<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
BRILLIANT DIGITAL ENTERTAINMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 95-4592204
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>
6355 TOPANGA CANYON BOULEVARD, SUITE 513
WOODLAND HILLS, CALIFORNIA 91367
(818) 346-3653
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
MARK MILLER, PRESIDENT
BRILLIANT DIGITAL ENTERTAINMENT, INC.
6355 TOPANGA CANYON BOULEVARD, SUITE 513
WOODLAND HILLS, CALIFORNIA 91367
(818) 346-3653
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
----------------
COPIES TO:
MURRAY MARKILES, ESQ. HENRY P. MASSEY, ESQ.
JULIE M. KAUFER, ESQ. DAVID C. DRUMMOND, ESQ.
TROOP MEISINGER STEUBER & WILSON, SONSINI, GOODRICH &
PASICH, LLP ROSATI
10940 WILSHIRE BOULEVARD 650 PAGE MILL ROAD
LOS ANGELES, CALIFORNIA 90024 PALO ALTO, CALIFORNIA 94304
(310) 824-7000 (415) 493-9300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
----------------
If any of the securities being registered in this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- ------------------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(2) FEE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value................. 2,300,000 $12.50 $28,750,000 $9,914
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
(1) Includes 300,000 shares of Common Stock issuable upon exercise of an option
granted to the Underwriters to cover over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee under
Rule 457(a).
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
BRILLIANT DIGITAL ENTERTAINMENT, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
-------------------------------- ---------------------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus........ Facing Page; this Cross-Reference Sheet;
2. Inside Front and Outside Back Outside Front Cover Page of Prospectus
Cover Pages of Prospectus....... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges......................... Prospectus Summary; Risk Factors;
Summary Historical and Pro Forma
Financial Information
4. Use of Proceeds.................. Use of Proceeds
5. Determination of Offering Price.. Underwriting
6. Dilution......................... Dilution
7. Selling Security Holders......... *
8. Plan of Distribution............. Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered...................... Description of Capital Stock; Management
10. Interests of Named Experts and *
Counsel.........................
11. Information with Respect to the
Registrant
(a)Description of Business....... Prospectus Summary; The Company; Risk
Factors; Use of Proceeds; Management's
Discussion and Analysis of Results of
Operations and Financial Condition;
Business
(b)Description of Property....... Business--Properties
(c)Legal Proceedings............. Business--Legal Proceedings
(d)Market Price, Dividends and
Related Stockholder Matters.. Outside Front Cover Page of Prospectus;
Risk Factors; Dividend Policy;
Description of Capital Stock
(e)Financial Statements.......... Financial Statements
(f)Selected Financial Data....... Selected Financial Data
(g)Supplementary Financial
Information.................. *
(h)Management's Discussion and
Analysis of Financial
Condition and Results of
Operations................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
(i)Changes in and Disagreements
with Accountants on
Accounting and Financial
Disclosures.................. *
(j)Directors and Executive
Officers..................... Management
(k)Executive Compensation........ Management
(l)Security Ownership of Certain
Beneficial Owners and
Management................... Principal Stockholders
(i)Certain Relationships and
Related Transactions......... Certain Transactions
12. Disclosure of Commission Position
on Indemnification For
Securities Act Liabilities...... *
</TABLE>
- --------
* Omitted because the item is negative or inapplicable
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+ANY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1996
2,000,000 Shares [LOGO OF
Brilliant Digital Entertainment, Inc. BRILLIANT
Common Stock DIGITAL
($.001 par value) ENTERTAINMENT]
--------
All of the shares of Common Stock, par value $.001 per share (the "Common
Stock"), of Brilliant Digital Entertainment, Inc. ("Brilliant" or the
"Company") offered hereby (the "Offering") are being sold by the Company.
Prior to the Offering, there has been no public market for the Common
Stock. It is anticipated that the initial public offering price will
be between $11.50 and $13.50 per share. For information relating to
the factors considered in determining the initial offering price
to the public, see "Underwriting."
Application has been made to list the Common Stock on the Nasdaq Stock Market's
National Market under the symbol "BRIL."
--------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" ON PAGE 8 HEREIN.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Company(1)
------------- -------------- -------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total (2).................................. $ $ $
</TABLE>
(1) Before deduction of expenses payable by the Company, estimated at
$1,000,000.
(2) The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase a maximum of 300,000
additional shares to cover over-allotments of shares. If the option is
exercised in full, the total Price to Public will be $ , Underwriting
Discounts and Commissions will be $ , and Proceeds to the Company will be
$ .
--------
The shares of Common Stock are offered by the several Underwriters, when, as
and if issued by the Company, delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected
that the shares of Common Stock will be ready for delivery on or about ,
1996, against payment in immediately available funds.
CS First Boston Cruttenden Roth
Incorporated
The date of this Prospectus is , 1996.
<PAGE>
[PICTURES]
First Color Page:
Collage of Brilliant logo surrounded by various company images such as
Cyberswine, KidStory Series, Storyteller, etc.
Inside Two Page Color Fold Out:
EIGHT STEPS TO MAKING MULTIPATH MOVIES
SCRIPTING
[The scripting graphic is a montage of graphics illustrating how the
ScriptNav tool is used to develop the multipath script and "view" the
Multipath Movie in a narrative format.]
Like scripts and screenplays for traditional movies, Multipath Movie scripts
focus on the moods and personalities of the central characters. However, those
moods and personalities are now determined by the user, which creates multiple
branching parallel plotlines. A multipath script is therefore typically five
to ten times longer than a movie script. ScripNav, a proprietary tool, helps
scriptwriters to develop their stories.
CREATIVE DESIGN
[The creative design image depicts various sketches at different angles and
positions of Sara and Cyberswine superimposed on a background screen capture
of the SCuD tool.]
Talent, character design, set design, props, sound, music and atmosphere are
all elements of the creative design process. These hand sketches, notes and
preliminary concepts form the foundation of the title's appeal.
VOICE/SOUND
[The sound image is made up of several screen captures from the LipSync
tool. It shows a dialogue wave file being processed in the LipSync tool and
the mouth shapes that are generated as the wave file is processed.]
Music and sound effects are completed in the third stage of the title's
development. Early in the production process, voice actors produce the dialog
tracks for each branch of the story. All dialog is then processed by the
proprietary LipSync tool to accurately coordinate the dialog track with each
character's lip movement.
MODEL/WORLD BUILDING
[The character modelling image is made up of a screen capture of a scene
being modelled in 3D Studio MAX with an image of Cyberswine superimposed on
the 3D Studio MAX background. The image of Cyberswine shows half of his body
texture mapped with the other half wire framed.]
Creating new characters, particularly those resembling human beings,
requires talented graphic artists and 3D modelers. These characters are
created using software modeling packages like 3D MAX and SoftImage.
TEXTURING/LIGHTING
[This graphic uses SCuD as a background image with a wire frame view of a
city scene and four texture mapped images added and montaged over the SCuD
screen. All textures and lighting effects have been created in Photoshop and
assembled in 3D Studio MAX.]
The wireframe model characters are placed in digitally created virtual sets
to produce each scene in the movie. Walls, floors and ceilings are
photographed or digitally modeled based on decisions made in the creative
design process. In addition, props and lighting elements are included prior to
capturing the motion on camera.
<PAGE>
BLOCKING/CAMERA/EDITING
[This shows the capabilities of the SCuD tool in action with a scene being
laid up, the camera positions being set and the sound file to be played being
inserted into its correct position.]
Brilliant uses its proprietary SCuD technology tool to film, layup, edit and
synchronize timing for each scene. This tool allows the director to cut and
paste a movie together and view the final result. It also gives the director a
high degree of flexibility, because any scene can be altered at any time
without expensive movie reshoots. Multiple virtual cameras allow unprecedented
control and refinement throughout the production process.
SPECIAL EFFECTS ANIMATION
[The special effects animation graphic depicts Sarah and Cyberswine walking
away from a huge explosion.]
The animation process is unique for each output format. Because highly
detailed effects are required to produce competitive products for the
broadcast television and cable markets, Brilliant's products will all be
created with a high level of detail. Less detailed effects, achieved by
decreasing the number of polygons, are required for output to CD-ROM or
online.
RENDERED OUTPUT
[The real time rendering graphic contains three images of Cyberswine walking
across a textured background illustrating the real time render capabilities of
the run time engine.]
The DigitalProjector proprietary software tool is designed to play the
Multipath Movie on the end user's platform. Initially developed for PC and
Sega Saturn platforms, it is intended that this run time player will be
developed for Sony Playstation and other set top box systems launched in the
future.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET'S NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR
THE ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES
10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
The Company intends to furnish its stockholders with annual reports
containing consolidated audited financial statements examined by an
independent accounting firm, and make available to its stockholders quarterly
reports for the first three quarters of each year containing interim unaudited
financial information.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information (including "Risk Factors" and the Consolidated Financial Statements
and notes thereto) appearing elsewhere in this Prospectus. Unless the context
otherwise requires, all references to Brilliant or the Company include its
wholly owned Australian subsidiary, "BII Australia."
THE COMPANY
Brilliant is a production and development studio creating a new generation of
digital entertainment to be distributed over the Internet, on CD-ROM, as
television programming and for home video. Using its proprietary, state-of-the-
art software tools, the Company is developing Multipath Movies which are three-
dimensional digitally animated stories, each with hundreds of plot
alternatives, or paths, leading to multiple distinct conclusions that are
influenced by the user. The Company has the ability to produce Multipath Movies
with seamless interactivity where the plot and graphics are uninterrupted by
the user's decisions. Furthermore, the Company believes that its studio can
produce a Multipath Movie in multiple formats in a single cost-efficient
production process. The Company is developing a system that will permit real
time distribution of, and user interaction with, its Multipath Movies over the
Internet. Under a three-year marketing agreement, the Company intends to launch
Internet distribution of the Multipath Movie through Packard Bell NEC's Planet
Oasis World Wide Web site by bundling Internet-enabled CD-ROMs on up to six
million PCs shipped by Packard Bell NEC. Through additional strategic
relationships, the Company has secured quality content for its Multipath Movies
from a number of proven sources such as Morgan Creek Productions, Crawford
Productions and Bantam Doubleday Dell Books.
The Company's Multipath Movies are designed to combine the best qualities of
traditional filmed entertainment--story and plot, with the best of the
traditional computer game--its interactivity. The Company's Multipath Movies
are designed to appeal to the entire home PC and game console markets,
including both the core gamer and the much larger segment of PC users not
currently served by traditional game developers. The Company plans to produce a
variety of Multipath Movies tailored to various demographic groups, such as
comedies, adventures, romances, science fiction stories and children's stories.
In order to produce digital entertainment products with wide appeal, the
Company has developed a number of features that it believes represent
significant technical enhancements over existing digital entertainment. For
example, animated characters created using the Company's tools appear human-
like and have realistic features, facial expressions and mouth movements.
Multipath Movies also allow users to control characters' moods. In addition, a
typical Multipath Movie will encourage viewers to influence or interact with
the story on average every 30 to 45 seconds, without interrupting the flow of
the story or its graphical presentation. The Company intends to release its
first Multipath Movie, Cyberswine, in the fall of 1997 through its distribution
arrangement with Packard Bell NEC. The Company also is developing the
Storyteller Series of Multipath Movies in which an animated Storyteller will
narrate engaging interactive stories targeted at children eight to twelve years
of age. The Storyteller Series will be based upon existing published children's
fiction books and original scripts, such as Bantam Doubleday Dell Books'
popular Choose Your Own Adventure series.
The Company plans to release certain of its Multipath Movies in non-
interactive format as television broadcast/cable programming and home video
features. The Company intends to segment such Multipath Movies into three 30-
minute episodes and, by packaging together thirteen episodes, can create a
season-length series for the broadcast market. Similarly, the Company intends
to produce 90- to 120-minute animated features for the home video market. The
Company believes that it can produce Multipath Movies for television
programming and home video features at costs substantially below typical
industry costs. The Company has entered into a production joint venture with
Crawford Productions, an Australian television production company, through
which the Company and Crawford Productions will jointly develop and distribute
broadcast and cable versions of two Multipath Movie scripts in the United
States and internationally.
3
<PAGE>
The Company develops Multipath Movies in a single process utilizing its
proprietary software tools in conjunction with the Company's digital production
and layup skills. The Company has four proprietary software tools: (i)
ScripNav, a software tool that enables a script writer to write, review and
correct branching multipath scripts; (ii) LipSync, a software tool used to
synchronize facial expressions and mouth movements to voice soundtracks
automatically; (iii) SCuD Engine, a software system which collects and
integrates the output from all of the component tools to produce the Multipath
Movie; and (iv) DigitalProjector, the tool that contains all the necessary
elements to load and play a Multipath Movie. Utilizing its proprietary software
tools, the Company can produce multiple formats from each title in a single
cost-efficient production process, enabling the Company to amortize its
production costs across the revenue streams from each format. In addition, the
Company's LipSync tool allows for low-cost modification of Multipath Movies to
other languages without the awkward appearance of dubbed movies. The Company's
proprietary software tools and production process are designed to emulate
traditional film writing and production techniques and allow screenwriters,
directors and producers to develop Multipath Movies without any detailed
knowledge of computer programming or significant assistance from expensive
programming teams. As an example, the Company has entered into an agreement
through which Morgan Creek Productions will provide the Company certain
creative, direction and film development assistance on two motion picture
scripts. The Company believes that the utilization of existing entertainment
resources will enable it to generate high-quality digital entertainment at a
low cost.
In addition to developing a new genre of multipath entertainment, the Company
produces and sells interactive CD-ROM titles primarily for children, including
the KidStory Series. Examples of its titles include Flipper and The Yukadoos,
which received a 1996 Newsweek Editor's Choice Award. The Company has licensed
the rights to over 40 additional books for development of KidStory Series
products. In addition, the Company recently acquired the interactive CD-ROM
rights to the Popeye characters. The KidStory Series is a profitable value-for-
price product category that is not dependent upon the production of hit titles.
The Company is a Delaware corporation. Its executive offices are located at
6355 Topanga Canyon Boulevard, Suite 513, Woodland Hills, California 91367, and
its telephone number is (818) 346-3653.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered......................... 2,000,000 shares
Common Stock outstanding after the Offering.. 7,200,001 shares (1)
Use of Proceeds.............................. Production of Multipath Movies,
development of a new production
studio, software tool
enhancement and development,
acquisition of licenses,
repayment of related party
loans and other indebtedness
and for general corporate
purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol....... BRIL
</TABLE>
- --------
(1) Excludes 880,222 shares of Common Stock subject to outstanding options and
warrants as of September 16, 1996.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30, (1)
---------------------------------
PRO FORMA
1995 1996 1996 (2)
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.............................. $ 842,796 $2,053,877 $1,881,335
Gross profit................................ 186,857 1,315,035 1,142,493
Total operating expenses.................... 566,284 804,748 1,982,206
Income (loss) from operations............... (379,427) 510,287 (839,713)
Net income (loss)........................... (423,853) 553,412 (796,588)
Net income (loss) per share (3)............. $ (0.10) $ 0.12 $ (0.15)
Common shares used in computing net income
(loss) per share (3)....................... 4,424,420 4,473,040 5,330,158
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA (2) AS ADJUSTED (4)
--------- ------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 53,061 $ 53,061 $ 21,570,072
Total current assets................. 717,474 717,474 22,234,485
Total assets......................... 915,746 1,065,746 22,582,757
Total current liabilities............ 1,045,179 1,045,179 312,190
Total stockholders' equity
(deficiency)........................ (129,433) 20,567 22,270,567
</TABLE>
- --------
(1) The Company intends to change its fiscal year end from June 30 to December
31, effective December 31, 1996.
(2) Reflects the acquisition by the Company of SAND, including $150,000 for the
allocation of the purchase price to certain assets, in exchange for the
SAND Note as if such transaction had occurred on July 1, 1995 and the
conversion of the SAND Note into 780,001 shares of Common Stock upon the
closing of the Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Pro Forma Financial Data."
(3) See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of net income (loss) per share. Also see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Pro Forma Financial Data."
(4) As adjusted to reflect (i) the transactions described in footnote (2)
above, (ii) the sale of 2,000,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $12.50 per
share after deducting underwriting discounts and commissions and estimated
offering expenses, and (iii) the repayment of $732,989 of short-term
obligations. See "Use of Proceeds."
Except as otherwise indicated, all information in this Prospectus (i) has
been adjusted, where applicable, to reflect the 4.42-for-1 stock split effected
by the Company on September 13, 1996; (ii) reflects the incorporation of the
Company and the subsequent exchange of 100,000 outstanding shares of Brilliant
Interactive Ideas, Pty. Ltd. ("BII Australia") for 1,000,000 shares of the
Company; (iii) reflects the consummation by the Company of the asset
acquisition of Sega Australia New Developments ("SAND"), a division of Sega
Ozisoft Pty., Limited ("Sega Ozisoft"), expected to occur in September 1996, in
exchange for a $1,500,000 principal amount one-year 8% convertible promissory
note payable (the "SAND Note") to Sega Ozisoft; (iv) reflects the conversion of
the SAND Note into 780,001 shares of the Company's Common Stock upon the
closing of the Offering; (v) assumes that the individuals identified as
directors and officers of the Company in the "Management" section currently are
serving in the positions indicated; (vi) with respect to information subsequent
to June 30, 1996 set forth in this document, reflects the conversion rate at
June 30, 1996 of Australian Dollars to United States Dollars of 0.789:1; and
(vii) assumes that the Underwriters' over-allotment option is not exercised.
5
<PAGE>
THE COMPANY
Brilliant is a production and development studio creating a new generation
of digital entertainment to be distributed over the Internet, on CD-ROM, as
television programming and for home video. The Company, headquartered in the
United States, was incorporated during July 1996. The Company has been formed
through the combination of two businesses: Brilliant Interactive Ideas, Pty.
Ltd. ("BII Australia"), an entertainment software developer and producer; and
Sega Australia New Developments ("SAND"), a "skunk works" research and
development operation for leading edge software tools. BII Australia became a
wholly-owned subsidiary of the Company through the exchange of all 100,000
outstanding shares of BII Australia for 1,000,000 shares of Common Stock of
the Company. In addition the Company has agreed to acquire all of the assets
of SAND. SAND was established during the second quarter of 1994 by Sega
Ozisoft Pty., Limited ("Sega Ozisoft"), one of the largest publishers and
distributors of entertainment software products in Australia and New Zealand,
the predecessor of which was co-founded by Mark Dyne and Kevin Bermeister.
Since its founding in September 1993, BII Australia has developed and sold
interactive education and entertainment CD-ROM titles primarily for children.
As a result of his experience in the software industry, Mark Miller, Managing
Director of BII Australia, identified BII Australia as a promising software
developer and, during December 1994, Mark Miller, through Pacific Interactive
Education Pty. Limited ("PIE"), and Reefknot Limited ("Reefknot"), a passive
single purpose investment company, purchased a controlling interest in BII
Australia. Under the direction of Mr. Miller, BII Australia has pursued a
strategy of producing profitable value-for-price software entertainment
product that is not dependent upon the production of hit titles.
Sega Ozisoft, which was built by Messrs. Dyne and Bermeister and is
majority-owned by Sega Enterprises of Japan ("Sega"), has been an
entertainment CD-ROM publisher and distributor since 1982. As a leading
publisher and distributor of interactive software products for the Australian
market, Sega Ozisoft has operated as the local representative for leading
software developers and achieved expertise in product positioning, associated
marketing programs, customer service support and other related functions. Sega
Ozisoft has represented over 100 United States and European based software
publishers and successfully launched more than 4,000 products. Through Sega
Ozisoft Messrs. Dyne and Bermeister have had broad exposure to the types of
entertainment software introduced throughout the past decade, the distribution
and retail strategies followed by various industry participants, the
advantages and disadvantages of various multimedia business models and the
numerous participants within the multimedia software and various related
industries. As a result of this experience, Messrs. Dyne and Bermeister began
to identify certain opportunities within the entertainment software industry
that were not being addressed. Traditional software games are directed at a
demographic audience comprised primarily of young males, ages eight to 21, who
prefer high adventure, fast action games and who are willing to spend
substantial time on this activity. Other potential market segments, such as
females and adult males over 21, typically have not been targeted by
developers. Additionally, Messrs. Dyne and Bermeister recognized that
consumers were seeking additional entertainment applications for their
computers. Messrs. Dyne and Bermeister conceptualized a new genre of
entertainment, the Multipath Movie, that would address these underserved
market segments as well as the traditional games and could be offered at
acceptable price points.
Accordingly, Sega Ozisoft established SAND as a stand-alone research and
development division to develop leading edge digital entertainment technology.
SAND has been responsible for developing the suite of proprietary software
tools and low-cost production process that are the foundation for the
Company's new generation of animated digital entertainment.
6
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Sega Ozisoft and BII Australia began working together during November of
1994 to jointly continue the development of SAND's software tools. BII
Australia's core capabilities in software product development and production
processes were recognized as valuable in developing commercial digital
entertainment product applications utilizing SAND's software tools. BII
Australia provided consulting advice regarding integration of individual tool
components, the required functionality of the tool suite and technical issues
impacting the use of text, sound, graphics and other special effects in the
development of an interactive digital entertainment product. BII Australia and
Sega Ozisoft formalized their relationship on January 17, 1996 with an
agreement through which BII Australia provided continued technical assistance
for the enhancement of SAND's software tools and in the development of the
first Multipath Movie product, which is based on the Australian comic strip
character "Cyberswine."
With the evolution of the SAND software tools and the realization of the
potential commercial application of associated digital entertainment products,
Sega Ozisoft began developing a business plan to successfully exploit the
commercial potential of products produced with the SAND software tools.
Accordingly, it was determined that the most effective way to accelerate
development of SAND's software tools was to form a separate entity that could
properly oversee and manage the ongoing software tool development and the
product launch of the various business lines generated with SAND's software
tools. Messrs. Dyne and Bermeister developed a plan to (i) acquire a
substantial interest in the Company and for BII Australia to serve as the
production development platform for the new entity, and (ii) acquire the
assets of SAND. In June, 1996, Messrs. Dyne and Bermeister reached agreement
with Reefknot to purchase stock of the Company from Reefknot. Pursuant to
their agreement with Reefknot, Messrs. Dyne and Bermeister have since each
acquired 15.3% of the outstanding shares of Common Stock of the Company from
Reefknot for an aggregate cash purchase price of $2,982,000. See "Principal
Stockholders." Pursuant to a Memorandum of Understanding dated June 12, 1996,
and superseded by an Asset Purchase Agreement dated September 12, 1996, BII
Australia has agreed to acquire all of the assets of SAND in exchange for a
$1,500,000 promissory note convertible into 780,001 shares of the Common Stock
of the Company.
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RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
or experience could differ significantly from those discussed in the forward
looking statements. Factors that could cause or contribute to such differences
include, but are not limited to those discussed in this section as well as
those discussed elsewhere in this Prospectus.
ACCEPTANCE OF MULTIPATH MOVIE CONCEPT; SUCCESSFUL DEVELOPMENT OF MULTIPATH
MOVIES WITH APPEALING CREATIVE CONTENT
The success of the Company's Multipath Movie products will depend to a
significant extent on acceptance by the market of the Multipath Movie concept.
The market for entertainment software is emerging and is dependent upon a
number of variables, including consumer preferences, the installed base of
personal computers and a sufficient number of entertainment software titles to
stimulate market development. Any competitive, technological or other factor
materially adversely affecting the introduction or sale of personal computers
or entertainment software would have a material adverse effect on the Company.
Because the market for entertainment software is relatively small in
comparison with the overall market for consumer software products, it is
impossible to predict with any degree of certainty the future rate of growth,
if any, and the size of the market for the Company's products.
Each Multipath Movie will be an individual artistic work, and its commercial
success primarily will be determined by user reaction, which is unpredictable.
The Company has not yet introduced its first Multipath Movie. Because the
Company is introducing a new genre with its Multipath Movies, the success of
the Company's initial titles will be critical and may determine consumer
reaction to future titles. The commercial success of the Company's Multipath
Movies will depend on its ability to predict the type of content that will
appeal to a broad audience and to develop stories and characters that capture
the attention and imagination of the market. In addition, the success of the
Company's Multipath Movies will depend upon the Company's ability to develop
popular characters and to license recognized characters and properties from
third parties for its software titles. There can be no assurance that the
Company will be able to develop or license popular stories or characters. The
success of a Multipath Movie also depends upon the effectiveness of the
Company's marketing and successful introduction of the first Multipath Movie
through the Company's bundling relationship with Packard Bell NEC, as well as
the quality and acceptance of other competing programs released into the
market place at or near the same time, critical reviews, the availability of
alternative forms of entertainment and leisure time activities, general
economic conditions and other tangible and intangible factors, all of which
can change and cannot be predicted with certainty. There can be no assurance
that the Company will be able to successfully introduce the Multipath Movie or
that the Company's bundling relationship with Packard Bell NEC will achieve
its goal of successfully introducing the Multipath Movie. Accordingly, there
exists substantial risk that some or all of the Company's Multipath Movies
will not be commercially successful, resulting in certain costs not being
recouped or anticipated profits not being realized. Further, the success of
the Multipath Movie genre will substantially depend on the market's reception
of the first Multipath Movie. The failure of the Company's initial Multipath
Movie to achieve commercial success would damage the ability of the Company to
introduce additional titles. Accordingly, the failure of any of the Company's
Multipath Movies, and especially its first Multipath Movie, to achieve
commercial success, could have a material adverse affect on the business,
operating results and financial condition of the Company.
FLUCTUATING OPERATING RESULTS
The Company intends to generate a substantial majority of its future revenue
from the development and production of Multipath Movies and other three-
dimensional digitally created entertainment. The first of its Multipath
Movies, Cyberswine, is expected to be released in the fall of 1997. The first
product in the Storyteller Series is not expected to be released until late
1997. The Company's annual and quarterly revenue will depend
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upon the successful development, timing and market acceptance of its
interactive products and upon the costs to distribute and promote these
products. Specifically the revenues derived from the production and
distribution of the Company's Multipath Movies will depend primarily on the
acceptance by the market of the Multipath Movie concept and the underlying
content of the Multipath Movie, neither of which can be predicted nor
necessarily bear a direct correlation to the production or distribution costs
incurred. See "--Acceptance of Multipath Movie Concept; Successful Development
of Movies with Appealing Creative Content," and "--Dependence on Development
of Additional Multipath Movies." The commercial success of a film also depends
upon promotion and marketing, production costs, impact of competition and
other factors. See "--Competition." Accordingly, the Company's annual and
quarterly revenues are and will continue to be extremely difficult to
forecast. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company's expense levels are based in part on expectations regarding
future revenues and are, to a large extent, fixed. The Company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. As a result, any significant shortfall in revenue from the
Company's Multipath Movies in relation to the Company's expectations would
have an immediate material adverse effect on the Company's business, operating
results and financial condition. The Company plans to increase its operating
expenses to fund greater levels of Multipath Movie and traditional CD-ROM
development, research and development, increased marketing operations and
expansion of its distribution channels. To the extent that such expenses
precede or are not subsequently followed by increased revenues, the Company's
business, operating results and financial condition will be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Historically, the Company has experienced significant fluctuations in its
operating results from quarter to quarter and it expects these fluctuations to
continue in the future. Factors that may influence the Company's quarterly
operating results include customer demand for the Company's products,
introduction or enhancement of products by the Company and its competitors,
the timing of releases of new products or product enhancements by the Company
and its competitors, introduction or availability of new hardware, market
acceptance of the Multipath Movies and other new products, development and
promotional expenses relating to the introduction of new products or
enhancements of existing products, reviews in the industry press concerning
the products of the Company or its competitors, changes or anticipated changes
in pricing by the Company or its competitors, mix of distribution channels
through which products are sold, mix of products sold, product returns, the
timing of orders from major customers, order cancellations, delays in shipment
and other developments and decisions including the timing and extent of
development expenditures, management's evaluation and judgement regarding a
title's acceptance, other unanticipated operating expenses and general
economic conditions. Additionally, a majority of the unit sales for a product
typically occurs in the quarter in which the product is introduced. As a
result, the Company's revenues may increase significantly in a quarter in
which a major product introduction occurs and may decline in following
quarters. The Company's revenues both domestically and internationally have
varied significantly between monthly and quarterly periods. Therefore, in the
future, the operating results for any quarter should not be taken as
indicative of the results for any quarter in subsequent periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The entertainment software business is highly seasonal. Typically, net
revenues are highest during the fourth calendar quarter (which includes the
holiday buying season), decline in the first calendar quarter and are lowest
in the second and third calendar quarters. This seasonal pattern is due
primarily to the increased demand for entertainment software products during
the year-end holiday buying season. As a result, a disproportionate share of
the Company's net revenues historically have been generated in the second
quarter of the Company's fiscal year. The Company expects its revenues and
operating results will continue to reflect these seasonal factors.
The entertainment industry historically has been subject to substantial
cyclical variation, with consumer spending for entertainment products tending
to decline during recessionary periods. Their can be no assurance that the
Company will be able to adjust its anticipated product development
expenditures and other expenses in the event of an economic downturn during
such development. Accordingly, if a recessionary period occurs,
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tending to result in decrease sales of the Company's products, product
development expenses likely will remain constant and the Company's business,
operating results and financial condition could be adversely affected. See "--
Rapid Technological Change; Changing Product Platforms and Formats."
Due to all of the foregoing factors, it is also likely that in some future
periods the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Fluctuating Operating Results."
In the quarter ending June 30, 1997, the Company will incur certain charges
and non-recurring expenses. In connection with the Company's acquisition of
SAND, expected by the Company to be consummated on or prior to the effective
date of the Offering, the Company expects to expense approximately $1,350,000
attributable to in-process research and development. Also, the Company has
recently entered into strategic relationships with Morgan Creek Interative,
Inc. ("Morgan Creek"), and Packard Bell NEC, Inc. ("Packard Bell NEC"). The
Company has issued to Packard Bell and Morgan Creek warrants to purchase
600,000 and 85,000 shares of Common Stock, respectively. See "Business--
Strategic Relationships." The Company may enter into additional strategic
relationships pursuant to which the Company will issue additional warrants.
Issuance of the warrants to Packard Bell, Morgan Creek and any other strategic
partners will result in a charge to earnings and a corresponding credit to the
equity account of the Company based on the value of the warrants issued,
determined as of the time of grant. The calculated value relating to the
warrants issued to Packard Bell NEC and Morgan Creek is approximately
$2,055,000.
SOFTWARE TOOLS AND PRODUCT DEVELOPMENT
The suite of software tools that will enable the Company to create its
Multipath Movie has been developed over the past two years and additional
refinement of these tools may be necessary in order to create the Multipath
Movie. The Company believes that its future success depends in large part upon
the continuous enhancement of the software tools necessary to create the
Multipath Movie. If problems in the development of the Company's software
tools arise, no assurance can be given that the Company will be able
successfully to remedy these problems. Even if the Company can remedy these
potential problems, the creation, and consequently the distribution, of the
Multipath Movie may be significantly delayed or could become significantly
more expensive. Any such delay or increase in cost would have a material
adverse affect on the business, operating results and financial condition of
the Company.
For the foreseeable future, the Company expects to be significantly
dependent upon the success of the Multipath Movie. The Multipath Movie is
still in the development stage. The Company expects to release its first
product in the Multipath Movie product line in the fall of 1997. There can be
no assurance that these products will be successfully developed at all, or if
successfully developed, will be released during these periods. If the Company
is unable to timely produce and develop these products and subsequent digital
entertainment products that meet with broad market acceptance, the Company's
business, operating results and financial condition will be materially
adversely affected.
Also, entertainment products as complex as those offered by the Company may
contain undetected errors or defects when first introduced or as new versions
are released. The Company has in the past discovered software errors in
certain of its new products and enhancements after their introduction.
Although the Company has not experienced material adverse effects resulting
from any such errors to date, there can be no assurance that errors or defects
will not be found in new products or releases after commencement of commercial
shipments, resulting in adverse product reviews and a loss of or delay in
market acceptance, which would have a material adverse effect upon the
Company's business, operating results and financial condition.
DEPENDENCE ON DEVELOPMENT OF ADDITIONAL MULTIPATH MOVIES
The Company's success will depend largely upon its ability in the future to
continuously develop new, commercially-successful Multipath Movie titles and
to replace revenues from Multipath Movie titles in the later
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stages of their life cycles. If revenues from new products or other activities
fail to replace declining revenues from existing products, the Company's
business, operations and financial condition could be materially adversely
affected. In addition, the Company's success will depend upon its ability to
develop popular characters and to license recognized characters and properties
from third parties for its digital entertainment products. If the Company is
unable to develop popular characters or if the cost of licensing characters
and properties from third parties becomes prohibitive, the Company's business,
operating results and financial condition could be adversely affected. Also,
pursuant to certain of its licensing arrangements, the Company historically
has, and may continue to, prepay royalties to third parties. There can be no
assurance that the sales of products associated with these royalties will
equal or exceed the amount of the prepayment. See "--Acceptance of Multipath
Movie Concept; Successful Development of Movies with Appealing Creative
Content," "--Recovery of Prepaid Royalties and Guarantees" and "Business--
Sales and Marketing."
LIMITED OPERATING HISTORY; UNCERTAIN PROFITABILITY
The Company was founded in September 1993, and shipped its initial CD-ROM
product in November 1994. The Company has not introduced its first Multipath
Movie and has only recently acquired the software tools necessary to produce a
Multipath Movie. Accordingly, the Company has only a limited operating history
in the case of CD-ROM development and no operating history in the case of
Multipath Movies upon which an evaluation of the Company and its prospects can
be based. There can be no assurance that the revenues of the Company will
continue at their current level or will increase, or that the Company will be
able to achieve profitability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SUBSTANTIAL DEPENDENCE UPON THIRD PARTIES
The Company depends substantially upon third parties for several critical
elements of its business including the development and licensing of content
and the distribution of its products.
Dependence Upon Strategic Relationships
The Company has entered into strategic relationships with Packard Bell NEC,
Crawford Productions Pty., Ltd. ("Crawfords") and Morgan Creek, as well as
licensing arrangements with numerous additional companies that own the stories
underlying and/or characters in many of the Company's products. The Company's
business strategy is based largely on its strategic relationships with these
and other companies. In each of these relationships, mutual agreement of the
parties is required for significant matters, or approval of one or both
parties is required to release products or to commence distribution of
products. For example, the Company will rely on Packard Bell NEC to distribute
CD-ROMs to purchasers of certain Packard Bell NEC computers as a significant
element of the Company's launch of the Multipath Movie genre. Packard Bell
NEC's obligation to distribute such CD-ROMs will depend upon Packard Bell
NEC's acceptance of master CD-ROMs complying with the Company's
specifications. Consequently, Packard Bell NEC may, in the exercise of its
approval rights, delay the introduction of the Company's first Multipath
Movie. Also, Morgan Creek and Crawfords have various creative controls and
approval rights pursuant to their joint ventures agreements with the Company.
These creative controls and approval rights allow Morgan Creek or Crawfords to
reject or delay the Multipath Movie productions of the respective joint
ventures. There can be no assurance that the Company will not be subject to
delays resulting from disagreements with or an inability to obtain approvals
from its strategic partners or that the Company will achieve its objectives in
respect of any or all of its strategic relationships or continue to maintain
and develop these or other strategic relationships, or that licenses between
the Company and any such third party will be renewed or extended at their
expiration dates. Any such delays or the Company's failure to renew or extend
a key license or maintain any of its strategic relationships could materially
and adversely affect the Company's business, operating results and financial
condition. In addition, under certain key license agreements, the Company must
obtain approval on a timely basis from the licensor in order to ship products
it develops under the license. There can be no assurance that the Company will
obtain such approval and failure to do so could have a material adverse effect
on the Company's business, operating results and financial condition. See
"Business--Strategic Relationships."
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Use of Independent Software Developers and Content Providers
In addition to internally developing software and creating content, the
Company uses entertainment software created by independent software developers
as well as content developed by third parties. The Company has less control
over the scheduling and the quality of the software generated by independent
contractors than over that developed by its own employees. Additionally, the
Company may not be able to secure the services of talented content developers.
The Company's business and future operating results will depend in part on the
Company's continued ability to maintain relationships with skilled independent
software developers and content providers, and to enter into and renew product
development agreements with such developers. There can be no assurance that
the Company will be able to maintain such relationships or enter into and
renew such agreements.
DEPENDENCE ON CONTINUED GROWTH IN USE OF THE INTERNET; CAPACITY CONSTRAINTS
The Company's future success is materially dependent upon continued growth
in the use of the Internet and the World Wide Web in order to support online
distribution of the Company's products. Rapid growth in the use of and
interest in the Internet and the World Wide Web is a recent phenomenon. There
can be no assurance that communication or commerce over the Internet will
become widespread or that extensive content will continue to be provided over
the Internet. The Internet may not prove to be a viable commercial market
place for a number of reasons, including potentially inadequate development of
the necessary infrastructure, such as a reliable network backbone, or timely
development of performance improvements including high speed modems. In
addition, to the extent that the Internet continues to experience significant
growth in the number of users and level of use, there can be no assurance that
the Internet infrastructure will continue to be able to support the demands
placed upon it by such potential growth. Also, the Internet could lose its
viability due to delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet activity, or due to
increased governmental regulation. Changes in or insufficient availability of
telecommunications services to support the Internet also could result in
slower response times and adversely affect usage of the Web. Finally, user
acceptance with respect to payment methods over the Internet may create
barriers to distribution of the Company's products through the Internet. If
use of the Internet does not continue to grow, or if the Internet
infrastructure does not effectively support growth that may occur, the
Company's business, operating results and financial condition would be
materially and adversely affected.
The Company intends to distribute its Multipath Movies via an Internet site
to be established by the Company. The Company also intends to distribute
certain of its Multipath Movies through a link connecting Packard Bell NEC's
"Planet Oasis" Web site to the Company's Internet site. Accordingly, any
system failure that causes interruption or an increase in response time on the
Company's Internet site or the Planet Oasis Web site could result in less
traffic to and distribution of Multipath Movies via the Company's Internet
site and, if sustained or repeated, could reduce the attractiveness of the
Company's products. The Company is also dependent upon Web browsers and
Internet and online service providers to ensure user access to its products.
Any disruption in the Internet access provided to the Company's Internet site
provided by Planet Oasis, Internet and online service providers or Web
browsers or any failure by the Company's Internet site to handle higher
volumes of transactions could have a material adverse effect on the Company's
business, operating results and financial condition.
The seamless appearance of Multipath Movies delivered via the Internet
requires that while a scene is being viewed, succeeding scenes must be
downloaded. This requires the use of 28.8 kilobits per second or faster
modems, computers equipped with high-speed Pentium (or equivalent)
microprocessors, 24 megabytes of random access memory and appropriately
configured operating systems. Users of computers with less sophisticated PCs
may experience noticeable latencies or "lag times" between scene changes.
Also, communications between the user and an Internet site delivering
Multipath Movies may require routing of Multipath Movie instructions through
several servers and may result in brief but noticeable lag times. Noticeable
lag times may reduce the attractiveness of online versions of the Multipath
Movies.
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COMPETITION
The markets for the Company's digital entertainment products are intensely
competitive, subject to rapid change and characterized by constant demand for
new product features at reduced prices and pressure to accelerate the release
of new products and product enhancements. The primary competitive areas for
the Company are identified below.
Computer Graphics Special Effect Firms. The Company expects to compete with
computer graphics special effects firms, including Pixar, Industrial Light &
Magic Inc. ("ILM"), an affiliate of Lucasfilm Ltd. ("Lucasfilm"), Digital
Domain, Sony ImageWorks, Pacific Data Images, Rhythm & Hues and Boss Film
Studios, Inc. These computer graphics special effects firms are capable of
creating their own three-dimensional computer animated feature films or may
produce three-dimensional computer animated feature films for movie studios
that compete with the Company. Pixar has already produced and successfully
released an animated feature film, Toy Story, and ILM has created and produced
three-dimensional character animation used for the ghosts in the live action
film Casper. These firms, each of which have greater financial and marketing
resources than the Company, are expected to compete intensely with the Company
in the production of animated digital products.
CD-ROM Publishers. The CD-ROM industry is intensely competitive and consumer
demand for particular software products may be adversely affected by the
proliferation of competitive products. The Company believes that the primary
competitive factors in the market for CD-ROM products include creative
content, product quality, technological capabilities, pricing, breadth of
features, marketing and distribution resources and customer service and
support. The Company will compete primarily against companies offering
entertainment software and related products. The Company's competitors in this
area will include several large companies with substantially greater name
recognition, financial, technical, marketing and other resources, including
Broderbund Software, Inc. ("Broderbund"), 7th Level, Inc. ("7th Level"), GT
Interactive Software, Inc. ("GT Interactive"), Electronic Arts, Softkey
International, Inc. ("Softkey"), Sierra On-Line, Inc. ("Sierra On-Line") and
Davidson & Associates Inc. ("Davidson"). Moreover, large corporations, such as
the Walt Disney Company ("Disney") and Microsoft, with substantial bases of
intellectual property content and substantial financial resources, have
entered or announced their intention to enter the market for CD-ROM
entertainment products.
Movie Studios and Production Companies. The Company's Multipath Movies will
compete with traditional feature films and television programming produced by
major movie studios, including Disney, Warner Bros. Inc. ("Warner Bros."),
Twentieth Century Fox Film Corporation ("Twentieth Century Fox"), Paramount
Pictures ("Paramount"), Sony Pictures, Inc. ("Sony"), Lucasfilm, Universal
City Studios, Inc. ("MCA Universal") and MGM/UA, as well as numerous other
independent motion picture and television production companies. Several movie
studios already have developed and released animated feature films and the
Company expects additional competition in the animated feature film market
from these and other movie studios. Other movie studios have announced their
intention to enter the animated feature film market, including DreamWorks SKG,
a studio formed in 1994 which is expressly targeting the animated film market.
The Company's broadcast and home video products will compete with the films of
these movie studios for audience acceptance and exhibition over
broadcast/cable and home video channels. In addition, the Company will compete
with movie studios for the acquisition of literary properties, production
financing, the services of performing artists, and the services of other
creative and technical personnel, particularly in the fields of animation and
technical direction. Most of the movie studios with which the Company will
competes have significantly greater name recognition and significantly greater
financial, technical, creative, marketing, and other resources than does the
Company. Due to their substantially greater resources, these movie studios
likely will be able to enter into more favorable distribution arrangements and
to promote their films and television programming more successfully than the
Company.
Several movie studios, including Disney and Lucasfilm (through its affiliate
ILM), have developed their own internal computer animation capability and have
created computer animation for special effects in animated films. Other movie
studios may internally develop, license or sub-contract three-dimensional
animation capability. Further, the Company believes that continuing
enhancements in computer hardware and software technology will lower barriers
to entry for studios or special effects companies which intend to produce
computer animated feature films or other products.
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In response to all of these competitive forces, the Company will be required
to make a high level of investment in content and tool development, marketing
and customer service and support. There can be no assurance that the Company
will have sufficient resources to make such investments or, even if they are
made, that the Company's products will be competitive. Additionally, present
or future competitors may be able to develop products comparable or superior
to those offered by the Company or adapt more quickly than the Company to new
technologies or evolving customer requirements. The Company's competitors also
may increase their efforts to gain and retain market share through competitive
pricing or product giveaways. These competitive pressures may necessitate
price reductions by the Company, thus reducing the Company's profit margins.
In addition, as the number of competitors increases and competition for scarce
consumer time available to be devoted to the products such as those of the
Company and equally scarce retail shelf space becomes more intense, the
Company may need to increase marketing expenditures to maintain sales and
product differentiation. Also, as competition for popular titles and themes
that may be used in entertainment software increases, the cost of acquiring
such titles and properties is likely to increase, resulting in reduced
margins. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive
pressures faced by the Company will not materially and adversely affect its
business, operating results and financial condition. See "Business--
Competition."
RAPID TECHNOLOGICAL CHANGE; CHANGING PRODUCT PLATFORMS AND FORMATS
The entertainment software market and the personal computer industry in
general are characterized by rapid and significant technological developments
and frequent changes in computer operating environments. To compete
successfully in these markets, the Company must continually improve and
enhance its existing products and technologies and develop new products and
technologies that incorporate technological advances while remaining
competitive in terms of performance and price. The Company's success also will
depend substantially upon its ability to anticipate the emergence of, and to
adapt its products to, popular platforms for consumer software.
The Company has designed its multipath movies for use with the IBM-
compatible PC and the Sega Saturn game console. The Company intends to design
future products for use with new platforms which will require substantial
investments in research and development. Generally, such research and
development efforts must occur one to two years in advance of the widespread
release or use of the platforms in order to introduce products on a timely
basis following the release of such platforms. The research and development
efforts in connection with games for certain advanced and emerging platforms
may require greater financial and technical resources than currently possessed
by the Company. In addition, there can be no assurance that the new platforms
for which the Company develops products will achieve market acceptance and, as
a result, there can be no assurance that the Company's development efforts
with respect to such new platforms will lead to marketable products or
products that generate sufficient revenues to offset the research and
development costs incurred in connection with their development. Failure to
develop products for new platforms that achieve significant market acceptance
would have a material adverse effect on the Company's business, operating
results and financial condition. There can be no assurance that technological
developments will not render certain of the Company's existing products
obsolete, that the Company will be able to adapt its products or technologies
to emerging hardware platforms, that the Company has chosen to support
platforms that ultimately will be successful or that the Company will be able
successfully to create software titles for such platforms in a timely manner,
or at all. See "--Software Tools and Product Development."
DEPENDENCE ON KEY PERSONNEL
The Company's success has and will continue to depend to a significant
extent upon certain key management, product development and technical
personnel, many of whom would be difficult to replace, particularly Mark Dyne,
its Chairman and Chief Executive Officer and Kevin Bermeister, its President.
Although the Company has entered into employment agreements with certain
officers, such agreements are terminable upon 30 days notice by either party.
Accordingly, there can be no assurance that such employees will continue to be
available to the Company. The loss of the services of one or more of these key
employees could have a
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material adverse effect on the Company and the Company's future success will
depend in large part upon its ability to attract, retain and motivate
personnel with a variety of technical and managerial skills, including
software development and programming expertise. Significant competition exists
for such personnel and the companies with which the Company competes are often
larger and more established than the Company. Additionally, there is currently
an industry-wide shortage of technical personnel which makes it more difficult
to attract and retain such personnel. There can be no assurance that the
Company will be able to retain and motivate its managerial and technical
personnel or attract additional qualified members to management or technical
staff. The inability to attract and retain necessary technical and managerial
personnel could have a material and adverse effect upon the Company's
business, operating results and financial condition. See "Business--Employees"
and "Management."
SHARED RESPONSIBILITIES OF CHIEF EXECUTIVE OFFICER AND PRESIDENT
The Company's Chief Executive Officer and Chairman, Mark Dyne and its
President, Kevin Bermeister, also serve as joint managing directors of Sega
Ozisoft, Sega Enterprises (Australia) Pty., Ltd. ("Sega Enterprises") and
other businesses. Although Messrs. Dyne and Bermeister are active in the
management of the Company, they are not required to spend a certain amount of
time at the Company nor are they able to devote their full time and resources
to the Company. Further, the Company does not have employment agreements with
either of Messrs. Dyne or Bermeister. There can be no assurance that the
inability of Messrs. Dyne and Bermeister to devote their full time and
resources to the Company will not adversely affect the Company's business,
operating results or financial condition. See "Management."
CONFLICTS OF INTEREST
Certain of the Company's directors and officers are directors or officers of
potential competitors and/or strategic partners of the Company. These
relationships may give rise to conflicts of interest between the Company, on
the one hand, and one or more of the directors, or officers and/or their
affiliates, on the other hand. The Company's Certificate of Incorporation
provides that Mark Dyne and Kevin Bermeister are required to present to the
Company any corporate opportunities for the development of any type of digital
entertainment with the exception of opportunities for (i) minority
participation in the development of digital entertainment and
(ii) participation in the development by others of digital entertainment where
publishing and/or distribution rights for the product to be developed are
offered to Messrs. Dyne and/or Bermeister solely for Australia, New Zealand
and/or Southern Africa. See "Certain Relationships and Related Transactions."
The Company's Certificate of Incorporation provides that Messrs. Dyne and
Bermeister are not required to present to the Company any other opportunities
which potentially may be of benefit to the Company.
NEW PRODUCTION STUDIO
The Company's current production facility located in Manly, Australia, does
not provide adequate space to house the necessary equipment and personnel to
develop the quantity of Multipath Movies intended to be produced by the
Company in the next several years. The Company intends to use approximately
$4.5 million of the net proceeds from the Offering to equip a production
studio in Australia. It is expected that the creation of this studio will
require a substantial time commitment of certain members of management in
order to facilitate an uninterrupted and efficient transition of current
operations to the new facility and could result in delays in production. There
can be no assurance that the Company will be able to equip the production
studio at the budgeted price. Additionally, there can be no assurance that the
facility will be available on time or that the Company will be successful in
timely hiring and training new content developers and software programmers
necessary to conduct the additional operations in which event the development,
and consequently the release, of the Company's products may be delayed. See
"--Software Tools and Product Development." Any such delay would have a
material adverse effect upon the Company's business, operating results and
financial condition.
15
<PAGE>
MANAGEMENT OF BUSINESS CHANGES; POTENTIAL GROWTH; POTENTIAL ACQUISITIONS
Implementation of the Company's business plan, including introduction of the
Company's Multipath Movies, management of the Company's joint ventures with
Morgan Creek and Crawfords, management of the Company's strategic relationship
with Packard Bell NEC, the establishment of a new production studio in
Australia, and the general strains of the Company's new role of a public
company will require that the Company significantly expand its operations in
all areas. This growth in the Company's operations and activities will place a
significant strain on the Company's management, operational, financial and
accounting resources. Successful management of the Company's operations will
require the Company to continue to implement and improve its financial and
management information systems. In addition, the restructuring of the Company
and resulting management and reporting of Australian operations and financial
results from the United States, as well as other aspects of the process of
preparing the Company for the Offering have placed and will continue to place
an additional strain on the Company's accounting and information systems
resources. The Company's ability to manage its future growth, if any, will
also require it to hire and train new employees, including management and
technical personnel, and motivate and manage its new employees and integrate
them into its overall operations and culture. The Company recently has made
additions to its management team and is in the process of expanding its
accounting staff and modifying its internal procedures to adapt to its new
role as a public company, a process which is expected to continue following
the Offering. The Company's failure to manage implementation of its business
plan and the changes implemented to structure and prepare for the Offering
would have a material adverse effect on the Company's business, operating
results and financial condition.
In the future, the Company may acquire complementary companies, products or
technologies, although no specific acquisitions currently are pending or under
negotiation. Acquisitions involve numerous risks, including adverse short-term
effects on the combined business' reported operating results, impairments of
goodwill and other intangible assets, the diversion of management's attention,
the dependence on retention, hiring and training of key personnel, the
amortization of intangible assets and risks associated with unanticipated
problems or legal liabilities.
LIMITED PROPRIETARY PROTECTION
The Company's success and ability to compete is dependent in part upon its
proprietary technology. The Company currently intends to file United States
patent applications relating to certain components of its proprietary
technology. The Company also relies on trademark, trade secret and copyright
laws to protect its technology, with the source code for the Company's
proprietary software being protected both as a trade secret and as a
copyrighted work. Also, it is the Company's policy that all employees and
third-party developers sign nondisclosure agreements. However, there can be no
assurance that such precautions will provide meaningful protection from
competition or that competitors will not be able to develop similar or
superior technology independently. Also, the Company has no license agreements
with the end users of its products and does not copy-protect its software, so
it may be possible for unauthorized third parties to copy the Company's
products or to reverse engineer or otherwise obtain and use information that
the Company regards as proprietary. Although the Company is not aware of
unauthorized copying of its products, if a significant amount of unauthorized
copying of the Company's products were to occur, the Company's business,
operating results and financial condition could be adversely affected.
Furthermore, policing unauthorized use of the Company's products is difficult
and costly, and software piracy can be expected to be a persistent problem. If
litigation is necessary in the future to enforce the Company's intellectual
property rights, to protect the Company's trade secrets or to determine the
validity and scope of the proprietary rights of others, such litigation could
result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, operating results and
financial condition. Ultimately, the Company may be unable, for financial or
other reasons, to enforce its rights under intellectual property laws and the
laws of certain countries in which the Company's products are or may be
distributed may not protect the Company's products and intellectual rights to
the same extent as the laws of the United States.
16
<PAGE>
The Company believes that its products, including its suite of software
tools, do not infringe any valid existing proprietary rights of third parties.
Since the software tools used to create the Multipath Movies were developed by
SAND, a division of Sega Ozisoft, the Company relies entirely on the
representations of Sega Ozisoft contained in the SAND Acquisition Agreement
between BII Australia and Sega Ozisoft that, to Sega Ozisoft's best knowledge,
the SAND technology and software acquired by the Company does not infringe the
proprietary rights of others. Additionally, although the Company has received
no communication from third parties alleging the infringement of proprietary
rights of such parties, there can be no assurance that third parties will not
assert infringement claims in the future. Any such third party claims, whether
or not meritorious, could result in costly litigation or require the Company
to enter into royalty or licensing agreements. There can be no assurance that
any such licenses would be available on acceptable terms, if at all, or that
the Company would prevail in any such litigation. If the Company were found to
have infringed upon the proprietary rights of third parties, it could be
required to pay damages, cease sales of the infringing products and redesign
or discontinue such products, any of which could have a material adverse
effect on the Company's business, operating results and financial condition.
See "Business--Proprietary Rights."
RECOVERY OF PREPAID ROYALTIES AND GUARANTEES
The Company may from time to time, enter into agreements with licensors of
intellectual property that involve advance payments of royalties and
guaranteed minimum royalty payments. If the sales volumes of products subject
to such arrangements are not sufficient to recover such advances and
guarantees, the Company will be required to write off unrecovered portions of
such payments. If the Company is required to write off a material portion of
any advances, or ultimately accrue for the guarantees, its business, operating
results and financial condition could be adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
INTERNATIONAL BUSINESS
In fiscal 1995 and 1996, international sales, principally in Australia,
accounted for approximately 20%, and 40%, respectively, of the Company's
revenues. The Company expects that international sales will continue to
account for a significant portion of the Company's total revenue. The
Company's international business is subject to numerous risks, including the
need to comply with a wide variety of foreign and U.S. export and import laws,
changes in export or import controls, tariffs and other regulatory
requirements, the imposition of governmental controls, political and economic
instability, trade restrictions, the greater difficulty of administering
business overseas and general economic conditions. Although the Company's
international sales are denominated principally in United States dollars,
sales to international customers may also be affected by changes in demand
resulting from fluctuations in interest and currency exchange rates. In
addition, the laws of certain foreign countries may not protect the Company's
intellectual property to the same extent as do the laws of the United States.
There can be no assurance that these factors will not have a material adverse
effect on the Company's business and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CONTROL BY EXISTING STOCKHOLDERS
Immediately following the Offering, the Company's officers and directors and
Sega Ozisoft, of which Messrs. Dyne and Bermeister are directors and
stockholders, will own approximately 40.2% of the Company's outstanding shares
(approximately 38.5% assuming the full exercise of the Underwriters' over
allotment option). As a result, these stockholders will be able to control the
Company and its operations, including the election of at least a majority of
the Company's Board of Directors and thus, the policies of the Company. The
voting power of these stockholders could also serve to discourage potential
acquirors from seeking to acquire control of the Company through the purchase
of the Common Stock, which might have a depressive effect on the price of the
Common Stock. See "Management," "Principal Stockholders," and "Description of
Capital Stock."
17
<PAGE>
MANAGEMENT'S DISCRETION AS TO USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock offered hereby
are estimated to be approximately $22.5 million. The Company expects to use
approximately $4.5 million of such proceeds to fund the establishment of a
production studio in New South Wales, Australia, approximately $1.0 million
for ongoing software tool development, approximately $1.0 million to acquire
content licenses and $883,000 to repay the principal and interest accrued on
related party and other indebtedness. However, the Company may change the
allocation of these proceeds in response to developments in the entertainment
and information technology industries and changes in the Company. Accordingly,
Company management will have broad discretion as to the application of the net
proceeds of the Offering. See "Use of Proceeds."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's future capital requirements will depend on many factors,
including but not limited to, the quantity of Multipath Movies developed, the
cost of content development, marketing and distribution, the size and timing
of future acquisitions, if any, and the availability of additional financing.
To the extent that existing resources and future earnings are insufficient to
fund the Company's activities, the Company may need to raise additional funds
through debt or equity financings. No assurance can be given that such
additional financing will be available or that, if available, it can be
obtained on terms favorable to the Company and its stockholders. In addition,
any equity financing could result in dilution to the Company's stockholders.
The Company's inability to obtain adequate funds would adversely affect the
Company's operations and ability to implement its strategy. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
NO DIVIDENDS ANTICIPATED
After the consummation of the Offering, the Company does not intend for the
foreseeable future to declare or pay any cash dividends and intends to retain
earnings, if any, for the future operation and expansion of the Company's
business. See "Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
IMMEDIATE AND SUBSTANTIAL DILUTION
The proposed initial public offering price is substantially higher than the
book value per outstanding share of Common Stock. Specifically, investors will
sustain immediate dilution of $9.41 per share based on the pro forma net
tangible book value of the Company at June 30, 1996 of $20,567. Investors in
the Offering therefore will bear a disproportionate part of the financial risk
associated with the Company's business while effective control will remain
with existing stockholders and management. Additional dilution may occur upon
the exercise of outstanding stock options and warrants. See "Dilution" and
"Principal Stockholders."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; ARBITRARY
DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Although the Company has applied for approval for inclusion of the Common
Stock on the Nasdaq National Market, there can be no assurance that an active
trading market for the Common Stock will develop as a result of the Offering
or, if a trading market does develop, that it will continue. In the absence of
such a market, investors may be unable readily to liquidate their investment
in the Common Stock. The trading price of the Common Stock could be subject to
wide fluctuations in response to quarter to quarter variations in operating
results, news announcements of relating to the Company's business (including
technological innovations or new product introductions by the Company or its
competitors), changes in financial estimates by securities analysts, the
operating and stock price performance of other companies that investors may
deem comparable to the Company as well as other developments affecting the
Company or its competitors. In addition, the market for equity securities in
general has been volatile and the trading price of the Common Stock could be
subject to wide fluctuations in response
18
<PAGE>
general market trends, changes in general conditions in the economy, the
financial markets or the technology industry and other factors which may be
unrelated to the Company's performance. The public offering price of the
shares of Common Stock has been determined by negotiations between the Company
and the Underwriter and does not necessarily bear any relationship to the
Company's book value, assets, past operating results, financial condition or
any other established criteria of value. There can be no assurance that the
shares offered hereby will trade at market prices in excess of the initial
public offering price. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders could adversely affect
the prevailing market price of the Company's Common Stock and the Company's
ability to raise capital in the equity markets. Upon completion of the
Offering, the Company will have 7,200,001 shares of Common Stock outstanding.
Of those shares, the 2,000,000 shares of Common Stock offered hereby
(2,300,000 if the Underwriter's over-allotment option is exercised in full)
will be freely tradeable without restriction or further registration under the
Securities Act, unless purchased by "affiliates" of the Company as that term
is defined in Rule 144 under the Securities Act ("Rule 144"). The remaining
5,200,001 shares of Common Stock outstanding are "restricted securities," as
that term is defined by Rule 144, or otherwise subject to volume limitations
of Rule 144 because they are held by affiliates of the Company. Upon
expiration of lock-up provisions, 2,322,131 shares of Common Stock will become
eligible for sale 180 days following the date of this Prospectus, subject to
compliance volume limitations of Rule 144. Under the lock-up provisions, the
officers, directors and securityholders of the Company will have agreed that
they will not, directly or indirectly, sell, assign or otherwise transfer any
shares of Common Stock owned by them for a period of 180 days, and in the case
of Mr. Dyne and Mr. Bermeister, one year, after the effective date of this
Prospectus, without the prior written consent of the Representatives of the
Underwriters. See "Shares Eligible for Future Sale" and "Underwriting."
The Company intends to file a registration statement under the Securities
Act to register the shares of Common Stock reserved for issuance pursuant to
the Company's 1996 Stock Option Plan (the "1996 Plan"). See "Management--Stock
Option Plan." This registration statement will become effective immediately
upon filing. As of September 16, 1996, options to purchase 155,000 shares of
Common Stock had been granted under the 1996 Plan. The availability for sale,
as well as actual sales, of currently outstanding shares of Common Stock, and
shares of Common Stock issuable upon the exercise of options and warrants, may
depress the prevailing market price for the Common Stock and could adversely
affect the terms upon which the Company would be able to obtain additional
equity financing.
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION, BYLAWS AND DELAWARE LAW
The Company's Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the stockholders. The Preferred Stock could be
issued with voting, liquidation, dividend and other rights superior to those
of the Common Stock. Following the Offering, no shares of Preferred Stock of
the Company will be outstanding, and the Company has no present intention to
issue any shares of Preferred Stock. However, the rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. Further, certain provisions of
the Company's Certificate of Incorporation and Bylaws and of Delaware law
could delay or make more difficult a merger, tender offer or proxy contest
involving the Company. See "Description of Capital Stock--Preferred Stock" and
"Description of Capital Stock--Anti-Takeover Provisions."
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock being offered by the Company hereby at an assumed initial public
offering price of $12.50 per share, after deducting the estimated underwriting
discounts and offering expenses, are estimated to be approximately $22.5
million ($25.89 million if the over-allotment option is exercised in full).
The Company intends to use approximately $4.5 million of the net proceeds to
fund the establishment of a production studio in New South Wales, Australia,
approximately $1.0 million for ongoing software tool development,
approximately $1.0 million to acquire content licenses, $670,000 and $150,000
to repay the principal and interest accrued on indebtedness to PIE (the "PIE
Loan"), and Reefknot (the "Reefknot Loan"), respectively, both shareholders of
the Company and an additional $63,000 of indebtedness due to Andwhen Pty.
Limited (the "Andwhen Indebtedness"). See "Certain Relationships and Related
Transactions" and "Principal Stockholders." The PIE Loan, which was incurred
to fund product development, is due on the earlier of the closing of the
Offering or December 31, 1996 and bears interest at the rate of 12.5% per
annum. The Reefknot Loan, which was incurred to pay certain costs relating to
the Offering, is due on the earlier of the closing of the Offering or
September 10, 1996 and bears interest at the rate of 10% per annum. The
Andwhen Indebtedness, $31,500 of which currently is due with the balance due
in 14 equal monthly installments, was incurred in connection with the
repurchase of certain equipment and bears no interest. In addition, the
Company will use a portion of the proceeds of the Offering to repay to Sega
Ozisoft non-interest bearing advances of operating expenses for the period
subsequent to June 30, 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." The balance of the net proceeds of the Offering will be used to
fund development of digital entertainment products, for working capital and
general corporate purposes.
The Company intends to maintain flexibility with respect to the use of these
funds and the amounts actually expended for each such use, if any, are at the
discretion of the Company and may vary significantly depending upon a number
of factors, including the progress of the Company's research and development
and marketing programs, technological advances, determinations as to the
commercial potential of the Company's products and the status of competitive
products. Accordingly, management reserves the right to reallocate the
proceeds of the Offering as it deems appropriate. The Company may also use a
portion of the net proceeds to acquire businesses, products or technologies;
however, it currently has no commitments or agreements with respect to any
such transactions. Pending such uses, the Company intends to invest the net
proceeds from the Offering in short-term, investment grade, interest bearing
securities.
DIVIDEND POLICY
The Company has never paid, and has no current intention to pay dividends on
its Common Stock and intends to follow a policy of retaining earnings to
finance the growth of its business. Any future determination to pay dividends
will be at the discretion of the Board of Directors of the Company and will be
dependent on the Company's results of operations, financial condition,
contractual and legal restrictions and other factors deemed relevant by the
Board of Directors at that time.
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
June 30, 1996, was $20,567 or $0.00 per share. Pro forma net tangible book
value per share is equal to the total tangible assets of the Company less
total liabilities divided by the number of shares of Common Stock outstanding
after giving effect to the acquisition by the Company of SAND in exchange for
the SAND Note and the conversion of the SAND Note into 780,001 shares of
Common Stock. After giving effect to the sale of 2,000,000 shares of Common
Stock offered by the Company hereby (at an assumed initial public offering
price of $12.50 per share, after deducting underwriting discounts and
commissions and estimated offering expenses) and the repayment of $732,989 of
short-term debt obligations, the pro forma net tangible book value for the
Company as of June 30, 1996 would have been $22,270,567 or $3.09 per share.
This represents an immediate increase in net tangible book value of $3.09 per
share to existing stockholders and an immediate dilution of $9.41 per share to
new investors purchasing shares in the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price......................... $12.50
Pro forma net tangible book value per share as of June 30,
1996....................................................... $0.00
Increase attributable to new investors...................... 3.09
-----
Pro forma net tangible book value per share after the
Offering..................................................... 3.09
------
Dilution to new investors..................................... $ 9.41
======
</TABLE>
The following table summarizes, with respect to existing holders of Common
Stock and new investors, a comparison of the number of shares of Common Stock
acquired from the Company, the percentage ownership of such shares, the total
consideration, the percentage of total consideration and the average price per
share.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
ACQUIRED TOTAL CONSIDERATION AVERAGE
---------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT (1) PERCENT PER SHARE
------------- ----------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
All existing
stockholders........... 5,200,001 72.2% $ 1,515,810 5.7% $ 0.29
New investors........... 2,000,000 27.8 25,000,000 94.3 12.50
------------- --------- ------------ -----
7,200,001 100.0% $ 26,515,810 100.0%
============= ========= ============ =====
</TABLE>
- --------
(1) Includes, with respect to the total consideration paid by all existing
stockholders, $15,810 paid by the original stockholders and $1,500,000
additional value resulting from the conversion of the SAND Note upon the
closing of the Offering.
The foregoing tables and calculations assume no exercise of outstanding
options or warrants. At September 16, 1996, 725,222 shares of Common Stock
were subject to outstanding warrants at a weighted average exercise price of
$11.72 per share and 155,000 shares of Common Stock were subject to
outstanding options at a weighted average exercise price of $10.00 per share.
To the extent options and warrants are exercised, there will be further
dilution to new investors. See "Description of Capital Stock."
21
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual short-term debt and
capitalization of the Company as of June 30, 1996, (ii) the pro forma short-
term debt and capitalization of the Company, giving effect to the acquisition
by the Company of SAND in exchange for the SAND Note and the conversion of the
SAND Note into 780,001 shares of Common Stock and (iii) the pro forma short-
term debt and capitalization of the Company as adjusted to give effect to the
sale of the 2,000,000 shares of Common Stock offered by the Company hereby (at
an assumed initial public offering price of $12.50 per share, after deducting
underwriting discounts and commissions and estimated offering expenses) and
the repayment of $732,989 of debt. See "Use of Proceeds." This table should be
read in conjunction with the Consolidated Financial Statements and related
notes contained therein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
---------- ---------- ------------
<S> <C> <C> <C>
Short-term debt........................... $ 732,989 $ 732,989 $ --
========== ========== ===========
Stockholders' equity (deficiency) (1):
Preferred Stock, $0.001 par value;
1,000,000 shares authorized;
no shares issued or outstanding......... $ -- $ -- $ --
Common Stock, $0.001 par value;
30,000,000 shares authorized; 4,420,000
shares issued and outstanding actual;
5,200,001 shares issued and outstanding
pro forma; 7,200,001 shares issued and
outstanding pro forma as adjusted....... 4,420 5,200 7,200
Additional paid-in capital............... 11,390 1,510,610 23,758,610
Accumulated deficit...................... (119,921) (1,469,921) (1,469,921)
Translation adjustments.................. (25,322) (25,322) (25,322)
---------- ---------- -----------
Total stockholders' equity (deficiency)... (129,433) 20,567 22,270,567
---------- ---------- -----------
Total capitalization.................... $ (129,433) $ 20,567 $22,270,567
========== ========== ===========
</TABLE>
- --------
(1) Excludes 1,080,000 shares of Common Stock available for issuance pursuant
to the 1996 Plan, of which 155,000 shares were subject to outstanding
options as of September 16, 1996 at a weighted average exercise price of
$10.00 per share. Also excludes 725,222 shares of Common Stock issuable
upon exercise of outstanding warrants as of September 16 at a weighted
average exercise price of $11.72 per share. See "Management--Stock Option
Plan."
22
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following selected historical and unaudited pro forma financial data
have been derived from the Company's consolidated financial statements. The
data should be read in conjunction with the Consolidated Financial Statements
and related notes thereto and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM FISCAL YEARS ENDED JUNE 30, (1)
SEPTEMBER 2, 1993 ----------------------------------
(INCEPTION) TO PRO FORMA
JUNE 30, 1994 1995 1996 1996 (2)
----------------- --------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues
Royalties from licensing
arrangements............ $ 10,977 $ 752,108 $1,291,015 $1,118,473
Development fees......... -- 88,800 585,743 585,743
Software sales........... -- 1,888 177,119 177,119
--------- --------- ---------- ----------
Total revenues........... 10,977 842,796 2,053,877 1,881,335
Cost of revenues.......... 211,712 655,939 738,842 738,842
--------- --------- ---------- ----------
Gross profit (loss)...... (200,735) 186,857 1,315,035 1,142,493
--------- --------- ---------- ----------
Operating expenses:
Sales and marketing...... 2,100 116,435 163,038 163,038
General and
administrative.......... 19,458 223,470 365,491 505,664
Research and
development............. 14,594 183,000 174,395 1,211,680
Depreciation............. 9,816 43,379 101,824 101,824
--------- --------- ---------- ----------
Total operating
expenses................ 45,968 566,284 804,748 1,982,206
--------- --------- ---------- ----------
Income (loss) from
operations............. (246,703) (379,427) 510,287 (839,713)
Other income (expense),
net...................... (2,777) (44,426) 43,125 43,125
--------- --------- ---------- ----------
Income (loss) before
income taxes........... (249,480) (423,853) 553,412 (796,588)
Provision for income
taxes.................... -- -- -- --
--------- --------- ---------- ----------
Net income (loss)....... $(249,480) $(423,853) $ 553,412 $ (796,588)
========= ========= ========== ==========
Net income (loss) per
share (3)................ $ (0.06) $ (0.10) $ 0.12 $ (0.15)
========= ========= ========== ==========
Common shares used in
computing net income
(loss) per
share (3)................ 4,420,000 4,424,420 4,473,040 5,330,158
========= ========= ========== ==========
<CAPTION>
JUNE 30,
----------------------------------------------------
PRO FORMA
1994 1995 1996 1996 (2)
----------------- --------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.............. $ 17,471 $ 49,283 $ 53,061 $ 53,061
Total current assets...... 17,471 55,669 717,474 717,474
Total assets.............. 68,509 227,567 915,746 1,065,746
Total current
liabilities.............. 306,200 874,519 1,045,179 1,045,179
Total stockholders' equity
(deficiency)............. (237,691) (646,952) (129,433) 20,567
</TABLE>
- -------
(1) The Company intends to change its fiscal year end from June 30 to December
31, effective December 31, 1996.
(2) Reflects the acquisition by the Company of SAND, including $150,000 for
the allocation of the purchase price to certain assets, in exchange for
the SAND Note as if such transaction had occurred on July 1, 1995 and the
conversion of the SAND Note into 780,001 shares of Common Stock upon the
closing of the Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Pro Forma Financial Data."
(3) See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of net income (loss) per share. Supplemental
earnings per share for the year ended June 30, 1996 was $0.08 per share.
The computations of supplemental earnings per share assumes the issuance
of the additional common shares contemplated by the Offering applied to
the Company's actual results of operations for the period. Also see
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Pro Forma Financial Data."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Brilliant is a production and development studio creating a new generation
of digital entertainment to be distributed over the Internet, on CD-ROM, as
television programming and for home video. The Company, headquartered in the
United States, was incorporated during July 1996. The Company has been formed
through the combination of two businesses: Brilliant Interactive Ideas, Pty.
Ltd. ("BII Australia"), an entertainment software developer and producer; and
Sega Australia New Developments ("SAND"), a "skunk works" research and
development operation for leading edge software tools. BII Australia became a
wholly-owned subsidiary of the Company through the exchange of all 100,000
outstanding shares of BII Australia for 1,000,000 shares of Common Stock of
the Company. In addition the Company has agreed to acquire all of the assets
of SAND. SAND was established during the second quarter of 1994 by Sega
Ozisoft Pty., Limited ("Sega Ozisoft"), one of the largest publishers and
distributors of entertainment software products in Australia and New Zealand,
the predecessor of which was co-founded by Mark Dyne and Kevin Bermeister.
The Company's historical operations discussed in this section reflect only
the operations of BII Australia. Since its founding in September 1993, BII
Australia has developed and sold interactive education and entertainment CD-
ROM titles primarily for children. With the completion of the acquisition of
SAND, the nature of the Company's business will change significantly. SAND was
responsible for developing the Multipath Movie suite of proprietary software
tools, production process and first Multipath Movie product. While the Company
will continue to produce traditional interactive CD-ROM titles, the Company
also plans to continue development of the Multipath Movie tools and production
process, as well as the commercialization of the Multipath Movie genre. As a
result of this change in the Company's business, the following discussion may
not be representative of its future operations. See "--Accounting Treatment
for Development Costs and Research Expenditures." The Company intends to
change its fiscal year end from June 30 to December 31, effective December 31,
1996.
The Company intends to generate a substantial majority of its future revenue
from the development and production of Multipath Movies and other three-
dimensional digitally created entertainment. The first of its Multipath
Movies, Cyberswine, is expected to be released in the fall of 1997. The first
product in the Storyteller Series is not expected to be released until late
1997. The Company's annual and quarterly revenue will depend upon the
successful development, timing and market acceptance of its interactive
products and upon the costs to distribute and promote these products.
Specifically the revenues derived from the production and distribution of the
Company's Multipath Movies will depend primarily on the acceptance by the
market of the Multipath Movie concept and the underlying content of the
Multipath Movie, neither of which can be predicted nor necessarily bear a
direct correlation to the production or distribution costs incurred. See "Risk
Factors--Acceptance of Multipath Movie Concept; Successful Development of
Movies with Appealing Creative Content," and "Risk Factors--Dependence on
Development of Additional Multipath Movies." The commercial success of a film
also depends upon promotion and marketing, production costs, impact of
competition and other factors. See "Risk Factors--Competition--Movie Studios
and Production Companies." Accordingly, the Company's annual and quarterly
revenues are and will be extremely difficult to forecast.
In the first quarter of fiscal year 1997, the Company will incur certain
charges and non-recurring expenses. In connection with the Company's
acquisition of SAND, expected by the Company to be consummated on or prior to
the effective date of the Offering, the Company expects to expense
approximately $1,350,000 attributable to in-process research and development.
Also, the Company recently has entered into strategic relationships with
Morgan Creek and Packard Bell NEC. The Company has issued to Packard Bell and
Morgan Creek warrants to purchase 600,000 and 85,000 shares of Common Stock,
respectively. See "Business--Strategic Relationships." The Company may enter
into additional strategic relationships pursuant to which the Company will
issue additional warrants. Issuance of the warrants to Packard Bell NEC and
Morgan Creek will result in a charge to earnings and a corresponding credit to
the equity account of the Company based on the value of the warrants issued,
determined as of the time of grant. The charge relating to the warrants issued
to Packard Bell NEC and Morgan Creek will be approximately $2,055,000.
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RESULTS OF OPERATIONS
Fiscal Year Ended June 30, 1996 as Compared to Fiscal Year Ended June 30,
1995
The Company experienced significant growth in fiscal year 1996. Contracts
with Packard Bell NEC and Ocean of America Inc. provided substantial revenues
in 1996, and the Company also entered into new agreements in 1996 to develop
software for other companies. In addition, the Company entered into new
marketing agreements for wider domestic and international sales of its
products. The Company's growth in 1996 resulted in increases in operating
expenses, although with the increased level of activity, the Company realized
certain operating efficiencies and economies of scale.
Revenues. The Company historically has derived its revenues from royalties,
development fees and software sales. Brilliant licenses its CD-ROM software
products to publishers and distributors in exchange for non-refundable
advances, and royalties based on product sales. Royalties based on product
sales are due only to the extent revenues exceed any associated non-refundable
royalty advance. Royalties related to non-refundable advances are recognized
when the CD-ROM master is delivered to the licensees. Royalty revenues in
excess of non-refundable advances are recognized upon notification by the
distributor that a royalty has been earned by the Company. Development fees
are paid by customers in exchange for the Company's development of software
packages in accordance with customer specifications. The software development
agreements generally specify certain "milestones" which must be achieved
throughout the development process. As these milestones are achieved, the
Company recognizes the portion of the development fee allocated to each
milestone. Software sales revenues are recognized upon shipment of product.
See Note 2 of Notes to Consolidated Financial Statements. Revenues increased
from $843,000 for the year ended June 30, 1995 to $2,054,000 for the year
ended June 30, 1996. This represents an increase of $1,211,000 or 144%.
Royalties increased by $539,000, attributable to a greater number of completed
software titles. Development fees increased by $497,000 as a result of more
software products being developed. Software sales revenues increased by
$175,000, also as a result of the greater number of completed titles.
Cost of Revenues. Cost of revenues related to royalties consists primarily
of royalty obligations to third parties. Cost of revenues related to
development fees consists primarily of salaries, benefits and overhead
associated with the development of specific software products to customer
specifications, as well as costs of outside contractors engaged from time to
time in creating aspects of software products such as animation, voice
recording and music. Cost of revenues related to software sales consists
primarily of royalties to third parties and the direct costs and manufacturing
overhead required to reproduce and package software products. Cost of revenues
increased from $656,000 for the year ended June 30, 1995 to $739,000 for the
year ended June 30, 1996. This represents an increase of $83,000 or 13%,
mainly attributable to a greater number of titles in development. Although
revenues almost doubled, costs of revenues increased only slightly. The
Company's gross profit margin increased from 22% in 1995 to 64% in 1996,
attributable to economies of scale and increased operating efficiencies.
Sales and marketing. Sales and marketing expenses include primarily costs
for advertising, promotions, brochures, travel and trade shows. Sales expenses
also include costs for marketing consultants hired primarily to support and
assist the Company's sales efforts. Sales and marketing expenses increased
from $116,000 for the year ended June 30, 1995 to $163,000 for the year ended
June 30, 1996. This represents an increase of $47,000 or 41%, attributable
primarily to increases in the Company's sales and marketing efforts.
General and administrative. General and administrative expenses include
primarily salaries and benefits of management and administrative personnel,
rent, insurance costs and professional fees. General and administrative
expenses increased from $223,000 from the year ended June 30, 1995 to $365,000
for the year ended June 30, 1996. This represents an increase of $142,000 or
64%, attributable primarily to increased staff and overhead to support the
higher level of production and sales activity.
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Research and development. Research and development expenses include
primarily salaries and benefits of personnel conducting research and
development for licensed software products. Research and development costs
also include costs associated with creating the Company's traditional CD-ROM
software tools. Research and development expenses decreased slightly from
$183,000 for the year ended June 30, 1995 to $174,000 for the year ended June
30, 1996. This represents a decrease of $9,000 or 5%. The decrease is due to
the fact that the Company incurred lower development expenses in 1996 to
enhance software tools that were developed in 1995.
Depreciation. Depreciation expense relates to depreciation of fixed assets
such as computer equipment and cabling, furniture and fixtures. These fixed
assets are depreciated over their estimated useful lives (up to three years)
using the straight-line method. Depreciation expense increased from $43,000
for the year ended June 30, 1995 to $102,000 for the year ended June 30, 1996.
This is due to increased computer equipment in place during 1996.
Other income and expense. Other income includes interest income and gains on
foreign exchange transactions. In fiscal year 1996, other income also includes
$122,000 which represents an export market development grant paid to BII
Australia by the Australian Trade Commission for BII Australia's participation
in certain export activities. Interest expense relates mainly to interest on
the Company's loan from PIE, a significant shareholder. Interest expense
increased from $45,000 for the year ended June 30, 1995 to $95,000 for the
year ended June 30, 1996. This represents an increase of $50,000 or 111%,
resulting from higher average outstanding borrowings from PIE in 1996 as
compared to 1995.
Pro Forma Financial Data
The pro forma financial data as of June 30, 1996 and for the fiscal year
then ended reflects the acquisition by the Company of SAND in exchange for a
$1,500,000 convertible promissory note. The purchase price has been allocated
between in-process research and development ($1,350,000) and other assets
($150,000). The costs determined to be in-process research and development
have been charged to research and development expenses for the period
presented. Transactions between the Company and SAND have been eliminated,
resulting in a reduction in revenues and research and development expenses of
$172,542. Upon consummation of the Offering, the note will be converted into
780,001 shares of Common Stock of the Company. As a result, the pro forma
financial data reflects an increase in stockholders' equity of $150,000. The
unaudited consolidated pro forma financial data may not represent the results
of operations or financial position which actually would have been obtained if
those transactions had been completed as of the date indicated or which may be
obtained in the future.
The Company will record the acquisition of SAND in accordance with the
accounting treatment described above. This will result in a charge to research
and development expenses of approximately $1,350,000 in the quarter ending
September 30, 1996.
The pro forma net loss per share is computed using the weighted average
number of shares of Common Stock outstanding including common equivalent
shares from stock options and warrants. Common equivalent shares issued during
the twelve-month period prior to the Offering at prices below the Offering
price have been included in the calculation as if they were outstanding for
the entire period.
Fiscal Year Ended June 30, 1995 as Compared to the Period from September 2,
1993 (inception) through June 30, 1994
The Company experienced significant growth in fiscal year 1995. The Company
completed development of six titles and commenced development of ten
additional titles in fiscal year 1995. The sales and marketing efforts of the
Company also increased in 1995 with the release of new products.
Revenues. Revenues increased from $11,000 for the period from September 2,
1993 through June 30, 1994 to $843,000 for the year ended June 30, 1995. The
Company's operations did not begin until March 1994, therefore no significant
revenues were recognized during the period from September 2, 1993 through June
30, 1994.
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Cost of Revenues. Cost of revenues increased from $212,000 for the period
from September 2, 1993 through June 30, 1994 to $656,000 for the year ended
June 30, 1995, primarily attributable to increased production activity. Any
gross profit comparison between the ten months ended June 30, 1994 and fiscal
year 1995 is not relevant due to partial year activity during 1994.
Sales and Marketing. Sales and marketing expenses increased from $2,000 for
the period from September 2, 1993 through June 30, 1994 to $116,000 for the
year ended June 30, 1995, attributable primarily to the general growth of the
Company and an increased sales and marketing effort.
General and Administrative. General and administrative expenses increased
from $19,000 from the period from September 2, 1993 through June 30, 1994 to
$223,000 for the year ended June 30, 1995, attributable primarily to increased
staff and overhead to support the increased production and sales activity of
the Company.
Research and Development. Research and development expenses increased from
$15,000 for the period from September 2, 1993 through June 30, 1994 to
$183,000 for the year ended June 30, 1995, primarily attributable to the
Company's increased research and development efforts relating to its
traditional CD-ROM software tools in 1995.
Depreciation. Depreciation expense increased from $10,000 for the period
from September 2, 1993 through June 30, 1994 to $43,000 for the year ended
June 30, 1995. This increase is due to significant purchases of computer
equipment in 1995.
Other Income and Expense. Interest expense increased from $3,000 for the
period from September 2, 1993 through June 30, 1994 to $45,000 for the year
ended June 30, 1995, attributable primarily to higher average outstanding
borrowings from PIE in 1995 as compared to 1994.
FLUCTUATING OPERATING RESULTS
The Company's expense levels are based in part on expectations regarding
future revenues and are, to a large extent, fixed. The Company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. As a result, any significant shortfall in revenue from the
Company's Multipath Movies in relation to the Company's expectations would
have an immediate material adverse effect on the Company's business, operating
results and financial condition. The Company plans to increase its operating
expenses to fund greater levels of Multipath Movie and traditional CD-ROM
development, research and development, increased marketing operations and
expansion of its distribution channels. To the extent that such expenses
precede or are not subsequently followed by increased revenues, the Company's
business, operating results and financial condition will be materially
adversely affected.
Historically, the Company has experienced significant fluctuations in its
operating results from quarter to quarter and it expects these fluctuations to
continue in the future. Factors that may influence the Company's quarterly
operating results include customer demand for the Company's products,
introduction or enhancement of products by the Company and its competitors,
the timing of releases of new products or product enhancements by the Company
and its competitors, introduction or availability of new hardware, market
acceptance of the Multipath Movies and other new products, development and
promotional expenses relating to the introduction of new products or
enhancements of existing products, reviews in the industry press concerning
the products of the Company or its competitors, changes or anticipated changes
in pricing by the Company or its competitors, mix of distribution channels
through which products are sold, mix of products sold, product returns, the
timing of orders from major customers, order cancellations, delays in shipment
and other developments and decisions including the timing and extent of
development expenditures, management's evaluation and judgement regarding a
title's acceptance, other unanticipated operating expenses and general
economic conditions. Additionally, a majority of the unit sales for a product
typically occurs in the quarter in which the product is introduced. As a
result, the Company's revenues may increase significantly in a quarter in
which a major product introduction occurs and may decline in following
quarters. The Company's revenues both domestically and internationally
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have varied significantly between monthly and quarterly periods. Therefore, in
the future, the operating results for any quarter should not be taken as
indicative of the results for any quarter in subsequent periods.
The entertainment software business is highly seasonal. Typically, net
revenues are highest during the fourth calendar quarter (which includes the
holiday buying season), decline in the first calendar quarter and are lowest
in the second and third calendar quarters. This seasonal pattern is due
primarily to the increased demand for entertainment software products during
the year-end holiday buying season. As a result, a disproportionate share of
the Company's net revenues historically have been generated in the second
quarter of the Company's fiscal year. The Company expects its revenues and
operating results will continue to reflect these seasonal factors.
The entertainment industry historically has been subject to substantial
cyclical variation, with consumer spending for entertainment products tending
to decline during recessionary periods. There can be no assurance that the
Company will be able to adjust its anticipated product development
expenditures and other expenses in the event of an economic downturn during
such development. Accordingly, if a recessionary period occurs, tending to
result in decreased sales of the Company's products, product development
expenses likely will remain constant and the Company's business, operating
results and financial condition could be adversely affected. See "Risk
Factors--Rapid Technological Change; Changing Product Platforms and Formats."
ACCOUNTING TREATMENT FOR DEVELOPMENT COSTS AND RESEARCH EXPENDITURES
The Company's current accounting policy follows Statement of Financial
Accounting Standards No. 86, which provides for the capitalization of certain
software development costs once technological feasibility is established. The
capitalized costs are then amortized on a straight-line basis over the
estimated product life or on a ratio of current revenues to total projected
product revenues, whichever results in the greater amortization amount. Prior
to the establishment of technological feasibility, these costs are expensed as
incurred. In the future, if the Company incurs costs to develop digital
entertainment products for distribution as home video features or television
programming, such discrete costs may be capitalized and amortized in the
proportion that gross revenues realized bear to management's estimate of the
total gross revenues expected to be received, in accordance with Statement of
Financial Accounting Standards No. 53, "Financial Reporting by Producers and
Distributors of Motion Picture Films."
Equipment and other assets purchased exclusively for use in the Company's
research and development efforts are charged directly to research and
development expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed a substantial part of its operations through loans
from a significant shareholder, PIE. PIE has provided loans to the Company of
approximately $126,000, $1,021,000 and $744,000 during 1994, 1995 and 1996,
respectively. In 1995 and 1996, the Company repaid $541,000 and $680,000,
respectively. As of June 30, 1996, $670,000 remains due and payable, including
accrued interest.
Net cash used in operating activities during each of 1994 and 1995 was
primarily attributable to a net loss. Net cash provided by operating
activities in the year ended June 30, 1996 was primarily attributable to net
income resulting from development fees of $586,000 and royalties of
$1,291,000. Net cash used in investing activities in each of 1994, 1995 and
1996 was due primarily to the purchase of computer equipment. Cash flows
provided by financing activities in each of 1994, 1995 and 1996 were primarily
attributable to the cash infusions from PIE pursuant to a loan agreement dated
October 24, 1994.
As of June 30, 1996, the Company's material commitments consisted of the
$670,000 payable to PIE. The note payable to PIE bears interest at a rate of
12.5% per annum. The due date of the note is the earlier of the closing of the
Offering or December 31, 1996. The Company expects to use a portion of the net
proceeds from the Offering to repay the note in full.
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The Company also has an advance from a customer for software development of
$213,000, which is to be repaid from proceeds from the sales of the completed
software. See Note 5 of the Notes to Consolidated Financial Statements.
In September 1996, the Company executed a promissory note in favor of
Reefknot in the principal amount of $150,000 to fund certain costs in
connection with the Offering. The note bears interest at the rate of 10% per
annum and is due and payable on the earlier of the closing of the Offering or
September 10, 1997.
Pursuant to the SAND Acquisition Agreement, Sega Ozisoft has agreed to fund
certain development expenses of the Company prior to the closing of the
Offering; and the Company has agreed to reimburse Sega Ozisoft from the
proceeds of the Offering for all expenses advanced by Sega Ozisoft for any
period after October 31, 1996, and all expenses in excess of $59,175 per month
advanced by Sega Ozisoft for August, September and October of 1996. See
"Certain Relationships and Related Transactions."
The Company believes that the net proceeds from the Offering combined with
the Company's current resources will be sufficient to enable the Company to
meet its operating and capital needs as required by its present business plan
for approximately 18 months.
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BUSINESS
GENERAL
Brilliant is a production and development studio creating a new generation
of digital entertainment to be distributed over the Internet, on CD-ROM, as
television programming and for home video. Using its proprietary, state-of-
the-art software tools, the Company is developing Multipath Movies which are
three-dimensional digitally animated stories, each with hundreds of plot
alternatives, or paths, leading to multiple distinct conclusions that are
influenced by the user. The Company has the ability to produce Multipath
Movies with seamless interactivity where the plot and graphics are
uninterrupted by the user's decisions. Furthermore, the Company believes that
its studio can produce a Multipath Movie in multiple formats in a single cost-
efficient production process. The Company is developing a system that will
permit real time distribution of, and user interaction with, its Multipath
Movies over the Internet. Under a three-year marketing agreement, the Company
intends to launch Internet distribution of the Multipath Movie through Packard
Bell NEC's Planet Oasis World Wide Web site by bundling Internet-enabled CD-
ROMs on up to six million PCs shipped by Packard Bell NEC. Through additional
strategic relationships, the Company has secured quality content for its
Multipath Movies from a number of proven sources such as Morgan Creek
Productions, Crawford Productions and Bantam Doubleday Dell Books.
The Company's Multipath Movies are designed to combine the best qualities of
traditional filmed entertainment--story and plot, with the best of the
traditional computer game--its interactivity. The Company's Multipath Movies
are designed to appeal to the entire home PC and game console markets,
including both the core gamer and the much larger segment of PC users not
currently served by traditional game developers. The Company plans to produce
a variety of Multipath Movies tailored to various demographic groups, such as
comedies, adventures, romances, science fiction stories and children's
stories. In order to produce digital entertainment products with wide appeal,
the Company has developed a number of features that it believes represent
significant technical enhancements over existing digital entertainment. For
example, animated characters created using the Company's tools appear human-
like and have realistic features, facial expressions and mouth movements.
Multipath Movies also allow users to control characters' moods. In addition, a
typical Multipath Movie will encourage viewers to influence or interact with
the story on average every 30 to 45 seconds, without interrupting the flow of
the story or its graphical presentation. The Company intends to release its
first Multipath Movie, Cyberswine, in the fall of 1997 through its
distribution arrangement with Packard Bell NEC. The Company also is developing
the Storyteller Series of Multipath Movies in which an animated Storyteller
will narrate engaging interactive stories targeted at children eight to twelve
years of age. The Storyteller Series will be based upon existing published
children's fiction books and original scripts, such as Bantam Doubleday Dell
Books' popular Choose Your Own Adventure series.
The Company plans to release certain of its Multipath Movies in non-
interactive format as television broadcast/cable programming and home video
features. The Company intends to segment such Multipath Movies into three 30-
minute episodes and, by packaging together thirteen episodes, can create a
season-length series for the broadcast market. Similarly, the Company intends
to produce 90- to 120-minute animated features for the home video market. The
Company believes that it can produce Multipath Movies for television
programming and home video features at costs substantially below typical
industry costs. The Company has entered into a production joint venture with
Crawford Productions, an Australian television production company, through
which the Company and Crawford Productions will jointly develop and distribute
broadcast and cable versions of two Multipath Movie scripts in the United
States and internationally.
The Company develops Multipath Movies in a single process utilizing its
proprietary software tools in conjunction with the Company's digital
production and layup skills. The Company has four proprietary software tools:
(i) ScripNav, a software tool that enables a script writer to write, review
and correct branching multipath scripts; (ii) LipSync, a software tool used to
synchronize facial expressions and mouth movements to voice soundtracks
automatically; (iii) SCuD Engine, a software system which collects and
integrates the output from all of the component tools to produce the Multipath
Movie; and (iv) DigitalProjector, the tool that contains all
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the necessary elements to load and play a Multipath Movie. Utilizing its
proprietary software tools, the Company can produce multiple formats from each
title in a single cost-efficient production process, enabling the Company to
amortize its production costs across the revenue streams from each format. In
addition, the Company's LipSync tool allows for low-cost modification of
Multipath Movies to other languages without the awkward appearance of dubbed
movies. The Company's proprietary software tools and production process are
designed to emulate traditional film writing and production techniques and
allow screenwriters, directors and producers to develop Multipath Movies
without any detailed knowledge of computer programming or significant
assistance from expensive programming teams. As an example, the Company has
entered into an agreement through which Morgan Creek Productions will provide
the Company certain creative, direction and film development assistance on two
motion picture scripts. The Company believes that the utilization of existing
entertainment resources will enable it to generate high-quality digital
entertainment at a low cost.
In addition to developing a new genre of multipath entertainment, the
Company produces and sells interactive CD-ROM titles primarily for children,
including the KidStory Series. Examples of its titles include Flipper and The
Yukadoos, which received a 1996 Newsweek Editor's Choice Award. The Company
has licensed the rights to over 40 additional books for development of
KidStory Series products. In addition, the Company recently acquired the
interactive CD-ROM rights to the Popeye characters. The KidStory Series is a
profitable value-for-price product category that is not dependent upon the
production of hit titles.
THE DIGITAL ENTERTAINMENT MARKET
Digital entertainment combines the best elements of filmed entertainment,
creative artistry and engaging plotlines, in a multimedia format complete with
high-quality stereo sound, graphics and animation to produce a realistic
experience. Digital entertainment is created, stored and can be distributed
electronically. Examples of current digital entertainment products include
high-end computer games, virtual reality attractions, and computer-animated
television programs and feature films. Traditionally, digital entertainment
has been distributed on CD-ROM and game console cartridges. Leading edge
digital entertainment products are now also being released online to
capitalize on the tremendous current interest in the Internet and the World
Wide Web. In addition, digital entertainment products have recently been
released as broadcast television and cable programming, home videos, and even
full length feature movies, although on a limited basis.
TECHNOLOGY AND DIGITAL ENTERTAINMENT
The market for digital entertainment evolved and has grown dramatically with
the increasing proliferation and sophistication of personal computers and game
playing consoles, and with the widespread use of the Internet. Sales of
personal computers to home users have increased in recent years as a result of
declining prices and increased functionality of PCs. The number of multimedia
PCs used in homes worldwide is expected to grow from 40 million in 1996 to 67
million in 2000. These enhanced processing, graphics, sound, storage and
transmission capabilities have enabled PC users to more easily operate
multimedia software and digital entertainment products. A large market has
also developed for interactive digital entertainment on a new generation of
32- and 64-bit game consoles, including the Sega Saturn and Sony Playstation,
with advanced technical capabilities previously available only on PCs. In
addition, technological advances have enabled millions of consumers and
businesses to utilize the Internet, particularly the World Wide Web. Dataquest
estimates that the worldwide Internet population of individual consumers will
grow from approximately 10 million subscribers in 1995 to approximately 170
million in 1999. Widespread use of the Internet has become possible with
technological improvements in data transmission, such as the development of
more powerful data servers and faster modems.
