1
EXHIBIT 10.26
SALES AGREEMENT
AGREEMENT, dated as of April 6, 1998, between XXXXXXXX ELECTRONICS GAMES,
INC., a Delaware corporation ("WEG"), and MIDWAY GAMES INC., a Delaware
corporation ("Midway"), each with an address at 0000 Xxxxx Xxxxxxxxxx Xxxxxx,
Xxxxxxx, Xxxxxxxx 00000.
W I T N E S S E T H :
WHEREAS, on the date hereof, WMS Industries Inc. ("WMS") is distributing
(the "Distribution") all of its shares of Midway's common stock to holders of
the shares of WMS' common stock outstanding on March 31, 1998;
WHEREAS, prior to the Distribution, Midway has been a majority-owned
subsidiary of WMS;
WHEREAS, WEG is an indirect, wholly-owned subsidiary of WMS; and
WHEREAS, the parties desire to set forth the terms of arrangements under
which Midway will provide certain sales and market planning services to WEG
following the Distribution.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and intending to be legally bound, the parties hereby agree as
follows:
1. SERVICES TO BE SUPPLIED. During the term hereof, Midway will supply the
following services to WEG:
1.1 Sales Testing. Midway shall conduct sales testing for all new
products developed by WEG through placements on behalf of WEG with selected
customers of a limited number of prototype units. Midway shall report on such
testing and recommend modifications to WEG both to maximize sales on a
territory-by-territory (country-by-country) basis and with respect to
manufacture of the products generally, based on the product and customer
testing.
1.2 Marketing. Midway shall coordinate and negotiate with third-party
advertising and media firms in creating and distributing print advertising and
video presentations for
2
products based upon the budget described in Section 3. WEG may conduct such
additional advertising and marketing outside of the WEG marketing budget as WEG
shall desire.
1.3 Sales. Midway shall negotiate distribution and sales agency
agreements with third-party distributors based on standard contract terms
agreed to by WEG in advance. WEG shall have the sole right to approve in
advance any material variations from the standard terms. Midway shall monitor
and report to WEG regarding the sales performance of each distributor in each
territory. Midway shall also make direct sales based on WEG's standard price
list. WEG shall have the sole right to approve any orders received containing
any variations from WEG's standard price list or any proposed allowances. WEG
may not conduct direct sales, except direct sales to original equipment
manufacturers of non-pinball products.
1.4 Order Entry and Credit Approval. WEG shall have the sole right to
accept an order after evaluating the potential customer's credit. Midway shall
assist WEG in gathering credit information. Midway will send order
acknowledgments using the forms approved by WEG for the customer's and WEG's
signatures. All orders shall be entered into WEG's order entry system by Midway
using the information sets required by WEG.
1.5 Collections and Returns. Midway shall assist WEG in collections and
shall administer all product returns according to WEG's policies.
1.6 Logistics and Traffic. Midway shall provide to WEG the following
additional services: (i) coordination and obtainment of licenses to and from
third parties of trademarks and other intellectual property; (ii) sales
reporting; (iii) finished inventory level monitoring, both in WEG warehouses
and in the field; (iv) design and preparation of shipping schedules; and (v)
preparation of bills of lading.
2. PAYMENT FOR SERVICES. In consideration for the services provided by Midway
pursuant to Section 1 of this Agreement, WEG shall pay Midway at the rate of
$500,000 per year (the "Annual Fixed Fee"), in equal monthly installments in
arrears by the 15th day of each month, plus a commission of 1.5% on the first
$25,000,000 of annual net sales of WEG products made by Midway (sales less
allowances, quantity discounts and returns) and 1% on annual net sales of
3
WEG products made by Midway exceeding $25,000,000. Such commissions shall also
be paid in arrears by the 15th day of each month based on actual net sales for
the prior month at the applicable commission rate with respect to cumulative net
sales for the year to date. For the period from the date hereof through June
30, 1998, commissions shall be 1.5% on the first $6,250,000 of net sales made by
Midway and 1% thereafter. The parties agree to review the Annual Fixed Fee on
an annual basis and to negotiate in good faith to make adjustments thereto to
the extent necessitated by changes to cost structures or market conditions.
3. BUDGET; NON-BUDGET SERVICES.
3.1 An annual budget for marketing and testing, as set forth in Sections
1.1 and 1.2, shall be developed and agreed upon in advance between the parties
annually and modified quarterly if agreed to by both parties. All third party
contractors engaged pursuant to the budget shall be paid by WEG directly.
