the Closing Inventory,
whichever shall occur first, within which to sell that part of the
Closing Inventory which Licensor has not elected to purchase. Licensee
shall pay royalties with respect to any Sell-Off Period activities, and
furnish Accounting Statements with respect thereto, in accordance with
the provisions of this Agreement otherwise applicable to such
activities. Not later than twenty (20) days following the expiration of
the Sell-Off Period, Licensee shall send to Licensor a certificate
signed under oath, stating the amount of the Closing Inventory not sold
during said period and attesting to the fact that all such Closing
Inventory not sold either: (i) has already been completely destroyed, or
(ii) will be completely destroyed not later than twenty (20) days
following the date of said certificate. Licensee shall at its sole
expense take all steps required to insure such destruction.
8.6 The rights of termination provided herein are in addition to
any other rights of Licensor hereunder, including the right to obtain
injunctive relief and other equitable remedies. In particular, the
parties acknowledge that breaches specified in Section 8.1 will cause
irreparable harm to Licensor and MGM/UA not readily measurable in
monetary amounts, and for which Licensor shall, without waiving any
other rights and remedies, be entitled to seek injunctive and
declaratory relief.
8.7 The expiration and/or termination of this Agreement: shall
forthwith automatically terminate all ability of Licensee to
manufacture, sell, or distribute Licensed Product (other than sales or
distributions of Closing Inventory, strictly pursuant to the terms of
Section 8.5 hereof, during the Sell-Off period); and shall forthwith
automatically terminate all other rights licensed or granted to Licensee
under this Agreement. However, subject to the foregoing, the expiration
and/or termination of this Agreement shall not affect: any obligations
of Licensor under Sections 7.2 or 9.2 hereof; or any obligations of
Licensee herein or rights of Licensor and MGM/UA hereunder. In
addition, upon the termination of this Agreement by Licensor as to any
or all of the Licensed Product as a result of any breach or default by
Licensee hereunder, all rights of Licensee hereunder with respect to
such Licensed Product shall terminate and Licensor shall have the right
to collect all monies due or to become due to Licensee under any lease
or agreement theretofore made by Licensee with respect to the
distribution sale or other exploitation of such Licensed Product, all
such leases and agreements, and all monies payable thereunder, being
automatically assigned to Licensor in such event provided, however,
Licensor will pay to Licensee its share of the proceeds remaining after
deduction of the royalties payable to Licensor hereunder from the
existing licenses subject to any rights or offset Licensor may have.
Licensee shall execute, acknowledge and deliver to Licensor any and all
further assignments and instruments deemed by Licensor to be reasonably
necessary or desirable to evidence or effectuate such assignment and, in
the event that Licensor fails or refuses to execute, acknowledge or
deliver to Licensor any such assignments or instruments upon fifteen
(15) business days written notice, then Licensor shall be, and Licensee
hereby irrevocably nominates, constitutes and appoints Licensor as
Licensee's true and lawful attorney-in-fact to execute and deliver all
such assignments and instruments in Licensee's name or otherwise (with a
copy thereof provided to Licensee if executed in Licensee's name), it
being acknowledged that such power is a power coupled with an interest.
Further, in the event of termination hereof Licensee shall comply fully
with Licensor's instructions and immediately redeliver all materials
relating to the Localized Materials and the Licensed Product. Licensor
shall continue to be entitled, notwithstanding termination of this
Agreement, to incur and to recover from Licensee reasonable legal and/or
collection agency fees and expenses in order to enforce the provisions
of this Agreement.
9. INDEMNIFICATION
9.1 License agrees to indemnify and hold Licensor and MGM/UA (and
their respective parents, affiliates, subsidiaries, divisions,
licensees, successors, assigns, and their or any of their agents,
officers directors and employees) harmless from and against any
liability, damage, cost or expense (including costs and reasonable
attorneys' fees) occasioned by or arising out of (i) a breach or alleged
breach of any of Licensee's representations, warrantees agreements
herein made, or any breach or alleged breach by Licensee of any term or
condition hereof; (ii) any unauthorized use of any patent, process,
idea, method or device in connection with the Localized Materials and/or
Licensed Product; or (iii) defects in the Localized Materials.