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The Company believes that the demand for digital entertainment will continue
to grow given the increasing multimedia capability of today's PCs and game
consoles, the growing popularity of the Internet and the expected improvements
in accessing the Internet. Despite the technological advances that have been
made in producing, processing and delivering digital entertainment, the
Company believes that the consumer will expect digital entertainment products
to have increasingly sophisticated features, including more realistic graphics
and special effects, user control of more complicated or subtle character
movements and real time interactivity.
Brilliant's Technological Advantages. The Company believes that its
technological capabilities will position the Company as a leader in producing
digital entertainment that appeals to the growing expectations of consumers.
Utilizing proprietary software tools, the Company is developing Multipath
Movies with features that it believes represent significant technical
enhancements over existing digital entertainment. For example, animated
characters created using the Company's tools appear human-like and have
realistic features, facial expressions and mouth movements. Multipath Movies
will also allow users to control characters' moods and actions. In addition,
the Company is developing a system that will enable users to interact in real
time with its digital entertainment products over the Internet.
THE COST OF DIGITAL ENTERTAINMENT
Advances in technology have dramatically improved the ability to produce
digital entertainment, but have also driven up the overall cost of producing
interactive games and other forms of digital entertainment. Competitive
pressures to produce differentiated product has increased due to the
proliferation of game cartridges and CD-ROM entertainment titles. The demand
for continuing product enhancements and differentiation has caused digital
entertainment producers to rely heavily upon scarce and expensive teams of
talented programmers. To produce interactive plot-driven digital entertainment
using currently available techniques, a programming team is critical
throughout the development process to integrate plot, graphic and sound
elements and to control the flow of the action. Although the costs of
programming are less significant in the development of products with simple
plots and a few pages of script, such as arcade style games, programming costs
can become prohibitively expensive for the complex, script-intensive products
that are increasingly demanded by consumers.
Brilliant's Cost Advantages. The Company believes that its proprietary
software tools and object-oriented production process will enable the Company
to avoid much of the high programming cost associated with the development of
complex, interactive scripts. The Company intends to utilize existing
entertainment industry resources rather than expensive programmers to generate
high-quality digital entertainment at a low cost. The Company believes that
its proprietary software tools and processes will allow screenwriters,
directors and producers to develop Multipath Movies without any detailed
knowledge of computer programming or significant assistance from expensive
programming teams. The Company also intends to utilize the entertainment
industry as a primary resource for scripts. As an example, the Company has
entered into an agreement through which Morgan Creek Productions will provide
the Company with certain creative, direction and film development assistance
on two Multipath Movie scripts to be released in CD-ROM and via the Internet.
In addition, the Company believes that it will be able to utilize a single
script and one production process to produce digital interactive entertainment
that can be delivered in multiple formats, such as CD-ROM, the Internet,
television broadcast/cable programming and home video features. Consequently,
the Company will be able to amortize its production costs across a number of
revenue streams. The Company believes that its ability to manage production
budgets is in part due to its lower operating costs in Australia as compared
to the United States.
THE UNDERSERVED PC MARKET FOR DIGITAL ENTERTAINMENT
The Company believes that there is a significant segment of the home PC user
population that currently does not use interactive PC-based entertainment
products. Much of PC-based and game console digital entertainment to date has
been developed for the dedicated computer game player, typically an eight to
21 year-old male with substantial free time and spending money. Traditional
developers of computer games have continually enhanced and improved the game
playing experience by adding complexity, graphics and other features to their
games in order to keep the core gamer interested. The typical PC user,
however, is frustrated by
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the difficulty of many computer games and the amount of scarce leisure time
that is required to complete the experience. A well conceived game has also
been expensive to produce, causing retail price points to be high relative to
competing entertainment products. As a result of the industry focus on the
limited core gamer segment, the fundamentals of interactive multimedia have
remained relatively static over the past decade and have been centered on game
design characterized by arcade, adventure, role playing, strategy and
simulation themes. Although the installed base of game consoles and multimedia
PCs is growing, the penetration rate of a typical game product remains
relatively low.
Brilliant's Broad Target Market. The Company's digital entertainment
products are designed to appeal to the entire home PC and game console
markets, including both the core gamer and the much larger segment of PC users
not currently served by traditional game developers. The Company's Multipath
Movie represents a new genre of interactive digital entertainment that can be
experienced in less than two hours and will utilize content intended to appeal
to a wider audience than the traditional gamer. The Company plans to produce a
variety of Multipath Movie titles tailored to various demographic groups, such
as comedies, adventures, science fiction stories and children's stories.
DIGITAL ENTERTAINMENT FOR TELEVISION BROADCAST/CABLE AND HOME VIDEO
The television and cable programming industries generally are highly
speculative and involve a substantial degree of development risk. The success
of an individual television or cable series depends upon unpredictable and
changing factors, such as public tastes, viewer preferences and the
availability of other activities competing for consumers' leisure time, all of
which create substantial risks that development costs for any particular
program may not be recouped. Additionally, while the risks associated with
television and cable programming are high, the costs to develop any individual
series are also high. Due to the industry's continuing dependence upon large
production crews and high-cost, on-screen talent, production costs continue to
rise rapidly. At the same time, however, demand for well-priced broadcast,
cable television and home video content remains strong as a result of the
increasing number of available broadcast and cable channels, the strong
international interest in American-based content and delivery of television
and cable into emerging markets. In addition, recently enacted federal
legislation requires broadcasters to offer children's programming for at least
three hours per week. Although an increasing number of digitally animated
broadcast programs have achieved commercial acceptance and success, the
Company believes that a lack of technical capability has prevented the motion
picture industry from producing commercially viable plot-based interactive
digital entertainment on a broader scale.
Brilliant's Products for the Television Broadcast/Cable and Home Video
Markets. The Company believes that the strong demand for television
programming and home video features will provide a ready market for the low-
cost, animated digital entertainment that the Company plans to produce.
Utilizing its proprietary tools, the Company is able to produce digital
entertainment suitable for television and home video, as well as distribution
on CD-ROM and over the Internet, in one integrated production process. This
enables the Company to amortize its production costs across a number of
revenue streams. Accordingly, the incremental costs allocated to the
production of television programming and home video features will be
substantially below typical industry costs. The Company has entered into a
production joint venture with Crawford Productions, an Australian television
and motion picture production company, through which the Company and Crawford
Productions will jointly develop two Multipath Movies for distribution as
broadcast and cable programming scripts.
BUSINESS STRATEGY
The Company's objective is to become a leading producer of animated digital
entertainment by utilizing its proprietary technology base, strategic
relationships and experienced management team. Specific elements of the
Company's strategy are to: (i) address market opportunities with a new genre
of digital entertainment; (ii) leverage the Company's proprietary software
development capabilities to produce low-cost, high-value, digital
entertainment products in multiple formats; (iii) utilize the existing
entertainment industry talent base for content development; (iv) maintain a
strong in-house research and development program; and (v) leverage
management's experience and continue building strategic relationships within
the entertainment and computer software industries.
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ADDRESS MARKET OPPORTUNITIES WITH THE MULTIPATH MOVIE--A NEW GENRE OF
DIGITAL ENTERTAINMENT
The Company believes that its Multipath Movies will have wide appeal to the
PC user and also serve as television broadcast/cable programming and home
video features. The Company is designing its Multipath Movies to capitalize on
underserved segments of the home PC market with stories that can be
experienced in less than two hours and utilize content intended to appeal to a
wider audience than the traditional gamer. The Company plans to produce a
variety of Multipath Movies tailored for various demographic groups, including
comedies, adventures, romances, science fiction stories and children's
stories. Through its integrated production process for Multipath Movies, the
Company has the ability to produce three 30-minute episodes for the
broadcast/cable television market and a 90- to 120-minute animated feature for
the home video market. The Company believes that its low-cost integrated
production process will enable the Company to offer broadcast/cable television
programming and home video features at attractive prices.
LEVERAGE PROPRIETARY SOFTWARE TOOLS AND PRODUCTION CAPABILITIES TO DEVELOP
LOW-COST, HIGH-VALUE, DIGITAL ENTERTAINMENT PRODUCTS IN MULTIPLE FORMATS
The Company intends to maximize the product output of each Multipath Movie.
Utilizing its proprietary software tools and object-oriented production
process, the Company believes that it can produce Multipath Movies in multiple
delivery formats, including CD-ROM, the Internet, television broadcast/cable
programming and home video. By managing the specific sound, graphics, layup
and other production elements associated with each format on an integrated
basis from the beginning, the Company can produce multiple formats from each
title during one production process. This enables the Company to amortize its
production costs across the revenue stream associated with each format.
Consequently, the Company believes that it will be able to offer high-quality
digital entertainment at competitive prices. In addition, the Company's
proprietary lip synchronization software tool allows for low-cost modificaton
of the Multipath Movies to any language without the awkward appearance of
dubbed movies. The Company also believes that its proprietary software tools
and object-oriented production process enable it to inexpensively develop
digital entertainment content that is readily adaptable for a variety of
different hardware platforms, such as the PC and Sega Saturn game console.
Accordingly, the Company expects to have greater flexibility in
commercializing its products without being constrained by consumer platform
choices.
UTILIZE THE EXISTING ENTERTAINMENT INDUSTRY TALENT BASE FOR CONTENT
DEVELOPMENT
The Company has designed its proprietary software tools and object-oriented
production process with the objective of emulating traditional film writing
and production techniques. In addition to being in greater supply, and
therefore, often available at lower cost than typical game programmers,
entertainment industry professionals possess the creativity, maturity and
experience needed to produce plot-based interactive entertainment. The Company
believes that its technology will allow screenwriters, directors and producers
retained by the Company to develop Multipath Movies without any detailed
knowledge of computer programming or significant assistance from expensive
programming teams.
MAINTAIN A STRONG IN-HOUSE RESEARCH AND DEVELOPMENT PROGRAM
The Company intends to maintain its strong in-house technology development
programs in order to be on the leading edge of technologies for the production
and delivery of digital entertainment. The Company has a core group of
software tool developers in Australia exclusively dedicated to continually
enhancing existing and developing additional software tools and their
applications, and intends to build upon this base with a continued investment
in research and development. The Company anticipates that online distribution
will become increasingly important in the digital entertainment industry as
faster modems and other new technologies improve online access and decrease
latency or "lag time." An important element of the Company's strategy is to
continue to adjust to changing technological conditions to stay at the
forefront of content delivery.
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LEVERAGE MANAGEMENT'S EXPERIENCE AND CONTINUE BUILDING STRATEGIC
RELATIONSHIPS WITHIN THE ENTERTAINMENT AND COMPUTER SOFTWARE INDUSTRIES
The Company's management team has built and operated a number of successful
businesses in industries that are strategically related to developing digital
entertainment, including PC sales, CD-ROM publishing, and entertainment
software development. Over the past 14 years, the Company's management team
has developed a broad range of relationships with content developers, game
console manufacturers, motion picture production companies, film and
television distributors and software distributors. Management has capitalized
upon these relationships by forming strategic arrangements with Packard Bell
NEC, Morgan Creek Productions and Crawford Productions. See "Strategic
Relationships." The Company believes that these arrangements will provide the
Company with significant content development and distribution advantages.
PRODUCTS
Utilizing its proprietary, state-of-the-art software development tools, the
Company is developing a new genre of digital entertainment, the Multipath
Movie. In addition to developing Multipath Movies, the Company produces and
sells traditional interactive CD-ROM titles primarily for children.
ANIMATED DIGITAL MULTIPATH MOVIES
The Company's Multipath Movies combine the best qualities of traditional
filmed entertainment--story and plot, with the best of the traditional
computer game--its interactivity. The Multipath Movie is a three-dimensional,
digitally animated story with many plot alternatives, or paths, that are
influenced by user interaction throughout the story. The Company is targeting
a larger market than users of traditional computer games for its Multipath
Movie products; Multipath Movies will be less than two hours long so that
users can enjoy them within a single sitting and will utilize content that is
designed to appeal to a wide variety of audiences.
The Multipath Movie is unlike any other entertainment product known to the
Company. In contrast to existing compressed video interactive movies, the
action of a Multipath Movie does not stop while a user makes decisions. A
user's decisions are implemented seamlessly because the Company's proprietary
DigitalProjector that plays the movie on the screen has the technical ability
to form and manipulate streams of complex three-dimensional animated images in
real time sequentially for the duration of the movie. A Multipath Movie
provides the user with hundreds of plot branches leading to a number of
different conclusions. Users interact with Multipath Movies by responding with
a mouse, joystick, keyboard or remote control device to prompts that
manipulate the moods and personality profiles of the main characters, which in
turn produce new plot directions and story lines. A typical Multipath Movie
will prompt users for a decision approximately every 30 to 45 seconds. The
opening scenes of each Multipath Movie, however, will require limited
interaction, which is intended to introduce users to the story in a manner
that builds user empathy with the lead characters and teaches the user how to
interact with the Multipath Movie. Further into the Multipath Movie, the level
of prompted interactivity will increase and prompts are designed to become
less direct and more intuitive. Users' responses to prompts determine a
character's actions and affect the character's "mood," thereby influencing its
future decisions. If the user elects not to respond at any given prompt, the
collective impact of the user's previous responses on the character's mood
will drive subsequent branching decisions. For instance, if a user elects
aggressive options in response to prompts, subsequent branching decisions will
be made automatically as if an aggressive response was given by the user.
The Multipath Movie will allow the user to jump forward or reverse to
previously viewed scenes and will allow the user, if desired, to select a
different decision path. The user can view the Multipath Movie from the
perspective chosen by the director or elect an almost infinite number of
alternative camera angles. The user can also control camera angles to search
for information or clues that might prove valuable in later scenes. In
addition, users or their parents can select an appropriate age rating (such as
"G," "PG," or "R") and thereby limit certain camera angles or scenes.
Multipath Movies can also include a feature enabling more than one user to
interact with its characters of the Multipath Movie.
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The Company's first Multipath Movie in development is called "Cyberswine,"
which is based on an Australian science fiction comic strip series. The
Company currently intends to release Cyberswine in the fall of 1997 through a
bundling relationship with Packard Bell NEC. Packard Bell NEC has agreed to
"bundle" Multipath Movies on up to a total of six million of its multimedia
equipped computers shipped over a three-year period. See "--Strategic
Relationships." By releasing Cyberswine through Packard Bell NEC, the Company
believes it will generate broad market exposure to the Multipath Movie format.
The Company has certain royalty obligations on revenues derived from
Cyberswine. See "Certain Transactions."
Although the Company's first Multipath Movie is an action-oriented science
fiction drama, the Company plans to produce additional Multipath Movies, such
as comedies, adventures, romances, science fiction stories and children's
stories, in order to appeal to a wide variety of audiences. The Company
intends to release additional titles during late 1997 following the bundled
introduction of the Company's first Multipath Movie title through Packard Bell
NEC. The Company is considering various scripts to be used as the basis of its
late 1997 product introduction and marketing campaign. The Company has content
agreements with Morgan Creek Productions and Crawford Productions of Australia
to provide the Company with scripts for additional Multipath Movies. See "--
Strategic Relationships."
The Company is also developing the Storyteller Series, which is a series of
Multipath Movies targeting children eight to twelve years of age. The
Storyteller Series will feature an animated Storyteller that will "morph" and
undergo voice changes appropriate to the story line and script of each
Storyteller title. The Storyteller Series will be based upon published
children's books and original stories. The Company has secured from Bantam
options to acquire exclusive rights to develop interactive products based upon
Bantam's popular children's series, Choose Your Own Adventure, currently
comprised of over 150 titles, and Choose Your Own Nightmare, currently
comprised of 15 titles. See "--Strategic Relationships." Each of these book
series is written in a branching format, in which the reader will skip to
different pages or chapters of the book depending upon responses to questions
posed in the story. Because of the branching nature of the Choose Your Own
Adventure and Choose Your Own Nightmare series, the Company believes that
these stories are ideally suited to the multipath format of the Storyteller
Series. The Company anticipates introducing the Storyteller Series in late
1997. The Company believes that it will be able to obtain additional high-
quality, suitably-priced children's fiction for the continued development of
Storyteller Series titles.
The Company plans to release Multipath Movies in the following formats:
CD-ROM Titles. The Company intends to produce each Multipath Movie in
traditional CD-ROM format for use on personal computers and game consoles.
CD-ROM Titles with Online Capability. The Company is developing a system
that will enable users to interact in real time with Multipath Movies over the
Internet through various online delivery systems. To date, low data
transmission rates have precluded real-time video viewing of digital
entertainment over the Internet. The Company's system involves producing a CD-
ROM, which consumers would buy at retail locations or receive bundled with
hardware as in the Packard Bell NEC arrangement, containing a preview or first
episode of a Multipath Movie series. The CD-ROM would also contain the
architecture necessary for accessing the Internet and future episodes of the
series would be purchased and downloaded over the Internet. The CD-ROM will
also contain most of the data necessary for viewing the Multipath Movie and
future online sequels, including a library of characters, scenes, graphics,
sound and other components. Accordingly, a low-bit rate data stream can be
delivered via the Internet to provide the animation and storyline for future
episodes.
Television Broadcast/Cable Programming and Home Video. The Company also
plans to release certain of its Multipath Movie titles, in non-interactive
format, as television broadcast/cable programming and as home videos. The
Company intends to segment such Multipath Movies into three episodes for sale
into the 30-minute broadcast and cable series market. By packaging together
thirteen episodes, the Company can create a season-length series. Similarly,
the Company plans to produce features from certain Multipath Movies by
selecting a predetermined plot ending and to market these 90-to 120-minute
features to home video publishers.
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TRADITIONAL CD-ROM PRODUCTS
In addition to developing Multipath Movies, the Company currently develops
and sells interactive CD-ROM titles primarily for children, including the
KidStory Series, and a number of other titles based on licensed characters or
content.
KidStory Series titles are aimed at young learners between the ages of three
and seven. These interactive stories are designed to help children develop
good motor and coordination skills, cognitive skills and reading and spelling
skills. Children can either have a Kidstory Series title read to them or move
through the story at their own pace. Each title also features a series of
games and activities, such as spelling bee; print, color and create pages;
annotation pages providing factual and educational information; "spot the
difference" puzzles in which the child must differentiate images; jigsaws;
memory games; and hidden word games. This series includes The Yukadoos, which
received a 1996 Newsweek Editor's Choice Award. The Company has licensed the
rights to over 40 additional books for development of KidStory Series
products.
In addition to the KidStory Series, the Company has produced a number of CD-
ROM titles on a contract basis, including Flipper, based on the MCA Universal
film and 1960s television show; Dream Machines and Designers, based on the
award winning Beyond 2000 television series; 101 Ways to Save the Planet, also
based on the Beyond 2000 Series; and the Craftpax Series. The Flipper CD-ROM
title includes various interactive games and activities. The Beyond 2000
Series is based upon the Beyond 2000 weekly television infotainment program
made in Australia and viewed worldwide, including on the Discovery Channel in
the United States. The Craftpax Series is a unique and informative collection
providing children with simple but detailed instructions for a wide range of
craft activities. In addition, the Company recently acquired the interactive
CD-ROM rights to Popeye.
The Company's traditional CD-ROM products are developed on a value-for-price
model, which does not rely upon the production of hit titles. The Company's
strategy is to provide distributors and retailers with products that deliver
high value relative to cost and sell well at the retail level. The Company
believes that its profitability on traditional CD-ROM products is a result of
this value-for-price strategy.
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THE PRODUCTION OF MULTIPATH MOVIES
THE MULTIPATH MOVIE PRODUCTION PROCESS
The production process for Multipath Movies consists of eight phases:
scripting, creative design, voice and sound, model and world building,
texturing and lighting, blocking/camera editing, special effects animation and
the generation of rendered output.
Rectangular box listing sequentially the following phrases: Scripting,
Creative Design, Voice Sound, Model/World Building, Texturing Lighting,
Blocking Camera Editing, Special Effects Animation and Rendered Output.
Overlayed on each phrase is the number of each item in the sequence.
Scripting Scripting is the process in which the story and
its characters are created and developed. The
scripting process includes generating the story
concept, completing its treatment and outline
and final delivery.
Creative Design Creative Design includes conceptualizing and
designing the look, feel and style of the
title; also includes sketching characters,
wardrobes, props and sets.
Voice and Sound The Voice and Sound phase includes recording
voices for the characters and developing and
recording the musical score and sound effects.
Model and World Building Model Building involves creating digitized
models of each character by defining their
shapes in three dimensions (height, width and
depth) and by adding animation control points
through various techniques that allow the model
to be moved or animated. World Building is
similar to model building except that it
involves environments and sets rather than
characters.
Texturing and Lighting Texturing is the process of adding
characteristics such as pattern, texture,
finish and color to the "world" and its models.
Lighting is also added during this process.
Blocking, Camera and Editing
In Blocking, the models are animated, or
"brought to life," in three dimensions to
create a motion sequence. Blocking is performed
by defining the points in a "world" around
which a particular character will move. Once
the character's movements are blocked, cameras
are positioned in virtual space and the action
is captured using traditional camera
techniques. The director can view each scene
immediately following this process and edit by
adjusting the cameras and action.
Special Effects Animation
In this phase, any necessary special effects
are added, which may include special sound or
visual effects.
Rendered Output All of the data for script, sound, graphics and
special instructions generated by ScripNav,
LipSync and SCuD Engine are gathered by
DigitalProjector and played in sequential order
to output the Multipath Movie in either real
time or frame by frame depending upon the
output format required.
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The production of a Multipath Movie is very similar to the production of a
traditional film. Just as the traditional film director identifies locations,
builds sets and chooses actors, the digital Multipath Movie developer builds
"worlds" and "models". In the same way that traditional filmed entertainment
directors give actors wardrobes and props, the Multipath Movie developer
"textures" the models.
The Multipath Movie production process, however, differs from the
traditional movie process in three important ways. First, the traditional
process is substantially more labor intensive, requiring large crews, artisans
and technicians to produce a final product. Once scenes are filmed and edited,
any reshoots require the re-assembling of actors and crews, which is not only
costly but often not feasible. Second, filming and editing in the traditional
film process are two separate functions that cannot be performed
simultaneously. Through digital production, a scene, or group of scenes, can
be blocked, animated and edited at the same time. As a result, the producer
can immediately view the scene and make any necessary changes while avoiding
substantial costs and logistical problems. Finally, the digital Multipath
Movie process allows the producer to easily substitute models and worlds,
alter texturing and lighting, alter the blocking and editing process and alter
special effects. By clicking the mouse, the director/scriptwriter can preview
entire scenes, add/delete characters and plots, and automatically change the
appearance of a character or object. Because the characters and sets are all
digitally produced and then animated by the Company's tools, set components
(such as language on storefronts and vehicles) and personal features such as
skin tone and hair color only need to be changed once to effect the desired
change throughout the Multipath Movie.
TECHNOLOGY; BRILLIANT'S SOFTWARE TOOLS AND PRODUCTION CAPABILITIES
The Company has developed four proprietary software tools that enable it to
produce high-quality Multipath Movies: (i) ScripNav, which enables
scriptwriters to write complex multipath scripts; (ii) LipSync, which
synchronizes a character's lip movements with the dialogue track; (iii) SCuD
Engine, which collects and integrates source files from the ScripNav,
graphics, sound and LipSync tools and then prepares them for layup and editing
and the DigitalProjector; and (iv) DigitalProjector, the tool that contains
all the necessary elements to load and play the final product.
ScripNav. ScripNav was developed specifically for the writing of complex
Multipath Movie scripts. A scriptwriter will use ScripNav to compose, edit and
finalize a script using a commercially available word processing package.
Then, the scriptwriter will insert various subplots into scenes in order to
adapt the script to the Multipath Movie format; the alternative subplots, or
paths, are based upon different temperaments of the lead character. For
example, if the character is angry, the character will approach the other
characters and the events in the scene in a much more aggressive and hostile
manner, which will, in turn, send the plot in the appropriate direction. By
inserting directional guides throughout the script, the scriptwriter is able
to create a script with multiple paths and endings based on a character's
moods and his or her interactions with the other characters. Once the script
has been developed in the Multipath Movie style, ScripNav enables the
scriptwriter to read, review and correct the script. ScripNav then corrects
for syntax and branching errors and allows the scriptwriter to review the
multiple plots produced. Lastly, ScripNav produces statistics that allow the
scriptwriter to identify scenes that either cannot or are unlikely to be
reached through the plot's development and, therefore, should be excluded from
the final Multipath Movie product.
LipSync. LipSync automatically synchronizes a character's lip movements with
corresponding dialogue tracks by examining wave files and generating output
files that contain references to the appropriate mouth shapes. The Company
believes that LipSync is a more efficient and cost effective way to
incorporate voice into Multipath Movies than other existing sound tools. In
addition, LipSync allows for low cost modification of the Multipath Movies to
any language without the awkward appearance of dubbed movies.
SCuD Engine. SCuD Engine is the centerpiece of the Multipath Movie
development and production process. SCuD Engine is an object-oriented database
environment that collects and integrates source files from ScripNav, graphics,
sound and LipSync tools and makes them available for layup and editing. SCuD
Engine provides a multi-window editing environment in which the developer can
preview, analyze and edit the final
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product. When a previously unedited scene is opened, SCuD Engine retrieves the
text for the scene from the script text file of ScripNav and places the text
in on-screen blocks or slots. The layup artist can then view the descriptive
or dialogue text while attaching imported graphics, sound and other source
material to that line of script.
DigitalProjector. DigitalProjector contains all the necessary components to
load and play the final Multipath Movie product. DigitalProjector is the
software engine for any system that is being used to play the Multipath Movie
and is generally the only software tool that the Company must modify to permit
the Multipath Movie to be adapted to new platforms. The Company has developed
DigitalProjector for IBM-compatible PCs, is developing DigitalProjector for
the Sega Saturn game console, and may develop DigitalProjector for the Sony
PlayStation, the Macintosh, and other platforms.
In addition to its proprietary software tools and engines, the Company uses
certain commercially available sound and graphics tools in the Multipath Movie
production process:
Sound Tools. The Company utilizes other non-proprietary sound tools that
enable producers to incorporate wave files from standard sound files generated
by almost any sound-editing package. Because wave files are generally not
compressed, the Company then uses other non-proprietary tools to compress and
prepare these files for use in DigitalProjector.
Graphics Tools. Graphics tools enable producers to convert the graphics
created by existing commercially available packages into a format that is
compatible with SCuD Engine and DigitalProjector. In addition, producers of
digital animation use graphics tools in the model and world building phase.
Producers create digitized models by defining their shapes in three dimensions
(height, width and depth) and by adding control points. The number of control
points is determined by the number of polygons that are used to create the
model. "Polygons" are multi-sided objects that can be colored or textured and
moved as single entities in computer graphics, allowing for three-dimensional
digital animation.
The Company's proprietary tools used in conjunction with commercially
available tools allow the developer to produce a high quality Multipath Movie
from the initial scripting stage to the generation of title output. The chart
below depicts the digital Multipath Movie production process discussed
previously and the phases of the process enabled by each tool.
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Flow chart diagramming the eight steps to create a Multipath Movie. The top
rectangular box lists sequentially Scripting, Creative Design, Voice Sound,
Model/World Building, Texturing Lighting, Blocking Camera Editing, Special
Effects Animation and Rendered Output. Overlayed on each phrase is the number
in the sequence of each item. Below the rectangular box is a flow chart
indicating which software tools are used to accomplish each step to build a
Multipath Movie. The flow chart continues diagramming the three distribution
systems available to the Multipath Movie. In the bottom left corner is a
legend explaining the dotted lines, solid lines and shaded boxes used in the
diagram.
COMPARISON OF MULTIPATH MOVIE FORMATS
The specifications of the formats for video, the PC and online differ
substantially. While each format will run for a total of 90-to-120 minutes, the
length of any individual scene will vary depending upon the extent of its
interactivity. While content produced for the PC will be user interactive,
video will not. The most significant difference between formats is the number
of polygons per character and per scene required to create the models and
worlds. Due to processing capacity constraints of current PCs, the Company's
Multipath Movie for CD-ROM and the Internet will use a limited number of
polygons. Because polygon counts are scaleable, the Company creates its models
and worlds with high polygon counts suitable for broadcast/cable or video
markets, and then reduces the number of polygons in order to adapt the
Multipath Movie for the PC and online markets. To date, digital entertainment
for home video and the PC have been produced separately. As a result, the
models and worlds developed for one format would not be used in other format
types. By combining the development of multiple products into one process, the
Company can cost effectively build models and worlds that can be utilized over
multiple product formats.
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
BROADCAST/
HOME VIDEO CABLE PC/ INTERNET/
CRITERIA FEATURE SERIES GAME CONSOLE ONLINE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Movie duration 90-120 mins Three 22-min episodes 90-120 mins 90-120 mins
Polygons per character Unlimited Unlimited 500 500
Polygons per scene Unlimited Unlimited 3,000 3,000
Special effects All All Limited Limited
Interactivity None None Plot branching Plot branching
Camera angle Camera angle
Real time moods Real time moods
Output method Pre-rendered Pre-rendered Real time Real time
video video 3D graphics 3D graphics
Distribution media D1 tape D1 tape CD-ROM Internet
- -------------------------------------------------------------------------------------------
</TABLE>
SALES AND MARKETING
The Company's sales and marketing efforts will be designed to broaden
product distribution, increase the number of first-time and repeat customers,
promote ongoing recognition of its products and properly position, package and
merchandise its products. The Company will focus on three primary channels in
attempting to build broad distribution of its product formats: (i) traditional
software publishers and distributors for CD-ROM titles, (ii) the Internet and
online services, and (iii) for television broadcast/cable programming buyers
and home video publishers. To support sales through these channels, the
Company plans to utilize various sales and marketing techniques designed to
promote product awareness and maximize exposure, including cooperative
advertising, incentives, selective bundling arrangements, trade show
representation and other customary practices. The Company believes that its
ability to produce quality digital entertainment products at low costs will
allow it to negotiate favorable deals with publishers, distributors and
buyers, create strong demand for its online products, and establish and
maintain a strong market position. In addition, the Company believes that its
management's direct experience in related industries provides the Company with
a working knowledge of sales and distribution strategies and strong
relationships with key software publishing executives.
CD-ROM Titles. The Company will follow one of two distribution models with
respect to the Company's traditional CD-ROM products and Multipath Movie
products it produces on CD-ROM. In the first model, which is primarily used
for the licensing of the Company's traditional CD-ROM products, the Company
contracts to develop and produce titles for third parties on a fixed rate
basis without retaining any rights to the products. In such situations, any
future royalty streams to which the Company may be entitled would be minimal.
In the second model, the Company negotiates an affiliated publishing
arrangement for a designated title. Under this arrangement, the Company covers
all production costs and costs of goods sold and then retains a certain
percentage of the gross revenues generated according to a predetermined
pricing formula. The publisher retains a portion of gross revenues to cover
downstream marketing costs and distributor profit. In both contract and
affiliate publishing arrangements, the publisher will broadly distribute the
CD-ROM titles through retail outlets such as software, computer and book
stores.
Multipath Movie CD-ROM Titles with Online Capability. The Company
anticipates that online users of its Multipath Movies distributed over the
Internet will either be billed a fee for each online Multipath Movie
downloaded or will be charged a fee based on online user time. In the case of
the Company's first Multipath Movie launch through a bundling arrangement with
Packard Bell NEC, it is anticipated that the user will be charged a per use
fee by the Company through Packard Bell NEC's Planet Oasis Web Site. When a
user views the opening window on the Packard Bell NEC computer screen, an icon
will appear directing the user to the Multipath Movie. By inserting the CD-ROM
and clicking on the icon, the user will be presented a free preview
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of the Multipath Movie title that has been bundled. Following the free
preview, a screen prompt will encourage the user to purchase a "ticket" for
further viewing of the Multipath Movie. If the user selects this option, the
user will be connected by modem to the Multipath Movie location within the
Planet Oasis site and charged for a movie ticket either through a major credit
card account or an "E-Cash" account. If the Multipath Movie is being
distributed through an online service or an independent Internet service
provider, the Company will negotiate individual billing arrangements with each
such entity. The Company is exploring the possibility of establishing a
proprietary web site through which Multipath Movies can be promoted. As part
of its arrangement with the Company, Packard Bell NEC has agreed to provide
marketing for the Multipath Movies on Packard Bell NEC's computer packaging,
point-of-sale materials and screen displays.
One of the Company's principal sales and marketing initiatives will be the
formal launch of the Multipath Movie format, which will follow the bundled
introduction of the Company's first Multipath Movie through Packard Bell NEC.
In order to introduce the new genre and generate the consumer awareness
necessary to promote sustained interest, the Company is developing a sales and
marketing campaign to begin during late 1997. The Company anticipates that
this campaign will culminate in the commercial introduction of selected
Multipath Movies, which will be supported by various trade and consumer
promotional programs. The Company expects that launch costs will be covered
through direct spending by the Company, promotional funds provided by software
publishers marketing the product and/or other sponsor-related sales programs.
See "Strategic Relationships."
Television Broadcast/Cable Programming and Home Video. The Company currently
anticipates that it will begin to market its Multipath Movies as television
programming and home video features will begin in 1998. Following the launch
of the Multipath Movie genre during late 1997, and assuming that the Company
has acquired the necessary television or video rights for any of its
underlying content, the Company anticipates preparing certain Multipath Movie
content for these markets. In the television broadcast/cable market, the
Company will work to prepare series product primarily for direct placement in
the syndicated television market or with one of the various cable channels. In
order to be competitive in this market it is necessary to be prepared to place
at least 13 episodes. Cable and syndicated programming is typically marketed
to domestic and international buyers during January of each year at the
National Association of Television Program Executives trade show. With respect
to the home video market, the Company anticipates that it will market home
video features through established distribution channels.
INTERNATIONAL SALES AND MARKETING
The Company's international sales and marketing strategy will be managed
from the United States and will be executed through a combination of domestic
and offshore efforts. The majority of the Company's sales of traditional CD-
ROM products are currently in the United States but management anticipates
increased penetration in various international markets. In addition to U.S.
sales, the Kidstory Series product line is currently sold through various
arrangements in Australia, New Zealand and parts of Asia and Europe. Recently,
the Company entered into an agreement with Fujitsu pursuant to which titles
within the KidStory Series are being adapted for output in Japanese.
With respect to both traditional and Multipath Movie CD-ROM products, the
Company's strategy for international distribution is to utilize exclusive
arrangements for specific countries or dedicated territories with
distributors, which in management's opinion, are best suited to direct the
commercial launch and ongoing marketing support of products in that country or
territory. The Company believes that it will be able to continue to capitalize
on management's extensive network of international relationships and
background in the international distribution of CD-ROM products. The Company
does not currently foresee establishing operations in foreign territories to
oversee or manage international sales and marketing efforts.
Given the global nature of the World Wide Web, the Company believes that
international markets represent a significant opportunity for its Multipath
Movies delivered over the Internet. Utilizing its proprietary LipSync
technology, the Company believes it can deliver Multipath Movies in foreign
languages without significant
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logistical or cost issues. Because the lip movements of the characters are
automatically synchronized to the dialogue track of the Multipath Movie, the
Company has the ability to downstream foreign-language versions to
international online users of Multipath Movies.
RESEARCH AND DEVELOPMENT
The Company's research and development program is focused on: (i) enhancing
the Company's software tools, (ii) developing enhanced Internet delivery
capabilities for Multipath Movies, (iii) improving the Company's proprietary
object-oriented database to enhance facial expressions and mouth movements of
Multipath Movie characters, and (iv) increasing the efficiency of its object-
oriented production process. The Company's research and development program
includes development of a proprietary object-oriented database, known as
"Rodeo," intended to give Multipath Movie producers ready access to the
Company's database of objects, such as sets, props and characters, and thereby
increase production efficiencies. The Company is expending substantial
resources in its "skunk works" research and development program in Australia,
where it maintains a staff in a separate facility devoted exclusively to
advancing the Company's technology and software tools. Because the Company
anticipates that online distribution will become increasingly important in the
digital entertainment industry, the Company intends to prepare the Company to
take advantage of changing Internet delivery technologies.
The Company intends to continue to improve the look and feel of the
Multipath Movies with the objective of achieving the look and feel of motion
pictures. The realization of this objective will be dependent upon the
development of narrowband and broadband technologies as well as increases in
microprocessor speed. The Company will work to continuously enhance its
software tools to take advantage of these new technologies.
The Company incurred research and development costs in connection with the
development and improvement of the Company's traditional CD-ROM software tools
of $14,594, $183,000 and $174,395 for the period from September 2, 1993 to
June 30, 1994 and the fiscal years ended June 30, 1995 and 1996, respectively.
SAND incurred research and development costs in connection with the
development of the Multipath Movie software tools of $460,026 and $693,974 for
the fiscal years ended June 30, 1995 and 1996, respectively.
STRATEGIC RELATIONSHIPS
The Company has entered various strategic relationships to assist in the
development, production and distribution of Multipath Movies. It is
anticipated that strategic relationships will be an integral element in the
execution of the Company's business strategy.
Packard Bell NEC. The Company has entered into an agreement with Packard
Bell NEC for Packard Bell NEC to bundle CD-ROM software for a Multipath Movie
title with 80% of the first 7.4 million multimedia equipped personal computers
shipped by Packard Bell NEC in the United States, the United Kingdom,
Australia, New Zealand and South Africa over a three-year period (the
"Shipping Period") beginning when the Company ships and Packard Bell accepts a
master CD-ROM for a Multipath Movie. The master CD-ROM is a disk to be used by
Packard Bell NEC to duplicate enabling CD-ROMs for distribution with Packard
Bell NEC computers. The disk will allow the user to download Multipath Movies
from an Internet site to be established by the Company. The disk will contain
a brief preview of a Multipath Movie title, which is initially anticipated to
be the Cyberswine title and will also contain a library of characters, scenes,
graphics, sound and other components for viewing of future episodes of the
title. The Company has the ability to periodically substitute other Multipath
Movie titles for the title initially bundled by Packard Bell NEC. For a period
ending two years following the expiration of the Shipping Period, Packard Bell
NEC has agreed to provide point of sale retail advertising for the Multipath
Movies distributed through Packard Bell NEC, and to create a prominently
displayed icon on the Packard Bell NEC screen display which, when clicked,
will enable the user to view a preview of the Multipath Movie and purchase the
entire Multipath Movie through a link to Packard Bell NEC's Web site. Packard
Bell
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NEC's Web site, Planet Oasis, is formatted as a 3-D Internet city providing
users with a simple, user friendly tool through which a user can explore the
World Wide Web. When the site is accessed, a 3-D version of the city appears
containing skyscrapers, enchanted forests, parks and museums. Users cruise
through the virtual city using the computer's mouse to click on different
images, representing different topics and information sites. One of the
destinations within the virtual city will be a theater in which Multipath
Movies can be purchased through a link to the Company's Internet site. Under
the terms of the agreement, the Company will be entitled to all revenues that
are derived from Multipath Movies distributed pursuant to the Agreement.
Packard Bell NEC will receive warrants to purchase 600,000 shares of the
Company's Common Stock. See "Description of Capital Stock--Warrants."
Morgan Creek Productions. The Company has entered into an agreement to form
a joint venture with Morgan Creek Interactive, a subsidiary of Morgan Creek
Productions. Morgan Creek is a principal developer and distributor of feature
films; past features include "Ace Ventura: Pet Detective," and "Ace Ventura:
When Nature Calls." The agreement provides that Morgan Creek will contribute
to the joint venture a nonexclusive license to two motion picture scripts for
use in the development of Multipath Movies to be distributed on CD-ROM for the
IBM-compatible, Macintosh and game console platforms and over the Internet.
The rights granted by Morgan Creek under the agreement do not extend to
broadcast/cable television programming. Morgan Creek will also provide certain
creative, direction and film development assistance to the Company. The
Company will be responsible for all development costs of the Multipath Movies
but will be entitled to recover such costs before Morgan Creek will
participate in any revenues generated from the Multipath Movies created by the
joint venture. The Company will also contribute to the joint venture a
nonexclusive license to the Company's DigitalProjector software tool solely
for use in connection with two Multipath Movies to be produced by the joint
venture. In exchange for the contribution of development content, Morgan Creek
will receive, following the Company's recovery of production costs and the
Company's recovery of its investment in the joint venture, a designated
percentage of the joint venture's revenues as well as warrants to purchase
85,000 shares of the Company's Common Stock. See "Description of Capital
Stock--Warrants." The agreement provides that Morgan Creek will own all
intellectual property related to the content used in the Multipath Movies
created by the joint venture and will have the right to exploit such content
for other uses without any royalty obligation to the joint venture or the
Company, although the Company will retain all rights to the licensed software
tool.
Crawford Productions. The Company has entered into a production joint
venture with Crawford Productions Pty., Ltd. ("Crawfords") an Australian
television and production company to develop two Multipath Movies. The Company
anticipates that each of the two Multipath Movies will have production budgets
of up to $1 million. Pursuant to the joint venture, Crawfords and the Company
will each fund one-half of the development budget of the joint venture.
Crawfords will be responsible for distributing broadcast and cable versions of
the two Multipath Movies and the Company will distribute the Multipath Movies
in interactive computer-based formats. Crawfords and the Company will equally
divide all proceeds from exploitation of the two Multipath Movies created by
the joint venture.
Bantam Doubleday Dell Books for Young Readers. The Company has entered into
an agreement (the "Bantam Agreement") with Bantam providing the Company with
an option to acquire exclusive worldwide interactive rights to Bantam's
"Choose Your Own Nightmare" and "Choose Your Own Adventure" series of
interactive books. The Company's option covers over 170 titles, plus any
additional titles in each series published by Bantam. The Company's rights
include rights to adapt the licensed titles to interactive format only and to
deliver the products on CD-ROMs and via the Internet. By exercising its
option, the Company will be required to acquire no less than 18 titles during
the seven-year term of the Bantam Agreement. Bantam will be entitled to
receive a portion of the net proceeds from sales of the licensed titles. Upon
the Company's election of each of the first 16 titles, in batches of 4 titles,
the Company is required to pay Bantam a non-refundable advance against which
royalties will be applied.
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COMPETITION
The markets for the Company's digital entertainment products are intensely
competitive, subject to rapid change and characterized by constant demand for
new product features at reduced prices and pressure to accelerate the release
of new products and product enhancements. The primary competitive areas for
the Company are identified below.
Computer Graphics Special Effect Firms. The Company expects to compete with
computer graphics special effects firms, including Pixar, ILM, Digital Domain,
Sony ImageWorks, Pacific Data Images, Rhythm & Hues and Boss Film Studios,
Inc. These computer graphics special effects firms are capable of creating
their own three-dimensional computer animated feature films or may produce
three-dimensional computer animated feature films for movie studios that
compete with the Company. Pixar has already produced and successfully released
an animated feature film, Toy Story, and ILM has created and produced three-
dimensional character animation used for the ghosts in the live action film
Casper. These firms, each of which have greater financial and marketing
resources than the Company, are expected to compete intensely with the Company
in the production of animated digital products.
CD-ROM Publishers. The CD-ROM industry is intensely competitive and consumer
demand for particular software products may be adversely affected by the
proliferation of competitive products. The Company believes that the primary
competitive factors in the market for CD-ROM products include creative
content, product quality, technological capabilities, pricing, breadth of
features, marketing and distribution resources and customer service and
support. The Company will compete primarily against companies offering
entertainment software and related products. The Company's competitors in this
area will include several large companies with substantially greater name
recognition, financial, technical, marketing and other resources, including
Broderbund, 7th Level, GT Interactive, Electronic Arts, Softkey, Sierra On-
Line and Davidson. Moreover, large corporations, such as Disney and Microsoft,
with substantial bases of intellectual property content and substantial
financial resources, have entered or announced their intention to enter the
market for CD-ROM entertainment products.
Movie Studios and Production Companies. The Company's Multipath Movies will
compete with traditional feature films and television programming produced by
major movie studios, including Disney, Warner Bros., Twentieth Century Fox,
Paramount, Sony, Lucasfilm, MCA Universal and MGM/UA, as well as numerous
other independent motion picture and television production companies. Several
movie studios already have developed and released animated feature films and
the Company expects additional competition in the animated feature film market
from these and other movie studios. Other movie studios have announced their
intention to enter the animated feature film market, including DreamWorks SKG,
a studio formed in 1994 which is expressly targeting the animated film market.
The Company's broadcast and home video products will compete with the films of
these movie studios for audience acceptance and exhibition over
broadcast/cable and home video channels. In addition, the Company will compete
with movie studios for the acquisition of literary properties, production
financing, the services of performing artists, and the services of other
creative and technical personnel, particularly in the fields of animation and
technical direction. Most of the movie studios with which the Company will
competes have significantly greater name recognition and significantly greater
financial, technical, creative, marketing, and other resources than does the
Company. Due to their substantially greater resources, these movie studios
likely will be able to enter into more favorable distribution arrangements and
to promote their films and television programming more successfully than the
Company.
Several movie studios, including Disney and Lucasfilm (through its affiliate
ILM), have developed their own internal computer animation capability and have
created computer animation for special effects in animated films. Other movie
studios may internally develop, license or sub-contract three-dimensional
animation capability. Further, the Company believes that continuing
enhancements in computer hardware and software technology will lower barriers
to entry for studios or special effects companies which intend to produce
computer animated feature films or other products.
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In response to all of these competitive forces, the Company will be required
to make a high level of investment in content and tool development, marketing
and customer service and support. There can be no assurance that the Company
will have sufficient resources to make such investments or, even if they are
made, that the Company's products will be competitive. Additionally, present
or future competitors may be able to develop products comparable or superior
to those offered by the Company or adapt more quickly than the Company to new
technologies or evolving customer requirements. The Company's competitors also
may increase their efforts to gain and retain market share through competitive
pricing or product giveaways. These competitive pressures may necessitate
price reductions by the Company, thus reducing the Company's profit margins.
In addition, as the number of competitors increases and competition for scarce
consumer time available to be devoted to the products such as those of the
Company and equally scarce retail shelf space becomes more intense, the
Company may need to increase marketing expenditures to maintain sales and
product differentiation. Also, as competition for popular titles and themes
that may be used in entertainment software increases, the cost of acquiring
such titles and properties is likely to increase, resulting in reduced
margins. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive
pressures faced by the Company will not materially and adversely affect its
business, operating results and financial condition.
PROPRIETARY RIGHTS
The Company's success and ability to compete is dependent in part upon its
proprietary technology. The Company currently intends to file United States
patent applications relating to certain components of its proprietary
technology. The Company also relies on trademark, trade secret and copyright
laws to protect its technology, with the source code for the Company's
proprietary software being protected both as a trade secret and as a
copyrighted work. Also, it is the Company's policy that all employees and
third-party developers sign nondisclosure agreements. However, there can be no
assurance that such precautions will provide meaningful protection from
competition or that competitors will not be able to develop similar or
superior technology independently. Also, the Company has no license agreements
with the end users of its products and does not copy-protect its software, so
it may be possible for unauthorized third parties to copy the Company's
products or to reverse engineer or otherwise obtain and use information that
the Company regards as proprietary. Although the Company is not aware of
unauthorized copying of its products, if a significant amount of unauthorized
copying of the Company's products were to occur, the Company's business,
operating results and financial condition could be adversely affected.
Furthermore, policing unauthorized use of the Company's products is difficult
and costly, and software piracy can be expected to be a persistent problem. If
litigation is necessary in the future to enforce the Company's intellectual
property rights, to protect the Company's trade secrets or to determine the
validity and scope of the proprietary rights of others, such litigation could
result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, operating results and
financial condition. Ultimately, the Company may be unable, for financial or
other reasons, to enforce its rights under intellectual property laws and the
laws of certain countries in which the Company's products are or may be
distributed may not protect the Company's products and intellectual rights to
the same extent as the laws of the United States.
The Company believes that its products, including its suite of software
tools, do not infringe any valid existing proprietary rights of third parties.
Since the software tools used to create the Multipath Movies were developed by
SAND, a division of Sega Ozisoft, the Company relies entirely on the
representations of Sega Ozisoft contained in the SAND Acquisition Agreement
between BII-Australia and Sega Ozisoft that, to Sega Ozisoft's best knowledge,
the SAND technology and software acquired by the Company does not infringe the
proprietary rights of others. Additionally, although the Company has received
no communication from third parties alleging the infringement of proprietary
rights of such parties, there can be no assurance that third parties will not
assert infringement claims in the future. Any such third party claims, whether
or not meritorious, could result in costly litigation or require the Company
to enter into royalty or licensing agreements. There can be no assurance that
any such licenses would be available on acceptable terms, if at all, or that
the Company would prevail in any such litigation. If the Company were found to
have infringed upon the proprietary rights of third
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parties, it could be required to pay damages, cease sales of the infringing
products and redesign or discontinue such products, any of which could have a
material adverse effect on the Company's business, operating results and
financial condition.
BACKLOG
The Company generally ships products upon receipt of orders from
distributors. Accordingly, the Company operates with little backlog.
EMPLOYEES
At September 12, 1996 the Company had 27 full-time employees (including six
employees of SAND): ten engaged in research and development, 14 in production
and three in general administration and finance. None of the employees of the
Company is covered by a collective bargaining agreement. The Company considers
its relationship with its employees to be good. The Company currently utilizes
the services of three independent software developers pursuant to contractual
relationships.
The Company intends to hire additional key personnel in the near future. The
Company's expansion may significantly strain the Company's management,
financial and other resources. Any failure to expand these areas in an
efficient manner could have a material adverse effect on the Company's
operating results.
The Company believes its future success will depend in large part on the
Company's ability to recruit and retain qualified employees, particularly
those highly skilled design, process and test engineers involved in the
manufacture of existing systems and the development of new systems and
processes. The competition for such personnel is intense. There can be no
assurances that the Company will be successful in retaining or recruiting key
personnel. Three of the Company's employees, the Chairman and CEO, the CFO and
the Director of Licensing, are based in Los Angeles, California. All other
employees operate out of facilities located in Mascot and Woollahra, both
suburbs of Sydney, Australia.
PROPERTIES
The Company's production facilities, consisting of approximately 1,800
square feet, are located in Manly, Australia and the research and development
facilities occupied by SAND consisting of approximately 900 square feet are
located in Woollahra, Australia. The leases for these facilities are month-to-
month. The current annual rental under the Manly lease is $24,617 and under
the Woollahra lease is $12,308. The Company also leases an office in Woodland
Hills, California for rent of approximately $36,591 per annum.
The Company anticipates using up to $4.5 million of the proceeds raised in
the Offering to equip a new digital production studio ("New Studio") to be
located in or near Sydney, Australia. It is contemplated that the current
production offices located in Manly, Australia will be closed and all of those
operations will be integrated into the new facilities. The software tool
development facilities occupied by SAND located in Woollahra, Australia will
be kept at their current location. The Company intends to equip the New Studio
to meet all of the Company's production needs for both the KidStory Series
product line as well as the Multipath Movie product line. Certain production
capabilities will remain external, including voice recording, scripting, music
recording and certain director and producer services. The Company believes
that such services can be provided on a more cost effective basis, thereby
focusing the Company's internal production efforts on the digital production
components. It is anticipated that the New Studio will have the internal
capabilities to provide all other production requirements such as three-
dimensional modeling, digital animation and rendering, camera direction and
editing, sound production, texture animation, digital video services and
overall title production control. The Company intends to lease additional
space in or near Sydney, Australia, as the site of its new production
facilities. The Company has not reached an agreement in principle with respect
to the lease of any space for the New Studio.
LEGAL PROCEEDINGS
The Company is not involved in any litigation.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the directors and executive officers as of
August 31, 1996 is as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark Dyne*.............. 35 Chairman of the Board of Directors and
Chief Executive Officer
Kevin Bermeister**...... 36 Director
Mark Miller............. 37 President, Chief Financial Officer and Director
Anthony Rose*........... 32 Vice President, Technology
Diana Maranon* (1)...... 38 Secretary and Director
Gary Barber* (2)........ 39 Director
Ray Musci* (1).......... 36 Director
Garth Saloner* (2)...... 41 Director
Jeff Scheinrock*
(1)(2)................. 45 Director
</TABLE>
- --------
* Other than Ms. Maranon in her position as Secretary, these individuals
currently do not serve in the positions indicated. The Company intends to
appoint these individuals to these positions effective October 1, 1996.
** Mr. Bermeister will be appointed President effective October 1, 1996.
(1) Member of the Compensation Committee effective October 1, 1996.
(2) Member of the Audit Committee effective October 1, 1996.
MARK DYNE. Mr. Dyne will serve as the Chairman of the Board of Directors and
as Chief Executive Officer of the Company effective October 1, 1996. Mr. Dyne
has served as a joint managing director of Sega Ozisoft since its founding in
1982 by Mr. Dyne and Kevin Bermeister. Sega Ozisoft is now a majority owned
subsidiary of Sega operating under the name of Sega Ozisoft. Mr. Dyne
continues to own an equity interest in Sega Ozisoft. Sega Ozisoft is a
distributor for many leading publishers including, among others, Virgin
Interactive, Accolade, Microprose, Viacom, Interplay, Access, and Starwave.
Mr. Dyne currently is Co-Chief Executive Officer with Kevin Bermeister of Sega
Enterprises, a position he has held since June 1995, a director of Monto
Holdings Pty. Ltd. ("Monto") and Consumer Electronics Pty. Ltd. ("Consumer
Electronics"), and a co-owner of Packard Bell Pty. Ltd. ("Packard Bell
Australia"). Sega Enterprises is a theme park developer which recently has
launched the development of a $70 million interactive indoor theme park in
Darling Harbor in Sydney, Australia. Sega Enterprises is owned jointly by
Mr. Dyne, Mr. Bermeister, Sega Enterprises Japan ("Sega Japan"), Mitsubishi
Corp. and Mitsui Corp. Monto is a private investment holding company. Consumer
Electronics is a South African based distributor of multi-media software
products. Packard Bell Australia is one of the leading manufacturers and
distributors of personal computers through the Australian mass merchant
channel.
KEVIN BERMEISTER. Mr. Bermeister has served as a Director of the Company
since August 1996. Mr. Bermeister is a joint managing director of Sega
Ozisoft, a position he has held since 1982, and continues to own an equity
interest in Sega Ozisoft. Mr. Bermeister currently is Co-Chief Executive
Officer with Mr. Dyne of Sega Enterprises, a position he has held since June
1995, a director of Consumer Electronics and Jacfun Pty., Ltd. ("Jacfun"), and
a co-owner and director of Packard Bell Australia. Mr. Bermeister also serves
as a director of Jewish House of Sydney, Australia, a charitable organization.
Sega Enterprises is a theme park developer which recently has launched the
development of a $70 million interactive indoor theme park in Darling Harbor
in Sydney, Australia. Sega Enterprises is owned jointly by Mr. Dyne, Mr.
Bermeister, Sega Japan, Mitsubishi Corp. and Mitsui Corp. Consumer Electronics
is a South African based distributor of multi-media software products. Jacfun
is the owner of the Darling Harbor property occupied by the Sega Enterprises
indoor theme park. Packard Bell Australia is one of the leading manufacturers
and distributors of personal computers through the Australian mass merchant
channel.
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MARK MILLER. Mr. Miller has served as the Chief Financial Officer, President
and as a director of the Company since August 1996. Mr. Miller also is
Managing Director of BII Australia, a position he has held since March, 1994.
From February 1993 through December 1994, Mr. Miller was Managing Director of
PIE, where he was primarily engaged in the development and maintenance of
educational and multimedia software for use by schools and other educational
institutions. Mr. Miller currently is a director of PIE. From 1989 through
1992, Mr. Miller was Director of Sales and Marketing of Dealing Information
Systems Pty. Ltd., a developer of proprietary modular software treasury
systems for managing financial transactions.
ANTHONY ROSE. Anthony Rose has served as a consultant to SAND since April
1994 and currently serves as Vice President, Technology of the Company. Mr.
Rose also is the owner and director of and, prior to April 1994 was employed
by, A.R. Technology Pty. Ltd., an Australian company founded by Mr. Rose in
1988 which is involved in the design and manufacture of digital electronics
hardware and software. A.R. Technology has completed design assignments for
Apple, Epson, Panasonic and other corporations and government institutions.
Mr. Rose holds several international patents relating to anti-virus hardware
circuits for personal computers.
DIANA MARANON. Ms. Maranon has served as Secretary of the Company since
August 1996 and will serve as a Director of the Company effective October 1,
1996. Ms. Maranon is the President and Managing Director of Averil Associates,
Inc. ("Averil Associates"), a financial advisory firm. Prior to founding
Averil Associates in 1994, Ms. Maranon was a Vice President with Wasserstein
Perella & Co., Inc. ("Wasserstein"), an investment banking firm, with whom she
started in 1988. At Wasserstein, Ms. Maranon was responsible for covering
companies headquartered in the Western United States. From 1985 to 1988, Ms.
Maranon practiced securities law with Skadden Arps Slate Meagher & Flom. Ms.
Maranon is a member of the California Bar.
GARY BARBER. Mr. Barber will serve as a Director of the Company effective
October 1, 1996. Since May 1989, Mr. Barber has been Vice Chairman and Chief
Operating Officer of Morgan Creek Productions, Inc. While at Morgan Creek, Mr.
Barber has executive produced numerous feature films including Ace Ventura:
Pet Detective, Ace Ventura: When Nature Calls, Robin Hood: Prince of Thieves
and currently is executive producer of the Ace Ventura animated television
series that airs on CBS.
RAY MUSCI. Mr. Musci will serve as a Director of the Company effective
October 1, 1996. From May 1990 to the present, Mr. Musci has served as the
President, Chief Operating Officer and as a Director of Ocean of America,
Inc., a company that develops, publishes and distributes software products.
From September 1994 to July 1996, Mr. Musci served as a director of Ocean
International, Ltd., the holding company of Ocean of America, Inc. From August
1985 to March 1990, Mr. Musci was Executive Vice President/General Manager of
Data East USA, Inc., a subsidiary of Data East Corp., a Japanese company,
where he established a consumer division to develop, manufacture, market and
distribute consumer video games, entertainment software and coin-operated
video arcade games and pinball machines.
GARTH SALONER. Mr. Saloner will serve as a Director of the Company effective
October 1, 1996. From 1990 to the present, Mr. Saloner has served as the
Robert A. Magowan Professor of Strategic Management and Economics at the
Graduate School of Business at Stanford University. He also has served as
Associate Dean for Academic Affairs and Director of Research and Course
Development at Stanford Graduate School of Business. From 1982 to 1990, Mr.
Saloner taught as a professor in the Economics Department of the Massachusetts
Institute of Technology. Mr. Saloner also is a director and a member of the
audit committee of Quick Response Services, Inc., a corporation that provides
electronic data interchange services in the retail market.
JEFFREY SCHEINROCK. Mr. Scheinrock will serve as a Director of the Company
effective October 1, 1996. Since July 1, 1996, Mr. Scheinrock has been Vice
Chairman, Chief Financial Officer and Assistant Secretary of Kistler Aerospace
Corporation, a company involved in the development, marketing and manufacture
of reusable satellite launch vehicles. From March 1, 1989 to July 1, 1996, Mr.
Scheinrock was the Vice Chairman of Finance and Strategic Planning of Packard
Bell NEC. Mr. Scheinrock is a director of SRS Labs, Inc., a corporation listed
on the Nasdaq Stock Market's National Market. Mr. Scheinrock also is a
director of various other private companies including MicroNet Technology,
Inc., which is a California-based high technology company.
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The Company's Chief Executive Officer and Chairman, Mark I. Dyne, and its
President, Kevin Bermeister, also are Joint Managing Directors of Sega
Ozisoft. Messrs. Dyne and Bermeister are not required to spend a specific
amount of time at the Company nor are they able to devote their full time and
resources to the Company. There can be no assurance that the inability of
Messrs. Dyne and Bermeister to devote their full time and resources to the
Company will not adversely affect the Company's business, operating results or
financial condition.
Pursuant to the SAND Acquisition Agreement, the Company and Sega Ozisoft
agreed that so long as Sega Ozisoft maintains ownership of at least 7% of the
outstanding equity securities of the Company, the Company has agreed to use
its best efforts to cause a nominee of Sega Ozisoft reasonably acceptable to
the Company to be nominated by the Board of Directors of the Company for
election as a director of the Company so that Sega Ozisoft either has one
representative on the Board of Directors of the Company or one representative
nominated for election at the succeeding annual stockholders meeting.
Currently, Kevin Bermeister has been designated by Sega Ozisoft as its nominee
on the Board of Directors.
The Board of Directors is divided into three classes, designated Class I,
Class II and Class III. Gary Barber and Garth Saloner currently are the Class
I directors. This class will stand for election at the 1997 annual
stockholders meeting. Mark Miller, Ray Musci and Jeff Scheinrock currently are
the Class II directors. This class will stand for election at the 1998 annual
meeting. Mark Dyne, Kevin Bermeister and Diana Maranon currently are the Class
III directors. This class will stand for election at the 1999 annual meeting.
At each annual meeting of stockholders, successors of the class of directors
whose term expires at that annual meeting are elected for a three-year term or
until their successors have been elected and qualified. If the number of
directors is changed, any increase or decrease is to be apportioned among the
classes so as to maintain the number of directors in each class as nearly
equal as possible. The authorized number of members of the Board of Directors
currently is two. Directors may be removed from office only for cause by the
affirmative vote of a majority of the outstanding shares of Common Stock.
Vacancies on the Board of Directors may be filled only by a majority of the
directors then in office. The Company anticipates increasing the authorized
number of members of the Board of Directors to eight effective October 1,
1996.
BOARD COMMITTEES
The Company's Board of Directors maintains an Audit Committee and a
Compensation Committee. The Audit Committee's functions include recommending
to the Board of Directors the engagement of the Company's independent
certified public accountants, reviewing with those accountants the plan and
results of their audit of the financial statements and determining the
independence of the accountants. The Compensation Committee reviews and makes
recommendations with respect to compensation of officers and key employees,
and is responsible for the grant of options and other awards under the
Company's 1996 Plan. See "--Stock Option Plan."
DIRECTOR COMPENSATION
Nonemployee directors of the Company currently are paid $1,500 for their
personal attendance at any meeting of the Board and $500 for attendance at any
telephonic meeting of the Board or at any meeting of a committee of the Board.
Directors also are reimbursed for their reasonable travel expenses incurred in
attending Board or committee meetings. In September 1996, the Company granted
to each of Ms. Maranon and Messrs. Barber, Musci, Scheinrock and Garth Saloner
effective upon commencement of service as a director, options to purchase
25,000 shares of Common Stock at an exercise price of $10.00 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a compensation committee for the fiscal year ended
June 30, 1996. For the year ended June 30, 1996, all decisions regarding
executive compensation were made by Mr. Miller. No interlocking relationship
exists between any member of the Company's Compensation Committee and any
member of any other company's board of directors or compensation committee.
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EXECUTIVE COMPENSATION
The following table sets forth both cash and noncash compensation paid or to
be paid by the Company to, Mark I. Dyne, Chief Executive Officer, Kevin
Bermeister, and Mark Miller, President and Chief Financial Officer (the "Named
Executive Officers"). No other officer received compensation in excess of
$100,000 for the fiscal year ended June 30, 1996:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------
LONG TERM
FISCAL YEAR COMPENSATION
NAME AND PRINCIPAL ENDED NUMBER OF SECURITIES ALL OTHER
POSITION JUNE 30, SALARY BONUS UNDERLYING OPTIONS(1) COMPENSATION
------------------ ----------- ---------- ------------------------------ ------------
<S> <C> <C> <C> <C> <C>
Mark Dyne (2)(3) 1996 $ -- $ -- -- $ --
Chief Executive Officer
Kevin Bermeister, 1996 -- -- -- --
President (2)(4)
Mark Miller, President 1996 69,263 -- -- 21,224(4)
and Chief Financial
Officer (5)
</TABLE>
- --------
(1) See "--Stock Option Plan."
(2) Messrs. Dyne and Bermeister will receive annual salaries of $225,000 and
$225,000, respectively.
(3) Mr. Dyne does not currently serve as Chief Executive Officer, but will be
appointed to this position effective October 1, 1996.
(4) Mr. Bermeister does not currently serve as President, but will be
appointed to this position prior to October 1, 1996.
(5) During the Company's last fiscal year, Mr. Miller served as the Managing
Director. Compensation amounts shown consist of consulting fees paid by
BII Australia to PIE or Mr. Miller. See "--Employment Agreements with
Executive Officers." Effective October 1, Mr. Miller will step down from
his position as President and assume the position of Vice President--
Production and Operations.
(6) Includes auto allowances, contributions to retirement benefits and profit
included in payments to PIE for purchases of computer equipment.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
A.R. Technology Limited, an Australian corporation of which Anthony Rose is
the sole stockholder, will provide the services of Anthony Rose to BII
Australia in exchange for $134,130 per year. The arrangement is terminable at
will by either party upon 30 days prior written notice.
PIE provides the services of Mark Miller to BII Australia. PIE was paid $0,
$36,985, $90,487 and $13,342 during the period from September 2, 1993 to June
30, 1994, the years ended June 30, 1995 and 1996, and the period from July 1,
1996 to September 1, 1996, respectively. These amounts include auto
allowances, contributions to retirement benefits and profit included in
payments to PIE for purchases of computer equipment. This arrangement is
terminable at will by either party upon 30 days prior written notice.
STOCK OPTION PLAN
The Company adopted a Stock Option Plan (the "1996 Plan") in September 1996.
Each director, officer, employee or consultant of the Company or any of its
subsidiaries is eligible to be considered for the grant of awards under the
1996 Plan. The maximum number of shares of Common Stock that may be issued
pursuant to awards granted under the 1996 Plan is 1,080,000, subject to
certain adjustments to prevent dilution. Any shares of Common Stock subject to
an award which for any reason expires or terminates unexercised are again
available for issuance under the 1996 Plan.
The 1996 Plan will be administered by the Board of Directors or another
committee of two or more non-employee directors appointed by the Board of
Directors (the "Committee"), each of whom shall be an "outside director" for
purposes of 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). Subject to the provisions of the 1996 Plan, the Committee will have
full and final authority to select the executives and other employees to whom
awards will be granted thereunder, to grant the awards and to determine the
terms and conditions of the awards and the number of shares to be issued
pursuant thereto.
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Awards. The 1996 Plan authorizes the Committee to enter into any type of
arrangement with an eligible employee that, by its terms, involves or might
involve the issuance of (1) shares of Common Stock, (2) an option, warrant,
convertible security, stock appreciation right or similar right with an
exercise or conversion privilege at a price related to the Common Stock, or
(3) any other security or benefit with a value derived from the value of the
Common Stock. The maximum number of shares of Common Stock with respect to
which options or rights may be granted under the 1996 Plan to any executive or
other employee during any fiscal year is 100,000, subject to certain
adjustments to prevent dilution.
Awards under the 1996 Plan are not restricted to any specified form or
structure and may include arrangements such as sales, bonuses and other
transfers of stock, restricted stock, stock options, reload stock options,
stock purchase warrants, other rights to acquire stock or securities
convertible into or redeemable for stock, stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance shares. An award
may consist of one such arrangement or two or more such arrangements in tandem
or in the alternative. An award may provide for the issuance of Common Stock
for any lawful consideration, including services rendered or, to the extent
permitted by applicable state law, to be rendered. Currently, Delaware law
does not permit the issuance of common stock for services to be rendered.
An award granted under the 1996 Plan may include a provision conditioning or
accelerating the receipt of benefits, either automatically or in the
discretion of the Committee, upon the occurrence of specified events,
including a change of control of the Company, an acquisition of a specified
percentage of the voting power of the Company or a dissolution, liquidation,
merger, reclassification, sale of substantially all of the property and assets
of the Company or other significant corporate transaction. Any stock option
granted may be an incentive stock option within the meaning of Section 422 of
the Code or a nonqualified stock option.
An award under the 1996 Plan may permit the recipient to pay all or part of
the purchase price of the shares or other property issuable pursuant to the
award, and/or to pay all or part of the recipient's tax withholding
obligations with respect to such issuance, by delivering previously owned
shares of capital stock of the Company or other property, or by reducing the
amount of shares or other property otherwise issuable pursuant to the award.
If an option granted under the 1996 Plan permitted the recipient to pay for
the shares issuable pursuant thereto with previously owned shares, the option
may grant the recipient the right to "pyramid" his or her previously owned
shares, i.e., to exercise the option in successive transactions, starting with
a relatively small number of shares and, by a series of exercises using shares
acquired from each transaction to pay the purchase price of the shares
acquired in the following transaction, to exercise the option for a larger
number of shares with no more investment than the original share or shares
delivered.
Plan Duration. The 1996 Plan became effective upon its adoption by the Board
of Directors on September 13, 1996, and was approved by the Company's
stockholders on September 13, 1996. As of the date hereof, the Board has
granted options covering an aggregate of 155,000 shares of Common Stock to
certain directors of the Company and to Anthony Rose, with an exercise price
of $10.00 per share. The directors options were granted effective at such time
as each director joins the Board of Directors and will be immediately fully
vested. Mr. Rose's options vest in 48 equal monthly installments commencing on
the date of grant. Although any award that was duly granted on or prior to
such date may thereafter be exercised or settled in accordance with its terms,
no shares of Common Stock may be issued pursuant to any award made after
September 13, 2006. See "Principal Stockholders."
Amendments. The Committee may amend or terminate the 1996 Plan at any time
and in any manner, subject to the following: (1) no recipient of any award
may, without his or her consent, be deprived thereof or of any of his or her
rights thereunder or with respect thereto as a result of such amendment or
termination; and (2) if any rule or regulation promulgated by the Securities
and Exchange Commission (the "Commission"), the Internal Revenue Service or
any national securities exchange or quotation system upon which any of the
Company's securities are listed requires that any such amendment be approved
by the Company's stockholders, then such amendment will not be effective until
it has been approved by the Company's stockholders.
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<PAGE>
Form S-8 Registration. The Company intends to file a registration statement
under the Securities Act to register the 1,080,000 shares of Common Stock
reserved for issuance under the 1996 Plan. Such registration statement is
expected to be filed shortly following the date of this Prospectus and will
become effective immediately upon filing with the Commission. Shares issued
under the 1996 Plan after the effective date of such registration statement
generally will be available for sale to the public without restriction, except
for the 180-day lock-up provisions and except for shares issued to affiliates
of the Company, which will remain subject to the volume and manner of sale
limitations of Rule 144. See "Shares Eligible For Future Sale."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation and its Bylaws provide for the
indemnification by the Company of each director, officer and employee of the
Company to the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or may hereafter be amended. Section 145 of the
Delaware General Corporation Law provides in relevant part that a corporation
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that such person
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such person's conduct
was unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent
that the Delaware Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the
Delaware Court of Chancery or such other court shall deem proper. Delaware law
further provides that nothing in the above-described provisions shall be
deemed exclusive of any other rights to indemnification or advancement of
expenses to which any person may otherwise be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
The Company's Certificate of Incorporation also provides that a director of
the Company shall not be liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director. Section 102(b)(7)
of the Delaware General Corporation Law provides that a provision so limiting
the personal liability of a director shall not eliminate or limit the
liability of a director for, among other things: breach of the duty of
loyalty; acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law; unlawful payment of dividends;
and transactions from which the director derived an improper personal benefit.
The Company has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director of the Company and certain of
its officers (the "Indemnitees"). Pursuant to the terms and conditions of the
Indemnity Agreements, the Company has agreed to indemnify each Indemnitee
against any amounts which he or she becomes legally obligated to pay in
connection with any claim against him or her based
54
<PAGE>
upon any action or inaction which he or she may commit, omit or suffer while
acting in his or her capacity as a director and/or officer of the Company or
its subsidiaries, provided, however, that Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action, had no
reasonable cause to believe Indemnitee's conduct was unlawful.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PIE and Mark Miller:
Since March 1994, PIE has made periodic cash advances to BII Australia for
working capital purposes. On October 24, 1994, PIE and BII Australia entered
into a loan agreement to reflect the parties' lending relationship. The
maximum principal amount BII Australia may borrow from PIE pursuant to the
loan agreement is $631,125. The note bears interest at the rate of 12.5% per
annum and was due and payable on December 31, 1994. By written agreement (the
"Note Extension") dated September 13, 1996, the maturity date of the note was
extended until the earlier to occur of the closing of the Offering or December
31, 1996. As of June 30, 1995 and 1996, BII Australia owed PIE $606,152
(including accrued interest in the amount of $46,427), and $670,488 (including
accrued interest of $149,389), respectively. As of September 13, 1996, the
amount outstanding was $684,495, including accrued interest of $163,396.
Pursuant to the Note Extension, PIE and BII Australia increased the maximum
amount BII Australia may borrow pursuant to the loan agreement to $710,000.
The Company intends to apply a portion of the proceeds of the Offering to
repay all amounts owed to PIE. See "Use of Proceeds."
BII Australia periodically purchases certain computer equipment from PIE.
For the period from September 2, 1993 (inception) to June 30, 1994 and the
fiscal years ended June 30, 1995 and 1996, BII Australia's purchases totaled
$0, $15,356 and $15,792, respectively.
Mark Miller is a director and shareholder of Multimedia Connexion Pty. Ltd.
BII Australia periodically purchases hardware and software from Multimedia
Connexion Pty. Ltd. For the period from September 2, 1993 (inception) and the
fiscal years ended June 30, 1995 and 1996, BII Australia purchased computer
equipment totaling $0, $12,304 and $15,724, respectively.
Sega Ozisoft, Mark Dyne and Kevin Bermeister:
In December 1994, BII Australia entered into a Software License Agreement
(the "Sega Agreement") with Sega Ozisoft. Mark Dyne and Kevin Bermeister are
directors and shareholders of Sega Ozisoft and of the Company. Pursuant to the
terms of the Sega Agreement, Sega Ozisoft became the exclusive distributor in
Australia and New Zealand of certain CD-ROM software products developed by BII
Australia. Pursuant to the terms of the Sega Agreement, BII Australia received
non-refundable advances totaling $71,040 from Sega Ozisoft in the fiscal year
ended June 30, 1995. In addition, BII Australia is entitled to receive royalty
payments of $6.31 per net unit sold, after Sega Ozisoft recoups the advance.
Such royalty is reducible to $4.73 per net unit sold after 2000 units have
been sold for each title. The non-refundable advances are recoupable from the
royalties earned by BII Australia under the Sega Agreement. As of September
12, 1996, other than its non-refundable advance, BII Australia had received no
royalty payments relating to the Sega Agreement. The Sega Agreement expires on
December 15, 1996.
Since February 1994, BII Australia has purchased an aggregate of
approximately $38,124 in goods from Packard Bell Australia. Kevin Bermeister
is a director and each of Kevin Bermeister and Mark Dyne is a shareholder of
Packard Bell Australia.
In January 1996, BII Australia entered into a Multimedia Software
Development and Production Agreement (the "Development Agreement") with Sega
Ozisoft for Cyberswine. Pursuant to the terms of the Development Agreement,
BII Australia is entitled to receive $165,690 for certain assistant production
services. Amounts are payable by Sega Ozisoft upon attainment of mutually
determined milestones. In addition, BII Australia is entitled to 2.5% in
royalties on net revenues, as defined by the agreement. As of June 30, 1996,
Brilliant had received $120,396 and had recorded a receivable of $52,146,
which was received in July and August 1996.
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On September 13, 1996 the Company and Sega Ozisoft entered into the SAND
Acquisition Agreement. Mark Dyne and Kevin Bermeister both currently serve as
directors of Sega Ozisoft and are significant shareholders of Sega Ozisoft.
Pursuant to the SAND Acquisition Agreement, the Company will acquire all of
the assets of SAND and in consideration therefor will issue a one year
$1,500,000 mandatorily convertible note to Sega Ozisoft. The SAND Note bears
interest at a rate of 8% per annum. Concurrent with the closing of the
Offering, the SAND Note automatically will be converted into 780,001 shares of
Common Stock. The terms of the SAND Acquisition were determined by arms length
negotiations between Messrs. Dyne and Bermeister and Averil Associates, Inc.
on behalf of the Company and by the Board of Directors of Sega Ozisoft, with
Messrs. Dyne and Bermeister abstaining, on behalf of Sega Ozisoft. See "The
Company."
The Sand Acquisition Agreement also provides that the Company shall pay to
Sega Ozisoft a royalty of 12.5% of "Adjusted Gross Receipts" on the Cyberswine
multipath movie. "Adjusted Gross Receipts" is defined as the gross receipts
received by the Company on the Cyberswine multipath movie after deducting any
royalties and fees payable to Cyberswine licensors. Pursuant to an agreement
between Sega Ozisoft and the licensor of the characters and content of
Cyberswine, the Company will be required to pay to the Cyberswine licensor a
royalty of 2% of gross revenues less cost of goods on all sales of Cyberswine
products. In addition, so long as Sega Ozisoft maintains ownership of at least
7% of the outstanding equity securities of the Company, the Company has agreed
to use its best efforts to cause a nominee of Sega Ozisoft reasonably
acceptable to the Company to be nominated by the Board of Directors of the
Company for election as a director of the Company so that Sega Ozisoft either
has one representative on the Board of Directors of the Company or one
representative nominated for election at the succeeding annual stockholders
meeting. Kevin Bermeister has been nominated by Sega Ozisoft to serve on the
Board of Directors.
Pursuant to the SAND Acquisition Agreement, Sega Ozisoft has agreed to fund
certain development expenses of the Company prior to the closing of the
Offering; and the Company has agreed to reimburse Sega Ozisoft from the
proceeds of the Offering for all expenses advanced by Sega Ozisoft for any
period after October 31, 1996, and all expenses in excess of $59,175 per month
advanced by Sega Ozisoft for August, September and October 1996.
Monto, an investment holding company in which Messrs. Dyne and Bermeister
hold significant equity interests, has entered into a multimedia production
agreement with BII Australia dated March 14, 1995 whereby Monto paid BII
Australia $180,000 to be used to develop a series of two CD-ROM interactive
magazine programs based on the Beyond 2000 television series. BII Australia
will secure publication and distribution of the completed software packages
and is obligated to pay to Monto 50% of the net receipts from the
commercialization of the Beyond 2000 product. As of June 30, 1996, net
receipts totaled approximately $24,624 and payments to Monto totaled $12,312.
In addition, a liability to Monto for $7,425 was recorded at June 30, 1996.
In November 1995, BII Australia entered into a Distribution Agreement (the
"Consumer Electronics Agreement") with Consumer Electronics. Each of Mark Dyne
and Kevin Bermeister is a director and significant shareholder of Consumer
Electronics. BII Australia developed, pursuant to the Consumer Electronics
Agreement, several CD-ROM software entertainment products to be distributed by
Consumer Electronics in South Africa and neighboring territories. In addition,
BII Australia granted to Consumer Electronics certain bundling rights to the
software products in the same territories. Pursuant to the Consumer
Electronics Agreement, BII Australia is entitled to a non-refundable advance
of $84,700, of which $21,175 was paid in fiscal year ended June 30, 1996. In
addition, BII Australia is entitled to receive royalty payments for each unit
sold pursuant to the distribution rights and the bundling of the software
products, after Consumer Electronics recoups the advance. Net Revenues are
defined in the Consumer Electronics Agreement as gross receipts less
applicable sales and VAT taxes. Royalties have not yet been accrued pursuant
to the Consumer Electronics Agreement. The Consumer Electronics Agreement
expires on December 6, 1996.
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Other:
In September 1995, BII Australia entered into a Distribution Agreement (the
"Ocean Agreement") with Ocean of America, Inc. ("Ocean"). Ray Musci, a
director of the Company, is currently a director and significant shareholder
of Ocean. BII Australia granted to Ocean certain retail distribution and
bundling rights in North America and Europe to the software products developed
by BII Australia. Pursuant to the terms of the Ocean Agreement, BII Australia
was entitled to receive a non-refundable advance from Ocean of approximately
$825,000 in 1996. In addition, BII Australia is entitled to receive royalty
payments in exchange for a percentage of Net Revenues generated from
distribution sales of the CD-ROM entertainment software products and a
percentage of Net Revenues received by Ocean from bundling of the software
products, after Ocean recoups the advance. "Net Revenues" are defined as gross
receipts less returns and certain other expenses. Through September 1, 1996,
Ocean had paid approximately $492,000 against the non-refundable advance.
Royalties have not yet been accrued in connection with this distribution
arrangement. The Ocean Agreement expires on September 29, 1997, subject to a
two year extension under certain circumstances.
In August 1996, the Company issued an aggregate of 1,000,000 shares of its
Common Stock to the two stockholders of BII Australia, PIE and Reefknot, in
exchange (the "Exchange") for all of the capital stock of BII Australia held
by each of PIE and Reefknot. As a result of the Exchange, the Company acquired
all of the outstanding capital stock of BII Australia, PIE was issued 117,650
shares of Common Stock and Reefknot was issued 882,350 shares of Common Stock.
In September 1996, the Company executed a promissory note in favor of
Reefknot in the principal amount of $150,000. The note bears interest at the
rate of 10% per annum and is due and payable on the earlier to occur of the
closing of the Offering and September 10, 1997.
Averil Associates, Inc. ("Averil Associates"), a financial advisory firm
founded and controlled by Diana Maranon, has, since November 1995, performed
various services for the Company including investigation of strategic
alternatives and assistance with the Offering. As consideration for such
services, the Company has paid to Averil Associates the aggregate amount of
$25,000, plus out of pocket expenses. As additional compensation for services
rendered, the Company granted to Chloe Holdings, Inc. ("Chloe"), an affiliate
of Averil Associates, warrants to purchase 40,222 shares of Common Stock with
an exercise price of $.0326 per share and an additional $200,000 payable upon
consummation of the Offering. The warrants are exercisable upon consummation
of the Offering. The value of the warrants is calculated to be approximately
$501,000 and will be treated as a direct cost of the Offering. The Company has
entered into an indemnification agreement with Averil Associates pursuant to
which the Company will indemnify Averil Associates, Chloe, and Ms. Maranon
against any amounts these parties may become obligated to pay in connection
with Ms. Maranon's service as secretary and as a director of and consultant to
the Company. The Company plans to continue to engage Averil Associates;
however, the Company is unable to currently estimate the extent to which it
will use Averil Associates in the future.
Certain of the Company's directors and officers, including Mark Dyne and
Kevin Bermeister who are also directors or officers of potential competitors
and/or strategic partners of the Company. These relationships may give rise to
conflicts of interest between the Company, on the one hand, and one or more of
the directors, officers, and/or their affiliates, on the other hand. The
Company's Certificate of Incorporation provides that Mark Dyne and Kevin
Bermeister are required to present to the Company any corporate opportunities
for the development of any type of interactive digital entertainment with the
exception of opportunities for participation in the development by others of
interactive digital entertainment where publishing and/or distribution rights
for the product to be developed are offered to Messrs. Dyne and/or Bermeister
solely for Australia, New Zealand and/or Southern Africa. See "Risk Factors--
Conflicts of Interest."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 16, 1996 and as
adjusted to reflect the sale of 2,000,000 shares of Common Stock offered
hereby, for (i) each person who is known to the Company to be the beneficial
owner of more than 5% of the outstanding Common Stock, (ii) each of the
Company's directors, (iii) each of the Named Executive Officers, and (iv) all
directors and executive officers of the Company as a group. The address of each
person listed is in care of the Company, 6355 Topanga Canyon Boulevard, Suite
513, Woodland Hills, California 91367, unless otherwise set forth below such
person's name.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING (1) AFTER THE OFFERING (1)
---------------------------- ----------------------------
NUMBER PERCENT NUMBER PERCENT
NAME AND ADDRESS OF SHARES OF CLASS OF SHARES OF CLASS
- ---------------- --------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Insinger Group, as man- 1,822,118 35.0% 1,822,118 25.3%
ager of the Reefknot
Limited (2)............
One Stokes Place
St. Stephens Green
Dublin 2
Republic of Ireland
Mark Dyne............... 795,600 15.3 795,600 11.0
Kevin Bermeister........ 795,600 15.3 795,600 11.0
Sega Ozisoft Pty. Ltd... 780,001 15.0 780,001 10.8
Bldg. A, Southern Indus-
trial Estates,
200 Coward Street, Mas-
cot, NSW
2020 Australia
Packard Bell NEC (3).... 600,000 10.3 600,000 7.7
One Packard Bell Way
Sacramento, California
95828
PIE (4)................. 500,013 9.6 500,013 6.9
17 the Corso
Manly, NSW, Australia
2095
Alan Saloner............ 486,669 9.4 486,669 6.8
Morgan Creek (5)........ 85,000 1.6 85,000 1.2
4000 Warner Boulevard
Building 76
Burbank, California
91522
Diana Maranon (6)....... 65,222 1.2 65,222 *
Gary Barber (7)......... 25,000 * 25,000 *
Ray Musci (7)........... 25,000 * 25,000 *
Garth Saloner (7)....... 25,000 * 25,000 *
Jeff Scheinrock (7)..... 25,000 * 25,000 *
Anthony Rose............ 20,000 * 20,000 *
All of the directors and
executive officers as a
group
(9 persons) (8)........ 2,276,435 42.4 2,276,435 30.9
</TABLE>
(footnotes on following page)
58
<PAGE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that deem shares to be beneficially
owned by any person who has or shares voting or investment power with
respect to such shares. Unless otherwise indicated, the persons named in
this table have sole voting and sole investment power with respect to all
shares shown as beneficially owned, subject to community property laws
where applicable. In computing the number of shares beneficially owned by
a person and the percentage ownership of that person, shares of Common
Stock subject to options or warrants held by that person that are
currently exercisable or exercisable within 60 days of September 16, 1996
are deemed outstanding. Such shares, however, are not deemed outstanding
for the purposes of computing the percentage ownership of each other
person.
(2) Insinger Group is the manager of Reefknot Limited, and as such, controls
the disposition and voting of the shares of Common Stock held by Reefknot.
(3) Consists of 600,000 shares of Common Stock underlying warrants which are
or will become exercisable on or prior to November 16, 1996. See
"Description of Capital Stock--Warrants."
(4) Mark Miller and his wife, are the sole stockholders of PIE.
(5) Consists of 85,000 shares of Common Stock underlying warrants which are or
will become exercisable on or prior to November 16, 1996. See "Description
of Capital Stock--Warrants."
(6) Consists of (i) 25,000 shares of Common Stock of the Company reserved for
issuance upon exercise of stock options which are or will become
exercisable on or prior to November 16, 1996; and (ii) 40,222 shares of
Common Stock underlying warrants which are or will become exercisable on
or prior to November 16, 1996. See "Description of Capital Stock--
Warrants."
(7) Consists of 25,000 shares of Common Stock of the Company reserved for
issuance upon exercise of stock options which are or will become
exercisable on or prior to November 16, 1996.
(8) Includes (i) 125,000 shares of Common stock of the Company reserved for
issuance upon exercise of stock options which are or will become
exercisable on or prior to November 16, 1996; and (ii) 40,222 shares of
Common Stock underlying warrants which are or will become exercisable on
or prior to November 16, 1996. See "Description of Capital Stock--
Warrants."
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The total number of shares that the Company is authorized to issue is
31,000,000, consisting of 30,000,000 shares of Common Stock, par value $0.001
per share, and 1,000,000 shares of Preferred Stock, par value $0.001 per
share. The following statements are brief summaries of certain provisions
relating to the Company's capital stock.
COMMON STOCK
At September 16, 1996, the Company had 5,200,001 shares of Common Stock
outstanding held by approximately six holders of record of the Company's
Common Stock. After the Offering there will be 7,200,001 shares of Common
Stock outstanding. The holders of Common Stock are entitled to one vote for
each share held of record on all matters on which the holders of Common Stock
are entitled to vote. The holders of Common Stock are entitled to receive
ratably dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled subject to
the rights of holders of Preferred Stock issued by the Company, if any, to
share ratably in all assets remaining available for distribution to them after
payment of liabilities and after provision is made for each class of stock, if
any, having preference over the Common Stock.
The holders of Common Stock have no preemptive or conversion rights and they
are not subject to further calls or assessments by the Company. There are no
redemption or sinking fund provisions applicable to the Common Stock. The
outstanding shares of Common Stock are, and the Common Stock issuable pursuant
to this Prospectus will be, when issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the authorized and
unissued Preferred Stock in one or more series with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without
stockholder approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights which adversely affect the voting power or
other rights of the holders of the Company's Common Stock. In the event of
issuance, the Preferred Stock could be utilized, under certain circumstances,
as a way of discouraging, delaying or preventing an acquisition or change in
control of the Company. The Company does not currently intend to issue any
shares of its Preferred Stock.
WARRANTS
In connection with its strategic relationships with Packard Bell NEC and
Morgan Creek (See "Business--Strategic Relationships"), on September 14, 1996
the Company issued to each of Packard Bell NEC and Morgan Creek warrants to
purchase 600,000 shares and 85,000 shares of the Common Stock of the Company,
respectively.
The warrant issued to Packard Bell NEC was purchased for $100.00 and is
exercisable in full upon the closing of the Offering at 100% of the initial
public offering price of the Common Stock per share and expires three years
from the date of grant. The warrant provides for piggyback registration
rights. See "--Registration Rights."
On or after the first anniversary of the closing of the Offering, the
Company has the right to redeem all, but not less than all, of the warrant
issued to Packard Bell NEC at a price of $0.001 per share by written notice
mailed 30 days prior to the redemption date. Such notice may be given within
20 days following any period of 15 consecutive trading days during which the
shares to be issued to Packard Bell NEC are publicly tradeable and the high
closing bid of the shares of Common Stock on the Nasdaq National Market
exceeds a per share price equal to 120% of the exercise price.
The warrants issued to Morgan Creek were purchased in the aggregate for
$100.00. Warrants to purchase 35,000 shares of Common Stock issued to Morgan
Creek are immediately exercisable at $10.00 per share and
60
<PAGE>
warrants to purchase the additional 50,000 shares of Common Stock are
immediately exercisable at $13.00 per share. Each of these warrants expire
three years from the date of grant. Each warrant provides for piggyback
registration rights. See "--Registration Rights." The Company has the right to
redeem all, but not less than all, of the warrants at a price of $0.001 per
share by written notice mailed 30 days prior to the redemption date. Such
notice may be given within 20 days following any period of 15 consecutive
trading days during which the shares to be issued to Morgan Creek are publicly
tradable and the high closing bid of the shares of Common Stock on the Nasdaq
National Market exceeds a per share price equal to 125% of the respective
warrant exercise prices.
As additional compensation to Averil Associates, the Company issued to Chloe
warrants to purchase 40,222 shares of Common Stock with an exercise price of
$.0326 per share. These warrants expire on September 14, 1999.
All of the warrants granted to Packard Bell NEC, Morgan Creek and Chloe are
entitled to equitable adjustments in the purchase price and in the number of
shares of Common stock and/or other securities deliverable upon exercise
thereof in the event of a stock dividend, stock split, reclassification,
reorganization, consolidation or merger.
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation provides that the Company's Board
of Directors is classified into three classes of directors. The Certificate of
Incorporation also provides that all stockholder action must be effected at a
duly called meeting of stockholders and not by a consent in writing. In
addition, the Company's Certificate of Incorporation and Bylaws provide that
only the Company's Chief Executive Officer, President or a majority of the
members of the Company's Board of Directors may call a special meeting of
stockholders. In addition, directors may not be removed without cause. The
Company also has the authority to issue one or more series of "blank check"
preferred stock. See "Preferred Stock." These provisions of the Certificate of
Incorporation and Bylaws could discourage potential acquisition proposals and
could delay or prevent a change in control of the Company. Such provisions
also may have the effect of preventing changes in the management of the
Company. See "Risk Factors--Effect of Certain Charter Provisions; Antitakeover
Effects of Certificate of Incorporation, Bylaws and Delaware Law."
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. That section provides, with certain exceptions, that
a Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate, or associate of such person, who is
an "interested stockholder" for a period of three years from the date that
such person became an interested stockholder unless: (i) the transaction
resulting in a person becoming an interested stockholder, or the business
combination, is approved by the board of directors of the corporation before
the person becomes an interested stockholder; (ii) the interested stockholder
acquires 85% or more of the outstanding voting stock of the corporation in the
same transaction that makes it an interested stockholder (excluding shares
owned by persons who are both officers and directors of the corporation, and
shares held by certain employee stock ownership plans); or (iii) on or after
the date the person becomes an interested stockholder, the business
combination is approved by the corporation's board of directors and by the
holders of at least 66 2/3% of the corporation's outstanding voting stock at
an annual or special meeting, excluding shares owned by the interested
stockholder. An "interested stockholder" is defined as any person that is (a)
the owner of 15% or more of the outstanding voting stock of the corporation or
(b) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
61
<PAGE>
REGISTRATION RIGHTS
After the Offering, the holders of 780,001 shares of Common Stock and the
holders of warrants to purchase 685,000 shares of Common Stock will be
entitled to certain rights with respect to registration of such shares under
the Security Act. If the Company proposes to register any of its securities
under the Securities Act at least 180 days subsequent to the Offering, Sega
Ozisoft, with respect to the shares of Common Stock issuable upon exercise of
the SAND Note and Common Stock issuable to Packard Bell NEC and Morgan Creek,
are entitled to notice of such registration and are entitled to include the
shares received upon conversion of the SAND Note and underlying the warrants,
respectively, in such registration, provided among other conditions, that the
underwriters of any offering have the right to limit the number of shares
included in such registration.
TRANSFER AGENT
The Company's transfer agent and registrar for its Common Stock is U.S.
Stock Transfer Corporation, 1745 Gardena Avenue, Glendale, California 91204-
2991.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Company's
Common Stock. Sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of the Common Stock.
Upon completion of the Offering, based on the number of shares outstanding
as of September 16, 1996, the Company will have outstanding an aggregate of
7,200,001 shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
the 2,000,000 shares sold in the Offering will be freely tradeable without
restriction or further registration under the Securities Act, unless held by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining 5,200,001 shares of Common Stock held by
existing shareholders are "restricted" securities within the meaning of Rule
144 under the Securities Act. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which rules are summarized below.
All holders of the Company's securities outstanding prior to the Offering
will, prior to the Offering, be subject to "lock-up" provisions providing that
such holders will not offer to sell, contract to sell or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to, any shares of
Common Stock, or any options or warrants to purchase Common Stock, or any
securities convertible into or exercisable for Common Stock, of the Company
for 180 days, and in the case of Mr. Dyne and Mr. Bermeister, one year, after
the effective date of the Offering without the prior written consent of the
representatives of the underwriters. As a result of these contractual
restrictions, notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, no shares will be eligible for
immediate sale on the effective date of the Offering and, unless earlier
released from the lock-up provisions, 2,322,131 currently outstanding shares
of Common Stock will be eligible for sale 180 days after the effective date of
the Offering, subject in all cases to the volume limitations of Rules 144 and
701 summarized below.
Additionally, pursuant to Rules 144 and 701, beginning 180 days after the
effective date of the Offering, upon the expiration of contractual lock-up
provisions with the Company, an aggregate of approximately 125,000 shares will
be vested and eligible for sale upon the exercise of outstanding stock
options.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least two years but less than
three years, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of (i) 1% of the then outstanding
shares of Common Stock (approximately 72,000 shares immediately after the
Offering) or (ii) the average weekly trading volume during the four calendar
weeks immediately preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission. Sales pursuant to
62
<PAGE>
Rule 144 are subject to certain requirements relating to manner of sale,
notice and availability of current public information about the Company. A
person (or person whose shares are aggregated) who is not deemed to have been
an affiliate of the Company at any time during the 90 days immediately
preceding the sale and who has beneficially owned his or her shares for at
least three years is entitled to sell such shares pursuant to Rule 144(k)
without regard to the limitations described above. In general, under Rule 701
under the Securities Act as currently in effect, any employee, consultant or
advisor of the Company who purchases shares from the Company in connection
with a compensatory stock or option plan or other written agreement related to
compensation is eligible to resell such shares 90 days after the effective
date of the Offering in reliance on Rule 144, but without compliance with
certain restrictions contained in Rule 144.
At September 16, 1996, the Company had reserved an aggregate of 1,080,000
shares of Common Stock for issuance pursuant to the 1996 Plan, and options to
purchase 155,000 shares were outstanding under the 1996 Plan. The Company
intends to file a registration statement under the Securities Act to register
the 1,080,000 shares of Common Stock reserved for issuance under the 1996
Plan. Such registration statement is expected to be filed shortly following
the date of this Prospectus and will become effective immediately upon filing
with the Securities and Exchange Commission. Shares issued under the 1996 Plan
after the effective date of such registration statement generally will be
available for sale to the public without restriction, except for shares issued
to affiliates of the Company, which will remain subject to the volume and
manner of sale limitations of Rule 144 and the 180 day lock-up provisions. See
"Underwriting." Additionally, after the Offering, the holders of 780,001
shares of Common Stock and the holders of warrants to purchase 685,000 shares
of Common Stock will be entitled to certain rights with respect to
registration of such shares under the Securities Act.