3.2 If WEG requests and Midway provides any additional services not
included in the budget, such as creative media work on projects requested or
approved by WEG, Midway shall xxxx XXX for payroll, overhead and expenses at
Midway's actual cost plus 8%. Midway shall xxxx XXX at the end of each month
in which the additional services are provided, and WEG shall make payment to
Midway for services provided pursuant to this Section 3 within 15 days after
receipt by WEG of each invoice therefor. The total cost to complete the
additional service shall be estimated and agreed upon in advance, and Midway
shall provide to WEG periodic updates on the remaining costs for completion of
the requested services.
4. EFFECTIVE DATE AND TERM. This Agreement is effective as of April 6, 1998
and will continue in effect for a period of three years and for successive
renewal periods of six months each; provided, however, that either party may
terminate this Agreement for any reason upon six months' prior written notice.
5. MISCELLANEOUS.
-3-
4
5.1 No waiver by either party of any default shall be effective unless in
writing, nor shall any such waiver operate as a waiver of any other default or
of the same default on any future occasion.
5.2 Each party warrants and represents that proceeding herewith is not
inconsistent in any material way with any contractual obligations, expressed or
implied, undertaken with any third party.
5.3 In the event that any term or provision of this Agreement shall
violate any applicable statute, ordinance or rule of law in any jurisdiction in
which it is used, or otherwise be unenforceable, such provision shall be
ineffective in such jurisdiction only to the extent of such violation without
invalidating any other provision hereof.
5.4 Neither party shall, without the prior written consent of the other,
assign any rights or delegate any obligations under this Agreement, such
consent not to be unreasonably withheld, conditioned or delayed, except that
Midway may assign any such rights or delegate any such obligations to any of
its subsidiaries.
5.5 The headings used in this Agreement are inserted only for the purpose
of convenience and reference, and in no way define or limit the scope or intent
of any provision or part hereof.
5.6 This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns. Nothing
herein, expressed or implied, shall be construed to give any other person any
legal or equitable rights hereunder. No person shall be deemed to be a third
party beneficiary of this Agreement. Nothing herein shall be construed to be
an admission or waiver of any rights, claims and defenses the parties may have
against third parties, which rights, claims and defense the parties
specifically reserve.
5.7 All notices and other communications hereunder shall be in writing and
shall be delivered by hand, by facsimile or mailed by registered or certified
mail (return receipt requested) to the parties at the addresses set forth on
the first page of this Agreement (or at such other addresses for a party as
shall be specified by like notice) and shall be deemed given on the date on
which such notice is received.
-4-
5
5.8 The parties each shall take such actions and execute such documents
and instruments as may be reasonably requested by the other party to implement
the terms and provisions of this Agreement.
5.9 All controversies and disputes arising out of or under this Agreement
shall be determined pursuant to the laws of the State of Illinois, United
States of America, regardless of the laws that might be applied under
applicable principles of conflicts of laws.
5.10 This Agreement constitutes the entire understanding between the
parties hereto (and supersedes all prior written or oral communications)
relating to the subject matter covered in this Agreement. No amendment,
modification, extension or failure to enforce any condition of this Agreement
by either party shall be deemed a waiver of any of its rights herein. This
Agreement shall not be amended except by a writing executed by all the parties
hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
XXXXXXXX ELECTRONICS GAMES, INC.
By: /s/ Xxxxxx X. Xxxx, Xx.
________________________________
Name: Xxxxxx X. Xxxx, Xx.
Title: Sr. Vice President-Finance
MIDWAY GAMES INC.
By: /s/ Xxxx X. Xxxxxxxx
________________________________
Name: Xxxx X. Xxxxxxxx
Title: President
-5-
6
GUARANTY
WMS Industries Inc. does hereby guaranty all of the performance and
financial obligations of WEG under this Agreement to which this Guaranty is
affixed. This Guaranty is unconditional, irrevocable, continuing and without
limitation, and shall be binding upon the successors and assigns of the
undersigned.
WMS INDUSTRIES INC.
By: /s/ Xxxxxx X. Xxxx, Xx.
_______________________________
Name: Xxxxxx X. Xxxx, Xx.
Title: Vice President-Finance
-6-