9.2 Licensor agrees to indemnify and hold Licensee (and its
parents, affiliates, subsidiaries, divisions, licensees, successors,
assigns, and their or any of their agents, officers directors and
employees) harmless from and against any liability, damage, cost or
expense (including costs and reasonable attorneys' fees) occasioned by
or arising out of the breach of any of Licensor's representations and
warranties contained herein.
9.3 With respect to any claims, demands or actions falling within
the scope of the foregoing indemnifications: (a) each party agrees
promptly to notify the other and MGM/UA of and keep the other fully
advised with respect to such claims or demands and the progress of any
such actions in which the other party is not participating; (b) Licensor
and/or MGM/UA shall have the right to assume, at its sole expense, the
defense of a claim, demand or action made or filed against the Licensee
or to require Licensee to defend such claim at its sole expense; (c)
each party and MGM/UA shall have the right to participate, at its sole
expense, in any action instituted against it and to approve any
attorneys selected by the other party to defend it, which approval shall
not be unreasonably withheld or delayed; and (d) a party assuming the
defense of a claim, demand or action against the other party shall not
settle such claim, demand or action without the prior written approval
of MGM/UA, which approval shall not be unreasonably withheld or delayed.
9.4 Licensor and MGM/UA shall be named as an additional insureds on
all insurance policies obtained by Licensee in connection with the
rights granted hereunder. As proof of Licensee's obtaining insurance, a
fully paid certificate of insurance will be submitted to Licensor and
MGM/UA by Licensee within thirty (30) days of Licensee obtaining such
insurance.
10. CONFIDENTIAL INFORMATION
Licensee acknowledges that, in the course of the performance of
this Agreement, it may obtain the confidential information of Licensor
and/or MGM/UA (including, without limitation, the following items
related to the Licensed Product: underlying literary material,
locations, creative elements, and processes or other technological
developments relating thereto). Licensee shall, at all times, both
during the Term of this Agreement and thereafter, keep in confidence and
trust all of Licensor's and/or MGM/UA's confidential information
received by it. Licensee shall not use the confidential information of
Licensor and/or MGM/UA other than as expressly permitted under the terms
of this Agreement or by a separate written agreement. Licensee hereby
acknowledges that any breach of the foregoing is a material breach which
will cause irreparable injury to Licensor and/or MGM/UA not readily
measurable in monetary amounts, and for which Licensor and/or MGM/UA
shall, without waiving any other rights or remedies, be entitled to seek
injunctive and/or declaratory relief.
11. NOTICES
11.1 All notices to be given to either party hereunder shall be
addressed to such party at the address set forth below or at such other
address as such party shall designate in writing from time to time. All
notices shall be in writing and shall either be served by personal
delivery, telecopier or by courier, confirmed receipt requested, to the
attention of an officer of MGM/UA and Licensee, as applicable. Except
as otherwise provided herein, notices shall be deemed given when
personally delivered or three (3) days after being mailed, except that
notices of change of address shall be effective only after actual
receipt. Notices shall be sent as follows:
TO LICENSOR: WANDERLUST INTERACTIVE, INC.
598 Broadway, 9th Floor
New York, New York 10012
Telecopier No.: 01-212-431-8807
WITH A COPY TO: Richard S. Kalin, Esq.
Kalin & Banner
757 Third Avenue, 7th Floor
New York, New York 10017
Telecopier No.: 01-212-759-3234
TO LICENSEE:
TO MGM/UA: MGM/UA Licensing and Merchandising,
a Division of Metro-Goldwyn-Mayer Inc.
MGM Plaza
2500 Broadway Street
Santa Monica, California 90404-3061
ATTN: Susan Notarides
Telecopier No.:
12. NO ASSIGNMENT OR SUBLICENSING OF RIGHTS
Licensee shall not have the right to assign, sublicense or
otherwise transfer this Agreement, any portion thereof or any of
Licensee's rights and/or obligations herein to any person or entity for
any purpose whatsoever.