63
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated (the "Underwriting Agreement"), the Underwriters named
below (the "Underwriters"), for whom CS First Boston Corporation and
Cruttenden Roth Incorporated are acting as representatives (the
"Representatives"), have severally but not jointly agreed to purchase from the
Company the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ----------
<S> <C>
CS First Boston Corporation.......................................
Cruttenden Roth Incorporated......................................
---
Total.............................................................
===
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the shares of the Common Stock offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased. The underwriting agreement provides that, in the event
of a default by an Underwriter, in certain circumstances the purchase
commitments of non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Company has granted to the Underwriters an option, expiring at the close
of business on the 30th day after the date of this Prospectus, to purchase up
to 300,000 additional shares at the initial public offering price less the
underwriting discounts and commissions, all as set forth on the cover page of
this Prospectus. Such option may be exercised only to cover over-allotments in
the sale of the shares of Common Stock. To the extent such option is
exercised, each Underwriter will be obligated, subject to certain conditions,
to purchase approximately the same percentage of such additional shares of
Common Stock as it was obligated to purchase pursuant to the Underwriting
Agreement.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the
public offering price set forth on the cover page of this Prospectus and,
through the Representatives, to certain dealers at such price less a
concession of $ per share, and the Underwriters and such dealers may allow
a discount of $ per share on sales to certain other dealers. After the
initial public offering, the public offering price and concession and discount
to dealers may be changed by the Representatives.
The Representatives have informed the Company that they do not expect
discretionary sales by the Underwriters to exceed 5% of the shares being
offered hereby.
The Company has agreed that it will not offer, sell, contract to sell,
announce its intention to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933 (the "Securities Act") relating to,
any shares of its Common Stock or securities convertible into or exchangeable
or exercisable for any shares of the Company's Common Stock without the prior
written consent of CS First Boston Corporation for a period of 180 days after
the date of this Prospectus.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in
respect thereof.
64
<PAGE>
Application has been made to list the shares of Common Stock on the Nasdaq
Stock Market's National Market under the symbol "BRIL."
Prior to the Offering, there has been no public trading market for the
Common Stock. The initial public offering price for the Common Stock will be
determined by negotiation between the Company and the Representatives. Among
the factors to be considered in determining the initial public offering price
will be the market valuation of comparable companies; market conditions for
initial public offerings; the history of, and the prospects for, the Company's
business; the Company's past and present operations; the Company's current
financial position; an assessment of the Company's management; and the general
condition of the securities markets. The estimated initial public offering
price range set forth on the cover page of this Preliminary Prospectus is
subject to change as a result of market conditions and other factors.
Pursuant to the terms of lock-up provisions, all officers, directors and all
securityholders of the Company will have agreed that, until 180 days, and in
the case of Mr. Dyne and Mr. Bermeister, one year, after the effective date of
the Registration Statement of which this Prospectus is a part (the "lock-up
period"), they will not offer, sell, contract to sell or otherwise dispose of
or grant any rights with respect to any shares of Common Stock, any options or
warrants to purchase shares of Common Stock or any securities convertible into
or exchangeable for shares of Common Stock now owned or hereafter acquired
directly by such holders or with respect to which they have the power of
disposition, without the prior written consent of the Representatives of the
Underwriters. Approximately 2,322,131 shares of Common Stock subject to the
lock-up provisions will become eligible for immediate public sale following
expiration of the lock-up period, subject to the provisions of Rule 144. The
Representatives of the Underwriters may, in their sole discretion, and at any
time without notice, release all or a portion of the securities subject to the
lock-up provisions. See "Shares Eligible for Future Sale." In addition, the
Company has agreed that until the expiration of the lock-up period, the
Company will not offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock, any options or warrants to purchase Common Stock or
any securities convertible into or exchangeable for shares of Common Stock,
other than the Company's sales of shares in this Offering, the issuance of
shares of Common Stock upon the exercise of outstanding options, the grant of
options to purchase shares or the issuance of shares of Common Stock without
the prior written consent of the Representatives of the Underwriters.
65
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare
and file a prospectus with the securities regulatory authorities in each
province where trades of the Common Stock are effected. Accordingly, any
resale of the Common Stock in Canada must be made in accordance with
applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of the Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer from
whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such Common
Stock without the benefit of a prospectus qualified under such securities
laws, (ii) where required by law, that such purchaser is purchasing as
principal and not as agent, and (iii) such purchaser has reviewed the text
above under "Resale Restrictions".
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
All of the Company's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Ontario purchasers to effect service of process within Canada
upon the Company or such persons. All or a substantial portion of the assets
of the Company and such persons may be located outside of Canada and, as a
result, it may not be possible to satisfy a judgment against the Company or
such persons in Canada or to enforce a judgment obtained in Canadian courts
against such Company or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of the Common Stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Common Stock acquired by such purchaser pursuant to the Offering. Such
report must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #95/17, a copy of which may be obtained from the Company.
Only one such report must be filed in respect of the Common Stock acquired on
the same date and under the same prospectus exemption.
66
<PAGE>
LEGAL MATTERS
Counsel for the Company, Troop Meisinger Steuber & Pasich, LLP, Los Angeles,
California, have rendered an opinion to the effect that the Common Stock
offered by the Company upon sale will be duly and validly issued, fully paid
and non-assessable. Wilson, Sonsini, Goodrich & Rosati, Palo Alto, California,
has acted as counsel to the Underwriters in connection with certain legal
matters relating to the Offering.
EXPERTS
The consolidated financial statements of Brilliant Digital Entertainment,
Inc. at June 30, 1996 and 1995, and for each of the two years in the period
ended June 30, 1996 and for the period from September 2, 1993 (inception) to
June 30, 1994, as well as the financial statement of Sega Australia New
Developments (a development stage business unit of Sega Ozisoft Pty. Ltd.) as
of June 30, 1996 and 1995 and for each of the two years in the period ended
June 30, 1996 and the period from September 2, 1993 through June 30, 1994,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditor, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement under the Securities Act with
respect to the shares offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits
thereto. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and
with respect to any contract or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement is qualified in
its entirety by such reference. For further information with respect to the
Company and the shares offered hereby, reference is hereby made to the
Registration Statement and exhibits thereto. A copy of the Registration
Statement, including the exhibits thereto, may be inspected without charge at
the Securities and Exchange Commission's principal office in Washington, D.C.,
and copies of all or any part thereof may be obtained from the Public
Reference Section of the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of certain prescribed
rates.
Upon consummation of the Offering, the Company will become subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file reports and other information with the Securities and Exchange
Commission in accordance with its rules. Such reports and other information
concerning the Company may be inspected and copied at the public reference
facilities referred to above as well as certain regional offices of the
Securities and Exchange Commission.
67
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF BRILLIANT DIGITAL
ENTERTAINMENT, INC.
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets as of June 30, 1995 and 1996................. F-3
Consolidated Statements of Operations for the period from September 2,
1993 (inception) to June 30, 1994 and the years ended June 30, 1995 and
1996.................................................................... F-4
Consolidated Statements of Stockholders' Deficiency for the period from
September 2, 1993 (inception) to June 30, 1994 and the years ended June
30, 1995 and 1996....................................................... F-5
Consolidated Statements of Cash Flows for the period from September 2,
1993 (inception) to June 30, 1994 and the years ended June 30, 1995 and
1996.................................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
AUDITED FINANCIAL STATEMENTS OF SEGA AUSTRALIA NEW DEVELOPMENTS
Report of Independent Auditors........................................... F-15
Balance Sheets at June 30, 1995 and 1996................................. F-16
Statements of Operations and Business Unit Deficit for the period from
March 1, 1994 (inception) to June 30, 1994 and the years ended June 30,
1995 and 1996........................................................... F-17
Statements of Cash Flows for the period from March 1, 1994 (inception) to
June 30, 1994 and the years ended June 30, 1995 and 1996................ F-18
Notes to Financial Statements............................................ F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Brilliant Digital Entertainment, Inc.
We have audited the accompanying consolidated balance sheets of Brilliant
Digital Entertainment, Inc. as of June 30, 1996 and 1995, and the related
statements of operations, stockholders' deficiency, and cash flows for the
period from September 2, 1993 (inception) to June 30, 1994 and for each of the
two years in the period ended June 30, 1996. 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 audit 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Brilliant
Digital Entertainment, Inc. at June 30, 1996 and 1995, and the results of its
operations and its cash flows for each of the two years in the period ended
June 30, 1996 and for the period from September 2, 1993 to June 30, 1994, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Brilliant Digital Entertainment, Inc. will continue as a going
concern. As more fully described in Note 1, Brilliant Digital Entertainment,
Inc. has a working capital deficiency and an accumulated stockholders'
deficit. These conditions raise substantial doubt about Brilliant Digital
Entertainment, Inc.'s ability to continue as a going concern. Management's
plans in regards to these matters are also described in Notes 1 and 10. These
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the outcome of
this uncertainty.
Ernst & Young LLP
September 13, 1996
Los Angeles, California
F-2
<PAGE>
BRILLIANT DIGITAL ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1995 1996
--------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 49,283 $ 53,061
Accounts receivable................................... -- 657,550
Other assets.......................................... 6,386 6,863
--------- ----------
Total current assets.................................... 55,669 717,474
Property, plant and equipment, net...................... 171,898 198,272
--------- ----------
Total assets............................................ $ 227,567 $ 915,746
========= ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses................. $ 45,012 $ 88,389
Deferred revenue...................................... 193,725 213,003
Notes payable, related party.......................... 628,986 732,989
Other................................................. 6,796 10,798
--------- ----------
Total current liabilities............................... 874,519 1,045,179
Commitments and contingencies
Stockholders' deficiency:
Preferred Stock, ($0.001 par value; 1,000,000 shares
authorized; no shares issued or outstanding)......... -- --
Common Stock ($0.001 par value; 30,000,000 shares
authorized, 4,473,040 shares issued and outstanding
in 1995; and 4,420,000 shares issued and outstanding
in 1996)............................................. 4,473 4,420
Additional paid-in capital............................ 10,049 11,390
Accumulated deficit................................... (673,333) (119,921)
Translation adjustments............................... 11,859 (25,322)
--------- ----------
Total stockholders' deficiency.......................... (646,952) (129,433)
--------- ----------
Total liabilities and stockholders' deficiency.......... $ 227,567 $ 915,746
========= ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
BRILLIANT DIGITAL ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 2,
1993
(INCEPTION) TO YEAR ENDED JUNE 30,
JUNE 30, ----------------------
1994 1995 1996
-------------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Royalties from licensing arrange-
ments............................... $ 10,977 $ 752,108 $1,291,015
Development fees..................... -- 88,800 585,743
Software sales....................... -- 1,888 177,119
---------- ---------- ----------
Total revenues..................... 10,977 842,796 2,053,877
Cost of revenues....................... 211,712 655,939 738,842
---------- ---------- ----------
Gross profit........................... (200,735) 186,857 1,315,035
Operating expenses:
Sales and marketing.................. 2,100 116,435 163,038
General and administrative........... 19,458 223,470 365,491
Research and development............. 14,594 183,000 174,395
Depreciation......................... 9,816 43,379 101,824
---------- ---------- ----------
Total operating expenses........... 45,968 566,284 804,748
---------- ---------- ----------
Income (loss) from operations.......... (246,703) (379,427) 510,287
Other income (expense):
Export market development grant...... -- -- 122,488
Gain on foreign exchange transac-
tions............................... -- -- 13,382
Interest income...................... -- 707 2,017
Interest expense..................... (2,777) (45,133) (94,762)
---------- ---------- ----------
Total other income (expense)....... (2,777) (44,426) 43,125
---------- ---------- ----------
Income (loss) before income taxes...... (249,480) (423,853) 553,412
Provision for income taxes............. -- -- --
---------- ---------- ----------
Net income (loss)...................... $ (249,480) $ (423,853) $ 553,412
========== ========== ==========
Net income (loss) per share............ $ (0.06) $ (0.10) $ 0.12
========== ========== ==========
Common shares used in computing net
income (loss) per share............... 4,420,000 4,424,420 4,473,040
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
BRILLIANT DIGITAL ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
----------------- ADDITIONAL EARNINGS
NUMBER OF PAID-IN (ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT TOTAL
--------- ------ ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 2,
1993 (Inception)....... -- $ -- $ -- $ -- $ -- $ --
Proceeds from issuance
of shares............ 4,420,000 4,420 10,140 -- -- 14,560
Foreign exchange
translation.......... -- -- -- -- (2,771) (2,771)
Net loss.............. -- -- -- (249,480) -- (249,480)
--------- ------ ------- --------- -------- ---------
Balance at June 30,
1994................... 4,420,000 4,420 10,140 (249,480) (2,771) (237,691)
Proceeds from sale of
shares to employees.. 53,040 53 122 -- -- 175
Foreign exchange
translation.......... -- -- (213) -- 14,630 14,417
Net loss.............. -- -- -- (423,853) -- (423,853)
--------- ------ ------- --------- -------- ---------
Balance at June 30,
1995................... 4,473,040 4,473 10,049 (673,333) 11,859 (646,952)
Repurchase of shares.. (44,200) (44) (108) -- -- (152)
Cancellation of
shares............... (8,840) (9) 9 -- -- --
Foreign exchange
translation.......... -- -- 1,440 -- (37,181) (35,741)
Net income............ -- -- -- 553,412 -- 553,412
--------- ------ ------- --------- -------- ---------
Balance at June 30,
1996................... 4,420,000 $4,420 $11,390 $(119,921) $(25,322) $(129,433)
========= ====== ======= ========= ======== =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
BRILLIANT DIGITAL ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 2,
1993
(INCEPTION) TO YEAR ENDED JUNE 30,
JUNE 30, ---------------------
1994 1995 1996
-------------- ---------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....................... $(249,480) $ (423,853) $ 553,412
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization......... 9,816 43,379 101,824
Changes in operating assets and lia-
bilities:
Accounts receivable................. -- -- (657,550)
Accounts payable and accruals....... 48,806 (3,794) 43,377
Other assets........................ -- (6,386) (477)
Deferred revenue.................... 131,040 62,685 19,278
Other liabilities................... -- 6,796 4,002
--------- ---------- ---------
Net cash provided by (used in) operating
activities............................. (59,818) (321,173) 63,866
INVESTING ACTIVITIES
Purchases of equipment.................. (60,854) (164,239) (128,198)
--------- ---------- ---------
Net cash used in investing activities... (60,854) (164,239) (128,198)
FINANCING ACTIVITIES
Increase (decrease) in Common Stock
value due to translation adjustments... -- (213) 1,440
Proceeds from issuance of shares........ 14,560 175 --
Repurchase of shares.................... -- -- (152)
Increase in note payable, related par-
ty..................................... 126,354 1,043,425 807,690
Repayments of note payable, related par-
ty..................................... -- (540,793) (703,687)
--------- ---------- ---------
Net cash provided by financing activi-
ties................................... 140,914 502,594 105,291
--------- ---------- ---------
NET INCREASE IN CASH AND CASH EQUIVA-
LENTS.................................. 20,242 17,182 40,959
Translation adjustments................. (2,771) 14,630 (37,181)
Cash and cash equivalents at beginning
of period.............................. -- 17,471 49,283
--------- ---------- ---------
Cash and cash equivalents at end of pe-
riod................................... $ 17,471 $ 49,283 $ 53,061
========= ========== =========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest............................ $ -- $ -- $ --
========= ========== =========
Income taxes........................ $ -- $ -- $ --
========= ========== =========
</TABLE>
See accompanying notes.
F-6
<PAGE>
BRILLIANT DIGITAL ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND GOING CONCERN ISSUES
In August 1996, a newly formed holding company, Brilliant Digital
Entertainment, Inc. (the "Company"), issued an aggregate of 1,000,000 shares
of its Common Stock in exchange for all of the capital stock of Brilliant
Interactive Ideas, Pty. Ltd., a company incorporated in the State of New South
Wales, Australia ("BII Australia") (the "Exchange"). BII Australia develops,
produces and markets interactive multimedia titles for the education and
entertainment markets. BII Australia operates principally in the computer
software industry, predominantly in Australia with significant exports to the
United States.
On September 13, 1996, the Company effected a 4.42 to 1 stock split (the
"Stock Split") resulting in a 3,420,000 increase in the number of shares of
Common Stock outstanding.
These financial statements have been restated to give retroactive effect to
the Exchange, the subsequent consolidation of the Company and BII Australia,
and the Stock Split.
The Company has entered into, and continues to negotiate, strategic
agreements intended to secure quality content for its digital entertainment
products. The Company has contracted to acquire the rights to proprietary
software tools which are designed to allow it to both develop a new genre of
digital entertainment products, and to produce ancillary products cost
effectively. These issues are discussed more fully under the heading
"Business" elsewhere in this Prospectus.
The Company is dependent upon continued financing to complete its research
and development programs, commercialize its technologies, and to finance the
planned growth of the Company's business. Management intends to raise
additional equity through an initial public offering of its common stock as
contemplated by this Prospectus (the "Offering"). To the extent the Company is
not able to raise the amounts of funds anticipated by the Offering, management
will investigate other financing alternatives such as privately placed third
party capital or other capital infusions. Reference is made to "Risk Factors"
appearing elsewhere in this Prospectus, which contains a detailed discussion
of certain risks associated with the Company's business.
2. SIGNIFICANT ACCOUNTING POLICIES
Foreign Currency Translation
The functional currency of BII Australia is its local currency, Australian
dollars. Assets and liabilities of BII Australia are translated into U.S.
dollars (the reporting currency) using current exchange rates ($0.718 at June
30, 1995 and $0.789 at June 30, 1996), and revenues and expenses are
translated into U.S. dollars using average exchange rates ($0.72 for the
period from September 2, 1993 to June 30, 1994, $0.739 for the year ended June
30, 1995 and $0.760 for the year ended June 30, 1996). The effects of foreign
currency translation adjustments are deferred and included as a component of
stockholders' equity.
Foreign currency transaction gains and losses are a result of the effect of
exchange rate changes on transactions denominated in currencies other than the
functional currency. Foreign currency transaction gains (losses) are included
in the statements of operations.
Net Income (Loss) Per Share
Net income (loss) per share is computed using the weighted average number of
shares of Common Stock outstanding. Fully diluted per share amounts are not
significantly different from primary per share amounts.
Net income (loss) per share has been calculated using the number of common
shares outstanding at the end of each period shown, after giving retroactive
effect to the Exchange and the Stock Split (see Note 1).
F-7
<PAGE>
BRILLIANT DIGITAL ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
Income Taxes
The Company uses the liability method to account for income taxes as
required by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"). Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using enacted tax
rules and laws that will be in effect when the differences are expected to
reverse.
Research and Development Costs
The Company incurs research and development costs relating to the
development of traditional CD-ROM software tools which provide the technical
infrastructure for production of CD-ROM titles produced by the Company. The
Company incurred research and development costs of $14,594, $183,000 and
$174,395 for the period from September 2, 1993 to June 30, 1994 and the fiscal
years ended June 30, 1995 and 1996, respectively.
The Company's accounting policy follows Statement of Financial Accounting
Standards No. 86 ("SFAS No. 86"), which provides for the capitalization of
certain software development costs once technological feasibility is
established. The capitalized costs are then amortized on a straight-line basis
over the estimated product life or on a ratio of current revenues to total
projected product revenues, whichever is greater. No software development
costs were capitalized in the period from September 2, 1993 to June 30, 1994
or the fiscal years ended June 30, 1995 and 1996.
Revenue Recognition
Royalties: The Company grants distribution rights to its CD-ROM products to
distributors in exchange for a non-refundable recoupable advance and a
percentage of sales of the products. Revenue related to the non-refundable
advance is recognized when the CD-ROM master is delivered to the customer.
Revenue related to a percentage of sales is recognized upon notification by
the distributor that a royalty has been earned by the Company.
Development Fees: In exchange for the development of CD-ROM products
pursuant to an agreement with a software customer, the Company receives
development fees. The software development agreements generally specify
certain "milestones" which must be achieved throughout the development
process. As these milestones are achieved, the Company recognizes the portion
of the development fee allocated to each milestone.
Software Sales: Software sales result from the Company selling to customers
completed software products developed by the Company. Software sales revenues
are recognized upon shipment of product.
It is the Company's policy to provide for estimated returns at the time
software sales revenue is recognized. For the years ended June 30, 1995 and
1996 the Company had experienced no returns on software sales.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-8
<PAGE>
BRILLIANT DIGITAL ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
Cash Equivalents
BII Australia considers all highly liquid investments with a maturity of
three months or less when acquired to be cash equivalents.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash, short-term
investments and accounts receivable. The Company has investment policies that
limit investments to short-term investment grade securities. Accounts
receivable are principally from distributors and retailers of the Company's
products.
The Company analyzes customer receivables to determine the necessity of an
allowance for doubtful accounts. For the period from September 2, 1993 through
June 30, 1994 and the years ended June 30, 1995 and 1996, no such allowance
was considered necessary.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided using the straight-line method over estimated useful
lives ranging up to three years.
3. RELATED PARTY TRANSACTIONS
Pacific Interactive Education Pty. Ltd. ("PIE") entered into an oral
agreement with BII Australia whereby Mark Miller, a shareholder and director
of PIE and a director of BII Australia, provides consulting services to BII
Australia. Pursuant to the oral agreement, PIE was paid $0, $23,209 and
$69,263 for the period from September 2, 1993 to June 30, 1994 and years ended
June 30, 1995 and 1996, respectively, for such services.
Since March 1994, PIE has made periodic cash advances to BII Australia for
working capital purposes. On October 24, 1994, PIE and BII Australia entered
into a formal loan agreement to reflect the parties' lending relationship. The
maximum amount BII Australia may borrow from PIE pursuant to the loan
agreement is $631,125. The note bears interest at an annual rate of 12.5% and
was due and payable on December 31, 1994. By written agreement (the "Note
Extension") dated September 13, 1996, the maturity of the note was extended
until the earlier to occur of the closing of the Offering or December 31,
1996. As of June 30, 1995, BII Australia owed PIE $606,152, including accrued
interest of $46,427. As of June 30, 1996, BII Australia owed PIE $670,488,
including accrued interest in the amount of $149,389. Pursuant to the Note
Extension, PIE and BII Australia increased the maximum amount BII Australia
may borrow under the note to $710,000.
BII Australia periodically purchases certain computer equipment from PIE.
For the period from September 2, 1993 (inception) to June 30, 1994, and the
fiscal years ended June 30, 1995 and 1996, BII Australia's purchases totaled
$0, $15,356 and $15,792, respectively.
Mark Miller is a shareholder of Multimedia Connexion Pty. Ltd. BII Australia
periodically purchases hardware and software from Multimedia Connexion Pty.
Ltd. For the period from September 2, 1993 (inception) and the fiscal years
ended June 30, 1995 and 1995, BII Australia purchased computer equipment
totaling $0, $12,304 and $15,724, respectively.
Peter Dodds was a shareholder of BII Australia from inception to May 10,
1996. Mr. Dodds is also a shareholder of Andwhen Pty. Limited ("Andwhen"). Mr.
Dodds provided consulting services to BII Australia in 1995 and 1996. In
exchange for such services, fees of $0, $70,849 and $50,663 were paid to
Andwhen for the period from September 2, 1993 through June 30, 1994 and the
years ended June 30, 1995 and 1996, respectively.
F-9
<PAGE>
BRILLIANT DIGITAL ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
Certain equipment owned by Andwhen was leased to BII Australia pursuant to
an agreement dated March 1, 1994. Under the lease arrangements, BII Australia
made lease payments to Andwhen in the amount of $4,200, $3,997 and $0 for the
four month period ended June 30, 1994 and the years ended June 30, 1995 and
1996, respectively. At June 30, 1995, BII Australia owed Andwhen $22,834
pursuant to the lease. On May 10, 1996, the agreement was terminated (see Note
4). As a result, the equipment was transferred to BII Australia and BII
Australia agreed to pay to Andwhen a total amount of $86,790. Of this amount,
$19,818 was paid upon termination of the agreement. As of June 30, 1996,
$62,501 is payable under the terms of the agreement. Of this amount, $31,500
is currently due and the balance is due in 14 monthly installments of $4,471
each.
In December 1994, BII Australia entered into a Software License Agreement
(the "Sega Agreement") with Sega Ozisoft Pty. Ltd. ("Sega Ozisoft"). Mark Dyne
and Kevin Bermeister are directors and shareholders of Sega Ozisoft and
nominees for director and stockholders of the Company. Pursuant to the terms
of the Sega Agreement, Sega Ozisoft became the exclusive distributor in
Australia and New Zealand of certain CD-ROM products developed by BII
Australia. Pursuant to the terms of the Sega Agreement, BII Australia received
non-refundable advances totaling $71,040 from Sega Ozisoft in the fiscal year
ended June 30, 1995. In addition, BII Australia is entitled to receive royalty
payments of $6.31 per net unit sold. Such royalty is reducible to $4.73 per
net unit sold after 2000 units have been sold for each title. The non-
refundable advances are recoupable from the royalties earned by BII Australia
under the Sega Agreement. As of June 30, 1996, BII Australia has received no
royalty payments relating to the Sega Agreement. The Sega Agreement expires on
December 15, 1996.
In November 1995, BII Australia entered into a Distribution Agreement (the
"Consumer Electronics Agreement") with Consumer Electronics Pty. Ltd.
("Consumer Electronics"). Mark Dyne and Kevin Bermeister are each a director
and shareholder of Consumer Electronics. BII Australia developed, pursuant to
the Consumer Electronics Agreement, several CD-ROM products to be distributed
by Consumer Electronics in South Africa and neighboring territories. In
addition, BII Australia granted to Consumer Electronics certain bundling
rights to the CD-ROM products in the same territories. Pursuant to the
Consumer Electronics Agreement, BII Australia is entitled to receive a non-
refundable advance of $84,700, of which $21,175 was paid in the fiscal year
ended June 30, 1996. In addition, BII Australia is entitled to receive royalty
payments for each unit sold pursuant to the distribution rights and bundling
of the CD-ROM products, after Consumer Electronics recoups the advance. Net
Revenues are defined in the Consumer Electronics Agreement as gross receipts
less applicable sales and VAT taxes. Royalty payments have not yet been earned
by BII Australia in connection with this distribution arrangement. The
Consumer Electronics Agreement expires on December 6, 1996.
Since February 1994, BII Australia has purchased an aggregate of
approximately $38,124 in goods from Packard Bell Pty. Ltd. Kevin Bermeister
and Mark Dyne are directors and shareholders of Packard Bell Pty. Ltd.
In January 1996, BII Australia entered into a Multimedia Software
Development and Production agreement (the "Development Agreement") with Sega
Ozisoft for Cyberswine. Pursuant to the terms of the Development Agreement,
BII Australia is entitled to receive $165,690 for certain assistant production
services. Amounts are payable by Sega Ozisoft upon attainment of mutually
determined milestones. Subsequent to June 30, 1996, the Company entered into
the SAND Acquisition Agreement (see Note 10) which provided for additional
payments for production services. In addition, BII Australia is entitled to
2.5% in royalties on net revenues as defined by the agreement. As of June 30,
1996, the Company had received $120,396 and had recorded a receivable of
$52,146, which was received in July and August 1996.
Mark Dyne is a director of Monto Holdings Pty. Ltd. ("Monto"). Monto entered
into a multimedia production agreement with BII Australia dated March 14, 1995
whereby Monto paid BII Australia $180,000 to be used to develop a series of
two CD-ROM interactive magazine programs based on a television series. BII
Australia has arranged for publication and distribution of the completed
software packages and is obligated to
F-10
<PAGE>
BRILLIANT DIGITAL ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
pay to Monto 50% of the net receipts from the sale of the software packages.
As of June 30, 1996, net receipts totaled approximately $24,624 and payments
to Monto totaled $12,312. In addition, a liability to Monto for $7,425 was
recorded at June 30, 1996.
Diana Maranon is the Secretary of the Company. Averil Associates, Inc.
("Averil Associates"), a financial advisory firm founded and controlled by Ms.
Maranon, has, since November 1995, performed services for the Company
including investigation of strategic alternatives and assistance with the
Offering. As consideration for such services, the Company has paid to Averil
Associates the aggregate amount of $25,000, plus out of pocket expenses. As
additional compensation for services rendered, the Company granted to Chloe
Holding, Inc. ("Chloe"), an affiliate of Averil Associates, warrants to
purchase 40,222 shares of Common Stock with an exercise price of $.0326 per
share and an additional $200,000 payable upon consummation of the Offering.
The value of the warrants is calculated to be approximately $501,000 and will
be treated as a direct cost of the Offering. The Common Stock warrants granted
to Chloe vest immediately upon closing of the Offering.
4. STOCKHOLDERS' DEFICIENCY
Common Stock
The Company is authorized to issue 30,000,000 shares of Common Stock, par
value $0.001 per share. In August 1996, the Company issued an aggregate of
1,000,000 shares of its Common Stock in exchange for all of the capital stock
of BII Australia. As a result of the Exchange, the Company acquired all of the
outstanding common stock of BII Australia. Simultaneously with the Exchange,
BII Australia canceled 200 shares of Common Stock of BII Australia held by an
employee of BII Australia.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters on which the holders of Common Stock are entitled to
vote. The holders of Common Stock are entitled to receive dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor. In the event of liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled subject to the rights of
holders of Preferred Stock issued by the Company, if any, to share ratably in
all assets remaining available for distribution to them after payment of
liabilities and after provision is made for each class of stock, if any,
having preference over the Common Stock.
The holders of Common Stock have no preemptive or conversion rights and they
are not subject to further calls or assessments by the Company. There are no
redemption or sinking fund provisions applicable to the Common Stock. The
outstanding shares of Common Stock are, and the Common Stock issuable pursuant
to this Prospectus will be, when issued, fully paid and nonassessable.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of Preferred Stock, par
value $0.001 per share. As of June 30, 1995 and 1996, no shares were issued or
outstanding. The Board of Directors has the authority to issue the authorized
and unissued Preferred Stock in one or more series with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without
stockholder approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights which adversely affect the voting power or
other rights of the holders of the Company's Common Stock.
F-11
<PAGE>
BRILLIANT DIGITAL ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
5. CONTINGENCIES
In March 1995, BII Australia entered into an agreement with Monto whereby
Monto paid BII Australia a nonrefundable fee of approximately $180,000 to
develop a series of two CD-ROM interactive magazine programs based on a
television series. BII Australia will distribute the completed software
packages and is obligated to pay to Monto 50% of the net receipts from the
sale of the software packages. As of June 30, 1996, net receipts totaled
$24,624 and payments to Monto totaled $12,312. In addition, a liability to
Monto of $7,425 was recorded at June 30, 1996.
In 1995, Pick Two Limited ("Pick Two"), advanced $193,725 to BII Australia
to develop certain software. In 1996, Pick Two advanced an additional $19,278
to BII Australia. These advances are non-interest bearing and will be repaid
from proceeds from the sales of the completed software. As of June 30, 1996,
the software development has not been completed and no sales have been made.
If sales are insufficient to repay the advance, BII Australia will have no
obligation to return the unpaid portion of the advance to Pick Two.
6. INCOME TAXES
The Company has adopted the liability method of accounting for income taxes.
Income tax expense shown in the income statements is calculated on the
operating profit before tax, adjusted for items which, due to treatment under
income tax legislation, create permanent differences between accounting profit
and taxable income. Deferred income taxes under FAS No. 109 reflect the net
tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for
income tax purposes.
The Company's net losses in the period from September 2, 1993 to June 30,
1994 and the fiscal year ended June 30, 1995, and net income for fiscal year
ended June 30, 1996 are related to the Australian operations of BII Australia.
As a result, no provision has been made for United States federal income
taxes. Due to BII Australia's net losses for 1994 and 1995, net operating loss
carryforwards ("NOL's") were generated for Australian tax purposes. A portion
of these Australian NOL's were offset against BII Australia's taxable income
for fiscal year ended June 30, 1996. At June 30, 1996 BII Australia had NOL's
remaining of $3,000, which can be offset against Australian taxable income in
the future and which expire in 2010. No tax benefit has been recorded for
these Australian NOL's.
In the future, a portion of the Company's taxable income will be subject to
federal and state income tax in the United States and may be subject to higher
tax rates than those used to calculate any taxes due in Australia. Some of the
Company's taxable income will remain subject to Australian taxation.
Significant components of the Company's deferred tax benefits as of June 30,
1996 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Development costs............................................. $ 36,240
Valuation allowance for deferred tax assets................... (36,240)
--------
Net deferred tax assets......................................... $ 0
========
</TABLE>
F-12
<PAGE>
BRILLIANT DIGITAL ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1995 1996
-------- ---------
<S> <C> <C>
Computers and equipment.............................. $216,395 $ 350,162
Furniture and fixtures............................... 8,698 12,295
-------- ---------
225,093 362,457
Less accumulated depreciation........................ (53,195) (164,185)
-------- ---------
$171,898 $ 198,272
======== =========
</TABLE>
8. OTHER INCOME AND EXPENSE
Other income for the fiscal year ended June 30, 1996, includes an export
market development grant of $122,000 from the Australian Trade Commission for
participating in certain export activities. Interest expense for the period
from September 2, 1993 to June 30, 1994 and for each of the years ended June
30, 1995 and 1996 related to the note payable to PIE (see Note 3).
9. GEOGRAPHICAL INFORMATION AND MAJOR CUSTOMERS
The Company's operations for the period from September 2, 1993 to June 30,
1994 and the years ended June 30, 1995 and 1996 consisted solely of the
operations of BII Australia. The operations of BII Australia are in Australia,
with significant exports to the United States. The following schedule sets
forth the revenues and accounts receivable of BII Australia by geographic
area:
<TABLE>
<CAPTION>
UNITED
STATES AUSTRALIA OTHER
---------- --------- --------
<S> <C> <C> <C>
Period September 2, 1993 through June 30, 1994:
Revenues from unaffiliated customers........... $ -- $ 10,977 $ --
Revenues from affiliated customers............. -- -- --
---------- -------- --------
Total revenues................................. $ -- $ 10,977 $ --
========== ======== ========
Year ended June 30, 1995:
Revenues from unaffiliated customers........... $ 46,240 $ 1,888 $ --
Revenues from affiliated customers............. 634,828 159,840 --
---------- -------- --------
Total revenues................................. $ 681,068 $161,728 $ --
========== ======== ========
Year ended June 30, 1996:
Revenues from unaffiliated customers........... $ 931,797 $257,993 $234,679
Revenues from affiliated customers............. 316,167 263,742 49,499
---------- -------- --------
Total revenues................................. $1,247,964 $521,735 $284,178
========== ======== ========
Accounts receivable as of:
June 30, 1994.................................. $ -- $ -- $ --
========== ======== ========
June 30, 1995.................................. $ -- $ -- $ --
========== ======== ========
June 30, 1996.................................. $ 413,333 $223,042 $ 21,175
========== ======== ========
</TABLE>
F-13
<PAGE>
BRILLIANT DIGITAL ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
For each of the periods shown above, all of the operating expenses of the
Company were incurred and paid in Australia. The identifiable assets of the
Company, other than accounts receivable, are predominantly related to the
operations in Australia.
In the period from September 2, 1993 to June 30, 1994, no single customer
accounted for more than 10% of total revenues. In the fiscal year ended June
30, 1995, two customers accounted for more than 10% of total revenues (Packard
Bell Electronics, Inc., 75% or $635,000 and Monto, a related party, 11% or
$89,000). In the fiscal year ended June 30, 1996, three customers accounted
for more than 10% of total revenues (Packard Bell Electronics, Inc., 15% or
$316,000; Shortland Publications, 11% or $226,000; and Ocean of America, Inc.,
40% or $813,000).
10. SUBSEQUENT EVENTS
In June 1996, the Company entered into a Memorandum of Understanding with
Sega Ozisoft to acquire Sega Australia New Developments ("SAND"), a division
of Sega Ozisoft. In September 1996, the Company and Sega Ozisoft entered into
an Asset Purchase Agreement (the "SAND Acquisition Agreement") which
superseded the Memorandum of Understanding. Pursuant to the SAND Acquisition
Agreement, the Company acquired SAND and in consideration therefor issued a
one-year $1,500,000 convertible promissory note (the "SAND Note") to Sega
Ozisoft. The SAND Note bears interest at a rate of 8% per annum. Upon the
completion of the Offering, the SAND Note will be automatically converted into
780,001 shares of Common Stock of the Company.
The SAND Acquisition Agreement also provides that the Company shall pay to
Sega Ozisoft a royalty of 12.5% of "Adjusted Gross Receipts" on the Cyberswine
Multipath Movie. Adjusted Gross Receipts is gross receipts received by the
Company on the Cyberswine Multipath Movie after deducting any royalties and
fees payable to Cyberswine licensors.
Pursuant to the SAND Acquisition Agreement, Sega Ozisoft has agreed to fund
certain development expenses of the Company prior to the closing of the
Offering; and the Company has agreed to reimburse Sega Ozisoft from the
proceeds of the Offering for all expenses advanced by Sega Ozisoft for any
period after October 31, 1996, and all expenses in excess of $59,175 per month
advanced by Sega Ozisoft for August, September and October 1996.
In September 1996, the Company executed a promissory note in favor of
Reefknot in the principal amount of $150,000. The note bears interest at the
rate of 10% per annum and is due and payable on the earlier to occur of the
closing of the Offering or September 10, 1996.
During September 1996 the Company entered into two strategic agreements with
terms that provided for the issuance of warrants to purchase a total of
685,000 shares of the Company's Common Stock. The warrants provide for
exercise prices that are at or above the estimated fair value of the Common
Stock at the time of the grant. The value of the warrants is calculated to be
approximately $2,055,000 and this value will result in an expense charge to
operations with a corresponding credit to stockholders' deficiency.
F-14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Brilliant Digital Entertainment, Inc.
We have audited the accompanying balance sheets of Sega Australia New
Developments (a development stage business unit of Sega Ozisoft Pty. Ltd.) as
of June 30, 1996 and 1995, and the related statements of operations and
business unit deficit, and cash flows for each of the two years in the period
ended June 30, 1996 and the period from March 1, 1994 (inception) through June
30, 1994. These financial statements are the responsibility of the business
unit'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 audit 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 Sega Australia New
Developments at June 30, 1996 and 1995, and the results of its operations and
its cash flows for each of the two years in the period ended June 30, 1996 and
the period from March 1, 1994 (inception) through June 30, 1994, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Sega
Australia New Developments will continue as a going concern. As more fully
described in Note 1, the business unit has a working capital deficiency and an
accumulated deficit. These conditions raise substantial doubt about the
business unit's ability to continue as a going concern. Management's plans in
regards to these matters are also described in Note 1. These financial
statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
Ernst & Young LLP
September 13, 1996
Los Angeles, California
F-15
<PAGE>
SEGA AUSTRALIA NEW DEVELOPMENTS
(A DEVELOPMENT STAGE BUSINESS UNIT OF SEGA OZISOFT PTY. LTD.)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1995 1996
--------- -----------
<S> <C> <C>
ASSETS
Total assets.................................. $ -- $ --
========= ===========
LIABILITIES AND DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE
Due to parent company........................... $ 519,023 $ 1,306,331
--------- -----------
Total liabilities............................. 519,023 1,306,331
Deficit accumulated during the development
stage.......................................... (519,023) (1,306,331)
--------- -----------
Total liabilities and deficit accumulated during
the development stage.......................... $ -- $ --
========= ===========
</TABLE>
See accompanying notes.
F-16
<PAGE>
SEGA AUSTRALIA NEW DEVELOPMENTS
(A DEVELOPMENT STAGE BUSINESS UNIT OF SEGA OZISOFT PTY. LTD.)
STATEMENTS OF OPERATIONS AND BUSINESS UNIT DEFICIT
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 1, CUMULATIVE
1994 MARCH 1, 1994
(INCEPTION) (INCEPTION)
THROUGH YEAR ENDED JUNE 30, THROUGH
JUNE 30, ------------------- JUNE 30,
1994 1995 1996 1996
----------- -------- ---------- -------------
<S> <C> <C> <C> <C>
General and administrative ex-
penses......................... $ -- $ 46,839 $ 93,334 $ 140,173
Research and development ex-
penses......................... 12,158 460,026 693,974 1,166,158
------- -------- ---------- ----------
Total expenses.................. 12,158 506,865 787,308 1,306,331
Beginning deficit accumulated
during the development stage... -- 12,158 519,023 --
------- -------- ---------- ----------
Ending deficit accumulated
during the development stage... $12,158 $519,023 $1,306,331 $1,306,331
======= ======== ========== ==========
</TABLE>
See accompanying notes.
F-17
<PAGE>
SEGA AUSTRALIA NEW DEVELOPMENTS
(A DEVELOPMENT STAGE BUSINESS UNIT OF SEGA OZISOFT PTY. LTD.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 1, CUMULATIVE
1994 MARCH 1, 1994
(INCEPTION) (INCEPTION)
THROUGH YEAR ENDED JUNE 30, THROUGH
JUNE 30, -------------------- JUNE 30,
1994 1995 1996 1996
----------- --------- --------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss...................... $(12,158) $(506,865) $(787,308) $(1,306,331)
-------- --------- --------- -----------
Net cash used in operating ac-
tivities..................... (12,158) (506,865) (787,308) (1,306,331)
FINANCING ACTIVITIES
Increase in amounts due to
parent company............... 12,158 506,865 787,308 1,306,331
-------- --------- --------- -----------
Net cash provided by financing
activities................... 12,158 506,865 787,308 1,306,331
-------- --------- --------- -----------
INCREASE IN CASH.............. -- -- -- --
Cash at beginning of period... -- -- -- --
-------- --------- --------- -----------
Cash at end of period......... $ -- $ -- $ -- $ --
======== ========= ========= ===========
</TABLE>
See accompanying notes.
F-18
<PAGE>
SEGA AUSTRALIA NEW DEVELOPMENTS
(A DEVELOPMENT STAGE BUSINESS UNIT OF SEGA OZISOFT PTY. LTD.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements include the assets, liabilities, revenues and
expenses of Sega Australia New Developments ("SAND"), a business unit of Sega
Ozisoft Pty. Ltd. ("Sega Ozisoft"). SAND was created to develop state-of-the-
art technology for interactive, digital, Multipath Movies. In June 1996, Sega
Ozisoft and Brilliant Digital Entertainment, Inc. (the "Company") entered into
a Memorandum of Understanding and in September 1996, Sega Ozisoft and the
Company entered into an asset purchase agreement, whereby the Company agreed
to purchase certain assets of SAND. See Note 3 for a discussion of these
transactions.
The accompanying financial statements reflect the "carved-out" financial
position and results of operations of SAND as if SAND had been operating as a
company separate from Sega Ozisoft. Certain corporate, general and
administrative expenses of Sega Ozisoft have been allocated to SAND on various
bases which, in the opinion of management, are reasonable. However, such
expenses are not necessarily indicative of, and it is not practicable for
management to estimate, the level of expenses which might have been incurred
had SAND been operating as a separate company.
SAND is in the development stage devoting substantially all of its efforts
to research and development. During its development stage, SAND has incurred
cumulative net losses of approximately $1,300,000 through June 30, 1996, and
expects to incur substantial and increasing additional development costs. SAND
will require substantial additional funds in order to complete the research
and development activities currently contemplated and to commercialize its
proposed products. Without additional funding, SAND may be required to delay,
reduce the scope of or eliminate one or more of its research or development
programs, or obtain funds through arrangements with collaborative partners or
others which may require SAND to relinquish rights to certain of its
technologies, product candidates or products that SAND would otherwise seek to
develop or commercialize on its own.
Research and Development Costs
SAND has incurred significant costs to develop proprietary software tools to
be used in the creation and development of a new genre of interactive digital
entertainment called "Multipath Movies". SAND recorded research and
development expenses of $12,158, $460,026 and $693,974 for the four month
period ended June 30, 1994 and the fiscal years ended June 30, 1995 and 1996,
respectively.
SAND's accounting policy follows Statement of Financial Accounting Standards
No. 86 (SFAS No. 86), which provides for the capitalization of certain
software development costs once technological feasibility is established. The
capitalized costs are then amortized on a straight-line basis over the
estimated product life or on a ratio of current revenues to total projected
product revenues, whichever is greater. No software development costs were
capitalized in the four month period ended June 30, 1994 or the fiscal years
1995 and 1996.
Foreign Currency Translation
The functional currency of SAND is its local currency, Australian dollars.
Assets and liabilities and expenses since inception of this development stage
business unit were translated into U.S. dollars (the reporting currency) using
current exchange rates ($0.789 at June 30, 1996).
F-19
<PAGE>
SEGA AUSTRALIA NEW DEVELOPMENTS
(A DEVELOPMENT STAGE BUSINESS UNIT OF SEGA-OZISOFT PTY. LTD.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
2. RELATIONSHIP AND TRANSACTIONS WITH SEGA OZISOFT
The financial statements include allocations to SAND of certain
administrative costs incurred by Sega Ozisoft related to accounting, human
resources and certain other corporate expenses. These expenditures were $0,
$31,080 and $45,600 for the four month period ended June 30, 1994 and years
ended June 30, 1995 and 1996, respectively.
In the opinion of management, these allocations were made on a reasonable
basis. However, they are not necessarily indicative of the level of
expenditures which may have been experienced on a standalone basis. The
amounts that would have or will be incurred on a separate company basis could
differ significantly from the allocated amounts due to economies of scale,
differences in management and/or operational practices or other factors.
3. SUBSEQUENT EVENTS
In June 1996, the Company entered into a Memorandum of Understanding with
Sega Ozisoft to acquire SAND, a division of Sega Ozisoft. In September 1996,
the Company and Sega Ozisoft entered into an Asset Purchase Agreement (the
"SAND Acquisition Agreement") which superseded the Memorandum of
Understanding. Pursuant to the SAND Acquisition Agreement, the Company
acquired SAND and in consideration therefor issued a one-year $1,500,000
convertible promissory note (the "SAND Note") to Sega Ozisoft. The SAND Note
bears interest at a rate of 8% per annum. Upon the completion of the Offering,
the SAND Note will be automatically converted into 780,001 shares of Common
Stock of the Company.
The SAND Acquisition Agreement also provides that the Company shall pay to
Sega Ozisoft a royalty of 12.5% of "Adjusted Gross Receipts" on the Cyberswine
Multipath Movie. Adjusted Gross Receipts is gross receipts received by the
Company on the Cyberswine Multipath Movie after deducting any royalties and
fees payable to Cyberswine licensors.
Pursuant to the SAND Acquisition Agreement, Sega Ozisoft has agreed to fund
certain development expenses of the Company prior to the closing of the
Offering; and the Company has agreed to reimburse Sega Ozisoft from the
proceeds of the Offering for all expenses advanced by Sega Ozisoft for any
period after October 31, 1996, and all expenses in excess of $59,175 per month
advanced by Sega Ozisoft for August, September and October 1996.
F-20
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSE-
QUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
-------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
The Company.............................................................. 6
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Dilution................................................................. 21
Capitalization........................................................... 22
Selected Historical and Pro Forma Consolidated Financial Data............ 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 30
Management............................................................... 49
Certain Relationships and Related Transactions........................... 55
Principal Stockholders................................................... 58
Description of Capital Stock............................................. 60
Shares Eligible For Future Sale.......................................... 62
Underwriting............................................................. 64
Notice to Canadian Residents............................................. 66
Legal Matters............................................................ 67
Experts.................................................................. 67
Additional Information................................................... 67
Index to Consolidated Financial Statements............................... F-1
</TABLE>
-------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACT-
ING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOGO
2,000,000 Shares
Common Stock
PROSPECTUS
CS First Boston
Cruttenden Roth
Incorporated
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the costs incurred by the Registrant in
connection with the issuance and distribution of the Securities being
registered, other than underwriting discounts. All the amounts shown are
estimates except the Securities and Exchange Commission registration fee and
the NASD filing fee. In addition to the following costs of the Offering, the
Company issued certain stock warrants to Averil Associates, Inc. which
represent a non-cash direct cost of the Offering of $501,000.
<TABLE>
<S> <C>
Registration fee--Securities and Exchange Commission............. $ 9,914
NASD filing fee.................................................. 3,375
Nasdaq National Market fee....................................... 38,350
Accounting fees and expenses..................................... 250,000
Legal fees and expenses (other than blue sky).................... 250,000
Blue sky fees and expenses, including legal fees................. 10,000
Printing; stock certificates..................................... 80,000
Transfer agent and registrar fees................................ 7,500
Consulting fees.................................................. 240,000
Miscellaneous.................................................... 110,861
----------
Total.......................................................... $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate of Incorporation and its Bylaws provide for the
indemnification by the Registrant of each director, officer and employee of
the Registrant to the fullest extent permitted by the Delaware General
Corporation Law, as the same exists or may hereafter be amended. Section 145
of the Delaware General Corporation Law provides in relevant part that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of the fact
that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent
that the Delaware Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the
Delaware Court of Chancery or such other court shall deem proper. Delaware law
further provides that nothing in the above-described provisions shall be
deemed exclusive of any other rights to indemnification or advancement of
expenses to which any person may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise.
II-1
<PAGE>
The Registrant's Certificate of Incorporation provides that a director of
the Registrant shall not be liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director. Section 102(b)(7)
of the Delaware General Corporation Law provides that a provision so limiting
the personal liability of a director shall not eliminate or limit the
liability of a director for, among other things: breach of the duty of
loyalty; acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law; unlawful payment of dividends;
and transactions from which the director derived an improper personal benefit.
The Registrant has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director of the Registrant and certain
officers of the Registrant (the "Indemnitees"). Pursuant to the terms and
conditions of the Indemnity Agreements, the Registrant indemnified each
Indemnitee against any amounts which he or she becomes legally obligated to
pay in connection with any claim against him or her based upon any action or
inaction which he or she may commit, omit or suffer while acting in his or her
capacity as a director and/or officer of the Registrant or its subsidiaries,
provided, however, that Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests
of the Registrant and, with respect to any criminal action, had no reasonable
cause to believe Indemnitee's Conduct was unlawful.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In September 1996, the Company issued 1,000,000 shares (the "Shares") of
Common Stock in exchange for the 100,000 outstanding shares of Common Stock of
BII Australia owned by Reefknot and PIE. Pursuant to the Exchange Agreement,
Reefknot and PIE each covenanted that (i) it was acquiring the Shares for its
own account with the present intention of holding such securities for
investment purposes only and not with a view to, or for sale in connection
with, any distribution of such securities (other than a distribution in
compliance with all applicable federal and state securities laws); (ii) it is
an experienced and sophisticated investor and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the relative merits and the risks of an investment in the Shares and of
protecting its own interests in connection with this transaction; (iii) it is
willing to bear and is capable of bearing the economic risk of an investment
in the Shares; and (iv) it is an "accredited investor" as that term is defined
under Rule 501(a)(8) of Regulation D promulgated by the Commission under the
Securities Act. No brokers, underwriters or finders were involved in the
Exchange. The issuance and sale of these securities was made in reliance on
Section 4(2) of the Securities Act (in accordance with Rule 506 of Regulation
D) as a transaction not involving any public offering.
In connection with the Packard Bell NEC Agreement and the Morgan Creek
Agreement executed in September 1996, the Company issued warrants (the
"Warrants") to purchase 600,000 and 85,000 shares of Common Stock to Packard
Bell NEC and to Morgan Creek, respectively, each for $100.00. Each of Packard
Bell NEC and Morgan Creek covenanted that (i) it acquired the Warrants for its
own account with the present intention of holding such Warrants for investment
purposes only and not with a view to, or for sale in connection with, any
distribution of such Warrants (other than a distribution in compliance with
all applicable federal and state securities laws); (ii) it is an experienced
and sophisticated investor and has such knowledge and experience in financial
and business matters that it is capable of evaluating the relative merits and
the risks of an investment in the Warrants and of protecting its own interests
in connection with the transaction at issue; (iii) it is willing to bear and
is capable of bearing the economic risk of an investment in the Warrants; and
(iv) the Company made available, prior to the date of the Warrant Agreement,
to it the opportunity to ask questions of the Company and its officers, and to
receive from the Company and its officers information concerning the terms and
conditions of the Warrant and the Warrant Agreement and to obtain any
additional information with respect to the Company, its business, operations
and prospects, as reasonably requested by it; and (v) it is an "accredited
investor" as that term is defined under Rule 501(a)(8) of Regulation D
promulgated by the Commission under the Securities Act. The issuance and sale
of these securities was made in reliance on Section 4(2) of the Securities Act
(in accordance with Rule 506 of Regulation D) as a transaction not involving
any public offering.
II-2
<PAGE>
In September 1996, the Company issued warrants to purchase 40,222 shares of
Common Stock at an exercise price of $.0326 per share to Chloe Holdings, Inc.
("Chloe"), an affiliate of Averil Associates, Inc., as partial compensation
for services rendered. Chloe covenanted that (i) it acquired the warrants for
its own account with the present intention of holding such warrants for
investment purposes only and not with a view to, or for sale in connection
with, any distribution of such warrants (other than a distribution in
compliance with all applicable federal and state securities laws); (ii) it is
an experienced and sophisticated investor and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the relative merits and the risks of an investment in the warrants and of
protecting its own interests in connection with the transaction at issue;
(iii) it is willing to bear and is capable of bearing the economic risk of an
investment in the warrants; and (iv) the Company made available, prior to the
date of the Warrant Agreement, to it the opportunity to ask questions of the
Company and its officers, and to receive from the Company and its officers
information concerning the terms and conditions of the warrant and the Warrant
Agreement and to obtain any additional information with respect to the
Company, its business, operations and prospects, as reasonably requested by
it; and (v) it is an "accredited investor" as that term is defined under Rule
501(a)(4) of Regulation D promulgated by the Commission under the Securities
Act. The issuance and sale of these securities was made in reliance on Section
4(2) of the Securities Act (in accordance with Rule 506 of Regulation D) as a
transaction not involving any public offering.
In September 1996, the Company issued pursuant to its 1996 Stock Option Plan
(the "1996 Plan") non-statutory stock options to purchase an aggregate of
155,000 shares of Common Stock at $10.00 per share to the non-employee
directors and an executive officer. The issuance and sale of these securities
is exempt from the registration requirements of the Securities Act pursuant to
Rule 701 because the offer and sale of the securities was pursuant to a
compensatory benefit plan relating to compensation. Reference is made to the
description of the 1996 Plan set forth under the caption "Management--Stock
Option Plan."
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
2.1 Exchange Agreement, dated August 20, 1996, by and among the
Registrant, Brilliant Interactive Ideas Pty. Ltd. ("BII Australia"),
Reefknot Limited and Pacific Interactive Education Pty. Limited.
2.2 Asset Purchase Agreement, dated September 12, 1996, by and between the
Registrant and Sega Ozisoft Pty. Ltd.
3.1 Amended and Restated Certificate of Incorporation of Registrant.
3.2 Amended and Restated Bylaws of Registrant.
4.1 Specimen Stock Certificate of Common Stock of Registrant.*
5.1 Opinion of Troop Meisinger Steuber & Pasich, LLP*
10.1 Registrant's 1996 Stock Option Plan.
10.2 Form of Registrant's Stock Option Agreement (Non-Statutory Stock
Option).
10.3 Form of Registrants's Stock Option Agreement (Incentive Stock Option).
10.4 Distribution Agreement, dated November 22, 1995, by and between BII
Australia and Consumer Electronics Pty. Ltd.+
10.5 CD-ROM Distribution Agreement, dated September 14, 1996 by and between
the Registrant and Packard Bell NEC.+
10.6 Distribution Agreement, dated August 22, 1995, by and between BII
Australia and Packard Bell Electronics Inc.+
10.7 Software License Agreement, dated May 2, 1995, by and between BII
Australia and Packard Bell Electronics Inc.+
10.8 Agreement, dated February 18, 1996, by and between Golden Dolphin
Productions Pty. Ltd. and BII Australia.+
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.9 Memorandum of Agreement, dated September 5, 1996, by and between the
Registrant and Bantam Doubleday Dell Books For Young Readers.+
10.10 Production Agreement, dated March 18, 1994, by and between Pick Two Ltd.
and BII Australia.+
10.11 Assistant Multimedia Software Development & Production Agreement, dated
January 17, 1996, by and between Sega Ozisoft Pty. Limited and BII
Australia.+
10.12 Licensing Agreement for "Cyberswine" Story Concept & Characters, dated
July 19, 1995, by and between Eat Cyberfist Pty. Limited and Sega
Ozisoft Pty Limited.+
10.13 Distribution Agreement, dated November 2, 1995, by and between BII
Australia and Roadshow Entertainment Pty. Ltd.+
10.14 Publishing Agreement, dated March 9, 1994, by and between Shortland
Publications Limited and BII Australia.+
10.15 Settlement Agreements and Mutual General Releases, by and among BII
Australia, Ray Musci, Ocean of America, Inc., and Ocean Software, Ltd.
and Ocean International, Ltd.+
10.16 Publishing Agreement, dated December 1, 1994, by and between Shortland
Publications Limited and BII Australia.+
10.17 Distribution Agreement, dated July 1, 1996, by and between BII Australia
and Fujitsu Basic Software Corporation.+
10.18 License Agreement--Domestic, dated July 31, 1996, between the Hearst
Corporation, King Features Syndicate Division and the Registrant.+
10.19 Distribution Agreement, dated September 29, 1995, by and between BII
Australia and Ocean of America, Inc.+
10.20 Distribution Agreement, dated February 22, 1996, by and between BII
Australia and Shortland Publications Limited.+
10.21 Heads of Agreement, dated November 25, 1994, by and between SAND and Eat
Cyberfist Pty. Limited.+
10.22 Software License Agreement, dated December 15, 1994, by and between BII
Australia and Sega Ozisoft.+
10.23 Memorandum of Understanding, dated September 14, 1996, by and between
the Registrant and Morgan Creek Interactive, Inc.+
10.24 Multimedia Production Agreement, dated March 14, 1995, by and between
BII Australia and Monto Holdings Pty. Ltd.*
10.25 Nontransferable Redeemable Warrant Agreement, dated September 14, 1996,
by and between the Registrant and Packard Bell NEC.
10.26 License Agreement by and between Beyond Properties Pty. Ltd. and BII
Australia.+
10.27 Registrant's Promissory Note, dated September 10, 1996.
10.28 Form of Registrant's Indemnification Agreement.
10.29 Form of Registrant's Employee Confidential Information and Non-
Solicitation Agreement.
10.30 Commercial Lease by and among Hilrok Properties Pty. Limited, Peter
Dodds and Simon Van Wyk.
10.31 Loan Agreement, dated October 10, 1994, by and between BII Australia and
PIE.
10.32 Commercial Lease, dated August 8, 1994, by and between PW Securities
Pty. Ltd. and Sega Ozisoft.
10.33 PIE Loan Extension, dated September 13, 1996, by and among PIE, BII
Australia and the Registrant.
10.34 Agreement, dated September 12, 1996, by and between the Registrant and
Crawford Productions Pty. Limited.
10.35 Engagement Letter, dated May 1, 1996, by and between Averil Associates,
Inc. and the Registrant.*
10.36 Warrant Agreement by and between Chloe Holdings, Inc. and the
Registrant.*
10.37 Product Agreement, dated January 12, 1996, by and between Interplay
Productions and BII Australia.*
11.1 Earnings (Loss) per share.
21.1 List of Subsidiaries.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in its opinion filed as Exhibit 5.1
hereto).
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney (included in signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by Amendment.
+ Confidential treatment requested.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer of controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Manly, Australia, on September 16, 1996.
Brilliant Digital Entertainment, Inc.
/s/ Mark Miller
By: __________________________________
MARK MILLER
PRESIDENT, CHIEF FINANCIAL
OFFICER AND DIRECTOR
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Mark Dyne
and Diana Maranon, and each of them, as his true and lawful attorneys-in-fact
and agents with full power of substitution and resubstitution, for him and his
name, place and stead, in any and all capacities, to sign any or all amendments
(including post effective amendments) to this Registration Statement and a new
Registration Statement filed pursuant to Rule 462(b) of the Securities Act of
1933 and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the foregoing, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates stated.
SIGNATURE TITLE DATE
/s/ Kevin Bermeister Director September 16,
- ------------------------------------ 1996
KEVIN BERMEISTER
/s/ Mark Miller President, Chief September 16,
- ------------------------------------ Financial Officer 1996
MARK MILLER and Director
(Principal
Financial and
Accounting
Officer)
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
2.1 Exchange Agreement, dated August 20, 1996, by and among the
Registrant, Brilliant Interactive Ideas Pty. Ltd. ("BII Australia"),
Reefknot Limited and Pacific Interactive Education Pty. Limited.
2.2 Asset Purchase Agreement, dated September 12, 1996, by and between the
Registrant and Sega Ozisoft Pty. Ltd.
3.1 Amended and Restated Certificate of Incorporation of Registrant.
3.2 Amended and Restated Bylaws of Registrant.
4.1 Specimen Stock Certificate of Common Stock of Registrant.*
5.1 Opinion of Troop Meisinger Steuber & Pasich, LLP*
10.1 Registrant's 1996 Stock Option Plan.
10.2 Form of Registrant's Stock Option Agreement (Non-Statutory Stock
Option).
10.3 Form of Registrants's Stock Option Agreement (Incentive Stock Option).
10.4 Distribution Agreement, dated November 22, 1995, by and between BII
Australia and Consumer Electronics Pty. Ltd.+
10.5 CD-ROM Distribution Agreement, dated September 14, 1996 by and between
the Registrant and Packard Bell NEC.+
10.6 Distribution Agreement, dated August 22, 1995, by and between BII
Australia and Packard Bell Electronics Inc.+
10.7 Software License Agreement, dated May 2, 1995, by and between BII
Australia and Packard Bell Electronics Inc.+
10.8 Agreement, dated February 18, 1996, by and between Golden Dolphin
Productions Pty. Ltd. and BII Australia.+
10.9 Memorandum of Agreement, dated September 5, 1996, by and between the
Registrant and Bantam Doubleday Dell Books For Young Readers.+
10.10 Production Agreement, dated March 18, 1994, by and between Pick Two
Ltd. and BII Australia.+
10.11 Assistant Multimedia Software Development & Production Agreement,
dated January 17, 1996, by and between Sega Ozisoft Pty. Limited and
BII Australia.+
10.12 Licensing Agreement for "Cyberswine" Story Concept & Characters, dated
July 19, 1995, by and between Eat Cyberfist Pty. Limited and Sega
Ozisoft Pty Limited.+
10.13 Distribution Agreement, dated November 2, 1995, by and between BII
Australia and Roadshow Entertainment Pty. Ltd.+
10.14 Publishing Agreement, dated March 9, 1994, by and between Shortland
Publications Limited and BII Australia.+
10.15 Settlement Agreements and Mutual General Releases, by and among BII
Australia, Ray Musci, Ocean of America, Inc., and Ocean Software,
Ltd. and Ocean International, Ltd.+
10.16 Publishing Agreement, dated December 1, 1994, by and between Shortland
Publications Limited and BII Australia.+
10.17 Distribution Agreement, dated July 1, 1996, by and between BII
Australia and Fujitsu Basic Software Corporation.+
</TABLE>
<PAGE>
EXHIBIT INDEX, CONTINUED
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.18 License Agreement--Domestic, dated July 31, 1996, between the Hearst
Corporation, King Features Syndicate Division and the Registrant.+
10.19 Distribution Agreement, dated September 29, 1995, by and between BII
Australia and Ocean of America, Inc.+
10.20 Distribution Agreement, dated February 22, 1996, by and between BII
Australia and Shortland Publications Limited.+
10.21 Heads of Agreement, dated November 25, 1994, by and between SAND and
Eat Cyberfist Pty. Limited.+
10.22 Software License Agreement, dated December 15, 1994, by and between
BII Australia and Sega Ozisoft.+
10.23 Memorandum of Understanding, dated September 14, 1996, by and between
the Registrant and Morgan Creek Interactive, Inc.+
10.24 Multimedia Production Agreement, dated March 14, 1995, by and between
BII Australia and Monto Holdings Pty. Ltd.*
10.25 Nontransferable Redeemable Warrant Agreement, dated September 14,
1996, by and between the Registrant and Packard Bell NEC.
10.26 License Agreement by and between Beyond Properties Pty. Ltd. and BII
Australia.+
10.27 Registrant's Promissory Note, dated September 10, 1996.
10.28 Form of Registrant's Indemnification Agreement.
10.29 Form of Registrant's Employee Confidential Information and Non-
Solicitation Agreement.
10.30 Commercial Lease by and among Hilrok Properties Pty. Limited, Peter
Dodds and Simon Van Wyk.
10.31 Loan Agreement, dated October 10, 1994, by and between BII Australia
and PIE.
10.32 Commercial Lease, dated August 8, 1994, by and between PW Securities
Pty. Ltd. and Sega Ozisoft.
10.33 PIE Loan Extension, dated September 13, 1996, by and among PIE, BII
Australia and the Registrant.
10.34 Agreement, dated September 12, 1996, by and between the Registrant and
Crawford Productions Pty. Limited.
10.35 Engagement Letter, dated May 1, 1996, by and between Averil
Associates, Inc. and the Registrant.*
10.36 Warrant Agreement by and between Chloe Holdings, Inc. and the
Registrant.*
10.37 Product Agreement, dated January 12, 1996, by and between Interplay
Productions and BII Australia.*
11.1 Earnings (Loss) per share.
21.1 List of Subsidiaries.
23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in its
opinion filed as Exhibit 5.1 hereto).
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by Amendment.
+ Confidential treatment requested.
<PAGE>
EXHIBIT 2.1
EXCHANGE AGREEMENT
------------------
This Exchange Agreement (the "Agreement") is made and entered into this
20th day of August, 1996, by and among Brilliant Interactive, Inc., a Delaware
corporation (the "Company"), Brilliant Interactive Ideas Pty. Ltd., an
Australian corporation ("BII-Australia") and each of the shareholders of BII-
Australia listed on Attachment "A" hereto (each, a "Shareholder, and together,
the "Shareholders").
R E C I T A L S
---------------
A. The Shareholders constitute all of the Shareholders of BII-Australia
and hold the number and class of shares of capital stock of BII-Australia (the
"BII-Australia Shares") set forth opposite each of their respective names on
Attachment "A" hereto, constituting all of the outstanding capital stock of BII
Australia.
B. The Company was formed for the purposes of serving as the parent
corporation for BII-Australia.
C. Each Shareholder desires to contribute to the Company all of the BII-
Australia Shares set forth opposite its name on Attachment "A" hereto, and in
return, the Company desires to issue to each Shareholder the number shares of
Common Stock, par value $0.001 per share (the "Common Stock") set forth opposite
the Shareholder's name on Attachment "A" hereto.
A G R E E M E N T
-----------------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Authorization of the Securities; Nature of Agreement
----------------------------------------------------
a. The Company has authorized the issuance and sale to the
Shareholders, pursuant to the terms and conditions of this Agreement, of that
number of shares of Common Stock set forth opposite the names of the
Shareholders on Attachment "A" hereto (the "Purchased Shares").
b. This Agreement, insofar as it relates to the issuance of the
Purchased Shares to any Shareholder, is a separate agreement between that
Shareholder and the Company. But this Agreement insofar as it relates to the
rights, duties and remedies of the Company and the several Shareholders, from
and after the Closing hereunder, shall be deemed to be one agreement.
1
<PAGE>
c. It is intended by the parties that the transfer by the Shareholders
of the BII-Australia Shares to the Company pursuant to this Agreement shall
constitute a valid transaction under Section 351 of the Internal Revenue Code of
1986, as amended.
2. Delivery of Shares. Each Shareholder does hereby irrevocably assign,
------------------
convey and transfer to the Company, and does hereby deliver to the Company stock
certificates (the "Certificates") representing, the number of BII-Australia
Shares set forth opposite such Shareholder's name on Attachment "A" hereto,
appropriately endorsed for transfer to the Company, subject to the terms and
conditions set forth herein. Such delivery is irrevocable, and neither the
death or disability of the Shareholder shall affect the transactions
contemplated hereby.
3. Issuance of the Company Stock. In consideration of the transfer of the
-----------------------------
BII-Australia Shares pursuant to Section 2, above, the Company hereby agrees
that it shall promptly deliver to each Shareholder the number of Purchased
Shares set forth opposite such Shareholder's name on Attachment "A" hereto
issued in the name of such Shareholder.
4. Transfer of the Shares. Upon issuance by the Company to each
----------------------
Shareholder of the Purchased Shares, the Certificates shall be deemed to be
transferred to the Company, and promptly thereafter, BII-Australia shall effect
such transfer on its books, and shall issue to the Company new certificates for
such shares registered in the name of the Company.
5. Representations, Warranties and Covenants of the Shareholders. Each
-------------------------------------------------------------
Shareholder warrants, represents and covenants that:
a. it has good and marketable title to the BII-Australia Shares to be
transferred by it pursuant to Section 2, free and clear of all liens, claims and
encumbrances of any kind;
b. the BII-Australia Shares to be transferred by such Shareholder
pursuant to Section 2 constitute all of the BII-Australia Shares owned or
controlled (directly or indirectly) beneficially or of record by the
Shareholder;
c. it is acquiring the Purchased Shares for its own account with the
present intention of holding such securities for investment purposes only and
not with a view to, or for sale in connection with, any distribution of such
securities (other than a distribution in compliance with all applicable federal
and state securities laws);
d. it is an experienced and sophisticated investor and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the relative merits and the risks of an investment in the Purchased
Shares and of protecting its own interests in connection with this transaction;
2
<PAGE>
e. it is willing to bear and is capable of bearing the economic risk
of an investment in the Purchased Shares; and
f. it is an "accredited investor" as that term is defined under Rule
501(a)(8) of Regulation D promulgated by the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Act").
6. Restrictions on Transfer. Each Shareholder agrees that it shall not
------------------------
sell, transfer (with or without consideration), assign, pledge, hypothecate or
otherwise dispose of (collectively, "Transfer") any of the Purchased Shares
unless such shares are disposed of pursuant to and in conformity with an
effective registration statement filed with the Commission pursuant to the Act,
or pursuant to an available exemption from the registration and prospectus
delivery requirements of the Act, and the proposed disposition will not result
in a violation of the securities laws of any state of the United States.
If requested by the Company, such Shareholder shall, prior to the transfer
of any of the Purchased Shares, deliver to the Company a written opinion of
counsel, satisfactory to the Company and its counsel, that the proposed
disposition will comply with the requirements set forth in this Section 6. Any
attempted Transfer which is not in full compliance with this Section 6 shall be
null and void ab initio, and of no force or effect.
---------
Each Shareholder further agrees that any certificate evidencing the
Purchased Shares shall bear the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, HAVE BEEN TAKEN FOR
INVESTMENT, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE
TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER
HEREOF, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES
OF THE COMPANY.
Each Shareholder further acknowledges and agrees that the Company may, at
its option, place notations evidencing the foregoing restrictions on transfer in
its shareholders register, and may place appropriate "stop transfer"
instructions with its transfer agent, if any.
3
<PAGE>
7. Miscellaneous.
--------------
a. Amendments. The provisions of this Agreement may not be waived,
----------
altered, amended or repealed in whole or in part except by a written instrument
signed by all parties.
b. Waiver or Delay. The failure or delay on the part of any party
---------------
to exercise any right or remedy, power or privilege shall not operate as a
waiver thereof. A waiver, to be effective, must be in writing and signed by the
party making the waiver. A written waiver of a default shall not operate as a
waiver of any other default or of the same type of default on a future occasion.
c. Severability. Wherever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
d. Successors and Assigns. This Agreement shall be binding upon the
----------------------
parties, their respective successors and assigns. No party may assign, transfer
or delegate its rights, obligations or duties hereunder without the express
written consent of all other parties.
e. GOVERNING LAW. IN ALL RESPECTS, INCLUDING ALL MATTERS OF
-------------
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING
CONFLICT OF LAWS.
f. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
4
<PAGE>
This Agreement shall be effective as of the date first written above.
BRILLIANT INTERACTIVE, INC.
By: /s/ Mark Miller
---------------------------
Its: President
-------------------------
BRILLIANT INTERACTIVE IDEAS PTY.
LTD.
By: /s/ Mark Miller
---------------------------
Its: Managing Director
-------------------------
PACIFIC INTERACTIVE EDUCATION,
PTY. LIMITED
By: /s/ Mark Miller
---------------------------
Its: Director
-------------------------
REEFKNOT LIMITED
By: /s/ Michael Sampion
---------------------------
Its: Secretary
-------------------------
For and by order of the Board.
5
<PAGE>
ATTACHMENT A
LIST OF SHAREHOLDERS
--------------------
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES OF BII- SHARES OF THE
AUSTRALIA COMPANY
SHAREHOLDER SURRENDERED PURCHASED
----------- --------------- --------------
- --------------------------------------------------------------------------------
<S> <C> <C>
Pacific Interactive Education Pty. Limited 11,765 117,650
- --------------------------------------------------------------------------------
Reefknot Limited 88,235 882,350
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Purchase Agreement") is made and
entered into as of the 12th day of September, 1996, by and between Brilliant
Interactive, Inc., a corporation incorporated in the State of Delaware, United
States of America ("BII") and Sega Ozisoft Pty. Limited, a company incorporated
in the State of New South Wales, Australia ("Sega Ozisoft").
RECITALS
--------
A. BII, through its wholly owned subsidiary, Brilliant Interactive Ideas,
Pty. Ltd., a company incorporated in the State of New South Wales, Australia
("BII-Australia") based in Manly, Australia develops, produces and markets
interactive, multimedia titles for the education and entertainment markets.
BII-Australia is also working in conjunction with Sega Australia New
Developments ("SAND"), a division of Sega Ozisoft, to produce a multipath movie
under the title "Cyberswine." All rights, title and interest in and to the
Cyberswine project, including patents, patent applications, copyrights,
trademarks, service marks, characters, mask works, trade secrets and
confidential information are hereinafter referred to as the "Cyberswine
Property."
B. SAND is in the process of developing a suite of software tools to
enable the creation of multipath movies for distribution over various platforms
(including all code, proprietary rights, patents, patent applications,
copyrights, trademarks and other intellectual property rights related thereto,
the "SAND Engine"). Sega Ozisoft has funded SAND since its inception. The
assets used by SAND (the "SAND Assets") include without limitation (i) all
assets utilized by such division in the development of the SAND Engine including
all software (in object and source code form) included in the SAND Engine or any
iteration or release thereof, documentation and hardware, software tools, all
office furniture and supplies and any other equipment, (ii) any and all
intellectual, proprietary or other rights to the SAND Engine (including patents,
patent applications, copyrights, trademarks, service marks, characters, mask
works, trade secrets and confidential information, the "SAND IP") and any future
amendments, modifications or upgrades to the SAND IP, (iii) all rights to any
and all revenue arising from the SAND Engine and the SAND IP, (iv) all contract
rights of SAND (or of Sega Ozisoft which are directly related to the business of
SAND) necessary to conduct the business of SAND, and (iv) any and all content
produced by SAND or the SAND Engine relating to any and all current and future
Cyberswine Property and other multipath movies developed by SAND ("Content").
C. Sega Ozisoft desires to sell to BII, and BII desires to acquire from
Sega Ozisoft, the Sand Assets on the terms and subject to the conditions set
forth in this Purchase Agreement.
<PAGE>
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing, and the mutual covenants
set forth herein, the parties agree as follows:
1. SALE AND TRANSFER OF SAND ASSETS
1.1 Sale and Purchase; Purchased Assets. On the Closing Date (as
-----------------------------------
hereinafter defined) and on the terms and subject to the conditions set forth in
this Purchase Agreement, Sega Ozisoft hereby sells, conveys, assigns, transfers
and delivers to BII, free and clear of any and all liabilities, liens, claims,
charges, encumbrances, mortgages, security interests, pledges, rights of offset,
adverse claims, and restrictions of any type, kind or nature (collectively,
"Liens"), good and marketable title to the SAND Assets and BII hereby purchases
and acquires the SAND Assets from Sega Ozisoft by delivery of a convertible
promissory note in the form of Attachment "C" hereto (the "Note") in the
principal amount of $1,500,000 and which is mandatorily convertible upon the
effectiveness of the proposed Offering (as defined in Section 6.2 below) into
176,471 newly issued shares (the "Conversion Shares"), subject to adjustment to
reflect any stock splits, reverse stock splits or recapitalization, of the
Common Stock of BII, receipt of which is hereby acknowledged by Sega Ozisoft.
1.2 Further Actions. Sega Ozisoft shall, at its sole cost and expense,
---------------
execute and deliver to, or obtain for, BII such other instruments of conveyance,
transfer and assignment as shall be necessary or appropriate to vest in BII,
good and marketable title in and to all of the SAND Assets, free and clear of
any and all Liens, including without limitation, any governmental or third party
consents, approvals, permits, assurances, releases or terminations of Liens or
other security interests necessary for the consummation of the transactions
contemplated by this Purchase Agreement.
2. NO ASSUMPTION OF LIABILITIES
2.1 Liabilities Not Assumed. Except as otherwise expressly provided in
-----------------------
this Agreement, BII shall not and does not assume any liabilities, obligations
or commitments of Sega Ozisoft of any kind, known or unknown, contingent or
otherwise, of whatsoever kind or nature, and the same shall remain the sole
responsibility of Sega Ozisoft and Sega Ozisoft will indemnify and hold BII, its
officers, directors and stockholders, and each of them, harmless from and
against any and all such liabilities, expenses or obligations, including, but
not limited to, (a) deferred expenses, trade account liabilities and capitalized
leases; (b) product liability claims; (c) liabilities in respect of salaries,
employee benefit plans, including obligations to employees for bonus and/or
severance payments upon the sale of the Purchased Assets; (d) income, sales,
transfer or other taxes, including taxes arising out of the transactions
contemplated by this Purchase Agreement; or (e) legal expenses or other
transaction costs associated with the transactions contemplated by this Purchase
Agreement. BII will offer to hire or retain, on its customary basis, any or all
of the employees or consultants of
2
<PAGE>
SAND, but BII shall not assume or be bound by any of Sega Ozisoft's employment
or consulting contracts or other obligations with respect to such employees and
consultants.
2.2 BII acknowledges the following:
(a.) that it may not be possible by this Agreement to assign the contract
rights included in the SAND Assets, including without limitations
contracts for personal services and a lease of premises; and
(b.) that it is the intention of the parties that BII shall take over the
responsibilities of performance of the contracts included in the SAND
Assets where it receives the benefit thereof.
Where the consent of any party to any such contract is required for the
purposes of the assignment of any of the SAND Assets, Sega Ozisoft and BII
will each use its best efforts to secure such consent, including the entry
into any novation of such contract, whereby Sega Ozisoft will be released
from any further performance of such contract and BII will undertake such
performance, effective prior to the Closing Date. Where such novation is
not possible, BII will undertake the performance of such contract after the
Closing Date on Sega Ozisoft's behalf, and indemnify Sega Ozisoft from any
liability under such contract or arising incidental to its performance as a
consequence of any act or omission on the part of BII on or after the
Closing Date. This provision operates with respect to, but is not limited
to, the contract(s) between Sega Ozisoft and BII with respect to the
exploitation of the Cyberswine Property.
3. THE CLOSING
The Closing shall occur on that date (the "Closing Date") which is set
forth in a written notice delivered to Sega Ozisoft from BII. The Closing Date
may be selected by BII in its sole discretion but shall be no later than
December 20, 1996.
4. REPRESENTATIONS AND WARRANTIES OF SEGA OZISOFT
As a material inducement to BII to enter into this Purchase Agreement and
to perform its obligations hereunder, Sega Ozisoft represents and warrants to,
and agrees with, BII as set forth below. The representations and warranties set
forth below shall be effective as of the date of this Purchase Agreement and as
of the Closing Date.
4.1 Organization and Standing. Sega Ozisoft is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of Australia.
Sega Ozisoft has all requisite power and
3
<PAGE>
authority and all requisite permits necessary to own, lease and operate its
properties and assets and to carry on its business in the manner and in the
locations as presently conducted.
4.2 Authorization. Sega Ozisoft has the full power and authority
-------------
(corporate and other) to enter into, execute and deliver this Purchase Agreement
and to perform all of the transactions contemplated hereby and all of its
obligations hereunder. All corporate proceedings have been taken and all
corporate authorizations have been obtained which are necessary to authorize the
execution, delivery and performance by Sega Ozisoft of this Purchase Agreement.
This Purchase Agreement has been duly and validly executed and delivered by Sega
Ozisoft and constitutes a valid and binding obligation of Sega Ozisoft,
enforceable against Sega Ozisoft in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally from time to time in effect.
4.3 Title to Assets. Sega Ozisoft is the sole owner of, and holds, all
---------------
rights, title and interest in and to the SAND Assets free and clear of any
Liens. Upon delivery to BII of the SAND Assets, BII shall have good and
marketable title to the SAND Assets, free and clear of any Liens. The SAND
Assets are in good operating condition, normal wear and tear excepted. The SAND
Assets are not subject to any right of first refusal of any third party relating
to the sale of any of the SAND Assets.
4.4 No Infringement. To the best of Sega Ozisoft's knowledge and belief,
---------------
as of the date hereof, the SAND IP and the Content does not infringe,
contravene, or otherwise conflict with any patent, copyright, trademark, service
mark or other intellectual property or proprietary rights of others.
4.5 Investment Representations. Sega Ozisoft has been advised that the
--------------------------
Note and the Conversion Shares have not been registered under the Securities Act
of 1933, as amended (the "Securities Act"), nor qualified under any state blue
sky law, on the ground that no distribution or public offering of the Note or
Conversion Shares is to be effected, and that in this connection BII is relying
in part on the representations of Sega Ozisoft set forth in this Section 4.5.
Sega Ozisoft represents and warrants to BII that:
(a) Investment Intent. The Note to be issued to Sega Ozisoft pursuant
-----------------
to this Purchase Agreement is being acquired, and the Conversion Shares if
issued to Sega Ozisoft upon conversion of the Note will be acquired by Sega
Ozisoft solely for its own account, for investment purposes only, and with no
present intention of distributing, selling or otherwise disposing of them.
(b) Sophistication. Sega Ozisoft is an experienced and sophisticated
---------------
investor, and has such knowledge and experience in financial and business
matters that it is capable of evaluating the risks and merits of acquiring the
Note and Conversion Shares. Sega Ozisoft has had, during the course of this
transaction and prior to Sega Ozisoft's acquisition of the Note, the opportunity
to ask questions of, and receive answers from, BII, BII-Australia and their
respective management
4
<PAGE>
concerning BII, BII-Australia and the terms and conditions of this Purchase
Agreement. Sega Ozisoft hereby acknowledges that Sega Ozisoft or Sega Ozisoft's
representatives have received all such information as Sega Ozisoft considers
necessary for evaluating the risks and merits of acquiring the Note and the
Conversion Shares and for verifying the accuracy of any information furnished to
Sega Ozisoft or to which Sega Ozisoft had access.
(c) Accredited Investor. Sega Ozisoft is an "accredited investor" for
-------------------
purposes of Regulation D promulgated by the Commission under the Securities Act.
(d) Addresses. Sega Ozisoft represents that Sega Ozisoft's address set
---------
forth in Section 8.1 is its true and correct address, and, if not its principal
place of business, is the address from which the Sega Ozisoft negotiated the
investment in the Note and Conversion Shares.
(e) Transfer Restrictions. Sega Ozisoft understands the restrictions
---------------------
on resale and transfer of the Note and Conversion Shares imposed upon the
holders thereof pursuant the Securities Act and this Purchase Agreement, and
will abide by such resale and transfer restrictions.
(f) Legend. Sega Ozisoft understands and agrees that a legend will be
------
placed on the Note and the certificates representing the Conversion Shares which
will state that such securities have not been registered under the Securities
Act, and that any transfer or attempt to transfer such securities, except in a
transaction exempt from the federal and applicable state securities laws or in a
registered or qualified offering under federal and state securities laws, will
be void and of no effect and will not be recognized by BII.
4.6 Accuracy of Other Information. None of the information contained in
-----------------------------
this Purchase Agreement with respect to Sega Ozisoft or the SAND Assets,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were or will be made, not materially misleading.
Sega Ozisoft has disclosed to BII all information known to Sega Ozisoft which
Sega Ozisoft reasonably believes to be material to a decision by BII to enter
into this Purchase Agreement.
5. REPRESENTATIONS AND WARRANTIES OF BII
As a material inducement to Sega Ozisoft to enter into this Purchase
Agreement and to perform its obligations hereunder, BII represents and warrants
to and agrees with Sega Ozisoft as set forth below. The representations and
warranties set forth below shall be effective as of the date of this Purchase
Agreement and as of the Closing Date.
5.1 Organization and Standing. BII is a corporation duly organized,
-------------------------
validly existing and in good standing under the laws of the State of Delaware.
BII has all requisite power and authority necessary to own, lease and operate
its properties and assets and to carry on its business in the manner and in the
locations as presently conducted. Copies of the Restated Certificate of
5
<PAGE>
Incorporation of BII (as certified by the Secretary of State of the State of
Delaware, the "Restated Certificate") and Bylaws of BII have been delivered to
Sega Ozisoft and are accurate and complete as of the date hereof.
5.2 Authorization. BII has the full power and authority (corporate and
-------------
other) to enter into, execute and deliver this Purchase Agreement and to perform
all of the transactions contemplated hereby and all of its obligations
hereunder. All corporate proceedings have been taken and all corporate
authorizations have been obtained which are necessary to authorize the
execution, delivery and performance by BII of this Purchase Agreement. This
Purchase Agreement has been duly and validly executed and delivered by BII and
constitutes a valid and binding obligation of BII, enforceable against BII in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting creditors' rights generally from time to time in effect.
5.3 BII Australia. BII owns all of the outstanding capital stock of BII-
-------------
Australia. There are no outstanding options, contracts, commitments, warrants,
preemptive rights agreements or other rights of any character affecting or
relating in any manner to the issuance of any equity securities of BII-
Australia, or entitling any person or entity to acquire any equity securities of
BII-Australia, including options granted under any stock option or incentive
plan.
5.4 Capitalization. BII is authorized by its Restated Certificate to
--------------
issue up to 10,000,000 shares of Common Stock and up to 1,000,000 shares of
Preferred Stock which may be issued in one or more series. Immediately prior to
the Closing, 1,000,000 shares of Common Stock will be issued and outstanding and
no shares of Preferred Stock will be issued and outstanding. All of the issued
and outstanding shares of Common Stock have been duly authorized and validly
issued and are fully-paid and non-assessable. Except as set forth on Schedule
--------
"A", there are no outstanding options, contracts, commitments, warrants,
- ---
preemptive rights agreements or other rights of any character affecting or
relating in any manner to the issuance of the Common Stock, Preferred Stock or
other equity securities of BII, or entitling any person or entity to acquire any
of the Common Stock or other equity securities of BII, including options granted
under any stock option or incentive plan.
5.5 Issuance Conversion Shares. The Conversion Shares to be issued to
--------------------------
Sega Ozisoft upon conversion of the Note have been duly and validly authorized,
and if and when delivered, will be duly and validly issued, fully paid and non-
assessable, and will be free of any Liens or restrictions (other than those
imposed pursuant to this Purchase Agreement and under the Securities Act or
applicable state securities or blue sky laws).
5.6 Offering. Assuming the truth, accuracy and completeness of the
--------
representations and warranties of Sega Ozisoft set forth in Section 4 of this
Purchase Agreement, the offer, sale and issuance to Sega Ozisoft of the
Conversion Shares, constitute, and will constitute, transactions exempt from the
registration and prospectus delivery requirements of Section 5 of the Securities
Act and BII has obtained (or is exempt from the requirement to obtain) all
qualifications, permits and
6
<PAGE>
other consents required by all applicable state laws governing the offer, sale
and issuance of securities.
6. FURTHER AGREEMENTS OF THE PARTIES
6.1 Confidentiality. BII and Sega Ozisoft hereby acknowledge to and agree
---------------
with the other that any and all information which has been disclosed by one to
the other, its employees, consultants, agents and stockholders during the
discussions and negotiations leading to the execution of this Purchase
Agreement, and all information to be disclosed by one to the other, its
employees, consultants and agents and stockholders, during the period commencing
on the date of execution of this Purchase Agreement through the Closing or
termination of this Purchase Agreement, shall constitute confidential
information and trade secrets of the disclosing party, and as such are secret,
confidential and unique and constitute the exclusive trade secrets and property
of such party. Such information has been made known and available to the other
party and its respective employees, consultants and agents strictly in
connection with the negotiation and execution of this Purchase Agreement and the
consummation of the transactions provided for herein. Each party hereby
acknowledges and agrees that any use or disclosure of any such confidential
information or trade secrets, other than pursuant to or as allowed by this
Purchase Agreement, would be wrongful and could cause irreparable injury to the
other. Accordingly, each party hereby expressly agrees, for itself and on
behalf of its stockholders and directors, if any, and its principal officers,
managers, employees, agents, consultants and representatives, that it and they
will not at any time prior to the Closing or at any time thereafter, use or
disclose, other than in accordance with the terms and provisions of this
Purchase Agreement, any of such confidential information or trade secrets;
provided, that BII or Sega Ozisoft may use or disclose such confidential
- --------
information or secrets of the other without restriction if such information or
secrets (i) were or are available to such party on a non-confidential basis from
a source other than the other party; or (ii) were or become generally available
to the public; and provided, further, that if BII or Sega Ozisoft are requested
-------- -------
or required (by interrogatories, requests for information or documents, subpoena
or similar process) to disclose any of such information or secrets of the other,
such disclosure, may be made without liability hereunder. Notwithstanding the
foregoing, no provision of this Section 6.1 shall in any manner whatsoever
prevent or inhibit BII from using or disclosing any such confidential
information relating to the Purchased Assets in any manner BII shall deem fit
from and after the Closing; provided further, Sega Ozisoft hereby agrees, for
-------- -------
Sega Ozisoft, Sega Ozisoft's affiliates, officers, managers, employees, agents,
consultants and representatives, that they will not at any time from and after
the Closing Date use or disclose any such confidential information which either
(i) concerns BII, or its business or operations or (ii) relates to the SAND
Assets. Each party acknowledges that, in the event of a violation by the other
of the terms and provisions of this Section 6.1, the remedies at law would not
be adequate; and accordingly, in such event such party may proceed to protect
and enforce its rights under this Section 6.1 by a suit in equity for specific
performance hereof, or for an injunction against the violation hereof. This
confidentiality provision supersedes all other confidentiality agreements or
provisions, contained in any document or agreement, entered into between BII and
Sega Ozisoft.
7
<PAGE>
6.2 Employment
----------
(a.) BII may prior to the Closing Date deliver a letter to chosen
employees of SAND ("Employee") incorporating an offer to transfer with the SAND
Assets and offering employment on the same terms and conditions within BII-
Australia as those on which the Employee is then employed and carrying across
the then current on-going Employee benefits provided by Sega Ozisoft together
with any additional statutory requirements so that a SAND employee who accepts
the offer of employment under this clause ("Transferring Employee") would be
deemed a 'transferred employee' under Division 6 of the New South Wales
Industrial Relations Act 1991, Australia.
(b.) On or before the last business day prior to the Closing Date Sega
Ozisoft shall pay to BII in respect of each Transferring Employee an amount
equal to the sum of all amounts due to those Employees as at the Closing Date in
respect of accrued wages, salaries, allowances, annual leave inclusive of any
leave loading and other emoluments accrued by the Transferring Employees as at
the Closing Date.
(c.) On and from the Closing Date BII must in relation to each
Transferring Employee be responsible for and keep Sega Ozisoft indemnified
against claims made against Sega Ozisoft by the relevant Transferring Employee
for wages, salary, annual leave entitlement, holiday pay, sick leave, long
service leave and other allowances accumulated by the Transferring Employee
during his or her employment with Sega Ozisoft and treat that Transferring
Employee and deal with every such entitlement as if the entitlement had been
accrued by the Transferring Employee while in the employment of BII.
6.3 Public Offering. BII shall keep Sega Ozisoft informed with respect to
---------------
the process of selection of a managing underwriter for the Offering and cause
BII to allow Sega Ozisoft to participate in any road show. While participating
in any road show relating to the Offering, Mark Dyne, Kevin Bermeister and
Anthony Rose shall act as representatives of BII and not as representatives of
Sega Ozisoft or Sega Enterprises Japan. Sega Ozisoft shall cooperate and take
such actions, provide such financial statements of SAND and other information
and assistance, and execute all such further instruments and documents as BII
may reasonably request to permit BII prepare all registration statements and
other filings necessary or desirable to register the proposed underwritten
initial public offering of Common Stock of BII (the "Offering") under the laws
of the United States. Sega Ozisoft will assist BII in the conduct of any road
shows. Sega Ozisoft has reviewed the letter discussing pre-offering publicity
(a copy of which is attached as Schedule "B" hereto), and agrees to conduct
------------
itself, and cause its employees, consultants, agents and stockholders to conduct
themselves, in a manner consistent with such letter. Specifically, Sega Ozisoft
agrees not to make any statements regarding the proposed public offering and to
refer all inquiries concerning BII or relating to the proposed public offering
to BII. Sega Ozisoft agrees to enter into a lock-up agreement with the
underwriters of the proposed public offering whereby it agrees not to sell the
Conversion Shares for such period of time from and after the effective date of
such public offering as may be requested by such underwriters, which shall not
be longer than 12 months.
8
<PAGE>
6.4 Sega Ozisoft shall fund the operations of SAND through the closing of
the initial public offering of shares of Common Stock of BII (the "IPO
Closing"). BII shall reimburse Sega Ozisoft for expenses incurred to fund the
operations of SAND for the period commencing August 1, 1996 and terminating on
the October 31, 1996, in excess of A$75,000 per month (the "Initial Excess
Amount"). BII shall reimburse Sega Ozisoft for all expenses incurred to fund
the operations of SAND for the period commencing November 1, 1996 through the
IPO Closing (collectively with the Initial Excess Amount, the "Excess"). BII
shall pay the Excess to Sega Ozisoft promptly after the IPO Closing upon receipt
from Sega Ozisoft of documentation setting forth in reasonable detail the amount
and nature of each expense in the Excess.
6.5 Cyberswine Royalty. BII shall pay to Sega Ozisoft a royalty of 12.5%
------------------
of Adjusted Gross Receipts on the Cyberswine multipath movie, exclusive of any
sequels thereto, any merchandising thereof and any adaption to linear video
product. The royalty shall be paid with respect to each calendar quarter on the
45th day following the last day of that calendar quarter. "Adjusted Gross
Receipts" is gross receipts received by BII or any affiliate of BII on the
Cyberswine multipath movie, exclusive of any sequels thereto, any merchandising
thereof and any adaption to linear video product, and after deducting any
royalties and fees payable to Cyberswine licensors.
6.6 Further Cooperation. Sega Ozisoft shall cooperate with any efforts by
-------------------
BII to employ the employees and retain the services of consultants of SAND;
provided that Sega Ozisoft will have no liability if the employees or
consultants elect not to accept employment with BII.
6.7 Board Representation. So long as Sega Ozisoft maintains ownership of
--------------------
at least 7% of the outstanding equity securities of BII, BII will use its best
efforts to cause a nominee of Sega Ozisoft reasonably acceptable to be nominated
by the Board of Directors of BII for election as a director of BII so that Sega
Ozisoft has either one representative on the Board of Directors of BII or one
representative nominated for election at the succeeding annual stockholders
meeting so long as Sega Ozisoft maintains ownership of at least 7% of the
outstanding equity securities of BII.
6.8 Nature and Survival of Representations and Warranties. All
-----------------------------------------------------
representations and warranties of the Sega Ozisoft and BII shall survive the
Closing of this Purchase Agreement.
7. REGISTRATION RIGHTS
7.1 Piggyback Registration. If, at any time during the period commencing
----------------------
on the date that is 180 days from the IPO Closing, BII shall propose to register
any shares of Common Stock (but excluding any shares or securities being
registered pursuant to Form S-8 or Form S-4 or any successor form thereto), BII
shall (i) give Sega Ozisoft written notice, or telegraphic, telecopy or
telephonic notice followed as soon as practicable by written confirmation
thereof, of such proposed registration at least 20 business days prior to the
filing of such registration statement and, (ii) upon written notice, or
telegraphic or telephonic notice followed as soon as practicable by written
confirmation thereof, given to BII by Sega Ozisoft within 15 days after the
giving of such written
9
<PAGE>
confirmation or written notice by BII, BII shall include or cause to be included
in any such regis tration statement all or such portion of the Conversion Shares
as Sega Ozisoft may request; provided, however, that BII may at any time
-------- -------
withdraw or cease proceeding with any such registration if it shall at the same
time withdraw or cease proceeding with the registration of the Common Stock
originally proposed to be registered; and provided further, that in connection
----------------
with any registered public offering involving an underwriting, the managing
underwriter may (if in its reasonable opinion marketing factors so require)
limit the number of securities (including any Conversion Shares) included in
such offering (other than securities of BII). In the event of any such
limitation, the total number of Conversion Shares to be offered for the account
of Sega Ozisoft in the registration shall be reduced in proportion to the
respective number of shares requested to be included therein by all holders of
BII's Common Stock (other than BII) entitled to include shares of Common Stock
in the registration to the extent necessary to reduce the total number of shares
proposed to be registered to the number of shares recommended by the managing
underwriter.
7.2 BII's Obligations in Piggyback Registration. The following provisions
-------------------------------------------
shall also be applicable at the sole cost and expense of BII in the case of
registrations under Section 7.1:
(a.) Following the effective date of such registration statement, BII
shall, upon the request of Sega Ozisoft, forthwith supply such number of
prospectuses meeting the requirements of the Securities Act as shall be
requested by Sega Ozisoft to permit it to make a public distribution of all of
its Conversion Shares, provided that Sega Ozisoft shall from time to time
furnish BII with such appropriate information (relating to the intentions of
Sega Ozisoft) in connection therewith as BII shall request in writing.
(b.) BII shall bear the entire cost and expense of the registration of
securities provided for in this Section (but not the selling expenses of Sega
Ozisoft).
(c.) BII shall indemnify and hold harmless Sega Ozisoft from and
against any and all losses, claims, damages and liabilities (including
reasonable fees and expenses of counsel) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or any prospectus included therein required to be filed
or furnished by reason of this Section or otherwise or in any application or
other filing under, the Securities Act or any other applicable Federal or state
securities law, or arising out of or based upon any omission or alleged omission
to state therein a material fact required to be stated therein (i.e., in any
such registration statement, prospectus, application or other filing) or
necessary to make the statements therein not misleading, to which such person
may become subject, or any violation or alleged violation by BII to which such
Person may become subject, under the Securities Act, the Exchange Act, or other
Federal or state laws or regulations, at common law or otherwise, except to the
extent that such losses, claims, damages or liabilities are caused by any such
untrue statement or alleged untrue statement or omission or alleged omission
based upon and in strict conformity with written information furnished to BII by
such person expressly for use therein; provided however, that Sega Ozisoft shall
-------- -------
at the same time indemnify BII, its directors, each officer signing the related
10
<PAGE>
registration statement, and each person, if any, who controls BII within the
meaning of the Securities Act, from and against any and all losses, claims,
damages and liabilities (including reasonable fees and expenses of counsel)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any registration statement or any prospectus
included therein required to be filed or furnished by reason of this Section, or
otherwise or in any application or other filing under, the Securities Act or any
other applicable Federal or state securities law, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein (i.e., in any such registration statement, prospectus,
application or other filing) or necessary to make the statements therein not
misleading, to which such person may become subject, or any violation or alleged
violation by Sega Ozisoft to which BII, its directors, each officer signing the
related registration statement, and each person, if any, who controls BII within
the meaning of the Securities Act, may become subject, under the Securities Act,
the Exchange Act, or other Federal or state laws or regulations, at common law
or otherwise, to the extent that such losses, claims, damages or liabilities are
caused by any such untrue statement or alleged untrue statement or omission or
alleged omission based upon and in strict conformity with written information
furnished to BII by Sega Ozisoft expressly for use therein.
(d.) In the event any person entitled to indemnification hereunder
receives in writing a complaint, claim or other written notice of any loss,
claim, damage, liability or action giving rise to a claim for indemnification
under Section 7.2(c), the person claiming indemnification under Section 7.2(c)
shall promptly notify the person or persons against whom indemnification is
sought (the "Indemnitor") of such complaint, notice, claim or action, and the
Indemnitor shall have the right to investigate and defend any such loss, claim,
damage, liability or action. The person claiming indemnification shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof but the fees and expenses of such counsel shall not be at the
expense of the Indemnitor. In no event shall the Indemnitor be obligated to
indemnify any person for any settlement of any claim or action effected without
the Indemnitor's consent, which consent shall not be unreasonably withheld.
8. TAXES
8.1 Payment of Taxes, Filing of Returns. Sega Ozisoft shall remain
-----------------------------------
liable for the filing of all tax returns and reports and for the payment of all
federal, state and local taxes of Sega Ozisoft relating to the operation of the
Purchased Assets on or prior to the Closing Date and Sega Ozisoft shall remain
so liable for the payment of all of its taxes attributable to or relating to the
consummation of the transactions contemplated herein, and shall indemnify and
hold BII and it affiliates harmless from and against all liability in connection
therewith.
8.2 Sales Taxes. Sega Ozisoft shall bear all responsibility for stamp,
-----------
sales, use, value added or other similar taxes, if any, arising out of the
consummation of the transactions herein pro-
11
<PAGE>
vided for and shall be liable for the filing of all necessary tax returns and
reports with respect to such taxes.
9. MISCELLANEOUS
9.1 Notices. All notices, requests, demands and other communications
-------
(collectively referred to in this Section 8.1 as "Notices") given or made
pursuant to this Purchase Agreement shall be in writing and shall be deemed to
have been duly given if sent by registered or certified mail, return receipt
requested, postage and fees prepaid, by facsimile transmission, or otherwise
actually delivered to the following addresses:
(a) if to BII, to:
Brilliant Interactive, Inc.
c/o Murray Markiles, Esq
Troop Meisinger, Steuber & Pasich, LLP
10940 Wilshire Blvd.
Los Angeles CA 90024
USA
(b) if to Sega Ozisoft, to:
Sega Ozisoft Pty. Ltd.
Building A
Southern Industrial Estates
200 Coward Street
Mascot, NSW 2020
Australia
Any Notice shall be deemed duly given when received by the addressee thereof,
provided that any Notice sent by registered or certified mail shall be deemed to
have been duly given two days from the date of deposit in the United States
mails, unless sooner received. Any of the parties to this Purchase Agreement
may from time to time change its address for receiving notices by giving written
notice thereof in the manner set forth above.
9.2 Specific Performance. Sega Ozisoft acknowledges that the SAND Assets
--------------------
are unique to the requirements of the BII and that BII will have no adequate
remedy at law if Sega Ozisoft shall fail to perform its obligation to deliver to
BII the SAND Assets hereunder. In such event, BII shall have the right, in
addition to any other rights it may have, to specific performance of this
Purchase Agreement.
12
<PAGE>
9.3 MOU Superseded. This Purchase Agreement replaces and supersedes that
--------------
certain Memorandum of Understanding, dated as of June 12, 1996, by and between
Sega Ozisoft and BII-Australia which, upon execution of this Purchase Agreement
shall be terminated in its entirety.
9.4 Successors and Assigns. This Purchase Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors
and assigns.
9.5 Waiver and Amendment. No provision of this Purchase Agreement may be
--------------------
waived unless in writing signed by all the parties to this Purchase Agreement,
and waiver of any one provision of this Purchase Agreement shall not be deemed
to be a waiver of any other provision. This Purchase Agreement may be amended
only by a written agreement executed by the parties to this Purchase Agreement.
9.6 GOVERNING LAW. THIS PURCHASE AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED BOTH AS TO VALIDITY AND PERFORMANCE AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO THE CHOICE OF LAW
PRINCIPLES THEREOF.
9.7 Captions; Certain Terms; Presumptions Regarding Drafting Party. The
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various captions and headings contained in this Purchase Agreement are for
reference only and shall not be considered or referred to in resolving questions
of interpretation of this Purchase Agreement. As used in this Purchase
Agreement, the terms "Section," "Schedule" or "Exhibit" shall be interpreted as
referring to the Sections, Schedules and Exhibits contained in or attached to
this Purchase Agreement, unless otherwise specified. As used in this Purchase
Agreement, the term "including" means "including but not limited to" unless
otherwise specified; the word "or" means "and/or." Any rule or provision of law
which provides that a contract or agreement is to be construed against the
author of the contract or agreement shall not apply to this Purchase Agreement.
9.8 Counterparts. This Purchase Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
9.9 Costs and Attorneys' Fees. If any action, suit or other proceeding is
-------------------------
instituted to remedy, prevent or obtain relief from a default in the performance
by any party of its obligations under this Purchase Agreement, the prevailing
party shall recover all of such party's costs and reasonable attorneys' fees
incurred in each and every such action, suit or other proceeding, including any
and all appeals or petitions therefrom.
9.10 Third Party Beneficiaries. The provisions of this Purchase Agreement
-------------------------
are for the benefit of the BII and Sega Ozisoft and their respective affiliates
specifically referenced herein, and are not for the benefit of any other person
or entity.
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9.11 Expenses. Except as otherwise provided in this Purchase Agreement
--------
each of the parties shall pay its own expenses incurred in connection with the
preparation of this Purchase Agreement and the consummation of the transactions
contemplated hereby and all documents reasonably necessary to effectuate the
terms and intent of this Purchase Agreement.
9.12 Severability. Whenever possible, each provision of this Purchase
------------
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Purchase Agreement shall be
or become prohibited or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Purchase
Agreement.
9.13 Rights Cumulative. No right granted to the parties under this
-----------------
Purchase Agreement on default or breach is intended to be in full or complete
satisfaction of any damages arising out of such default or breach, and each and
every right under this Purchase Agreement, or under any other document or
instrument delivered hereunder, or allowed by law or equity, shall be cumulative
and may be exercised from time to time.
9.14 Entire Agreement. This Purchase Agreement and the Schedules,
----------------
Exhibits and other writings and agreements specifically identified herein
contain the entire agreement between BII and Sega Ozisoft with respect to the
transactions contemplated hereby and supersede and shall be interpreted
independently of any previous agreements, commitments, understandings and
negotiations between the parties, written or oral, relating to the subject
matter hereof.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed or caused this
Purchase Agreement to be executed on its behalf all as of the day and year first
above written.
EXECUTED by the parties at Los Angeles, California as an agreement as of
the date first above written:
SIGNED FOR BY SEGA OZISOFT PTY LIMITED
by the representative in the presence of:
/s/ Yasushi Okue /s/ Tsuneo Naibo
- ---------------------------------------- ------------------------------------
Witness Representative
Yasushi Okue Tsuneo Naibo
- ---------------------------------------- ------------------------------------
Name (please print) Name (please print)
SIGNED FOR BY BRILLIANT INTERACTIVE, INC.
by the representative in the presence of:
/s/ Diana Maranon
- ---------------------------------------- ------------------------------------
Witness Representative
Diana Maranon
- ---------------------------------------- ------------------------------------
Name (please print) Name (please print)
FOR PURPOSES OF SECTION 8.3 ONLY:
SIGNED FOR BY BRILLIANT INTERACTIVE PTY LIMITED
by the representative in the presence of:
/s/ Mark Miller
- ---------------------------------------- ------------------------------------
Witness Representative
Mark Miller
- ---------------------------------------- ------------------------------------
Name (please print) Name (please print)
15
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SCHEDULE "B" -- LETTER RE PUBLICITY
-----------------------------------
16
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SCHEDULE "C" -- NOTE
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EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BRILLIANT INTERACTIVE, INC.
BRILLIANT INTERACTIVE, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
A. The name of the corporation is Brilliant Interactive, Inc. The
Original Certificate of Incorporation of B.I.I. Holdings, Inc. was filed with
the Secretary of State of the State of Delaware on July 31, 1996. A Certificate
of Amendment of Certificate of Incorporation changing the name of the
Corporation to Brilliant Interactive, Inc. was filed with the Secretary of State
of the State of Delaware on August 6, 1996.
B. This amended and restated Certificate of Incorporation, which
restates and integrates and does further amend the provisions of the Certificate
of Incorporation of the Corporation, has been duly adopted in accordance with
the provisions of Sections 242 and 245 of the General Corporation Law of the
State of Delaware by unanimous written consent of the stockholders given in
accordance with Section 228 of the General Corporation Law of the State of
Delaware.
C. The text of the Certificate of Incorporation as heretofore
amended or supplemented is hereby restated and further amended to read in its
entirety as follows:
I.
The name of the Corporation is Brilliant Digital Entertainment, Inc.
II.
The address of the registered office of the Corporation in the State of
Delaware is 9 East Loockerman Street, City of Dover, County of Kent, Delaware
l9901. The name of its registered agent at such address is National Corporate
Research, Ltd.
III.
The purpose of this Corporation is to engage in any lawful act or activity
for which Corporations may be organized under the General Corporation Law of the
State of Delaware (the "Delaware Law").
<PAGE>
IV.
This Corporation is authorized to issue two classes of shares, designated,
respectively, "Preferred Stock" and "Common Stock." Each class of stock shall
have a par value of $.001 per share. The number of shares of Preferred Stock
authorized to be issued is 1,000,000 and the number of shares of Common Stock
authorized to be issued is 30,000,000.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware Law, to fix or alter
from time to time the designation, powers, preferences and rights of the shares
of each such series and the qualifications, limitations or restrictions of any
wholly unissued series of Preferred Stock, and to establish from time to time
the number of shares constituting any such series or any of them; and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be
decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
Except and to the extent designated with respect to the Preferred Stock,
all rights to vote and all voting power shall be vested in the Common Stock and
the holders thereof shall be entitled at all elections of directors to one (1)
vote per share. Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called only by the Board of Directors, the Chairman
of the Board, the Chief Executive Officer or the President of the Corporation.
VI.
The directors of the Corporation shall be divided into three classes,
designated Class I, Class II and Class III. The term of the initial Class I
directors shall terminate on the date of the 1997 annual meeting of
stockholders; the term of the Class II directors shall terminate on the date of
the 1998 annual meeting of stockholders and the term of the Class III directors
shall terminate on the date of the 1999 annual meeting of stockholders. At each
annual meeting of stockholders beginning in 1997, successors to the class of
directors whose term expires at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or decease
shall be apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as reasonably possible, and any additional
directors of any class elected to fill a vacancy resulting form an increase in
such class shall hold for a term that shall coincide with the remaining term of
that class, but in no case will a decrease in the number of directors shorten
the term of any incumbent directors. A director shall hold office until the
annual meeting for the year in which his term expires and until his successor
shall be elected and shall qualify, subject, however, to prior
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death, resignation, retirement, disqualification or removal from office. Any
vacancy on the Board of Directors, however resulting, shall be filled only by a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director and not by the stockholders. Any director elected to
fill a vacancy shall hold office for a term that shall coincide with the terms
of the class to which such director shall have been elected.
Subject to the rights, if any, of the holders of shares of Preferred Stock
then outstanding, any or all of the directors of the Corporation may be removed
from office at any time, for cause only, by the affirmative vote of the holders
of a majority of the outstanding shares of the Corporation then entitled to vote
generally in the election of the directors, considered for purposes of this
Article VI as one class.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Amended and Restated Certificate of Incorporation or the
resolution or resolutions adopted by the Board of Directors pursuant to the
second paragraph of Article IV applicable thereto, and such directors so elected
shall not be divided into classes pursuant to this Article VI unless expressly
provided by such terms.
VII.
Elections of directors at an annual or special meeting of stockholders need
not be by written ballot unless the Bylaws of the Corporation shall otherwise
provide.
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken only upon the vote of the stockholders at
an annual or special meeting duly noticed and called, as provided in the Bylaws
of the Corporation, and may not be taken by written consent of the stockholders
pursuant to the Delaware Law; provided, however, if the Corporation has only one
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stockholder, then any action required or permitted to be taken at any annual or
special meeting of stockholders may be taken by the written consent of such
stockholder.
VIII.
The officers of the Corporation shall be chosen in such a manner, shall
hold their offices for such terms and shall carry out such duties as are
determined solely by the Board of Directors, subject to the right of the Board
of Directors to remove any officer or officers at any time with or without
cause.
IX.
The Corporation shall indemnify to the fullest extent authorized or
permitted by law (as now or hereafter in effect) any person made, or threatened
to be made, a defendant or
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<PAGE>
witness to any action, suit or proceeding (whether civil or criminal or
otherwise) by reason of the fact that she or he, her or his testator or
intestate, is or was a director, officer, employee or agent of the Corporation
or by reason of the fact that any person is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or enterprise. Nothing
contained herein shall affect any rights to indemnification to which employees
other than directors and officers may be entitled by law. No amendment or repeal
of this paragraph of Article IX shall apply to or have any effect on any right
to indemnification provided hereunder with respect to any acts or omissions
occurring prior to such amendment or repeal.
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such a director as a director. Notwithstanding the foregoing sentence, a
director shall be liable to the extent provided by applicable law (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
Delaware Law, or (iv) for any transaction from which such director derived an
improper personal benefit. No amendment to or repeal of this paragraph of
Article IX shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
In furtherance and not in limitation of the powers conferred by statute:
(i) the Corporation may purchase and maintain insurance on
behalf of any person who is or was a director or officer, employee or agent
of the Corporation, or is serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against any
liability asserted against him or her and incurred by him or her in any
such capacity, or arising out of his or her status as such, whether or not
the Corporation would have the power to indemnify against such liability
under the provisions of law; and
(ii) the Corporation may create a trust fund, grant a security
interest and/or use other means (including, without limitation, letters of
credit, surety bonds and/or other similar arrangements), as well as enter
into contract providing indemnification to the full extent authorized or
permitted by law and including as part thereof provisions with respect to
any or all of the foregoing to ensure the payment of such amounts as may
become necessary to effect indemnification as provided therein, or
elsewhere.
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<PAGE>
X.
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware, the Board of Directors of the corporation shall have the
sole authority to adopt, repeal, alter, amend or rescind the Bylaws of the
Corporation.
XI.
The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner prescribed by the
laws of the State of Delaware and all rights conferred upon stockholders are
granted subject to this reservation; provided, however, that, notwithstanding
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any other provision of this Certificate of Incorporation or any provision of law
which might otherwise permit a lesser vote, but in addition to any vote of the
holders of any class or series thereof of the stock of this Corporation required
by law or by this Certificate of Incorporation, the affirmative vote of the
holders of at least 66 2/3 percent of the combined voting power of the
outstanding shares of stock of all classes and series thereof of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to amend, repeal or adopt any provision
inconsistent with (i) the second sentence of Article V, (ii) Article VI, (iii)
the second paragraph of Article VII, (iv) Article X or (v) this Article XI.
XII.
Mark Dyne and Kevin Bermeister, acting in their capacity as officers and
directors of the Corporation shall not be required to present to the Corporation
corporate opportunities which such director wishes to present to another company
with which such director is affiliated; provided, however, that both Mark Dyne
and Kevin Bermeister are required to present to the Corporation any corporate
opportunities for the development of any type of interactive digital
entertainment with the exception of opportunities for participation in the
development by others of interactive digital entertainment where publishing
and/or distribution rights for the product to be developed are offered to Messrs
Dyne and/or Bermeister solely for Australia, New Zealand (and surrounding
territories), and/or Southern Africa. For purposes hereof, "development" does
not include passive financing of the development of products by third parties
not affiliated with Mr. Dyne or Bermeister, as the case may be.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Amended and Restated
Certificate of Incorporation this 11th day of September, 1996.
BRILLIANT INTERACTIVE, INC.
By: /s/ Diana Maranon
__________________________________
Diana Maranon
Its: Secretary
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<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
BRILLIANT DIGITAL ENTERTAINMENT, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal-
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (A) specified in the notice
of meeting (or any supplement
<PAGE>
thereto) given by or at the direction of the Board of Directors, (B) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (C) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not later than the close of business on the sixtieth (60th) day nor
earlier than the close of business on the ninetieth (90th) day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that no annual meeting was held in the previous year or the
date of the annual meeting has been changed by more than thirty (30) days from
the date contemplated at the time of the previous year's proxy statement, notice
by the stockholder to be timely must be so received not earlier than the close
of business on the ninetieth (90th) day prior to such annual meeting and not
later than the close of business on the later of the sixtieth (60th) day prior
to such annual meeting or, in the event public announcement of the date of such
annual meeting is first made by the corporation fewer than seventy (70) days
prior to the date of such annual meeting, the close of business on the tenth
(10th) day following the day on which public announcement of the date of such
meeting is first made by the corporation. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the corporation which are beneficially owned by the
stockholder, (iv) any material interest of the stockholder in such business and
(v) any other information that is required to be provided by the stockholder
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b). The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this paragraph (b), and, if he should
so determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
(c) Only persons who are confirmed in accordance with the procedures set
forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 5. Such stock holder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to
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<PAGE>
nominate for election or re-election as a director: (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (c) the class and number of shares of the corporation
which are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a director if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
paragraph (b) of this Section 5. At the request of the Board of Directors, any
person nominated by a stockholder for election as a director shall furnish to
the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting,
and the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be called,
for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii)
the Chief Executive Officer, or (iii) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board of Directors for
adoption), and shall be held at such place, on such date, and at such time as
the Board of Directors, shall determine.
(b) If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of
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Section 7 of these Bylaws. If the notice is not given within sixty (60) days
after the receipt of the request, the person or persons requesting the meeting
may set the time and place of the meeting and give the notice. Nothing contained
in this paragraph (b) shall be construed as limiting, fixing, or affecting the
time when a meeting of stockholders called by action of the Board of Directors
may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the votes cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the votes cast, including abstentions, by the
holders of shares of such class or classes or series shall be the act of such
class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given
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<PAGE>
of the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING. No action shall be taken by the
stockholders except at an annual or special meeting of stockholders called in
accordance with these Bylaws, and no action shall be taken by the stockholders
by written consent.
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SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to make
such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND QUALIFICATION. The authorized number of directors
of the corporation shall be not less than two (2) nor more than nine (9) as
fixed from time to time by resolution of the Board of Directors; provided
--------
that no decrease in the number of directors shall shorten the term of any
incumbent directors. Directors need not be stockholders unless so required by
the Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
SECTION 17. ELECTION AND TERM OF OFFICE OF DIRECTORS. Members of the Board
of Directors shall hold office for the terms specified in the Certificate of
Incorporation, as it may be amended from time to time, and until their
successors have been elected as provided in the Certificate of Incorporation.
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SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholder vote, be filled
only by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
SECTION 19. RESIGNATION. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each director so chosen shall hold office for the unexpired portion of the term
of the director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
SECTION 20. REMOVAL. Subject to any limitations imposed by law, Section
A(3)(a) above shall no longer apply and subject to the rights of the holders of
any series of Preferred Stock, no director shall be removed without cause.
Subject to any limitations imposed by law, the Board of Directors or any
individual director may be removed from office at any time with cause by the
affirmative vote of the holders of a majority of the then-outstanding shares of
voting stock of the corporation entitled to vote at an election of directors
("Voting Stock").
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors shall be
held immediately before or after the annual meeting of stockholders and at the
place where such meeting is held. No notice of an annual meeting of the Board of
Directors shall be necessary and such meeting shall be held for the purpose of
electing officers and transacting such other business as may lawfully come
before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided, regular
meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the state
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
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(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of
Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of any
committee thereof, may participate in a meeting by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
facsimile, telegraph or telex, during normal business hours, at least twenty-
four (24) hours before the date and time of the meeting, or sent in writing to
each director by first class mail, charges prepaid, at least three (3) days
before the date of the meeting. Notice of any meeting may be waived in writing
at any time before or after the meeting and will be waived by any director by
attendance thereat, except when the director attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting of
the Board of Directors, or any committee thereof, however called or noticed, or
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number and
except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time in accordance with the Certificate of Incorporation, a
quorum of the Board of Directors shall consist of a majority of the exact number
of directors fixed from time to time by the Board of Directors in accordance
with the Certificate of Incorporation provided, however, at any meeting whether
a quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting of
the Board of Directors, without notice other than by announcement at the
meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
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SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution passed
by a majority of the whole Board of Directors appoint an Executive Committee to
consist of one (1) or more members of the Board of Directors. The Executive
Committee, to the extent permitted by law and provided in the resolution of the
Board of Directors shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, including without limitation the power or authority to declare a
dividend, to authorize the issuance of stock and to adopt a certificate of
ownership and merger, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
of Directors fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the whole Board of Directors, from time to time appoint such other
committees as may be permitted by law. Such other committees appointed by the
Board of Directors shall consist of one (1) or more members of the Board of
Directors and shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committees, but in no
event shall such committee have the powers denied to the Executive Committee in
these Bylaws.
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(c) TERM. Each member of a committee of the Board of Directors shall serve
a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to the provisions of subsections (a)
or (b) of this Bylaw may at any time increase or decrease the number of members
of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
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ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Direction. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors .
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the Board
of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all meetings of
the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief Executive Officer of the corporation,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and perform
the duties of the President in the absence or disability of the President or
whenever the office of President is vacant. The Vice Presidents shall perform
other duties commonly incident to their
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office and shall also perform such other duties and have such other powers as
the Board of Directors or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of the
stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep or cause to be kept the books of account of the corporation in a thorough
and proper manner and shall render statements of the financial affairs of the
corporation in such form and as often as required by the Board of Directors or
the President. The Chief Financial Officer, subject to the order of the Board of
Directors, shall have the custody of all funds and securities of the
corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee
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or superior officers upon whom such power of removal may have been conferred by
the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENT. The Board of Directors may,
in its discretion, determine the method and designate the signatory officer or
officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiting the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person .or persons as the Board of Directors shall authorize so
to do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
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ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall be
made only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
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(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix, in advance, a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty (60) nor less than ten (10) days before the date of such meeting. If
no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted, and which record date shall be not more than sixty (60) days prior
to such action. If no record date is filed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
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an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
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ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS OFFICERS. The corporation shall indemnify its directors and
officers to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and officers;
and, provided, further, that the corporation shall not be required to indemnify
any director or officer in connection with any proceeding (or part thereof)
initiated by such person unless (i) such indemnification is expressly required
to be made by law, (ii) the proceeding was authorized by the Board of Directors
of the corporation, (iii) such indemnification is provided by the corporation,
in its sole discretion, pursuant to the powers vested in the corporation under
the Delaware General Corporation Law or (iv) such indemnification is required to
be made under subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have power to
indemnify its employees and other agents as set forth in the Delaware General
Corporation Law.
(c) EXPENSE. The corporation shall advance to any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer, of
the corporation, or is or was serving at the request of the corporation as a
director or executive officer of another corporation, partnership, joint
venture, trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses incurred by any
director or officer in connection with such proceeding upon receipt of an
undertaking by or on behalf of such person to repay said mounts if it should be
determined ultimately that such person is not entitled to be indemnified under
this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
officer of the corporation (except by reason of the fact that such officer is or
was a director of the corporation in which event this paragraph shall not apply)
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding, or (ii) if such quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate clearly
and convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation.
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(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and officers
under this Bylaw shall be deemed to be contractual rights and be effective to
the same extent and as if provided for in a contract between the corporation and
the director or officer. Any right to indemnification or advances granted by
this Bylaw to a director or officer shall be enforceable by or on behalf of the
person holding such right in any court of competent jurisdiction if (i) the
claim for indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. In
connection with any claim for indemnification, the corporation shall be entitled
to raise as a defense to any such action that the claimant has not met the
standard of conduct that make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. In connection with any claim by an officer of the corporation (except
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such officer is or was a director of
the corporation) for advances, the corporation shall be entitled to raise a
defense as to any such action clear and convincing evidence that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed in the best interests of the corporation, or with respect to any
criminal action or proceeding that such person acted without reasonable cause to
believe that his conduct was lawful. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct. In any suit brought by a director or
officer to enforce a right to indemnification or to an advancement of expenses
hereunder, the burden of proving that the director or officer is not entitled to
be indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this
Bylaw shall not be exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this Bylaw
shall continue as to a person who has ceased to be a director, officer, employee
or other agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
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(g) INSURANCE. To the fullest extent permitted by the Delaware General
Corporation Law, the corporation, upon approval by the Board of Directors, may
purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer to the full
extent not prohibited by any applicable portion of this Bylaw that shall not
have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following
definitions shall apply:
(i) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony
in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative.
(ii) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
(iii) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority
to indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent or
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Bylaw with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
(iv) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
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(v) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the corporation" as
referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any director
may be given by the method stated in subsection (a), or by facsimile, telex or
telegram, except that such notice other than one which is delivered personally
shall be sent to such address as such director shall have filed in writing with
the Secretary, or, in the absence of such filing, to the last known post office
address of such director.
(c) AFFIDAVIT OF MAILING. An affIdavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same method of
giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
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(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him ill the
manner above provided, shall not be affected or extended in any manner by the
failure of such stockholder or such director to receive such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever notice
is required to be given, under any provision of law or of the Certificate of
Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
require and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XII
AMENDMENTS
SECTION 45. AMENDMENTS.
Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be
altered or amended or new Bylaws adopted by the affirmative vote of at least
sixty-six and two-thirds percent (66-2/3 %) of the voting power of all of the
then-outstanding shares of the Voting Stock. The Board of Directors shall also
have the power to adopt, amend, or repeal Bylaws.
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ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
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EXHIBIT 10.1
BRILLIANT DIGITAL ENTERTAINMENT, INC.
1996 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The purpose of this 1996 Stock Option Plan (the "Plan") is to provide
incentives and rewards to selected eligible directors, officers, employees and
consultants of Brilliant Digital Entertainment, Inc. (the "Company") or its
subsidiaries in order to assist the Company and its subsidiaries in attracting,
retaining and motivating those persons by providing for or increasing the
proprietary interests of those persons in the Company, and by associating their
interests in the Company with those of the Company's shareholders.
2. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Board of Directors of the Company
(the "Board"), or a committee of the Board (the "Committee") consisting of two
or more directors, at least two of whom shall be both a "Non-Employee
Directors," as that term is defined in Rule 16b-3(b) of the Rules and
Regulations (the "Rules") of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, an "outside director" for purposes
of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")
and the regulations of the Internal Revenue Service adopted thereunder, as such
Rules and such Section and regulations may from time to time be amended or
interpreted. Members of the Committee, if any, shall serve at the pleasure of
the Board. If administration is delegated to the Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board (and references in this Plan to the Board shall
thereafter be to the Committee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan as may be adopted from time to time
by the Board.
The Board shall have all the powers vested in it by the terms of the Plan,
including exclusive authority (i) to select from among eligible directors,
officers, employees and consultants, those persons to be granted "Awards" (as
defined below) under the Plan; (ii) to determine the type, size and terms of
individual Awards (which need not be identical) to be made to each person
selected; (iii) to determine the time when Awards will be granted and to
establish objectives and conditions (including, without limitation, vesting and
performance conditions), if any, for earning Awards; (iv) to amend the terms or
conditions of any outstanding Award, subject to applicable legal restrictions
and to the consent of the other party to such Award; (v) to determine the
duration and purpose of leaves of absences which may be granted to holders of
Awards without constituting termination of their employment for purposes of
their Awards; (vi) to authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan; and (vii) to make
any and all other determinations which it determines to be necessary or
advisable in the administration of the Plan. The Board shall have full power and
authority to administer and interpret the Plan and to adopt, amend and revoke
such rules, regulations, agreements, guidelines and instruments for the
administration of the Plan and for the conduct of its business as the Board
deems necessary or advisable. The
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Board's interpretation of the Plan, and all actions taken and determinations
made by the Board pursuant to the powers vested in it hereunder, shall be
conclusive and binding on all parties concerned, including the Company, its
shareholders, any participants in the Plan and any other employee of the Company
or any of its subsidiaries.
3. PERSONS ELIGIBLE UNDER THE PLAN.
Any person who is a director, officer, employee or consultant of the
Company, or any of its subsidiaries (a "Participant"), shall be eligible to be
considered for the grant of Awards under the Plan.
4. AWARDS.
(a) Common Stock and Derivative Security Awards. Awards authorized under
the Plan shall consist of any type of arrangement with a Participant that is not
inconsistent with the provisions of the Plan and that, by its terms, involves or
might involve or be made with reference to the issuance of (i) shares of the
Common Stock, $.001 par value per share, of the Company (the "Common Stock") or
(ii) a "derivative security" (as that term is defined in Rule 16a-1(c) of the
Rules, as the same may be amended from time to time) with an exercise or
conversion price related to the Common Stock or with a value derived from the
value of the Common Stock.
(b) Types of Awards. Awards are not restricted to any specified form or
structure and may include, but need not be limited to, sales, bonuses and other
transfers of stock, restricted stock, stock options, reload stock options, stock
purchase warrants, other rights to acquire stock or securities convertible into
or redeemable for stock, stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance shares, or any other type of Award
which the Board shall determine is consistent with the objectives and
limitations of the Plan. An Award may consist of one such security or benefit,
or two or more of them in tandem or in the alternative.
(c) Consideration. Common Stock may be issued pursuant to an Award for any
lawful consideration as determined by the Board, including, without limitation,
a cash payment, services rendered, or the cancellation of indebtedness.
(d) Guidelines. The Board may adopt, amend or revoke from time to time
written policies implementing the Plan. Such policies may include, but need not
be limited to, the type, size and term of Awards to be made to participants and
the conditions for payment of such Awards.
(e) Terms and Conditions. Subject to the provisions of the Plan, the
Board, in its sole and absolute discretion, shall determine all of the terms and
conditions of each Award granted pursuant to the Plan, which terms and
conditions may include, among other things:
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(i) any provision necessary for such Award to qualify as an
incentive stock option under Section 422 of the Code (an "Incentive Stock
Option");
(ii) a provision permitting the recipient of such Award to pay the
purchase price of the Common Stock or other property issuable pursuant to
such Award, or to pay such recipient's tax withholding obligation with
respect to such issuance, in whole or in part, by delivering previously
owned shares of capital stock of the Company (including "pyramiding") or
other property, or by reducing the number of shares of Common Stock or the
amount of other property otherwise issuable pursuant to such Award; or
(iii) a provision conditioning or accelerating the receipt of
benefits pursuant to the Award, or terminating the Award, either
automatically or in the discretion of the Board, upon the occurrence of
specified events, including, without limitation, a change of control of the
Company, an acquisition of a specified percentage of the voting power of
the Company, the dissolution or liquidation of the Company, a sale of
substantially all of the property and assets of the Company or an event of
the type described in Section 7 of the Plan.
(f) Suspension or Termination of Awards. If the Company believes that a
Participant has committed an act of misconduct as described below, the Company
may suspend the Participant's rights under any then outstanding Award pending a
determination by the Board. If the Board determines that a Participant has
committed an act of embezzlement, fraud, nonpayment of any obligation owed to
the Company or any subsidiary, breach of fiduciary duty or deliberate disregard
of the Company's rules resulting in loss, damage or injury to the Company, or if
a Participant makes an unauthorized disclosure of trade secret or confidential
information of the Company, engages in any conduct constituting unfair
competition, or induces any customer of the Company to breach a contract with
the Company, neither the Participant nor his or her estate shall be entitled to
exercise any rights whatsoever with respect to such Award. In making such
determination, the Board shall act fairly and shall give the Participant a
reasonable opportunity to appear and present evidence on his or her behalf to
the Board.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
The aggregate number of shares of Common Stock that may be issued or
issuable pursuant to all Awards under the Plan (including Awards in the form of
Incentive Stock Options and Non-Statutory Options) shall not exceed an aggregate
of 1,080,000 shares of Common Stock, subject to adjustment as provided in
Section 7 of the Plan. Shares of Common Stock subject to the Plan may consist,
in whole or in part, of authorized and unissued shares or treasury shares. Any
shares of Common Stock subject to an Award which for any reason expires or is
terminated unexercised as to such shares shall again be available for issuance
under the Plan. For purposes of this Section 5, the aggregate number of shares
of Common Stock that may be issued at any time pursuant to Awards granted under
the Plan shall be reduced by: (i) the number of shares of Common Stock
previously issued pursuant to Awards granted under the Plan, other than shares
of Common Stock subsequently reacquired by the Company pursuant to the terms and
conditions of such Awards and with respect to which the holder thereof received
no benefits of ownership, such as dividends; and (ii) the number of shares of
Common Stock
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which were otherwise issuable pursuant to Awards granted under this Plan but
which were withheld by the Company as payment of the purchase price of the
Common Stock issued pursuant to such Awards or as payment of the recipient's tax
withholding obligation with respect to such issuance.
6. PAYMENT OF AWARDS.
The Board shall determine the extent to which Awards shall be payable in
cash, shares of Common Stock or any combination thereof. The Board may, upon
request of a Participant, determine that all or a portion of a payment to that
Participant under the Plan, whether it is to be made in cash, shares of Common
Stock or a combination thereof, shall be deferred. Deferrals shall be for such
periods and upon such terms as the Board may determine in its sole discretion.
7. DILUTION AND OTHER ADJUSTMENT.
In the event of any change in the outstanding shares of the Common Stock or
other securities then subject to the Plan by reason of any stock split, reverse
stock split, stock dividend, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate change, or if the
outstanding securities of the class then subject to the Plan are exchanged for
or converted into cash, property or a different kind of securities, or if cash,
property or securities are distributed in respect of such outstanding securities
(other than a regular cash dividend) , then, unless the terms of such
transaction shall provide otherwise, such equitable adjustments shall be made in
the Plan and the Awards thereunder (including, without limitation, appropriate
and proportionate adjustments in (i) the number and type of shares or other
securities or cash or other property that may be acquired pursuant to Incentive
Stock Options and other Awards theretofore granted under the Plan, (ii) the
maximum number and type of shares or other securities that may be issued
pursuant to Incentive Stock Options and other Awards thereafter granted under
the Plan; and (iii) the maximum number of securities with respect to which
Awards may thereafter be granted to any Participant in any fiscal year) as the
Board determines are necessary or appropriate, including, if necessary, any
adjustments in the maximum number of shares referred to in Section 5 of the
Plan. Such adjustments shall be conclusive and binding for all purposes of the
Plan.
8. MISCELLANEOUS PROVISIONS.
(a) Definitions. As used herein, "subsidiary" means any current or future
corporation which would be a "subsidiary corporation," as that term is defined
in Section 425 of the Code, of the Company; and the term "or" means "and/or."
(b) Conditions on Issuance. Securities shall not be issued pursuant to
Awards unless the grant and issuance thereof shall comply with all relevant
provisions of law and the requirements of any securities exchange or quotation
system upon which any securities of the Company are listed, and shall be further
subject to approval of counsel for the Company with
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respect to such compliance. Inability of the Company to obtain authority from
any regulatory body having jurisdiction, which authority is determined by
Company counsel to be necessary to the lawful issuance and sale of any security
or Award, shall relieve the Company of any liability in respect of the
nonissuance or sale of such securities as to which requisite authority shall not
have been obtained.
(c) Rights as Shareholder. A participant under the Plan shall have no
rights as a holder of Common Stock with respect to Awards hereunder, unless and
until certificates for shares of such stock are issued to the participant.
(d) Assignment or Transfer. Subject to the discretion of the Board, and
except with respect to Incentive Stock Options which are not transferable except
by will or the laws of descent and distribution, Awards under the Plan or any
rights or interests therein shall be assignable or transferable.
(e) Agreements. All Awards granted under the Plan shall be evidenced by
written agreements in such form and containing such terms and conditions (not
inconsistent with the Plan) as the Board shall from time to time adopt.
(f) Withholding Taxes. The Company shall have the right to deduct from all
Awards hereunder paid in cash any federal, state, local or foreign taxes
required by law to be withheld with respect to such awards and, with respect to
awards paid in stock, to require the payment (through withholding from the
participant's salary or otherwise) of any such taxes. The obligation of the
Company to make delivery of Awards in cash or Common Stock shall be subject to
the restrictions imposed by any and all governmental authorities.
(g) No Rights to Award. No Participant or other person shall have any
right to be granted an Award under the Plan. Neither the Plan nor any action
taken hereunder shall be construed as giving any Participant any right to be
retained in the employ of the Company or any of its subsidiaries or shall
interfere with or restrict in any way the rights of the Company or any of its
subsidiaries, which are hereby reserved, to discharge a Participant at any time
for any reason whatsoever, with or without good cause.
(h) Costs and Expenses. The costs and expenses of administering the Plan
shall be borne by the Company and not charged to any Award nor to any
Participant receiving an Award.
(i) Funding of Plan. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Award under the Plan.
9. AMENDMENTS AND TERMINATION.
(a) Amendments. The Board may at any time terminate or from time to time
amend the Plan in whole or in part, but no such action shall adversely affect
any rights or obligations with respect to any Awards theretofore made under the
Plan. However, with the consent of the Participant affected, the Board may amend
outstanding agreements evidencing Awards under the Plan in a manner not
inconsistent with the terms of the Plan.
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<PAGE>
(b) Shareholder Approval. To the extent that Section 422 of the Code,
other applicable law, or the rules, regulations, procedures or listing agreement
of any national securities exchange or quotation system, requires that any
amendment of the Plan be approved by the shareholders of the Company, no such
amendment shall be effective unless and until it is approved by the shareholders
in such a manner and to such a degree as is required.
(c) Termination. Unless the Plan shall theretofore have been terminated as
above provided, the Plan (but not the awards theretofore granted under the Plan)
shall terminate on and no awards shall be granted after September 13, 2006.
10. EFFECTIVE DATE.
The Plan is effective on September 13, 1996, the date on which it was
adopted by the Board of Directors of the Company and the holders of the majority
of the Common Stock of the Company.
11. GOVERNING LAW.
The corporate law of Delaware shall govern issues related to the validity
and issuance of Common Stock. Otherwise, the Plan and any agreements entered
into thereunder shall be construed and governed by the laws of the State of
Delaware applicable to contracts made within, and to be performed wholly within,
such state.
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<PAGE>
EXHIBIT 10.2
OPTION CERTIFICATE
(NON-STATUTORY STOCK OPTION)
THIS IS TO CERTIFY that Brilliant Digital Entertainment, Inc., a Delaware
corporation (the "COMPANY"), has granted to the person named below ("OPTIONEE")
a non-statutory stock option (the "OPTION") to purchase shares of the Company's
Common Stock (the "SHARES") under its 1996 Stock Option Plan and upon the terms
and conditions as follows:
Name of Optionee:
---------------------------------------
Address of Optionee:
---------------------------------------
---------------------------------------
---------------------------------------
Number of Shares:
---------------------------------------
Option Exercise Price: $ per share
--------------------------
Date of Grant: , 199
--------------------------- --- --
Option Expiration Date: , 200
--------------------------- --- --
EXERCISE SCHEDULE: The Option shall become exercisable as follows:
SUMMARY OF OTHER TERMS: This Option is defined in the Stock Option
Agreement (Non-statutory Stock Option) (the "OPTION AGREEMENT") which is
attached to this Option Certificate (the "CERTIFICATE") as Annex I. This
Certificate summarizes certain of the provisions of the Option Agreement for
your information, but is not complete. Your rights are governed by the Option
Agreement, not by this summary. The Company strongly suggests that you
---
carefully review the full Option Agreement prior to signing this Certificate or
exercising the Option.
<PAGE>
Among the terms of the Option Agreement are the following:
EMPLOYMENT: The Option Agreement does not obligate the Company to retain
you for any period of time. Unless otherwise agreed in writing, the Company
-- -------
reserves the right to terminate any employee at any time, with or without cause.
See Section 5(d) of the attached Option Agreement.
TERMINATION OF EMPLOYMENT: While the Option terminates on the Option
Expiration Date, it will terminate earlier if you cease to be employed by the
Company. If your employment ends due to death or permanent disability, the
Option terminates six months after the date of death or disability, and is
exercisable during such six-month period as to the portion of the Option which
had vested prior to the date of death or disability. In all other cases, the
Option terminates 45 days after the date of termination of employment, and is
exercisable during such time period as to the portion of the Option which had
vested prior to the date of termination of employment; provided, however, if you
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are terminated "for cause," the Option will terminate 30 days after the date of
termination of your employment and is exercisable during such time period as to
the portion of the Option which had vested prior to the date of termination of
employment. See Section 5 of the attached Option Agreement.
TRANSFER: The Option is personal to you, and cannot be sold, transferred,
assigned or otherwise disposed of to any other person, except on your death. See
Section 15(d) of the attached Option Agreement.
EXERCISE: You can exercise the Option (once it is exercisable), in whole or
in part, by delivering to the Company a Notice of Exercise identical to Exhibit
"A" attached to the Option Agreement, accompanied by payment of the Exercise
Price for the Shares to be purchased. The Company will then issue a certificate
to you for the Shares you have purchased. You are under no obligation to
exercise the Option. See Section 4 of the attached Option Agreement.
MARKET STAND-OFF: The Option provides that in connection with any
underwritten public offering by the Company, you may not sell or transfer any of
your Shares without the prior written consent of the Company or its underwriters
for a period of up to 180 days after the effective date of the offering. See
Section 6(a) of the attached Option Agreement.
ADJUSTMENTS UPON RECAPITALIZATION: The Option contains provisions which
affect your rights in the event of stock splits, stock dividends, mergers and
other major corporate reorganizations. See Section 7 of the attached Option
Agreement.
WAIVER: By signing this Certificate, you will be agreeing to all of the
terms of the Option Agreement, including those not summarized in this
Certificate. You will waive your rights to options or stock which may otherwise
have been promised to you. See Section 8 of the attached Option Agreement.
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<PAGE>
WITHHOLDING: The Company may require you to make any arrangements necessary
to insure the proper withholding of any amount of tax, if any, required to be
withheld by the Company as a result of the exercise of the Option. See Section
13 of the attached Option Agreement.
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<PAGE>
AGREEMENT
Brilliant Digital Entertainment, Inc., a Delaware corporation, and Optionee
each hereby agrees to be bound by all of the terms and conditions of the Stock
Option Agreement (Non-Statutory Stock Option) which is attached hereto as Annex
I and incorporated herein by this reference as if set forth in full in this
document.
DATED:
--------------------------
BRILLIANT DIGITAL ENTERTAINMENT, INC.
By:
--------------------------------------
Its:
--------------------------------------
OPTIONEE
-------------------------------------------
Name:
-------------------------------------------
(Please print your name exactly as you wish
it to appear on any stock certificates
issued to you upon exercise of the Option)
4
<PAGE>
ANNEX I
STOCK OPTION AGREEMENT
(NON-STATUTORY STOCK OPTION)
This STOCK OPTION AGREEMENT (this "OPTION AGREEMENT") is made and entered
into as of the execution date of the Option Certificate to which it is attached
(the "CERTIFICATE") by and between Brilliant Digital Entertainment, Inc., a
Delaware corporation (the "COMPANY"), and the person named in the Certificate
("OPTIONEE").
Pursuant to the Brilliant Digital Entertainment, Inc. 1996 Stock Option
Plan (the "PLAN"), the Board of Directors of the Company (the "BOARD") has
authorized the grant to Optionee of a non-statutory stock option to purchase
shares of the Company's Common Stock, par value $.001 per share (the "COMMON
STOCK"), upon the terms and subject to the conditions set forth in this Option
Agreement and in the Plan.
The Company and Optionee agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to Optionee the right and option (the
"OPTION"), upon the terms and subject to the conditions set forth in this Option
Agreement and the Plan, to purchase all or any portion of that number of shares
of the Common Stock (the "SHARES") set forth in the Certificate at the Option
exercise price set forth in the Certificate (the "EXERCISE PRICE").
2. TERM OF OPTION.
The Option shall terminate and expire on the Option Expiration Date
set forth in the Certificate (the "EXPIRATION DATE"), unless sooner terminated
as provided herein. In no event shall the Option be exercisable after the
expiration of ten years from the date it was granted.
3. EXERCISE PERIOD.
(a) Subject to the provisions of Sections 3(b), 5 and 7(b) of this
Option Agreement, the Option shall become exercisable (in whole or in part) upon
and after the dates set forth under the caption "Exercise Schedule" in the
Certificate. The installments shall be cumulative; i.e., the Option may be
----
exercised, as to any or all Shares covered by an installment, at any time or
times after the installment first becomes exercisable and until the Option
Expiration Date or the termination of the Option.
<PAGE>
(b) Notwithstanding anything to the contrary contained in this Option
Agreement, the Option may not be exercised, in whole or in part, unless and
until any then-applicable requirements of all federal, state and local laws and
regulatory agencies shall have been fully complied with to the satisfaction of
the Company and its counsel.
4. EXERCISE OF OPTION.
There is no obligation to exercise the Option, in whole or in part.
The Option may be exercised, in whole or in part, only by delivery to the
Company of:
(a) written notice of exercise in form and substance identical to
Exhibit "A" attached to this Option Agreement stating the number of Shares then
being purchased (the "PURCHASED SHARES");
(b) payment of the Exercise Price of the Purchased Shares, either (1)
in cash, or (2) with the consent of the Board (which may be withheld in its
absolute discretion), by (i) delivery to the Company of other shares of Common
Stock with an aggregate Fair Market Value equal to the total Exercise Price of
the Purchased Shares, (ii) according to a deferred payment or other arrangement
(which may include without limiting the generality of the foregoing, the use of
other shares of Common Stock) with the person to whom the Option is granted or
to whom the Option is transferred pursuant to the terms of this Option
Agreement, or (iii) in any other form of legal consideration that may be
acceptable to the Board; and
(c) if requested by the Company, a letter of investment intent in
such form and containing such provisions as the Company may require.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be payable at the minimum rate of interest
necessary to avoid the imputation of interest, under the applicable provision of
the Internal Revenue Code of 1986, as amended (the "CODE") and Treasury
Regulations.
Following receipt of the notice and payment referred to above, the
Company shall issue and deliver to Optionee a stock certificate or stock
certificates evidencing the Purchased Shares; provided, however, that the
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Company shall not be obligated to issue a fraction or fractions of a share of
its Common Stock, and may pay to Optionee, in cash or by check, the Fair Market
Value of any fraction or fractions of a share exercised by Optionee. "FAIR
MARKET VALUE" shall be determined as follows: (1) if the Common Stock is listed
on any established stock exchange or a national market system, including without
limitation the Nasdaq National Market, the Fair Market Value of a share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in the Common Stock) on the last
market trading day prior to the day of determination, as reported in the Wall
Street Journal or such other source as the Board deems reliable; (2) if the
Common Stock is quoted on the Nasdaq System (but not on the Nasdaq National
Market) or is regularly quoted by a recognized securities
2
<PAGE>
dealer but selling prices are not reported, the Fair Market Value of a share of
Common Stock shall be the mean between the bid and asked prices for the Common
Stock on the last market trading day prior to the day of determination, as
reported in the Wall Street Journal or such other source as the Board deems
reliable; and (3) in the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.
5. TERMINATION OF SERVICES.
(a) If Optionee shall cease to be an officer, director, consultant or
employee of the Company, or any Subsidiary or Parent of the Company, for any
reason other than death or permanent disability (a "TERMINATING EVENT"),
Optionee shall have the right, subject to the provisions of Section 5(c) below,
to exercise the Option at any time following such Terminating Event until the
earlier to occur of (1) 45 days following the date of such Terminating Event and
(2) the Expiration Date. The Option may be exercised following a Terminating
Event only to the extent exercisable as of the date of the Terminating Event. To
the extent unexercised at the end of the period referred to above, the Option
shall terminate. The Board, in its sole and absolute discretion, shall determine
whether or not authorized leaves of absence shall constitute termination of
employment for purposes of this Option Agreement.
(b) If, by reason of death or disability (a "SPECIAL TERMINATING
EVENT"), Optionee shall cease to be an officer, director, consultant or employee
the Company or any Subsidiary or Parent of the Company, then Optionee,
Optionee's executors or administrators or any person or persons acquiring the
Option directly from Optionee by bequest or inheritance, shall have the right to
exercise the Option at any time following such Special Terminating Event until
the earlier to occur of (1) six months following the date of such Special
Terminating Event and (2) the Expiration Date. The Option may be exercised
following a Special Terminating Event only to the extent exercisable at the date
of the Special Terminating Event. To the extent unexercised at the end of the
period referred to above, the Option shall terminate. For purposes of this
Option Agreement, "disability" shall mean total and permanent disability as
defined in Section 22(e)(3) of the Code. Optionee shall not be considered
permanently disabled unless he furnishes proof of such disability in such form
and manner, and at such times, as the Board may from time to time require.
(c) If Optionee shall be terminated "for cause" by the Company, any
Subsidiary or any Parent, Optionee shall have the right to exercise the Option
at any time following such Terminating Event until the earlier to occur of (1)
30 days following the date of such Terminating Event and (2) the Expiration
Date. For purposes of this Option Agreement, "for cause" shall mean:
(1) with respect to Optionees of the Company the following to
the extent it results in substantial harm to the Company or could reasonably be
expected to result in substantial harm to the Company:
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<PAGE>
(i) the willful failure or refusal by Optionee to perform
his duties to the Company; or
(ii) Optionee's willful disobedience of any orders or
directives of the Board or any officers thereof acting under the authority
thereof or Optionee's deliberate interference with the compliance by other
employees of the Company with any such orders or directives; or
(iii) the willful failure or refusal of Optionee to abide by
or comply with the written policies, standard procedures or regulations of the
Company; or
(iv) any willful or continued act or course of conduct by
Optionee which the Board in good faith determines might reasonably be expected
to have a material detrimental effect on the Company or the business,
operations, affairs or financial position thereof; or
(v) the committing by the Optionee of any fraud, theft,
embezzlement or other dishonest act against the Company; or
(vi) the determination by the Board, in good faith and in
the exercise of reasonable discretion, that Optionee is not competent to perform
his duties of employment; and
(2) with respect to consultants, any material breach of their
consulting agreement with the Company.
(d) Nothing in the Plan, the Certificate or this Option Agreement
shall confer upon Optionee any right to continue in the service and/or employ of
the Company or any Affiliate (as defined in the Plan) or shall affect the right
of the Company or any Affiliate to terminate the relationship or employment of
Optionee, with or without cause.
6. RESTRICTIONS ON PURCHASED SHARES.
(a) MARKET STAND-OFF.
(1) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended (the "1933 ACT"), including
the Company's initial public offering, Optionee shall not sell, make any short
sale of, loan, hypothecate, pledge, grant any option for the purchase of, or
otherwise dispose or transfer for value or otherwise agree to engage in any of
the foregoing transactions with respect to any Purchased Shares without the
prior written consent of the Company or its underwriters, for such period of
time from and after the effective date of such registration statement as may be
requested by the Company or such underwriters; provided, however, that in no
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event shall such period exceed 180 days. This
4
<PAGE>
Section 6(a)(1) shall only remain in effect for the two-year period immediately
following the effective date of the Company's initial public offering and shall
thereafter terminate and cease to be in force or effect. Optionee agrees to
execute and deliver to the Company such further documents or instruments as the
Company reasonably determines to be necessary or appropriate to effect the
provisions of this Section 6(a).
(2) In the event of any stock dividend, stock split,
recapitalization or other transaction resulting in an adjustment under Section 7
hereof, then any new, substituted or additional securities or other property
which is by reason of such transaction distributed with respect to or in
exchange for the Purchased Shares shall be immediately subject to the provisions
of this Section 6(a), to the same extent the Purchased Share are at such time
covered by such provisions.
(3) In order to enforce the provisions of Section 6(a), the
Company may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
(b) SECURITIES LAW RESTRICTIONS. None of the Purchased Shares shall
be Transferred (with or without consideration) and the Company shall not be
required to register any such Transfer and the Company may instruct its transfer
agent not to register any such Transfer, unless and until all of the following
events shall have occurred:
(1) the Purchased Shares are Transferred pursuant to and in
conformity with (i) (A) an effective registration statement filed with the
Securities and Exchange Commission (the "COMMISSION") pursuant to the 1933 Act,
or (B) an exemption from registration under the 1933 Act, and (ii) the
securities laws of any state of the United States; and
(2) Optionee has, prior to the Transfer of such Purchased
Shares, and if requested by the Company, provided all relevant information to
Company's counsel so that upon Company's request, Company's counsel is able to,
and actually prepares and delivers to the Company a written opinion that the
proposed Transfer (i) (A) is pursuant to a registration statement which has been
filed with the Commission and is then effective, or (B) is exempt from
registration under the 1933 Act as then in effect, and the Rules and Regulations
of the Commission thereunder, and (ii) is either qualified or registered under
any applicable state securities laws, or exempt from such qualification or
registration. The Company shall bear all reasonable costs of preparing such
opinion.
(c) NONCOMPLYING TRANSFERS INVALID. Any attempted Transfer which is
not in full compliance with this Section 6 shall be null and void ab initio,
---------
and of no force or effect.
7. ADJUSTMENTS UPON RECAPITALIZATION.
(a) Subject to the provisions of Section 7(b), if any change is made
in the Common Stock, without receipt of consideration by the Company (through
merger,
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<PAGE>
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company) the Option will be appropriately adjusted in the class(es) and number
of shares and price per share of stock subject to the Option. Such adjustments
shall be made by the Board, the determination of which shall be final, binding
and conclusive. The conversion of any convertible securities of the Company
shall not be treated as a "transaction not involving the receipt of
consideration by the Company."
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then, at the sole discretion of the Board and to the extent permitted
by applicable law, the Option shall (i) terminate upon such event and may be
exercised prior thereto to the extent the Option is then exercisable or (ii)
continue in full force and effect and, if applicable, the surviving corporation
or an Affiliate of such surviving corporation shall assume the Option and/or
shall substitute similar option or award in place of the Option.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, and its
determination shall be final, binding and conclusive.
(d) The provisions of this Section 7 are intended to be exclusive,
and Optionee shall have no other rights upon the occurrence of any of the events
described in this Section 7.
(e) The grant of the Option shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations or
changes in its capital or business structure, or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.
8. WAIVER OF RIGHTS TO PURCHASE STOCK.
By signing this Option Agreement, Optionee acknowledges and agrees
that neither the Company nor any other person or entity is under any obligation
to sell or transfer to Optionee any option or equity security of the Company,
other than the Shares subject to the Option and any other right or option to
purchase Common Stock which was previously granted in writing to Optionee by the
Board. By signing this Option Agreement, Optionee specifically waives all rights
which he or she may have had prior to the date of this Option Agreement to
receive any option or equity security of the Company.
9. INVESTMENT INTENT.
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<PAGE>
Optionee represents and agrees that if he or she exercises the Option
in whole or in part, and if at the time of such exercise the Plan and/or the
Purchased Shares have not been registered under the 1933 Act, he or she will
acquire the Shares upon such exercise for the purpose of investment and not with
a view to the distribution of such Shares, and that upon each exercise of the
Option he or she will furnish to the Company a written statement to such effect.
10. LEGEND ON STOCK CERTIFICATES.
Optionee agrees that all certificates representing the Purchased
Shares will be subject to such stock transfer orders and other restrictions (if
any) as the Company may deem advisable under the rules, regulations and other
requirements of the Commission, any stock exchange upon which the Common Stock
is then listed and any applicable federal or state securities laws, and the
Company may cause a legend or legends to be put on such certificates to make
appropriate reference to such restrictions.
11. NO RIGHTS AS SHAREHOLDER.
Except as provided in Section 7 of this Option Agreement, Optionee
shall have no rights as a shareholder with respect to the Shares until the date
of the issuance to Optionee of a stock certificate or stock certificates
evidencing such Shares. Except as may be provided in Section 7 of this Option
Agreement, no adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is issued.
12. MODIFICATION.
Subject to the terms and conditions and within the limitations of the
Plan, the Board (excluding the Optionee) may modify, extend or renew the Option
or accept the surrender of, and authorize the grant of a new option in
substitution for, the Option (to the extent not previously exercised). No
modification of the Option shall be made which, without the consent of Optionee,
would alter or impair any rights of the Optionee under the Option.
13. WITHHOLDING.
(a) The Company shall be entitled to require as a condition of
delivery of any Purchased Shares upon exercise of any Option that the Optionee
agree to remit, at the time of such delivery or at such later date as the
Company may determine, an amount sufficient to satisfy all federal, state and
local withholding tax requirements relating thereto, and Optionee agrees to take
such other action required by the Company to satisfy such withholding
requirements.
(b) With the consent of the Board (excluding the Optionee), and in
accordance with any rules and procedures from time to time adopted by the Board,
Optionee may elect to satisfy his or her obligations under Section 13(a) above
by (1) directing the Company to withhold
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<PAGE>
a portion of the Shares otherwise deliverable (or to tender back to the Company
a portion of the Shares issued where the Optionee (a "SECTION 16(b) RECIPIENT")
is required to report the ownership of the Shares pursuant to Section 16(a) of
the Securities Exchange Act of 1934, as amended, and has not made an election
under Section 83(b) of the Code (a "WITHHOLDING RIGHT")); or (2) tendering other
shares of the Common Stock of the Company which are already owned by Optionee
which in all cases have a Fair Market Value (as determined in accordance with
the provisions of Section 4 hereof) on the date as of which the amount of tax to
be withheld is determined (the "TAX DATE") equal to the amount of taxes to be
paid by such method.
(c) To exercise a Withholding Right, the Optionee must follow the
election procedures set forth below, together with such additional procedures
and conditions set forth in this Option Agreement or otherwise adopted by the
Board:
(1) the Optionee must deliver to the Company a written notice of
election (the "ELECTION") and specify whether all or a stated percentage of the
applicable taxes will be paid in accordance with Section 13(b) above and whether
the amount so paid shall be made in accordance with the "flat" withholding rates
for supplemental wages or as determined in accordance with Optionee's form W-4
(or comparable state or local form);
(2) unless disapproved by the Board (excluding the Optionee) as
provided in subsection (3) below, the Election once made will be irrevocable;
(3) no Election is valid unless the Board (excluding the
Optionee) has the right and power, in its sole discretion, with or without cause
or reason therefor, to consent to the Election, to refuse to consent to the
Election, or to disapprove the Election; and if the Board has not consented to
the Election on or prior to the Tax Date, the Election will be deemed approved;
and
(4) if the Optionee on the date of delivery of the Election to
the Company is a Section 16(b) Recipient, the following additional provisions
will apply:
(i) the Election cannot be made during the six calendar
month period commencing with the date of grant of the Withholding Right (even if
the Option to which such Withholding Right relates has been granted prior to
such date); and
(ii) the Election (and the exercise of the related Option)
must be made either during the period beginning on the third business day
following the date of release for publication of the quarterly or annual summary
statements of sales and earnings of the Company and ending on the 12th business
day following such date or at least six calendar months or more prior to the Tax
Date.
14. CHARACTER OF OPTION.
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The Option is not intended to qualify as an "incentive stock option"
as that term is defined in Section 422 of the Code.
15. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Optionee shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Option
Agreement.
(b) NOTICES. All notices, requests, demands and other communications
under this Option Agreement shall be in writing and shall be given to the
parties hereto as follows:
(1) If to the Company, to:
Brilliant Digital Entertainment, Inc.
6355 Topanga Canyon Boulevard, Suite 513
Woodland Hills, CA 91367
(2) If to Optionee, to the address set
forth in the records of the Company,
or at such other address or addresses as may have been furnished by such either
party in writing to the other party hereto. Any such notice, request, demand or
other communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mail by first-class certified mail, return
receipt requested, postage prepaid, addressed as aforesaid, or (ii) if given by
any other means, when delivered at the address specified in this subsection (b).
(c) TRANSFER OF RIGHTS UNDER THIS OPTION AGREEMENT. The Company may
at any time transfer and assign its rights and delegate its obligations under
this Option Agreement to any other person, corporation, firm or entity,
including its officers, directors and stockholders, with or without
consideration.
(d) OPTION NON-TRANSFERABLE. Optionee may not sell, transfer, assign
or otherwise dispose of the Option except by will or the laws of descent and
distribution, and the Option may be exercised during the lifetime of Optionee
only by Optionee or by his or her guardian or legal representative in the case
of a disability, and upon Optionee's death only by his or her Estate or by any
person who acquired the Option by bequest or inheritance or by reason of the
death of Optionee.
(e) SUCCESSORS AND ASSIGNS. Except to the extent specifically limited
by the terms and provisions of this Option Agreement, this Option Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors, assigns, heirs and personal representatives.
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<PAGE>
(f) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE, EXCEPT TO THE EXTENT
PREEMPTED BY FEDERAL LAW, WHICH SHALL TO THAT EXTENT GOVERN.
(g) INCORPORATION OF PLAN BY REFERENCE. This Option is granted
pursuant to the terms of the Plan, the terms of which are incorporated herein by
reference, and it is intended that this Option Agreement shall be interpreted in
a manner to comply therewith. Any provision of this Option Agreement
inconsistent with the Plan shall be superseded and governed by the Plan.
(h) A COMMITTEE. As provided in the Plan, the Board may delegate
administration of the Plan and this Option Agreement to a committee (the
"Committee"). If administration is delegated to a Committee, the Committee shall
have, in connection with the this Option Agreement, the powers theretofore
possessed by the Board (and references in this Option Agreement to the Board
shall thereafter be to the Committee).
(i) MISCELLANEOUS. Titles and captions contained in this Option
Agreement are inserted for convenience of reference only and do not constitute a
part of this Option Agreement for any other purpose. Except as specifically
provided herein, neither this Option Agreement nor any right pursuant hereto or
interest herein shall be assignable by any of the parties hereto without the
prior written consent of the other party hereto.
THE SIGNATURE PAGE TO THIS OPTION AGREEMENT CONSISTS OF THE LAST PAGE
OF THE CERTIFICATE.
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Exhibit "A"
NOTICE OF EXERCISE
(To be signed only upon exercise of the Option)
To: Brilliant Digital Entertainment, Inc.
The undersigned, the holder of the enclosed Stock Option Agreement (Non-
Statutory Stock Option), hereby irrevocably elects to exercise the purchase
rights represented by the Option and to purchase thereunder _________ * shares
of Common Stock of Brilliant Digital Entertainment, Inc. (the "COMPANY"), and
herewith encloses payment of $__________ and/or _________ shares of the
Company's Common Stock in full payment of the purchase price of such shares
being purchased.
Dated: ______________________
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(Signature must conform in all respects to
name of holder as specified on the face of the
Option)
----------------------------------------------
(Please Print Name)
----------------------------------------------
(Address)
* Insert here the number of Shares called for on the face of the Option
(or, in the case of a partial exercise, the number of Shares being exercised),
in either case without making any adjustment for additional Common Stock of the
Company, other securities or property which, pursuant to the adjustment
provisions of the Option, may be deliverable upon exercise.
<PAGE>
EXHIBIT 10.3
OPTION CERTIFICATE
(INCENTIVE STOCK OPTION)
THIS IS TO CERTIFY that Brilliant Digital Entertainment, Inc., a Delaware
corporation (the "COMPANY"), has granted to the employee named below
("EMPLOYEE") an incentive stock option (the "OPTION") to purchase shares of the
Company's Common Stock (the "SHARES") under its 1996 Stock Option Plan and upon
the terms and conditions as follows:
Name of Employee: _________________________________
Address of Employee: ______________________________
______________________________
______________________________
Number of Shares: ______________________________
Option Exercise Price: $__________________________ per share
Date of Grant: __________________________ ___, 199__
Option Expiration Date: __________________________ ___, 200__
EXERCISE SCHEDULE: The Option shall become exercisable as follows:
SUMMARY OF OTHER TERMS: This Option is defined in the Stock Option
Agreement (Incentive Stock Option) (the "OPTION AGREEMENT") which is attached to
this Option Certificate (the "CERTIFICATE") as Annex I. This Certificate
summarizes certain of the provisions of the Option Agreement for your
information, but is not complete. Your rights are governed by the Option
Agreement, not by this summary. The Company strongly suggests that you
---
carefully review the full Option Agreement prior to signing this Certificate or
exercising the Option.
<PAGE>
Among the terms of the Option Agreement are the following:
EMPLOYMENT: The Option Agreement does not obligate the Company to retain
you for any period of time. Unless otherwise agreed in writing, the Company
-- -------
reserves the right to terminate any employee at any time, with or without cause.
See Section 5(d) of the attached Option Agreement.
TERMINATION OF EMPLOYMENT: While the Option terminates on the Option
Expiration Date, it will terminate earlier if you cease to be employed by the
Company. If your employment ends due to death or permanent disability, the
Option terminates six months after the date of death or disability, and is
exercisable during such six-month period as to the portion of the Option which
had vested prior to the date of death or disability. In all other cases, the
Option terminates 45 days after the date of termination of employment, and is
exercisable during such time period as to the portion of the Option which had
vested prior to the date of termination of employment; provided, however, if you
-------- -------
are terminated "for cause," the Option will terminate 30 days after the date of
termination of your employment and is exercisable during such time period as to
the portion of the Option which had vested prior to the date of termination of
employment. See Section 5 of the attached Option Agreement.
TRANSFER: The Option is personal to you, and cannot be sold, transferred,
assigned or otherwise disposed of to any other person, except on your death.
See Section 15(d) of the attached Option Agreement.
EXERCISE: You can exercise the Option (once it is exercisable), in whole
or in part, by delivering to the Company a Notice of Exercise identical to
Exhibit "A" attached to the Option Agreement, accompanied by payment of the
Exercise Price for the Shares to be purchased. The Company will then issue a
certificate to you for the Shares you have purchased. You are under no
obligation to exercise the Option. See Section 4 of the attached Option
Agreement. [IF AT THE TIME OF THE GRANT OF THE OPTION YOU OWN STOCK POSSESSING
MORE THAN 10 PERCENT (10%) OF THE TOTAL COMBINED VOTING POWER OF ALL CLASSES OF
STOCK OF THE COMPANY (APPLYING THE ATTRIBUTION RULES), YOU MAY NOT EXERCISE THE
OPTION FOR FIVE YEARS FROM THE DATE THE OPTION IS GRANTED.]
MARKET STAND-OFF: The Option provides that in connection with any
underwritten public offering by the Company, you may not sell or transfer any of
your Shares without the prior written consent of the Company or its underwriters
for a period of up to 180 days after the effective date of the offering. See
Section 6(a) of the attached Option Agreement.
ADJUSTMENTS UPON RECAPITALIZATION: The Option contains provisions which
affect your rights in the event of stock splits, stock dividends, mergers and
other major corporate reorganizations. See Section 7 of the attached Option
Agreement.
WAIVER: By signing this Certificate, you will be agreeing to all of the
terms of the Option Agreement, including those not summarized in this
Certificate. You will waive your
2
<PAGE>
rights to options or stock which may otherwise have been promised to you. See
Section 8 of the attached Option Agreement.
WITHHOLDING: The Company may require you to make any arrangements
necessary to insure the proper withholding of any amount of tax, if any,
required to be withheld by the Company as a result of the exercise of the
Option. See Section 13 of the attached Option Agreement.
3
<PAGE>
AGREEMENT
Brilliant Digital Entertainment, Inc., a Delaware corporation, and Employee
each hereby agrees to be bound by all of the terms and conditions of the Stock
Option Agreement (Incentive Stock Option) which is attached hereto as Annex I
and incorporated herein by this reference as if set forth in full in this
document.
DATED: __________________________
BRILLIANT DIGITAL ENTERTAINMENT, INC.
By: ________________________________
Its: ________________________________
EMPLOYEE
_____________________________________
Name:
_____________________________________
(Please print your name exactly as
you wish it to appear on any stock
certificates issued to you upon
exercise of the Option)
4
<PAGE>
ANNEX I
STOCK OPTION AGREEMENT
(INCENTIVE STOCK OPTION)
This STOCK OPTION AGREEMENT (this "OPTION AGREEMENT") is made and entered
into as of the execution date of the Option Certificate to which it is attached
(the "CERTIFICATE") by and between Brilliant Digital Entertainment, Inc., a
Delaware corporation (the "COMPANY"), and the employee named in the Certificate
("EMPLOYEE").
Pursuant to the Brilliant Digital Entertainment, Inc. 1996 Stock Option
Plan (the "PLAN"), the Board of Directors of the Company (the "BOARD") has
authorized the grant to Employee of an incentive stock option to purchase shares
of the Company's Common Stock, par value $.001 per share (the "COMMON STOCK"),
upon the terms and subject to the conditions set forth in this Option Agreement
and in the Plan.
The Company and Employee agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to Employee the right and option (the
"OPTION"), upon the terms and subject to the conditions set forth in this Option
Agreement and the Plan, to purchase all or any portion of that number of shares
of the Common Stock (the "SHARES") set forth in the Certificate at the Option
exercise price set forth in the Certificate (the "EXERCISE PRICE").
2. TERM OF OPTION.
The Option shall terminate and expire on the Option Expiration Date
set forth in the Certificate (the "EXPIRATION DATE"), unless sooner terminated
as provided herein. In no event shall the Option be exercisable after the
expiration of ten years from the date it was granted.
3. EXERCISE PERIOD.
(a) Subject to the provisions of Sections 3(b), 5 and 7(b) of this
Option Agreement, the Option shall become exercisable (in whole or in part) upon
and after the dates set forth under the caption "Exercise Schedule" in the
Certificate. The installments shall be cumulative; i.e., the Option may be
----
exercised, as to any or all Shares covered by an installment, at any time or
times after the installment first becomes exercisable and until the Option
Expiration Date or the termination of the Option.
<PAGE>
(b) Notwithstanding anything to the contrary contained in this Option
Agreement, the Option may not be exercised, in whole or in part, unless and
until any then-applicable requirements of all federal, state and local laws and
regulatory agencies shall have been fully complied with to the satisfaction of
the Company and its counsel.
[(C) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS OPTION
AGREEMENT, IF AT THE TIME OF THE GRANT OF THE OPTION YOU OWN STOCK POSSESSING
MORE THAN 10 PERCENT (10%) OF THE TOTAL COMBINED VOTING POWER OF ALL CLASSES OF
STOCK OF THE COMPANY (APPLYING THE ATTRIBUTION RULES AS REQUIRED UNDER THE
CODE), YOU MAY NOT EXERCISE THE OPTION FOR FIVE YEARS FROM THE DATE THE OPTION
IS GRANTED.]
4. EXERCISE OF OPTION.
There is no obligation to exercise the Option, in whole or in part.
The Option may be exercised, in whole or in part, only by delivery to the
Company of:
(a) written notice of exercise in form and substance identical to
Exhibit "A" attached to this Option Agreement stating the number of Shares then
being purchased (the "PURCHASED SHARES");
(b) payment of the Exercise Price of the Purchased Shares, either (1)
in cash, or (2) with the consent of the Board (which may be withheld in its
absolute discretion), by (i) delivery to the Company of other shares of Common
Stock with an aggregate Fair Market Value equal to the total Exercise Price of
the Purchased Shares, (ii) according to a deferred payment or other arrangement
(which may include without limiting the generality of the foregoing, the use of
other shares of Common Stock) with the person to whom the Option is granted or
to whom the Option is transferred pursuant to the terms of this Option
Agreement, or (iii) in any other form of legal consideration that may be
acceptable to the Board; and
(c) if requested by the Company, a letter of investment intent in such
form and containing such provisions as the Company may require.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be payable at the minimum rate of interest
necessary to avoid the imputation of interest, under the applicable provision of
the Internal Revenue Code of 1986, as amended (the "CODE") and Treasury
Regulations.
Following receipt of the notice and payment referred to above, the
Company shall issue and deliver to Employee a stock certificate or stock
certificates evidencing the Purchased Shares; provided, however, that the
-------- -------
Company shall not be obligated to issue a fraction or fractions of a share of
its Common Stock, and may pay to Employee, in cash or by check, the Fair Market
Value of any fraction or fractions of a share exercised by Employee. "FAIR
MARKET VALUE" shall be determined as follows: (1) if the Common Stock is listed
on any established stock exchange or a national market system, including without
limitation the Nasdaq National
2
<PAGE>
Market, the Fair Market Value of a share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable; (2) if the Common Stock is quoted on the Nasdaq System
(but not on the Nasdaq National Market) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of Common Stock shall be the mean between the bid and asked prices for
the Common Stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable; and (3) in the absence of an established market for
the Common Stock, the Fair Market Value shall be determined in good faith by the
Board.
5. TERMINATION OF EMPLOYMENT.
(a) If Employee shall cease to be an officer or employee of the
Company, or any Subsidiary or Parent of the Company, for any reason other than
death or permanent disability (a "TERMINATING EVENT"), Employee shall have the
right, subject to the provisions of Section 5(c) below, to exercise the Option
at any time following such Terminating Event until the earlier to occur of (1)
45 days following the date of such Terminating Event and (2) the Expiration
Date. The Option may be exercised following a Terminating Event only to the
extent exercisable as of the date of the Terminating Event. To the extent
unexercised at the end of the period referred to above, the Option shall
terminate. The Board, in its sole and absolute discretion, shall determine
whether or not authorized leaves of absence shall constitute termination of
employment for purposes of this Option Agreement.
(b) If, by reason of death or disability (a "SPECIAL TERMINATING
EVENT"), Employee shall cease to be an officer or employee the Company or any
Subsidiary or Parent of the Company, then Employee, Employee's executors or
administrators or any person or persons acquiring the Option directly from
Employee by bequest or inheritance, shall have the right to exercise the Option
at any time following such Special Terminating Event until the earlier to occur
of (1) six months following the date of such Special Terminating Event and (2)
the Expiration Date. The Option may be exercised following a Special
Terminating Event only to the extent exercisable at the date of the Special
Terminating Event. To the extent unexercised at the end of the period referred
to above, the Option shall terminate. For purposes of this Option Agreement,
"disability" shall mean total and permanent disability as defined in Section
22(e)(3) of the Code. Employee shall not be considered permanently disabled
unless he furnishes proof of such disability in such form and manner, and at
such times, as the Board may from time to time require.
(c) If Employee shall be terminated "for cause" by the Company, any
Subsidiary or any Parent, Employee shall have the right to exercise the Option
at any time following such Terminating Event until the earlier to occur of (1)
30 days following the date of such Terminating Event and (2) the Expiration
Date. For purposes of this Option Agreement,
3
<PAGE>
"for cause" shall mean the following to the extent it results in substantial
harm to the Company or could reasonably be expected to result in substantial
harm to the Company:
(1) the willful failure or refusal by Employee to perform his
duties to the Company; or
(2) Employee's willful disobedience of any orders or directives
of the Board or any officers thereof acting under the authority thereof or
Employee's deliberate interference with the compliance by other employees of the
Company with any such orders or directives; or
(3) the willful failure or refusal of Employee to abide by or
comply with the written policies, standard procedures or regulations of the
Company; or
(4) any willful or continued act or course of conduct by Employee
which the Board in good faith determines might reasonably be expected to have a
material detrimental effect on the Company or the business, operations, affairs
or financial position thereof; or
(5) the committing by the Employee of any fraud, theft,
embezzlement or other dishonest act against the Company; or
(6) the determination by the Board, in good faith and in the
exercise of reasonable discretion, that Employee is not competent to perform his
duties of employment.
(d) Nothing in the Plan, the Certificate or this Option Agreement
shall confer upon the Employee any right to continue in the employ of the
Company or any affiliate (as defined in the Plan) or shall affect the right of
the Company or any Affiliate to terminate the employment of the Employee, with
or without cause.
6. RESTRICTIONS ON PURCHASED SHARES.
(a) MARKET STAND-OFF.
(1) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended (the "1933 ACT"), including
the Company's initial public offering, Employee shall not sell, make any short
sale of, loan, hypothecate, pledge, grant any option for the purchase of, or
otherwise dispose or transfer for value or otherwise agree to engage in any of
the foregoing transactions with respect to any Purchased Shares without the
prior written consent of the Company or its underwriters, for such period of
time from and after the effective date of such registration statement as may be
requested by the Company or such underwriters; provided, however, that in no
-------- -------
event shall such period exceed 180 days. Employee agrees to execute and deliver
to the Company such further documents or instruments as the
4
<PAGE>
Company reasonably determines to be necessary or appropriate to effect the
provisions of this Section 6(a).
(2) In the event of any stock dividend, stock split,
recapitalization or other transaction resulting in an adjustment under Section 7
hereof, then any new, substituted or additional securities or other property
which is by reason of such transaction distributed with respect to or in
exchange for the Purchased Shares shall be immediately subject to the provisions
of this Section 6(a), to the same extent the Purchased Share are at such time
covered by such provisions.
(3) In order to enforce the provisions of Section 6(a), the
Company may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
(b) SECURITIES LAW RESTRICTIONS. None of the Purchased Shares shall
be Transferred (with or without consideration) and the Company shall not be
required to register any such Transfer and the Company may instruct its transfer
agent not to register any such Transfer, unless and until all of the following
events shall have occurred:
(1) the Purchased Shares are Transferred pursuant to and in
conformity with (i) (A) an effective registration statement filed with the
Securities and Exchange Commission (the "COMMISSION") pursuant to the 1933 Act,
or (B) an exemption from registration under the 1933 Act, and (ii) the
securities laws of any state of the United States; and
(2) Employee has, prior to the Transfer of such Purchased Shares,
and if requested by the Company, provided all relevant information to Company's
counsel so that upon Company's request, Company's counsel is able to, and
actually prepares and delivers to the Company a written opinion that the
proposed Transfer (i) (A) is pursuant to a registration statement which has been
filed with the Commission and is then effective, or (B) is exempt from
registration under the 1933 Act as then in effect, and the Rules and Regulations
of the Commission thereunder, and (ii) is either qualified or registered under
any applicable state securities laws, or exempt from such qualification or
registration. The Company shall bear all reasonable costs of preparing such
opinion.
(c) NONCOMPLYING TRANSFERS INVALID. Any attempted Transfer which
is not in full compliance with this Section 6 shall be null and void ab initio,
---------
and of no force or effect.
7. ADJUSTMENTS UPON RECAPITALIZATION.
(a) Subject to the provisions of Section 7(b), if any change is made
in the Common Stock, without receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of
5
<PAGE>
consideration by the Company) the Option will be appropriately adjusted in the
class(es) and number of shares and price per share of stock subject to the
Option. Such adjustments shall be made by the Board, the determination of which
shall be final, binding and conclusive. The conversion of any convertible
securities of the Company shall not be treated as a "transaction not involving
the receipt of consideration by the Company."
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then, at the sole discretion of the Board and to the extent permitted
by applicable law, the Option shall (i) terminate upon such event and may be
exercised prior thereto to the extent the Option is then exercisable or (ii)
continue in full force and effect and, if applicable, the surviving corporation
or an Affiliate of such surviving corporation shall assume the Option and/or
shall substitute similar option or award in place of the Option.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, and its
determination shall be final, binding and conclusive.
(d) The provisions of this Section 7 are intended to be exclusive, and
Employee shall have no other rights upon the occurrence of any of the events
described in this Section 7.
(e) The grant of the Option shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations or
changes in its capital or business structure, or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.
8. WAIVER OF RIGHTS TO PURCHASE STOCK.
By signing this Option Agreement, Employee acknowledges and agrees
that neither the Company nor any other person or entity is under any obligation
to sell or transfer to Employee any option or equity security of the Company,
other than the Shares subject to the Option and any other right or option to
purchase Common Stock which was previously granted in writing to Employee by the
Board. By signing this Option Agreement, Employee specifically waives all
rights which he or she may have had prior to the date of this Option Agreement
to receive any option or equity security of the Company.
9. INVESTMENT INTENT.
Employee represents and agrees that if he or she exercises the Option
in whole or in part, and if at the time of such exercise the Plan and/or the
Purchased Shares have not
6
<PAGE>
been registered under the 1933 Act, he or she will acquire the Shares upon such
exercise for the purpose of investment and not with a view to the distribution
of such Shares, and that upon each exercise of the Option he or she will furnish
to the Company a written statement to such effect.
10. LEGEND ON STOCK CERTIFICATES.
Employee agrees that all certificates representing the Purchased
Shares will be subject to such stock transfer orders and other restrictions (if
any) as the Company may deem advisable under the rules, regulations and other
requirements of the Commission, any stock exchange upon which the Common Stock
is then listed and any applicable federal or state securities laws, and the
Company may cause a legend or legends to be put on such certificates to make
appropriate reference to such restrictions.
11. NO RIGHTS AS SHAREHOLDER.
Except as provided in Section 7 of this Option Agreement, Employee
shall have no rights as a shareholder with respect to the Shares until the date
of the issuance to Employee of a stock certificate or stock certificates
evidencing such Shares. Except as may be provided in Section 7 of this Option
Agreement, no adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is issued.
12. MODIFICATION.
Subject to the terms and conditions and within the limitations of the
Plan, the Board (excluding the Employee) may modify, extend or renew the Option
or accept the surrender of, and authorize the grant of a new option in
substitution for, the Option (to the extent not previously exercised). No
modification of the Option shall be made which, without the consent of Employee,
would cause the Option to fail to continue to qualify as an "incentive stock
option" under Section 422 of the Code or would alter or impair any rights of the
Employee under the Option.
13. DISQUALIFYING DISPOSITION; WITHHOLDING.
(a) To receive the favorable tax treatment accorded grants and
exercises of incentive stock options, Employee must hold the Purchased Shares
until the later of two years after the grant of this Option or one year after
the issuance of the Purchased Shares to the Employee (the "HOLDING PERIOD").
Employee understands that should he or she make a disposition of those shares
(as defined in Section 424(c) of the Code) (a "DISQUALIFYING DISPOSITION")
before the end of the Holding Period, Employee will recognize taxable ordinary
income to the extent of the difference between the Fair Market Value of the
Purchased Shares upon the exercise and the Exercise Price. Employee agrees that
should he or she make a Disqualifying Disposition of all or any of the Purchased
Shares, he or she shall immediately advise the Company in writing as to the
occurrence of the sale and the price realized upon the
7
<PAGE>
sale of such Purchased Shares. Employee agrees that he or she shall maintain
all Purchased Shares in his or her name so long as he or she maintains
beneficial ownership of such Shares.
(b) The Company shall be entitled to require as a condition of
delivery of any Purchased Shares upon exercise of any Option that the Employee
agree to remit, at the time of such delivery or at such later date as the
Company may determine, an amount sufficient to satisfy all federal, state and
local withholding tax requirements relating thereto, and Employee agrees to take
such other action required by the Company to satisfy such withholding
requirements.
(c) With the consent of the Board, and in accordance with any rules
and procedures from time to time adopted by the Board, Employee may elect to
satisfy his or her obligations under Section 13(b) above by (1) directing the
Company to withhold a portion of the Shares otherwise deliverable (or to tender
back to the Company a portion of the Shares issued where the Employee (a
"SECTION 16(B) RECIPIENT") is required to report the ownership of the Shares
pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended,
and has not made an election under Section 83(b) of the Code (a "WITHHOLDING
RIGHT")); or (2) tendering other shares of the Common Stock of the Company which
are already owned by Employee which in all cases have a Fair Market Value (as
determined in accordance with the provisions of Section 4 hereof) on the date as
of which the amount of tax to be withheld is determined (the "TAX DATE") equal
to the amount of taxes to be paid by such method.
(d) To exercise a Withholding Right, the Employee must follow the
election procedures set forth below, together with such additional procedures
and conditions set forth in this Option Agreement or otherwise adopted by the
Board:
(1) the Employee must deliver to the Company a written notice of
election (the "ELECTION") and specify whether all or a stated percentage of the
applicable taxes will be paid in accordance with Section 13(c) above and whether
the amount so paid shall be made in accordance with the "flat" withholding rates
for supplemental wages or as determined in accordance with Employee's form W-4
(or comparable state or local form);
(2) unless disapproved by the Board as provided in subsection
(3) below, the Election once made will be irrevocable;
(3) no Election is valid unless the Board has the right and
power, in its sole discretion, with or without cause or reason therefor, to
consent to the Election, to refuse to consent to the Election, or to disapprove
the Election; and if the Board has not consented to the Election on or prior to
the Tax Date, the Election will be deemed approved; and
(4) if the Employee on the date of delivery of the Election to
the Company is a Section 16(b) Recipient, the following additional provisions
will apply:
8
<PAGE>
(i) the Election cannot be made during the six calendar
month period commencing with the date of grant of the Withholding Right (even if
the Option to which such Withholding Right relates has been granted prior to
such date); and
(ii) the Election (and the exercise of the related Option)
must be made either during the period beginning on the third business day
following the date of release for publication of the quarterly or annual summary
statements of sales and earnings of the Company and ending on the 12th business
day following such date or at least six calendar months or more prior to the Tax
Date.
14. CHARACTER OF OPTION.
The Option is intended to qualify as an "incentive stock option" as
that term is defined in Section 422 of the Code.
15. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Employee shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Option
Agreement.
(b) NOTICES. All notices, requests, demands and other communications
under this Option Agreement shall be in writing and shall be given to the
parties hereto as follows:
(1) If to the Company, to:
Brilliant Digital Entertainment, Inc.
6355 Topanga Canyon Boulevard, Suite 513
Woodland Hills, CA 91367
(2) If to Employee, to the address set
forth in the records of the Company,
or at such other address or addresses as may have been furnished by such either
party in writing to the other party hereto. Any such notice, request, demand or
other communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mail by first-class certified mail, return
receipt requested, postage prepaid, addressed as aforesaid, or (ii) if given by
any other means, when delivered at the address specified in this subsection (b).
(c) TRANSFER OF RIGHTS UNDER THIS OPTION AGREEMENT. The Company may
at any time transfer and assign its rights and delegate its obligations under
this Option Agreement to any other person, corporation, firm or entity,
including its officers, directors and stockholders, with or without
consideration.
9
<PAGE>
(d) OPTION NON-TRANSFERABLE. Employee may not sell, transfer, assign
or otherwise dispose of the Option except by will or the laws of descent and
distribution, and the Option may be exercised during the lifetime of Employee
only by Employee or by his or her guardian or legal representative in the case
of a disability, and upon the Employee's death only by his or her Estate or by
any person who acquired the Option by bequest or inheritance or by reason of the
death of the Employee.
(e) SUCCESSORS AND ASSIGNS. Except to the extent specifically limited
by the terms and provisions of this Option Agreement, this Option Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors, assigns, heirs and personal representatives.
(f) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE, EXCEPT TO THE EXTENT
PREEMPTED BY FEDERAL LAW, WHICH SHALL TO THAT EXTENT GOVERN.
(g) INCORPORATION OF PLAN BY REFERENCE. This Option is granted
pursuant to the terms of the Plan, the terms of which are incorporated herein by
reference, and it is intended that this Option Agreement shall be interpreted in
a manner to comply therewith. Any provision of this Option Agreement
inconsistent with the Plan shall be superseded and governed by the Plan.
(h) A COMMITTEE. As provided in the Plan, the Board may delegate
administration of the Plan and this Option Agreement to a committee (the
"COMMITTEE"). If administration is delegated to a Committee, the Committee
shall have, in connection with the this Option Agreement, the powers theretofore
possessed by the Board (and references in this Option Agreement to the Board
shall thereafter be to the Committee).
(i) MISCELLANEOUS. Titles and captions contained in this Option
Agreement are inserted for convenience of reference only and do not constitute a
part of this Option Agreement for any other purpose. Except as specifically
provided herein, neither this Option Agreement nor any right pursuant hereto or
interest herein shall be assignable by any of the parties hereto without the
prior written consent of the other party hereto.
THE SIGNATURE PAGE TO THIS OPTION AGREEMENT CONSISTS OF THE LAST PAGE
OF THE CERTIFICATE.
10
<PAGE>
Exhibit "A"
NOTICE OF EXERCISE
(To be signed only upon exercise of the Option)
To: Brilliant Digital Entertainment, Inc.
The undersigned, the holder of the enclosed Stock Option Agreement
(Incentive Stock Option), hereby irrevocably elects to exercise the purchase
rights represented by the Option and to purchase thereunder ______* shares of
Common Stock of Brilliant Digital Entertainment, Inc. (the "COMPANY"), and
herewith encloses payment of $__________ and/or _________ shares of the
Company's Common Stock in full payment of the purchase price of such shares
being purchased.
Dated: ____________________
___________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Option)
___________________________________________
(Please Print Name)
___________________________________________
(Address)
* Insert here the number of Shares called for on the face of the Option
(or, in the case of a partial exercise, the number of Shares being exercised),
in either case without making any adjustment for additional Common Stock of the
Company, other securities or property which, pursuant to the adjustment
provisions of the Option, may be deliverable upon exercise.
<PAGE>
EXHIBIT 10.4
Distribution Agreement
THIS DISTRIBUTION AGREEMENT is entered into this 22nd day of November 1995 by
and between BRILLIANT INTERACTIVE IDEAS PTY LTD ACN 061 288 668 of Lvl 1, 17 The
Corso, Manly, NSW, 2095, Australia (hereinafter referred to as "BII") and
CONSUMER ELECTRONICS PTY LTD located at 16 Commerce Crescent, Eastgate Ext. 12
Wendywood 2144, South Africa, hereinafter referred to as "CE").
WHEREAS CE is in the business of publishing and distributing computer software
in South Africa and neighboring territories and BII are in the business of
developing interactive multimedia software products. CE is desirous of
publishing and distributing the various software products as listed in Appendix
A hereto, that BII have developed.
NOW THEREFORE THE PARTIES do agree as follows:
Territory is defined as South Africa and neighboring territories.
1. BII have developed a range of CD-ROM software titles for CE hereinafter
referred to as the "Products" (as listed in Appendix A).
2(a). The Products shall be delivered in object code in a form compatible with
IBM PC running under Windows V3.x and Windows 95, as well as Macintosh
from Apple Computer.
3(i). BII grants to CE the right to reproduce, publish, distribute, display
and sell the Products in the Territory. CE shall not be entitled to make
any alterations to the object code of the products without the written
consent of BII.
3(ii). CE shall not distribute or export directly or indirectly any copies of
the Product outside the Territory and CE shall not distribute, sell or
make available any copies of the Product to anyone in the Territory,
whom CE knows or ought to know, will export copies of the Product
outside the Territory.
4(i). The rights as granted in clause 3 above are the exclusive rights for the
Territory.
4(ii). BII further grants to CE OEM and bundle rights to the Products for the
Territory. These rights are independent of the other rights as granted
above. CE must request the written permission of BII before entering
into any OEM or bundle deal.
5(i). CE shall pay to BII a royalty of US $CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
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COMMISSION Dollars) for each Product sold under clause 3(i) above a
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION of the Net Revenue received by CE for
each Product sold under clause 4(ii) above. Net Revenue is defined as
gross revenue actually received by CE from the sale of Products less
sales tax or VAT. No royalty shall be due on Products distributed at no
charge to distributors, sub-distributors or dealers for promotional or
evaluation purposes, subject to a maximum of CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION) units of any product, unless
otherwise agreed to by BII.
CE shall retain BII's royalties as enumerated above in respect of all
Products until CE shall have recouped therefrom cumulatively a sum equal
to all advances or guarantees which have been paid to BII under the
terms of this agreement. After said sum is recouped by CE, CE shall
disburse BII's royalties to BII in accordance with clause 5 (ii) hereof.
5(ii). CE shall pay to BII the royalties due under clause 5(i) above, each
calendar month within 30 days after the end of each calendar month.
Such royalty payments are subject to the recoupment of advances from
BII's share as contained in clause 6 below.
5(iii). CE shall provide BII a monthly sales and royalty report, certified as
correct by the managing director of CE (the certified Sales and Royalty
Report) when remitting the royalty payments as detailed in clause 5(ii)
above. Where royalties payable are offset against advances then the
Certified Sales and Royalty report shall still be provided to BII within
30 days from the end of the calendar month.
In the event that the Certified Sales and Royalty report has not been
provided to BII within 45 days from the end of the calendar month than
BII shall be entitled to appoint an independent party to examine CE's
records for the purpose of ascertaining the royalties due for the
relevant period. The cost of the independent party in determining the
royalties due plus any royalties due shall be paid to BII
within 14 days of CE receiving written notification from BII of the
amount due.
6. CE shall pay to BII a sum of US $CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION) being a non-refundable development
advance to be recouped against royalties due to BII, for each Product
sold under clause 5 above. The advance shall be payable as
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<PAGE>
follows:
(a) US $CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION per Product upon the
execution of this agreement, for each Product;
(b) US $CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION per Product within
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION days of the delivery of the
gold master of the Product, for each Product;
(c) US $CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION per Product within
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION days of the delivery of the
gold master of the Product, for each Product;
(d) US $CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION per Product within
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION days of the delivery of the
gold master of the product, for each product;
CE agrees that the payment of the advances in 6(b), 6(c) and 6(d) above
will not be delayed for any reason.
7. Left Blank
8. Left Blank
9. CE shall use it's best efforts to promote and expand the sale of the
Products in all Parts of the Territory and in all sectors of the market
on the maximum possible scale by all means. CE shall fulfill all orders
for the Product within a reasonable time after receipt of the order and
shall not make any false, misleading or deceptive statements in respect
of the Product.