13. MISCELLANEOUS
13.1 The entire understanding between the parties hereto relating
to the subject matter hereof is contained herein. There are no
representations, warranties, terms, conditions, undertakings or
collateral agreements, express, implied or statutory, between the
Parties other than those expressly set forth in this Agreement. This
Agreement cannot be changed, modified, amended or terminated except by
an instrument in writing executed by both Licensee and Licensor.
13.2 No waiver, modification or cancellation of any term or
condition of this Agreement shall be effective unless executed in
writing by the party charged therewith. No written waiver shall excuse
the performance of any act other than those specifically referred to
therein and shall not be deemed or construed to be a waiver of such
terms or conditions for the future or any subsequent breach thereof.
13.3 This Agreement does not constitute and shall not be construed
as constituting a partnership or joint venture between Licensor and
Licensee. Neither Licensee nor Licensor shall have any right to
obligate or bind the other in any manner whatsoever, and nothing herein
contained shall give or is intended to give any rights of any kind to
any third persons.
13.4 This Agreement, its validity, construction and effect shall be
governed by and enforced in accordance with laws of the United States
and the State of New York. The parties agree that any suit, action or
proceeding arising out of or relating to this Agreement or any of the
transactions contemplated hereby (including but not limited to related
tort claims) shall be instituted and prosecuted in the United States
District Court for the Southern District of New York or any court of
competent jurisdiction of the State of New York located in New York
County; provided, however, that in the event that Licensor, in its sole
and exclusive discretion, shall determine at any time that a judgment of
the state or federal court in New York may not be fully enforceable
against Licensee in Licensee's country or state of domicile, Licensor
shall have the option to initiate (or to dismiss its suit, action or
proceeding in New York and then initiate) any such suit, action or
proceeding in any court of competent jurisdiction within the License
Territory. In any suit, action or proceeding initiated in any state or
federal court in New York, the parties irrevocably submit to the
jurisdiction and venue of all state and Federal courts of New York and
waive any and all objection to such jurisdiction that Licensee may have
under the laws of the State of New York or the United States and also
waive any right to challenge the convenience of New York as an
appropriate forum.
13.5 The headings and captions used herein are inserted for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement. This Agreement shall not be deemed
effective, final or binding upon Licensor or Licensee until signed by
each of them.
13.6 If any provision of this Agreement is or becomes or is deemed
invalid, illegal or unenforceable under the applicable laws or
regulations of any jurisdiction, either such provision will be deemed
amended to conform to such laws or regulations without materially
altering the intention of the parties or it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
13.7 In the event of litigation between the parties arising out of
or relating to this Agreement, the prevailing party will be entitled to
recover court costs and reasonable fees of attorneys, accountants and
expert witnesses incurred by such a Party in connection with such
action.
13.8 Except as explicitly stated to the contrary herein, all
references in this Agreement to "days" shall be deemed to main "calendar
days" and not business days.
IN WITNESS WHEREOF, the Parties hereto have signed this Agreement
as of the day and year first above written.
"LICENSOR"
WANDERLUST INTERACTIVE, INC.
By:_______________________________
CATHERINE WINCHESTER
Its: Chief Executive Officer
"LICENSEE"
By:_______________________________
Its:______________________________
cdkidz\exh2
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,893,658
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,917,658
<PP&E> 238,500
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,527,432
<CURRENT-LIABILITIES> 630,271
<BONDS> 0
0
0
<COMMON> 37,637
<OTHER-SE> 4,859,524
<TOTAL-LIABILITY-AND-EQUITY> 5,527,432
<SALES> 50,000
<TOTAL-REVENUES> 50,000
<CGS> 0
<TOTAL-COSTS> 859,546
<OTHER-EXPENSES> 1,274,183
<LOSS-PROVISION> (2,035,580)
<INTEREST-EXPENSE> (48,149)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,035,580)
<EPS-PRIMARY> (.72)
<EPS-DILUTED> (.72)
</TABLE>