10. CE shall keep complete and accurate records regarding the production,
replication and distribution of the Products and shall upon 10 business
days notice from BII
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<PAGE>
allow BII or it's agent to inspect all of these records and other
related documents during normal working hours. In the event of any
discrepancies being noted CE agrees to pay BII within 10 days all
additional moneys owing and where the discrepancy exceeds CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION of the amount that is due or reported to BII, CE
agrees to pay all costs incurred by BII in conducting the inspection of
CE's records. BII's ability to conduct the above mentioned inspection is
restricted to three times every year and on termination of this
Agreement for any reason whatsoever.
11(i). BII may terminate this Agreement immediately upon giving written notice
to CE if:
(a) CE fails to make any payment when due or otherwise breaches a
provision or warranty of this Agreement and has not rectified
such breach within CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION of notice
from BII; or
(b) CE dissolves, liquidates or if bankruptcy, insolvency or winding
up procedures are commenced by CE or are brought against CE and
such proceedings are not set aside within CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION) days of
their commencement, or if there is a substantial change in the
executive management or board of directors.
12. If this Agreement is terminated for any reason, CE shall:
(a) immediately return all masters of the Products to BII; and
(b) have the right to sell it's existing stocks of the Product for a
period or CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION) CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION from the
date the Agreement is terminated subject to payment to BII of all
royalties due under this agreement;
(c) at the expiration of the CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
period referred to in clause 12(b) above CE shall destroy all
remaining stock of the Products held by CE and provide BII with
written notice certifying that all remaining stock has been
destroyed.
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13. BII shall be responsible for any and all other royalties due on the
Products to third parties including music royalties, animation royalties
and licensing royalties.
14. BII provides no warranty as to names being used including the name
Brilliant Interactive Ideas in the territories in which CE distributes.
In the event a name change is needed for legal reasons then the parties
shall consult as to the new name and BII shall make the necessary
changes at CE's expense.
BII warrants that it is not aware of any contravention's caused by the
names that are used.
15(i). The names used are the property of BII and CE shall have no claim to
these or any other names being used.
BII retains any and all of the copyrights contained in the Products and
CE shall have no rights in the copyrights or other intellectual rights
contained in the Products. All Products shipped shall reflect the
appropriate copyrights which shall be provided to CE simultaneously with
the masters. Any press releases or advertisement for the Products shall
reference BII as the developer and shall contain the appropriate
copyright notices as provided.
15(ii). BII hereby authorizes CE to take any and all action that CE deems
necessary to protect and enforce BII's copyright in the Products. CE
shall notify BII in writing of any and all action that CE takes prior to
the commencement of the action and shall keep BII fully informed of the
status and progress of the action. Where as a result of such action by
CE damages are awarded then the amounts so awarded shall be split
equally between CE and BII.
16. Left Blank
17. Left Blank
18. BII represents and warrants that the Products, as delivered to CE, will
not infringe the patent, copyright, trademark, trade secret or other
proprietary or privacy rights of any third party. Each party shall
fully indemnify the other (and its affiliates, shareholders, directors,
officers, employees and agents) against all losses, costs, charges and
expenses arising from such party's negligence in connection with this
Agreement;
19. ADDITIONAL RIGHTS
BII hereby grants to CE and CE hereby accepts the following additional
rights for the Territory and upon the terms and conditions of this
Agreement:
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<PAGE>
(a) The right to make written summaries, extracts and synopses of the
Products, for the purpose of advertising, exploiting and
publicizing the Products and to use, exhibit and or broadcast
excerpts of the Products for the purpose of advertising,
publicizing and otherwise promoting the Products including
without limitation the right to incorporate extracts in
catalogues of all kinds, whether electronic or not;
(b) The right to use the trademarks and designs on and in the
Products in association with the sale or hire hereof as permitted
by this Agreement;
20. Each party shall treat as confidential all information of a confidential
nature of the other party which comes into it's possession under this
Agreement.
21. The term of this Agreement shall be for a period of CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION from the date of signing of this Agreement.
22. This Agreement shall be governed by the laws of New South Wales,
Australia.
23. ASSIGNMENT
This Agreement may not be assigned by either party without the express
written approval of the other party. Such approval may not be
unreasonably withheld.
24. NOTICES
24.1 Any notice, communication or other document author lead or required to
be given or served pursuant to this Agreement (herein referred to as a
"Notice") shall unless otherwise specifically provided by this Agreement
be in writing addressed as follows:
TO BII: Level 1, 17 The Corso
Manly
NSW 2095
Australia
Telephone: (02) 9977 4277
Facsimile: (02) 9977 4123
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<PAGE>
For the Attention of: Mark Miller
TO CE: 16 Commerce Crescent
Eastgate Ext 12
Wendywood 2144
South Africa
Telephone: (011) 444 0775
Facsimile: (011) 444 0717
For the Attention of: Marc Lubner
or such other address as the relevant addresses may hereafter specify
for such purpose to the other party to this Agreement by notice in
writing.
24.2 A notice includes communication by facsimile. The sender of any
communication by facsimile shall forthwith confirm the same by letter,
but failure by the addressee to receive the same shall not prejudice the
validity or effect of such facsimile.
24.3 A notice shall be signed or, in the case of a facsimile, purport to be
signed, by the party originating the notice or by a director or
secretary of that party if it is a corporation.
24.4 A notice which is sent by prepaid mail shall be deemed to be received on
the third day following the day on which it was posted.
24.5 A notice which is sent by facsimile shall be deemed to be received at
the time printed on the log out by the machine on which the notice is
transmitted.
25. RELATIONSHIP OF PARTIES.
Each party is acting as an independent contractor and not as an agent,
pardoner, or Joint venturer with the other party for any purpose.
Except as provided in this Agreement, neither party shall have any
right, power, or authority to act or to create any obligation, express
or implied, on behalf of the other.
26. FORCE MAJEURE.
Neither party shall be responsible for delays or failure of performance
resulting from acts beyond the reasonable control of such party. Such
acts shall include, but not be limited to, acts of God, strikes,
walkouts, riots, acts of war, epidemics, failure of suppliers to
perform, governmental regulations, power failure(s), earthquakes, or
other disasters.
7
<PAGE>
27. SURVIVAL OF CERTAIN PROVISIONS.
The confidentiality obligations set forth in the Agreement shall survive
the termination of the Agreement by either party for any reason.
28. HEADINGS.
The titles and headings of the various sections and paragraphs in this
Agreement are intended solely for convenience of reference and are not
intended for any other purpose whatsoever, or to explain, modify, or
place any construction upon or on any of the provisions of this
Agreement.
29. ALL AMENDMENTS IN WRITING.
No provisions in either party's purchase orders, or in any other
business forms employed by either party will supersede the terms and
conditions of this Agreement, and no supplement, modification, or
amendment of this Agreement shall be binding, unless executed in writing
by a duly authorized representative of each party to this Agreement.
30. ENTIRE AGREEMENT.
The parties have read this Agreement and agree to be bound by its terms,
and further agree that it constitutes the complete and entire agreement
of the parties and supersedes all previous communications, oral or
written, and all other communications between them relating to the
license and to the subject matter hereof. No representations or
statements of any kind made by either party, which are not expressly
stated herein, shall be binding on such party.
31. WAIVER
Failure by either party to insist upon the performance of any or more of
the conditions hereof shall not be deemed to be a waiver of any rights
and remedies that that party may have and shall not be deemed a waiver
of any subsequent breach or default. No provision of this Agreement
shall be deemed to have been waived unless such waiver shall be in
writing and signed by a person being or purporting to be a director,
manager, secretary or other officer of the party giving notice in that
behalf.
32. SEVERABILITY
If any clause or part hereof shall be held or be deemed invalid or
unenforceable for any reason whatsoever, than such clause or part
thereof shall be deemed to be
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<PAGE>
deleted from this Agreement and the Agreement shall otherwise remain in
full force and effect. The parties hereto agree to replace any invalid,
illegal or unenforceable provision with a provision which has the most
similar permissible economic and legal effect to the invalid, illegal or
unenforceable provision.
By their signatures below parties agree to be bound by the terms of this
Agreement.
CONSUMER ELECTRONICS PTY LTD BRILLIANT INTERACTIVE IDEAS
ACN 061 288 668
Name: - Marc Lubner Name: - Mark Miller
Position: - General manager Position:- Managing Director
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<PAGE>
Appendix A
The Products are:
A. CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
B. CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
C. CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
10
<PAGE>
EXHIBIT 10.5
CD-ROM DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into as of September 14, 1996 by and
between Brilliant Digital Entertainment, Inc. (hereinafter "BII"), a Delaware
corporation having an address for purposes of this Agreement at 6355 Topanga
Canyon Boulevard, Suite 513, Woodland Hills, California, 91367 and Packard Bell
NEC, Inc. (hereinafter "PB"), a Delaware corporation, having an address for
purposes of this Agreement at One Packard Bell Way, Sacramento, California
95828.
WITNESSETH:
WHEREAS, BII is the owner of all U.S. and foreign copyrights and other
proprietary rights in the computer multipath movie program, "Cyberswine";
WHEREAS, BII intends to develop additional multipath movie programs from
time to time and may elect to provide such multipath movie programs to PB
(together with Cyberswine and to the extent provided by BII to PB, the
"Multipath Movies");
WHEREAS, each Multipath Movie only becomes operational when downloaded from
BII's Internet site to computers running CD-ROMS containing BII's proprietary
multi-media run time player, graphics libraries, sound libraries and user
interfaces (each a "Run Time CD-Rom");
WHEREAS, Multipath Movies are compatible with PB Multi-Media computers
containing sound and video graphics capability and shipped with 28.8 or faster
modems ("PB Computers") running Run Time CD-ROMs; and
WHEREAS, PB wishes to obtain the nonexclusive right and license to offer
Run Time CD-ROMs for Multipath Movies in conjunction with the offering of, and
in order to promote increased sales of, its PB Computers; and
WHEREAS, PB intends to market and promote BII's Internet site so that
purchasers of PB Computers may purchase Multipath Movies on-line from BII's
Internet site;
NOW, THEREFORE, the parties agree as follows:
SECTION 1.
DEFINITIONS
For the purposes of this Agreement, the definitions set forth below shall
apply to the respective capitalized terms:
<PAGE>
1.1 "END USER DOCUMENTATION." The documentation to be furnished
hereunder by BII. End User Documentation shall consist of human-readable
statements and information required by the end-user customers of PB for the
operation of the Run Time Code as part of a Product.
1.2 "FUNCTIONAL SPECIFICATION." The specifications for the Run Time
Code set forth in Exhibit "A" attached hereto and any future version thereof
provided by BII and agreed to by PB.
1.3 "PB DOCUMENTATION." A derivative work of the End User Documentation
prepared by PB by editing, reorganizing, and expanding the BII Documentation
into the format and trade dress deemed appropriate by PB and approved by BII in
the exercise of its reasonable discretion, for purposes of marketing the
Product.
1.4 "PRODUCT." Each Multipath Movie provided by BII which consists of
(i) a combination of Run Time Code, as delivered by BII on each individual
Golden Master CD-Rom, and PB Documentation, conforming to the Functional
Specifications, to be copied and distributed by PB, under a sublicense, to PB's
end user customers purchasing a PB Computer, and (ii) the additional information
downloaded from BII's Internet site by end users purchasing same for each such
Multipath Movie.
1.5 "RUN TIME CODE." The computer programming code, in object code
(i.e., machine-readable) form only for Run Time CD-ROMs, to be furnished by BII
hereunder on individual Golden Master CD-ROMs for each Multipath Movie, which
complies with the Functional Specifications set forth in Exhibit "A" attached
hereto.
SECTION 2.
DELIVERY BY BII
2.1 BII shall, during 1997, deliver one copy of the Run Time Code for
Cyberswine or other title to PB on a Golden Master CD-Rom and one copy of the
End User Documentation for Cyberswine to PB on floppy disk.
2.2 PB shall notify BII in writing at least CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION of the
time it intends to reconfigure the hard drive of any model of PB Computers, in
order to allow BII, at its option, sufficient lead time to provide a substitute
Multipath Movie Golden Master CD-Rom for use in lieu of the previously delivered
Multipath Movie. Although BII has no obligation to substitute a different or
enhanced Multipath Movie for any Multipath Movie then being marketed, BII may,
prior to the date of such reconfiguration, deliver to PB a new Golden Master CD-
Rom and End User Documentation
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which will contain either an enhanced version of a previously released Multipath
Movie or a new Multipath Movie containing new content.
SECTION 3.
END USER DOCUMENTATION
PB shall, CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION of receipt of the Run Time Code and End User
Documentation for each Multipath Movie or enhancement thereof, provide to BII a
final draft of the PB Documentation and packaging material for BII's review and
approval. BII shall review the PB Documentation for technical accuracy and
overall style and to assure BII has been provided with prominent credit as the
developer and producer of each such Multipath Movie and CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION, report
to PB in writing, any perceived inaccuracies and concerns over style and credits
and recommend corrections. PB shall incorporate into the PB Documentation and
packaging material any recommended corrections necessary to ensure technical
accuracy and to satisfy BII's concerns over style and credit.
SECTION 4.
DEVELOPMENT, TESTING AND ACCEPTANCE
4.1 PB shall at all times provide BII with priority access to pre-
release versions of PB Computers, and all user and developer documentation
therefor on PB's standard alpha test terms and conditions to allow BII
reasonable time in which to ensure that all Run Time CD Roms will be compatible
with and executable on the all PB Computers.
4.2 PB shall, promptly upon delivery to PB of each Multipath Movie
Golden Master CD-Rom, conduct an acceptance test for the purpose of confirming
that the Run Time CD-Rom can be successfully installed and executed on PB
Computers. BII shall make a reasonable effort to make all necessary
modifications required to achieve such confirmation. Additionally, PB shall have
the right to not accept any Multipath Movie delivered by BII, if it is
determined such Multipath Movie's content is derived from a movie released with
an X or NC-17 rating.
4.3 PB shall accept the Run Time CD-Rom at such time as it determines
that it can be successfully installed and executed on the PB Computers. PB shall
conduct all acceptance testing on a highest priority basis. When PB makes such
determination, it shall execute and furnish to BII a Statement of Acceptance.
Failure to reject the Run Time CD-Rom within CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION from delivery
shall be deemed an acceptance.
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<PAGE>
SECTION 5.
MARKETING RIGHTS AND DUTIES
5.1 The Product shall be marketed on a joint logo basis in the trade
dress of PB with a byline identifying BII. PB Documentation shall contain the
following notice after the title of the Multipath Movie:
"Copyright Brilliant Digital Entertainment, Inc. 1996, edited and
distributed by Packard Bell NEC under license."
5.2 PB shall furnish to BII, prior to publication or other
dissemination, a copy of each version of the Run Time CD-Rom and PB
Documentation distributed by PB and representative copies of all other material
and publications that use or display the trade name or trademarks of BII,
including without limitation all packaging containing the Product and all
material relating to BII's Internet site. All such PB Computer packaging shall
display the Multipath Movie title in a conspicuous and very prominent manner and
shall advertise the Multipath Movie titles in a conspicuous and prominent
manner. PB shall make such changes as BII require to ensure proper use of its
trademarks and trade name and to avoid any statement that is, in BII's business
judgment, inaccurate, objectionable, or misleading. Neither party shall have the
right to use the other's trademarks or trade names except in connection with the
Product and the promotion and publication thereof.
5.3 For a period (the "Shipping Period") of CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION,
commencing on the date of issuance of the Statement of Acceptance for the first
Multipath Movie Golden Master CD-Rom accepted by PB, PB shall have the
nonexclusive right and obligation, at its sole cost and expense, to manufacture
and distribute each accepted Multipath Movie Run Time CD-Rom and PB
Documentation and market the Products as part of its sale of PB Computers.
5.4 PB shall, at PB's expense, for the period (the "Marketing Period")
commencing prior to the Marketing Period and ending CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
following the last sale by PB of a PB Computer shipped with a Run Time CD Rom,
promote BII's Internet site for each Multipath Movie by, among other things,
establishing a prominently displayed and advertized hot link from the PB Planet
Oasis Internet site and other appropriate PB sites. Such hot link shall be at
least as accessible and prominent as any other hot link displayed on such PB
sites. PB shall exercise its best efforts to promote and market the Products
during the Marketing Period.
5.5 PB shall further promote each BII Multipath Movie by creating an
icon to be displayed on each PB Computer shipped with a Multipath Movie Run Time
CD-Rom. Such icon
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<PAGE>
shall be easily locatable, conspicuous and prominent and shall be included in
"Navigator" and any replacement therefor adopted by PB. PB shall prominently
advertise the Multipath Movies in all consumer advertising and point of sale
materials associated with the PB Computers.
5.6 PB shall CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION "bundle" and distribute each accepted
Multipath Movie Run Time CD-Rom and PB Documentation provided by BII in the
lesser of (a) 80% of the first seven million four hundred thousand PB Computers
sold during the Shipping Period in the Target Territory, or (b) such number as
the actual number of PB Computers shipped in the Target Territory during the
Shipping Period if CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION, provided that all sales to organizations
that will not reasonably use the Product, e.g., corporations that purchase the
PB Computers primarily for business use, shall not be counted for any purpose
under this Agreement. For purposes of this Agreement, "Target Territory" means
the following territories: United States of America; Australia; United Kingdom;
New Zealand; and South Africa.
5.7 PB acknowledges, and all PB Documentation shall prominently state,
that the Product is only fully operational after additional code is downloaded
by the end user from BII's Internet site and that BII may charge end users for
access to such additional code. All revenue generated therefrom shall belong
exclusively to BII.
SECTION 6.
PROTECTION AND SUBLICENSING TERMS
6.1 PB shall protect the Run Time Code and End User Documentation from
unauthorized use, copying, modification, or distribution with at least the same
level of effort and security as it has in effect with respect to its own
proprietary computer programs. All copies of the Run Time Code (including copies
embodied in ROMS), End User Documentation, and derivative works thereof
(including the PB Documentation) shall be marked with BII's copyright and other
proprietary notice, if any. In addition to the copyright notices, ROMS
containing Run Time Code shall be marked with the phrase: "Contains Cyberswine
[or title of other Multipath Movie] for use in operation of PB Computers
containing this program only. No other copying is authorized. All rights
reserved. Brilliant Interactive, Inc.
6.2 PB shall not reverse-assemble, reverse-compile, or reverse-engineer
the Run Time Code.
6.3 PB shall sublicense the Run Time CDmay -ROMs to its customers on
terms that permit the use of each copy of the Run Time Code only in one computer
for the customer's internal use. All copying and any transfer or distribution of
the Run Time Code by customers shall be prohibited.
5
<PAGE>
6.4 The terms of PB's sublicense shall limit product and performance
warranties with respect to the Run Time CD Roms to the absence of defects in
materials or workmanship. Such sublicense shall contain an express and
conspicuous statement that the software loaded on the Run Time CD Roms and the
content of the Run Time CD Roms are provided "AS IS", and a conspicuous
disclaimer of all other express or implied warranties, including any warranty of
merchantability or fitness for a particular purpose.
SECTION 7.
LICENSE
7.1 BII, subject to the terms of this Agreement, grants to PB and its
majority owned and controlled subsidiaries the nonexclusive right and license to
copy the Run Time Code to CD-ROMs for shipment with PB Computers and to market
and distribute copies of the Run Time Code, as included in the Run Time CD-ROMs,
to its customers purchasing PB Computers under a sublicense that complies with
the terms and conditions of the Agreement.
7.2 BII grants to PB a nonexclusive right and license to copy the BII
Documentation, to prepare PB Documentation as a derivative work thereof, and to
copy and distribute the PB Documentation to its customers purchasing PB
Computers.
7.3 BII grants to PB a nonexclusive right and license to make
demonstration and training copies of the Run Time Code for use by PB and its
sales force in demonstration and training activities. Each such demonstration
and training copy shall be prominently marked with a legend "Demonstration and
Training Copy--No Further Transfer or Copying Authorized."
7.4 No right or license is granted to make or use any copy of any Run
Time Code to provide access to any downloadable information other than
Cyberswine or other Multipath Movies in the form provided by BII at its Internet
site. Absent a separate license agreement signed by PB and BII, PB shall not use
the Run Time Code for any such purpose.
SECTION 8.
WARRANTIES
8.1 BII represents and warrants that BII is either the author of the Run
Time Code and End User Documentation or has obtained and currently holds all
rights necessary to grant the licenses and rights granted herein.
8.2 BII represents and warrants that no claim or action relating to the
infringement of any copyright, trademark, or other intellectual property right
has been made or is pending against BII or any entity from which BII has
obtained rights with respect to the Run Time Code and End User Documentation.
6
<PAGE>
8.3 BII represents and warrants that the Run Time Code and End User
Documentation shall materially comply with the Functional Specifications and
shall be executable on the machines and with the operating systems identified in
the Functional Specifications.
8.4 BII MAKES NO OTHER WARRANTY, WHETHER EXPRESS OR IMPLIED, AND
SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
8.5 PB's sole remedy against BII for breach of warranty shall be to
request error correction and, if such error correction is not effected so as to
correct the error after BII has been provided with reasonable opportunity, which
in any event shall not be less than 120 days following written notice delivered
by the President of PB to the President of BII describing the error in
reasonable detail, to terminate this Agreement.
8.6 IN NO EVENT SHALL PB BE ENTITLED TO ANY SPECIAL, INDIRECT,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) OR DAMAGES
EXCEEDING THE AMOUNTS THERETOFORE PAID TO BII UNDER THIS AGREEMENT.
8.7 The foregoing limitations of remedies shall not apply to the
enforcement of PB's right to damages or equitable relief for breach of the
warranties contained in Sections 8.1 and 8.2 hereof, or to any remedies either
party may seek with respect to infringement of its trademarks, trade names, or
other intellectual property rights.
SECTION 9.
COPYRIGHT
9.1 BII shall register its copyright in the Run Time Code and End User
Documentation. PB shall register its copyright in the PB Documentation as a
derivative work of the End User Documentation. The parties agree to cooperate in
the performance of all acts, and the preparation, execution, delivery, and
filing of all documentation necessary to effect the foregoing registration.
9.2 The parties shall, to the extent commercially reasonable under the
circumstances, cooperate in the enforcement of all rights in the Run Time Code
and Documentation against infringers. Any failure by PB to enforce such rights,
within a reasonable time after notification, that results in unauthorized
copying and use of the Run Time Code and Documentation by end users, shall give
rise to an obligation by PB to pay the fees relating to the downloading of
information required to operate the Program from BII's Internet site for each
such download made to an unauthorized copy made or used.
7
<PAGE>
SECTION 10.
TERM AND TERMINATION
10.1 The initial term of this Agreement shall commence upon the effective
date of this Agreement and shall continue through the end of the Marketing
Period, unless sooner terminated hereunder. This Agreement shall automatically
renew for additional terms of CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION each, unless and until
either party elects to terminate this Agreement upon expiration of the then
current term by giving the other party at least one hundred and twenty days'
prior written notice.
10.2 Either party may terminate this Agreement for material default of
the other party by providing written notice specifying the nature of the
default. Such notice shall be effective 120 days after receipt thereof by the
defaulting party, unless, prior to such date, the defaulting party shall have
cured the default. If the specified default is cured, such termination shall not
take place.
10.3 In the event of termination of this Agreement, all obligations of
BII to PB for maintenance and support shall cease.
10.4 Termination shall have no effect on sublicenses granted by PB prior
to the effective date of such termination.
10.5 PB shall return or destroy all copies of the Run Time Code, the
Golden Masters and End User and PB Documentation in its possession within
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION after termination of this Agreement, whether such
termination occurs with or without cause.
SECTION 11.
INDEMNIFICATION
11.1 PB agrees to, and does hereby, defend, indemnify, and hold harmless
BII from and against any claims based on or arising out of any statements or
representations made by PB's sales personnel or placed in the PB Documentation
by PB that are not directly and accurately derived from the End User
Documentation or the Functional Specifications.
11.2 The foregoing indemnity is conditioned on the following:
1. Prompt written notice of any claim for which indemnity is sought;
8
<PAGE>
2. Cooperation in the defense of any such claim, with each party
bearing its own respective costs of such cooperation; and
3. Prior written approval by the party from whom indemnity is sought of
any settlement or offer of settlement, which approval shall not be
unreasonably withheld.
SECTION 12.
WARRANTS
12.1 As additional consideration and inducement to PB to enter into and
perform its obligations under this Agreement, BII shall, upon execution and
delivery of this Agreement by PB to BII, execute and deliver to PB the Warrant
Agreement attached as Exhibit B to this Agreement.
SECTION 13.
GENERAL
13.1 This Agreement shall be governed by and construed in accordance with
the laws of the State of California as they apply to a contract made and
performed in such State.
13.2 Neither party shall be liable for failure to perform any obligation
under this Agreement where such failure is due to fire, flood, labor dispute,
natural calamity, or acts of the government or if such causes are otherwise
beyond the reasonable control of such party; provided, however, that any delay
in performance exceeding ninety days shall be grounds for termination by the
nondefaulting party.
13.3 The following procedure will be adhered to in all disputes that
arise under this Agreement. A party to this Agreement must notify the other of
the nature of the dispute with as much detail as possible about the deficient
performance of the other party. The project managers of each party identified
below ("Project Managers") shall meet within seven days of the date of the
notification to reach an agreement about the nature of the deficiency and the
corrective action to be taken by the respective parties. The Project Managers
shall produce a report within four days thereafter about the nature of the
dispute in detail to their respective management. If the Project Managers are
unable to agree on corrective action, the respective managers to whom the
Project Managers report or their successors ("Management") shall meet to
facilitate an agreement within seven days of the date of the notification. If
Management cannot resolve the dispute with a written plan of corrective action
within ten days after their initial meeting, or the agreed upon completion dates
in the written plan of corrective action are exceeded, either party may then
proceed in accordance with its respective rights under this Agreement. The
Project Managers are as follows:
9
<PAGE>
For BII: Mark Miller, or any successor designated in writing by BII;
For PB: ______________, or any successor designated in writing by PB.
13.4 If any provision of this Agreement is deemed by a court of competent
jurisdiction to be unenforceable or contrary to any applicable law or
regulation, such provision shall be considered deleted and the remainder of this
Agreement shall continue in full force and effect.
13.5 This Agreement is not assignable or transferrable by operation of
law or otherwise by either party without the prior written consent of the other
party, except that this Agreement may be assigned to a controlled subsidiary, or
to a successor to all or substantially all of the assets and business, of the
assigning party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
below by their duly authorized representatives.
BRILLIANT DIGITAL ENTERTAINMENT, INC.
By: /s/ Diana Maranon
--------------------------------
Its: Secretary
-------------------------------
Packard Bell NEC, Inc.
By: /s/ Sam Surloff
--------------------------------
Its: General Counsel
-------------------------------
10
<PAGE>
EXHIBIT "A"
Functional Specification
- ------------------------
One Golden Master CD-Rom for each Multipath Movie compatible with an IBM
computer running under Windows V3.x and Windows 95 which, once enhanced by
download from BII's Internet site, will be capable of performing substantially
in accordance with the End User Documentation.
<PAGE>
EXHIBIT 10.6
DISTRIBUTION AGREEMENT
----------------------
THE DISTRIBUTION AGREEMENT is entered into this 22 day of August 1995 by and
between BRILLIANT INTERACTIVE IDEAS PTY LTD an Australian Company (BII) and
PACKARD BELL ELECTRONICS INC a California company (PB). This Agreement
incorporates all relevant terms and conditions of the previous Agreement
executed between BII and PB and supersedes the pervious Agreement executed
between BII and PB. Upon the execution of this agreement the previous agreement
becomes null and void
WHEREAS PB is in the business of distributing computer hardware and software in
the USA and around the world and has established a software publishing business.
BII is in the business of developing interactive multimedia software products.
PB is desirous of having BII develop various software products for publishing
and distribution.
NOW THEREFORE THE PARTIES do agree as follows:
1. (i) BII have previously developed CONFIDENTIAL INFORMATION OMITTED AND
FILES SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
interactive children's story books for PB as detailed in Attachment
A hereinafter referred to as the Current Titles;
1. (ii) BII shall develop an additional CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
interactive children's story books for PB as detailed in Attachment
A hereinafter referred to as the Future Titles;
1. (iii) The Current Titles and Future Titles are hereinafter referred to
collectively as the Product;
2. The Products shall consist of storybooks in a multimedia format,
incorporating sound, animation, hotspots, 10 - 25 pages each, with
music and activties.
3. (i) The Current Titles have been delivered in object code in a form
compatible with IBM PC running under Windows, as well as Macintosh
from Apple computer, and shall be reasonably fit for the purposes
intended, and have been accepted by PB;
3. (ii) The Future Titles shall be delivered in object code in a form
compatible with IBM PC running under Windows, as well as Macintosh
from Apple computer, and shall be reasonably fit for the purposes
intended.
4. BII grants to PB the right to publish, reproduce, sub - license,
distribute and display the Products in North America, Israel and
South Africa. PB shall not be entitled to make any alterations to
the object code of the Products without the written consent of BII.
<PAGE>
5. The rights to publish as granted above in 4 are the exclusive retail
rights and shall not conflict with any other rights granted by BII
to other publishers in other territories.
6. (i) PB shall pay to BII the following royalties for each Future Title
shipped:
For the first CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION units shipped of each
Future Title USD CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
For the next CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION units shipped of each
Future Title USD CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
For the next CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION units shipped of each
Future Title USD CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
For all Future Titles shipped to CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
and or CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION the royalty payable to BI
shall be USD CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION per unit.
Until total royalties of USD CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION have
been paid to BII for each Future Title, then the royalty for all
Future Title units shipped shall be USD CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION per unit;
The royalty as stated above is based on a wholesale price of the
Future Title not exceeding USD CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION per
title;
6. (ii) PB shall pay to BII the following royalties for each Current Title
shipped:
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<PAGE>
USD CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION per unit shipped except for units
shipped to CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION and or CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION, where the royalty payable to BII shall be USD
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION per unit shipped;
7. (i) PB have paid to BII a sum of USD CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
being a non - refundable development advance which is to be recouped
against payments due to BII for units shipped of the Current Titles
under clause 6(ii) above.
7. (ii) PB shall pay to BII a sum of USD CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
being a non - refundable research and development payment. This
research and development payment is payable as follows:-
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION on the execution of this
Agreement
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION on the delivery of the gold
masters of the Future Titles
8. PB guarantees to release the Future Titles to retailers no later
than 31 JANUARY 199__ (the Retail Marketing Date) subject to the
Products being delivered on time. Any delay in receipt of the Future
Titles shall automatically result in a corresponding delay in the
Retail Marketing Date, subject to any force majeure.
9. In consideration of the above BII further grants to PB the bundle
rights (Bundle Rights) to CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION of the
Current Titles and CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION of the Future
Titles for all territories in the world where Packard Bell personal
computers are sold. These rights are independent of the other rights
as granted above.
10. The Bundle Rights granted above shall entitle PB to incorporate the
Current Titles and Future Titles onto any Packard Bell personal
computer within the Microsoft Windows operating environment in
unlimited quantities for a period of
3
<PAGE>
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION from the date that the first bundle Product is
shipped provided that:
PB shall not bundle more that 2 of the 3 selected Products on any
one machine and PB shall include a brochure for the other Products,
in each personal computer that PB bundles the Products in
AND
PB shall have paid to BII or have committed to pay to BII in writing
within 30 days, at the agreed royalty rates under clause 6(i),
royalties on CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION of each Future Title
(cross collateralized) prior to being able to exercise the Bundle
Rights.
11. Left Blank.
12. Left Blank
13. Left Blank
14. BII shall deliver the Future Titles to PB no later than the 30 September
1995. Any delay in the delivery date of the Final Titles shall cause a
corresponding delay in the Retail Marketing Date. In the event that PB
requests any changes to the Products, then these shall be at the expense of
PB and shall be treated as a further advance against royalties and shall be
recoupable against Products shipped.
15. PB shall use it's best endeavors to promote and expand the sale of the
Products in all parts of North America, Israel and South Africa and in all
sectors of the market on the maximum possible scale by all reasonable
means.
16. PB shall keep full and accurate records regarding the production, sale,
shipping and distribution of the Products and the licensing of the Kidstory
name and shall upon 7 days notice from BII allow BII or it's agent to
inspect all of these records and other related documents during normal
working hours.
17. BII may terminate this Agreement immediately upon giving written notice to
PB if:
a. PB fails to make any payment when due or otherwise breaches this
Agreement and has not rectified such breach within 14 days of notice
from BII; or
4
<PAGE>
b. PB dissolves, liquidates or if bankruptcy, insolvency, winding
up or reorganization procedures are commenced by PB or are
brought against PB.
18. If this Agreement is terminated for any reason, PB shall:
a. immediately return all masters of the Products to BII; and
b. have the right to sell it's existing stocks of the Products
subject to payment to BII of all royalties due under his
agreement.
19. BII shall be responsible for any and all other royalties due on the
Products to third parties including music royalties, animation
royalties and licensing royalties.
20. BII provides no warranty as to names being used including the name
Kidstory and Brilliant Interactive Ideas in the territories in which
Packard Bell distributes. In the event a name change is needed for
legal reasons then the parties shall consult as to the new name and
BII shall make the necessary changes with the cost of any requisite
name changes being split evenly and any moneys paid by PB shall be
treated as an advance against retail sales royalties.
21. The name Kidstory or any other agreed to name is the property of BII
and PB shall have no claim to this or any other name being used. BII
agrees to license the name Kidstory to PB for use with other
products that PB distributes. PB shall pay to BII a license fee for
the use of the Kidstory name equal to CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION of the net revenue (gross revenue less returns) received
by PB for all products not developed by BII that PB publishes and
distributes under the Kidstory name.
BII retains any and all of the copyrights contained in the Products
and PB shall have no rights in the copyrights or other intellectual
rights contained in the Products. All Products shipped whether in a
retail or bundled version shall reflect the appropriate copyrights
which shall be provided to PB simultaneously with the masters. Any
press release or advertisement for the Products shall reference BII
as the developer and shall contain the appropriate copyright notices
as provided.
22. All payments due under clauses 6 and 21 of this agreement shall be
paid to BII by PB on a monthly basis within 45 days from the end of
the month.
22. BII shall be liable to PB as expressly provided in this Agreement,
but shall have no other obligation, duty, or liability whatsoever in
contract, tort or otherwise to PB provided that nothing in this
Agreement shall exclude or restrict any liability on the part of BII
where and to the extent that applicable law forbids exclusion or
restriction of that liability on it's part.
5
<PAGE>
23. BII shall not be liable in any way whatsoever to PB or any person for any
special, indirect or consequential Ion or damage whatsoever (including but
not limited to loss of profit, business, revenue, goodwill, loss of data or
anticipated savings).
24. Each party shall fully indemnify the other against all losses, costs,
charges and expenses arising from or incurred by reason of any claim made
against it arising from any use whatsoever by it of the Products.
25. Each party shall treat as confidential all information of a confidential
nature of the other party which comes into it's possession under this
Agreement.
26. The term of this Agreement shall be for a period of CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION from the date of signing of this Agreement at which time all
rights shall revert back to BIT.
27. This Agreement shall be governed by the laws of the State of California.
By their signatures below the parties agree to be bound by the terms of this
Agreement.
Packard Bell Electronics Inc Brilliant Interactive Ideas Pty Ltd
By: /s/ By: /s/ Mark Miller
_____________________________ _________________________________
6
<PAGE>
Attachment A
------------
THE CURRENT TITLES ARE:
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION
THE FUTURE TITLES ARE:
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION
<PAGE>
Exhibit 10.7
SOFTWARE LICENSE AGREEMENT
--------------------------
THIS AGREEMENT is entered into this 2 day of May 1995 by and between BRILLIANT
INTERACTIVE IDEAS PTY LTD an Australian Company (BII) and PACKARD BELL
ELECTRONICS INC. a Delaware company (PB)
NOW THEREFORE THE PARTIES do agree as follows:
1. BII have developed a range of CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION interactive
children's storybooks hereinafter referred to as the "Products". (as
attached hereto on Attachment A.)
2. PB wish to license the Products from BII and sub-license the Product to
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION - a company involved in the distribution of
multimedia upgrade kits. CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION will include the
Products as part of a software bundle that is supplied with their
multimedia upgrade kits. All CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION Products are herein
after referred to as the "Bundle Product".
3. The Bundle Product has been delivered in object code on a single gold
master CD-ROM in a form compatible with IBM PC running under Windows.
4. BII grants to PB the right to reproduce with sub-license the Bundle Project
to CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION for inclusion as part of the software
bundle in CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION multimedia upgrade kits. Provided that
the Bundle Project is included as part of the bundled software in the
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION multimedia upgrade kits the Bundle Project can be
distributed anywhere in the world where the CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
multimedia upgrade kits are sold. PB shall not be entitled to make any
alterations to the object code of the Products or the Bundle Product.
5. The rights as granted above in 4 are non exclusive and PB hereby
acknowledges that BII shall have the right to bundle the Products with any
other supplier of upgrade kits for sale anywhere in the world.
6. PB shall pay to BII the following royalties for each Bundle Product
shipped. (No royalty shall be payable on Bundle Product that is returned to
CONFIDENTIAL
<PAGE>
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION where such Bundle Product forms part of multimedia upgrade kits
that have been returned to CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION by its customers):
- USD CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION per unit for each and every unit
shipped up to CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION units
- After BII has been paid a total of USD CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PB may elect to pay BII USD CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION per unit shipped after the first CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION units PROVIDED THAT PB guarantee BII a minimum of a further
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION units, payable as a nonrefundable
up front advance - "The Advance". PB to provide BII notice in writing
of their intention to proceed at the USD CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION royalty rate - the "Acceptance Notice" (subject to the
above)
- In the event that PB do not provide BII with the Acceptance Notice
then the royalty per unit shall remain at USD CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION per unit for any and all units shipped.
7. PB shall pay BII as follows:
(a) on a monthly basis, at the agreed royalty rate based on the number of
Bundle Product units shipped, within 45 days after the end of each
calendar month;
(b) The Advance shall be payable as follows (if the Acceptance Notice is
issued):
i) USD CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION seven days after PB
sending BII the Acceptance Notice;
2
<PAGE>
ii) USD CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION thirty days after the
payment in 7(b)(i) above;
iii) USD CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION thirty days after the
payment in 7(b)(ii) above.
The advance shall be recouped against the royalties due for each Product
shipped after the first CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION units Bundle Product
have been shipped and paid for.
8. PB shall provide BII within 45 days from the end of each month a report -
the "Monthly Royalty Report", produced by CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION, detailing
the number units of Bundled Product shipped. The Monthly Royalty Report is
to be certified as true and correct by an authorised officer of
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
9. PB warrants and agrees that PB will obtain consent in writing from
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION within 15 days after the execution of this
agreement, and provide BII with a copy of the consent, that upon 7 days
notice from BII, CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION will allow BII or its agent to
inspect CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION records relating to the Monthly Royalty
Reports and other related documents including production and duplication
records during normal working hours. In the event of any discrepancies
being noted PB agree to pay BII within 7 days all additional moneys owing
and all costs incurred by BII in conducting the inspection of CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION records.
10. BII may terminate this Agreement immediately upon giving written notice to
PB if:
a. PB fails to make any payment when due or otherwise breaches this
Agreement and has not cured such breach within 14 days of notice from
BII (subject to the breach being curable); or
b. PB dissolve, liquidates or if bankruptcy, insolvency, winding up or
reorganization procedures are commenced by PB or are brought against
PB.
11. If this Agreement is terminated for any reason, PB shall:
3
<PAGE>
a. Immediately return all matters of the Bundle Product to BII; and
b. Inform CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION that the contract has been
terminated and CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION must immediately cease
shipping the Bundle Project.
12. BII shall responsible for any and all other royalties due on the Bundle
Product to third parties including music royalties, animation royalties and
licensing royalties.
13. BII provides no warranty as to names being used including the name Kidstory
and Brilliant Interactive Ideas in the territories in which CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION distributes.
14. The name Kidstory is the property of BII neither PB or CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION shall have any claim tot his or any other name being used.
BII retains any and all of the copyrights contained in the Products and
Bundle Product and PB and CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION shall have no rights
in the copyrights or other intellectual rights contained therein.
PB warrants that it shall enter into an agreement with CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION which agreement shall reflect the above, within 7 days after the
execution of this agreement.
15. PB warrants that any and all Product and Bundle Product, advertising
material, promotional of material and all other references to the Products
and Bundle Product shall contain the appropriate copyright notices provided
by BII from time to time and shall at least contain the following notice
"Copyright 1994 Brilliant Interactive Ideas Pty Ltd".
16. BII shall be liable to PB as expressly provided in this Agreement, but
shall have no other obligation, duty, or liability whatsoever in contract,
tort or otherwise to PB provided that nothing in this Agreement shall
exclude or restrict any liability on the part of BII where and to the
extent that applicable law forbids exclusion or restriction of that
liability on it's part.
17. BII shall not be liable in any way whatsoever to PB or any other person for
any special, indirect or consequential loss or damage whatsoever (including
but not limited to loss of profit, business, revenue, goodwill, loss of
data or anticipated savings).
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18. Each party shall fully indemnify the other against all losses, costs,
charges and expenses arising from or incurred by reason of any claim made
against it arising from any use whatsoever by it of the Products.
19. Each party shall treat as confidential all information of a confidential
nature of the other party which comes into it's possession under this
Agreement.
20. The term of this Agreement shall be for a period of CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION from the day of signing of this Agreement at which time all
rights shall revert back to BII.
21. This Agreement shall be governed by the laws of the State of California.
By their signatures below the parties agree to be bound by the terms of this
Agreement.
/s/ /s/ Mark Miller
____________________________ -----------------------------------
Packard Bell Electronics Inc Brilliant Interactive Ideas Pty Ltd
(Company Seal) (Company Seal)
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Attachment A
- ------------
The Products are:
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION
<PAGE>
EXHIBIT 10.8
THIS AGREEMENT made the 18th day of February Nineteen Hundred and Ninety Six
BETWEEN: Golden Dolphin Productions Pty Ltd ("GDP") A.C.N. 002 371 351 a
company incorporated in New South Wales and having its registered
office therein at Level 15, 309 Kent Street Sydney;
AND Brilliant Interactive Ideas Pty Ltd ("BII") A.C.N. 061 288 668 a
company incorporated in New South Wales and having its registered
office therein at Level 53, MLC Centre Martin Place Sydney;
RECITALS:
A. GDP proposes to produce a series of five compact disk read only memory
("CD-ROM") programs entitled CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION ("the
Series")
B. GDP is desirous that BII should act as Co-Producer of the Series to
assist in the financing, managing, production and marketing of the
Series
C. GDP is desirous that Mark Miller should act as Physical Co-Producer of
the Series to assist in the financing, managing, production and
marketing of the Series
D. GDP and BII have arranged for Investors to contribute funds to provide
the Budget of the Series
E. BII is exclusively entitled to the services of Mark Miller.
AGREEMENT:
Part 1. DEFINITIONS
In the interpretation of this Agreement unless the context requires
otherwise:
"AME" means the Australian Multimedia Enterprise Limited of Level 9, 100
William Street Sydney New South Wales.
"Budget" means the budget of the Series which is attached hereto as
Schedule A.
"Completion" shall mean the creation of a Gold Master of each of the five
programs in the Series.
"Co-Producer" means Brilliant Interactive Ideas Pty Limited.
"Copyright" means and includes the copyright subsisting in each part of the
universe in the Series or such portion of that copyright as has not been
assigned or disposed of including the Scripts, storyboards, click and
plays, animations, programming code, goodwill, design rights in the
characters and any right to the benefits accruing from holding a trademark,
service mark, adopting a style or business name in respect to any of the
above.
"Development Account" means account number 41019906 at the State Bank of
NSW Spit Junction Branch styled "Golden Dolphin Productions Pty Ltd - AME
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION Development Account.
<PAGE>
"Further Multimedia Product" means any further multimedia product or
service:
(a) based on or using any image, text, character, scene or event in or any
object or other codes, 'look and feel' or format of the Scripts; and
(b) developed by, on behalf of or with the co-operation of the Producer.
"Gross Receipts" means the total income received by or on behalf of the
Producer from the exploitation of the Series net of sales commissions and
marketing costs approved by the Investors.
"Investment Agreement" means the agreement GDP has entered into or will
enter into with the AME and the other Investors in the Series.
"Investors" means the investors referred to in Schedule C who have or will
contribute funds equal to the Budget of the Series for the production of
the Series.
"Manufacturer" means the CD-ROM manufacturer selected to mass produce the
release copies of the programs in the Series.
"Mark Miller" means Mark Miller of 30 Avoca Street Bondi in the State of
New South Wales Managing Director of Brilliant Interactive Ideas Pty.
Limited.
"Masters" means the Gold Masters of each of the titles in the Series
referred to in Recital A.
"Milestones" means the dates for completion of the various stages of the
Series included in the agreement between GDP the Investors attached as
Schedule D.
"Monto" means Monto Holdings Pty. Limited a company incorporated in New
South Wales and having its registered office therein at Level 53, MLC
Centre Martin Place Sydney.
"Producer" means Golden Dolphin Productions Pty Limited.
"Proprietary Technology" means all technical engines, utilities, program
code, interactive activities and games developed by BII as defined in the
Investment Agreement.
"Publisher Attachment" means binding agreements for the distribution of the
five titles in the Series for the United States, Australia and the United
Kingdom in a form acceptable to the AME as detailed in the Investment
Agreement.
"Series" means the five CD-ROM programs referred to in Recital A and
described in Schedule B.
"Scripts" means the scripts of the five CD-ROM programs in the Series
referred to in Recital A entitled "CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION" "CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION" "CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION" "CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION" and
"CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION" or such other titles as GDP may from time to time
decide.
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2. OBLIGATIONS OF THE CO-PRODUCER
2.1 GDP engages the Co-Producer to produce the Series with GDP in particular
but not exclusively concerning the financing, production and marketing of
the Series and to provide the services of Mark Miller to assist in the
production of the Series and to manage financing, production, marketing and
distribution of the Series on behalf of BII.
2.2 The Co-Producer agrees to consult with GDP concerning the financing,
production and marketing of the Series and to supply the services of Hark
Miller to manage the financing, production, marketing and distribution of
the Series on the terms and conditions contained in this Agreement.
2.3 Subject to the terms of Clause 2.5 hereof BII shall ensure that Completion
of the Series occurs by December 21, 1996 and at a cost no greater than the
Budget of the Series provided that GDP delivers to BII the Scripts in
accordance with the Milestones contained in Schedule D hereto.
2.4 In discharge of its obligations under Clause 2.2 BII shall supply the
services of Mark Miller and any of its other directors and employees on an
non-exclusive basis to assist in the production, marketing, distribution
and management of the financing of the Series.
Force Majeure
- -------------
2.5 Any interruption or delay of the production of the Series caused by reason
of fire, explosion, flood, act of God or public enemy, labour dispute,
civil disturbance, riot, war, shortage or delays in or inability to obtain
materials, labour or equipment, transportation, power or any other
necessary commodity or services, death or disability of a principal member
of the production team or any other reason beyond the control of BII shall
constitute a event of force majeure. The time stipulated for Completion and
--------------
Delivery of the Series shall be extended for a reasonable period having
regard to the nature of the event giving rise to the said interruption or
delay.
2.6 In particular the Co-Producer shall:
(a) discuss the final drafts of the Scripts with GDP;
(b) appoint computer programmers, animators, storyboard artists, designers
and technicians for the production of the Series on behalf of GDP and
ensure that the Series shall consist of a connected series of Scenes
telling the stories of the Series in accordance with the Scripts and
ensure that the Series shall be suitable for sale to the general
public tn Australia, in the United States and subject only to the
language of the sound track and screens the rest of the world;
(c) oversee financial transactions to ensure that all expenditures under
the control of BII made in the production of the Series are made in
accordance with the Budget;
(d) supervise the preparation of financial reports of expenditure by BII
on the Series, keep proper books of account and arrange for the
accounts in relation to the Series to be available for inspection by
GDP;
(e) monitor the progress of production of the Series to ensure that
creative standards are maintained and that the Series is produced in
accordance with first class technical standards with a master from
which commercially acceptable CD ROM copies can be made and in quality
suitable for sale to the general public in Australia and the United
States of America;
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<PAGE>
(f) view the various stages of production of the Series and consult with
GDP on the Masters of the Series;
(g) consult with GDP on the selection of music, the composer (if any) and
the musical tracks for inclusion in the Series;
(h) liaise with GDP and where necessary negotiate for the use of sub-
contractors and other suppliers on behalf of GDP;
(I) MISSING FROM ORIGINAL DOCUMENT
(J) MISSING FROM ORIGINAL DOCUMENT
(k) negotiate and liaise with the Manufacturer for processing and stamping
of release copies of the Series;
(l) consult with GDP on the final sound mix of the Series;
(m) subject to Clause 3.2 of this Agreement ensure that the terms of all
insurance polices taken out by GDP in relation to the Series are
adhered to;
(n) ensure that all production contracts under the control of BII are
signed and complete;
(o) produce the Series in accordance with first class technical standards
so that the Series is of a quality suitable for sale to distributors
retailers and the general public throughout the world and ensure that
the Series is of a technical standard at least commensurate with BII's
"Kidstory" titles;
(p) furnish GDP, every second Thursday commencing on the date of
commencement of production and thereafter every second Thursday until
Completion, a detailed report setting out:
(i) The cost of production incurred during the preceding
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION days;
(ii) any re-allocations of expenditure between budgeted and actual
expenditure items;
(iii) an estimate of the costs to complete the Series and an estimate
of any items of expenditure which in the opinion of BII might
exceed the amount allocated in the Budget;
(iv) The rogress of the production during the preceding CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION days respectively including a report on
personnel, programming and generally on the problems (if any)
and the progress of the Series;
(q) consult with GDP regarding the marketing of the Series and use its
best endeavors to ensure that Publisher Attachment takes place in
accordance with the Investment Agreement.
(r) maintain security at the production facility and back up all work in
progress of the Series every CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE
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<PAGE>
SECURITIES AND EXCHANGE COMMISSION and keep duplicate copies of the
work in progress in a safety deposit box.
(s) consult with GDP and obtain GDP's written agreement regarding the
purchase of any equipment required by GDP and BII in order to produce
the Series .
2.7 Times for the fulfillment of obligations of BII and its directors and
employees under this Agreement are essential terms of this Agreement .
3. OBLIGATIONS OF GOLDEN DOLPHIN PRODUCTIONS PTY. LIMITED
3.1 Subject to the terms of this Agreement for its services to be provided
hereunder BII shall be entitled to receive from GDP all costs in relation
to the production programming authoring and management of the Series set
out in the Budget in Schedule 1 hereto. All such costs for the production
programming authoring and managerial effort undertaken by BII pursuant to
this Agreement and all monies expended or disbursed on the production of
the Series in accordance with the Budget shall be paid by GDP to BII from
the Development Account within CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION days of receipt by
GDP of invoices from BII in taxable form .
3.2 GDP shall provide to BII copies of the terms and conditions of the
insurance polices taken out by GDP in relation to the Series and referred
to in Schedule E hereto .
3.3 GDP will use its best endeavors to ensure that Publisher Attachment takes
place in accordance with the Investment Agreement.
3.4 GDP agrees to consult with BII and obtain BII's written agreement regarding
the purchase of any equipment required by GDP and BII in order to produce
the Series .
3.5 Each of BII and GDP covenants and agrees with each other to co-operate and
to be just and faithful in their respective activities and dealings with
each other as herein provided and otherwise to perform their obligations
under the terms of this Agreement and with regard to the implementation of
the provisions hereof .
3.6 GDP and BII shall agree and approve in writing all expenditure incurred in
the production of the Series as follows;
(a) all items in the Budget attached as Schedule A shall clearly identify
to who the funds relating to the item shall accrue;
(b) any item of expenditure not specifically identified in the Budget in
accordance with Clause 3.6 (a) above shall have a purchase requisition
raised and such requisition shall be signed by an officer of both GDP
and BII .
3.7 All cheques or other payments drawn on the Development Account shall
contain one authorized signature from GDP and one from BII .
3.8 GDP shall give due consideration to any modifications to the Script
suggested by BII which in the opinion of BII will increase the
acceptability of the Series in the US market .
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<PAGE>
CONSIDERATION
4.1 In consideration of the foregoing BII shall be entitled to:
(a) The sums in the Budget referred to in Clauses 3.1 and 3.6 therein.
(b) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION of the proportion of the Gross
Receipts from the exploitation of the Series which is due and payable
to GDP after the deduction of the agreed costs of the AME and Monto as
set out in the Agreement between GDP the Investors until GDP and BII
each receive CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION; and
(c) Then CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION of the proportion of the Gross
Receipts from the exploitation of the Series which is due and payable
to GDP after the deduction of the agreed costs of the AME and Monto as
set out in the Agreement between GDP the Investors.
(d) If the Further Multimedia Product is licensed for re-use by persons
other than GDP, BII shall receive a royalty of CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION of the license fee charged for the re-use of the
Further Multimedia Product.
(e) If the Further Multimedia Product Is used by GDP for another project
BII shall receive a royalty of CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION of GDP's
(which shall include GDP's and any other person authorized or directed
by GDP) Gross Receipts for that project.
(f) All sums payable by GDP to BII under Clause 4 herein shall be paid by
GDP to BII within seven (7) days of receipt by GDP.
(g) All royalties and share of Gross Receipts payable by GDP or BII to
third parties under contract as agreed by BII and GDP shall be met
equally by GDP and BII from their share of Gross Receipts.
5. CREDITS
5.1 BII shall be entitled to receive a credit as follows:
(a) on all negative and positive copies of the Series the first or last
image shall be the logo of Golden Dolphin Productions with the words
"Golden Dolphin Productions in association with Brilliant Interactive
Ideas Presents".
(b) in all major advertising and publicity material relating to the Series
as follows: "GOLDEN DOLPHIN PRODUCTIONS IN ASSOCIATION WITH BRILLIANT
INTERACTiVE IDEA PRESRNTS"
5.2 The above credit provisions shall not apply to:
(a) advertising and publicity material not issued by or under the control
of GDP;
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(b) group, list or teaser advertising;
(c) institutional advertising or publicity not relating primarily to the
Series;
(d) so called "Award Ads" (including consideration, nominations or
congratulations for an award) relating to any other person involved
with the Series where no-one is mentioned other than that person ;
(e) advertising of less than CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION column
millimeters.
5.3 Nothing contained in this Agreement with respect to position or size of
credit shall apply to advertising or publicity material in narrative form.
5.6 It shall be a condition in every distribution agreement for the Series that
the licensee accord BII credit in accordance with this Agreement on all
prints and major advertising issued by it but GDP shall not be liable for
the neglect or default of any such licensee PROVIDED THAT GDP uses its best
endeavors to enforce such condition.
5.7 No casual or inadvertent failure to afford BII credit in accordance with
this Agreement shall constitute a breach by GDP of its obligations PROVIDED
THAT GDP uses best endeavors to correct any such failure promptly upon
notification by BII.
6. NAME AND LIKENESS
6.1 Each of BII and Mark Miller grant to GDP the non-exclusive right and
license to use and publish the name, logo, photograph, caricature,
biography, actual and simulated likeness, signature and voice of Mark
Miller in connection with the exploitation and advertising of the Series
including without limitation in press notices and other publicity material
for advertising of the Series and to authorise any other person to do any
and all of those acts or things PROVIDED THAT GDP shall not hold out Mark
Miller as directly or indirectly endorsing any product or service other
than the Series.
6.2 Mark Miller shall be consulted in advance on any photograph, caricature,
biography and actual or simulated likeness of Mark Miller to be used by P.
GDP.
7. PRODUCTION INSURANCE
7.1 Each of BII and Mark Miller agree that GDP may, at its own expense and for
its own benefit, apply for and take out insurance covering Mark Miller
either independently or together with others, in any amount which it may
deem necessary to protect its interests.
7.2 GDP shall own all rights in such insurance and in the cash values on behalf
of the Investors and proceeds of the insurance and neither Mark Miller nor
BII shall have any right, title or interest in any such insurance.
7.3 Each of Mark Miller and BII shall assist GDP in procuring such insurance by
submitting to the customary examinations and correctly preparing, signing
and delivering any applications and other documents as may be reasonably
required.
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7.4 BII agrees with GDP that the insurances, listed in Schedule E hereto shall
be effected as soon as practicable after the execution of this Agreement.
8. COPYRIGHT
8.1 The Investor, and GDP shall at all times be the absolute and beneficial
first owners of undivided shares as tenants in common of the Copyright in
the Series as follows:
(a) Australian Multimedia Enterprise Limited - CONFIDENTIAL INFORMATION
OMITTED AND FILED
SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION
(b) Monto - CONFIDENTIAL INFORMATION
OMITTED AND FILED
SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION
(c) GDP - CONFIDENTIAL INFORMATION
OMITTED AND FILED
SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION
8.2 Subject to the terms of Clauses 8.1 and 8.3 herein BII hereby grants to GDP
and the Investors throughout the world the entire copyright in the Series
for the full period of copyright and all other rights whatsoever (present
and future) absolutely in all products of the services performed under this
Agreement including but not by way of limitation all acts, poses,
photographs and sound effects literary, dramatic, musical and artistic
works, programming, scans, storyboards and other subject matter contributed
by Mark Miller (including the Scripts) and the Co-Producer and all of its
employees or sub-contractors and Mark Miller and the Co-Producer shall do
all such acts and execute such documents as GDP may require to vest in or
confirm to GDP and the Investors or their successors in title and licensees
the said copyright and all other rights hereby granted.
8.3 GDP hereby acknowledges that the copyright of all technical engines
utilities program code interactive activities and games developed by BII
which are included in the series are the property of BII provided such
development is not funded from the Budget of the Series. BII hereby grants
to GDP and the Investors a non-exclusive irrevocable license to include in
object code format the technical engines utilities program code interactive
activities and games developed by BII in the Series.
8.4 On completion of the production of the Series GDP shall immediately obtain
permission from the AME and Monto to transfer to BII half of the copyright
ownership held by GDP in the series and upon receipt of such approval GDP
shall execute all documents necessary to transfer the half share of its
copyright ownership in the series to BII.
9. TERMINATION
9.1 Subject to Part 9 hereof this Agreement shall continue until terminated by
unanimous resolution of GDP and BII.
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<PAGE>
9.2 Without derogating from the generality of the foregoing GDP shall have the
right to terminate this Agreement by giving one (1) weeks written notice to
that effect to the other parties hereto upon the occurrence of any of the
following events:
(a) If BII or Mark Miller wilfully refuse or unreasonably neglect to
perform their respective obligations under this Agreement except in
inconsequential respects for CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION business
days following notice from GDP to remedy such failure;
(b) If a receiver or trustee or official manager shall have been appointed
to take over and manage any of the assets of business of the BII;
(c) If BII shall be put into voluntary, involuntary liquidation or
provisional liquidation;
(d) If Mark Miller resigns as Managing Director of BII or becomes
physically or mentally incapable of performing his obligations under
this Agreement;
(e) If BII or any Director of BII is convicted of a crime or other offence
which GDP reasonably considers is inconsistent with the role of BII as
Co-Producer of the Series.
9.3 In the event that GDP exercises its rights to terminate this Agreement
under the terms of Clause 9.2 hereof then BII and Mark Miller will play no
further role in the production or marketing of the Series and GDP and the
Investor will determine a replacement production facility and BII will
immediately hand over to GDP all materials and work in progress relating to
the production of the Series and copies of all agreements and
correspondence relating to the marketing of the Series and if Monto
approves in writing the termination of this Agreement by GDP then BII will
forfeit its rights under this Agreement including those rights under Clause
4.1 herein. In the event that Monto does not approve in writing of the
termination of this Agreement then BII shall retain its rights under
Clauses 4.1(b), 4.1(c), 4.1(d), 4.1(e) and 4.1(f) however BII shall forfeit
its rights under clause 4.1(a) and another production house shall be hired
on a work for hire basis to complete the production of the Series.
9.4 In the event that GDP exercises its rights to terminate this Agreement
under the terms of Clause 9.2 hereof then GDP agrees to pay to BII all
approved costs in relation to production of the Series in accordance with
the Budget incurred prior to the date of issue of the notice of termination
of this Agreement by GDP upon provision by BII of invoices in taxable form
to GDP.
9.5 Without derogating from the generality of the foregoing BII shall have the
right to terminate this Agreement by giving one (1) weeks written notice to
that effect to the other parties hereto upon the occurrence of any of the
following events:
(a) If a receiver or trustee or official manager shall have been appointed
to take over and manage any of the assets of business of GDP;
(b) If GDP shall be put into voluntary, involuntary liquidation or
provisional liquidation;
(c) If GDP commits any breach or is in default of any covenant, agreement
or stipulation on its part to be performed or observed under this
Agreement and fails to remedy the same within five (5) business days
of a request so to do given by BII hereto;
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<PAGE>
(d) If GDP or any Director of GDP is convicted of a crime or other offence
which BII reasonably considers is inconsistent with the role of GDP as
Producer of the Series.
9.6 In the event that BII exercises its rights to terminate this Agreement
under Clause 9.5:
(i) then GDP agrees to pay to BII all costs incurred by BII prior to the
date of issue of the notice of termination in relation to the
production of the Series in accordance with Budget upon provision by
BII of invoices in taxable form to GDP;
(ii) BII shall retain all its rights under Clause 4.1 and GDP shall
immediately obtain permission from the AME and Monto to transfer to
BII half of the copyright ownership held by GDP in the series and upon
receipt of such approval GDP shall execute all documents necessary to
transfer the half share of its copyright ownership in the series to
BII;
(iii) BII shall be relieved of all of its obligations under this Agreement
including those obligations under Clause 8.3 and shall not be under
any obligation to make available any of its Proprietary Technology for
the completion of the Series unless written agreement is reached
between BII and GDP or BII and the Investors for the ongoing use of
BII's Proprietary Technology.
9.7 The termination of this Agreement in accordance with Part 9 will not remove
the right of each of parties to bring proceedings against any other of the
parties for breach of contract.
10. RELATIONSHIP OF PARTIES
10. Nothing herein contained shall be deemed to constitute a partnership
between or joint venture by the parties, nor shall either party be deemed
the legal agent of the other. The obligations of the parties under this
Agreement shall be several and neither joint and several. Neither party
shall hold itself out contrary to the terms of this Clause. Neither party
shall become liable for any representation, act or omission of the other
contrary to the provisions hereof.
11. FURTHER DOCUMENTS
11.1 Each party shall execute, acknowledge and deliver to the other any and all
further assignments, agreements and instruments that the other party may
reasonably deem necessary or expedient to effectuate the purpose of this
Agreement, at the cost of the party requiring such document.
12. NO WAIVER
12.1 Failure or omission by a party at any time to enforce or require strict or
timely compliance with any provisions of this Agreement shall not affect or
impair that provision in any way or the rights of that party to avail
itself of the remedies it may have in respect of any breach of such
provision.
13. GENERAL
13.1 This Agreement shall not be changed or modified in any way subsequent to
its execution except in writing signed by the parties.
13.2 None of the terms conditions or any act matter or thing done under or by
virtue or in connection with this Agreement or any other agreement shall
operate as a merger of any the rights and remedies the parties in or under
this Agreement but such rights and remedies shall at all times continue in
full force and effect.
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13.3 Unless application is mandatory by law, any statute proclamation order
regulation or moratorium whether present or future shall not apply to this
Agreement so as to abrogate extinguish impair diminish fetter delay or
otherwise prejudicially affect any rights powers remedies or discretions of
or accruing hereunder to the parties thereto.
14. NOTICES
14.1 All notices, statements and remittances that any party may wish to serve or
may wish to serve or may be required to serve on another hereunder shall be
in writing, and shall be served by registered mail by facsimile machine
transfer or by personal delivery to the respective parties at their
addresses set forth in this Agreement. All notices given by registered mail
shall be deemed given five (5) days following the date of such mailing. Any
party hereto may from time to time designate in writing delivered to
another party a different address or a different address for each manner of
giving notice for such service.
14.2 Notice may be served upon the parties as follows:
(a) to BII:
(i) at 17 The Corso, Manly NSW
(ii) by facsimile transmission to Sydney 9977 4123
(b) to GDP:
(i) at 29 Beach Road, Collaroy NSW; or
(ii) P.O.Box 566, Collaroy NSW; or
(iii) Facsimile transmission number Sydney 9971 2261
1.5 CONSTRUCTION
15.1 This Agreement, shall be governed by, construed and taken effect in
accordance with the laws of New South Wales and the parties irrevocably and
unconditionally submit to the non-exclusive jurisdiction of the courts of
New South Wales.
16. SUCCESSORS AND ASSIGNS
16.1 This Agreement shall enure to the benefit of and shall be binding on the
parties, and their respective successors and assigns.
16.2 This Agreement may be assigned by GDP to any third party with the written
permission of BII such permission not to be unreasonably withheld.
16.3 This Agreement may be assigned by BII to any third party with the written
permission of GDP such permission not to be unreasonably withheld. BII's
assignment rights under this Clause 16.3 includes the complete or partial
assignment of BII's rights under Clause 4.1 of this Agreement to any third
party without the written permission of GDP provided that BII notify GDP in
writing of such assignment. In the event that the appointment of BII under
this Agreement is terminated under Clause 9.2 by GDP and Monto
11
<PAGE>
provides its approval in writing of the termination of BII under Clause
9.3 then the benefit of this Agreement which would otherwise belong to
BII shall be vested as follows:
(i) under Clause 4.1(b) in equal proportions between Monto and GDP;
(ii) under Clauses 4.1(c), 4.1(d), 4.1(e) all to Monto.
All sums payable by GDP to Monto under the terms of this Clause 16.3
shall be paid to Monto by GDP within seven (7) days of receipt by GDP.
17. AGREEMENT COMPLETE
17.1 This Agreement constitutes the entire agreement of the parties. Neither
of them has made any representation, warranty, covenant or undertaking of
any nature whatsoever, express or implied, in connection with or relating
to this Agreement other than as expressly set forth herein.
12
<PAGE>
SIGNED for and on behalf of BRILLIANT INTERACTIVE IDEAS PTY LIMITED
by its duly authorised agent /s/ Mark Miller
-----------------------------------------
Mark Miller
in the presence of /s/ S. Miller
---------------------------------------
(Witness) (Sign & Print Name)
SIGNED for and on behalf of GOLDEN DOLPHIN PRODUCTIONS PTY LIMITED
by its duly authorised agent /s/ Robert J. Loader
-------------------------------------------
Robert J. Loader
in the presence of /s/ Mark A. Lumitz
---------------------------------------
(Witness) (Sign & Print Name)
13
<PAGE>
SCHEDULE A
8. Detailed Project Development Budget (Final Revised).
"CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION"
- First Series
Pdn Co: Golden Dolphin Productions Pty. Ltd. Budget Dated: 15/3/95
Brilliant Interactive Ideas Pty. Ltd.
Pdn Office: 29 Beach Road Phone: 9971 1783
COLLAROY 2097 Fax: 9971 2261
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Acct # Category Title Page Total
=============================================================================================================================
<S> <C> <C> <C>
661-00 STORY & SCRIPT 1 CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
664-30 PRODUCER(S) FEES 1 CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
664-00 DIRECTOR(S) FEES 1 CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
669-00 TOTAL ABOVE THE LINE CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
731-00 FEES & SALARIES 1 CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
743-00 ANIMATION 1 CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
760-00 HOLIDAY PAY AND P'ROLL TAX 2 CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
770-00 CHARACTER VOICES 2 CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
777-00 MUSIC 2 CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
788-00 PRODUCTION COSTS 2 CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
789-00 PROGRAMMING & AUTHORING 2 CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
790-00 POST PRODUCTION 3 CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
795-00 TRAVEL, ACCOM & TRANSPORT 3 CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
797-00 INSURANCE 3 CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
799-00 OFFICE EXPENSES 3 CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
=============================================================================================================================
800-00 TOTAL BELOW-THE-LINE CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
805-00 FINANCE & LEGAL 4 CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
808-00 TOTAL INDIRECT COSTS CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
=============================================================================================================================
TOTAL BELOW THE LINE CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL - ALL CATEGORIES CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
810-00 MARKETING CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
820-00 CONTINGENCY CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
===============================================================================================================================
TOTAL BUDGET CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
8. Detailed Project Development Budget (Final Revised)
"CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION"- First Series
Pdn Co: Golden Dolphin Productions Pty. Ltd. Budget Dated: 15/3/95
Brilliant Interactive Ideas Pty. Ltd.
Pdn Office: 29 Beach Road Phone: 9971 1783
COLLAROY 2097 Fax: 9971 2261
<TABLE>
<CAPTION>
===================================================================================================================================
Acct # Description Amount Units X Rate Subtotal Total
- -----------------------------------------------------------------------------------------------------------------------------------
661-00 STORY & SCRIPT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
661-01 Acquisition of Story Rights CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
Rights in Stories CONFIDENTIAL TITLES CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
661-03 Writer Fees
- -----------------------------------------------------------------------------------------------------------------------------------
Writers Fees CONFIDENTIAL TITLES CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARRATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
661-4 Story Editors Fees
- -----------------------------------------------------------------------------------------------------------------------------------
Story Editor CONFIDENTIAL TITLES CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARRATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FOR 661-00 CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
664-30 PRODUCER(S) FEES
- -----------------------------------------------------------------------------------------------------------------------------------
663-12 Creative Producers' Fees
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================================
Acct# Description Amount Units X Rate Subtotal Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fees CONFIDENTIAL TITLES CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL FOR 664-30 CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
664-00 DIRECTOR(S) FEES
- --------------------------------------------------------------------------------------------------------------------------------
664-50 Creative Directors
- --------------------------------------------------------------------------------------------------------------------------------
Creative Director CONFIDENTIAL TITLES CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
(Programmer) INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
TOTAL FOR 664-00 CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
669-00 TOTAL ABOVE THE LINE CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
731-0 FEES & SALARIES
- --------------------------------------------------------------------------------------------------------------------------------
731-01 Storyboard Artists
- --------------------------------------------------------------------------------------------------------------------------------
Principal SBA CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION
-----------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================================
Acct# Description Amount Units X Rate Subtotal Total
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------
Assistant(s) CONFIDENTIAL WEEKS CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION
-------------------------------------------------------------------------------------------------
Supplies ALLOW CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION
- --------------------------------------------------------------------------------------------------------------------------------
731-02 Production Accountant CONFIDENTIAL WEEKS CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
Wages (one day per week) INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- --------------------------------------------------------------------------------------------------------------------------------
731-03 Production Manger CONFIDENTIAL WEEKS CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
Wages (CONFIDENTIAL INFORMATION INFORMATION INFORMATION INFORMATION
INFORMATION OMITTED AND OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED SEPARATELY WITH THE FILED FILED FILED FILED
SECURITIES AND EXCHANGE SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
COMMISSION weeks THE SECURITIES THE SECURITIES THE SECURITIES THE SECURITIES
per title) AND EXCHANGE AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- --------------------------------------------------------------------------------------------------------------------------------
731-04 Producer's Assistant CONFIDENTIAL WEEKS CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
Wages (CONFIDENTIAL INFORMATION INFORMATION INFORMATION INFORMATION
INFORMATION OMITTED AND OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED SEPARATELY WITH THE FILED FILED FILED FILED
SECURITIES AND EXCHANGE SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
COMMISSION WEEKS) THE SECURITIES THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- --------------------------------------------------------------------------------------------------------------------------------
731-05 Educational Research
- --------------------------------------------------------------------------------------------------------------------------------
Per Title CONFIDENTIAL TITLES CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL FOR 731-00 CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================================
Acct# Description Amount Units X Rate Subtotal Total
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
743-00 ANIMATION
- --------------------------------------------------------------------------------------------------------------------------------
743-01 Animators (incl. equipment)
- --------------------------------------------------------------------------------------------------------------------------------
Graphic Designer CONFIDENTIAL WEEKS CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION
------------------------------------------------------------------------------------------------------
Senior Animator CONFIDENTIAL WEEKS CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION
------------------------------------------------------------------------------------------------------
Animators CONFIDENTIAL WEEKS 2 CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION
------------------------------------------------------------------------------------------------------
Assistant CONFIDENTIAL WEEKS CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION
------------------------------------------------------------------------------------------------------
Equipment Hire CONFIDENTIAL WEEKS CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION
------------------------------------------------------------------------------------------------------
Supplies ALLOW CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION
- --------------------------------------------------------------------------------------------------------------------------------
760-00 HOLIDAY PAY & P'R
- --------------------------------------------------------------------------------------------------------------------------------
760-02 Hol. Pay - Crew (CONFIDENTIAL
INFORMATION OMITTED AND
FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSIONth est. sals)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Acct Description Amount Units X Rate Subtotal Total
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Holiday Pay CONFIDENTIAL TITLES CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
760-20 Superann. - Crew (CONFIDENTIAL
INFORMATION OMITTED AND
FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION est. sals)
- -----------------------------------------------------------------------------------------------------------------------------------
Superannuation CONFIDENTIAL TITLES CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FOR 760-00 CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
770-00 CHARACTER VOICES
- -----------------------------------------------------------------------------------------------------------------------------------
770-05 Voice Over Talent
- -----------------------------------------------------------------------------------------------------------------------------------
Talent Fees CONFIDENTIAL TITLES CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WIT
THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION
------------------------------------------------------------------------------------------------------------------------
Casting Director ALLOW CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
770-06 Studio Hire & Expenses
Studio Hire & Expenses CONFIDENTIAL TITLES CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Acct# Description Amount Units X Rate Subtotal Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL FOR 770-00 CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
777-00 MUSIC
- -----------------------------------------------------------------------------------------------------------------------------------
777-01 Music allowance ALLOW CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
- -----------------------------------------------------------------------------------------------------------------------------------
ALLOW for CONFIDENTIAL INFORMATION INFORMATION INFORMATION
INFORMATION OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED SEPARATELY WITH THE FILED FILED FILED
SECURITIES AND EXCHANGE SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
COMMISSION titles THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FOR 777-00 CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY WITH
THE SECURITIES
AND EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
788-00 PRODUCTION COSTS CONFIDENTIAL WEEKS CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
- -----------------------------------------------------------------------------------------------------------------------------------
788-02 Technology Manager INFORMATION INFORMATION INFORMATION INFORMATION
- -----------------------------------------------------------------------------------------------------------------------------------
Technology Manager OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
788-03 Interface Designer
- -----------------------------------------------------------------------------------------------------------------------------------
Interface Designer Salary CONFIDENTIAL TITLES CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
Audio Production
- -----------------------------------------------------------------------------------------------------------------------------------
Equipment Hire CONFIDENTIAL TITLES CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
-----------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
Acct# Description Amount Units X Rate Subtotal Total
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Supplies ALLOW CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION
OMITTED AND OMITTED AND
FILED FILED
SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION
------------------------------------------------------------------------------------------------------------------------
Audio Engineer CONFIDENTIAL WEEKS CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
788-05 Graphics Acquisition
- -----------------------------------------------------------------------------------------------------------------------------------
Acquisition incl. Royalties CONFIDENTIAL TITLES CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
788-06 Digitissation
- -----------------------------------------------------------------------------------------------------------------------------------
Digitissation Cost CONFIDENTIAL TITLES CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
788-00 PRODUCTION COSTS
(CONT'D)
- -----------------------------------------------------------------------------------------------------------------------------------
788-07 Special Effects
- -----------------------------------------------------------------------------------------------------------------------------------
SFX Equipment ALLOW CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
THE SECURITIES THE SECURITIES THE SECURITIES
AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
788-08 Art Department Equipment
- -----------------------------------------------------------------------------------------------------------------------------------
Equipment Purchase ALLOW CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY WITH SEPARATELY WITH SEPARATELY WITH
AND EXCHANGE AND EXCHANGE AND EXCHANGE
COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
788-09 Materials Purchases
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Acct # Description Amount Units X Rate Subtotal Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Materials purchases per title CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
788-10 Equipment Hire
- -----------------------------------------------------------------------------------------------------------------------------------
Art Department Equipment Hire CONFIDENTIAL Weeks CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
Total For 788-00 CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
789-00 PROGRAMMING &
AUTHORING
- -----------------------------------------------------------------------------------------------------------------------------------
789-02 Programmers
- -----------------------------------------------------------------------------------------------------------------------------------
Head Programmer CONFIDENTIAL Weeks CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION
--------------------------------------------------------------------------------------------------------
Programmer CONFIDENTIAL Weeks CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
789-03 Programming Cost
- -----------------------------------------------------------------------------------------------------------------------------------
Programming Allowance CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
789-04 Testing Cost
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Acct # Description Amount Units X Rate Subtotal Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Testing Hours CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION
--------------------------------------------------------------------------------------------------------
Test Burning Allow CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION
OMITTED AND OMITTED AND
FILED FILED
SEPARATELY SEPARATELY
WITH THE WITH THE
SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE
COMMISSION COMMISSION
--------------------------------------------------------------------------------------------------------
Test Stock Allow CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
789-05 Equipment
- -----------------------------------------------------------------------------------------------------------------------------------
Hire & Purchase CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
Total For 789-00 CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
790-00 POST PRODUCTION
- -----------------------------------------------------------------------------------------------------------------------------------
790-02 MPEG Encoding CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
Encoding Hours CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
790-03 Compiling
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Acct # Description Amount Units X Rate Subtotal Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Compiling Hours Allow CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
790-04 Master Production
- -----------------------------------------------------------------------------------------------------------------------------------
Glass Master Production CONFIDENTIAL Masters CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION
--------------------------------------------------------------------------------------------------------
Master Stock Allow CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
790-05 Program Testing
- -----------------------------------------------------------------------------------------------------------------------------------
Programmer Hours CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION
- ------------------------------------------------------------------------------------------------------------------
Test Stock Allow CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
790-06 Psychologist Allowance
- -----------------------------------------------------------------------------------------------------------------------------------
Psychologist Salary P/T CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
Total For 790-00 CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Acct # Description Amount Units X Rate Subtotal Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
795-00 TRAVEL, ACCOM & TRANSPORT
- -----------------------------------------------------------------------------------------------------------------------------------
795-00 Overseas travel
- -----------------------------------------------------------------------------------------------------------------------------------
Distributor approvals trip CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
Overseas Accommodations
- -----------------------------------------------------------------------------------------------------------------------------------
CONFIDENTIAL INFORMATION CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
OMITTED AND FILED SEPARATELY INFORMATION INFORMATION INFORMATION INFORMATION
WITH THE SECURITIES AND OMITTED AND OMITTED AND OMITTED AND OMITTED AND
EXCHANGE COMMISSION days @ FILED FILED FILED FILED
CONFIDENTIAL INFORMATION SEPARATELY SEPARATELY SEPARATELY SEPARATELY
OMITTED AND FILED SEPARATELY WITH THE WITH THE WITH THE WITH THE
WITH THE SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE COMMISSION EXCHANGE EXCHANGE EXCHANGE EXCHANGE
(amortised) COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
Couriers
- -----------------------------------------------------------------------------------------------------------------------------------
Allow per title CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
795-04 Taxis
- -----------------------------------------------------------------------------------------------------------------------------------
Allow per title CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
795-05 Overseas Travel V/O Record
- -----------------------------------------------------------------------------------------------------------------------------------
Voice Recording Travel CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
795-55 Petrol/Oil/Parking/Diesel
- -----------------------------------------------------------------------------------------------------------------------------------
Allow per title CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Acct # Description Amount Units X Rate Subtotal Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total For 795-00 CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
797-00 INSURANCE
- -----------------------------------------------------------------------------------------------------------------------------------
797-05 Workers Compensation
(St./Terr.)
- -----------------------------------------------------------------------------------------------------------------------------------
Allow for category CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
797-06 "All risk" Prod. Indemnity Pack
- -----------------------------------------------------------------------------------------------------------------------------------
Allow for category CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
Total For 797-00 CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
799-00 OFFICE EXPENSES
- -----------------------------------------------------------------------------------------------------------------------------------
799-01 Office Rent
- -----------------------------------------------------------------------------------------------------------------------------------
CONFIDENTIAL INFORMATION CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
OMITTED AND FILED SEPARATELY INFORMATION INFORMATION INFORMATION INFORMATION
WITH THE SECURITIES AND OMITTED AND OMITTED AND OMITTED AND OMITTED AND
EXCHANGE COMMISSION Weeks @ FILED FILED FILED FILED
CONFIDENTIAL INFORMATION SEPARATELY SEPARATELY SEPARATELY SEPARATELY
OMITTED AND FILED SEPARATELY WITH THE WITH THE WITH THE WITH THE
WITH THE SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE COMMISSION EXCHANGE EXCHANGE EXCHANGE EXCHANGE
(amortised) COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
799-06 Equipment Hire CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Acct # Description Amount Units X Rate Subtotal Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Computers, phones, copiers CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION
- -------------------------------------------------------------------------------------------------------------------
(amortised @ CONFIDENTIAL CONFIDENTIAL
INFORMATION OMITTED AND INFORMATION
FILED SEPARATELY WITH THE OMITTED AND
SECURITIES AND EXCHANGE FILED
COMMISSION p.w.) SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
799-10 Printing & Stationery
- -----------------------------------------------------------------------------------------------------------------------------------
Allow CONFIDENTIAL CONFIDENTIAL Weeks CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION OMITTED AND INFORMATION INFORMATION INFORMATION INFORMATION
FILED SEPARATELY WITH THE OMITTED AND OMITTED AND OMITTED AND OMITTED AND
SECURITIES AND EXCHANGE FILED FILED FILED FILED
COMMISSION p.w. for SEPARATELY SEPARATELY SEPARATELY SEPARATELY
CONFIDENTIAL INFORMATION WITH THE WITH THE WITH THE WITH THE
OMITTED AND FILED SEPARATELY SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
WITH THE SECURITIES AND EXCHANGE EXCHANGE EXCHANGE EXCHANGE
EXCHANGE COMMISSION weeks COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
799-15 Postage
- -----------------------------------------------------------------------------------------------------------------------------------
Allow per title CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
799-20 Telephone & Fax
- -----------------------------------------------------------------------------------------------------------------------------------
Amortised @ CONFIDENTIAL CONFIDENTIAL Weeks CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION OMITTED AND INFORMATION INFORMATION INFORMATION INFORMATION
FILED SEPARATELY WITH THE OMITTED AND OMITTED AND OMITTED AND OMITTED AND
SECURITIES AND EXCHANGE FILED FILED FILED FILED
COMMISSION p.w. SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
799-25 Electricity
- -----------------------------------------------------------------------------------------------------------------------------------
Allow per title CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
Total For 799-04 CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Acct # Description Amount Units X Rate Subtotal Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
800-00 TOTAL BELOW-THE-LINE CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
805-00 FINANCE & LEGAL
- -----------------------------------------------------------------------------------------------------------------------------------
805-10 Audit
- -----------------------------------------------------------------------------------------------------------------------------------
Allow per title CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
805-20 Bank Fees
- -----------------------------------------------------------------------------------------------------------------------------------
Allow per title CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
805-30 Stamp Duty
- -----------------------------------------------------------------------------------------------------------------------------------
Allow per title CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
805-60 Legal Fees & Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Allow per title CONFIDENTIAL Titles CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION INFORMATION
OMITTED AND OMITTED AND OMITTED AND OMITTED AND
FILED FILED FILED FILED
SEPARATELY SEPARATELY SEPARATELY SEPARATELY
WITH THE WITH THE WITH THE WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
Total for 805-00 CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Acct # Description Amount Units X Rate Subtotal Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
808-00 TOTAL INDIRECT COSTS CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL BELOW THE LINE CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL - ALL CATEGORIES CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
810-00 MARKETING CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
820-00 CONTINGENCY CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL BUDGET CONFIDENTIAL
INFORMATION
OMITTED AND
FILED
SEPARATELY
WITH THE
SECURITIES AND
EXCHANGE
COMMISSION
===================================================================================================================================
</TABLE>
15
<PAGE>
SCHEDULE B
A series of five (5) interactive storybooks entitled "CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION" with
natural science themes. The proposed titles of each of the storybooks are
"CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION," "CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION", "CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION," "CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION" and "CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION."
Each title follows the typical formula of an interactive storybook - have the
story read to you; read along with the story; and read individual words.
On each screen there is at least CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION animated hotspots for the
user to click and play. Each screen also includes a spelling bee activity, spot
the difference game, a jigsaw, and a print and colour in facility.
In addition, some of the titles will include related craft activities.
SCHEDULE C
The Investors in the Series are:
The Australian Multimedia Enterprise Limited, A.C.N. 068 28 811 of Level
9, 100 William Street Sydney New South Wales and
Monto Holdings Pty Ltd A.C.N. 002 440 502 a company incorporated in New
South Wales and having its registered office therein at c/- Level 53 MLC
Centre Martin Place Sydney
<PAGE>
SCHEDULE D
ITEM 2 - Milestones (Clause 1.2):
The following Milestones in the Development of the Multimedia Product
under this Agreement are to be fulfilled by the Producer on or before the
dates listed below:
<TABLE>
<CAPTION>
NO MILESTONE DATE
<S> <C> <C>
1 Execution of long form agreement for the Project by the Applicant CONFIDENTIAL INFORMATION
OMITTED AND FILED
SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION
2 Delivery to AME of scripts for titles 1-2 and detailed treatments CONFIDENTIAL INFORMATION
for titles 3-4. OMITTED AND FILED
SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION
3 Delivery to AME of scripts for titles 3-4, page illustrations for CONFIDENTIAL INFORMATION
titles 1-2 and detailed treatment for title 5, completion of user OMITTED AND FILED
testing of scripts for titles 1-2 by Brilliant Interactive Ideas SEPARATELY WITH THE
Pty Ltd psychologist and delivery to AME of user testing report of SECURITIES AND EXCHANGE
scripts for titles 1-2. COMMISSION
4 Delivery to the Investor of copies of executed, legally binding CONFIDENTIAL INFORMATION
agreements for distribution of titles 1-5 for the United States, OMITTED AND FILED
Australia and United Kingdom (in a form previously approved by the SEPARATELY WITH THE
Nominated Officer). SECURITIES AND EXCHANGE
COMMISSION
5 Delivery to AME of script for title 5 and page illustrations for CONFIDENTIAL INFORMATION
titles 3-4, completion of user testing of scripts for titles 3-4 by OMITTED AND FILED
Brilliant Interactive Ideas Pty Ltd psychologist and delivery to SEPARATELY WITH THE
AME of user testing report of scripts for titles 3-4 and completion SECURITIES AND EXCHANGE
of CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
SECURITIES AND EXCHANGE COMMISSION of animation cells for titles
1-2.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NO MILESTONE DATE
<S> <C> <C>
6 Delivery to AME of final backgrounds for titles 1-2 and completion CONFIDENTIAL INFORMATION
of CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE OMITTED AND FILED
SECURITIES AND EXCHANGE COMMISSION of animation cells for titles SEPARATELY WITH THE
1-2 and completion of colouring of CONFIDENTIAL INFORMATION OMITTED SECURITIES AND EXCHANGE
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION of COMMISSION
animation cells for titles 1-2 and completion of user testing of
scripts for title 5 by Brilliant Interactive Ideas Pty Ltd
psychologist and delivery to AME of user testing report of scripts
for title 5.
7 Delivery to AME of Alpha Version of titles 1-2 and completion of CONFIDENTIAL INFORMATION
parameters and criteria of technical testing for titles 1-5, OMITTED AND FILED
completion of user testing of titles 1-2 by Brilliant Interactive SEPARATELY WITH THE
Ideas Pty Ltd psychologist, and delivery to AME of user testing SECURITIES AND EXCHANGE
report for titles 1-2. COMMISSION
8 Delivery to AME of Gold Masters for titles 1-2 (with the results CONFIDENTIAL INFORMATION
of user technical testing incorporated in the Gold Masters) OMITTED AND FILED
together with a copy of the technical testing report for titles SEPARATELY WITH THE
1-2 and delivery to AME of page illustrations of title 5 and SECURITIES AND EXCHANGE
completion of CONFIDENTIAL INFORMATION OMITTED AND FILED COMMISSION
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION of animation
for titles 3-4.
9 Delivery to AME of alpha version of titles 3-4, completion of user CONFIDENTIAL INFORMATION
testing of titles 3-4 by Brilliant Interactive Ideas Pty Ltd OMITTED AND FILED
psychologist, and delivery to AME of user testing report for titles SEPARATELY WITH THE
1-2 and completion of CONFIDENTIAL INFORMATION OMITTED AND FILED SECURITIES AND EXCHANGE
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION of animation COMMISSION
for title 5.
10 Delivery to AME of Gold Masters for titles 3-5 (with the results of CONFIDENTIAL INFORMATION
user technical testing incorporated in the Gold Masters) together OMITTED AND FILED
with a copy of the technical testing report for titles 3-5. SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION
</TABLE>
The parties acknowledge and agree that:
(a) failure to fulfil Milestone 4 by CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION does not
constitute a Performance Event entitling the Investor to terminate
the Agreement pursuant to Clause 18.2(c) but failure to fulfil
Milestone 4 entitles the Investor to cease payment of Investment Sums
to the Producer from CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION; and
<PAGE>
(b) failure to fulfil Milestone 4 by CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION will
constitute a Performance Event entitling the Investor to terminate
the Agreement pursuant to Clause 18.2(c).
<PAGE>
SCHEDULE E
1. Keyman cover of one million dollars ($1,000,000), or death or permanent
disability of Robert J. Loader and Mark Miller.
2. Loss of computer data (warranted daily backup).
3. Equipment covering computers, drives etc. against cost of data
replacement.
4. Extra expense covering the additional costs incurred in the event of loss
or damage to the facilities.
5. Public liability covering Insured's legal liability for third party
personal injury/property damage happening in connection with the
production.
Refer to wording of Policy documents for full details of cover including
additions and exclusions.
<PAGE>
EXHIBIT 10.9
MEMORANDUM OF AGREEMENT
Re: "CHOOSE YOUR OWN ADVENTURE" AND "CHOOSE YOUR OWN NIGHTMARE"
-----------------------------------------------------------
The following sets forth the principal terms of the agreement ("Agreement")
dated as of September 5, 1996 between Brilliant Digital Entertainment, Inc.
("BDE"), on the one hand, and Bantam Doubleday Dell Books For Young Readers
("Bantam"), Edward Packard ("Packard") and Ray Montgomery ("Montgomery"), on the
other hand, with respect to BDE's option and possible acquisition of certain
rights in and to the "Property" (as hereafter defined). Bantam, Writers,
Packard and Montgomery are sometimes referred to collectively as "Owner". The
principal terms are as follows:
1. DEFINITIONS:
-----------
(a) "Access Fees" means, with respect to any Licensed Article, any fees,
charges, access costs, commissions or royalties payable by BDE to any provider
of end-user access, via any On-Line Technology, hot-link, search engine or
navigator, or other similar intermediary service to that Licensed Article and
reasonably and objectively allocatable to that Licensed Article.
(b) "Digitize" means converting a Work (or any element or derivative work
thereof) into digital format such that it can be read, utilized, or displayed by
a device, machine or any other technology currently in existence or hereafter
developed capable of utilizing digital information.
(c) "Force Majeure" means natural calamity, act of God or a public enemy,
act of any military, civil or, to the extent not resulting from the intentional
or negligent acts or omissions of that party, and (i) act of regulatory
authority or (ii) change in any law or regulation.
(d) "Licensed Article" means an animated digital entertainment product
which may include multiple plot and/or script paths and which operate on the PC
and/or Macintosh platforms, any other computer platforms or platforms containing
microprocessors, and other game player machine platforms selected by BDE.
(e) "Net Proceeds" with respect to any Licensed Article shall be defined
as money actually received by BDE from the sale or license of that Licensed
Article adjusted for customer returns, allowances, credits, rebates, refunds,
excise, sales, use or other domestic or foreign tax (except for income taxes),
and transportation, shipping and handling charges applicable thereto, and less
bad debts.
1
<PAGE>
(f) "OEM" means a manufacturer or private label distributor of computer
hardware, computer peripheral equipment or electronic equipment.
(g) "OEM Net Proceeds" shall be defined as Net Proceeds received by BDE
with respect to distribution of Licensed Articles through bundling relationships
with OEMs.
(h) "On-Line Net Proceeds" shall be defined as Net Proceeds received by
BDE with respect to Licensed Articles through On-Line Technology less, Access
----
Fees.
(i) "On-Line Technology" means any method now known or hereafter devised
except distribution by physical media by which end users may access Licensed
Articles (e.g., copper wire, fiber wire, fiber, hybrid fiber-coaxial, satellite,
----
microwave, cellular, etc.)
(j) "Physical Media" means CD-ROMS, floppy disks, computer memory, hard
drives, digital video disks, and any magnetic or optical or electronic or other
storage media now existing or hereafter developed capable of storing digital
information.
(k) "Property" shall mean all existing or hereafter created Works. A full
and complete list of the current Works is attached hereto as Exhibit A. Owner
agrees to provide BDE with updates of Exhibit A at regular periodic intervals
during the Term.
(l) "Work" is a publication in the "Choose Your Own Adventure" and "Choose
Your Own Nightmare" series (along with any substantially identical literary work
or series (that is either of the foregoing series or works comprising such
series repackaged under different titles) published by Owner under another
title), or on which the publication is based or derived, including without
limitation, the plots, scenes, titles, characters, translations and any and all
other parts, elements, or versions of any and all of the foregoing.
2. OPTION: In consideration of the nonrefundable sum of CONFIDENTIAL
------
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION ("Option Payment"), Owner hereby grants BDE the sole, exclusive and
irrevocable option (the "Option") to acquire Licensed Rights (as set forth in
Paragraph 8 hereof) in and to the Property (as more particularly set forth
herein). In consideration of the Option Payment, BDE shall immediately have the
Licensed Rights to commence development of Licensed Articles based upon
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION Works (each selected by BDE in its sole discretion);
provided that such Licensed Rights shall expire if the Option is not exercised
in accordance with Paragraph 3 below. The Option shall commence as of the date
hereof and shall continue until the date which is 120 days after BDE's receipt
of this Agreement fully-executed by Owner ("Option Period").
2
<PAGE>
3. EXERCISE OF OPTION: The Option shall be exercised, if at all, by written
------------------
notice to Bantam prior to the expiration of the Option Period. If BDE elects to
exercise the Option, (a) BDE will pay Owner the sum of CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
("Exercise Payment"), and (b) BDE will acquire the Licensed Rights to an
additional CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION Works (each selected by BDE in its sole
discretion) for the sum of CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION ("First Batch Payment"). The
Exercise Payment and the First Batch Payment shall be payable within
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION after BDE's exercise of the Option and such sums shall be
credited against the Participation payable to Owner pursuant to Paragraph 7(a)
hereof.
4. TERM: The "Term" of this Agreement shall commence as of the date hereof and
----
shall continue until the date which is CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION after the date that
the Option is exercised, if at all (subject to extension for the duration of any
event of Force Majeure and/or for the duration of any material default of the
Agreement by Owner).
5. ACQUISITION OF ADDITIONAL WORKS: At any time during the Term, BDE may, at
-------------------------------
its election, acquire the Licensed Rights to additional Works comprising the
Property (each selected by BDE in its sole discretion) in batches of
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION Works for the sum of CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION per batch of
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION Works (a "Batch Advance"). All sums payable to Owner as a
Batch Advance shall be credited against the Participation payable to Owner
pursuant to Paragraph 7(a) hereof; provided, however, at such time as BDE has
acquired the Licensed Rights to CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION Works, BDE shall no
longer be required to pay Owner a Batch Advance in connection with BDE's
acquisition of Licensed Rights to additional Works comprising the Property.
6. MINIMUM NUMBER OF WORKS: If the Option is exercised, BDE agrees to acquire,
-----------------------
pursuant to the terms hereof, the Licensed Rights to no less than CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION Works including the first CONFIDENTIAL INFORMATION
3
<PAGE>
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION as
indicated in Paragraph 2.
7. PARTICIPATION:
-------------
(a) CONTINGENT COMPENSATION: In connection with BDE's exploitation of
-----------------------
Licensed Articles, Owner shall be entitled to receive the following contingent
compensation (the "Participation"):
(i) OEM REVENUE: With respect to BDE's exploitation of Licensed
-----------
Articles bundled with products of OEMs, BDE shall pay Owner CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION of BDE's OEM Net Proceeds.
(ii) RETAIL REVENUE: With respect to BDE's exploitation of Licensed
--------------
Articles hereunder (other than those bundled by OEMs or distributed through
On-Line Technology), BDE shall pay Owner the following "Net Proceeds"
participation, calculated on a separate product by product basis with
respect to each Work acquired by BDE hereunder:
<TABLE>
<CAPTION>
Owner's Applicable Net
General Net Proceeds Per Work Proceeds Participation
- ----------------------------- ------------------------------------------
<S> <C>
(for first CONFIDENTIAL CONFIDENTIAL INFORMATION OMITTED AND FILED
INFORMATION OMITTED AND SEPARATELY WITH THE SECURITIES AND EXCHANGE
FILED SEPARATELY WITH THE COMMISSION
SECURITIES AND EXCHANGE
COMMISSION Titles)
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
CONFIDENTIAL INFORMATION CONFIDENTIAL INFORMATION OMITTED AND FILED
OMITTED AND FILED SEPARATELY SEPARATELY WITH THE SECURITIES AND EXCHANGE
WITH THE SECURITIES AND COMMISSION
EXCHANGE COMMISSION (GREATER
THAN OR EQUAL TO) CONFIDENTIAL
INFORMATION OMITTED AND
FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION
CONFIDENTIAL INFORMATION CONFIDENTIAL INFORMATION OMITTED AND FILED
OMITTED AND FILED SEPARATELY SEPARATELY WITH THE SECURITIES AND EXCHANGE
WITH THE SECURITIES AND COMMISSION
EXCHANGE COMMISSION (GREATER
THAN OR EQUAL TO) CONFIDENTIAL
INFORMATION OMITTED AND
FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION
more than CONFIDENTIAL CONFIDENTIAL INFORMATION OMITTED AND FILED
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
SEPARATELY WITH THE SECURITIES COMMISSION
AND EXCHANGE COMMISSION
</TABLE>
4
<PAGE>
Owner's Applicable Net
General Net Proceeds Per Work Proceeds Participation
- ----------------------------- ------------------------------------------
(for Titles CONFIDENTIAL
INFORMATION OMITTED AND
FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION+)
CONFIDENTIAL INFORMATION CONFIDENTIAL INFORMATION OMITTED AND FILED
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
SEPARATELY WITH THE COMMISSION
SECURITIES AND EXCHANGE
COMMISSION
more than CONFIDENTIAL CONFIDENTIAL INFORMATION OMITTED AND FILED
INFORMATION OMITTED AND SEPARATELY WITH THE SECURITIES AND EXCHANGE
FILED SEPARATELY WITH THE COMMISSION
SECURITIES AND EXCHANGE
COMMISSION
(iii) ON-LINE REVENUE: With respect to BDE's exploitation of Licensed
---------------
Article in an On-Line format, BDE shall pay owner CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION of BDE's On-Line Net Proceeds received by BDE with
respect to the distribution through On-Line technology.
(b) RECOUPMENT OF ADVANCES: As provided herein, the Exercise Payment,
----------------------
First Batch Payment, and any and all Batch Advances (collectively, the
"Advances") shall each be deemed an advance against the Participation set forth
in Paragraph 7(a) hereof and no
5
<PAGE>
Participation shall be payable until such time that the Advances have been fully
recouped from Owner's contingent compensation.
(c) ACCOUNTING: BDE shall account to Owner on a quarterly basis.
----------
(d) OWNER'S DESIGNEE: Each party comprising Owner hereby agrees and
----------------
acknowledges that all sums payable by BDE to Owner hereunder shall be paid to
Bantam as each such party's designee for allocation amongst such parties as they
shall so determine. Each party comprising Owner further acknowledges that it
shall look solely to Bantam for payment in connection with the rights licensed
hereunder and that BDE shall have discharged its obligations to such party
hereunder by making payments hereunder to Bantam.
8. LICENSED RIGHTS: The "Licensed Rights" shall mean the exclusive right,
---------------
during the Term, and throughout the world to directly or by the services of
others Digitize, use, reproduce, modify, adapt, enhance, translate into any
language, and create derivative works based upon all or any portion of a Work
(i) for inclusion in any Licensed Article (in combination with other works such
as audio, video, animation and graphics); (ii) distribute, market, rent, sell,
and lease the Licensed Articles on a worldwide basis, in any one or more
languages, through the transfer or distribution of Physical Media containing the
Licensed Articles and distribute the Licensed Articles via On-Line Technology;
(iii) advertise, publicize, and exploit the Licensed Articles, and (iv) to use
the names, approved biographies, and approved likenesses (not to be unreasonably
withheld) of the author(s) and/or illustrators of the Work in connection (not to
be unreasonably withheld) with the advertising, publicizing and exploitation of
Licensed Articles.
9. DISTRIBUTION AND EXPLOITATION: BDE shall have complete, exclusive and
-----------------------------
unqualified discretion and control as to the time, manner and terms of
distribution, exhibition and exploitation of the Licensed Articles. BDE makes
no express or implied warranty or representation as to the manner or extent of
any distribution or exploitation of the Licensed Articles nor the amount of
money to be derived from the distribution, exhibition and exploitation of the
Licensed Articles nor as to the maximum or minimum amount of monies to be
expended in connection therewith.
10. REMEDIES: Except in the case of trademark or copyright infringement by BDE,
--------
its licenses, assignees and distributors, Owner's sole remedy under this
Agreement will be an action for damages; in no event may Owner receive an
injunction, recision, termination and/or any other form of equitable relief.
11. OWNER'S WARRANTIES: Owner warrants, represents and agrees that it has and
------------------
shall continue to have, exclusively, all rights necessary to enter into this
Agreement, and that all rights licensed, granted or assigned or to be assigned
by Owner hereunder shall be free and clear of any and all restrictions, claims,
liens, encumbrances, impairments or defects of any nature which would impair or
interfere with the exercise by BDE of the Licensed Rights.
6
<PAGE>
12. INDEMNITY:
---------
(a) OWNER'S INDEMNITY: Owner agrees to defend, indemnify and hold BDE, its
-----------------
parent, subsidiaries, affiliates, subdistributors and their respective officers,
agents, directors, employees and licensees harmless from any and all claims,
actions or proceedings of any kind and from any and all damages, liabilities,
costs and expenses (including reasonable attorneys' fees, whether or not
litigation is commenced) ("Claims") relating to or arising out of breach of any
of the warranties, representations or agreements made by Owner hereunder.
(b) BY BDE: BDE agrees to defend, indemnify and hold Owner, and its
------
parent, subsidiary and affiliated entities and their respective officers,
agents, directors and employees harmless from any and all Claims relating to or
arising out of a breach of any of the warranties, representations or agreements
made by BDE hereunder; or (ii) by reason of the exercise by BDE of the Licensed
Rights except with respect to matters which Owner has agreed to indemnify BDE.
(c) INDEMNIFICATION CLAIMS: If a claim is asserted for which one party has
----------------------
an obligation to indemnify the other, the indemnifying party shall have the
right to select counsel, control the litigation, and settle the dispute.
13. SELL-OFF PERIOD: Upon the expiration of the Term, BDE may dispose of any
---------------
Licensed Articles which are on hand or in the process of development or
manufacture at the time of expiration for a period of 1 1/2 years after such
expiration.
14. COPYRIGHT OWNERSHIP: Subject to the terms of this Agreement, the copyright
-------------------
of each Licensed Article will be held in the name of BDE.
15. FURTHER INSTRUMENTS: Owner agrees to execute, at BDE's request, any and all
-------------------
additional documents and instruments consistent herewith, and to do any and all
things necessary or reasonably desirable, to effectuate the purposes of this
Agreement.
16. MISCELLANEOUS: BDE agrees that during the Option Period, it will (i)
-------------
provide Bantam and Writer's House, on a confidential, need-to-know basis, with
business records evidencing BDE's ability to comply with its financial
obligations to Owner hereunder; and (ii) at a mutually agreeable time,
demonstrate BDE's software tools for Bantam and Writer's House.
17. OTHER TERMS AND CONDITIONS: The parties intend to enter into a more formal
--------------------------
agreement containing other terms and conditions as are standard for BDE deals of
this
7
<PAGE>
type, subject to changes that may be agreed in writing following good faith
negotiations within BDE's customary parameters; provided, however, that this
Agreement shall serve as a binding and enforceable agreement, unless and until a
long-form agreement is fully signed.
("BDE") ("Owner")
BRILLIANT DIGITAL BANTAM DOUBLEDAY DELL BOOKS
ENTERTAINMENT, INC. FOR YOUNG READERS
By: /s/ Diana Maranon By: /s/
-------------------------- ------------------------------
Its: Secretary Its:
-------------------------- ------------------------------
/s/ Edward Packard
-----------------------------------
EDWARD PACKARD
/s/ Ray Montgomery
-----------------------------------
RAY MONTGOMERY
8
<PAGE>
EXHIBIT 10.10
18 March, 1994
The Directors
Pick Two Ltd
Oakwalk
St Peter
Jersey ME3 7EF
CHANNEL ISLANDS
Dear Sir,
PRODUCTION OF 2 X CD ROM TITLES
(1 X ADULT VERSION 1 X TEENAGE VERSION)
FOR INTERNATIONAL DISTRIBUTION BASED ON CHANNEL 9 SERIES "SEX"
- --------------------------------------------------------------
This letter sets out the terms and conditions upon which Brilliant Interactive
Ideas Pty Ltd ("the Production Company") agrees to acquire all the necessary
rights and produce two sex education multimedia titles on CD ROM (1 x Adult
version and 1 x Teenage version) based on the Channel 9 television series
entitled "Sex" ("the Project") for worldwide distribution and exploitation for
the benefit of the copyright owners set out herein and the terms on which
PickTwo Ltd ("you") agrees to invest in the Project.
1. The Production Company agrees to:
a. produce 2 CD ROM titles (1 x Adult version and 1 x Teenage version)
based on the Channel 9 television series entitled "Sex" for
international distribution at a total cost of CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION in accordance with the Budget annexed hereto and marked
"A";
b. acquire a license from Channel 9 to produce the Project;
c. obtain all necessary rights in the script and the music and any other
material used in the Project in order that the Project can be
distributed internationally;
d. complete the Project subject to force majeure events by September
1994;
e. provide monthly reports to you during the production of the Project;
2. You agree to pay the sum of CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION to the Production
Company in accordance with the drawdown schedule annexed hereto and marked
"B", as an investment in the Project.
3. In consideration of you investing in the Project the Production Company
agrees to
<PAGE>
a. assign to you part of the copyright in the underlying rights to the
Project and part of the property in the Production Company in any
production assets and marketing materials as at the time of
acquisition;
b. assign to you part of the copyright in the Project to be held by you,
the Production Company and the other investors in the Project jointly
and severally in the following manner:
Production Company CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION %
You CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION %
other investors CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION %; and
c. repay your investment and pay to you profit in accordance with clause
10 herein.
4. The Production Company agrees to keep complete and proper books of account
and records of income and expenditure and to engage an independent auditor
to audit the books and records and complete and deliver an audit of the
Project to you within a reasonable time after the end of the financial year
in which the Project is completed.
5. In further consideration of you investing in the Project the Production
Company hereby grants to you an option to invest on similar terms as those
contained in this Agreement in other interactive multimedia projects
commenced by the Production Company in the next CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
years.
6. You hereby irrevocably license the Producer to use any assets and the
copyright to produce and complete the Film and acknowledge that the
Production Company controls the artistic control of the Project.
7. Subject to the terms of the Agreement you grant to the Production Company
an exclusive license of the copyright and the underlying rights to market
the Project throughout the world.
8. The Production Company agrees to market the Project to the maximum
commercial advantage in accordance with good business judgment and sound
commercial practice.
2
<PAGE>
9. You appoint the Production Company to receive all receipts from the
exploitation of the Project and disburse such receipts in accordance with
this Agreement.
10. The Production Company agrees to disburse all receipts from the
exploitation of the Project within 90 days of receipt in the following
manner:
a. to meet all reasonable administration expenses incurred by the
Production Company in marketing the Project and in payment of the
license fees due to Channel 9;
b. to you and the other investors at the same time in the following
proportions:
You CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION %
Other investors CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION %
until each has received a sum equal to its investment;
c. in payment to the Production Company to meet any Budget overages; and
then
d. to you, the other investors and the Production Company at the same
time in the following proportions:
You CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION %
Producer CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION %
Other investors CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION %
11. The Production Company shall make available for inspection by you and
permit copies to be made at your expense of all books, records and accounts
which relate to the exploitation of the Project and of the revenue
therefrom which is necessary for you to verify your entitlement under the
terms of this Agreement provided always that you shall first give the
Production Company not less than one (1) month's prior written notice and
3
<PAGE>
provided always that you shall keep all such information confidential and
only disclose the same to your lawyers and accountants.
12. You agree:
a. to sign all such further documents as may be from time to time
required to carry out the intention of this agreement or to vest in or
assure to the Production Company rights herein expressed to be
assigned or granted;
b. that this Agreement is the entire agreement between you and the
Production Company and supersedes any prior written or contemporaneous
agreements oral or in writing;
c. that no promises, terms, commissions or obligations oral or written
have been made other than those contained herein;
d. nothing herein contained shall constitute a partnership between you,
the other investors and the Production Company;
e. no waiver by you or the Production Company or any breach of any of the
provisions of this Agreement shall be construed as a waiver of any
proceeding or seceding breach or provision; and
f. you will not assign, licenses, lease, mortgage, charge or otherwise
dispose of any rights under this agreement without the written consent
of the Production Company.
13. This Agreement is to be construed in accordance with the law of New South
Wales, Australia and you agree to submit to the jurisdiction of the Courts
of New South Wales, Australia relating to or arising under this Agreement.
I trust this agreement meets with your approval. Please execute one copy of this
letter and return to me, and retain the original for your records.
Yours truly,
SIMON VAN WYK
BRILLIANT INTERACTIVE IDEAS PTY LTD
/s/ Simon Van Wyk
- -------------------
AGREED AND ACCEPTED
/s/
- -------------------
PICKTWO LTD
DATED: 18TH MARCH 1994
4
<PAGE>
ANNEXURE "A"
THE BUDGET
5
<PAGE>
ANNEXURE "B"
DRAWDOWNS
DATE AMOUNT
CONFIDENTIAL INFORMATION $ CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND WITH THE SECURITIES AND
EXCHANGE COMMISSION EXCHANGE COMMISSION
CONFIDENTIAL INFORMATION $ CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND WITH THE SECURITIES AND
EXCHANGE COMMISSION EXCHANGE COMMISSION
CONFIDENTIAL INFORMATION $ CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND WITH THE SECURITIES AND
EXCHANGE COMMISSION EXCHANGE COMMISSION
CONFIDENTIAL INFORMATION $ CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND WITH THE SECURITIES AND
EXCHANGE COMMISSION EXCHANGE COMMISSION
CONFIDENTIAL INFORMATION $ CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND WITH THE SECURITIES AND
EXCHANGE COMMISSION EXCHANGE COMMISSION
CONFIDENTIAL INFORMATION $ CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND WITH THE SECURITIES AND
EXCHANGE COMMISSION EXCHANGE COMMISSION
6
<PAGE>
EXHIBIT 10.11
DATED 17TH DAY OF JANUARY 1996
BETWEEN
SEGA OZISOFT PTY LIMITED
AND
BRILLIANT INTERACTIVE IDEAS PTY LIMITED
ASSISTANT MULTIMEDIA SOFTWARE
-----------------------------
DEVELOPMENT & PRODUCTION AGREEMENT
----------------------------------
1
<PAGE>
THIS AGREEMENT is made the 17th day of January 1996.
BETWEEN SEGA OZISOFT PTY LIMITED A.C.N. 056 032 476 a company duly
incorporated in the State of New South Wales and having its
registered office at 200 Coward Street, Mascot in the said
State (hereinafter the "Producer") of the first part.
AND BRILLIANT INTERACTIVE IDEAS PTY LIMITED A.C.N. 061 288 668 a Producer
duly incorporated in the State of New South Wales and having
its registered office at Level 53, MLC Centre, Martin Place,
Sydney in the said State (hereinafter "BII") of the second
part.
WHEREAS:
A. The Producer wishes to develop and cause to be marketed a CD-ROM
interactive game entitled "Cyberswine" further described in Exhibit
1 for use on PC computers and the Sega Saturn game platform, which
shall utilise the Producer's Development Tools further described in
Exhibit 2 which shall be further developed and refined by the
Producer with the assistance of the BII (hereinafter the "Project").
B. BII being a company which specialises in computer software
development has agreed for the good and valuable consideration
contained herein to provide assistant production services described
in the Schedule of Services contained in the Schedule hereto
("Services").
C. The Producer has agreed to provide technical assistance to BII on
the Project in the provision of the Services.
THE PARTIES AGREE AS FOLLOWS
1. TERM.
This Agreement shall be deemed to have come into operation on 1
November 1994 and subject to the rights of termination shall
continue until terminated pursuant to the provisions hereof.
2. PAYMENT FOR SERVICES.
2.1 The Producer will pay BII a total fee of $CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION being the total budget allocated for BII for the Services
to be provided ("Budget"). The Budget payments shall be performance
based and payable upon provision to the reasonable satisfaction of
the Producer of various aspects of the Services to be provided. The
amount payable from the Budget for those part services shall be
mutually agreed upon between the parties
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on a monthly basis taking into consideration the expenditure of
resources required to be utilized by BII in its performance of those
part services ("Invoice Amount"). BII shall then invoice the
Producer for the Invoice Amount which shall be payable thirty (30)
days from date of receipt.
2.2 Further, the Producer shall pay to BII CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION% royalties based upon the Net Revenue received by the
Producer being the gross revenue actually received by the Producer
from sales and exploitation of the Cyberswine software/computer
program less cash and credit returns, warranty replacements, sales
tax, bad debts, distress non-profit sales to reduce inventory.
2.3 The Producer shall retain CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION% of the
Budget and shall have no obligation to make any final payment or
royalty payments until completion and delivery of the Services to
the Producer's reasonable satisfaction.
2.4 In the event of termination of this Agreement by the Producer
without cause after commencement of work under this Agreement, the
Producer shall pay BII a termination fee to be mutually agreed upon
between the parties upon a pro-rata basis taking into consideration
the Budget and the amount of approved Services provided to the
Producer by BII verses the amount of total services contracted for
herein.
3. PROJECT VARIATIONS
3.1 BII shall immediately advise the Producer of any circumstance
whereby in BII's opinion its estimates of time, costs, or
achievement of Services, must be or has been substantially varied
and the extent or nature of such variation.
3.2 In the event that any circumstance whereby in BII's opinion BII's
estimates of time, cost or Services specified herein and provided
for in the Budget must be varied, BII shall submit to the Producer
amendments to the Services and Budget for approval or rejection by
the Producer in its sole discretion.
4. SUB-CONTRACTORS
4.1 BII SHALL ENSURE THAT IT OBTAINS AS SOON AS PRACTICABLE FROM ANY
SUB-CONTRACTOR OR CONSULTANT USED BY IT IN THE PROVISION OF THE
SERVICES AN UNDERTAKING EXECUTED BY THE SUBCONTRACTOR OR CONSULTANT
IN THE FORM OF EXHIBIT 1 HERETO.
4.2 All additional royalties or fees payable through any sub-contract
agreement over
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and above the fees and royalties payable to BII under this Agreement
shall be payable through and be the sole responsibility of BII
unless any contrary agreement is made in writing between the parties
hereto in advance to any sub-contract agreement being entered into
by BII.
5. CONFIDENTIALITY & TECHNOLOGY DISCLOSURE
5.1 The Producer agrees to supply to BII the confidential information
and make available its technical support personnel and such further
documentation as BII shall reasonably require for the purposes of
this Agreement.
5.2 BII agrees that information disclosed by the Producer, including
information acquired by BII from its inquiries to the Producer or
inspection of the Producer's property, relating to the Producer's
products, software, research, development, know-how or personnel, as
well as information relating to the Cyberswine and Development
Tools, (all being referred to herein as "the Confidential
Information"), is confidential to the Producer.
5.3 BII shall maintain the confidence of the Confidential Information
and shall prevent its unauthorized dissemination or use; provided
however that this Agreement shall impose no obligation on BII with
respect to maintaining the confidence of Confidential Information
which is at the time of disclosure hereunder, or becomes
subsequently without fault on the part of BH, generally known or
available by publication, commercial use or otherwise.
5.4 BII agrees not to use the Confidential Information for purposes
other than those necessary directly to further the purposes of this
Agreement or as otherwise agreed herein in relation to use of the
Development Tools.
5.5 BII agrees to return all Confidential Information to the Producer
forthwith upon request, howsoever the Confidential Information may
be embodied at the date of such request, including but not limited
to computer programs, documentation, notes, plans, drawings and any
copies thereof on microfiche, magnetic tape or disk or any other
medium whatsoever. In the event such medium cannot be detached from
any valuable equipment, BII shall so certify and shall forthwith
erase the Confidential Information so embodied and certify its
erasure to the Producer within seven (7) days of the request for
return being made by the Producer.
5.6 BII hereby acknowledges that unauthorized disclosure or use of
Confidential Information could cause irreparable harm and
significant injury which may be difficult to ascertain. Accordingly,
each party agrees that the other shall have the right to seek and
obtain immediate injunctive relief from breaches of this Agreement,
in addition to any other rights and remedies it may have.
5.7 BII agrees to treat as confidential all information received from
the Producer
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which is not information already in the public domain, or is not
required by law to be disclosed. BII agrees to disclose such
information only to those of its employees or subcontractors who
need to know it for the performance of this Agreement.
6. WARRANTIES AND INDEMNITIES
6.1 BII shall indemnify and save the Producer harmless from and against
any costs, damages, loss or liability of any kind (including legal
costs and disbursements in defending or settling the claim giving
rise to same) howsoever suffered or incurred by the Producer by
virtue of the provision of the Services or any breach of this
Agreement by BII.
6.2 In addition, BII will indemnify the Producer and hold it harmless
from and against all claims, liabilities, damages, losses and
expenses, including but not limited to reasonable attorneys' fees
and costs of suit, arising out of or in connection with any
negligent or willful act or omission of BII or BII's employees or
agents which proximately causes or contributes to (a) any injury to
or destruction of tangible or intangible property of the Producer's,
including computer programs and data or any loss of use resulting
therefrom; or (b) any violation of any statute, ordinance or
regulation in the provision of the Services.
6.3 BII acknowledges and agrees that it is obliged to report as income
all compensation received by BII pursuant to this Agreement, and BII
agrees to indemnify the Producer and hold it harmless to the extent
of any obligation imposed on the Producer (a) to pay any withholding
taxes, social security, unemployment or disability insurance or
similar items, including interest and penalties thereon, in
connection with any payments made to BII by the Producer pursuant to
this Agreement and/or (b) resulting from BII being determined not to
be an independent contractor.
7. INVENTIONS AND COPYRIGHT WORKS
7.1 BII assigns to the Producer:
(a) all inventions, models, discoveries and novel designs whether
or not registrable as designs or patents created by BII or any
sub-contractor of BII pursuant to this Agreement; and
(b) the entire copyright throughout the world in all writing and
literary material (including script enhancements; sound
production; computer programs including but not limited to any
application programs, assembler programs, microcodes,
mnemonics, object and/or source codes, operating systems or any
modifications or enhancements to any programs within the
Project; formatting information; flow charts; programmers'
notes and other
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documentation); art works; digital imaging; sprites;
animations; model drawings and other copyright work
(collectively the 'Works') created by BII or any sub-contractor
of BII pursuant to the Services to be provided under this
Agreement;
whether or not in normal business hours or using varied premises or
equipment in provision of the Services subject to paragraph 7.2 of
this clause.
7.2 The parties agree that they will jointly own and will both have the
unfetted right to exploit at any time throughout the world any newly
developed development and production techniques, being new methods
and concepts employed in the development and production of the
Project and which specifically exclude use of the Development Tools
and any Confidential Information supplied to BII by the Producer
which may be derived from either the sole effort of BII or by the
joint efforts of the parties to this Agreement. This right is
limited to the methods and concepts developed under this Agreement
for the development and production of the Project and does not
extend to give BII any right in, access to, or use of, any of the
Works incorporated within the Project. The limitations contained in
this sub-clause shall not operate so as to limit the rights of BII
under clause 11 herein.
7.3 BII shall both during and after engagement by the Producer do all
such acts and things, and sign all such documents, as the Producer
or its attorneys may reasonably request to secure the Producer's
ownership or fights to the inventions, discoveries, designs or
copyright works referred to in paragraph 7.1 of this clause.
8. AUTHOR'S MORAL RIGHTS
8.1 BII authorizes and permits the Producer to reproduce and make
adaptations to or alterations of any part of any Works (including
computer programs) being prepared by BII pursuant to this Agreement,
without acknowledgment of the authorship or part authorship of BII
in any adaptations or alterations unless agreed to in advance by the
Producer.
8.2 The operation of this clause shall in no way effect the credit
rights granted to BII under clause 10 herein.
9. PROVISION OF DOCUMENTATION AND SOURCE CODE BY THE CONTRACTOR
9.1 Providing that the Producer is not in default of this Agreement, BII
shall, with the cooperation of the Producer, provide to the Producer
such documentation in such form relating to the Works as the
Producer may require from time to time.
9.2 The documentation to be provided by BII pursuant to this Agreement
will be such that the Works will be adequately explained.
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9.3 BII will, at the request and expense of the Producer, provide in
writing, such further documentation as is required by the Producer
that is in excess of adequately explaining the Works (hereinafter
"Additional Documentation") subject to an agreement being reached
between the parties hereto on BII's cost of supplying the Additional
Documentation.
9.4 Forthwith upon expiration or termination of this Agreement, BII
shall deliver all the Confidential Information then in its or its
sub-contractor's possession and all Works (including source code of
any program) to the Producer and in addition BII shall leave with
the Producer all scripts, writings, records, books, drawings, note
books and other documentation and things pertaining to the Works,
including any extra features of the Works and further any equipment,
tools or other devices owned by the Producer then in the possession
of BII or any sub-contractor subject to BII's rights contained in
sub-clause 7.2.
10. CREDITS
10.1 The Producer shall be under no obligation to commercially exploit
Cyberswine but if the Producer does so, subject to sub-clauses 10.3
and 10.5 herein, the Producer shall ensure that on the credit
screens of Cyberswine, BII is given sole credit in the credit titles
as "Assistant Producer" of the screenplay, such credit being in
lettering equal in kind and size and having equal screentime to that
given to the Animators of Cyberswine.
10.2 Further, subject to Cyberswine's commercial exploitation as stated
above, the Producer shall ensure that BII's employees and individual
sub-contractors, as decided upon by BII in its sole discretion and
who assisted in the provision of the Services for Cyberswine shall
be given credit titles including their names and functions and such
credits shall be collectively placed on a credit screens which shall
have equal screentime to that given to the Animators of Cyberswine.
10.3 In the event that BII's engagement is terminated for any reason or
the Producer engages another entity or entities who provide the
Services the parties shall negotiate in good faith as to credits if
any which shall be given to BII. Such agreement shall be based upon
the amount of approved Services provided to the Producer by BII and
the amount of total services contracted for herein.
10.4 No casual or inadvertent failure to accord BII credit in accordance
with this clause shall constitute a breach of this Agreement by the
Producer and BII's remedies in that event shall be confined to
recovery of damages.
11. USE OF DEVELOPMENT TOOLS
11.1 BII may make a written request to the Producer to use any of the
Development Tools owned by the Producer in any of its own software
development projects, excluding any Development Tools or parts
thereof which incorporate information
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which has been provided by and is considered confidential
information of Sega Enterprises Limited.
11.2 Approval for use of the Development Tools shall not be unreasonably
withheld by the Producer and such approval shall be mutually agreed
upon between the parties:
(a) ensuring that the proposed development project(s) of BII do not
devalue or cheapen the Development Tools or their operation
either financially or morally taking into consideration the
Producers business operations and target markets; and
(b) subject to an agreement being reached on the relevant royalty
rate payable by BII to the Producer on each proposed
development project. The royalty rate payable by BII shall be
on Net Revenues as described in sub-clause 2.2 herein and shall
be no greater than CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION percent
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION%) and no less than
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION percent (CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION%).
If the Producer so chooses to reject a request to use the
Development Tools by BII, the Producer agrees to provide BII with a
written explanation of the grounds for the rejection and BII shall
have the right to resubmit revised applications for use of the
Development Tools for any proposed software development project.
12. ROYALTIES, BOOKS OF ACCOUNT & AUDITS
12.1 If any royalties are payable hereunder, the payer shall account to
payee with regard to transactions hereunder within thirty (30) days
following the conclusion of each calendar quarter. The payer hereby
warrants that such statements of account to be prepared shall be
true and correct. The accounts shall show in detailed form the
appropriate calculations relating to the computation of the
royalties.
12.2 The payer shall pay all royalties due in Australian Dollars which
shall be deposited into the bank account of the payee, the details
of which shall be provided to the payer by the payee and the
statement indicating such amount to be due shall be simultaneously
sent to a postal address, the details of which shall be provided to
the payer.
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12.3 The payer shall keep books of account relating to the revenues
received in the exploitation of the software of any relevant project
on the basis of generally accepted accounting principles which shall
be maintained for a minimum period of CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION) years after the
termination of the exploitation of that project or Cyberswine by the
payer.
12.4 Payee may upon fourteen (14) days notice and at its own expense,
audit the applicable records at the registered office of the payer
in order to verify statements rendered. Any such audit shall take
place during reasonable business hours and in such a manner so as
not to interfere with the normal business activities of the payer.
12.5 All information contained in the books and records of the payer
shall be kept confidential and payee agrees that such information
inspected and/or copied on behalf of payee shall be used only for
the purpose of determining the accuracy of the statements and shall
be revealed only to such officers, directors, employees, agents
and/or representatives of payee as is necessary to verify the
accuracy of the statements.
12.6 If the audit reveals an underpayment in excess of CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION percent (CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION%) of
the royalties due and payable hereunder for any calendar quarter,
the payer shall reimburse payee, within CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION after written notification is given to the
payer, for the difference and full out-of-pocket costs for any audit
of the relevant books and records of the payer.
13. TERMINATION
13.1 Either party may terminate this Agreement at any time if:
(a) the other is in material breach of any warranty, term,
condition or covenant of this Agreement and fails to cure that
breach within CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
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COMMISSION after receiving written notice of that breach and
the other party's intention to terminate; or
(b) the other (i) becomes insolvent; (ii) fails to pay its debts or
perform its obligations in the ordinary course of business as
they mature; (iii) admits in writing its insolvency or
inability to pay its debts or perform its obligations as they
mature; or (iv) becomes the subject of any voluntary or
involuntary proceeding in bankruptcy, reorganisation,
liquidation, dissolution, receivership, attachment or
composition for the benefit of creditors that is not dismissed
with prejudice within CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION after it begins.
Termination will become effective under section (a) automatically
upon receipt of notice in the event of a breach incapable of cure,
or in the case of a breach capable of cure upon the expiration of
the cure period in the absence of a cure, and under section (b)
immediately upon the non-terminating party's receipt of a notice of
termination at any time after the specified event or the failure of
the specified proceeding to be timely dismissed.
13.2 Subject to sub-clause 2.4 herein, the Producer reserves the right to
terminate this Agreement without cause, by providing BII with
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION)
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION prior written notice:
13.3 Neither party will be liable to the other for damages of any sort
solely as a result of terminating this Agreement in accordance with
its terms, and termination of this Agreement will be without
prejudice to any other right or remedy of either party.
14. EXCHANGE OF STAFF
Neither party hereto shall without the written authorisation of the
other, induce an employee of the other to leave that other's
employment for the purpose of becoming an employee or contractor of
the inducing party, either during the term of this Agreement or for
the period of three months after the termination or expiration
thereof. In the event that either party engages an employee of the
other as employee or contractor during the term of this Agreement or
for a period of
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CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION)
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION after the termination or
expiration hereof, the defaulting party shall pay liquidated damages
assessed in the sum of $CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION for each such
employee so engaged, such sum being assessed by the parties hereto
as fair compensation for the loss of such employee and the cost of
engaging and retraining a replacement employee or contractor.
15. FORCE MAJEURE
Neither party shall be liable for any loss or damage or be deemed to
be in breach of this Agreement if its failure to perform or failure
to cure any of its respective obligations hereunder results from any
event or circumstance beyond its reasonable control, including,
without limitation, availability and use for the required purpose of
the Development Tools, any natural disaster, fire, flood,
earthquake, or other Act of God; shortage of equipment, materials,
supplies, or transportation facilities; strike or other industrial
dispute; war or rebellion; or compliance with any law, regulation,
or order (whether valid or invalid) of any governmental body;
provided, however, that the party interfered with gives the other
party written notice thereof promptly, and, in any event, within
thirty (30) working days of discovery of any such Force Majeure
condition. If notice of the existence of any Force Majeure condition
is provided within such period, the time for performance or cure
shall be extended for a period equal to the duration of the Force
Majeure event or circumstance described in such notice, except that
any such cause shall not excuse the payment of any sums owed to
Licensor prior to, during, or after any such Force Majeure
condition.
16. CONCILIATION & ARBITRATION
16.1 In the event that either party is of the view that any dispute,
controversy or claim arising out of or relating to this Agreement,
or the breach, termination or invalidity thereof, OTHER THAN any
such dispute, controversy or claim between the parties hereto
concerning ownership of any aspect of the Software or the licenses
granted hereby ("the Dispute"), cannot be resolved by informal
discussion, negotiation and agreement, the Dispute shall first be
the subject of conciliation, administered by the Australian
Commercial Disputes Centre Limited ("the Centre") conducted at
Sydney and held in accordance with the Conciliation Rules of the
Centre in force at the date of this Agreement. The Dispute shall be
submitted for conciliation by either party by serving upon the other
party Notice of Dispute setting out the nature of the dispute,
controversy or claim and material facts in relation thereto, with a
copy being sent to the Centre requesting a date
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for initial meeting in accordance with the Conciliation Rules.
16.2 In the event that the Dispute is not resolved by agreement following
conciliation within ninety (90) days from the date first nominated
for meeting by the Centre pursuant to clause 16.1, the Dispute shall
be referred to and determined by arbitration, administered by the
Centre, conducted in Sydney and held under the rules of arbitration
of the International Chamber of Commerce by one or more arbitrators
appointed in accordance with the said rules. The parties shall be
entitled to legal representation in such arbitration.
16.3 Neither party hereto shall commence any action or claim in any court
or other tribunal unless and until the Dispute has been referred to
and determined by arbitration under clause 16.2 hereof and an award
has been delivered by the arbitrator or arbitrators appointed
pursuant thereto. All proposals, discussions, statements,
information supplied and other matters raised during conciliation
and arbitration under this clause shall be confidential and without
prejudice to any claim or proceeding subsequently made or brought by
either party.
17. SURVIVAL
17.1 Unless otherwise specifically provided hereunder, payment and
indemnification obligations, representations, warranties and any
accrued rights shall survive the expiration or termination of this
Agreement including without limitation BII's rights to exploit the
Development Tools provided for under clause 11.
17.2 BII's rights to royalties hereunder shall not survive this Agreement
for termination with cause by the Producer as provided for under
sub-clause 13.1.
18. GENERAL PROVISIONS
The relationship between the parties is independent and neither
party is a legal representative, agent, joint venturer, partner, or
employee of the other for any purpose whatsoever. This Agreement
constitutes the entire agreement between the parties. Neither of the
parties may assign this Agreement without the prior written
authorisation of the other. In the event that any part of this
Agreement is determined invalid or unenforceable, that part shall be
enforced to the extent possible consistent with the intention of the
parties, or, if unenforceable, deemed deleted from this Agreement,
while the remainder continues in full force and effect. Any waiver
by either party of any provision of this Agreement shall not be
construed as a waiver of any other provision of this Agreement, nor
shall such waiver operate as or be construed as a waiver of such
provision respecting any future event or circumstance. All notices
sent to either of the parties shall be in writing to the address
stated in the preamble hereof and shall be effective upon the date
of receipt. This Agreement shall be construed and governed in
accordance with the laws of the State of New South Wales, Australia.
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WITNESS WHEREOF the parties hereto have executed this Agreement on
the day and year herein before written.
Sega Ozisoft Pty Limited Brilliant Interactive Ideas Pty Limited
- ------------------------ ---------------------------------------
/s/ Kevin Bermeister /s/ Mark Miller
- ---------------------------------- ---------------------------------------
Name: /s/ Kevin Bermeister Name: Mark Miller
Title: Managing Director Title: Managing Director
/s/ Damon Pembroke /s/ Belinda Martin
- ---------------------------------- ---------------------------------------
Witness: Damon Pembroke Witness: Belinda Martin
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SCHEDULE
--------
A. SCHEDULE OF SERVICES
1. BII will render such services as the Producer may from time to time request
in writing in connection with the development and production of the Project
and Development Tools, whereby BII will provide various technical
assistance and development aids and techniques including but not limited to
creative direction and general Project management. BII without limiting the
generality of the foregoing, will be responsible for the following:
(a) provision of project management with regard to the development of
Cyberswine;
(b) production of Cyberswine using the Development Tools provided by the
Producer including but not limited to;
(i) lay-up and placement of models, sound and cameras within the
relevant Development Tools,
(ii) sound production, post production within the relevant
Development Tools,
(c) preparation of creation of 3D studio animation fries for Cyberswine;
(d) Cyberswine script enhancements, alterations and polish as required
by Producer;
(e) modification and enhancement of texture maps, models, animation and
sound supplied to BII by third party animators for inclusion into
Cyberswine;
(f) sampling of music/sound effects for Cyberswine;
(g) liasing with and direction of third party animators for the supply
of libraries of motion capture and models to be used in the
production of Cyberswine;
(h) provision of creative input and technical direction for the
development of Cyberswine;
(i) Alpha and Beta testing and delivery of a Beta copy of Cyberswine for
evaluation and approval by Producer;
(j) premastering and delivery of final Golden Master of Cyberswine for
use on PC computer hardware (inclusive of required interactivity and
gameplay, final graphics and layed-up scenes) ready for commercial
replication and exploitation by the Producer;
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(k) provision of creative input and technical direction for the on going
development of Development Tools;
(l) evaluation, review and testing of the Development Tools and
provision of written reports on the results of such testing
including but not limited to Alpha testing, bug reports and
suggestions for ongoing development, maintenance, enhancements and
modifications of the Development Tools.
2. BII also agrees to train the Producer's development personnel in the use of
those development aids and techniques used by BII and necessary for the
development and production of the Project for additional remuneration based
on time and materials at a rate to be agreed upon in advance between the
parties.
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B. REPORTING
BII shall provide reports detailing the Services completed or
provided in such a manner and form, and at such times as mutually
agreed to between the parties.
C. ACCEPTANCE PROCEDURE
1. Upon delivery of any Works required to be delivered by BII in the provision
of the Services pursuant to the Project (hereinafter a "Deliverable Item"),
the Producer shall have CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION) business days to examine and test the delivered item to
determine whether it conforms to the reasonable requirements of the
Producer for its intended use. The Producer will notify BII of the
Producer's acceptance or rejection of the Deliverable Item and, in the case
of any rejection, will provide BII with a reasonably detailed list of
deficiencies in the Deliverable Item. If the Producer fails to notify BII
of the Producer's acceptance or rejection within such period, the
Deliverable Item shall be deemed to be accepted by the Producer. In the
case of a rejection, BII will use diligent efforts to correct the
deficiencies and will promptly resubmit the Deliverable Item, as connected,
within a reasonable time period based upon the nature of the problem and
mutually agreed to between the parties. This procedure will iterate until
the Producer either accepts the Deliverable Item or elects to complete or
have completed the Deliverable Item.
2. In the event that Producer withholds approval of any Deliverable Item and
elects to have it completed by a third party, the Producer may deduct an
amount equal to reasonable compensation for such specialists efforts
(including any compensation payments made to any non-employee specialists)
from any payments due to BII under this Agreement.
16
<PAGE>
EXHIBIT 1
ASSIGNMENT AND CONFIDENTIALITY AGREEMENT
BII should photocopy this Exhibit, deleting the "EXHIBIT 1" line and this
italicized note, and then have such copies executed by each employee, consultant
or other contractor working on the Works or Services by BII. A copy of such
executed agreement shall be sent to the Producer as soon as possible.
THIS ASSIGNMENT is made on _________________ 19 ___.
BETWEEN (Name & Address) _______________________________________
(hereinafter the "Sub-contractor") of the first part, the "Sub-
contractor") of the first part,
AND: BRILLIANT INTERACTIVE IDEAS PTY LIMITED A.C.N. 061 228 668 a
Producer duly incorporated in the State of New South Wales and
having its registered office at Level 53, MLC Centre, Martin Place,
Sydney in the said State (hereinafter the "BII") of the second part
WHEREAS:
A. The Sub-contractor has been requested to provide technical consulting
services and/or author or co-author additions and modifications to certain
computer programs and other works described in the Schedule hereto and may
create adaptations, notes, flow charts, diagrams, drafts and explanatory
memoranda and related literary and artistic works including source and
object codes derived from or incidental to the said program(s) (herein
referred to as "Works").
B. The work to be done by the Sub-contractor for BII shall be done in
connection with the Contract for Assistant Production Services agreement
between Sega Ozisoft Pty Limited (the "Producer") and BII dated as of
__________, 199__ (the "Development Agreement").
C. The Producer is directing the project pursuant to which the Works shall be
created and accordingly the parties wish to ensure that the copyright
subsisting in the Works rests with the Producer being the third party
beneficiary to this Agreement.
NOW THIS DEED WITNESSES as follows:
1. In consideration of the sum of one dollar ($1.00) paid to the Sub-
contractor by BII (receipt whereof is hereby acknowledged), the Sub-
contractor hereby assigns to the Producer the entire copyright throughout
the world and all other rights of a like nature including all moral rights
subsisting or conferred in respect of the Works by the law in force in any
part of the world AND FURTHER assigns to the Producer the copyright and all
other rights of a like nature belonging to the Sub-contractor which may be
conferred or subsist in any alterations or addition to the Works or other
literary or artistic works
17
<PAGE>
created at any time at the request or direction of BII pertaining to the
Development Agreement.
2. The Sub-contractor acknowledges that the Works and all and any information
relating to the business or data of BII and/or the Producer which may be or
has been acquired by the Sub-contractor are confidential to the either of
those parties and the Subcontractor shall not divulge, communicate or in
any manner publish the Works or Information except as the relevant party(s)
may in writing authorise and direct from time to time.
3. The Subcontractor acknowledges that the Producer is a third party
beneficiary of this Agreement, and has full right to bring any action
against the Subcontractor, including injunctive action, to enforce the
terms herein.
4. This Agreement will be interpreted in accordance with the laws of the New
South Wales.
SCHEDULE
- --------
Name of Software:
1 ____________________________________________
2 ____________________________________________
3 ____________________________________________
4 ____________________________________________
WITNESS WHEREOF the parties hereto have executed this Agreement on the day and
year herein before written.
Brilliant Interactive Ideas Pty Limited
______________________________ ---------------------------------------
______________________________ ________________________________________
Name: Name:
Title: Title:
______________________________ ________________________________________
Witness: Witness:
18
<PAGE>
EXHIBIT 10.12
DATED 19th day of July 1995
---------------------------------------------------------------------
BETWEEN
EAT CYBERFIST PTY LIMITED
AND
SEGA OZISOFT PTY LIMITED
LICENSING AGREEMENT FOR "CYBERSWINE" STORY
------------------------------------------
CONCEPT & CHARACTERS
--------------------
<PAGE>
AGREEMENT made the 19th day of July, 1995
PARTIES EAT CYBERFIST PTY LIMITED A.C.N. 065 701 975 a company duly
incorporated in the State of New South Wales and having its registered
office at 35 Rose Street, Chippendale in the said State (hereinafter
"Licensor") of the first part.
AND SEGA OZISOFT PTY LIMITED A.C.N. 056 032 476 a company duly
incorporated in the State of New South Wales and having its registered
office at 200 Coward Street, Mascot in the said State (hereinafter
"Licensee") of the second part.
WHEREAS
A. Licensor has created and is the sole and exclusive owner of and
controls all the proprietary rights in the literary and artistic works
known collectively as Cyberswine and is continuing developments and
future works based on the same or similar literary and artistic works,
and further owns the entire goodwill associated with the characters or
improvements thereof related to Cyberswine, examples of which are
incorporated in Exhibit "A" attached hereto (hereinafter in total the
"Property"); and,
B. Licensor has the power and authority to grant to Licensee the right,
privilege and license to exploit in any way the Cyberswine literary
and artistic works and its related characters otherwise based on the
Property as identified in Exhibit "A" and to exploit any future
copyright and/or Trademark on or in association with the Property;
and,
C. Licensee is engaged or is intending to engage in the research and
-------- -- ------- -- -- --------- --
development of interactive computer software for entertainment,
educational and business purposes (hereinafter "Software") for use in
(i) any media on which products such as the Software may operate
through which the user may interact with the product, including but
not limited to personal computers, game machines, arcade games, VCR-
interactive and CD-interactive machines (including without limitation
the 3DO Multiplayer machines) and similar microprocessor-based units;
and (ii) any system under which interactive animated film products the
Software may be accessed for use from a location that is remote from
the central processing unit on which the product is principally used,
such as an on-line service, or a remote delivery service over cable
television lines, telephone lines, microwave signals or radio waves
that allows pay-per-play or the equivalent (collectively the
"Formats"); and,
D. Licensee desires to obtain from the Licensor for good and valuable
-- ------------------------------------------------------------------
consideration, the receipt and sufficiency of which are hereby
--------------------------------------------------------------
acknowledged, an exclusive world-wide license for unlimited use of the
----------------------------------------------------------------------
Property in any Software, and the related manufacturing, distribution
---------------------------------------------------------------------
and marketing associated with the commercial
--------------------------------------------
2
<PAGE>
exploitation of that Software for all Formats in which Sega
-----------------------------------------------------------
Enterprises Limited of Japan (hereinafter "Sega") and the Licensee
------------------------------------------------------------------
distribute software and/or hardware at any time for the Term
------------------------------------------------------------
(hereinafter the "Licensed Products"): and,
-------------------------------------------
E. Licensor is willing, on the terms and subject to the conditions of
this Agreement, to grant the Licensee the desired exclusive license on
the Property.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. LICENSE
(a) Licensor hereby grants to Licensee the exclusive right and
----------------------------------------------------------
license to develop, use, manufacture, have manufactured, sell, distribute and
- -----------------------------------------------------------------------------
advertise the Licensed Products throughout the world including but not limited
- ------------------------------------------------------------------------------
to the right to reproduce and make adaptations of the Property, under any and
- -----------------------------------------------------------------------------
all patents, trademarks and copyrights and any applications thereto which have
- ------------------------------------------------------------------------------
been filed or may be filed in the future with respect to the Property, for the
- ------------------------------------------------------------------------------
purposes of development and exploitation of any Licensed Products (hereinafter
- ------------------------------------------------------------------------------
the "License"),
- ---------------
(b) The licensed Property shall not be used in connection with any
other good or services, licensed or otherwise unless such use is expressly
permitted by Licensor in writing, provided that the Licensee may use the
Property on any promotional or novelty items or premium products (e.g. T-shirts,
posters, stickers, etc.) displaying or depicting the Property and developed,
manufactured and/or distributed by Licensee or in its behalf in connection with
the world-wide marketing of the Licensed Products.
(c) All rights and interests with respect to the Property not
specifically granted herein to Licensee may be used by Licensor without
limitation, including, the use or authorization of others to use any of the
Property in any manner in connection with any articles of merchandise other than
the specific Licensed Products and relevant marketing thereof as expressly
authorised hereunder and which use or authorisation does not amount to unfair
competition, interference, or infringement of any of Licensee's rights
hereunder.
(d) Licensee warrants and represents to Licensor that the Property,
or a part thereof, will appear in or as part of a Licensed Products within a
four year period from the date of execution of this Agreement by both parties
(hereinafter the "Product Introduction Date").
2. TERM OF AGREEMENT
This Agreement and the provisions hereof, except as otherwise provided, shall be
in full force and effect commencing on the date of execution by both parties and
shall continue in each country of the world for the term of the copyright or
renewals thereof (if any) in the Property in that country (hereinafter the
"Term") or until terminated pursuant to the provisions hereof.
3
<PAGE>
3. FINANCIAL & REPORTING OBLIGATIONS
3.1. Advance Payments:
(a) In addition to the non-refundable advance against royalties of
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION paid by the Licensee in consideration for the License, the
receipt and sufficiency of which are hereby acknowledged, the Licensee agrees to
make advance payments to Licensor on the unit sale performance of any Licensed
Products upon the following criteria:
(i) upon the sale of CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
units to trade, an advance payment of CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION will be paid by Licensee
to Licensor:
(ii) upon the sale of CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
units to trade, a further advance payment of CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION will be paid by Licensee
to Licensor.
(b) Advance payments shall be recoupable by Licensee from the
royalties payable under sub-clause 3.2 hereinbelow, prior to the direct payment
of any royalties to Licensor.
3.2. Royalties:
(a) Royalties shall be payable to the Licensor at a percentage rate
of CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION %) of all gross revenue received by
Licensee its successors or assigns relating to the sale, license, distribution
or other exploitation of the Licensed Products, less the Cost of Goods defined
herein below (hereinafter "Royalties").
(b) Licensee shall account to Licensor with regard to transactions
hereunder within thirty (30) days following the conclusion of each calendar
quarter. Licensee hereby warrants that such statements of account to be
prepared shall be true and correct. The accounts shall show in detailed form
the appropriate calculations relating to the computation of the royalties, the
recoupment of the guaranteed payments and the Cost of Goods being the actual
cost of manufacturing, packaging, and/or repackaging copies of the Licensed
Products incurred by the Licensee or its appointed licensee(s) up to the time
the title in the Licensed Products passes to the purchaser, licensor,
distributor or other third party exploiting the Licensed
4
<PAGE>
Products, including the duplication costs for copies of the Licensed Products on
optical or magnetic media, packaging materials, manuals and other collateral
materials and program components as mutually agreed to in advance between the
parties.
(c) Licensee shall pay all Royalties due to Licensor in Australian
Dollars which shall be deposited into the bank account of Licensor, the details
of which shall be provided to Licensee by Licensor and the statement indicating
such amount to be due shall be simultaneously sent to a postal address, the
details of which shall be provided to Licensee by Licensor. Statements shall be
provided to Licensor whether or not the guaranteed payments have been recouped
and whether or not royalties are due and owing.
3.3. Books of Account and Audits
(a) Licensee shall keep books of account relating to the distribution
of the Products on the basis of generally accepted accounting principles and
shall be maintained for a minimum period of two (2) years after the termination
of this Agreement.
(b) Licensor may upon reasonable notice and at its own expense, audit
the applicable records at the registered office of Licensee in order to verify
statements rendered. Any such audit shall take place during reasonable business
hours and in such a manner so as not to interfere with the normal business
activities of Licensee.
(c) All information contained in the books and records of Licensee
shall be Confidential Information and Licensor agrees that such information
inspected and/or copied on behalf of Licensor shall be used only for the purpose
of determining the accuracy of the statements and shall be revealed only to such
officers, directors, employees, agents and/or representatives of Licensor as is
necessary to verify the accuracy of the statements.
(d) Licensee shall reimburse Licensor for the full out-of-pocket
costs including travel costs and expenses for any audit of the books and records
of Licensee that determines a short fall of CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION percent
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION %) or more in royalties reported for any calendar quarter.
4. WARRANTIES & OBLIGATIONS
4.1. Licensor represents and warrants solely for the benefit of Licensee that:
(a) Licensor has the right, power and authority to enter into this
Agreement and to fully perform its obligations hereunder.
(b) As of the date of execution of this Agreement, Licensor is
unaware of any material pending or unresolved claim or suit against it which
either questions the validity, of any of the Property or claims that any of the
Property infringes upon any valid proprietary right of any third party.
5
<PAGE>
(c) The making of this Agreement by Licensor does not violate any
separate agreement, rights or obligations existing between Licensor and any
other person or entity, and throughout the term of this Agreement, Licensor
shall not make any separate agreement with any person or entity that is
inconsistent with any of the provisions of this Agreement.
(d) Licensor warrants on behalf of the authors of the Property that
they shall not exercise or use its moral rights as the author to the detriment
of Licensee or any third party designated by Licensee for the Term of this
Agreement
(e) Licensor has done or if necessary will do, all things necessary
to ensure that the license granted herein including but not limited to the
copyright and trademarks in the Property, is owned solely by Licensor for the
Term of this Agreement.
(f) Licensor will disclose to the Licensee all improvements created
by the Licensor or any related third party during the term hereof and, all
improvements made at any time whatsoever shall be deemed to be included into the
Property.
(g) Licensor will not assign its comic book and/or its graphic novel
rights without reserving all its proprietary rights to any and all improvements
made.
(h) Licensor will not denigrate, demean, deface or act deleteriously
in any way with the Property by any act or omission subject to the Licensor's
sole creative right to make improvements to the physical appearance of
characters and scenes embodied within the Property.
(i) Licensor further represents and warrants that it will notify
------------------------------------------------------------
the Licensee a minimum of thirty (30) days prior to entering any contractual
- ----------------------------------------------------------------------------
relations, of its intention to license the Property to a third party for
- ------------------------------------------------------------------------
incorporation into any Format not then distributed by Sega or the Licensee.
- ---------------------------------------------------------------------------
4.2. Licensee represents and warrants solely for the benefit of Licensor that:
(a) Licensee has the right, power and authority to enter into this
Agreement and to fully perform its obligations hereunder,
(b) The making of this Agreement by Licensee does not violate any
separate agreement, rights or obligations existing between Licensee and any
other person or entity, and throughout the term of this Agreement, Licensee
shall not make any separate agreement with any person or entity that is
inconsistent with any of the provisions of this Agreement.
(c) Licensee shall not make any representation or give any warranty
to any person or entity expressly or impliedly on behalf of Licensor or to the
effect that the Licensed Products are connected in any way with Licensor (other
than that the Licensed Products have been manufactured, marketed, and/or sold
under license from Licensor).
(d) Licensee will use its best efforts to promote, market, sell and
distribute the Licensed Products and will bear all related costs associated
therewith.
6
<PAGE>
(e) Licensee shall be solely responsible for the manufacture,
production, sale and distribution of the Licensed Products and will bear all
related costs associated therewith.
(f) All Licensed Products shall be of merchantable quality, and shall
be safe for use by the intended consumers. Licensee further warrants that it
will comply with all applicable laws and regulations and will observe all
applicable safety standards in the manufacture and sale of the Licensed Products
in all territories where the products are sold.
(g) Subject to paragraph l(d) herein the Licensee shall notify
--- ----------------------------------------------------------
the Licensor within thirty (30) days of its intention, in its sole discretion,
- ------------------------------------------------------------------------------
not to proceed with the research, development and exploitation of any future
- ----------------------------------------------------------------------------
Licensed Products incorporating the Property or adaptations thereof. Upon such
- -------------------------------------------------------------------------------
notification this Agreement will be considered terminated subject to the
- ------------------------------------------------------------------------
obligations contained in Clause 10 herein.
- ------------------------------------------
5. INDEMNIFICATION
5.1. Licensor's Indemnification:
(a) Licensor agrees to defend and indemnify and hold the Licensee
harmless against any claims, demands, causes of action and judgements arising
solely out of the use of the Property by the Licensee as authorised in this
Agreement or resulting from a breach of any of the warranties expressly set
forth in sub-clause 4.1, provided that the Licensee shall give notice to the
Licensor within fourteen (14) days after notification of each such claim,
demand, cause of action or judgement and further provided that the Licensor
shall have the right to undertake and conduct the defence of any such cause of
action so brought and handle any such claim or demand. With respect to such
indemnification, the Licensor agrees to hold the Licensee harmless at no cost or
expense to the Licensee whatsoever including, but not limited to attorney's fees
and court costs.
(b) Notwithstanding the foregoing, the Licensor shall indemnify and
save the Licensee harmless from and against any costs, damages, loss or
liability of any kind (including legal costs and disbursements in defending or
settling the claim giving rise to same) howsoever suffered or incurred by the
Licensee by virtue of the provision of the license herein or any breach of this
Agreement by the Licensor. Such indemnity shall extend (without limiting the
generality of the foregoing) to any costs, damages, loss or liability (including
legal costs and disbursements in defending or settling the claim giving rise to
same) incurred by the Licensee by virtue of any injury or disability suffered by
any employee or sub-contractor of the Licensor, whether on the Licensee premises
or otherwise and by whatever legal theory (whether statutory, tortuous or
otherwise) arising.
(c) The Licensor acknowledges and agrees that it is obliged to report
as income all compensation received by the Licensor pursuant to this Agreement,
and the Licensor agrees to indemnify the Licensee and hold it harmless to the
extent of any obligation imposed on the Licensee (i) to pay any withholding
taxes, social security, unemployment or disability insurance or similar items,
including interest and penalties thereon, in connection with any
7
<PAGE>
payments made to the Licensor by the Licensee pursuant to this Agreement and/or
(ii) resulting from the Licensor being determined not to be an independent
contractor.
(d) In addition, Licensor will indemnify the Licensee and hold them
harmless from and against all claims, liabilities, damages, losses and expenses,
including but not limited to reasonable attorneys' fees and costs of suit,
arising out of or in connection with any negligent or willful act or omission of
the Licensor or the Licensor's employees or agents which approximately causes or
contributes to (i) any injury to or destruction of tangible or intangible
property, including artwork, documentation, computer programs and data of any
loss of use resulting therefrom; or (ii) any violation of any statute, ordinance
or regulation.
5.2. Licensee's Indemnification:
Licensee agrees to defend, indemnify and hold the Licensor harmless
against any claims, demands, causes of action and judgements arising out of the
Licensee's development, design, manufacture, distribution, shipment,
advertising, promotion, offering for sale and/or sale of the Licensed Products
and/or the promotional and packaging material subject to any claims, demands,
causes of action and judgements relating directly to the matters covered by the
Licensor's warranties expressly set forth in sub-clause 4.1 and its indemnities
provided above in this Clause. With respect to this indemnification, the
Licensee agrees to hold the Licensor harmless at no cost or expense to the
Licensor whatsoever including, but not limited to attorney's fees and court
costs. The Licensee shall have the right to undertake and conduct the defence of
any such cause of action so brought and handle any such claim or demand with
attorneys of its own selection.
5.3. Indemnification Procedures:
(a) If a third party asserts any claim or allegation which, if
proven, would trigger the indemnification obligations set forth in sub-clauses
5.1 and 5.2, the indemnifying party shall be promptly notified of such claim by
the indemnified party and given control of the defence and/or settlement
thereof. If any such claim or action ("Matter") is brought against an
indemnified party notice shall be given to the indemnifying party and the
indemnifying party shall be entitled to participate therein and assume the
defence thereof with legal counsel of its choosing.
(b) After a notice to the indemnified party of the indemnifying
party's election to assume the defence of a Matter, the indemnifying party shall
not be liable to the indemnified party under Clause 5 for any legal expenses
subsequently incurred by the indemnified party in connection with the defence of
a Matter. No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of a matter unless such settlement
includes an unconditional release of the indemnified party from all such
liability relating to a Matter.
(c) The foregoing provisions of Clause 5 represents the entirety of
the parties obligations (contractual, common-law or otherwise) with respect to
any Matter by any third
8
<PAGE>
party; however, nothing in Clause 5 shall limit either parties rights for breach
of any covenant contained in this Agreement.
6. PATENTS, TRADEMARKS AND COPYRIGHTS
(a) Licensor may seek, in its own name and at its own expense,
appropriate patent, trademark or copyright protection for the Property in any or
all territories throughout the world.
(b) Pursuant to paragraph 4.1(e) herein, in the event that Licensee
requests that Licensor obtain patent, trademark or copyright protection for the
Property in a particular country where Licensor had not, heretofore, obtained
protection, Licensor agrees to take reasonable steps to obtain such protection.
(c) The parties agree to execute any documents reasonably requested
by the other party to effect any of the above provisions.
7. CREDITS
(a) Subject to paragraph l(d) herein Licensee shall be under no
obligation to make the Licensed Products but if Licensee does so the Licensee
shall ensure that on the source computer code of the Licensed Products the
Licensor is given sole credit in the credit titles as the creator of the
Property, such credit being in lettering equal in kind and size and having equal
screentime to that given to the programmers of the Licensed Products.
(b) No casual or inadvertent failure to afford Licensor credit in
accordance with this clause shall constitute a breach of this Agreement by the
Licensee.
8. CONFIDENTIAL INFORMATION
(a) The parties mutually acknowledge and agree that certain
information that one party (the "Receiving Party") shall receive from the other
party (the "Disclosing Party") shall be deemed to be confidential information
and subject to restrictions on disclosure and use as set forth below
(hereinafter "Confidential Information").
(b) Licensee and Licensor, each as a Receiving Party, respectively,
agrees that it shall maintain the confidentiality of the Confidential
Information of the Disclosing Party and safeguard the confidential and/or
business sensitive information which it may receive from the other party with
the same degree of care used to protect its own information of a like nature
and/or in accordance with the provisions of any separate non-disclosure
agreement applicable to such information. Each party further agrees that it
shall not use for its own account apart from this Agreement or for the account
of any third party, nor disclose or otherwise disseminate to any third party,
any company trade secret or other such confidential information of or concerning
the other party unless the written consent of the other party shall first have
been obtained.
9
<PAGE>
(c) The obligations set forth in this Clause 8 shall not be
applicable to any information: (i) which is or becomes generally known or part
of the public domain through no default hereunder on the part of the Receiving
Party: (ii) is known to the Receiving Party prior to the disclosure thereof by
the Disclosing Party, as established by documentary evidence; (iii) lawfully
received by the Receiving Party from a third party who provided such information
without breach of any separate confidentiality, obligation owed by such third
party; (iv) disclosed by the Disclosing Party to third parties without
restriction on subsequent disclosure; (v) required to be disclosed in the
context of any administrative or judicial proceeding, but only to the extent
required by such action and only after giving the Disclosing Party not less than
ten (10) working days prior written notice of any such required disclosure, and
provided further that the party required to make such disclosure shall use its
reasonable best efforts to obtain an appropriate protective order regarding the
information to be disclosed in any such context; and/or (vi) as to which ten
(10) years have elapsed since initial disclosure.
(d) Each party, as Receiving Party, shall use its reasonable best
efforts by contract, instruction or otherwise to ensure that its officers,
directors, employees, agents and contractors comply with such party's
obligations under this Clause 8 and to ensure that no Confidential Information
of the Disclosing Party or Joint Confidential Information shall be disclosed or
made available to any such officers, directors, employees, agents or contractors
of the Receiving Party unless such persons or third parties have a need to know
such information for purposes of the performance of this Agreement.
(e) Upon the termination of this Agreement, each party, as a
Receiving Party, shall promptly return to the Disclosing Party any and all
documents and related materials of or concerning the trade secrets and/or
Confidential Information which originated with the other party and which remains
in the Receiving Party's custody or under its control, or, if requested by the
Disclosing Party, shall destroy all such trade secret and/or confidential
information and certify to the destruction of all such documents and related
materials.
9. TERMINATION
The following termination rights are in addition to the termination rights
provided elsewhere in the Agreement:
(a) Each party hereto shall have the right to immediately terminate
this Agreement by giving written notice to the other party in the event that the
other party does any of the following:
(i) files a petition in bankruptcy or is adjudicated a bankrupt
or insolvent, or makes an assignment for the benefit of
creditors, or an arrangement pursuant to any bankruptcy
law, or if the Licensee discontinues its business or a
receiver is appointed for the other party or for the other
party's business and such receiver is not discharged within
thirty (30) days; or,
10
<PAGE>
(ii) breaches any of the material provisions of this Agreement
relating to the rights in the Property and same is not
cured after 30 days following written notice.
(b) Licensor shall have the right to immediately terminate this
Agreement by giving written notice to Licensee in the event that Licensee does
any of the following:
(i) fails to meet the Product Introduction Date as specified
herein with a grace period of thirty (30) days; or,
(ii) fails to make timely payment of Royalties when due and the
non-payment is not cured in 30 days after notice from
Licensor.
(c) This Agreement may be terminated by either party upon thirty (30) days
written notice to the other party in the event of a breach of a material
provision of this Agreement by the other party, provided that, during the thirty
(30) day period, the breaching party fails to cure such breach.
10. POST TERMINATION RIGHTS
(a) Not more than forty-five (45) days after the termination of this
Agreement, Licensee shall provide Licensor with a complete schedule of all
inventory of Licensed Products then on-hand (the "inventory").
(b) Upon the termination of this Agreement, Licensee shall be entitled,
for an additional period of CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION)
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION on a non-exclusive basis, to continue to sell such
Inventory. Such sales shall be made subject to all of the provisions of this
Agreement and to an accounting for and the payment of a Royalty thereon. Such
accounting and payment shall be due and paid within thirty (30) days after the
close of the said (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION period.
(c) Upon termination of this Agreement for any reasons whatsoever,
Licensee agrees to immediately return to Licensor all material relating to the
Property including, but not limited to, all artwork, colour separations,
prototypes and the like originally sourced from the Licensor.
11. NOTICE
All notices or other communications required or desired to be sent to either of
the parties shall be in writing and shall be sent by registered or certified
mail, postage prepaid, return receipt
11
<PAGE>
requested, or sent by recognised national courier service, telex, telegram or
facsimile, with charges prepaid and subject to confirmation by letter. The
address for all notices or other communications required to be sent to Licensor
or Licensee, respectively, shall be the registered office address stated in the
preamble hereof, or such other address as may be provided from one party to the
other on at least ten (10) days prior written notice. Any such notice shall be
effective upon the date of receipt.
12. ARBITRATION OF DISPUTES
(a) In the event of a dispute, controversy or claim arising out of or
relating to this Agreement, or the breach, termination or invalidity thereof
("the Dispute"), cannot be resolved by informal discussion, negotiation and
agreement, the Dispute shall first be the subject of conciliation, administered
by the Australian Commercial Disputes Centre Limited ("the Centre") conducted at
Sydney and held in accordance with the Conciliation Rules of the Centre in force
at the date of this Agreement. The Dispute shall be submitted for conciliation
by either party, by serving upon the other party Notice of Dispute setting out
the nature of the dispute, controversy or claim and material facts in relation
thereto, with a copy being sent to the Centre requesting a date for initial
meeting in accordance with the Conciliation Rules.
(b) In the event that the Dispute is not resolved by agreement following
conciliation within ninety (90) days from the date first nominated for meeting
by the Centre pursuant to paragraph 12(a), the Dispute shall be referred to and
determined by arbitration, administered by the Centre, conducted in Sydney and
held under the rules of arbitration of the International Chamber of Commerce by
one or more arbitrators appointed in accordance with the said rules. The
parties shall be entitled to legal representation in such arbitration.
(c) Neither party hereto shall commence any action or claim in any court
or other tribunal unless and until the Dispute has been referred to and
determined by arbitration under paragraph 12(b) hereof and an award has been
delivered by the arbitrator or arbitrators appointed pursuant thereto. All
proposals, discussions, statements, information supplied and other matters
raised during conciliation and arbitration under this clause shall be
confidential and without prejudice to any claim or proceeding subsequently made
or brought by either party.
13. NO PARTNERSHIP OR JOINT VENTURE
The relationship between Licensor and Licensee, respectively, is that of
Licensor and Licensee. Licensee is an independent contractor and is not the
legal representative, agent, joint venturer, partner, or employee of Licensor
for any purpose whatsoever. Neither party shall have any right or authority to
assume or create any obligation of any kind or to make any representation or
warranty on behalf of the other party, whether express or implied, or to bind
the other party in any respect or manner whatsoever.
14. ASSIGNMENT
This Agreement shall inure to the benefit of Licensor and Licensee and their
respective successors and assigns. Licensee may assign, transfer, convey or
sublicense the license and
12
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associated rights granted herein its sole discretion, however, the Licensee
shall continue and remain liable to the Licensor with respect to its obligations
hereunder. Licensor may not assign any of the rights to the Property dealt with
under this Agreement to any person, firm, corporation or other entity for the
term of the agreement without the prior written authorisation of Licensee.
15. COMPLIANCE WITH APPLICABLE LAWS
The parties shall at all times comply with all applicable statutes, laws,
ordinances, regulations and orders of Australia, and with all conventions and
treaties to which Australia is a party, which relate to or in any way affect
this Agreement and/or the parties' respective exercise of theft rights or
performance of their obligations hereunder. Each party, at its own expense,
shall obtain any license, permit or approval required with respect to the
exercise of any of its rights and/or performance of any of its obligations
hereunder, and shall declare, record or take such steps to render this Agreement
binding, including, without limitation, the recording of this Agreement with any
appropriate governmental authorities (if required).
16. FORCE MAJEURE
Neither party shall be liable for any loss or damage or be deemed to be in
breach of this Agreement if its failure to perform or failure to cure any of its
respective obligations hereunder results from any event or circumstance beyond
its reasonable control, including, without limitation, any natural disaster,
fire, flood, earthquake, or other Act of God; shortage of equipment, materials,
supplies, or transportation facilities: strike or other industrial dispute; war
or rebellion: or compliance with any law, regulation, or order (whether valid or
invalid) of any governmental body: provided, however, that the party interfered
with gives the other party written notice thereof promptly, and, in any event,
within thirty (30) working days of discovery of any such Force Majeure
condition. If notice of the existence of any Force Majeure condition is
provided within such period, the time for performance or cure shall be extended
for a period equal to the duration of the Force Majeure event or circumstance
described in such notice, except that any such cause shall not excuse the
payment of any sums owed to Licensor prior to, during, or after any such Force
Majeure condition.
17. REMEDIES
Unless expressly set forth to the contrary, either party's election of any
remedies provided for in this Agreement shall not be exclusive of any other
remedies available hereunder or otherwise at law or in equity, and all such
remedies shall be deemed to be cumulative.
18. SEVERABILITY
In the event that any provision of this Agreement (or portion thereof) is
determined by a court of competent jurisdiction to be invalid or otherwise
unenforceable, such provision (or part thereof) shall be enforced to the extent
possible consistent with the stated intention of the parties, or, if incapable
of such enforcement, shall be deemed to be deleted from this Agreement, while
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the remainder of this Agreement shall continue in full force and remain in
effect according to its stated terms and conditions.
19. WAIVER
No failure or delay by either party in exercising any right, power, or remedy
under this Agreement shall operate as a waiver of any such right, power, or
remedy. No waiver of any provision of this Agreement shall be effective unless
in writing and signed by the party against whom such waiver is sought to be
enforced. Any waiver by either party of any provision of this Agreement shall
not be construed as a waiver of any other provision of this Agreement, nor shall
such waiver operate as or be construed as a waiver of such provision respecting
any future event or circumstance.
20. ENTIRE AGREEMENT
This Agreement including Exhibit "A" attached hereto constitutes the entire
understanding of the parties, and revokes and supersedes all prior or
contemporaneous agreements, proposals, understandings, and communications
between Licensor and Licensee, whether oral or written, with respect to the
subject matter hereof and is intended as a final expression of their Agreement.
It shall not be modified or amended except in writing signed by the parties
hereto and specifically referring to this Agreement. This Agreement shall take
precedence over any other documents which may be in conflict with said
Agreement.
21. INTERPRETATION
In the interpretation of this Agreement unless the context otherwise requires:
(a) words importing the singular shall include the plural and vice
versa:
(b) words importing one gender shall include the other genders:
(c) expressions are to be interpreted in accordance with their meaning
in the COPYRIGHT ACT 1968 (Commonwealth);
(d) all sums are payable as and in Australian dollars;
(e) clause headings shall be disregarded;
(f) all warranties shall during the term of this Agreement have the
force and effect of conditions;
(g) all warranties survive completion of this Agreement
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22. FURTHER DOCUMENTATION
The parties hereto agree to perform such other and further acts and execute,
acknowledge and deliver such other and further documents and instruments as may
be necessary or appropriate to carry out the intent of this Agreement.
23. GOVERNING LAW
This Agreement shall be construed and governed in accordance with the laws of
the State of New South Wales.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the day
and year herein before written.
Sega Ozisoft Pty Limited Eat Cyberfist Pty Limited
- ------------------------ -------------------------
/s/ Kevin Bermeister /s/ Samuel Young
- ---------------------------- -----------------------------
Name: Kevin Bermeister Name: Samuel Young
Title: Managing Director Title: Director
/s/ Damon Pembroke /s/ Stuart Hale
- ---------------------------- -----------------------------
Witness: Damon Pembroke Witness: Stuart Hale
15
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EXHIBIT "A"
-----------
All information contained in this Exhibit is to be incorporated and read in
conjunction with the applicable terms and conditions contained herein, as well
as this Agreement in whole, for the purpose of further defining the licensed
Property known as Cyberswine and all other ancillary characters appearing in the
CYBERSWINE comic book, examples of the reproduced artwork are incorporated and
attached to this exhibit.
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EXHIBIT 10.13
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is entered into this 2nd day of November 1995 by and
between BRILLIANT INTERACTIVE IDEAS PTY LTD ACN 061 288 668 of Lvl 1, 17 The
Corso, Manly, NSW, 2095 (hereinafter referred to as "BII ") and ROADSHOW
ENTERTAINMENT PTY LTD ACN 005 078 428 located at The Merlin Centre, 235 Pyrmont
St, Pyrmont, NSW, 2009 (hereinafter referred to as "ROADSHOW").
WHEREAS ROADSHOW is in the business of publishing and distributing computer
software in Australia and New Zealand and BII are in the business of developing
interactive multimedia software products. ROADSHOW is desirous of publishing and
distributing the various software products as listed in Appendix A hereto, that
BII have developed.
NOW THEREFORE THE PARTIES do agree as follows:
Territory is defined as Australia and New Zealand and all those islands normally
serviced from Australia and New Zealand as follows:-
(a) Australia
Papua New Guinea and mandated territories, including New Britain,
New Ireland, Admiralty Islands, Solomon Islands (including
Bougainville), Vanuatu, New Caledonia, Christmas Islands, Ashmore
Islands, Ocean Island, Nauru;
(b) New Zealand
Cook Islands, Fijian Islands, Samoan Islands (excluding American
Samoa), The Tongan Islands, Raratonga, Norfolk Island, Kiribati
(formerly Gilbert Islands), Tuvalu (formerly Ellice Islands), The
Takelau Islands.
1. BII have developed a range of CD-ROM software titles for ROADSHOW
hereinafter referred to as the "Products ". (as listed in Appendix
A).
2(a). The Products shall be delivered in object code in a form compatible
with IBM PC running under Windows V3.x and Windows 95, as well as
Macintosh from Apple Computer.
2(b). BII agrees to rectify all software bugs which are defined as
programming errors in the Products reported by ROADSHOW within 30
days or as agreed between the parties.
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3(i). BII grants to ROADSHOW the exclusive right to reproduce, publish,
distribute, display and sell the Products in the Territory on all
hardware platforms (excluding on-line and remote delivery systems)
whether now known or hereinafter devised and to all markets whether
or not now known provided that in the event that BII are approached
by another organisation (the Approachor) wishing to convert any of
the Products to another hardware platform other than IBM PC or
Macintosh from Apple Computer and the Approachor requires worldwide
distribution then BII shall be entitled to enter into an agreement
with the Approachor for worldwide distribution provided that BII
notify ROADSHOW in writing of the approach and BII use their best
efforts to secure the exclusive distribution rights on the hardware
platform for ROADSHOW in the Territory.
ROADSHOW shall not be entitled to make any alterations to the object
code of the Products without the written consent of BII. Such
consent shall not be unreasonably withheld.
3(ii). ROADSHOW shall not distribute or export directly or indirectly any
copies of the Product outside the Territory and ROADSHOW shall not
distribute, sell or make available any copies of the Product to
anyone in the Territory, whom ROADSHOW knows or ought to know, will
export copies of the Product outside the Territory.
4(i). The rights as granted in clause 3 above are the exclusive rights for
the Territory and shall not conflict with any other rights granted
by BII.
4(ii). BII further grants to ROADSHOW OEM and bundle rights to the Products
for the Territory. These rights are independent of the other rights
as granted above.
5(i) ROADSHOW shall pay to BII a royalty of CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION% of the Net Revenue received by ROADSHOW for each Product
sold under clause 3 and 4(ii) above. Net Revenue is defined as gross
revenue actually received by ROADSHOW from the sale and exploitation
of Products less cash and credit returns, warranty replacements and
sales tax payable on the Products. No royalty shall be due on
Products distributed at no charge under clause 22 of this Agreement
to distributors, sub-distributors or dealers for promotional or
evaluation purposes.
ROADSHOW shall retain BII's royalties as enumerated above in respect
of all Products until ROADSHOW shall have recouped therefrom
cumulatively a sum equal to all advances or guarantees which have
been paid or are payable to BII under the terms of this agreement.
After said sum is recouped by ROADSHOW, ROADSHOW shall disburse
BII's royalties to BII in accordance with clause 5 (ii) hereof.
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5(ii). ROADSHOW shall pay to BII the royalties due under clause 5(i) above,
each calendar quarter (March, June, September and December) within
30 days after the end of each calendar quarter. Such royalty
payments are subject to the recoupment of advances from BII's share
as contained in clause 6 below.
5(iii). ROADSHOW shall provide BII a quarterly sales and royalty report,
certified as correct by an authorized officer of ROADSHOW (the
Certified Sales and Royalty Report) when remitting the royalty
payments as detailed in clause 5 (ii) above. Where royalties payable
are offset against advances then the Certified Sales and Royalty
report shall still be provided to BII within 30 days from the end of
the calendar quarter.
In the event that the Certified Sales and Royalty report has not
been provided to BII within 45 days from the end of the calendar
quarter then BII shall be entitled to appoint an independent party
to examine ROADSHOW's records for the purpose of ascertaining the
royalties due for the relevant period. The cost of the independent
party in determining the royalties due plus any royalties due shall
be paid to BII within 14 days of ROADSHOW receiving written
notification from BII of the amount due.
6. ROADSHOW shall pay to BII a sum of AUD $CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION) being a non-refundable
development advance to be recouped against royalties due to BII, for
each Product sold under clause 5 above. The advance shall be payable
as follows:
(a) AUD $CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION on the execution
of this Agreement;
(b) AUD $CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION per Product upon
the delivery to ROADSHOW of the gold master and all
necessary artwork (such artwork to be supplied on a syquest
cartridge or CD-ROM) for the release of the Product, for
each Product;
(c) AUD $CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION per Product
within 45 days of the delivery of the gold master and all
necessary artwork for the release of the Product, for each
Product;
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<PAGE>
ROADSHOW agrees that the payment of the advances in 6(b) and 6(c) above will not
be delayed as a result of amendments and changes that may be requested by
ROADSHOW.
7. In the event of ROADSHOW not releasing a given Product in any
country or land within the Territory within CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION of ROADSHOW receiving the gold master and
artwork for the Products then the rights granted under clauses 3 and
4 of this Agreement for the given Product shall revert back to BII
for the country or island within the Territory that the Products
have not been released in, unless agreement is reached between
ROADSHOW and BII to extend the CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
period. In the event of the rights granted in clauses 3 and 4
reverting back to BII under this clause, for a country or island
within the Territory, the definition of Territory shall be changed
to exclude the country or island.
8. Left Blank
9. ROADSHOW shall use it's best commercially reasonable endeavors to
promote and expand the sale of the Products in all parts of the
Territory and in all sectors of the market on the maximum possible
scale by all reasonable means. ROADSHOW shall fulfil all orders for
the Product within a reasonable time after receipt of the order and
shall not make any false, misleading or deceptive statements in
respect of the Product.
10. ROADSHOW shall keep complete and accurate records regarding the
production, replication and distribution of the Products and shall
upon 10 business days notice from BII allow BII or its agent to
inspect all of these records and other related documents during
normal working hours. In the event of any discrepancies being noted
ROADSHOW agree to pay BII within 10 days all additional moneys owing
and where the discrepancy exceeds CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION% of
the amount that is due to BII, ROADSHOW agrees to pay all costs
incurred by BII in conducting the inspection of ROADSHOW's records.
BII's ability to conduct the above mentioned inspection is
restricted to once every year and
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<PAGE>
on termination of this Agreement for any reason whatsoever.
11(i). BII may terminate this Agreement immediately upon giving written
notice to ROADSHOW if:
(a) ROADSHOW falls to make any payment when due or otherwise
breaches a major provision or warranty of this Agreement and
has not rectified such breach within CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION) CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION of
notice from BII; or
(b) ROADSHOW dissolves, liquidates or bankruptcy, insolvency or
winding up procedures are commenced by ROADSHOW or are
brought against ROADSHOW and such proceedings are not set
aside within CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION of their commencement.
11(ii) ROADSHOW may terminate this Agreement immediately upon giving
written notice to BII if BII dissolves, liquidates or if bankruptcy,
insolvency or winding up procedures are commenced by BII or are
brought against BII and such proceedings are not set aside within
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION of their commencement; or if BII
otherwise breaches a major provision or warranty of this Agreement
and does not rectify the breach within CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION days after receiving written notice of the
breach from ROADSHOW.
11(iii) If this Agreement is terminated by ROADSHOW due to a breach by BII
under clause 11 (ii) above then BII shall refund any unrecouped
portion of the advance
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<PAGE>
theretofore paid provided that the breach by BII is not due to an
unjustified, negligent or wilful act by ROADSHOW or any of
ROADSHOW's employees, agents, contractors or subcontractors.
12. If this Agreement is terminated for any reason, ROADSHOW shall:
(a) immediately return all masters of the Products to BII; and
(b) have the fight to sell it's existing stocks of the Product
for a period of CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION, from the date the Agreement is
terminated subject to payment to BII of all royalties due
under this agreement;
(c) at the expiration of the CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION period referred to in clause 12(b) above ROADSHOW
shall destroy all remaining stock of the Products held by
ROADSHOW and provide BII with written notice certifying that
all remaining stock has been destroyed.
13. BII shall be responsible for any and all other royalties due on the
Products to third parties including music royalties, animation
royalties and licensing royalties.
14. BII provides no warranty as to names being used including the name
Brilliant Interactive Ideas in the territories in which ROADSHOW
distributes. In the event a name change is needed for legal reasons
then the parties shall consult as to the new name and BII shall make
the necessary changes at its expense. BII shall indemnify ROADSHOW
to the extent of direct costs incurred by ROADSHOW as a result of
any such name variation.
BII warrants that it is not aware of any contraventions caused by
the names that are used.
15.(i). The names used are the property of BII and ROADSHOW shall have no
claim to these or any other names being used.
BII retains any and all of the copyrights contained in the Products
and ROADSHOW shall have no rights in the copyrights or other
intellectual rights contained in the
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<PAGE>
Products. All Products shipped shall reflect the appropriate
copyrights which shall be provided to ROADSHOW simultaneously with
the masters. Any press releases or advertisement for the Products
shall reference BII as the developer and shall contain the
appropriate copyright notices as provided.
15(ii). BII hereby authorizes ROADSHOW to take any and all action that
ROADSHOW deems necessary to protect and enforce BII's copyright in
the products. ROADSHOW shall notify BII in writing of any and all
action that ROADSHOW takes prior to the commencement of the action
and shall keep BII fully informed of the status and progress of the
action. Where as a result of such action by ROADSHOW damages are
awarded then ROADSHOW shall be entitled to recover from the damages
all costs incurred as a result of the action and any residual amount
remaining shall be split equally between ROADSHOW and BII.
16. Left Blank
17. Left Blank
18. BII represents and warrants that:-
(a) the Products, as delivered to ROADSHOW, will not infringe the
patent, copyright, trademark, trade secret or other proprietary or
privacy rights of any third party. Each party shall fully indemnify
the other (and its affiliates, shareholders, directors, officers,
employees and agents) against all losses, costs, charges and
expenses arising from such party's negligence in connection with
this Agreement;
(b) that BII is a corporation duly incorporated and validly existing in
good standing under the laws of the state of its incorporation; and
has full rights, power, legal capacity and authority to enter into
this Agreement and to carry out the terms hereof and perform its
obligations hereunder;
(c) That BII has secured or will secure, prior to delivery of each of
the Products all rights necessary to enable ROADSHOW to exercise its
Product distribution rights under this Agreement, without incurring
any obligations or liabilities whatsoever to any person and any
obligations or liabilities arising shall be and remain the sole
responsibility and obligation of BII. BII further warrants that it
has obtained all applicable licenses and has paid and / or will
timely pay all applicable payment for the rights to reproduce,
distribute, perform and display such works, as applicable, without
any rights of reimbursement from ROADSHOW.
(d) the Products pursuant to the terms of this Agreement satisfy or will
be capable of satisfying all censorship requirements within the
Territory.
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<PAGE>
19. ADDITIONAL RIGHTS
BII hereby grants to ROADSHOW and ROADSHOW hereby accepts the
following additional rights for the Territory and upon the terms and
conditions of this Agreement:-
(a) The right to have sole, full and complete discretion concerning the
manufacture / duplication, distribution, marketing and other
exploitation of the Products in accordance with the terms and
conditions of this Agreement;
(b) The right to make written summaries, extracts and synopses of the
Products, for the purpose of advertising, exploiting and publicising
the Products and to use, exhibit and or broadcast excerpts of the
Products for the purpose of advertising, publicising and otherwise
promoting the Product including without limitation the right to
incorporate extracts in catalogues of all kinds, whether electronic
or not;
(c) The right to access to use such advertising promotion and publicity
material as BII may own or control;
(d) The right to create and prepare materials for the promotion
advertising and publicising of the Products provided that all
advertising or publicity for the Products shall comply with all
credit obligations of BII of which ROADSHOW shall have been given
prior written notice;
(e) The right to use the trademarks and designs on and in the Products
in association with the sale or hire hereof as permitted by this
Agreement;
(f) The right to use whatever duplicator that it in its unfettered
discretion considers is most appropriate in all the circumstances
for the duplication of units of the Products.
20. END USER TECHNICAL SUPPORT
(a) ROADSHOW shall provide end user technical support to all end users
of the Products. BII will provide reasonable telephone consultation
to ROADSHOW with respect to any questions or problems concerning the
Products or the use of the Products;
(b) At ROADSHOW's request, BII shall provide reasonable assistance to
ROADSHOW's software, support personnel in connection with ROADSHOW's
technical support of end users of the Product Packages.
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21. WITHHOLDINGS
All amounts payable hereunder shall be subject to all laws and
regulations now or hereafter in existence requiring the deduction
and / or withholding of moneys for income, sales, or other taxes
assessable with respect to fees hereunder. ROADSHOW shall be
entitled to withhold such taxes and remit the same to the taxing
entity within the Territory and will use best efforts to furnish BII
with certificates evidencing the withholding and payment of any such
taxes. The benefit of the resultant tax credits arising from the
payment of the withholding taxes shall accrue to BII.
22. FREE SAMPLES
BII agrees to allow ROADSHOW to produce sixty (60) copies, or a
greater number of copies as agreed between ROADSHOW and BII, of Not
For Resale units of each Product for promotional purposes. No fees
or royalties shall be payable to BII for these Not For Resale units
under the terms of this agreement
23. ROADSHOW agrees to provide BII with 100 copies of Not For Resale
units of each Product for BII's promotional purposes. Such Not for
Resale units to be provided to BII at ROADSHOW'S cost of producing
the unit.
24. Each party shall treat as confidential all information of a
confidential nature of the other party which comes into it's
possession under this Agreement.
25. The term of this Agreement shall be for a period of CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION from the date of signing of this Agreement.
26. This Agreement shall be governed by the laws of New South Wales.
27. ASSIGNMENT
This Agreement may not be assigned by either party without the
express written approval of the other party. Such approval may not
be unreasonably withheld.
28. NOTICES
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28.1 Any notice, communication or other document authorised or required
to be given or sent pursuant to this Agreement (herein referred to
as a "Notice") shall unless otherwise specifically provided by this
Agreement be in writing addressed as follows:-
TO BII: Level 1, 17 The Corso
Manly
NSW 2095
Telephone: (02) 9977 4277
Facsimile: (02) 9977 4123
For the Attention of: Mark Miller
TO ROADSHOW:
4th Floor, The Merlin Centre
235 Pyrmont St.
Pyrmont
NSW 2009
Telephone: (02) 552 8600
Facsimile: (02) 552 2510
For the Attention of: David Lyons
or such other address as the relevant addressee may hereafter
specify for such purpose to the other party to this Agreement by
notice in writing.
28.2 A notice includes communication by facsimile. The sender of any
communication by facsimile shall forthwith confirm the same by
letter, but failure by the addressee to receive the same shall not
prejudice the validity or effect of such facsimile.
28.3 A notice shall be signed or, in the case of a facsimile, purport to
be signed, by the party originating the notice or by a director or
secretary of that party if it is a corporation.
28.4 A notice which is sent by prepaid mail shall be deemed to be
received on the third day following the day on which it was posted.
28.5 A notice which is sent by facsimile shall be deemed to be received
at the time printed on the printout by the machine on which the
notice is transmitted.
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29. RELATIONSHIP OF PARTIES.
Each party is acting as an independent contractor and not as an
agent, partner, or joint venturer with the other party for any
purpose. Except as provided in this Agreement, neither party shall
have any right, power, or authority to act or to create any
obligation, express or implied, on behalf of the other.
30. FORCE MAJEURE.
Neither party shall be responsible for delays or failure of
performance resulting from acts beyond the reasonable control of
such party. Such acts shall include, but not be limited to, acts of
God strikes, walkouts, riots, acts of war, epidemics, failure of
suppliers to perform, government regulations, power failure(s),
earthquakes, or other disasters.
31. SURVIVAL OF CERTAIN PROVISIONS.
The confidentiality obligations set forth in the Agreement shall
survive the termination of this Agreement by either party for any
reason.
32. HEADINGS.
The titles and headings of the various sections and paragraphs in
this Agreement are intended, solely for convenience of reference and
are not intended for any other purpose whatsoever, or to explain,
modify, or place any construction upon or on any of the provisions
of this Agreement.
33. ALL AMENDMENTS IN WRITING.
No provisions in either party's purchase orders, or in any other
business forms employed by either party will supersede the terms and
conditions of this Agreement, and no supplemental modification, or
amendment of this Agreement shall be binding, unless executed in
writing by duly authorised representative of each party to this
Agreement.
34. ENTIRE AGREEMENT.
The parties have read this Agreement and agree to be bound by its
terms, and further agree that it constitutes the complete and entire
agreement of the parties and supersedes all previous communications,
oral or written, and all other communications between them relating
to the license and to the subject matter hereof. No representations
or statements of any kind made by either party, which are not
expressly stated herein, shall be binding on such party.
11
<PAGE>
35. WAIVER
Failure by either party to insist upon the performance of any or
more of the conditions hereof shall not be deemed to be a waiver of
any rights and remedies that that party may have and shall not
deemed a waiver of any subsequent breach or default. No provision of
this agreement shall deemed to have been waived unless such waiver
shall be in writing and signed by a person being or purporting to be
a director, manager, secretary or other officer of the party giving
notice in their behalf.
36. SEVERABILITY
If any clause or part hereof shall be held or be deemed invalid or
unenforceable for any reason whatsoever, then such clause or part
thereof shall be deemed to be deleted from this Agreement and the
Agreement shall otherwise remain in full force and effect. The
parties hereto agree to replace any invalid, illegal or
unenforceable provision with a provision which has the most similar
permissible economic and legal effect to the invalid, illegal or
unenforceable provision.
By their signatures below the parties agree to be bound by the terms of this
Agreement.
/s/ Kathryn Hamilton /s/ Mark Miller
- -------------------------- ---------------------
ROADSHOW ENTERTAINMENT PTY BRILLIANT INTERACTIVE IDEAS PTY
ACN 005 078 428 LTD
Name: Kathryn Hamilton ACN 061 288 668
Position: Director Acquisitions Name: Mark Miller
Position: Managing Director
12
<PAGE>
Appendix A
The Products are:
A. CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
B. CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
C. CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
D. CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
13
<PAGE>
EXHIBIT 10.14
PUBLISHING AGREEMENT
In consideration of the mutual promises contained in this PUBLISHING AGREEMENT,
Shortland Publications Limited, of 360 Dominion Rd, Auckland 3, Zealand, a New
Zealand Corporation ("Licensor"), and Brilliant Interactive Ideas Pty Limited
ACN 061 228 668, of Level 1, 17 The Corso, Manly, New South Wales, Australia,
2095, an Australian corporation ("Licensee"), agree as follows:
1. DEFINITIONS
For purposes of this Agreement:
(a) "Agreement" means this PUBLISHING AGREEMENT, together with Exhibits A and B
and any other addenda attached hereto and each supplemental Exhibit A signed by
both parties, as the same may be amended from time to time in accordance with
this Agreement.
(b) "Effective Date" shall mean the date upon which this Agreement has been
executed by both parties.
(c) "License Fees" shall mean the license fees payable by Licensee for the
rights granted herein as set forth in Exhibit A.
(d) "Licensed Materials" means the copyrighted materials identified in Exhibit
B, including all updates, revisions, new volumes and sequels thereto.
2. GRANT OF LICENSE
Without limiting the foregoing the Licensor grants the Licensee the worldwide
non exclusive right to publish, reproduce, perform in public, broadcast,
transmit to subscribers under a diffusion service, broadcast and adapt (and do
all the foregoing in relation to such adaptation) the Licensed Materials
electronically, including without limitation, on computer disc and magnetic
medium, CD-ROM, CD-I, ROM-cartridge.
3. EFFECTIVE DATE AND TERM
The term of this Agreement and of each license granted under this Agreement
shall begin on the Effective Date and shall continue thereafter for a period of
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION or until this
Agreement is terminated under Section 12 below.
1
<PAGE>
So long as Licensee is in compliance with the terms and conditions of this
Agreement, this Agreement shall be automatically renewed for subsequent
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION) year terms.
4. PAYMENT, REPORTING AND AUDIT
(a) For the rights granted herein, Licensee shall pay Licensor the License Fees
set forth in Exhibit A. License Fees shall be based upon gross amounts received
by Licensee and payable for each copy of the Licensed Materials for which
Licensee receives compensation from Licensee's customer. Licensee shall be
entitled to a credit equal to the License Fees previously paid by Licensee for
Licensed Materials returned to Licensee by Licensee's customers. The Licensee
shall be entitled to deduct any withholding tax from the License Fees and shall
advise the Licensor of the amount and particulars of any deduction in order that
the Licensor may apply for any applicable foreign tax credit.
(b) Within twenty-five (25) days after each calendar quarter, Licensee shall
provide Licensor with a report setting forth the number of copies of Licensed
Materials distributed by Licensee during the preceding calendar quarter and the
gross amount received by Licensee from Licensee's customers for Licensed
Materials. At the time such report is submitted to Licensor, Licensee shall pay
Licensor the License Fees then due.
(c) In order to enable Licensor to audit the statements submitted by Licensee
under this Agreement, Licensee shall maintain at Licensee's place of business
referenced in the Agreement complete and accurate books and records, examination
of which would enable an independent chartered accountant, agreed to by the
parties, to audit the statements submitted by Licensee under this Agreement.
Once a year and upon thirty (30) days written notice, the said independent
chartered accountant may conduct, at Licensor's sole cost and expense, such
audits as reasonably necessary to determine Licensee's compliance with its
reporting and payment obligations under this Agreement. Licensee agrees to
reasonably cooperate with the independent chartered accountant in performing
such audits. Such audits as are conducted shall be subject to such reasonable
scrutiny procedures and limitations as Licensee may impose, and the independent
chartered accountant and Licensor and respective employees, agents and
contractors shall make no use of any information obtained in the course of such
audits other than for the purposes hereof. Independent chartered accountant and
Licensor and respective employees, agents or contractors shall retain no copies
of any materials or data obtained in the course of such audits other than that
reasonably necessary to verify Licensee's performance. If such audits reveal
that Licensee has under-reported the number of copies of Licensed Materials for
which Licensee received compensation from Licensee's customers on any report
submitted pursuant to Section 4(b) above, Licensee shall pay to Licensor the
appropriate License Fees due and owing and bear the cost of the audit.
5. SHIPMENT AND DELIVERY
Licensor will ship the Licensed Materials, in hard copy, to Licensee within
CONFIDENTIAL
2
<PAGE>
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION after the Effective Date.
All shipments hereunder shall be F.O.B. Licensee.
6. LICENSEE'S OBLIGATIONS
(a) Licensee agrees to use its reasonable efforts to publish and market the
Licensed Materials as deemed appropriate in Licensee's sole discretion.
(b) Notwithstanding Section 6(a) above, Licensee shall be entitled to
discontinue marketing the Licensed Materials, or any portion thereof. Further,
Licensee, in its sole discretion, shall be entitled to determine the method and
form of marketing, distribution and publication of the Licensed Materials, as
the same may be changed by Licensee.
7. LEFT BLANK
8. LEFT BLANK
9. PROPRIETARY RIGHTS
(a) Licensor warrants that it has the right to enter into this Agreement and
grant the rights and licenses granted to Licensee hereunder.
(b) Title to the Licensed Materials is not being transferred to Licensee under
this Agreement. Instead, Licensee is granted a license to the Licensed Materials
as set forth herein.
10. INDEMNITIES
(a) The Licensor shall indemnify, defend and hold Licensee, its agents and
employees, harmless from any loss, damage or liability (including attorneys'
fees, costs and expenses) resulting from a claim that Licensed Materials
infringe any copyright, license, trade secret, or other proprietary rights of a
third party and in addition the Licensor shall:
(i) procure for the Licensee the right to continuance to use the
Licensed Materials in accordance with this Agreement; or
(ii) modify the Licensed Materials so that they become non infringing,
provided this is acceptable to the Licensee; and
(iii) where the Licensor does not comply with Clauses 10(a)(i) or (ii),
refund any
3
<PAGE>
License Fees that have been paid by the Licensee relating to the
infringing Licensed Materials.
(b) Licensor shall indemnify, defend and hold Licensee, its agents and
employees, harmless from any loss, damage or liability (including attorneys'
fees, costs and expenses) resulting from a claim that Licensed Materials is
defamatory, libelous or untrue.
11. LIMITATION OF LIABILITY AND REMEDY
EXCEPT AS SET FORTH IN SECTION 10, NEITHER PARTY SHALL BE LIABLE FOR ANY
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT
LIMITATION, PERSONAL INJURY, PROPERTY DAMAGE, LOST PROFITS OR OTHER ECONOMIC
LOSS ARISING IN CONNECTION WITH THIS AGREEMENT AND LICENSEE'S PUBLICATION OF THE
LICENSED MATERIALS. THIS LIMITATION OF LIABILITY WILL APPLY REGARDLESS OF THE
FORM OF ACTION, WHETHER IN CONTRACT OR TORT, INCLUDING NEGLIGENCE AND
INDEPENDENT OF ANY FAILURE OF ESSENTIAL PURPOSE OF THE LIMITED WARRANTY AND
REMEDIES PROVIDED HEREUNDER. THIS DISCLAIMER SHALL APPLY WHETHER OR NOT THE
OTHER PARTY HAS BEEN APPRISED OF THE POSSIBILITY OF SUCH DAMAGES PROVIDED ALWAYS
THAT THE FOREGOING SHALL NOT EXCLUDE THE LICENSOR'S LIABILITY FOR DIRECT DAMAGES
OR RELIANCE DAMAGES RESULTING FROM THE LICENSOR'S NEGLIGENCE OR A BREACH OF THIS
AGREEMENT.
12. TERMINATION
(a) In the event either party breaches any material provision of this Agreement
and fails to remedy the breach within CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION)
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION after written notice thereof, the non-breaching party may
terminate this Agreement immediately by giving breaching party written notice.
(b) Licensee may terminate this Agreement upon CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION prior written notice.
(c) Upon termination of this Agreement, all licenses granted by Licensor to
Licensee
4
<PAGE>
hereunder shall terminate. Notwithstanding the foregoing, after termination of
this Agreement, Licensee shall be entitled to distribute all Licensed Materials
or products in which the Licensed Materials have been incorporated remaining in
Licensee's inventory or in relation to which the Licensee has entered into
binding commitments with its customers to supply.
(d) The provisions of Sections 4, 9, 10, 11, 13 and 14 of this Agreement shall
survive any termination.
13. NOTICE
Every notice or other communication required or contemplated by this Agreement
shall be delivered either by (i) personal delivery, (ii) postage prepaid return
receipt requested, registered or certified mail, (iii) nationally recognized
overnight courier, or (iv) facsimile with a confirmation copy sent
simultaneously by postage prepaid, return receipt requested, registered or
certified mail, in each case addressed to the party for whom intended at the
address appearing after that party's signature on this Agreement or at such
other address as the intended recipient previously shall have designated by
written notice to the other party. Notices shall be effective on the earliest
of the date of personal delivery, the date officially recorded as delivered by
official postal or independent courier service, the date sent if sent by
facsimile, or the seventh (7th) business day after any deposit in the mail.
Notice not given in writing shall be effective only if acknowledged in writing
by a duly authorized representative of the party to whom it was given.
14. GENERAL
(a) Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original instrument, but all of which together
shall constitute only one and the same instrument.
(b) Law to Govern. The construction, interpretation and performance of this
Agreement and all transactions related thereto shall be governed by and
construed in accordance with the substantive laws of New Zealand. The parties
expressly agree that the United Nations Convention on Contracts for the
International Sale of Goods shall not apply to this Agreement. Further, each
party consents to the jurisdiction of, and venue in, New Zealand, and agrees
that any action or lawsuit arising under this Agreement or relating to the
subject matter thereof shall be maintained in New Zealand.
(c) Written Agreement to Govern; Amendments; Waivers. This Agreement sets forth
the entire understanding and supersedes and merges all prior and contemporaneous
agreements between the parties relating to the subject matter contained herein,
and neither party shall be bound by any provision, amendment or modification
other than as expressly stated in or contemplated by this Agreement or as
subsequently shall be set forth in writing and executed by a duly authorized
representative of the party to be bound thereby. All waivers hereunder must
5
<PAGE>
be made in writing, and failure at any time to require the other party's
performance of any obligation under this Agreement shall not affect the right
subsequently to require performance of that obligation. Any waiver of any breach
of this Agreement shall not be construed as a waiver of any continuing or
succeeding breach.
(d) Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law;
but if any provision of this Agreement should be prohibited or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, and the balance of this Agreement shall be
interpreted as if such provision were so excluded. The parties hereto agree to
replace any invalid, illegal or unenforceable provision with a provision which
has the most similar permissible economic and legal effect to the invalid,
illegal or unenforceable provision.
(e) Subject Headings. The subject headings of the Sections of this Agreement
are included for the purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
(f) Attorneys' Fees. If any action or proceeding shall be commenced to enforce
or interpret this Agreement or any right arising in connection with this
Agreement, the prevailing party in such action or proceeding shall be entitled
to recover from the other party all reasonable attorneys' fees, costs and
expenses incurred by such prevailing party in connection with such action or
proceeding.
(g) Successors and Assigns. This Agreement shall be binding on, and shall inure
to the benefit of, the successors and assigns of Licensor and Licensee. The
Licensee shall be entitled to assign this Agreement and the Licensor will
consent to such assignment provided that the Licensor shall be entitled to
withhold consent if it believes that the Licensee's proposed assignee is not a
fit and proper party.
(h) Relationship of Parties. The relationship of the parties is that of
independent contractors. No one party is the agent of the other and neither
party is authorized to act on behalf of the other party.
6
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the date first set forth below.
"Licensor" "Licensee"
Shortland Publications Limited Brilliant Interactive Ideas Pty Limited
A New Zealand Corporation ACN 061 228 668
An Australian corporation
By /s/ Avalyn Davidson By /s/ Mark Miller
--------------------------- ---------------------------
Signature Signature
Avalyn Davidson Mark Miller
- ------------------------------ ------------------------------
Name (Type or Print) Name (Type or Print)
Managing Director Managing Director
- ------------------------------ ------------------------------
Title Title
9 March 1994 9 March 1994
- ------------------------------ ------------------------------
Date Date
Address: Address:
360 Dominion Road Level 1, 17 The Corso
Auckland 3 Manly
New Zealand NSW, Australia 2095
Phone: 64 9 638 7128 Phone: 612 977 4277
Fax: 64 9 638 8422 Fax: 612 977 4123
7
<PAGE>
EXHIBIT A TO AGREEMENT
License Fees:
- ------------
Licensee shall pay Licensor CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION percent (CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION%) of amounts actually received by Licensee from its customer for the
License Materials until such time as the cost of development and production of
the Licensed Materials has been recovered and then the Licensee shall pay
Licensor CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION percent (CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION%) of amounts
actually received by Licensee from its customer for the Licensed Materials.
Licensee shall be entitled to a credit for unpaid amounts owed to Licensee, the
return of Licensed Materials by Licensee' customers, rebates and refunds.
8
<PAGE>
EXHIBIT B TO AGREEMENT
Description of Licensed Materials:
<TABLE>
<CAPTION>
=========================================================================
Title Author Illustrator
<S> <C> <C>
CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION INFORMATION INFORMATION
OMITTED AND FILED OMITTED AND FILED OMITTED AND FILED
SEPARATELY WITH SEPARATELY WITH THE SEPARATELY WITH
THE SECURITIES AND SECURITIES AND THE SECURITIES AND
EXCHANGE EXCHANGE EXCHANGE
COMMISSION COMMISSION COMMISSION
- -------------------------------------------------------------------------
</TABLE>
9
<PAGE>
10
<PAGE>
EXHIBIT 10.15
SETTLEMENT AGREEMENT
AND MUTUAL GENERAL RELEASE
This Settlement Agreement and Mutual General Release ("Agreement") is
entered into effective this _____ day of April 1996, by and between Brilliant
Interactive Ideas Pty Ltd ("BII"), Ray Musci ("Musci"), Ocean of America, Inc.
("Ocean"), and Ocean Software, Ltd. and Ocean International, Ltd. (jointly
"Guarantors").
RECITALS
A. On January 5, 1996, BII filed an action against Musci and Ocean in the
Superior Court of the State of California in and for the County of Santa Clara
entitled Brilliant Interactive Ideas Pty Ltd v. Ocean of America, Inc. Ray Musci
and Does 1 through 20, inclusive, No. CV755008 ("the Lawsuit").
B. The Lawsuit arose from a contract described in and attached as Exhibit
A ("the Distribution Agreement"), and relates to the promotion and marketing of
certain CD-ROMs described in that complaint ("the Products").
C. On January 11, 1996, BII, Ocean and Guarantors entered into a
Settlement Agreement and Mutual General Release ("January Agreement"), settling
the Lawsuit on terms set forth in the January Agreement. One of the terms
provided for entry of a Stipulated Judgment ("Stipulated Judgment") under
conditions described in the January Agreement.
D. On February 29, 1996, BII obtained entry of the Stipulated Judgment by
the Superior Court. Pursuant to the Stipulated Judgment, a writ of execution
was issued by the Superior Court and levied upon certain assets of Ocean ("the
Levy").
-1-
<PAGE>
E. The parties to this Agreement desire to settle all their claims
against each other, whether previously asserted, pending, presently outstanding,
or which they may have or claim to have.
Now, therefore, in consideration of the above and the mutual covenants
and agreements herein expressed, the parties agree as follows:
1. Releases and Dismissals.
-----------------------
1.1 Mutual Release and Discharge.
----------------------------
The parties, on behalf of themselves and each of their officers,
directors, agents, attorneys, representatives, employees, parents,
subsidiaries, affiliates, assignees, assignors, insurers, successors,
and predecessors, hereby forever release and discharge each other and
their present and former officers, directors, agents, attorneys,
representatives, employees, parents, subsidiaries, affiliates,
assignees, assignors, insurers, successors, and predecessors, from any
and all present or past claims, demands, losses, liabilities,
obligations, or causes of action, including, without restricting the
generality of the foregoing, claims for costs or attorneys' fees,
known or unknown, relating to or arising out of the Lawsuit, entry of
the Stipulated Judgment, or the Levy. Said released and discharged
claims, demands, liabilities, obligations, or causes of action include
those claims or causes of action either stated or which could have
been stated in the Lawsuit.
-2-
<PAGE>
1.2 General Waiver of All Past and Present Claims.
---------------------------------------------
Except for the duties and obligations set forth herein, the parties
hereby expressly waive and assume the risk of any and all claims,
demands, obligations, or causes of action of any nature whatsoever
which exist against or between themselves, including those claims,
demands, obligations, or causes of action which are presently not
known or suspected to exist, whether through ignorance, oversight,
error, negligence, or otherwise, and excluding those which arise under
the newly reaffirmed Distribution Agreement referenced in Paragraph
2.7 of this Agreement. The parties intend that this Agreement be a
complete and final accord and satisfaction and general mutual release
by and between them of all liabilities, disputes, claims, and causes
of action, known or unknown, suspected or unsuspected, which each
party holds or may hold against the other including those relating to
or arising out of the Lawsuit, the entry of the Stipulated Judgment,
or the Levy but excluding those newly arising under the reaffirmed
Distribution Agreement. In furtherance of this intention, the parties
acknowledge and present that each is familiar with Section 1542 of the
Civil Code of the State of California, which provides:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN TO HIM, MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
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<PAGE>
Each party represents and warrants that it has been advised by counsel
of the content and import of Civil Code Section 1542 and voluntarily
waives and relinquishes any right or benefit conferred by Section
1542, or any similar provision of the statutory or nonstatutory law of
California or of any other jurisdiction, to the full extent that such
rights or benefits may lawfully be waived. In connection with such
waiver and relinquishment, each party acknowledges that it or its
attorneys, employees, agents, officers, or directors may hereafter
discover claims or facts in addition to or different from those now
known or believed to exist, but that it is each party's intention to
fully, finally, and forever settle and release each other from all
obligations, claims, liabilities, causes of action, demands, dispute,
and differences, known or unknown, suspected or unsuspected, including
those relating to or arising out of the Lawsuit, but excluding those
newly arising under the reaffirmed Distribution Agreement.
2. Consideration.
-------------
2.1 Upon the execution of this Agreement, Ocean shall deliver by wire
transfer to BII the sum of CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
2.2 Upon execution of this Agreement and receipt of Ocean's payment of US
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION, BII shall direct that:
2.2.1 The Levy be released;
-4-
<PAGE>
2.2.2 Any funds seized under the Levy be returned to Ocean; and
2.2.3 The Stipulated Judgment be withdrawn and vacated.
2.3 Upon execution of this Agreement, BII shall deliver to Ocean new gold
masters of the CD-ROMs ("New Gold Masters") provided for under the
Distribution Agreement. BII shall use commercially reasonable efforts
to rectify any software incompatibilities or bugs, including those
identified by Ocean to BII in correspondence dated March 13, 1996,
copies of which are attached as Exhibit C. Ocean shall provide to BII
such further details and identification of any claimed software
incompatibilities or bugs as may be requested by BII. Upon receipt of
the New Gold Masters, Ocean shall deliver by wire transfer to BII the
sum of US CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
2.4 Upon acceptance of the New Gold Masters by Ocean, Ocean shall deliver
by wire transfer to BII the further sum of US CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. "Acceptance" shall be determined as follows:
2.4.1 Ocean shall have 10 days following receipt of the New Gold
Masters in which to test the New Gold Masters to determine
whether there are any further software incompatibilities or
bugs and to advise BII of any such software incompatibilities
or bugs. Should Ocean fail to advise BII of any such software
incompatibilities or bugs within that time, the New Gold
Masters shall be deemed accepted.
-5-
<PAGE>
2.4.2 Should Ocean, in accordance with the provisions of Paragraph
2.4.1. advise BII of any software incompatibilities or bugs,
BII shall make commercially reasonable efforts to correct those
incompatibilities, and shall deliver revised New Gold Masters
to Ocean containing those corrections. Upon deliver to Ocean of
any revised New Gold Masters in accordance with the provisions
of this paragraph, Ocean shall be subject to the same
obligation to test and accept those revised New Gold Masters as
provided for the New Gold Masters under the provisions of
Paragraph 2.4.1
2.4.3 The provisions of Paragraphs 2.4.1 and 2.4.2 shall apply to all
revised New Gold Masters submitted by BII to Ocean at any time.
2.4.4 The New Gold Masters shall be deemed to have been accepted by
Ocean in the event that Ocean has shipped more than
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION units of the Products, as
that term is defined in the Distribution Agreement, to any
purchasers or consignees.
2.4.5 The definition of "Acceptance" under this Agreement is solely
for the purpose of triggering payment obligations hereunder and
for commencing the two year term set forth in paragraph 20 of
the Distribution Agreement, and shall not constitute acceptance
for all purposes. The obligations under the Distribution
Agreement, including, but not limited to those enumerated
-6-
<PAGE>
in paragraphs 1, 2(a) and 2(b) shall not be limited by any
deemed acceptance under the Agreement of any New Gold Masters
or Revised Gold Masters.
2.5 Within 30 days following the acceptance by Ocean of the New Gold
Masters pursuant to Paragraph 2.4, Ocean shall deliver by wire
transfer to BII the further sum of US CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
2.6 Upon the receipt by BII of all of the sums described in Paragraphs
2.1, 2.3, 2.4 and 2.5, BII shall forthwith file with the Superior
Court of the State of California for the County of Santa Clara a
dismissal with prejudice of all claims asserted in the Lawsuit as to
Ocean. Upon execution of this Agreement, BII shall file a dismissal
of the Lawsuit with Prejudice as to Ray Music.
2.7 The parties hereby reaffirm the Distribution Agreement and all of the
obligations thereunder, except those provided in Paragraph 6 of the
Distribution Agreement and except as inconsistent with this Agreement.
The Distribution Agreement is hereby incorporated in this Agreement as
though fully set forth and as though executed contemporaneously with
the execution of this Agreement. Ocean and BII shall take all actions
and shall be subject to all obligations required under the terms of
the Distribution Agreement, including but not limited to the
obligations to release and promote the Products as set forth in
Paragraphs 7 and 9 of the Distribution Agreement, except that
Paragraph 7 of the Distribution Agreement shall be deemed to be
amended so that the Retail Marketing Date specified in said
-7-
<PAGE>
Paragraph 7 shall be 30 days following the acceptance of the New Gold
Masters in accordance with Paragraph 2.4 of this Agreement. Paragraph
20 of the Distribution Agreement shall also be deemed amended to
provide that the term of the Distribution Agreement shall be for a
period of CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION from the acceptance of the New
Gold Masters in accordance with Paragraph 2.4 of this Agreement.
BII's exclusive remedy for breaches of any obligation set forth in
this Paragraph 2.7 shall be in accordance with the default provisions
of Paragraph 4.
3. Guaranty. Guarantors hereby guaranty the performance by Ocean of all
--------
obligations undertaken in this Agreement. Upon the default of Ocean in the
performance of any obligation undertaken in this Agreement, Guarantors will
be liable in damages to BII.
4. Default.
-------
4.1 Default. The failure of Ocean to pay when due any payment of money as
-------
provided in Paragraph 2 of this Agreement upon the date due, or to
perform any other obligation required by this Agreement, shall
constitute a default.
4.2 Upon a default, BII shall give to Ocean not less than 14 days notice
of BII's intent to enter the attached stipulated judgment. The notice
shall be given by
-8-
<PAGE>
facsimile transmission to 408-289-1790 (or such other facsimile number
as shall be provided by Ocean to BII in writing) or by written notice
delivered to Ocean's place of business set forth in this Agreement.
Should Ocean fail to cure the default within 14 days of such notice,
BII shall be entitled to file a motion for entry of the stipulated
judgment against Ocean and Guarantors in the form attached as
Exhibit B.
4.3 The parties hereby agree that they shall be entitled to present
evidence at the hearing on the motion described in Paragraph 4.2 by
declaration in lieu of live testimony. The notice and service of all
pleadings regarding such motion may be given via facsimile. Such
motion will be limited to issues of (a) whether Ocean was actually in
default at the time notice of default was given; (b) whether Ocean had
any excuse for non-performance at the time notice of default was
given; and (c) whether the amount of the claimed default was the
amount owing under the Agreement at the time notice of default was
given, taking into account any right to offset.
5. Miscellaneous.
-------------
5.1 Successors and Assigns. All the terms and provisions of this
----------------------
Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties
hereto, whether so expressed or not.
5.2 Settlement Not an Admission. It is understood and agreed that this
---------------------------
Agreement is a compromise settlement of disputed claims, and that
nothing herein shall be
-9-
<PAGE>
construed as an admission of liability by any of the parties hereto,
except as otherwise set forth herein.
5.3 Governing Law. This Agreement and the transactions contemplated
-------------
hereby are to be governed by, and interpreted under, California law.
In the event of any dispute regarding interpretation or performance of
this Agreement, venue shall be in the Superior Court of the State of
California for the County of Santa Clara.
5.4 Consent to Jurisdiction. The parties hereto consent to personal
-----------------------
jurisdiction in the State of California.
5.5 Attorneys' Fees. In the event of any dispute regarding the
---------------
interpretation or performance of this Agreement requiring recourse to
any court, the prevailing party will be entitled to recover its
reasonable attorneys' fees and costs.
5.6 Payment of Expenses. Except as specifically provided for herein, each
-------------------
party shall bear its own expenses, including without limitation,
attorneys' fees.
5.7 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between parties hereto with respect to the subject matter hereof, and
all prior oral and written communications, representations, and
agreements are merged herein. No amendment, alteration, or
modification of this Agreement shall be valid unless in each instance
such amendment, alteration, or modification is expressed in a written
instrument duly executed by the party or parties making such
amendment, alteration, or modification.
5.8 Counterparts. This Agreement may be executed simultaneously in any
------------
number of duplicate copies, each of which shall be deemed an original,
but all of which
-10-
<PAGE>
together shall constitute one and the same instrument. Facsimile
signatures shall be deemed to constitute original signatures.
5.9 Headings. The headings in this Agreement are for convenience of
--------
reference only and do not restrict or modify any term or provision
hereof.
5.10 Waiver. The failure of any party to insist, in one or more instances,
------
on performance of any term or condition of this Agreement shall not be
construed as a waiver or relinquishment of any right granted hereunder
or of the future performance of any such term, covenants, or
condition, but the obligations of the parties with respect thereto
shall continue in full force and effect.
5.11 No Third Party Beneficiaries. The parties hereto do not intend, and
----------------------------
nothing in this Agreement shall be deemed, to give any person other
than the parties hereto any rights hereunder.
5.12 Warranty of Authority. Each of the persons executing this Agreement
---------------------
hereby warrants that he or she has been duly authorized to execute
this Agreement on behalf of the party he or she represents.
5.13 Severability. If any term or provision of this Agreement shall be
------------
held invalid or unenforceable to any extent, the remaining terms and
provisions of this Agreement shall not be affected thereby, and each
term and provision shall be valid and enforceable to the fullest
extent permitted by law.
5.14 Notices. Any notices required under this Agreement shall be delivered
-------
as provided in this Agreement to the following addresses or facsimile
numbers:
5.14.1 If to Ocean:
-11-
<PAGE>
Ocean of America, Inc.
1870 Little Orchard Street
San Jose, CA 95125
Facsimile (408) 289-1790
5.14.2 If to BII:
Brilliant Interactive Ideas Pty Ltd
17 The Corso
Manly, NSW 2095
Australia
Facsimile 011 612 9977 4123
Wire transfers of funds to:
National Australia Bank
Branch No. 082352
46 Sydney Road
Manly, NSW 2095
Australia
5.14.3 If to Guarantors:
Ocean Software Limited
2 Castle Street
Castlefield, Manchester MS 4LZ
England
Facsimile 0011 44 161 834 0650
In witness whereof, the parties hereto have executed this Agreement in
counterparts as of the date first above written.
BRILLIANT INTERACTIVE IDEAS PTY LTD
By: /s/ Mark Miller
--------------------------
Mark Miller
Its President
-12-
<PAGE>
OCEAN OF AMERICA, INC.
By: /s/ Ray Musci
--------------------------------
Ray Musci
Its President
___________________________________
Ray Musci, individually
OCEAN SOFTWARE, LTD.
By: /s/ Jon Woods
--------------------------------
Jon Woods
Its Director
OCEAN INTERNATIONAL, LTD.
By: /s/ Jon Woods
--------------------------------
Jon Woods
Its Director
-13-
<PAGE>
SETTLEMENT AGREEMENT
AND MUTUAL GENERAL RELEASE
This Settlement Agreement and Mutual General Release ("Agreement") is
entered into effective this 11th day of January 1996, by and between Brilliant
Interactive Ideas Pty Ltd ("BII"), Ray Musci ("Musci"), Ocean of America, Inc.
("Ocean"), and Ocean Software, Ltd. and Ocean International, Ltd. (jointly
"Guarantors").
RECITALS
A. On January 5, 1996, BII filed an action against Musci and Ocean in the
Superior Court of the State of California in and for the County of Santa Clara
entitled Brilliant Interactive Ideas Pty Ltd v. Ocean of America, Inc. Ray Musci
and Does 1 through 20, inclusive, No. CV755008 ("the Lawsuit").
B. On January 5, 1996, BII was granted by the Superior Court an Ex Parte
Right to attach Order upon which a Writ of Attachment as issued against the
assets of Ocean. The Writ of Attachment has been levied upon certain assets of
Ocean ("the Levy").
C. The Lawsuit arises from a contract described in and attached as
Exhibit A ("the Distribution Agreement"), and relates to the promotion and
marketing of certain CD-ROMs described in that complaint ("the Products").
D. The parties to this Agreement desire to settle all their claims
against each other, whether previously asserted, pending, presently outstanding,
or which they may have or claim to have.
-1-
<PAGE>
Now, therefore, in consideration of the above and the mutual covenants
and agreements herein expressed, the parties agree as follows:
1. Releases and Dismissals.
-----------------------
1.1 Mutual Release and Discharge.
----------------------------
The parties, on behalf of themselves and each of their officers,
directors, agents, attorneys, representatives, employees, parents,
subsidiaries, affiliates, assignees, assignors, insurers, successors,
and predecessors, hereby forever release and discharge each other and
their present and former officers, directors, agents, attorneys,
representatives, employees, parents, subsidiaries, affiliates,
assignees, assignors, insurers, successors, and predecessors, from any
and all present or past claims, demands, losses, liabilities,
obligations, or causes of action, including, without restricting the
generality of the foregoing, claims for costs or attorneys' fees,
known or unknown, relating to or arising out of the Lawsuit. Said
released and discharged claims, demands, liabilities, obligations, or
causes of action consist of those claims or causes of action either
stated or which could have been stated in the Lawsuit.
1.2 General Waiver of All Past and Present Claims.
---------------------------------------------
Except for the duties and obligations set forth herein, the parties
hereby expressly waive and assume the risk of any and all claims,
demands, obligations, or causes of action of any nature whatsoever
which exist against or between themselves relating to or arising out
the Lawsuit, including those claims, demands, obligations, or causes
of action which are presently not known or suspected to
-2-
<PAGE>
exist, whether through ignorance, oversight, error, negligence, or
otherwise. The parties intend that this Agreement be a complete and
final accord and satisfaction and general mutual release by and
between them of all liabilities, disputes, claims, and causes of
action, known or unknown, suspected or unsuspected, which each party
holds or may hold against the other relating to or arising out of the
Lawsuit. In furtherance of this intention, the parties acknowledge
and present that each is familiar with Section 1542 of the Civil Code
of the State of California, which provides:
"A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known to him, must have
materially affected his settlement with the debtor."
Each party represents and warrants that it has been advised by counsel
of the content and import of Civil Code Section 1542 and voluntarily
waives and relinquishes any right or benefit conferred by Section
1542, or any similar provision of the statutory or nonstatutory law of
California or of any other jurisdiction, to the full extent that such
rights or benefits may lawfully be waived. In connection with such
waiver and relinquishment, each party acknowledges that it or its
attorneys, employees, agents, officers, or directors may hereafter
discover claims or facts in addition to or different from those now
known or believed to exist, but that it is each party's intention to
fully, finally, and forever settle and release each other from all
obligations, claims, liabilities, causes of
-3-
<PAGE>
action, demands, dispute, and differences, known or unknown, suspected
or unsuspected relating to or arising out of the Lawsuit.
2. Consideration.
-------------
2.1 Upon the execution of this Agreement, Ocean shall deliver by wire
transfer to BII the sum of US CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Upon
execution of this Agreement and receipt of Ocean's payment of US
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION, BII shall direct that the Levy be
released.
2.2 On or before the thirtieth day following the execution of this
Agreement, Ocean shall deliver to BII the sum of US CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
2.3 On or before the sixtieth day following the execution of this
Agreement, Ocean shall deliver to BII the sum of US CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
2.4 On or before the ninetieth day following the execution of this
Agreement, Ocean shall deliver to BII the sum of US CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
-4-
<PAGE>
2.5 Upon the receipt by BII of all of the sums described in Paragraphs
2.1, 2.2, 2.3, and 2.4, BII shall forthwith file with the Superior
Court of the State of California for the County of Santa Clara a
dismissal with prejudice of all claims asserted in the Lawsuit.
2.6 The parties hereby reaffirm the Distribution Agreement and all of the
obligations thereunder, except those provided in Paragraph 6 of the
Distribution Agreement. The Distribution Agreement is hereby
incorporated in this Agreement as though fully set forth and as though
executed contemporaneously with the execution of this Agreement.
Ocean shall take all actions and shall be subject to all obligations
required under the terms of the Distribution Agreement, including but
not limited to the obligations to release and promote the Products as
set forth in Paragraphs 7 and 9 of the Distribution Agreement, except
that Paragraph 7 of the Distribution Agreement shall be deemed to be
amended so that the Retail Marketing Date specified in said Paragraph
7 shall be 30 days following the execution of this Agreement.
3. Guaranty. Guarantors hereby guaranty the performance by Ocean of all
--------
obligations undertaken in this Agreement. Upon the default of Ocean in the
performance of any obligation undertaken in this Agreement, Guarantors will
be liable in damages to BII without demand or notice of said default.
-5-
<PAGE>
4. Default.
-------
4.1 The failure of Ocean to pay when due any payment of money as provided
in Paragraph 2 of this Agreement upon the date due, or to perform any
other obligation required by this Agreement, shall constitute a
default.
4.2 Upon a default, BII shall be entitled to enter a stipulated judgment,
in the amount then remaining unpaid, against Ocean and Guarantors in
the form attached as Exhibit B.
5. Miscellaneous.
-------------
5.1 Successors and Assigns. All the terms and provisions of this
----------------------
Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties
hereto, whether so expressed or not.
5.2 Settlement Not an Admission. It is understood and agreed that this
---------------------------
Agreement is a compromise settlement of disputed claims, and that
nothing herein shall be construed as an admission of liability by any
of the parties hereto, except as otherwise set forth herein.
5.3 Governing Law. This Agreement and the transactions contemplated
-------------
hereby are to be governed by, and interpreted under, California law.
In the event of any dispute regarding interpretation or performance of
this Agreement, venue shall be in the Superior Court of the State of
California for the County of Santa Clara.
5.4 Consent to Jurisdiction. The parties hereto consent to personal
-----------------------
jurisdiction in the State of California.
-6-
<PAGE>
5.5 Attorneys' Fees. In the event of any dispute regarding the
---------------
interpretation or performance of this Agreement requiring recours to
any court, the prevailing party will be entitled to recover its
reasonable attorneys' fees and costs.
5.6 Payment of Expenses. Except as specifically provided for herein, each
-------------------
party shall bear its own expenses, including without limitation,
attorneys' fees, whether or not the transactions contemplated hereby
are consummated.
5.7 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between parties hereto with respect to the subject matter hereof, and
all prior oral and written communications, representations, and
agreements are merged herein. No amendment, alteration, or
modification of this Agreement shall be valid unless in each instance
such amendment, alteration, or modification is expressed in a written
instrument duly executed by the party or parties making such
amendment, alteration, or modification.
5.8 Counterparts. This Agreement may be executed simultaneously in any
------------
number of duplicate copies, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
5.9 Headings. The headings in this Agreement are for convenience of
--------
reference only and do not restrict or modify any term or provision
hereof.
5.10 Waiver. The failure of any party to insist, in one or more instances,
------
on performance of any term or condition of this Agreement shall not be
construed as a waiver or relinquishment of any right granted hereunder
or of the future
-7-
<PAGE>
performance of any such term, covenants, or condition, but the
obligations of the parties with respect thereto shall continue in full
force and effect.
5.11 No Third Party Beneficiaries. The parties hereto do not intend, and
----------------------------
nothing in this Agreement shall be deemed, to give any person other
than the parties hereto any rights hereunder.
5.12 Warranty of Authority. Each of the persons executing this Agreement
---------------------
hereby warrants that he or she has been duly authorized to execute
this Agreement on behalf of the party he or she represents.
5.13 Severability. If any term or provision of this Agreement shall be
------------
held invalid or unenforceable to any extent, the remaining terms and
provisions of this Agreement shall not be affected thereby, and each
term and provision shall be valid and enforceable to the fullest
extent permitted by law.
In witness whereof, the parties hereto have executed this Agreement in
counterparts as of the date first above written.
BRILLIANT INTERACTIVE IDEAS PTY LTD
By: /s/ Mark Miller
-----------------------------------
Mark Miller
Its President
-8-
<PAGE>
OCEAN OF AMERICA, INC.
By: /s/ Jon Woods
-----------------------------------
Jon Woods
Its Board Director
_____________________________________
Ray Musci, individually
OCEAN SOFTWARE, LTD.
By: /s/ Jon Woods
-----------------------------------
Its Director
OCEAN INTERNATIONAL, LTD.
By: /s/ Jon Woods
-----------------------------------
Its Director
-9-
<PAGE>
CHARLES J. WISCH, SBN 68050
LAW OFFICES OF CHARLES J. WISCH
465 California Street, Suite 200
San Francisco, California 94104
Tel (415) 788-1945
Fax (415) 989-8947
Attorneys for Plaintiff BRILLIANT
INTERACTIVE IDEAS PTY. LTD.
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SANTA CLARA
)
BRILLIANT INTERACTIVE IDEAS PTY. LTD. ) Case No. CV755008
)
Plaintiff, )
) STIPULATION FOR ENTRY OF
vs. ) JUDGMENT AND JUDGMENT
)
OCEAN OF AMERICA, INC., RAY MUSCI, )
and Does 1 through 20, inclusive, )
)
Defendants. )
____________________________________ )
The parties hereto stipulate for entry of judgment against them,
jointly and severally, as follows:
1. For compensatory damages in the amount of $_________________;
2. For prejudgment interest in the amount of $_________________,
according to the attached declaration;
-1-
<PAGE>
3. For return to plaintiff of the CD-ROMs entitled "CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION," "CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION," "CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION," "CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION," "CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION," "CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION," and
"CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION;" and
4. For costs in the amount of $______________, according to the
attachment statement of costs.
Dated: Ocean of America, Inc.
By: /s/ Jon Woods
----------------------
Jon Woods
Board Director
Ocean Software, Ltd.
By: /s/ Jon Woods
----------------------
Its Director
-2-
<PAGE>
-3-
<PAGE>
Ocean International, Ltd.
By: /s/ Jon Woods
----------------------
Its Director
JUDGMENT
Judgment is hereby entered in accordance with the foregoing
stipulation.
Dated:
________________________________________
Judge of the Superior Court
-4-
<PAGE>
CHARLES J. WISCH, SBN 68050
LAW OFFICES OF CHARLES J. WISCH
465 California Street, Suite 200
San Francisco, California 94104
Tel (415) 788-1945
Fax (415) 989-8947
Attorneys for Plaintiff BRILLIANT
INTERACTIVE IDEAS PTY. LTD.
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SANTA CLARA
)
BRILLIANT INTERACTIVE IDEAS PTY. LTD. )
) Case No. CV755008
)
Plaintiff, ) DECLARATION OF MARK MILLER
) RE STIPULATION FOR ENTRY OF
) JUDGMENT AND JUDGMENT
vs. )
)
OCEAN OF AMERICA, INC., RAY )
MUSCI, and Does 1 through 20, )
inclusive, )
)
Defendant. )
____________________________________ )
I, Mark Miller declare:
1. I am the managing director of Brilliant Interactive Ideas Pty. Ltd.
("BII"), the plaintiff in this action.
2. On January 5, 1996, BII filed this action.
3. On January 11, 1996, BII and the defendants entered into a
settlement agreement, a true copy of which is attached as Exhibit I. The
settlement agreement included
-1-
<PAGE>
a stipulation for entry of judgment in the event the defendants defaulted in
the performance of the settlement agreement. A true copy of the stipulation
is attached as Exhibit 2.
4. Because of the fact that BII is located in Australia, the
defendants are located in Great Britain, and the lawsuit was venued in San
Jose, California, and following the general usage of modern trade where the
contracting parties are in different locations, the settlement agreement and
stipulation for entry of judgment were circulated among the parties by fax
transmission. The defendant's signatures on the attached copies are,
therefore, fax copies of the original signatures, and have been accepted by
all parties as original signatures.
5. The settlement agreement has been partially performed by the
defendants, with the initial payment of $CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION having been
made in a timely fashion. However, the defendants have now defaulted by (1)
failing to make the second installment payment of $CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION,
which was due on February 10, 1996, and (2) failing to commence retail
marketing of the goods described in the complaint by February 10, 1996. (See
Exhibit 1, (P)(P) 2.2 and 2.6, pp. 4-5)
6. Accordingly, BII is requesting that the court enter the stipulated
judgment.
I declare under penalty of perjury under the laws of the State of
California that the foregoing is true and correct.
Dated:
17/2/96 /s/ Mark Miller
----------------------------------
Mark Miller
-2-
<PAGE>
EXHIBIT 10.16
PUBLISHING AGREEMENT
In consideration of the mutual promises contained in this PUBLISHING AGREEMENT,
Shortland Publications Limited, of 360 Dominion Rd, Auckland 3, Zealand, a New
Zealand Corporation ("Licensor"), and Brilliant Interactive Ideas Pty Limited
ACN 061 228 668, of Level 1, 17 The Corso, Manly, New South Wales, Australia,
2095, an Australian corporation ("Licensee"), agree as follows:
1. DEFINITIONS
For purposes of this Agreement:
(a) "Agreement" means this PUBLISHING AGREEMENT, together with Exhibits A and B
and any other addenda attached hereto and each supplemental Exhibit A signed by
both parties, as the same may be amended from time to time in accordance with
this Agreement.
(b) "Effective Date" shall mean the date upon which this Agreement has been
executed by both parties.
(c) "License Fees" shall mean the license fees payable by Licensee for the
rights granted herein as set forth in Exhibit A.
(d) "Licensed Materials" means the copyrighted materials identified in Exhibit
B, including all updates, revisions, new volumes and sequels thereto.
2. GRANT OF LICENSE
Without limiting the foregoing the Licensor grants the Licensee the worldwide
non exclusive right to publish, reproduce, perform in public, broadcast,
transmit to subscribers under a diffusion service, broadcast and adapt (and do
all the foregoing in relation to such adaptation) the Licensed Materials
electronically, including without limitation, on computer disc and magnetic
medium, CD-ROM, CD-I, ROM-cartridge.
3. EFFECTIVE DATE AND TERM
The term of this Agreement and of each license granted under this Agreement
shall begin on the Effective Date and shall continue thereafter for a period of
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION) years or until this Agreement is
terminated under Section 12 below. So long as Licensee is in compliance with the
terms and conditions of this Agreement, this Agreement shall be automatically
renewed for subsequent
1
<PAGE>
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION) year terms.
4. PAYMENT, REPORTING AND AUDIT
(a) For the rights granted herein, Licensee shall pay Licensor the License Fees
set forth in Exhibit A. License Fees shall be based upon gross amounts received
by Licensee and payable for each copy of the Licensed Materials for which
Licensee receives compensation from Licensee's customer. Licensee shall be
entitled to a credit equal to the License Fees previously paid by Licensee for
Licensed Materials returned to Licensee by Licensee's customers. The Licensee
shall be entitled to deduct any withholding tax from the License Fees and shall
advise the Licensor of the amount and particulars of any deduction in order that
the Licensor may apply for any applicable foreign tax credit.
(b) Within twenty-five (25) days after each calendar quarter, Licensee shall
provide Licensor with a report setting forth the number of copies of Licensed
Materials distributed by Licensee during the preceding calendar quarter and the
gross amount received by Licensee from Licensee's customers for Licensed
Materials. At the time such report is submitted to Licensor, Licensee shall pay
Licensor the License Fees then due.
(c) In order to enable Licensor to audit the statements submitted by Licensee
under this Agreement, Licensee shall maintain at Licensee's place of business
referenced in the Agreement complete and accurate books and records, examination
of which would enable an independent chartered accountant, agreed to by the
parties, to audit the statements submitted by Licensee under this Agreement.
Once a year and upon thirty (30) days written notice, the said independent
chartered accountant may conduct, at Licensor's sole cost and expense, such
audits as reasonably necessary to determine Licensee's compliance with its
reporting and payment obligations under this Agreement. Licensee agrees to
reasonably cooperate with the independent chartered accountant in performing
such audits. Such audits as are conducted shall be subject to such reasonable
scrutiny procedures and limitations as Licensee may impose, and the independent
chartered accountant and Licensor and respective employees, agents and
contractors shall make no use of any information obtained in the course of such
audits other than for the purposes hereof. Independent chartered accountant and
Licensor and respective employees, agents or contractors shall retain no copies
of any materials or data obtained in the course of such audits other than that
reasonably necessary to verify Licensee's performance. If such audits reveal
that Licensee has under-reported the number of copies of Licensed Materials for
which Licensee received compensation from Licensee's customers on any report
submitted pursuant to Section 4(b) above, Licensee shall pay to Licensor the
appropriate License Fees due and owing and bear the cost of the audit.
5. SHIPMENT AND DELIVERY
2
<PAGE>
Licensor will ship the Licensed Materials, in hard copy, to Licensee within
thirty (30) days after the Effective Date. All shipments hereunder shall be
F.O.B. Licensee.
6. LICENSEE'S OBLIGATIONS
(a) Licensee agrees to use its reasonable efforts to publish and market the
Licensed Materials as deemed appropriate in Licensee's sole discretion.
(b) Notwithstanding Section 6(a) above, Licensee shall be entitled to
discontinue marketing the Licensed Materials, or any portion thereof. Further,
Licensee, in its sole discretion, shall be entitled to determine the method and
form of marketing, distribution and publication of the Licensed Materials, as
the same may be changed by Licensee.
7. LEFT BLANK
8. LEFT BLANK
9. PROPRIETARY RIGHTS
(a) Licensor warrants that it has the right to enter into this Agreement and
grant the rights and licenses granted to Licensee hereunder.
(b) Title to the Licensed Materials is not being transferred to Licensee under
this Agreement. Instead, Licensee is granted a license to the Licensed Materials
as set forth herein.
10. INDEMNITIES
(a) The Licensor shall indemnify, defend and hold Licensee, its agents and
employees, harmless from any loss, damage or liability (including attorneys'
fees, costs and expenses) resulting from a claim that Licensed Materials
infringe any copyright, license, trade secret, or other proprietary rights of a
third party and in addition the Licensor shall:
(i) procure for the Licensee the right to continuance to use the
Licensed Materials in accordance with this Agreement; or
(ii) modify the Licensed Materials so that they become non infringing,
provided this is acceptable to the Licensee; and
(iii) where the Licensor does not comply with Clauses 10(a)(i) or (ii),
refund any License Fees that have been paid by the Licensee
relating to the infringing licensed Materials.
(b) Licensor shall indemnify, defend and hold Licensee, its agents and
employees, harmless
3
<PAGE>
from any loss, damage or liability (including attorneys' fees, costs and
expenses) resulting from a claim that Licensed Materials is defamatory, libelous
or untrue.
11. LIMITATION OF LIABILITY AND REMEDY
EXCEPT AS SET FORTH IN SECTION 10, NEITHER PARTY SHALL BE LIABLE FOR ANY
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT
LIMITATION, PERSONAL INJURY, PROPERTY DAMAGE, LOST PROFITS OR OTHER ECONOMIC
LOSS ARISING IN CONNECTION WITH THIS AGREEMENT AND LICENSEE'S PUBLICATION OF THE
LICENSED MATERIALS. THIS LIMITATION OF LIABILITY WILL APPLY REGARDLESS OF THE
FORM OF ACTION, WHETHER IN CONTRACT OR TORT, INCLUDING NEGLIGENCE AND
INDEPENDENT OF ANY FAILURE OF ESSENTIAL PURPOSE OF THE LIMITED WARRANTY AND
REMEDIES PROVIDED HEREUNDER. THIS DISCLAIMER SHALL APPLY WHETHER OR NOT THE
OTHER PARTY HAS BEEN APPRISED OF THE POSSIBILITY OF SUCH DAMAGES PROVIDED ALWAYS
THAT THE FOREGOING SHALL NOT EXCLUDE THE LICENSOR'S LIABILITY FOR DIRECT DAMAGES
OR RELIANCE DAMAGES RESULTING FROM THE LICENSOR'S NEGLIGENCE OR A BREACH OF THIS
AGREEMENT.
12. TERMINATION
(a) In the event either party breaches any material provision of this Agreement
and fails to remedy the breach within CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION)
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION after written notice thereof, the non-breaching party may
terminate this Agreement immediately by giving breaching party written notice.
(b) Licensee may terminate this Agreement upon CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION prior written notice.
(c) Upon termination of this Agreement, all licenses granted by Licensor to
Licensee hereunder shall terminate. Notwithstanding the foregoing, after
termination of this Agreement, Licensee shall be entitled to distribute all
Licensed Materials or products in which the Licensed Materials have been
incorporated remaining in Licensee's inventory or in relation to which the
Licensee has entered into binding commitments with its customers to supply.
4
<PAGE>
(d) The provisions of Sections 4, 9, 10, 11, 13 and 14 of this Agreement shall
survive any termination.
13. NOTICE
Every notice or other communication required or contemplated by this Agreement
shall be delivered either by (i) personal delivery, (ii) postage prepaid return
receipt requested, registered or certified mail, (iii) nationally recognized
overnight courier, or (iv) facsimile with a confirmation copy sent
simultaneously by postage prepaid, return receipt requested, registered or
certified mail, in each case addressed to the party for whom intended at the
address appearing after that party's signature on this Agreement or at such
other address as the intended recipient previously shall have designated by
written notice to the other party. Notices shall be effective on the earliest of
the date of personal delivery, the date officially recorded as delivered by
official postal or independent courier service, the date sent if sent by
facsimile, or the seventh (7th) business day after any deposit in the mail.
Notice not given in writing shall be effective only if acknowledged in writing
by a duly authorized representative of the party to whom it was given.
14. GENERAL
(a) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original instrument, but all
of which together shall constitute only one and the same instrument.
(b) Law to Govern. The construction, interpretation and performance of this
Agreement and all transactions related thereto shall be governed by and
construed in accordance with the substantive laws of New Zealand. The parties
expressly agree that the United Nations Convention on Contracts for the
International Sale of Goods shall not apply to this Agreement. Further, each
party consents to the jurisdiction of, and venue in, New Zealand, and agrees
that any action or lawsuit arising under this Agreement or relating to the
subject matter thereof shall be maintained in New Zealand.
(c) Written Agreement to Govern; Amendments; Waivers. This Agreement sets
forth the entire understanding and supersedes and merges all prior and
contemporaneous agreements between the parties relating to the subject matter
contained herein for the same Licensed Materials, and neither party shall be
bound by any provision, amendment or modification other than as expressly stated
in or contemplated by this Agreement or as subsequently shall be set forth in
writing and executed by a duly authorized representative of the party to be
bound thereby. All waivers hereunder must be made in writing, and failure at any
time to require the other party's performance of any obligation under this
Agreement shall not affect the right subsequently to require performance of that
obligation. Any waiver of any breach of this Agreement shall not be construed as
a waiver of any continuing or succeeding breach.
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(d) Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law;
but if any provision of this Agreement should be prohibited or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, and the balance of this Agreement shall be
interpreted as if such provision were so excluded. The parties hereto agree to
replace any invalid, illegal or unenforceable provision with a provision which
has the most similar permissible economic and legal effect to the invalid,
Illegal or unenforceable provision.
(e) Subject Headings. The subject headings of the Sections of this Agreement
are included for the purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
(f) Attorneys' Fees. If any action or proceeding shall be commenced to enforce
or interpret this Agreement or any right arising in connection with this
Agreement, the prevailing party in such action or proceeding shall be entitled
to recover from the other party all reasonable attorneys' fees, costs and
expenses incurred by such prevailing party in connection with such action or
proceeding.
(g) Successors and Assigns. This Agreement shall be binding on, and shall
inure to the benefit of the successors and assigns of Licensor and Licensee. The
Licensee shall be entitled to assign this Agreement and the Licensor will
consent to such assignment provided that the Licensor shall be entitled to
withhold consent if it believes that the Licensee's proposed assignee is not a
fit and proper party.
(h) Relationship of Parties. The relationship of the parties is that of
independent contractors. No one party is the agent of the other and neither
party is authorized to act on behalf of the other party.
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<PAGE>
IN WITNESS WHEREOF the parties have caused this Agreement to be executed by
their duly authorized representatives as of the date first set forth below.
"Licensor" "Licensee"
Shortland Publications Limited Brilliant Interactive Ideas Pty Limited
A New Zealand Corporation ACN 061 228 668
An Australian corporation
By /s/ Avalyn Davidson By /s/ Mark Miller
- ----------------------------- -----------------------------
Signature Signature
Avalyn Davidson Mark Miller
- ----------------------------- -----------------------------
Name (Type or Print) Name (Type or Print)
Managing Director Managing Director
- ----------------------------- -----------------------------
Title Title
1 December 1994 1 December 1994
- ----------------------------- -----------------------------
Date Date
Address: Address:
360 Dominion Road Level 1, 17 The Corso
Auckland 3 Manly
New Zealand NSW, Australia 2095
Phone: 649 638 7128 Phone: 612 977 4277
Fax: 649 638 8422 Fax: 612 977 4123
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<PAGE>
EXHIBIT A TO AGREEMENT
License Fees:
- ------------
Licensee shall pay Licensor CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION percent (CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION%) of amounts actually received by Licensee from its customer for the
License Materials until such time as the cost of development and production of
the Licensed Materials has been recovered and then the Licensee shall pay
Licensor CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION percent (CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION%) of amounts
actually received by Licensee from its customer for the Licensed Materials.
Licensee shall be entitled to a credit for unpaid amounts owed to Licensee, the
return of Licensed Materials by Licensee' customers, rebates and refunds.
8
<PAGE>
EXHIBIT B TO AGREEMENT
Description of Licensed Materials:
<TABLE>
<CAPTION>
============================================================================
Title Author Illustrator
- ----------------------------------------------------------------------------
<S> <C> <C>
CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL
INFORMATION OMITTED INFORMATION OMITTED INFORMATION OMITTED
AND FILED AND FILED AND FILED
SEPARATELY WITH THE SEPARATELY WITH THE SEPARATELY WITH THE
SECURITIES AND SECURITIES AND SECURITIES AND
EXCHANGE COMMISSION EXCHANGE COMMISSION EXCHANGE COMMISSION
- ----------------------------------------------------------------------------
</TABLE>
9
<PAGE>
EXHIBIT 10.17
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is entered into this 1 day of July 1996 by and
between BRILLIANT INTERACTIVE IDEAS PTY LTD ACN 061 288 668 of Lvl 1, 17 The
Corso, Manly, NSW, 2095 (hereinafter referred to as "BII") and FUJITSU BASIC
SOFTWARE CORPORATION located at 4-15-33 Shibaura, Minato-Ku, Tokyo 108, Japan
(hereinafter referred to as "BSC").
WHEREAS BSC is in the business of publishing and distributing computer software
in Japan and other territories around the world and BII are in the business of
developing interactive multimedia software products. BSC is desirous of
translating and publishing and distributing the various software products as
listed in Appendix A hereto, in the Territories as defined in this agreement,
that BII have developed.
WHEREAS ACSES Pty Ltd. (A.C.N. 058 427 704), being a company incorporated in the
state of New South Wales, Australia and having its registered office in the said
state at Level 29 Grosvenor place, 225 George Street, Sydney, N.S.W., 2000,
hereinafter called "ACSES", has performed and will continue to perform certain
marketing functions for BII in the Territory as the agent of BII;
NOW THEREFORE THE PARTIES do agree as follows:
1. TERRITORY
Territory is defined as Japan.
2. PRODUCTS
BII have developed a range of CD-ROM software titles, hereinafter
referred to as the "Products" (as listed in Appendix A), which BSC wish
to convert into Japanese and distribute in the Territory
3. TRANSLATED PRODUCTS
The Products shall be delivered as unprotected code hereinafter referred
to as Source, that will allow BSC to translate the Products into
Japanese and once the translation is complete BSC will then create
object code versions in a form compatible with IBM PC running under
Windows V3.x and Windows 95, as well as Macintosh from Apple Computer -
such translated versions hereinafter referred to as the Translated
Products. No material changes may be made to the Translated Products
without the written approval of Bll. Such approval shall not be
unreasonably withheld.
<PAGE>
4. TRANSLATION
The cost of translating the Products to Japanese will be borne totally
by BSC. Such costs of translation includes assistance provided by BII as
requested in writing by BSC, which shall be provided on a time and
materials basis at the following rates:
- senior Macromind Director assistance CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION yen per hour
- Macromind Director assistance CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION yen
per hour
- other technical assistance CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION yen
per hour
- graphical and or lay-up assistance CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
yen per hour
- any other support CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION yen per hour
or at such other amounts as agreed in writing between the parties.
5. COPYRIGHT OWNERSHIP OF PRODUCTS AND TRANSLATED PRODUCTS
It is agreed by BSC that the copyright and all intellectual property
rights in the Products and the Translated Products shall always remain
the property of BII and without limiting the generality of the preceding
it is acknowledged by BSC that the Products, Source and Translated
Products comprises confidential information and copyright subject matter
which is the property of BII and BSC shall not do, allow, permit or
cause to be done, allowed or permitted, whether by act of omission or
commission anything which is inconsistent with or in derogation of BII's
aforesaid proprietary rights. BSC further agrees to ensure that the
Source is stored in a safe place and that no unauthorised access will be
allowed to the Source.
6. CONFIDENTIALITY AGREEMENT
BSC agrees to execute the Confidentiality Agreement in Appendix B of
this Agreement.
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<PAGE>
7. RETAIL DISTRIBUTION RIGHTS
BII grants to BSC the exclusive right to reproduce, publish, distribute,
display and sell the Translated Products in the Territory on the
Macintosh and Personal Computer platforms.
8. BSC shall not distribute or export directly or indirectly any copies of
the Translated Product outside the Territory and BSC shall not
distribute, sell or make available any copies of the Translated Product
to anyone in the Territory, whom BSC knows or ought to know, will export
copies of the Translated Product outside the Territory.
9. The rights as granted in clause 7 above are the exclusive retail rights
for the Territory and shall not conflict with any other rights granted
by BII.
10. BUNDLE AND OEM RIGHTS
BII further grants to BSC OEM and bundle rights to the Translated
Products for the Territory. These rights are independent of the other
rights as granted above.
11. ROYALTY PAYABLE
(a) BSC shall pay to BII a Net Royalty of CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION) yen for each
translated Product sold under clause 7 above and a royalty equal to
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION% of the Net Revenue received by
BSC for each Translated Product sold under clause 10 above. Net
Royalty is defined as the royalty payable to BII after the
deduction of withholding tax or any other statutory or government
taxes that may be payable on royalties to BII. Net Revenue is
defined as gross revenue to which BSC is entitled from the sale of
Translated Products less cash and credit returns. No royalty shall
be due on Translated Products supplied at no charge to
distributors, sub distributors and dealers for promotional
purposes. All payments shall be in yen.
(b) Each of BII and BSC acknowledge and agree that royalties shall be
paid to ACSES (in Australia) as the payment agent of BII in the
event that BSC receives a notice in writing from BII requesting BSC
to do so.
12. BSC shall pay to BII, or to ACSES (in Australia) if it receives a notice
of the type referred to in clause 11(b) above, the royalties due under
clause 11(a) above, each calender quarter within 30 days after the end
of each calender quarter.
3
<PAGE>
13. CERTIFIED SALES AND ROYALTY REPORT
BSC shall provide BII a quarterly sales and royalty report, certified as
correct by an authorized officer of BSC (the Certified Sales and Royalty
Report) when remitting the royalty payments as detailed in clause 11
above. The Certified Sales and Royalty Report shall be supplied to BII
within 30 days from the end of each calendar quarter.
In the event that the Certified Sales and royalty report has not been
provided to BII within 45 days from the end of the calendar quarter then
BII shall be entitled to appoint an independent party to examine BSC's
records for the purpose of ascertaining the royalties due for the
relevant period. The cost of the independent party in determining the
royalties due plus any royalties due shall be paid to BII within 14 days
of BSC receiving written notification from BII of the amount due.
14. BSC shall use its best commercially reasonable endeavours to promote and
expand the sale of the Translated Products in all parts of the Territory
and in all sectors of the market on the maximum possible scale by all
reasonable means. BSC shall fulfil all orders for the Translated Product
within a reasonable time after receipt of the order and shall not make
any false, misleading or deceptive statements in respect of the
Translated Product.
15. ABILITY TO CONDUCT AUDIT
BSC shall keep complete and accurate records regarding the production,
replication and distribution of the Translated Products during the
period of this Agreement and for a period of 3 (three) years after the
expiry or termination of this Agreement and shall upon 10 business days
notice from BII allow BII or it's agent to inspect all of these records
and other related documents during normal working hours. In the event of
any discrepancies being noted BSC agree to pay BII within 10 days all
additional moneys owing and where the discrepancy from the time of the
previous audit exceeds CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION of the amount
that is due to BII, BSC agrees to pay all costs incurred by BII in
conducting the inspection of BSC's records. BII's ability to conduct the
above mentioned inspection is restricted to twice every year during the
term of this agreement and on termination of this Agreement for any
reason whatsoever.
16. TERMINATION
BII may terminate this Agreement immediately upon giving written notice
to BSC if:
(a) BSC rails to make any payment when due or otherwise breaches a
major provision or warranty of this Agreement and has not rectified
such breach within CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
4
<PAGE>
WITH THE SECURITIES AND EXCHANGE COMMISSION of receipt of notice
from BII; or
(b) BSC dissolves, liquidates or if bankruptcy, insolvency or winding
up procedures are commenced by BSC or are brought against BSC and
such proceedings are not set aside within CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION of their commencement.
17. BSC may terminate this Agreement Immediately upon giving written notice
to BII if BII dissolves, liquidates or if bankruptcy, insolvency or
winding up procedures are commenced by BII or are brought against BII or
if BII otherwise breaches a major provision or warranty of this
Agreement and does not rectify the breach within CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION after receiving written notice of the breach from
BSC.
18. If Agreement is terminated for any reason, BSC shall:
(a) immediately return all masters of the Products and Translated
Products to BII; and
(b) have the right to sell its existing stocks of the Translated
Product for a period of CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION from the date the Agreement is terminated subject to:
(i) payment to BII of all royalties due under this agreement;
(ii) the wholesale selling price of the Translated Products shall
not be reduced by more than CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION to the wholesale selling price of the Translated
Products prior to the termination of the agreement;
5
<PAGE>
(c) at the expiration of the CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION period
referred to in clause 18(b) above BSC shall destroy all remaining
stock of the Translated Products held by BSC and provide BII with
written notice certifying that all remaining stock has been
destroyed;
(d) In the event of the terms and conditions of clause 18 (b) not being
adhered to by BSC then BSC agrees to destroy all remaining stock of
the Translated Products held by BSC immediately on receipt of
written notice from BII and provide BII with written notice
certifying that all remaining stock has been destroyed;
19. BII shall be responsible for any and all other royalties due on the
Products to third parties including music royalties, animation royalties
and licensing royalties.
20. BII provides no warranty as to names being used including the name
Brilliant Interactive Ideas in the territories in which BSC distributes.
In the event a name change is needed for legal reasons then the parties
shall consult as to the new name and BII shall make the necessary
changes at it's expense.
21. The names used are the property of BII and BSC shall have no claim to
these or any other names being used.
BII retains any and all of the copyrights contained in the Products and
Translated Products and BSC shall have no rights in the copyrights or
other intellectual rights contained in the Products and Translated
Products. All Translated Products shipped shall reflect the appropriate
copyrights which shall be provided to BSC by BII. Any press releases or
advertisement for the Translated Products shall reference BII as the
developer and shall contain the appropriate copyright notices as
provided.
22. BII hereby permits BSC, at the discretion of BSC, to take any and all
action that BSC deems necessary to protect and enforce BII's copyright
in the Products and Translated Products. BSC shall notify BII in writing
of any and all action that BSC takes prior to the commencement of the
action and shall keep BII fully informed of the status and progress of
the action. Where as a result of such action by BSC damages are awarded
then BSC shall be entitled to recover from the damages all costs
incurred as a result of the action and any residual amount remaining
shall be split equally between BSC and BII.
23. REPRESENTATIONS AND WARRANTY'S
BII represents and warrants that:-
(a) the Products, as delivered to BSC, will not infringe the patent,
copyright, trademark, trade secret or other proprietary or privacy
rights of any third party. In the event that the Products as
delivered to BSC do infringe the patent, copyright, trademark,
trade secret or other proprietary or privacy rights of any
6
<PAGE>
third party then BII shall bear such costs as are required to
rectify the offending infringement. Such rectification to be
carried out by BII;
(b) that BII is a corporation duly incorporated and validly existing in
good standing under the laws of the state of its incorporation; and
has full rights, power, legal capacity and authority to enter into
this Agreement and to carry out the terms hereof and perform its
obligations hereunder;
(c) Each party shall fully indemnify the other (and its affiliates,
shareholders, directors, officers, employees and agents) against
all losses, costs, charges and expenses arising from such party's
negligence in connection with this Agreement;
24. ADDITIONAL RIGHTS
BII hereby grants to BSC and BSC hereby accepts the following additional
rights for the Territory and upon the terms and conditions of this
Agreement:-
(a) The right to make written summaries, extracts and synopses of the
Translated Products, for the purpose of advertising, exploiting and
publicising the Translated Products and to use, exhibit and or
broadcast excerpts of the Translated Products for the purpose of
advertising, publicising and otherwise promoting the Translated
Products including without limitation the right to incorporate
extracts in catalogues of all kinds, whether electronic or not;
(b) The right to create and prepare materials for the promotion
advertising and publicising of the Translated Products provided
that all advertising or publicity for the Translated Products shall
comply with all credit obligations of BII of which BSC shall have
been given prior written notice;
(c) The right to use the trademarks and designs on and in the Products
and Translated Products in association with the sale as permitted
by this Agreement.
25. END USER TECHNICAL SUPPORT
BSC shall provide end user technical support to all end users on the
Translated Products.
26. FREE SAMPLES
BII agrees to allow BSC to produce fifty (50) copies, or a greater
number of copies as agreed between BSC and BII, of Not For Resale units
of each Product for promotional purposes. No fees or royalties shall be
payable to BII for these Not For Resale units under the terms of this
agreement
27. BSC agrees to provide BII with up to 100 copies of Not For Resale units
of each Translated Product for BII's promotional purposes. Such Not for
Resale units to be provided to BII at BSC'S cost of producing the unit.
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<PAGE>
28. CONFIDENTIALITY
Each party shall treat as confidential all information of a confidential
nature of the other party which comes into it's possession under this
Agreement.
BSC shall Keep absolutely secret and confidential at all times all
knowledge and information of which it, its employees or agents may
become aware relating to the Source and shall not use, communicate,
cause to be communicated, copy, make available or otherwise re-supply
any Source or any part thereof to any individual, corporation or firm
other than such employees, agents or representatives of BSC to whom
disclosure is necessary for the purposes of this Agreement, provided
always that BSC shall first take steps, with such employees, agents or
representatives, to ensure that no such employee, agent or
representative will make any use of any Source or disclose the same to
any other person without the prior written consent of BII.
29. The term of this Agreement shall be for a period of CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION from the date of first release of the Translated
Products (the Release Date) into the Territory and shall be extended for
a further CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION)
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION (the Extended Period) provided that
(i) BSC have paid to BII royalties or at least CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION units of each of the Translated Products
(cross collateralised) in the CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION prior to the Extended Period
or
(ii) In the CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION prior to the Extended
Period if BSC has not paid royalties to BII on CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION units of each of the Translated Products
(cross collateralised), then BSC will pay the
8
<PAGE>
difference between what has been paid and that amount which is
payable on CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION units to BII within
30 days of the CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
anniversary of the Release Date
or
(iii) by written agreement between BSC and BII.
The terms and conditions governing any additional extensions of this
Agreement after the Extended Period shall be negotiated and agreed to in
writing between BSC and BII
30. ASSIGNMENT
This Agreement may not be assigned by either party without the express
written approval of the other party. Such approval may not be
unreasonably withheld.
31. NOTICES
31.1 Any notice, communication or other document authorized or required to be
given or served pursuant to this Agreement (herein referred to as a
"Notice") shall unless otherwise specifically provided by this Agreement
be in writing addressed as follows:-
TO BII: Level 1, 17 The Corso
Manly
NSW 2095
Telephone: (612) 9977 4277
Facsimile: (612) 9977 4123
For the Attention of: Mark Miller
TO BSC: 4-15-33 Shibaura
Minato-Ku
Tokyo 108
Japan
Telephone: (813) 5476 2943
Facsimile: (813) 5476 4522
For the Attention of: Koy Onaway
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<PAGE>
or such other address as the relevant addressee may hereafter specify
for such purpose to the other party to this Agreement by notice in
writing.
31.2 A notice includes communication by facsimile. The sender of any
communication by facsimile shall forthwith confirm the same by letter,
but failure by the addressee to receive the same shall not prejudice the
validity or effect of such facsimile.
31.3 A notice shall be signed or, in the case of a facsimile, purport to be
signed, by the party originating the notice or by an authorized officer
of the corporation.
31.4 A notice which is sent by prepaid mail shall be deemed to be received on
the tenth day following the day on which it was posted.
31.5 A notice which is sent by facsimile shall be deemed to be received at
the time printed on the log out by the machine on which the notice is
transmitted.
32. RELATIONSHIP OF PARTIES
Each party is acting as an independent contractor and not as an agent,
partner, or joint venturer with the other party for any purpose. Except
as provided in this Agreement, neither party shall have any right,
power, or authority to act or to create any obligation, express or
implied, on behalf of the other.
33. FORCE MAJEURE.
Neither party shall be responsible for delays or failure of performance
resulting from acts beyond the reasonable control of such party. Such
acts shall include, but not be limited to, acts of God, strikes,
walkouts, riots, acts of war, epidemics, failure of suppliers to
perform, governmental regulations, power failure(s), earthquakes, or
other disasters.
34. SURVIVAL OF CERTAIN PROVISIONS.
The confidentiality obligations set forth in the Agreement shall survive
the termination of the Agreement by either party for any reason.
35. HEADINGS.
The titles and headings of the various sections and paragraphs in this
Agreement are intended solely for convenience of reference and are not
intended for any other purpose whatsoever, or to explain, modify, or
place any construction upon or on any of the provisions of this
Agreement.
10
<PAGE>
36. ALL AMENDMENTS IN WRITING.
No provisions in either party's purchase orders, or in any other
business forms employed by either party will supersede the terms and
conditions of this Agreement, and no supplement, modification, or
amendment of this Agreement shall be binding, unless executed in writing
by a duly authorized representative of each party to this Agreement.
37. ENTIRE AGREEMENT.
The parties have read this Agreement and agree to be bound by its terms,
and further agree that it constitutes the complete and entire agreement
of the parties and supersedes all previous communications, oral or
written, and all other communications between them relating to the
license and to the subject matter hereof. No representations or
statements of any kind made by either party, which are not expressly
stated herein, shall be binding on such party.
38. WAIVER
Failure by either party to insist upon the performance of any or more of
the conditions hereof shall not be deemed to be a waiver of any rights
and remedies that that party may have and shall not be deemed a waiver
of any subsequent breach or default. No provision of this Agreement
shall be deemed to have been waived unless such waiver shall be in
writing and signed by a person being a director, manager, secretary or
other officer of the party giving notice in that behalf.
39. SEVERABILITY
If any clause or part hereof shall be held or be deemed invalid or
unenforceable for any reason whatsoever, then such clause or part
thereof shall be deemed to be deleted from this Agreement and the
Agreement shall otherwise remain in full force and effect. The parties
hereto agree to replace any invalid, illegal or unenforceable provision
with a provision which has the most similar permissible economic and
legal effect to the invalid, illegal or unenforceable provision.
40. WITHHOLDINGS
All amounts payable hereunder shall be subject to all laws and
regulations now or hereafter in existence requiring the deduction and /
or withholding of moneys for income, sales, or other taxes assessable
with respect to fees hereunder. BSC shall be entitled to withhold such
taxes and remit the same to the taxing entity within the Territory and
will furnish BII with certificates evidencing the withholding and
payment of any such taxes. The benefit of the resultant tax credits
arising from the payment of the withholding taxes shall accrue to BII.
11
<PAGE>
41. GOVERNING LAW
This Agreement shall be deemed to have been made in the state of New
South Wales, Australia and the continuation, validity and performance of
this Agreement shall be governed in all respects by the laws in force of
that state. The parties hereby submit to the exclusive jurisdiction of
the Courts of the State of New South Wales, Australia.
Any dispute when may arise among the parties to this Agreement in
relation to the Agreement shall be settled by arbitration. Arbitration
initiated by BII shall be held in Tokyo, Japan and arbitration initiated
by BSC shall be held in Sydney in the state of New South Wales,
Australia. All arbitration shall be conducted in accordance with the
rules of Conciliation and Arbitration of the International Chamber of
Commerce. The award made as a result of such arbitration shall be
binding on the parties.
By their signatures below the parties agree to be bound by the terms of this
Agreement.
/s/ Koy Onaway /s/ Mark Miller
____________________________ ____________________________
FUJITSU BASIC SOFTWARE BRILLIANT INTERACTIVE IDEAS
CORPORATION PTY LTD
ACN 061 288 668
Name: - Koy Onaway Name; - Mark Miller
Position: - President Position: - Managing Director
12
<PAGE>
Appendix A
The Products are:
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
13
<PAGE>
APPENDIX B CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement is executed on the 1 July 1996
BETWEEN: BRILLIANT INTERACTIVE IDEAS PTY LIMITED (BII)
ACN 061 288 668
-of the one part
AND: FUJITSU BASIC SOFTWARE CORPORATION (BSC)
-of the other part
WHEREAS:
- -------
A. BII is in the business of developing, conceiving of and causing to be
created and marketed, software and all things incidental thereto being
a business of a highly competitive and confidential nature.
B. BSC will have access, directly or indirectly, to technology, trade
secrets, confidential information and intellectual property of BII.
NOW THIS CONFIDENTIALITY AGREEMENT WITNESS THAT:
- -----------------------------------------------
1. For the purpose of this Confidentiality Agreement:
A. 'Technology' means and includes technology as generally understood,
and all of the technology and know how in relation to computer
software developed by BII and the systems, designs and documents that
are or may be used in or in relation to the business of BII.
B. 'Trade Secrets' means and includes trade secrets as understood under
the general law, and, without restricting the generality of the
foregoing, also includes information, including a formula, design,
concept, idea, flowchart, pattern, compilation, program (other than a
computer program which is the subject of the description of Technology
as understood in this Confidentiality Agreement), method, technique or
process that is or may be used in relation to the business of BII or
which relates to the Technology and/or the Intellectual Property.
C. 'Confidential Information' means and includes confidential information
as under the general law and, without restricting the generality of
the foregoing, also includes all and any information which relates to
the Technology or the business of BII generally.
14
<PAGE>
D. 'Intellectual Property' means and includes Intellectual and Industrial
property as understood under the general law and all the innovations,
improvements, patents, patent applications, copyright, designs, trade
secrets, technology and know-how which have been created or acquired
by BII in relation to the Technology, Confidential Information or
Trade Secrets.
E. 'Documents' includes notes, working notes, manuals, diagrams, graphs,
software listings, charts, flow charts, documents, memoranda, lists,
projections, specifications, estimates, plans, proposals, designs,
market research information, customer lists; suppliers, and any other
written or recorded matter whether of a like or different nature.
F. 'Subject Matter of this Confidentiality Agreement' means all the
Technology, Trade Secrets, Confidential Information, Intellectual
Property, Documents, Products, Translated Products and Source or any
of them.
BSC agrees with BII that:
2.(a) The Subject Matter of this Confidentiality Agreement is the sole and
absolute property of BII and BSC hereby assigns transfers and makes
over to and in favour of BII all and any of the Subject Matter of this
Agreement as BSC may have had or in the future may have a connection
with in its creation or conception during and as part of or arising
from BSC's contact with the subject Matter of this Agreement and with
BII;
2.(b) If BSC during the operation of this Agreement, and arising directly or
indirectly out of carrying out its functions with BII, creates,
develops or evolves in whole or in part matter which may be the
subject of copyright, patents, designs, processes or any Intellectual
Property (whether of a like or different nature) BSC expressly agrees
and acknowledges that such copyright, patents, design, process or
Intellectual Property shall be deemed always to have been the property
of BII and that BSC has no claim whatsoever in respect thereof
(whether for remuneration or otherwise) and in so far as may be
necessary to give effect hereto BSC assigns, makes over and transfers
to the Company all of its right, title and interest in and to the
foregoing.
3.(a) All Documents and Source, or any other item of a potentially
confidential nature and which falls within The Subject Matter of this
Agreement, is and always shall have been deemed to be proprietary and
confidential to BII.
3.(b) During the operation of this Agreement and at all times thereafter BSC
shall not disclose any of The Subject Matter of this Deed, whether
directly or indirectly to any other firm, person, business or
corporation whether in Australia or anywhere else in the world.
15
<PAGE>
4. At any time upon the request of BII and, in any event, upon
termination or determination of BSC's involvement with BII, BSC shall
deliver or cause to be delivered to the company all Documents,
programs (including computer programs), object code, and source code,
in relation or connection thereto and all copies thereof in BSC's
custody, relating to or concerning The Subject Matter of this
Agreement to which BSC has access to or obtained during the course of
the operation of this Agreement or which BSC may have developed,
drafted or otherwise caused to come into existence and shall cause
same to be deleted from all BSC computer systems.
5. The provisions of this Agreement shall continue to apply after the
termination or determination of the involvement of BSC with BII
without limitation as to time but shall cease to apply to information
or knowledge which shall come into the public domain through proper
sources and not by breach of confidence or unauthorised disclosure by
BSC or any other person.
6. In this Agreement unless inconsistent with or repugnant to the
context:
(a) Reference to the singular number shall include the plural number
and vice versa.
(b) Reference to any particular gender shall include every other
gender.
(c) The word "person" shall include a corporation and vice versa.
By their signatures below the parties agree to be bound by the terms of this
Agreement.
/s/ Koy Onaway /s/ Mark Miller
____________________________ ____________________________
FUJITSU BASIC SOFTWARE BRILLIANT INTERACTIVE IDEAS
CORPORATION PTY LTD
ACN 061 288 668
Name: - Koy Onaway Name: - Mark Miller
Position: - President Position: - Managing Director
16
<PAGE>
EXHIBIT 10.18
Contract No. 010006
LICENSING AGREEMENT - DOMESTIC
------------------------------
AGREEMENT made as of July 31, 1996, between The Hearst Corporation, King
Features Syndicate Division ("King"), a Delaware corporation with offices at 235
East 45th Street, New York, New York 10017, and Brilliant Digital Entertainment,
Inc. ("Licensee"), a Delaware corporation with offices at 6355 Topanga Canyon
Boulevard, Suite 513, Woodland Hills, California 91367.
King and Licensee agree as follows:
BASIC PROVISIONS
1. Property and Trademarks:
-----------------------
POPEYE
2. Products: CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
--------
WITH THE SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION) interactive story-
based computer CD_ROM products incorporating games,
puzzles, activities, adventures and/or stories designed
for use by children in the three (3) to twelve (12) year
old age group and capable of operating on CD-ROM drives
with IBM or compatible PC hardware using Microsoft
Windows or Macintosh or compatible hardware for use on
personal computers as such computers are presently
configured. No characters other than POPEYE and the
related characters shall be included in the Products. The
license does not include the right to adapt the software
for use on operating platforms other than those
specifically described herein; specifically excluded are
the rights to make software compatible with Sega or
Nintendo formats, or other electronic consumer gaming
formats such as handheld electronic game versions of the
Products. Licensee is granted the right to make only a
single version of each software product.
3. Territory: All countries in which English is the predominantly
---------
spoken language.
The Products may be distributed only to the home and
educational personal computer market and shall be solely
for use by consumers in their homes, schools and
libraries and not for public exhibition or transmission
of any kind. The Products shall be distributed
<PAGE>
under license (which may be in the form of a shrink
wrap), which prohibits copying except for archival
purposes and prohibits the creation of print products
based upon the Products, except such print copies of
individual screens from the software that may be made by
the consumer for private use.
4. Language: English
--------
5. Term:
----
(a) Basic Term: The "Basic Term" of this Agreement and the
----------
license granted hereunder shall commence on CONFIDENTIAL
INFORMATION OMITTED AND FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, and continue until CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION, subject to the
provisions hereof.
(b) Term Extensions (if any) and Minimum Earned Royalties: If
-----------------------------------------------------
Licensee earns the specified Minimum Earned Royalties,
Licensee shall have the following options if any, to
extend the Basic Term (such extensions herein called
"term Extension(s)"):
Licensee shall have CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION)
renewal option for CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION)
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION, provided
that Royalties earned and paid King for the Basic Term
equal at least $CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION ("Minimum Earned Royalties").
"Term" means the Basic Term and all Term Extensions.
6. Advances, Royalties, Minimum Royalties Guarantee, etc,:
------------------------------------------------------
(a) Advance:
-------
2
<PAGE>
(i) Licensee shall pay King a non-refundable advance
("Advance") in the amount of $CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION payable as follows: $CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION upon the execution of
this Agreement and $CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION on or before CONFIDENTIAL INFORMATION OMITTED
AND FILES SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
(ii) Licensee shall pay King an additional
non-refundable Advance for each Term Extension period as
follows:
$CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
(iii) Unless specified otherwise herein, Advances shall
be paid on or before the first day of the applicable
period of the Term.
(iv) The Advance shall be recoupable by Licensee out of
Royalties payable to King pursuant to subparagraph (b).
(b) Royalty:
-------
(i) Licensee shall pay King a royalty ("Royalty") of
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION% based upon
the Gross Wholesale Price (as defined in the Standard
Terms and Conditions) of each Product sold, except with
respect to Products sold to hardware manufacturers to be
included for sale with such manufacturers hardware (OEM),
in which cases Licensee shall pay King CONFIDENTIAL
INFORMATION OMITTED AND FILES SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION% based upon Licensee's
Net Revenues (as defined in the Standard Terms and
Conditions), for each Product sold. A Product shall be
deemed "sold" as of the date on which such Product is
shipped, invoiced, billed or paid for, whichever first
occurs.
(ii) Royalties shall be reported separately by country.
3
<PAGE>
(c) Payments and Statements:
-----------------------
(i) All payments and statements shall be made quarterly
commencing CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION, and
shall be sent to King at the address specified in the
heading of this Agreement and shall be sent to the attention
of: CONTROLLER. Notwithstanding any provisions to the
contrary in the Standard Terms and Conditions: (A) payments
and statements shall be due within fifteen (15) days after
the end of each calendar quarter and (B) statements shall
conform in all material respects to the form attached as
Exhibit D.
(ii) Notices, Submission. Additionally, a copy of all
-------------------
statements, as well as all other notices and submissions
(unless expressly directed otherwise in this Agreement),
shall be sent to the attention of King's DIRECTOR OF
LICENSING at the same address.
(d) Contract Reference:
------------------
All payments and statements shall reference the Contract No.
set forth at the top of this Agreement.
(e) Currency:
--------
All payments to be made to King hereunder shall be payable
in U.S. currency.
7. Marketing Date: CONFIDENTIAL INFORMATION OMITTED AND FILED
-------------- SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
8. Advertising, Marketing Requirements: Not Applicable.
-----------------------------------
9. Copyright/Trademark Notice: Until such time as King otherwise
--------------------------
notifies Licensee, the notice shall be in the following form:
(TM) and (C) (year) King Features Syndicate, Inc.
(TM) The Hearst Corporation
Licensee shall also affix to the Producer or Promotional and Packaging
Material the design(s) attached hereto as Exhibit A.
Additionally, Licensee shall execute and return to King the trademark
registration document either attached hereto as Exhibit B or provided
by King hereafter.
4
<PAGE>
10. Samples: Licensee shall provide King with the following quantities of
Product samples (pursuant to paragraph 6(g) of the Standard Terms and Conditions
attached hereto):
twelve (12)
11. Standard Terms and Conditions: This Agreement includes all the
-----------------------------
Standard Terms and Conditions annexed hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Brilliant Digital Entertainment, Inc. The Hearst Corporation
King Features Syndicates Division
By: /s/ Diana Maranon By: /s/ Lawrence T. Olson
----------------------------------- --------------------------------
Name: Diana Maranon Lawrence T. Olson
Title: Secretary Executive Vice President and General
Manager
5
<PAGE>
EXHIBIT C
---------
Manufacturer's Agreement
------------------------
Agreement dated as of ____________________ between Brilliant Digital
Entertainment, Inc. ("Contractor") and (NAME OF MANUFACTURER) ("Manufacturer").
Name and Address of Manufacturer: (NAME/ADDRESS)
Property and Trademarks: (PROPERTY AND TRADEMARKS AS DEFINED IN LICENSE
AGREEMENT)
Products: (PRODUCTS AS DEFINED IN LICENSE AGREEMENT)
Territory: (COUNTRY/TERRITORY)
Expiration of Manufacturer's Agreement (unless sooner terminated or extended):
(DATE)
1. Contractor hereby engages Manufacturer to manufacture such quantities of
the Products as Contractor may specify from time to time.
2. Upon the failure of Manufacturer to comply with any of this Agreement,
Contractor may elect to terminate this Agreement forthwith and require that
portion of all copies and molds or other devices used to manufacture the
Products in possession of Manufacturer be immediately delivered to Contractor or
be destroyed.
3. Manufacturer agrees that:
(a) it will not manufacture the Products for or supply the Products to
anyone but Contractor;
(b) it will not deliver the Products in any territory other than the
Territory listed above;
(c) it will not manufacture any merchandise utilizing the Property and
Trademarks other than the Products, nor will it produce any items in excess of
the quantity stipulated by Contractor; and
(d) the Products manufactured by it shall invariably and without
exception bear a copyright notice as stipulated by Contractor, accompanied by
such other information or notice as may be prescribed by the laws applicable to
the Territory, or as Contractor may instruct in writing.
4. Manufacturer hereby acknowledges the proprietary rights of Contractor's
licenses or, King Features Syndicate Division, The Hearts Corporation ("King")
in and to such Property and Trademarks. Manufacturer also acknowledges that it
acquires no proprietary rights whatsoever
6
<PAGE>
in the Property and Trademarks, the Products, or any trademarks or copyrights
associated therewith and that all materials it produces or creates, including
any molds, engraving or other devices used to reproduce the Products shall be
the exclusive property of King.
5. Manufacturer further acknowledges that King is the intended third-party
beneficiary of this Agreement and King shall be entitled to initiated
enforcement proceedings as may be appropriate against Manufacturer in the event
of any breach hereof, including but not limited to seeking injunctive relief.
The Manufacturer agrees that its failure to comply with its obligations
hereunder would cause irreparable injury to King not wholly compensable with
monetary damages. In addition, Manufacturer shall be responsible to Contractor
and King for damages, including costs and attorney's fees, caused by any
unauthorized use of such molds, engravings or other devices used to reproduce
the Property and Trademarks.
6. Upon notice from Contractor or King, Manufacturer will immediately cease
manufacturing the Product and at Contractor's or King's election either turn
over to Contractor or King any molds, engravings or other devises used to
reproduce the Property and Trademarks and Products or will give satisfactory
evidence of their destruction so that they can no longer be used to reproduce
said Property and Trademarks.
CONTRACTOR MANUFACTURER
Brilliant Digital Entertainment, Inc. (NAME)
By______________________________ By______________________________
Title___________________________ Title___________________________
7
<PAGE>
KING FEATURES LICENSING GROUP
STANDARD TERMS AND CONDITIONS
1. LICENSE GRANTED:
---------------
(a) King hereby grants to Licensee a non-transferable and non-assignable
license, without the right to grant sub-licenses, to use the Property and the
Trademarks solely for the manufacture, sale, advertising and promotion
(collectively "Sale") of the Products solely within the Territory and in the
Language. All rights in and to the Property and the Trademarks not expressly
granted to Licensee hereunder shall remain with King.
(b) Licensee understands that King is not granting any rights with respect to
any music whether associated with the POPEYE characters or otherwise. In the
event that any music is included in the Products, Licensee will obtain and to
the extent required pay for all necessary music synchronization and performing
rights from the copyright owners of such music and such other person, firms or
associations, societies or corporations as may own or control the performing
rights thereto, and King shall have no obligation, financial or otherwise,
relating thereto.
2. TERM EXTENSIONS:
---------------
If Licensee is granted any option(s) to extend the Term, each such option
must be exercised by notifying King in writing at least sixty (60) days prior to
the expiration of the then-current period of the Term. As a precondition to
Licensee's effective exercise of any such option, Licensee must have fully
performed all of its obligations hereunder, and specifically must have paid all
payments then due and must have earned any Minimum Earned Royalties specified in
the Basic Provisions.
3. ROYALTY PROVISION:
-----------------
(a) Royalties shall be paid by Licensee to King on all Products sold by
Licensee, even if not invoiced or billed (such as introductory offers, samples,
promotions and the like in excess of commercially reasonable quantities to
prospective customers, and sales to affiliates, associates or subsidiaries of
Licensee), and shall be based upon Licensee's usual Gross Wholesale Price or Net
Revenues, as applicable, for such Products during the period sold.
(b) Licensee shall pay to King on execution of this Agreement, and on the
commencement of each Term Extension period, if any, a non-refundable Advance
against Royalties ("Advance") specified in the Agreement. For the Basic Term and
each Term Extension period, if any, Licensee shall also pay to King a non-
refundable, "Guaranteed Minimum Royalty" in the amount specified in the
Agreement. If, upon termination or expiration of the Term, the total Royalties
paid by Licensee to King during the period of the Term immediately preceding
expiration or termination, including the Advance, is less than the Guaranteed
Minimum Royalty for such period, Licensee shall immediately pay such difference
to King. Royalty payments made for any period of the Term (e.g., Basic Term or
----
any Term Extension period) shall be credited against the Guaranteed Minimum
Royalty for such period of the Term.
8
<PAGE>
(c) "Gross Wholesale Price" shall mean Licensee's invoiced billing price to its
customers or distributors less (i) credits for actual returns not to exceed, in
any quarterly accounting period, CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION% of Licensee's sales of
the Products during such accounting period; (ii) returns for damaged goods; and
(iii) sales taxes included in the purchase price or paid out of receipts from
sales. "Net Revenues" shall mean gross revenues received by Licensee from sales
of the Products to hardware manufacturers to be included for sale with such
manufacturers hardware (OEM) less (i) credits for actual returns not to exceed,
in any quarterly accounting period, CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION% of Licensee's sales of
the Products during such accounting period, CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION% of Licensee's
sales of the Products during such accounting period; (ii) returns for damaged
goods; and (iii) sales taxes included in the purchase price or paid out of
receipts from sales. No other deductions shall be made in computing the Gross
Wholesale Price or Net Revenues whether for cash or other discounts,
commissions, uncollectible accounts, taxes (excluding sales taxes), fees,
assessments, impositions, payments or expenses of any kind.
4. STATEMENTS AND PAYMENTS:
-----------------------
(a) Licensee shall provide King within thirty (30) days after the end of each
calendar quarter (the "Royalty Period"), a complete and accurate statement of
its sales of Products for the Royalty Period. Said statement shall be certified
as accurate by the Licensee and include the number, description and Gross
Wholesale Price of each Product (including each separate type, style and kind of
Product) and, for Products sold on an OEM basis, the Net Revenues for the
Products sold during the Royalty Period, information as to discounts given and
returns actually credit and any other information King may from time to time
request. Statements shall be furnished to King whether or not any Products have
sold and whether or not Royalties have been earned during the Royalty Period.
Statements shall be in the form acceptable to King. The amount due King for the
Royalty Period shall be paid simultaneously with the submission of such
statements. All payments shall be in such currency as is specified in the
Agreement. If no other currency is specified in the Agreement, all payments
shall be in United States currency drawn on a United States bank. In no event
shall the amount credited for returns during any Royalty Period exceed the
Licensee's Royalty obligation for such Royalty Period or be used as a credit
against past or future Royalty obligations of the Licensee.
(b) Licensee shall send all statements and payments to King at its address
listed in the heading of this Agreement unless otherwise specified in the Basic
Provisions hereof. King reserves the right to change its designation of the
recipient of payments and statements including its designation of: (i) agent;
(ii) agent's address; or (iii) King's address by giving written notice thereof
to Licensee.
(c) The receipt or acceptance by King of any statement or payment (or its
cashing of any Royalty checks) shall not preclude King from questioning the
correctness thereof at any time and any inconsistencies or mistakes shall
immediately be rectified.
9
<PAGE>
(d) Time is of the essence with respect to all payments to be made hereunder by
Licensee, and interest at a rate of CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION percent (CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION%) per year, compounded daily, of, if less, the maximum lawful
interest rate, shall accrue from the date payment is due until the date payment
is received. The preceding provision shall also apply to any amounts found to be
unpaid following an examination of Licensee's books and records.
5. AUDIT:
-----
(a) Licensee shall keep accurate books of account and records at its principal
place of business covering all transactions relating to the License granted
herein. King and its duly authorized representatives shall have the right,
during reasonable business hours, to examine Licensee's said books of account
and records and all other documents and material relating to the subject matter
and the terms of this Agreement and to make copies and extracts thereof. If any
underpayment is greater than CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION percent (CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION%) for any Royalty Period, the Licensee shall reimburse King for the
costs and expenses of such audit.
(b) Upon request by King, but not more than once each year, Licensee shall, at
its own cost, furnish to King within thirty (30) days after such request a
detailed statement, prepared by an independent certified public accountant
acceptable to King, setting forth the number of Products manufactured from the
later of the commencement of this Agreement or the date of any previous such
statement up to and including the date of King's request therefore and also
setting forth the pricing information for all Products (including the number and
description of the Products) shipped, distributed or sold by Licensee during the
aforementioned time period.
(c) All books of account and records of Licensee covering all transactions
relating to the License shall be retained by the Licensee until at least two (2)
years after the expiration or termination of the Term for possible inspection by
King.
6. QUALITY, NOTICES, APPROVALS AND SAMPLES:
---------------------------------------
(a) The quality of the Products and all promotional, advertising and packaging
material which includes the Property or the Trademarks (the "Promotional and
Packaging Material") shall be at least as high as the best quality of similar
products and promotional, advertising and packaging material presently shipped,
distributed, sold or used by Licensee in the Territory and shall be in full
conformance with all applicable laws and regulations.
(b) Licensee may not manufacture, use, sell, advertise, promote, ship or
distribute any Product nor Promotional and Packaging Material until it has been
approved in writing by King. Such approval may be granted or withheld as King,
in its sole discretion, may determine. King's failure to approve in writing a
submission by the Licensee within CONFIDENTIAL
10
<PAGE>
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION) days from the date King receives such
submission shall be deemed disapproved. King agrees to act in a timely manner to
review each submission.
(c) Before commencing or authorizing third parties to commence the design or
development of Products or of Promotional and Packaging Material which have not
been previously approved in writing by King, Licensee shall submit at its own
cost to King for approval the following material in the following sequence: (i)
a description of the concept, including full information on the nature and
function of the proposed item and a general description of how the Property,
Trademarks and other material will be used thereon; (ii) complete layouts and
descriptions of the proposed Products and Promotional and Packaging Material
showing exactly how and where the Property, Trademarks and all other artwork and
wording will be used; (iii) pre-production models or prototype samples of the
proposed Products and Promotional and Packaging Material; and (iv) actual
production samples of the proposed Products and Promotional and Packaging
Material (the "Production Samples"). Licensee shall not proceed beyond any stage
where approval is required without first securing such approval. Licensee shall
use the form annexed hereto as Schedule A in connection with its submission.
Licensee's failure to adhere to the aforesaid approval requirements shall
constitute a material breach of this agreement. No such approval by King shall
act to waive, diminish or negate Licensee's indemnification to King as set forth
below.
(d) All Products and all Promotional and Packaging Materials shall contain
permanently affixed, non-removable appropriate legends, markings and notices as
required from time to time by King, to give appropriate notice to the public of
King's rights therein. Unless otherwise expressly approved in writing by King or
until such time as King advises Licensee otherwise, each usage of the Trademarks
shall be followed by either the TM or the R Trademark Notice symbol or the word
"Trademark," as appropriate, and initially the notices and legends as set forth
in section 9 of the Basic Provisions shall appear at least once on each Product
and on each piece of Promotional and Packaging Material.
(e) Additionally, the following language shall appear on screen at the
beginning of the Product software and on the Product packaging:
This program shall be used for home entertainment and educational purposes
only and not for commercial purposes, public exhibitions, transmissions or
retransmissions of any kind. All rights in any derivative works created by
the use of this program shall vest exclusively in King Features. No
program or program materials may be copied or downloaded in whole or in
part except only in the normal private use of the program.
(f) Where patent protection is either pending or has been granted for any
portion of the Property, the Licensee shall further include the appropriate
patent notice on all Products and on all pieces of Promotional and Packaging
Materials.
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(g) (i) Licensee shall use no markings, legends or notices on or in
association with the Products or Promotional and Packaging Material other than
the above specified legend and such other markings, legends and notices as may
from time to time be specified by King without first obtaining King's prior
written approval. Licensee hereby represents and undertakes that it will not at
any time without King's prior written consent assign, sub-license, sub-contract
or otherwise deal with all or any part of the rights hereby granted or amend,
revise, develop, or vary all or any part of the Property; (ii) If Licensee shall
with or without the prior written consent of King create or acquire derivative
designs, whether amendments, revisions, developments or variations of all or any
part of the Property (hereinafter called the "Derived Further Designs") (without
prejudice to King's rights against the License in the event of the unauthorized
creation of any Derived Further Design) King or its designee shall automatically
acquire (and Licensee shall execute such assignments or other documents as King
may request) all rights of every kind, nature and description (including without
limitation the entire copyrights throughout the world and all extensions
thereof) in and to all such Derived Further Designs and the Licensee does hereby
agree and undertake:
(1) Prior to the creation or acquisition of any Derived Further Design in
accordance with section 6(g)(i) to obtain from the proposed draftsman, artist,
designer or the creator of the Derived Further Design or the person to whom in
law or in fact the rights in the Derived Further Design shall belong a written
absolute sale and assignment of all of that person's rights whether present or
future in the Derived Further Design in favor of King;
(2) The Derived Further Design shall at all times both before and after
approval by King be King's sole and exclusive property.
(h) Upon commencement of manufacture, shipment and distribution of the Products
or Promotional and Packaging Material after all required approvals have been
given by King, Licensee shall submit, at its own cost, the number of
aforementioned Production Samples of the Products and Promotional and Packaging
Material set forth in the Basic Provisions to King.
(i) King may periodically during the Term, require that Licensee submit to
King, at no cost to King, additional sets of Production Samples of the Products
and Promotional and Packaging Material as reasonably requested by King to enable
King to review continued compliance by Licensee with the requirements of this
Agreement.
(j) Licensee shall not depart from approved Production Samples in any material
respect without the prior written approval of King. Licensee shall make
submissions to King and obtain approvals in the manner required above each time
new or revised concept, layouts, descriptions, artwork, models, prototype
samples or Production Samples are created or developed.
(k) To assure that the provisions of this Agreement are being observed,
Licensee shall allow King or its designees to enter Licensee's premises and, to
the extent within Licensee's power, the premises where the Products are being
manufactured during regular business hours and upon not less than five (5) days'
notice, for the purpose of inspecting the Products and Promotional and Packaging
Material and the facilities in which the Products and Promotional and Packaging
Material are being manufactured and in which the Products are being packaged.
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(l) If the quality standards or trademark, patent and copyright usage and
notice requirements hereinabove referred to are not met or maintained throughout
the Term then, upon receipt of written notice from King, Licensee shall
immediately discontinue all Sales or other activity or dealing with the non-
conforming Products or Promotional and packaging Material.
7. ARTWORK:
-------
(a) The form and content of all artwork for use in all media shall be submitted
to King for its prior written approval. Licensee shall also submit to King for
approval, samples of the proposed use on each Packaging Material of such
artwork, even if the artwork itself has already been approved.
(b) All artwork and designs involving the Property or Trademarks shall,
notwithstanding their invention or use by Licensee, be and remain the property
of King who shall be entitled to use and license others to use such artwork and
designs, subject to the provisions of this Agreement.
8. OWNERSHIP OF RIGHTS:
-------------------
(a) King owns or has the exclusive right to license the rights in the Property
and the Trademarks herein licensed to Licensee.
(b) As used herein, "Software" means all software tools and utilities and the
search and retrieval software, including the source and object code therefor
used in or in connection with the Products. As used herein, "Licensee's
Software" means all software originated or supplied by Licensee in connection
with the Products, to the extent that such Software is separable from, does not
incorporate any aspect or elements of, and can be used independently of, the
Property and trademarks. As used herein, "King's Software" means all software
that is inseparable from, cannot be used independently of, and incorporates any
aspect or element of, the Property and Trademarks, including but not limited to
user interfaces and screen displays. Licensee shall retain all rights, title and
interest in and to the Licensee's Software, King shall retain all rights, title
and interest in and to the Property and Trademarks, (including, without
limitation, all copyright rights) and King's Software.
Upon the expiration or termination of the Term: (i) King shall have no
right to use the Products or Licensee's Software without Licensee's prior
written consent thereto, provided that, all rights of every nature and kind of
the Property and Trademarks (including the rights and license granted Licensee
hereunder) and King's Software shall revert to King and King shall be entitled
to use and license others the use of the Property and Trademarks and King's
Software without reservation or restriction in all means, formats, media and
technologies, now known or hereafter developed; and (ii) Licensee shall have no
rights to use the Products, the Property and Trademarks or King's Software
without King's prior written consent thereto, provided that, all rights of every
nature and kind to Licensee's Software shall remain with Licensee and Licensee
shall be entitled to use and license others the use of Licensee's Software
without reservation or restriction in all means, formats, media and
technologies, now known or hereafter developed, so long as all uses of the
Property and Trademarks and King's Software are removed from and not included in
any such use.
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(c) As between King and Licensee, all right, title and interest in the Property
and the Trademarks are reserved by King for use except for the rights
specifically licensed to Licensee hereunder.
(d) No license other than for Sale of the Products in the Territory is being
granted hereunder, and King reserves for use as it may determine all other
rights of any kind. Licensee recognizes that King may already have entered into,
and may in the future enter into, license agreements with respect to the
Property or the Trademarks for products which fall into the same general product
category as one or more of the Products and which may be similar to but not the
same as one or more of the Products in terms of use, function, or otherwise, and
Licensee hereby expressly concedes that the existence of said licenses shall not
constitute a breach of this Agreement by King.
(e) Licensee shall not use King's name, the Property or the Trademarks other
than as permitted hereunder and, in particular, shall not incorporate King's
name, the Property or the Trademarks in Licensee's corporate or business name in
any manner whatsoever. Licensee will in no way represent that it has any right,
title or interest in the Property or the Trademarks other than those expressly
licensed to Licensee hereunder. Licensee will not use or authorize the use,
either during or after the Term, of any configuration, trademark, trade name or
other designation confusingly similar to King's name, the Property or the
Trademarks.
9. GOOD WILL AND PROMOTIONAL VALUE:
-------------------------------
(a) Licensee recognizes the value of the good will associated with the Property
and the trademarks and acknowledges that the Property, Trademarks and all rights
therein and the good will pertaining thereto belong exclusively to King.
Licensee acknowledges that the Property and the Trademarks have acquired
secondary meaning in the mind of the public. Licensee will not attack the title
or any rights of King in the Property or the Trademarks or the validity of the
License being granted herein either during or after the Term.
(b) Licensee's use of the Property and the Trademarks shall insure to the
benefit of King and Licensee shall not, at any time, acquire any rights in the
Property or the Trademarks by virtue of such use.
(c) Licensee acknowledges that: (i) King is entering into this Agreement not
only in consideration of the Royalties to be paid hereunder but also for the
promotional value to be secured by King for the Property and the Trademarks as a
result of the Sale of the Products by Licensee; and (ii) its failure to
manufacture, sell, advertise or promote Products in accordance with the
provisions of this Agreement or to fulfill any of Licensee's other obligations
hereunder will result in immediate and irreparable injury to King, and King will
have no adequate remedy at law. Therefore, King, in addition to all other
remedies it may have, shall be entitled to injunctive relief against any such
breach.
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10. TRADEMARK, PATENT AND COPYRIGHT PROTECTION:
------------------------------------------
(a) The License granted hereunder is conditioned upon Licensee's compliance
with the applicable provisions of the trademark, patent and copyright laws of
the United States and each foreign country in the Territory. Licensee shall keep
records of and advise King when each of the Products is first sold in each
country in the Territory.
(b) Licensee shall cooperate with King in protecting and defending the Property
and Trademarks including the execution of any documents as requested by King. If
any claim or problem arises with respect to the protection of the Property or
the Trademarks in the Territory, Licensee shall promptly advise King in writing
of the nature and extent of same. King shall have the right but not the
obligation to take any action whatsoever, with counsel of its own choice, if any
claim or problem arises with respect to the protection of the Property or the
Trademarks.
(c) Licensee shall not at any time apply for copyright, trademark or patent
protection nor file any document with any governmental authority nor take any
other action which could affect King's rights int he Property or the Trademarks.
11. INFRINGEMENTS:
-------------
(a) Licensee shall assist King in the enforcement of any rights of King in the
Property of the Trademarks. King may commence or prosecute any claims or suits
in its own name or in the name of Licensee or join Licensee as a party thereto.
Licensee shall notify King in writing of any infringements or imitations by
third parties of the Property, the Trademarks, the Products or the Promotional
and Packaging Material which may come to the Licensee's attention. King shall
have sole right to determine whether or not any action shall be taken on account
of any such infringement or imitation. Licensee shall not contact the third
party, nor make any demands or claims, nor institute any suit nor take any other
action on account of such infringements or imitations without first obtaining
the prior written permission of King. All costs and expenses, including
attorneys' fees, incurred in connection with any suit instituted by Licensee
without the consent of King shall be borne solely by Licensee.
(b) With respect to all claims and suits, including suits in which Licensee is
joined as a party, King shall have the sole right to employ counsel of its
choice and to control the litigation and any settlement thereof. King shall be
entitled to receive and retain all amounts awarded as damages, profits or
otherwise in connection with such suits.
12. INDEMNIFICATION:
---------------
(a) King shall defend, indemnify and hold Licensee harmless against any claims,
liabilities, judgments, losses, costs and expenses, including reasonable
attorneys' fees, arising solely out of third party assertion of rights in the
Property or Trademarks based solely on the use of the Property or the Trademarks
by the Licensee as authorized in this Agreement, provided that Licensee shall
notify King of any such claim, demand, cause of action or judgment within ten
(10) days after Licensee acquires knowledge hereof, and further provided that
King shall have
15
<PAGE>
the right to undertake and conduct the defense of any cause of action so brought
and handle any such claim or demand. In no event shall King have any liability
for loss of profits or consequential damages.
(b) Licensee shall defend, indemnify and hold King and its parent, subsidiary,
related companies and agents harmless against any and all claims (including,
without limitation, claims based upon negligence and strict liability),
liabilities, judgments, losses, costs and expenses, including, without
limitation, reasonable attorneys' fees, arising out of the breach or claimed
breach by Licensee of any of the provision hereof or out of Licensee's design,
manufacture, distribution, shipment, advertising, promotion or sale of the
Products or the Promotional and Packaging Material. King shall have the right to
defend any such action or proceeding with attorneys of its own selection.
13. INSURANCE:
---------
Licensee shall, throughout the Term obtain and maintain at its own cost
from a qualified insurance company licensed to do business in the State of New
York, separate policies for (i) standard Product Liability Insurance; and (ii)
Advertisers' Liability Insurance, the form of which must be acceptable to King,
naming King as an additional named insured. The Product Liability Insurance
policy shall provide protection against all claims, demands and causes of action
arising out of any defects or failure to perform, alleged or otherwise, of the
Products or any material used in connection therewith or any use thereof. The
amount of coverage under each policy shall be a minimum of CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION Dollars ($CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION) combined single limit, with no
deductible amount, for each single occurrence for bodily injury and/or for
property damage. Each policy shall provide for ten (10) days notice to King
from the insurer by Registered or Certified Mail, return receipt requested of
any modification, cancellation or termination. Licensee shall furnish to King a
certificate of insurance evidencing same within thirty (30) days after execution
of this Agreement and, in no event, shall the Licensee manufacture, offer for
sale, sell, advertise, promote, ship or distribute the Products prior to receipt
by King of such evidence of insurance.
14. EXPLOITATION BY LICENSEE:
------------------------
(a) Licensee shall commence the Sale of the Products in commercially reasonable
quantities in each of the countries within the Territory by the Marketing Date
set forth in the Agreement.
(b) During the entire Term, Licensee will use its commercially reasonable
efforts diligently and continuously to distribute, ship, sell, promote and meet
the demand for all of the Products in the Territory.
(c) Products will be sold, shipped and distributed outright, at a competitive
price that does not exceed the price generally and customarily charged the
particular purchaser by the Licensee. Licensee will not discriminate against the
Products by granting commissions/discounts to salesmen, dealers or distributors
in favor of Licensee's other products. Products will only be
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<PAGE>
sold to (i) retail stores and merchants for sale, shipment and distribution
direct to the public; (ii) distributors; and (iii) to hardware manufacturers to
be included for sale with such manufacturers hardware (OEM).
(d) Licensee shall sell to King, if it so requests, additional quantities of
each Product at CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION percent (CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION%) of Licensee's
customary Gross Wholesale Price.
15. PREMIUMS, PROMOTIONS AND SECONDS:
--------------------------------
(a) King reserves the sole and exclusive right to utilize or license third
parties to utilize any Product in connection with any premium, giveaway, mail
order, in theatre sales, promotional arrangement or fan club (collectively
referred to as "Promotional Products"), which retained right may be exercised by
King concurrently with the rights licensed to the Licensee hereunder.
(b) Licensee shall not sell, ship, advertise, promote, distribute or use for
any purpose whatsoever (or permit anyone else to do so) any Products or
Promotional and Packaging Material which are damaged, defective, seconds or
otherwise fail to meet the specifications or quality standards or trademark,
patent and copyright usage and notice requirements of this Agreement.
16. ASSIGNABILITY AND SUBLICENSING:
------------------------------
(a) The License granted hereunder is and shall be personal to Licensee and
shall not be assigned by any act of Licensee or by operation of law. Licensee
shall have no right to grant any sublicenses without King's prior written
approval. Any attempt by Licensee to sublicense or assign to third parties its
rights under this Agreement shall be null and void and shall constitute a
material breach of this Agreement.
(b) King shall have the right to assign its rights and obligations under this
Agreement without Licensee's approval.
(c) Licensee may have the Products manufactured by a third party on condition
that Licensee: (i) obtains King's prior approval of the identity of such third
party manufacturer; (ii) provides King with a list of the names and addresses of
any third party manufacturer; (iii) enters into a written agreement with such
manufacturer (a copy of which shall be made available to King) in substantially
the form annexed hereto as Exhibit C; and (iv) Licensee shall indemnify King
against any loss or damage arising as a result of any breach by any third party
manufacturer of its obligations under the Agreement or otherwise arising out of
acts or omissions by any third party manufacturer, in derogation of King's
rights in and to the Properties and Trademarks.
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17. TERMINATION:
-----------
In addition to any other rights King may have hereunder, at law or in
equity:
(a) King shall have the right to terminate this entire Agreement by giving
written notice to Licensee, if Licensee: (i) manufactures, sells, advertises,
promotes, ships, distributes or uses in any way any Product or Promotional and
Packaging Material without having the prior written approval of King as provided
for hereunder or after receipt of notice from King disapproving or withdrawing
approval of same; (ii) or any of its controlling shareholders, officers,
directors or employees take any action in connection with the manufacture, sale,
advertising, promotion, shipment or distribution of the Products or the
Promotional and Packaging Material which damages or reflects adversely upon
King, the Property or the Trademarks; (iii) breaches any of the provisions of
this Agreement relating to the unauthorized assertion of rights in the Property
or the Trademarks; (iv) fails to make timely payment of Royalties or any other
payments to King when due; (v) breaches any of the provisions of this Agreement
prohibiting Licensee from assigning, transferring, sublicensing or otherwise
encumbering this Agreement or any of its rights or obligations thereunder; (vi)
fails to obtain or maintain product liability and advertising insurance as
required by the provisions of this Agreement; (vii) or files a petition in
bankruptcy, or a petition is filed against Licensee which is not dismissed
within 30 days, or is adjudicated a bankrupt or insolvent, or makes an
assignment for the benefit of creditors, or an arrangement pursuant to any
bankruptcy law, or if Licensee discontinues its business, or if a receiver is
appointed for the Licensee or for the Licensee's business and such receiver is
not discharged within thirty (30) days.
(b) King shall have the right to terminate upon written notice thereof to
Licensee the portion(s) of this Agreement relating to any Product(s) in which
the Licensee, for any reason, fails to commence sale, shipment and distribution
of any such Product(s) by the Marketing Date in accordance herewith, or if
Licensee, for any reason, after commencement, fails to continue to sell, ship
and distribute such Products in commercially acceptable quantities in such
country or countries for two consecutive Royalty Periods.
(c) King shall have the right to terminate this Agreement upon CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION written notice to
Licensee in the following events, provided that during the CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION period, Licensee fails to
cure the breach: (i) if Licensee shall breach or violate any of its obligations
under this Agreement other than those covered in (a) or (b) above; or (ii) if
Licensee becomes subject to any voluntary or involuntary order of any
governmental agency
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involving the recall of any of the Products and/or Promotional and Packaging
Material because of safety, health or other hazards of risks to the public.
18. POST-TERMINATION AND EXPIRATION RIGHTS AND OBLIGATIONS:
------------------------------------------------------
After expiration or termination of the Term:
(a) Licensee shall have no right to manufacture, offer, sell, ship, advertise,
promote and distribute, use or deal with in any way Products or Promotional and
Packaging Material except as provided in subsection (c) below.
(b) If the Term is terminated prior to its normal expiration date,
notwithstanding anything to the contrary herein, all unpaid Royalties and any
Advance or Guaranteed Minimum Royalty which would be payable if the Term had
continued shall nevertheless be payable in full upon the termination of the
Term.
(c) Except upon expiration or termination of the Term pursuant to section 17
above, Licensee may dispose of all Products which are on hand or in the process
of manufacture at the time notice of termination is received or upon the
expiration of the then in effect Term for a period of CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION after notice of termination or such
expiration, as the case may be, provided that the Advances and Royalties with
respect to that period are paid and the appropriate statements are furnished for
that period. During such CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION period, King may itself use or license the use of the Property and/or
the Trademarks in any manner at any time anywhere in the world as King sees fit.
(d) All rights granted to Licensee shall forthwith revert to King which shall
be free to license others to use the Property and the Trademarks in any manner.
At King's election and in its sole discretion, Licensee shall either (i) turn
over to King all molds and other materials which reproduce the Products or
Promotional and related Packaging Material or (ii) cause the molds and such
other materials to be destroyed and provide King with satisfactory evidence of
their destruction. Licensee shall be responsible to King for any damages caused
by the unauthorized use by the Licensee or by others of such molds or
reproduction materials which are not so turned over to King or destroyed.
(e) Licensee acknowledges that its failure to cease the manufacture, offering
for sale, sale, advertising, promotion, shipment, distribution or use of the
Products or the Promotional and Packaging Material at the termination or
expiration of the Term will result in immediate and
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<PAGE>
irreparable damage to King and to the rights of any subsequent Licensee of King.
Licensee acknowledges that there is no adequate remedy at law for failure to
cease such activities and, in the event of such failure, King shall be entitled
to injunctive or other equitable relief in addition to all other remedies King
may have.
19. FINAL INVENTORY UPON TERMINATION OR EXPIRATION:
----------------------------------------------
Within thirty (30) days after the end of the Term, Licensee shall deliver
to King a statement indicating the number and description of the Products on
hand or in the process of manufacturing at the end of the Term. King shall have
the option of conducting a physical inventory at any time after the end of the
Term in order to ascertain or verify such statement. If Licensee refuses to
permit King to conduct such physical inventory, then, without limiting any of
King's other remedies, Licensee shall forfeit its rights hereunder to dispose of
such inventory.
20. NOTICES:
-------
All notices or other communications to either party shall be in writing and
sent by mail, telex, cable or personal delivery to such party's address listed
in the heading of this Agreement.
Either party may change its address by notice in writing to the other.
21. RELATIONSHIP OF THE PARTIES:
---------------------------
This Agreement does not create a partnership or joint venture between the
parties and Licensee shall have no power to obligate or bind King in any manner
whatsoever.
22. APPLICABLE LAW AND DISPUTES:
---------------------------
This Agreement shall be governed by the laws of the State of New York
applicable to agreements fully executed and performed therein. Any claims
arising hereunder or relating hereto shall be prosecuted only in the appropriate
court of the State of New York or in the United States District Court for the
Southern District of New York and neither party shall make any claim or demand
in any other jurisdiction forum. The parties consent to the personal
jurisdiction of such courts and to the service of process by mail.
23. CAPTIONS:
--------
Section captions are inserted only for convenience. Such captions shall
not be given any substantive or legal effect.
24. WAIVER:
------
(a) No waiver by either party of a breach of a default hereunder shall be
deemed a waiver of any other breach or default.
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(b) All of King's rights and remedies hereunder or at law or in equity shall be
cumulative and result to one shall not be construed as a waiver of any other.
25. SURVIVAL OF RIGHTS:
------------------
Notwithstanding anything to the contrary herein, any obligations which
remain executory after expiration of the Term of this Agreement shall remain in
full force and effect until discharged by performance and such rights as pertain
thereto shall remain in full force until their expiration.
26. SEVERABILITY:
------------
If any provision of this Agreement shall for any reason be held invalid,
illegal or unenforceable same shall not affect the validity of this Agreement or
any other provision hereof and this Agreement shall be interpreted and construed
as if such provision, to the extent invalid, illegal or unenforceable, had not
been contained herein.
27. INTEGRATION:
-----------
This Agreement: (i) represents the parties' entire understanding and
supersedes all previous representations, understandings or agreements, oral or
written, between them with respect to the subject matter hereof; and (ii) cannot
be modified except by a written instrument signed by the parties hereto.
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EXHIBIT 10.19
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is entered into this 29th day of September 1995 by
and between BRILLIANT INTERACTIVE IDEAS PTY LTD and Australian Company (BII) and
OCEAN OF AMERICA INC., a California company (OCEAN).
WHEREAS OCEAN is in the business of publishing and distributing computer
software in the USA and world-wide. And BII is in the business of developing
interactive multimedia software products. OCEAN is desirous of having BII
develop various software products for publishing and distribution.
NOW THEREFORE THE PARTIES do agree as follows:
1. BII shall develop a range of CD-ROM software titles for OCEAN
hereinafter referred to as the "Products" (as attached hereto on
Attachment A).
2(a). The Products shall be delivered in object code in a form compatible
with IBM PC running under Windows V3.x, as well as Macintosh from
Apple Computer, and shall be reasonably fit for the purposes intended.
BII shall ensure to the best of our ability that the Products are
compatible with Windows 95 within a reasonable time frame of the
release of Windows 95 into the market, such time frame to be agreed to
jointly between OCEAN and BII.
2(b). BII agrees to rectify all software bugs which are defined as
programming errors in the Products, reported by OCEAN within a
reasonable time frame commensurate with the nature of the software
bug.
3. BII grants to OCEAN the right to reproduce, publish, distribute and
display the Products in North America and Europe, including the United
Kingdom. OCEAN shall not be entitled to make any alterations to the
object code of the Products without the written consent of BII.
4(i). The rights to publish as granted in clause 3 above are the exclusive
retail rights for the territories named in 3 above and shall not
conflict with any other rights granted by BII.
4(ii). BII further grants to OCEAN OEM and bundle rights to the Products for
the territory of North America and Europe including the United
Kingdom. These rights are independent of the other rights as granted
above.
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4(iii). BII reserves the right to enter into OEM and bundle deals for the
Products in the territory of North America and Europe including the
United Kingdom on the Apple Macintosh computer and Apple Macintosh
compatible computers. BII agrees to pay OCEAN CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION % of the revenue generated from such OEM and bundle
agreements on a quarterly basis (March, June, September and December)
within 45 days from the end of the quarter.
5(i). OCEAN shall pay to BII a royalty of CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION % of
the Net Revenue received by OCEAN for each Product sold under clause 3
and 4(i) above and CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION % of the Net
Revenue received by Ocean for each Product sold under clause 4(ii)
above. Net Revenue is defined as gross revenue actually received by
OCEAN from the sale of Products less cash and credit returns, warranty
replacements, bad debts written off as unrecoverable, sales tax or VAT
and freight charges to OCEAN'S customers for shipment of Products. No
royalty shall be due on Products distributed at no charge to
distributors, sub distributors, dealers or others for promotional or
evaluation purposes.
5(ii). OCEAN shall pay to BII the royalties due under clause 5(i) above, each
calendar quarter (March, June, September and December) within 45 days
after the end of each calendar quarter. Such royalty payments are
subject to the advances as contained in clause 6 below.
5(iii). Ocean shall provide BII a quarterly sales and royalty report,
certified as correct by an authorized officer of OCEAN (the Certified
Sales and Royalty Report) when remitting the royalty payments as
detailed in clause 5(ii) above. Where royalties payable are offset
against advances then the Certified Sales and Royalty report shall
still be provided to BII within 45 days from the end of the calendar
quarter.
5(iv). OCEAN shall be entitled to withhold from all royalty payments,
excluding the advance as contained in clause 6 below, sums otherwise
payable hereunder, a returns reserve, against anticipated returns of
Products sold, which reserve shall not exceed CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION percent CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION %) of all amounts due hereunder for the two most
recent calendar quarters, without adjustment for reserve, and which
reserve shall be reviewed quarterly in light of the actual returns of
the preceding two
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<PAGE>
(2) quarters. The excess (short-fall), if any, of such reserve balance
at the time of such quarterly review over (under) the actual aggregate
amount of returns for such period shall be credited to (debited
against) the next royalty payment due to BII.
6. OCEAN shall pay to BII a sum of USD CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION being
a non-refundable development advance to be recouped against royalties
due to BII, for each Product sold under clause 5 above. The advance
shall be payable as follows:
(a) USD CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION on CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION;
(b) USD CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION on CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION;
(c) USD CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION on CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION;
(d) USD CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION on CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION;
(e) USD CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION on CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION;
(f) USD CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION on CONFIDENTIAL
INFORMATION OMITTED AND
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<PAGE>
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
7. OCEAN guarantees to release the Products to retailers no later than
October 31, 1995 (Retail Marketing Date) for the Products to be
delivered under clause 8 (a) below and November 30, 1995 for the
Products to be delivered under clause 8 (b) below, subject to the
Products being delivered on time. Any delay in receipt of the Products
shall automatically result in a corresponding delay in the Retail
Marketing Date, subject to any force majeure.
8. BII shall deliver the finished Products to OCEAN as follows:
(a) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION Products no later than
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION;
(b) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION Products no later than
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
Any delay in the delivery date of the finished Product shall cause a
corresponding delay in the Retail Marketing Date. In the event that
OCEAN requests any changes to the Products where such changes are an
enhancement to the Product and not rectification of software bugs,
then these shall be at the expense of OCEAN and shall be treated as a
further advance against royalties and shall be recoupable against
retail product sales.
9. OCEAN shall use it's best commercially reasonable endeavors to promote
and expand the sale of the Products in all parts of North America and
Europe and in all sectors of the market on the maximum possible scale
by all reasonable means.
10. OCEAN shall keep complete and accurate records regarding the
production, replication and distribution of the Products and shall
upon 10 days notice from BII allow BII or it's agent to inspect all of
these records and other related documents during normal working hours.
In the event of any discrepancies being noted OCEAN agrees to pay BII
within 10 days all additional moneys owing and where the discrepancy
exceeds CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION % of the amount that is due to BII
Ocean agrees to pay all costs
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<PAGE>
incurred by BII in conducting the inspection of OCEAN's records. BII's
ability to conduct the above mentioned inspection is restricted to
once every year and on termination of this Agreement for any reason
whatsoever.
11. BII may terminate this Agreement immediately upon giving written
notice to OCEAN if:
(a) OCEAN falls to make any payment when due or otherwise breaches
this Agreement and has not rectified such breach within
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION of notice from BII; or
(b) OCEAN dissolves, liquidates or if bankruptcy, insolvency,
winding up or reorganization procedures are commenced by OCEAN
or are brought against OCEAN and such proceedings are not set
aside within CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION of their
commencement.
12. If this Agreement is terminated for any reason, OCEAN shall:
(a) immediately return all masters of the Products to BII; and
(b) have the right to sell its existing stocks of the Products for
a period of CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION from the date the Agreement is terminated subject to
payment to BII of all royalties due under this agreement.
13. BII shall be responsible for any and all other royalties due on the
Products to third parties including music royalties, animation
royalties and licensing royalties.
14. BII provides no warranty as to names being used including the name
Brilliant Interactive Ideas in the territories in which OCEAN
distributes. In the event a name change is needed for legal reasons
then the parties shall consult as to the new name and BII shall make
the necessary changes with the cost of any requisite name changes
being split evenly and any moneys paid by OCEAN shall be treated as an
advance against retail sales royalties. BII warrants that it is not
aware of any contraventions caused by the names that are used.
5
<PAGE>
In the event that OCEAN believes, in any country within the territory,
that the copyrights on the Products should be on the Products should
be registered or that the trademarks used in the Products should be
registered, BII shall promptly obtain (and maintain throughout the
term) at BII's expense, such copyrights or trademarks in such country.
If within CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION of such request, BII has not
provided OCEAN with written proof that the applications for such
registrations have been made OCEAN shall be entitled to file such
applications in such countries in BII's name and at BII's expense.
15(i). The names used are the property of BII and OCEAN shall have no claim
to these or any other names being used.
BII retains any and all of the copyrights contained in the Products
and OCEAN shall have no rights in the copyrights or other intellectual
rights contained in the Products. All Products shipped shall reflect
the appropriate copyrights which shall be provided to OCEAN
simultaneously with the masters. Any press release or advertisement
for the Products shall reference BII as the developer and shall
contain the appropriate copyright notices as provided. Ocean shall be
entitled to commence.
15(ii). BII hereby authorizes OCEAN to take any and all action that OCEAN
deems necessary to protect and enforce BII's copyright in the
products. Where as a result of such action by OCEAN damages are
awarded then OCEAN shall be entitled to recover from the damages all
costs incurred as a result of the action and any residual amount
remaining shall be split equally between OCEAN and BII.
16. Left Blank
17. BII represents and warrants that the Products, as delivered to OCEAN,
will not infringe the patent, copyright, trademark, trade secret or
other proprietary or privacy rights of any third party. Each party
shall fully indemnify the other (and its affiliates, shareholders,
directors, officers, employees and agents) against all losses, costs,
charges and expenses arising from such party's negligence in
connection with this Agreement.
18. Each party shall treat as confidential all information of a
confidential nature of the other party which comes into its possession
under this Agreement.
19. The term of this Agreement shall be for a period of CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION) years from the
date of signing
6
<PAGE>
of this Agreement with OCEAN being granted an option to renew the
Agreement for a further CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION) year period provided that the total royalty
payments paid to BII under clause 5 above exceeds US$ CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION at the end of the first CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION) years. In the event that the
option to renew is not exercised by OCEAN then all rights shall revert
back to BII.
20. This Agreement shall be governed by the laws of the State of
California.
By their signatures below the parties agree to be bound by the terms of this
Agreement.
/s/ Ray Musci /s/ Mark Miller
__________________________ ---------------------------------
Ocean of America, Inc. Brilliant Interactive Ideas Pty Ltd
7
<PAGE>
ATTACHMENT A
The Products are:
A. CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
B. CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
C. CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
8
<PAGE>
EXHIBIT 10.20
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is entered into this 22nd day of February 1996 by
and between BRILLIANT INTERACTIVE IDEAS PTY LTD ACN 061 288 668 of Lvl 1.17 The
Corso, Manly, NSW, 2095 (hereinafter referred to as "BII") and SHORTLAND
PUBLICATIONS LIMITED located at 360 Dominion Road, Auckland 3, New Zealand
(hereinafter referred to as "SHORTLAND").
WHEREAS SHORTLAND is in the business of publishing educational materials
including educational computer software bundle packs in the USA and BII are in
the business of developing interactive multimedia software products. SHORTLAND
is desirous of publishing and distribution specially prepared educational bundle
packs of the various software products as listed in Appendix A hereto, that BII
have developed.
NOW THEREFORE THE PARTIES do agree as follows:
1. BII have developed a range of CD-ROM software titles, and made specific
modifications to those titles as requested by SHORTLAND, hereinafter
referred to as the "Products" (as listed in Appendix A), for which
SHORTLAND have developed special education materials including teachers
notes and guides and paper book copies of the software titles.
2. The Products shall be delivered in object code on CD-ROM in a form
compatible with IBM PC running under Windows V3.x and Windows 95, as well
as Macintosh from Apple Computer.
3. SHORTLAND shall create special education bundle packs comprising the
Products, teachers notes and guides and one or more copies of the paper
book version of the software titles, hereinafter referred to as the
EDUCATION BUNDLE.
4. SHORTLAND together with its selected educational distributors shall
distribute he EDUCATION BUNDLE directly to the education and schools
markets in the USA and other territories as agreed to in writing by
SHORTLANDS and BII. The EDUCATION BUNDLE shall not be sold to retial
customers directly or through retail channels and retail outlets anywhere
in the world. All Products shall be identified as "Educational Bundle
packs - Not for Retail Sale."
5(a). SHORTLAND agrees to refer all retail enquiries to BII to enable BII to
pass such enquiries on to the relevant retail publisher in the territory.
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<PAGE>
5(b). If requested by BII, SHORTLAND agrees to use its best endeavours to get
its educational distributors to include a brochure promoting the
availability of the retail versions of the Products, in the EDUCATIONAL
BUNDLE.
6. SHORTLAND shall provide BII with purchase orders for CD-ROM's of the
Products and BII shall supply SHORTLAND with the number of units of CD-
ROM's of the Products as ordered by SHORTLAND for US CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (United States dollars CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION dollars) per
unit ordered. The initial order from SHORTLAND is for CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION units) of each Product.
7. SHORTLAND agrees to pay BII the moneys owing for the Products ordered in
clause 6 above as follows:
(i) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION % on receipt of written
confirmation from BII that the gold master has been supplied to the
replicator for duplication or if a master stamper already exits, on
written conformation from BII that the replicator has been ordered
to duplicate the Products as ordered by SHORTLAND.
(ii) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION % on despatch of the Product
ordered by Shortland to 360 Dominion Road, Auckland 3, New Zealand.
8. SHORTLAND shall provide first line support to its customs for all
problems and queries and in the event of a software problem related to
the Products that SHORTLAND is unable to rectify BII shall provide the
necessary technical support to SHORTLAND to rectify the problem.
9. BII may terminate this Agreement immediately upon giving written notice
to SHORTLAND if:
(a) SHORTLAND fails to make any payment when due;
(b) SHORTLAND breaches a major provisions or warranty of this Agreement
and has not rectified such breach within CONFIDENTIAL INFORMATION
2
<PAGE>
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION of notice from BII; or
(c) SHORTLAND dissolves, liquidates or if bankruptcy, insolvency or
winding up procedures are commenced by SHORTLAND or are brought
against SHORTLAND and such proceedings are not set aside within
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION)
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION of their commencement.
10. SHORTLAND may terminate this Agreement immediately upon giving written
notice to BII if BII dissolves, liquidates or if bankruptcy, insolvency
or winding up procedures are commenced by BII or are brought against BII
and such proceedings are not set aside within CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION of their commencement; or if BII otherwise
breaches a major provision or warranty of this Agreement and does not
rectify the breach within CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION) days after receiving written notice of the breach from
SHORTLAND.
11. If this Agreement is terminated for any reason, SHORTLAND shall have the
right to sell its existing stocks of the Product subject to payment to
BII of all amounts due under this agreement.
12. BII shall be responsible for any and all other royalties due on the
Products to third parties including music royalties, animation royalties
and licensing royalties and will pay such royalties to ensure that BII
maintains the rights to the Products to enable this distribution
agreement to be continued.
13. BII retains any and all of the copyrights contained in the Products and
SHORTLAND shall have no rights in the copyrights or other intellectual
rights contained in the Products.
14. BII hereby authorizes SHORTLAND to take any and all action that SHORTLAND
deems necessary to protect and enforce BII's copyright in the products.
SHORTLAND shall notify BII in writing of any and all action that
SHORTLAND takes prior to the
3
<PAGE>
commencement of the action and shall keep BII fully informed of the
status and progress of the action. Where as a result of such action by
SHORTLAND damages are awarded then SHORTLAND shall be entitled to recover
from the damages all costs incurred as a result of the action and any
residual amount remaining shall be split equally between SHORTLAND and
BII.
15.1 BII makes the following representations and warranties and undertakes the
following indemnity obligations for the benefit of SHORTLAND:
(a) That it owns and can grant to SHORTLAND such of the rights as are
included in this Agreement;
(b) That such of the rights as are granted to SHORTLAND pursuant to this
agreement are not subject to any prior agreements, liens and/or
other rights which might interfere with their exercise by SHORTLAND;
(c) That the rights and the Products will not infringe the patent,
copyright, trade mark, trade secret or other proprietary,
intellectual or privacy rights of any third party;
(d) That BII is not knowingly in breach of any contract or contracts
with any other party relating to the Products or the rights on which
they are based and undertakes to continue to do all things necessary
to comply with its obligations under such contracts.
These representations and warranties shall survive the termination of
this agreement.
15.2 BII agrees to indemnify and hold harmless SHORTLAND and its officers,
employees, distributors, agents, shareholders and directors from any
damage, loss or expense (including legal fees) occasioned by any claim,
demand, action or proceeding, based upon the breach of any of the
representations and warranties made by BII.
15.3 BII represents and warrants that it is a corporation duly incorporated
and validly existing in good standing under the laws of the state of its
incorporation and has full rights, power, legal capacity and authority to
enter into this agreement and to carry to the terms hereof and perform
its obligations hereunder.
15.4 SHORTLAND agrees to indemnify and hold harmless BII and its shareholders,
directors, officers, employees and agents against all losses, costs
(including legal fees), charges and expenses arising from any breach of
Clause 4 of this Agreement and any negligence on SHORTLAND's part in
connection with this Agreement.
4
<PAGE>
16. Each party shall treat as confidential all information of a confidential
nature of the other party which comes into it's possession under this
Agreement.
17. The term of this Agreement shall be for a period of CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION) CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION from the
date of signing of this Agreement and will be automatically extended for
a further term provided SHORTLAND has performed all its obligations under
this Agreement.
18. This Agreement shall be governed by the laws of New South Wales.
19. This Agreement may not be assigned by either party without the express
written approval of the other party. Such approval may not be
unreasonably withheld.
20. NOTICES.
20.1 Any notice, communication or other document authorised or required to be
given or served pursuant to this Agreement (herein referred to as a
"Notice") shall unless otherwise specifically provided by this Agreement
be in writing addressed as follows:
TO BILL: Level 1, 17 The Corso
Manly
NSW 2095
Telephone: (02) 9977 4277
Facsimile: (02) 9977 4123
For the Attention of: Mark Miller
TO SHORTLAND: 360 Dominion Rd.
Auckland 3
New Zealand
Telephone: (649) 638 7128
Facsimile: (649) 638 6422
For the Attention of: Ian Massam
or such other address as the relevant addressee may hereafter specify for
such purpose to the other party to this Agreement by notice in writing.
5
<PAGE>
20.2 A notice includes communication by facsimile. The sender of any
communication by facsimile shall forthwith confirm the same by letter,
but failure by the addressee to receive the same shall not prejudice the
validity or effect of such facsimile.
20.3 A notice shall be signed or, in the case of a facsimile, purport to be
signed, by the party originating the notice.
20.4 A notice which is sent by prepaid mail shall be deemed to be received on
the third day following the day on which it was posted.
20.5 A notice which is sent by facsimile shall be deemed to be received at the
time printed on the log out by the machine on which the notice is
transmitted.
21. Each party is acting as an independent contractor and not as an agent,
partner, or joint venturer with the other party for any purpose. Except
as provided in this Agreement, neither party shall have any right, power,
or authority to act or to create any obligation, express or implied, on
behalf of the other.
22. Neither party shall be responsible for delays or failure of performance
resulting from acts beyond the reasonable control of such party. Such
acts shall include, but not be limited to, acts of God, strikes,
walkouts, riots, acts of war, epidemics, failure of suppliers to perform,
governmental regulations, power failure(s), earthquakes, or other
disasters.
23. The confidentiality obligations set forth in the Agreement shall survive
the termination of the Agreement by either party for any reason.
24. No provision in either party's purchase orders, or in any other business
forms employed by either party will supersede the terms and conditions of
this Agreement, and no supplement, modifications, or amendment of this
Agreement shall be binding, unless executed in writing by a duly
authorised representative of each party to this Agreement.
25. The parties have read this Agreement and agree to be bound by its terms,
and further agree that it constitutes the complete and entire agreement
of the parties and supersedes all previous communications, oral or
written, and all other communications between them relating to the
license and to the subject matter hereof. No representations or
statements of any kind made by either party, which are not expressly
stated herein, shall be binding on such party.
26. Failure by either party to insist upon the performance of any or more of
the conditions hereof shall not be deemed to be a waiver of any rights
and remedies that that party may have and shall not be deemed a waiver of
any subsequent breach or default. No provision of this Agreement shall be
deemed to have been waived unless such waiver
6
<PAGE>
shall be in writing and signed by a person being or purporting to be a
director, manager, secretary or other officer of the party giving notice
in that behalf.
27. If any clause or part hereof shall be held or be deemed invalid or
unenforceable for any reason whatsoever, then such clause or part thereof
shall be deemed to be deleted from this Agreement and the Agreement shall
otherwise remain in full force and effect. The parties hereto agree to
replace any invalid, illegal or unenforceable provision with a provision
which has the most similar permissible economic and legal effect to the
invalid, illegal or unenforceable provision.
By their signatures below the parties agree to be bound by the terms of this
Agreement.
______________________________ _______________________________
SHORTLAND PUBLICATIONS LIMITED BRILLIANT INTERACTIVE IDEAS PTY
Name: Ian Massam ACN 061 288 668
Position: Manager-New Developments Name: Mark Miller
Position: Managing Director
7
<PAGE>
Appendix A
The Products are:
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION
8
<PAGE>
EXHIBIT 10.21
HEADS OF AGREEMENT
AGREEMENT made the day of 25th day of November, 1994.
PARTIES SEGA AUSTRALIA NEW DEVELOPMENT, a division of SEGA OZISOFT PTY
LIMITED A.C.N. 056 032 476 a company duly incorporated in the
State of New South Wales and having its registered office at 200
Coward Street, Mascot in the said State (hereinafter "SAND") of
the first part.
AND EAT CYBERFIST PTY LIMITED A.C.N. 065 701 975 a company duly
incorporated in the State of New South Wales and having its
registered office at 35 Rose Street, Chippendale in the said
State (hereinafter "FIST") of the second part.
WHEREAS
A. FIST is the owner of the story concept named Cyberswine and its
related characters as hereinafter defined and fully owns all the
proprietary rights in the story concept and its related
characters including but not limited to trademarks and copyright.
B. SAND intends to engaged in the research and development of
computer software for interactive entertainment, educational and
business purposes for the use in various formats.
C. SAND wishes to obtain a license of the proprietary rights owned
by FIST in the story concept named Cyberswine and its related
characters, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and to exploit the
various interactive systems rights herein defined in cartridge
and CD-based video console games and PC and Mac CD-ROM computer
software that shall be researched and developed by SAND.
D. SAND and FIST also wish to express their intention to enter into
a Joint Venture whereby FIST will grant a license to the Joint
Venture of the rights herein defined, in consideration of the
mutual covenants herein contained, the receipt and sufficiency of
which are hereby acknowledged, and to exploit those various
proprietary rights including merchandising, film and television
rights, as well as other rights referred to in Clause 2.2 of this
Agreement, being proprietary rights that are owned by FIST in the
story concept named Cyberswine and its related characters.
<PAGE>
IT IS AGREED:
------------
1. DEFINITIONS
1.1 In this Agreement the following words or expressions shall have the
meanings hereinafter mentioned.
"comic book works" means any literary, and artistic work specifically
written or designed for publication within a comic magazine(s) or graphic
novel.
"Cyberswine" means the story concept and design including all related
characters and works fully owned by FIST.
"formats" means all present and future formats used for any interactive
entertainment, educational and business purposes.
"Products" means all computer software programs that incorporate either the
Cyberswine story concept, design and/or characters for the operation on all
formats in which Sega Enterprises Limited of Japan and Sega Ozisoft Pty
Limited of Australia provides software and/or hardware including but not
limited to cartridge and CD-based video console games and PC and Mac CD-ROM
software programs.
"rights" means all exclusive proprietary rights including but not limited
to trademarks, copyrights and design rights in the Cyberswine story
concept, design and characters fully owned by FIST.
1.2 NUMBER GENDER AND PERSONS. Except to the extent that such
interpretation shall be excluded by or be repugnant to the context,
reference to any party shall include its successors and permitted assigns;
words importing the singular number or plural number shall include the
plural number and singular number respectively; reference to any gender
includes all genders.
1.3 CURRENCY. Unless specifically provided otherwise hereto any reference
to money shall be a reference to Australian currency.
2. GRANT & EXPLOITATION OF RIGHTS
2.1 INTERACTIVE SYSTEMS RIGHTS.
FIST hereby covenants to grant to SAND a license to exclusively exploit for
purpose, the rights in Cyberswine including all cartridge and CD-based
video console game and PC and Mac CD-ROM computer software rights but
limited to the right the operation on all formats in which Sega Enterprises
Limited of Japan and Sega Ozisoft Pty Limited of Australia provides
software and/or hardware (hereinafter "ISR").
2
<PAGE>
2.2 MERCHANDISING, FILM AND TELEVISION RIGHTS. FIST hereby agrees to
grant a license to the Joint Venture to exploit the following exclusive
rights;
(a) to appoint licensees to produce products bearing the Cyberswine
artwork including characters, images or logo's,
(b) to grant the exclusive cinematograph film rights, including but not
limited to the production of any short or full length feature film(s) and
the respective soundtrack(s),
(c) animated television series rights including but not limited to the
production of one or more animated television shows,
(d) television show rights including but not limited to production of
television shows with audience participation.
2.3 COMIC BOOK & GRAPHIC NOVEL RIGHTS. At all times FIST shall retain the
rights in Cyberswine for all comic book works including graphic novel
rights.
2.4 ATTRIBUTION RIGHTS. SAND agrees to incorporate a recognition of the
design creator(s) of Cyberswine into any computer program that uses
Cyberswine, the size and length of that recognition to be negotiated and
set down in the formal ISR licensing agreement.
3. PROTECTION OF RIGHTS
3.1 FIST warrants that they have done or if necessary will do, all things
necessary to ensure that the ISR including but not limited to the copyright
and trademarks in Cyberswine is owned solely by FIST and FIST undertakes to
retain full ownership for the life of the ISR subject to Clause 5.2.
3.2 FIST hereby indemnifies SAND from any and all legal actions, claims or
demands in respect of a breach of warranty in Clause 3.1.
4. TERM OF LICENSES
4.1 The grant of the license referred to in Clause 2.1 of this Agreement
shall be subject to the execution of a formal licensing agreement between
the parties and shall continue for the full life of the ISR subject to
Clause 4.2 of this Agreement.
4.2 The grant of the license referred to in Clause 2.1 of this Agreement
shall be on the proviso that SAND undertakes to complete the research and
development of a Cyberswine cartridge and/or CD-based video console game,
and/or PC and/or Mac CD-ROM computer game within a four year period from
the full execution of the ISR licensing agreement, or the rights granted
under the ISR licensing agreement shall unconditionally revert back to FIST
in full.
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4.3 The grant of the license referred to in Clause 2.2 of this Agreement
shall be subject to the execution of a formal Joint Venture Agreement and
shall continue for the term of the Joint Venture Agreement subject to the
exercise-of any options contained in that agreement.
5. ASSIGNMENT OF ISR
5.1 FIST may not assign, transfer, convey or sublicense the ISR in
Cyberswine under this Agreement to any person, firm, corporation or other
entity prior to the execution of the formal ISR licensing agreement to
SAND.
5.2 The ISR licensing agreement shall inure to the benefit of SAND and
FIST and their respective successors and assigns. SAND may assign,
transfer, convey or sublicense the ISR in Cyberswine under the ISR
licensing agreement in its sole discretion. FIST may not assign any of the
ISR in Cyberswine under the ISR licensing agreement to any person, firm,
corporation or other entity for the term of the agreement without the prior
written authorization of SAND.
6. FINANCIAL OBLIGATIONS
6.1 GUARANTEED PAYMENTS
(a) In consideration for the granting of the ISR license to SAND from
FIST, SAND guarantees the payment to FIST of an initial sum of CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION Dollars ($CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION) upon the execution of this
Agreement and a further CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION Dollars
($CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION) on the date CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION (CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION after the full execution of this
Agreement or upon the full execution of the ISR licensing agreement
whichever is the earlier.
(b) SAND further undertakes to make additional guaranteed payments to FIST
for the ISR license based on the sales performance of the video console
game Cyberswine upon the following criteria;
(i) upon the sale of CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION game units to
trade, a bonus payment of $CONFIDENTIAL
4
<PAGE>
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION will be paid by SAND to FIST,
(ii) upon the sale of CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION game units to
trade, a further bonus payment of $CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION will
be paid by SAND to FIST.
(c) The guarantee payments shall be recoupable by SAND from the
royalties set forth in Clause 6.2 hereinbelow prior to any direct
payment of royalties to FIST.
6.2 ROYALTIES
(a) Royalties shall be paid at a rate of CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION% of the
gross revenue received by SAND its successors or assigns as a consequence
of the exploitation of Cyberswine by SAND its successors or assigns subject
to sub-clause 6.1 (c) of this Agreement.
(b) SAND shall account to FIST with regard to transactions hereunder
within thirty (30) days following the conclusion of each calendar quarter.
SAND hereby warrants that such statements of account to be prepared shall
be true and correct. The accounts shall show in detailed form the
appropriate calculations relating to the computation of the royalties and
the recoupment of the guaranteed payments as well as the costs for
manufacture and production of the Products incurred by SAND.
(c) SAND shall pay all Royalties due to FIST in Australian Dollars which
shall be deposited into the bank account of FIST, the details of which
shall be provided to SAND by FIST and the statement indicating such amount
to be due shall be simultaneously sent to a postal address, the details of
which shall be provided to SAND by FIST. Statements shall be provided to
FIST whether or not the guaranteed payments have been recouped and whether
or not royalties are due and owing.
6.3 BOOKS OF ACCOUNT AND AUDITS
(a) SAND shall keep books of account relating to the distribution of the
Products on the basis of generally accepted accounting principles and shall
be maintained for a minimum period of two (2) years after the termination
of the ISR license agreement.
(b) FIST may upon reasonable notice and at its own expense, audit the
applicable records at the registered office of SAND in order to verify
statements rendered. Any
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<PAGE>
such audit shall take place during reasonable business hours and in such a
manner so as not to interfere with the normal business activities of SAND.
(c) All information contained in the books and records of SAND shall be
kept confidential and FIST agrees that such information inspected and/or
copied on behalf of FIST shall be used only for the purpose of determining
the accuracy of the statements and shall be revealed only to such officers,
directors, employees, agents and/or representatives of FIST as is necessary
to verify the accuracy of the statements.
(d) SAND shall reimburse FIST for the full out-of-pocket costs including
travel costs and expenses for any audit of the books and records of SAND
that determines a short fall of CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION percent
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION%) or more in royalties reported for any calendar
quarter.
7. JOINT VENTURE. The Joint Venture agreement to be entered shall be
upon the following terms;
(a) the Joint Venture shall be for the exploitation of the rights
mentioned in Clause 2.2 of this Agreement,
(b) all revenue moneys are to be shared equally between the parties after
the payment of expenses,
(c) all costs and expenses for the setting up of the Joint Venture and the
day to day running of the Joint Venture shall be construed as part of the
direct expenses under the Joint Venture agreement.
(d) all costs and expenses of the Joint Venture are to be approved in
advanced by the parties by way of annual budgets.
8. OTHER WORKS. Other works that are requested by SAND from FIST which
are not directly related to the aims and goals of the Joint Venture shall
be upon a contractual basis, separate from the obligations of the parties
contained in the Joint Venture agreement.
9. RELATED CONTRACTING. Any and all contracts or agreements entered into
between SAND and any related companies shall be entered into in good faith
and upon an arms length basis. Copies of all such contractual agreements
shall be made available for perusal by FIST or their authorized
representative upon the premises of SAND subject to reasonable written
notice to SAND by FIST and such perusal shall take place during reasonable
business hours and in such manner so as not to interfere with normal
business activities of SAND.
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10. INTENTION TO BE BOUND. This agreement expresses the intention of the
parties to be bound to the terms and conditions hereof prior to the
execution of the abovementioned format agreements.
11. NON-EXERCISE OF MORAL RIGHTS. FIST undertakes not to exercise or use
the moral rights of the author relating to Cyberswine to the detriment of
SAND or any third party designated by SAND for the term of the ISR
licensing agreement.
12. AUTHORIZED REPRESENTATIVE. The representative signing on behalf of
either of the parties to this Agreement warrants to the other party that he
is duly authorized to sign this Agreement on behalf of the company and bind
the company to the terms and conditions of this Agreement.
13. SEVERANCE. Any term or condition of this Agreement that proves not to
be enforceable for any reason, shall neither limit nor impair the
operation, enforceability or validity of any of the other terms or
conditions of this Agreement.
14. WAIVER. No waiver by either party whether express or implied of any
provisions of this Agreement or of any breach or default of either party
shall constitute a continuing waiver or a waiver of any other provision of
this Agreement unless made in writing and signed by the party against whom
the waiver would otherwise be enforced.
15. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New South Wales.
WITNESS WHEREOF the parties hereto have executed this Agreement on the day
and year herein before written.
SIGNED for and on behalf of
SEGA AUSTRALIA NEW DEVELOPMENT
a division of SEGA OZISOFT PTY LIMITED
/s/ Kevin Bermeister
_______________________________
in the presence of:
/s/ Damien Pembroke
_______________________________
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<PAGE>
SIGNED for and on behalf of
EAT CYBERFIST PTY LIMITED
/s/
_______________________________
in the presence of:
/s/
_______________________________
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<PAGE>
EXHIBIT 10.22
SOFTWARE LICENSE AGREEMENT
This Software License Agreement is entered into this 15th day of December 1994,
by and between Sega Ozisoft Pty Ltd ACN 056 032 476 (Ozisoft) and Brilliant
Interactive Ideas Pty Ltd ACN 061 228 668 (BII).
Whereas BII is the developer and publisher of CD ROM games called, CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION, CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION, CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION, CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION,
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION, and CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION (hereinafter referred to as the
Titles) available on Macintosh and PC CD-ROM.
BII and Ozisoft do hereby agree as follows:
1) Ozisoft shall be the exclusive publisher and distributor of the above
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION mentioned products in Australia and
New Zealand.
2) The term of this agreement shall be for a period of CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION years, commencing on the date of this agreement.
3) Brilliant Interactive Ideas shall provide to Ozisoft working masters of
the product in a form duplicable by Ozisoft. Ozisoft are responsible
for the design and production of the packaging and manuals.
4) Ozisoft shall pay to Brilliant Interactive Ideas a royalty in the
amount of $CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION AUD per unit based on net sales.
Royalty of $CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION AUD per unit shall be payable
monthly, 30 days after the end of each calendar month.
<PAGE>
5) Ozisoft shall have the right to reduce the royalty to $CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION AUD per copy after minimum guaranteed advance of
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION units per Title has been earned out,
subject to the retail price being proportionately reduced and a period
of CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION having elapsed.
6) The advance royalty of AUD $CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION shall be payable
as follows:
i) AUD $CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION on the signing of this
agreement
ii) AUD $CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION on the delivery and
verification to Ozisoft of the masters for each Title
iii) AUD $CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION 120 days after the signing
of this agreement. In the event that the advance royalty paid in
6 i) and 6 ii) above has been fully applied before the expiration
of 120 days then Ozisoft shall pay to BH the royalty as specified
in 4 above ensuring that at the expiration of the 120 day period
BII have received at least AUD $CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
in royalty payments from Ozisoft.
7) The royalty is to be cross collateralized amongst the CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION titles.
All advances are non-refundable, subject to the masters being delivered prior to
February 28, 1995.
<PAGE>
For and on behalf of Brilliant Interactive Ideas Pry Ltd
/s/ Mark Miller
- --------------------------
Name: Mark Miller
--------------------
For and on behalf of Sega Ozisoft Pty Ltd
/s/ Michael Glezerson
- --------------------------
Name: Michael Glezerson
--------------------
<PAGE>
EXHIBIT 10.23
MORGAN CREEK INTERACTIVE, INC.
4000 WARNER BOULEVARD, BUILDING 76
BURBANK, CA 91522
September 14, 1996
Mark Miller
President
Brilliant Interactive, Inc.
6355 Topanga Canyon Blvd., Suite 503
Woodland Hills, CA 91367
Dear Mark:
This letter sets forth the intention of Morgan Creek Interactive, Inc., a
Delaware corporation ("MCX") to form a joint venture with Brilliant
Interactive, Inc., a Delaware corporation ("Brilliant"). This letter sets
forth the terms of the understanding and will serve as the basis of a more
detailed long form joint venture agreement (the "Definitive Agreement") to be
negotiated in good faith by the parties. Until such a Definitive Agreement is
negotiated and signed, this letter, once signed by all the parties hereto will
represent a binding obligation by such parties.
1. Formation of Joint Venture
MCX and Brilliant will form a joint venture ("Venture") to develop two
digitally produced entertainment products formatted as "Multipath Movies"
(i.e., formatted in an interactive format which includes multiple plot and/or
script paths ("Products") for use in the home and for distribution on CD-ROM
for the PC and Macintosh platforms and for other comparable platforms for
which Brilliant obtains a license it being understood that such CD-ROMs may be
coupled with distribution via on-line services and/or the internet. Each of
the Products will be based on the motion pictures listed on Attachment "A"
hereto or titles which are agreed to pursuant to the first negotiation set
forth herein relating to current motion pictures in development (the "Titles")
to the extent that MCX controls the rights to such motion pictures for the
uses contemplated herein. The titles shall be mutually selected by the parties
prior to CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. The parties expect that the Venture will
either be a limited liability corporation or partnership organized under
California law and that each of the parties will hold a CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION interest in the Venture.
2. Initial Capitalization
Brilliant shall commit to pay for development of Products from two of the
Titles. MCX shall contribute a nonexclusive perpetual license relating to the
two selected Titles to the Venture for the development and production of
Products. In addition, MCX shall agree that the Venture shall have a first
negotiation right in connection with the development of Multipath Movies
related to motion pictures produced by MCX, or its affiliates, after the date
hereof until CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
3. Product Development
The Venture shall immediately upon definitive selection of Titles commence
development of initial Product for shipment in the CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION and
shall commence development on a second Product for shipment in CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION (the "Initial Products"). The combined development cost for
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<PAGE>
the Initial Products, as currently planned, is estimated to be CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. MCX shall provide to the extent available scripts and the services
of directors, screenwriters and other development personnel. Brilliant shall
develop and design the Initial Products and shall be solely responsible for
the costs of developing and designing the Initial Products. MCX and Brilliant
shall mutually approve the budget for the development, design and manufacture
of the Initial Products with the budget determined CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Brilliant and MCX shall be reimbursed by the joint venture for all such costs
to the extent that production and development is performed by them. In
addition, Brilliant shall provide under nondisclosure agreement any technical
information held by Brilliant which would be helpful in assisting with the
development and production of the Products. It is of the essence of this
agreement that all Products be of the highest quality in design and
presentation, and MCX shall have the right to approve all aspects of the
Products in its reasonable discretion including without limitation, designs,
content, materials, and packaging. To this end, MCX and Brilliant shall
jointly prepare a plan for implementing the design and approval process for
each of the Products so that the design and production costs for each Product
can be minimized.
4. Marketing and Distribution:
(a) Brilliant shall provide to the Venture its marketing expertise to
assist in developing the Products including supplying market research
information and other information as to market size and potential
returns which will be helpful in developing the Venture to maximum
profitability for both Parties.
(b) MCX and Brilliant shall mutually approve a marketing plan for the
Initial Products including a budget for all marketing expenses and
duplication costs. Brilliant shall advance all marketing expenses and
duplication costs for all units for the Initial Products. In addition,
MCX shall approve any OEM/bunding distribution arrangements proposed by
Brilliant.
(c) MCX and Brilliant shall mutually agree on distributors for the Products
based on the best third party proposals submitted to the Venture. It is
of the essence of this agreement that all marketing and advertising
materials related to the Products be of the highest quality, and MCX
shall have the right to approve all aspects of the marketing and
advertising materials in its sole discretion. MCX and Brilliant shall
be entitled to place their logos as presentation credits on the
Products and on the packaging, marketing and advertising materials for
the Products in equal size and prominence.
5. Split of Revenue
All gross revenue ("Proceeds") received by the Venture shall be split, after
payment of all third party costs then due, as follows:
a. Brilliant shall be reimbursed all direct, out of pocket costs and
expenses incurred by Brilliant which are attributable to the distribution,
marketing, promotion and advertising of the Products and which are preapproved
by MCX (excluding overhead, interest and G & A).
b. Brilliant shall be repaid the amount of the initial capital contributed
to the Venture by Brilliant for the development, design and manufacture of the
Initial Products as preapproved by MCX.
c. Venture shall pay all royalties and residuals which are required to be
paid to any actors, writers, developers or hardware manufacturers in
connection with the development of the Products.
The balance of the proceeds shall be split CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION to MCX and
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION to Brilliant and shall be distributed as determined by the
Venture.
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6. Additional Title
Provided that the Initial Products are timely released, the Venture shall be
entitled to produce up to one additional Product based on the Titles (the
"Additional Product"). In the event that Venture elects to produce the
Additional Product, the costs for the development, design, manufacturing,
marketing, promotion and advertising of the Additional Product shall be paid
for the Venture.
7. Control of Venture
Management and control of the Venture will be by unanimous approval of each
of MCX and Brilliant. All management issues will require unanimous approval
including, but not limited to, the following:
(1) Liquidation and Sale of the Joint Venture;
(2) Approval of budgets prior to commencement of each production, and
thereafter approval of all expenditures in excess of budget;
(3) Approval of third party producers and distributors for the Products;
(4) Distributions from the Venture to MCX and Brilliant other than as set
forth in Paragraphs 5a, b and c hereof.
8. Ownership of Intellectual Property
Brilliant acknowledges that MCX shall own exclusive rights to any
copyrights, trademarks and other intellectual property licensed to the Venture
by MCX. In addition, MCX shall exclusively own all rights to all copyrights,
trademarks and other intellectual property developed by the Venture including
without limitation all rights to the Products (except the software rights
which are provided by Brilliant pursuant to the following paragraph and any
improvements to the software provided by Brilliant). Except as otherwise
provided herein, MCX shall be entitled to exploit such copyrights, trademarks
and other intellectual property in any manner whatsoever without any payment
of any royalties or other compensation to the Venture. Notwithstanding the
foregoing, the Venture shall have the first option to convert the Products to
other CD-ROM platforms, provided that in the event that Brilliant on behalf of
the Venture determines not to incur the cost of platform conversion, MCX shall
have the option to license platform conversions for the Products to third
parties without any obligation to the Venture, but such conversions shall be
performed at MCX's expense by Brilliant at cost.
Brilliant shall contribute a non-exclusive license to the venture for its
pre-existing computer tools, utilities, engines, processes, software systems
and designs, source and object codes, program logic, interactive program
structures, retrieval software systems, user interface designs, and other
computer procedures and methods of operating and computer software elements
solely for use in connection with the Products. MCX acknowledges that
Brilliant shall be entitled to reuse such materials in its discretion with no
obligation to MCX.
9. Relationship
This Letter of Intent and the Definitive Agreement shall not create any
additional fiduciary duties of the parties other than the duties expressly
contained herein and in the Definitive Agreement. Each of the parties shall be
free to undertake independent activities, including activities which may be
competitive with the Venture or the activities of the other party.
10. Expenses
Each party shall bear its own costs and expenses in connection with the
negotiation of the Definitive Agreement and the consummation of the
transactions contemplated thereby.
11. Governing Law
This Letter of Intent and the Definitive Agreement shall be governed by
California law.
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12. Entire Agreement
In interpreting the terms and conditions of this Letter of Intent, no
presumption shall operate as a result of the role of any party hereto or such
party's counsel in drafting this Letter of Intent.
13. Presumptions
In interpreting the terms and conditions of this Letter of Intent, no
presumption shall operate as a result of the role of any party hereto or such
party's counsel in drafting this Letter of Intent.
14. Counterparts
This Letter of Intent may be executed in counterparts, each of which shall be
deemed original and all of which together shall constitute one and the same
instrument.
15. Warrants
MCX acknowledges that Brilliant is contemplating an initial public offering of
its common stock in an amount equal to or greater than $25 million
(the "IPO"). Brilliant agrees to grant MCX the following rights in connection
with the purchase of shares of stock in Brilliant (the "Warrants"):
A. Warrants to purchase up to 35,000 shares of common stock at an exercise
price of $10.00 per share.
B. Warrants to purchase up to 50,000 shares of common stock at an exercise
price of $13.00 per share.
The Warrants shall have a term of no less than 3 years from issuance. All
other terms relating to the Warrants, including registration rights, shall be
equivalent to the terms of the warrants granted by Brilliant to Packard Bell.
MCX acknowledges that Brilliant is contemplating an IPO in which the
underwriters have requested a 180 day stabilization period during which the
Warrants cannot be registered and the shares underlying the Warrants cannot be
transferred. MCX agrees to execute such Market Standoff agreement as may be
reasonably requested by the underwriters of IPO.
If for any reason the IPO, or another comparable financing, does not occur on
or prior to January 1, 1997, MCX shall have the right to terminate this
agreement.
16. Public Announcements
Except as otherwise required by law, including without limitation, any
disclosure required under federal or state securities law, Brilliant shall not
disclose the terms of this agreement or use the name of MCX or any entity
affiliated with MCX in any advertisement, news release or professional or
trade publication, or in any other manner, unless MCX has given prior written
consent. If Brilliant determines that it is required to file with the
Securities Exchange Commission this agreement or any related agreement with
MCX, Brilliant shall consult with MCX regarding the filing and shall seek
confidential treatment for such agreement and for all financial and business
terms therein.
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If the foregoing terms are acceptable to you, please confirm your acceptance by
signing below.
Best regards,
Kenneth Schapiro
Executive Vice President
Agreed to and Accepted this 14th day
of September, 1996.
BRILLIANT INTERACTIVE, INC. MORGAN CREEK INTERACTIVE, INC.
By: /s/ Diana Maranon By: /s/ James G. Robinson
------------------------------- -----------------------------------
Its: Secretary Its: Chairman/CEO
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ATTACHMENT "A"
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION
6
<PAGE>
EXHIBIT 10.25
THE SECURITIES EVIDENCED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, HAVE BEEN TAKEN FOR INVESTMENT AND MAY NOT
BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT.
NONTRANSFERABLE REDEEMABLE WARRANT AGREEMENT
This Warrant Agreement (the "Agreement") is made and entered into this
14th day of September, 1996 by and between Brilliant Digital Entertainment,
Inc., a Delaware corporation (the "Company"), and Packard Bell NEC, Inc., or
permitted transferee pursuant to Section 8.2 below (the "Holder").
In consideration of the premises and mutual covenants contained herein, the
Holder and the Company hereby agree as follows:
1. Grant of Warrant. In consideration of the sum of $100.00 and other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Company hereby grants to the Holder the right and option (the
"Warrant") to purchase at any time during the "Exercise Period" (as defined in
Section 2 below), upon the terms and subject to the conditions set forth in this
Agreement, an aggregate of 600,000 shares of Common Stock, par value $0.001 per
share, of the Company (the "Common Stock"), for an exercise price per share (the
"Exercise Price"), equal to (a) $10.00, or (b) if an initial underwritten public
offering of shares of Common Stock of the Company (an "IPO") is declared
effective by the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act") prior to June 30,
1997, 100% of the per share price to the public in the IPO, in each case,
subject to adjustment as pro vided in Section 5 below. The shares of Common
Stock issuable upon exercise of the Warrant are referred to as the "Warrant
Shares," and the Warrant Shares and the Warrant are together referred to as the
"Securities."
2. Exercise Period. The Warrant shall be exercisable commencing on the
first to occur of the closing of the IPO or July 1, 1997, and terminate and
expire at 5:00 p.m. (Los Angeles Time) on September 14, 1999.
3. Exercise of Warrant. There is no obligation to exercise all or any
portion of the Warrant. The Warrant may be exercised, in whole or in part, at
any time after the date hereof only be delivery to the Company of:
<PAGE>
3.1 Written notice of exercise in form and substance identical to and
containing the representations set forth in Exhibit "A" attached to this
Agreement; and
3.2 Payment of the Exercise Price for the Warrant Shares being
acquired upon exercise of the Warrant, by wire transfer in immediately available
Federal funds. Upon receipt of the foregoing, the Company shall promptly issue
in the name of the Holder a certificate evidencing the Warrant Shares being
purchased by such exercise and deliver such certificate to the address requested
in the notice of exercise.
4. REDEMPTION.
(a) On or after the first anniversary of the date, if any, of the
closing of the IPO (the "Initial Warrant Redemption Date"), the Company may
redeem and cancel all, and not less than all, the unexercised rights to purchase
Warrant Shares evidenced by the Warrant for an aggregate redemption price (the
"Redemption Price") of $0.001 multiplied by the number of Warrant Shares then
issuable under the Warrant, provided, however, that before any such call for
redemption of the Warrant can take place, (i) the Warrant Shares issuable upon
exercise of the Warrant shall have been registered pursuant to the provisions of
Section 9.1 below, or be eligible for sale by the Holder at any time without
restriction or pursuant to the provisions of Rule 144(k), and (ii) the (A) high
closing bid price for the Common Stock in the over-the-counter market as
reported by the NASD Automated Quotation System or (B) the closing sale price on
the primary exchange on which the Common Stock is traded, if the Common Stock is
traded on a national securities exchange, shall have for fifteen (15)
consecutive trading days subsequent to the Initial Warrant Redemption Date
equaled or exceeded 125% of the Exercise Price.
(b) In case the Company shall exercise its right to redeem all, and
not less than all, the unexercised rights to purchase Warrant Shares evidenced
by the Warrant, it shall give or cause to be given notice to the Holder by
mailing to the Holder a notice of redemption, first class, postage prepaid, to
the address of the Holder set forth in Section 11.2 below, within twenty (20)
calendar days of the aforementioned fifteen (15) consecutive trading days and
not later than the thirtieth (30th) day before the date fixed for redemption.
Any notice mailed in the manner provided herein shall be conclusively presumed
to have been duly given whether or not the Holder receives such notice.
(c) The notice of redemption shall specify (i) the Redemption Price,
(ii) the date fixed for redemption (the "Redemption Date"), and (iii) that the
right to exercise the Warrant shall terminate at the close of the market upon
which the Common Stock is then traded on the business day immediately preceding
the date fixed for redemption.
(d) Any right to exercise the Warrant shall terminate on close of the
market upon which the Common Stock is then traded on the business day
immediately preceding the Redemption Date. The Redemption Price payable to the
Holder shall be mailed to the Holder at its address set forth in Section 11.2
below.
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5. ADJUSTMENTS TO EXERCISE PRICE, REDEMPTION PRICE AND NUMBER OF SHARES.
The Exercise Price, Redemption Price and number of Shares shall be subject to
adjustment from time to time as follows:
5.1 In the event the Company should at any time or from time to time
after the date of this Warrant (the "Issuance Date") fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Exercise Price and the Redemption Price shall be appropriately decreased
(i.e., the per share Exercise Price and the Redemption Price shall be adjusted
such that the aggregate exercise price and for all Warrant Shares issuable upon
exercise of the Warrant in full and the Redemption Price for the entire Warrant,
as adjusted, shall remain the same) and the number of Warrant Shares shall be
increased in proportion to such increase in the aggregate number of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents.
5.2 If the number of shares of Common Stock outstanding at any time
after the Issuance Date is decreased by a combination of the outstanding shares
of Common Stock, then, following the record date of such combination, the
Exercise Price and Redemption Price shall each be appropriately increased (i.e.,
the per share Exercise Price and the Redemption Price shall be adjusted such
that the aggregate exercise price for all Warrant Shares issuable upon exercise
of the Warrant in full and the aggregate redemption price for the entire
Warrant, as adjusted, shall remain the same) and the number of Shares shall be
decreased in proportion to such decrease in the aggregate number of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents.
5.3 In case of any capital reorganization, any reclassification of the
Common Stock (other than a change in par value or a recapitalization described
in Section 5.1 or 5.2 of this Agreement), or the consolidation of the Company
with, or a sale of substantially all of the assets of the Company to (which sale
is followed by a liquidation or dissolution of the Company), or merger of the
Company with, another person, the Holder shall thereafter be entitled upon
exercise of the Warrant to purchase the kind and number of shares of stock or
other securities or the amount or value of any cash, assets or other property
receivable upon such event by a holder of the number of shares of the Common
Stock which the Warrant entitles the holder of the Warrant to purchase from the
Company immediately prior to such event; and in any such case, appropriate
adjustment shall be made in the application of the provisions set forth in this
Agreement with respect to the Holder's rights and interests thereafter, to the
end that the provisions set forth in this Agreement (including the specified
changes and other adjustments to
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<PAGE>
the Exercise Price and Redemption Price) shall thereafter be applicable in
relation to any shares or other property thereafter purchasable upon exercise of
the Warrant.
5.4 If it is expected that there will occur any event described in
Section 5.3 hereof, the Company shall give the holder of the Warrants notice
thereof, which notice shall be given at such time or times as notice is given to
the holders of the Company's Common Stock.
5.5 The provisions of this Section 5 are intended to be exclusive,
and the holder of the Warrant shall have no rights other than as set forth in
this Agreement (and the rights of a stockholder upon exercise of the Warrant)
upon the occurrence of any of the events described in this Section 5.
5.6 The grant of the Warrant shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations or
changes in its capital or business structure, or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF HOLDER. The Holder makes
the following representations, warranties and covenants:
6.1 The Holder is acquiring the Securities for its own account with
the present intention of holding such Securities for investment purposes only
and not with a view to, or for sale in connection with, any distribution of such
Securities (other than a distribution in compliance with all applicable federal
and state securities laws).
6.2 The Holder is an experienced and sophisticated investor and has
such knowledge and experience in financial and business matters that it is
capable of evaluating the relative merits and the risks of an investment in the
Securities and of protecting its own interests in connection with this
transaction.
6.3 The Holder is willing to bear and is capable of bearing the
economic risk of an investment in the Securities.
6.4 The Company has made available, prior to the date of this
Agreement, to the Holder the opportunity to ask questions of the Company and its
officers, and to receive from the Company and its officers information
concerning the terms and conditions of the Securities and this Agreement and to
obtain any additional information with respect to the Company, its business,
operations and prospects, as reasonably requested by the Holder.
6.5 The Holder is an "accredited investor" as that term is defined
under Rule 501(a)(8) of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Securities Act").
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<PAGE>
6.6 For purposes of the application of federal and state securities
laws, Holder acknowledges that the offer and sale of the Warrants to such Holder
occurred in the State of California and that such Holder is a resident of the
State of California.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company
makes the following representations, warranties and covenants:
7.1 The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Company has the
requisite corporate power and authority to carry on its business as now being
conducted and to execute, deliver and perform this Agreement and to consummate
the transactions contemplated hereby.
7.2 All corporate action on the part of the Company, its directors and
shareholders necessary for the authorization, execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby has been taken. This Agreement constitutes the
valid and binding obligation of the Company, enforceable in accordance with its
terms, subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies.
7.3 The execution and delivery of this Agreement by the Company does
not, and the consummation by the Company of the transactions contemplated by
this Agreement will not constitute or result in (a) a breach or violation of, or
(with or without the giving of notice or the lapse of time) a default under, (a)
the Certificate of Incorporation or By-laws of the Company or (b) any law to
which the Company is subject.
7.4 The Warrant Shares, when issued in accordance with the terms of
this Warrant, will be duly authorized, issued and nonassessable shares of the
Common Stock of the Company, free and clear of any liens, claims or restrictions
imposed by or through the Company other than as set forth in this Agreement.
7.5 The Company covenants that it will at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the issuance of the Warrant Shares upon exercise of all
or part of the Warrant, such number of shares of Common Stock as shall then be
issuable upon the exercise of all of the Warrants.
8. RESTRICTIONS ON TRANSFER OR EXERCISE OF THE WARRANTS AND SHARES.
8.1 Each certificate for Warrant Shares initially issued upon the
exercise of the Warrants, shall be stamped or otherwise imprinted with a legend
in substantially the following form:
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<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
CONDITIONS SPECIFIED IN A CERTAIN WARRANT AGREEMENT DATED SEPTEMBER 14,
1996. NO TRANSFER, SALE, PLEDGE, HYPOTHECATION, ENCUMBRANCE OR OTHER
DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE SHALL BE
VALID OR EFFECTIVE UNTIL REGISTERED OR THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, SATISFACTORY TO IT, THAT THE TRANSACTION IS EXEMPT
FROM REGISTRATION, AND UNTIL SUCH CONDITIONS AS ARE CONTAINED IN THE
WARRANT AGREEMENT HAVE BEEN FULFILLED. A COPY OF THE FORM OF THE
WARRANT AGREEMENT IS ON FILE AT THE OFFICES OF BRILLIANT INTERACTIVE,
INC. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE,
AGREES TO BE BOUND BY THE PROVISIONS OF THE WARRANT AGREEMENT."
If the Warrant Shares are no longer subject to the transfer restrictions
imposed by applicable state and Federal securities law because either (i) the
Warrant Shares or the resale of the Warrant Shares has been registered on a
registration statement declared effective by the Commission, or (ii) in the
reasonable opinion of counsel for the Company, or the opinion of counsel for the
Holder, which opinion is reasonably satisfactory to counsel for the Company, all
future dispositions of any of the Warrant Shares by the contemplated transferee
would be exempt from or would satisfy the registration and prospectus delivery
requirements of the Securities Act and the qualification requirements of the
applicable state securities laws, then the restrictions on transfer of such
securities contained in this Section 8.1 shall not apply to any subsequent
transfer thereof and the Company shall, promptly upon request by the Holder,
remove the legend set forth above and shall promptly issue, in exchange for the
certificate bearing such legend, a certificate without such legend to the
Holder.
8.2 THE HOLDER AGREES THAT THE WARRANT MAY NOT BE TRANSFERRED, SOLD,
ASSIGNED OR HYPOTHECATED EXCEPT (i) TO ITS SUCCESSORS IN A MERGER OR
CONSOLIDATION OR OTHER BUSINESS COMBINATION; (ii) TO PURCHASERS OF ALL OR
SUBSTANTIALLY ALL OF ITS ASSETS; OR (iii) BY OPERATION OF LAW. HOLDER FURTHER
AGREES THAT THE COMPANY SHALL HAVE NO OBLIGATION TO EFFECT ANY TRANSFER OF THE
WARRANTS DURING THE TIME PERIOD REFERRED TO ABOVE, UNLESS THE TRANSFEREE,
PURCHASER, ASSIGNEE OR PLEDGEE, AS THE CASE MAY BE, SHALL HAVE EXECUTED AN
AGREEMENT OBLIGATING THE TRANSFEREE TO COMPLY WITH ALL TERMS AND CONDITIONS OF
THIS AGREEMENT APPLICABLE TO THE TRANSFEROR.
8.3 Prior to any exercise of the Warrants or any transfer or attempted
transfer of any of the Warrants or Warrant Shares, the Holder shall give the
Company written notice of his intention so to do, describing briefly the manner
of any such proposed exercise, sale or transfer. The Holder may effect such
exercise or transfer, provided that such exercise or transfer is not prohibited
by this Section 8 and such exercise or transfer complies with all applicable
federal and state securities laws and regulations.
6
<PAGE>
8.4 If in the reasonable opinion of counsel for the Company,
notwithstanding the opinion of counsel to a Holder to the contrary, if any, the
proposed transfer of such Warrant Shares or the Warrant may not be effected
without registration thereof under the Securities Act and such registration has
not been accomplished pursuant to Section 9.1 below or otherwise, the Company
shall, as promptly as practicable, so notify the Holder and the Holder shall not
consummate the proposed transfer.
8.5 The Holder agrees to enter into a lock-up agreement with the
underwriters of the IPO whereby Holder agrees not to sell the Warrant Shares for
such period of time from and after the effective date of such public offering as
may be requested by such underwriters; provided that the term of the lock-up
agreement shall not exceed the term of similar lock-up agreements executed in
favor of the underwriter by the senior officers of the Company.
9. COVENANTS OF HOLDER AND THE COMPANY.
9.1 Piggyback Registration of Warrant Shares. If, at any time during
----------------------------------------
the period commencing on the date that is 180 days from the date upon which an
IPO declared effective by the Commission and on or before September 14, 2001,
the Company shall propose to register any shares of Common Stock (but excluding
any shares or securities being registered pursuant to Form S-8 or Form S-4 or
any successor form thereto), the Company shall (i) give the Holder written
notice, or telegraphic, telecopy or telephonic notice followed as soon as
practicable by written confirmation thereof, of such proposed registration at
least 20 business days prior to the filing of such registration statement and,
(ii) upon written notice, or telegraphic or telephonic notice followed as soon
as practicable by written confirmation thereof, given to the Company by the
Holder within 15 days after the giving of such written confirmation or written
notice by the Company, the Company shall include or cause to be included in any
such registration statement all or such portion of the Warrant Shares as the
Holder may request; provided, however, that the Company may at any time withdraw
-----------------
or cease proceeding with any such registration if it shall at the same time
withdraw or cease proceeding with the registration of the Common Stock
originally proposed to be registered; and provided further, that in connection
----------------
with any registered public offering involving an underwriting, the managing
underwriter may (if in its reasonable opinion marketing factors so require)
limit the number of securities (including any Warrant Shares) included in such
offering (other than securities of the Company). In the event of any such
limitation, the total number of Warrant Shares to be offered for the account of
the Holder in the registration shall be reduced in proportion to the respective
number of shares requested to be included therein by all holders of the
Company's Common Stock (other than the Company) entitled to include shares of
Common Stock in the registration to the extent necessary to reduce the total
number of shares proposed to be registered to the number of shares recommended
by the managing underwriter.
9.2 Company's Obligations in Piggyback Registration. The following
-----------------------------------------------
provisions shall also be applicable at the sole cost and expense of the Company
in the case of registrations under Section 9.1:
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<PAGE>
(i) Following the effective date of such registration
statement, the Company shall, upon the request of the
Holder, forthwith supply such number of prospectuses
meeting the requirements of the Securities Act as shall be
requested by the Holder to permit it to make a public
distribution of all of its Warrant Shares, provided that
the Holder shall from time to time furnish the Company with
such appropriate information (relating to the intentions of
the Holder) in connection therewith as the Company shall
request in writing.
(ii) the Company shall bear the entire cost and expense of the
registration of securities provided for in this Section
(but not the selling expenses of the Holder).
(iii) the Company shall indemnify and hold harmless the Holder
from and against any and all losses, claims, damages and
liabilities (including reasonable fees and expenses of
counsel) arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in
any registration statement or any prospectus included
therein required to be filed or furnished by reason of this
Section or otherwise or in any application or other filing
under, the Securities Act or any other applicable Federal
or state securities law, or arising out of or based upon
any omission or alleged omission to state therein a
material fact required to be stated therein (i.e., in any
such registration statement, prospectus, application or
other filing) or necessary to make the statements therein
not misleading, to which such person may become subject, or
any violation or alleged violation by the Company to which
such Person may become subject, under the Securities Act,
the Exchange Act, or other Federal or state laws or
regulations, at common law or otherwise, except to the
extent that such losses, claims, damages or liabilities are
caused by any such untrue statement or alleged untrue
statement or omission or alleged omission based upon and in
strict conformity with written information furnished to the
Company by such person expressly for use therein; provided
--------
however, that the Holder shall at the same time indemnify
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the Company, its directors, each officer signing the
related registration statement, and each person, if any,
who controls the Company within the meaning of the
Securities Act, from and against any and all losses,
claims, damages and liabilities (including reasonable fees
and expenses of counsel) arising out of or based upon any
untrue statement or alleged untrue statement of a material
fact contained in any registration statement or any
prospectus included therein
8
<PAGE>
required to be filed or furnished by reason of this
Section, or otherwise or in any application or other filing
under, the Securities Act or any other applicable Federal
or state securities law, or arising out of or based upon
any omission or alleged omission to state therein a
material fact required to be stated therein (i.e., in any
such registration statement, prospectus, application or
other filing) or necessary to make the statements therein
not misleading, to which such person may become subject, or
any violation or alleged violation by the Holder to which
the Company, its directors, each officer signing the
related registration statement, and each person, if any,
who controls the Company within the meaning of the
Securities Act, may become subject, under the Securities
Act, the Exchange Act, or other Federal or state laws or
regulations, at common law or otherwise, to the extent that
such losses, claims, damages or liabilities are caused by
any such untrue statement or alleged untrue statement or
omission or alleged omission based upon and in strict
conformity with written information furnished to the
Company by the Holder or Permitted Transferee expressly for
use therein.
(iv) In the event any person entitled to indemnification
hereunder receives in writing a complaint, claim or other
written notice of any loss, claim, damage, liability or
action giving rise to a claim for indemnification under
Section 9.2(iii), the person claiming indemnification under
Section 9.2(iii) shall promptly notify the person or
persons against whom indemnification is sought (the
"Indemnitor") of such complaint, notice, claim or action,
and the Indemnitor shall have the right to investigate and
defend any such loss, claim, damage, liability or action.
The person claiming indemnification shall have the right to
employ separate counsel in any such action and to
participate in the defense thereof but the fees and
expenses of such counsel shall not be at the expense of the
Indemnitor. In no event shall the Indemnitor be obligated
to indemnify any person for any settlement of any claim or
action effected without the Indemnitor's consent, which
consent shall not be unreasonably withheld.
10. DISPUTES.
10.1 Arbitration.
-----------
(a) Except as otherwise expressly provided for in Section 10.3
below, all disputes arising in connection with this Agreement shall be finally
settled by arbitration in Los
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<PAGE>
Angeles, California, in accordance with the rules of the American Arbitration
Association (the "Rules of Arbitration") and judgment on the award rendered by
the arbitration panel (the "Arbitration Panel") may be entered in any court or
tribunal of competent jurisdiction.
(b) Any party which desires to initiate arbitration proceedings
as provided in Section 10.1(a) above may do so by delivering written notice to
the other party (the "Arbitration Notice") specifying (A) the nature of the
dispute or controversy to be arbitrated, (B) the name and address of the
arbitrator appointed by the party initiating such arbitration and (C) such other
matters as may be required by the Rules of Arbitration.
(c) The party who receives an Arbitration Notice shall appoint
an arbitrator and notify the initiating party of such arbitrator's name and
address within 30 days after delivery of the Arbitration Notice; otherwise, a
second arbitrator shall be appointed at the request of the party who delivered
the Arbitration Notice as provided in the Rules of Arbitration. The two
arbitrators so appointed shall appoint a third arbitrator who shall be the
chairman or the Arbitration Panel and who shall be of American nationality.
Should the arbitrators appointed by the parties not agree upon the appointment
of the third arbitrator within 30 days of their appointment, the third shall be
appointed in accordance with the Rules of Arbitration.
(d) In any arbitration proceeding conducted pursuant to the
provisions of this Section 10, both parties shall have the right to discovery,
to call witnesses and to cross-examine the opposing party's witnesses, either
through legal counsel, expert witnesses or both, and such proceedings shall be
conducted in the English language.
10.2 Finality of Decision. All decisions of the Arbitration Panel
--------------------
shall be final, conclusive and binding on all parties and shall not be subject
to judicial review. The arbitrator shall divide all costs (other than fees of
counsel) incurred in conducting the arbitration proceeding and the final award
in accordance with what they deem just and equitable under the circumstances.
10.3 Limitations. Notwithstanding anything to the contrary contained
-----------
in Sections 10.1 and 10.2 above, any claim by either party for injunctive or
other equitable relief, including specific performance, may be brought in any
court of competent jurisdiction and any judgment, order or decree relating
thereto shall have precedence over any arbitral award or proceeding.
11. MISCELLANEOUS PROVISIONS.
11.1 Further Assurances. The Company and the Holder agree to execute
------------------
such further documents or instruments and to take such other actions as are
necessary to carry out the transactions contemplated by this Agreement and the
other agreements referred to herein.
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<PAGE>
11.2 Notices. Any and all notices and other communications to be
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served hereunder shall be either delivered (i) by hand; (ii) by prepaid
overnight delivery service; or (iii) by certified or registered mail, postage
pre-paid, in each case, addressed as follows:
If to the Holder:
One Packard Bell Way
Sacramento
California 95828
Attn: Chief Financial Officer
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<PAGE>
With a copy to:
5701 Lindero Canyon Road
Westlake Village
California, 91362
General Counsel's Office
If to the Company:
Brilliant Digital Entertainment, Inc.
6355 Topanga Canyon Blvd., Suite 503
Woodland Hills, CA 91367
Attn: Chairman
or at such other address and to the attention of such other person as any party
hereto may designate by written notice to the other in accordance with the terms
hereof.
Any such notice shall be effective (i) if delivered by hand, when
personally delivered; (ii) if given by overnight delivery service, on the
business day following deposit with such service addressed as aforesaid; or
(iii) if given by registered or certified mail, 72 hours after deposit in the
mail postage pre-paid, addressed as aforesaid.
11.3 Amendment; Waiver. This Agreement shall be binding upon and inure
-----------------
to the benefit of the parties to this Agreement and their respective successors,
heirs and personal representa tives. No provision of this Agreement may be
amended or waived unless in writing signed by all of the parties to this
Agreement. Waiver of any one provision of this Agreement shall not be deemed to
be a waiver of any other provision.
11.4 Governing Law. This Agreement shall be governed by and construed
-------------
both as to validity and performance and enforced in accordance with the laws of
the State of California without giving effect to the choice of law principles
thereof. Each of the parties hereto hereby waive their right to a jury trial
with respect to any such legal actions.
11.5 Attorneys' Fees. If any action, suit or other proceeding is
---------------
instituted to remedy, prevent or obtain relief from a default in the performance
by any party of its obligations under this Agreement, the prevailing party shall
recover all of such party's costs and reasonable attorneys' fees incurred in
each and every such action, suit or other proceeding, including any and all
appeals or petitions therefrom.
11.6 No Finders. The parties each agree to indemnify and hold harmless
----------
the other against any expense incurred by reason of any consulting, brokerage
commission or finder's fee alleged to be payable to any person in connection
with the transactions contemplated hereby
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<PAGE>
because of any act, omission or statement of indemnifying party or any dealings
by the indemnifying party with any consultant, broker or finder.
11.7 Expenses. Each of the parties shall pay its own expenses
--------
incurred in connection with the preparation of this agreement and the
consummation of the transactions contemplated hereby.
11.8 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
11.9 Headings. The section and subsection headings contained in this
--------
Agreement are included for convenience only and form no part of the agreement
between the parties.
11.10 Counterparts. This Agreement may be executed in several
------------
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all of the parties have not signed the
same counterpart.
11.11 Survival. The provisions of Section 9.2(iii), Section 9.2(vi),
--------
Section 10 and Section 11 shall survive termination of this Agreement.
11.12 Interpretation. In all matters of interpretation, whenever
--------------
necessary to give effect to any provision of this Agreement, each gender shall
include the others, the singular shall include the plural, and the plural shall
include the singular. The titles of the paragraphs of this Agreement are for
convenience only and shall not in any way affect the interpretation of any
provision or condition of this Agreement. Each party and its counsel have
reviewed and revised this Agreement. As a result, the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments or exhibits thereto.
11.13 Entire Agreement. This Agreement constitutes and embodies the
----------------
entire understanding and agreement of the parties hereto relating to the subject
matter hereof and there are no other agreements or understandings, written or
oral, in effect between the parties relating to such subject matter except as
expressly referred to herein.
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IN WITNESS WHEREOF, the parties have entered into and executed this Warrant
Agreement as of the date first above written.
BRILLIANT DIGITAL ENTERTAINMENT, INC.
By: /s/ Diana Maranon
---------------------------
Name: Diana Maranon
---------------------------
Title: Secretary
---------------------------
HOLDER
By: /s/ Sam Surloff
----------------------------
General Counsel
14
<PAGE>
EXHIBIT "A"
NOTICE OF EXERCISE
(To be signed only upon exercise of the Warrant)
TO: Brilliant Digital Entertainment, Inc.
The undersigned hereby irrevocably elects (to the extent indicated herein)
to exercise the Warrant granted to the undersigned pursuant to that certain
Redeemable Warrant Agreement dated ________ __, 1996 between the undersigned and
Brilliant Digital Entertainment, Inc., a Delaware corporation (the "Company")
and to purchase ___________ shares of Common Stock (the "Securities") of the
Company. The closing of the exercise of the Warrants shall take place at _____
on _________________, ________ at the principal executive office of the Company
located at Brilliant Digital Entertainment, Inc., 6355 Topanga Canyon Blvd.,
Suite 503, Woodland Hills, CA 91367.
The undersigned represents, warrants and agrees that the undersigned (a) is
acquiring the Securities for its own account with the present intention of
holding such Securities for investment purposes only and not with a view to, or
for sale in connection with, any distribution of such Securities (other than a
distribution in compliance with all applicable federal and state securities laws
and the provisions of the Agreement), (b) is an "accredited investor" as that
term is defined under Rule 501(a)(8) of Regulation D promulgated by the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act").
_________________________________
________________________
15
<PAGE>
EXHIBIT 10.26
LICENCE AGREEMENT
A. DATE OF AGREEMENT:
B. LICENSOR: Beyond Properties Pty Ltd
ACN NO: 002 861 458
53-55 Brisbane Street
Surry Hills
NSW 2010
Facsimile:- 281 7728
C. LICENSEE: Brilliant Interactive Ideas Pty Ltd
ACN NO: 061 228 668
Level 1, 17 The Corso
Manly
NSW 2095
Facsimile:-977 4123
D. LICENSED PROGRAMS: Beyond 2000 television series
Beyond Tomorrow television series
E. LICENCE FEE: (1) CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION % of Gross Receipts or
AUD $ CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION per unit per title for
the first CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION from the date the Product
is first offered for sale (the Release Date),
AUD $ CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION per unit per title for
the immediately following CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION period
from the Release Date and AUD $ CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION per
unit per title after the expiration of
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION from the Release Date, whichever
is the greater.
(2) For OEM and bundle deals CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY
<PAGE>
WITH THE SECURITIES AND EXCHANGE COMMISSION
of the Gross Receipts
F. TERMS OF PAYMENT: Quarterly
G. LICENCE PERIOD: CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION years from 1 January 1995
H. PRODUCT: A CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION title multi-media computer data
system producing video, graphic and dynamic
images, text and sound, based on the Licensed
Programs and stored on CD-ROM, CDI, CD-
Cartridge, Computer Disk and Magnetic Medium
including updates and upgrades of the
Licensed Programs. Licensee can use such
updates and upgrades of the Licensed Programs
to update and upgrade any or all of the
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION titles for re-release in order to
take advantage of technological advancements.
I. TERRITORY World
2
<PAGE>
OPERATIVE PROVISIONS:
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement unless the context otherwise requires:
(a) words defined on the cover page have the meaning there ascribed;
(b) words denoting the singular number shall include the plural and
vice versa;
(c) words denoting any gender shall include all genders;
(d) where a word or phrase is defined, other parts of speech and
grammatical forms of that word or phrase shall have corresponding
meanings;
(e) words denoting natural persons shall include corporations and vice
versa;
(f) headings are for convenience only and shall not affect
interpretation; and
(g) references to any party to this Agreement or any other agreement or
instrument shall include the party's successor and permitted
assigns.
1.2 In this Agreement:
"GROSS RECEIPTS" means the gross receipts of exploitation of the Product
received by the Licensee throughout the Territory calculated as the
invoice price billed to the Licensee's customers. No cost incurred in
the manufacture, sale, distribution or exploitation of the Product shall
be deducted from any Licence Fees payable by the Licensee to the
Licensor. Where the number of entities involved in the distribution of
the Product between the Licensee and the final customer exceeds three
levels (expected levels are Licensee - publisher- distributor -
retailer - final customer) ie publisher, distributor and retailer then
Gross Receipts is defined as the gross receipts of the Product at the
entity that is four levels before the final customer for the purpose of
the calculation of the Licence Fee.
"WORKS" means the Licensed Programs, and background material, scripts,
videotape, soundtrack recording, format and presentation used in or for
the Licensed Program with all titles and graphics which exist as
electronic imagery used in the Licensed Programs, where any of the above
are available.
"RIGHTS" means subject to clauses 2, 4 and 5, the right to:
(a) subject to clause 10.2 (a) and Co), use the name of the Licensor on
the Product;
(b) use the name of the Licensed Programs, being "BEYOND 2000" on the
Product;
(c) use any or all of the rights in the Works, being copyright and
other intellectual property rights, for the sole purpose of
creating the Product derived from or incorporating in whole or part
the Works including without limitation, the right to:
3
<PAGE>
(i) copy the Works or any part thereof for incorporation in the
Product;
(ii) reproduce the Works or any part thereof for incorporation in
the Product;
(iii) make sound recordings of the Works or any part thereof for
incorporation in the Product;
(iv) publish the Works or any part thereof on CD-ROM, CDI, CD-
Cartridge, computer disc and magnetic medium;
(v) adapt the Works or any part thereof onto CD-ROM, CDI, CD-
Cartridge, computer disc and magnetic medium;
(d) print and publish the Works or any part thereof in teaching or
operational manuals or promotional material relating to the Product
for the purpose of marketing the Product; and
(e) make, sell, market and distribute the Product.
2. GRANT OF RIGHTS
2.1 Subject to clause 5, in consideration of the Licence Fee and subject to
due compliance by the Licensee of its obligations under this Agreement,
the Licensor grants to the Licensee a licence in the Territory to the
Rights for the Licence Period.
2.2 All other rights in relation to the Licensed Programs are reserved to
Licensor.
3. PAYMENTS
3.1 In consideration of the grant to Licensee of the Rights, Licensee shall
pay to Licensor the Licence Fee equal to CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
% of the Gross Receipts for OEM and bundle deals and CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION % of Gross Receipts or AUD $ CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION per unit per title for the first CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION from the Release Date, AUD $ CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION per unit per title for the immediately following
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION period from the Release Date and AUD
$ CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION per unit per title after the
expiration of CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION from the Release Date, whichever
is the greater. All Licence Fees shall be paid in Australian Dollars to
the Licensor at the address specified herein above. The Licensee shall
have the right to distribute without charge, on a Licence Fee free basis
and not for resale, a limited number of promotional and demonstration
4
<PAGE>
copies of the Product, the number of which shall not exceed CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION % of the Product distributed by the Licensee
hereunder during the accounting period hereof unless written consent is
obtained from the Licensor to exceed the CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
% specified above. In the event of the Licensee developing a product of
a similar nature to the Product, based on a television series, where the
license fee paid by the Licensee to the licensor of the other product is
more favourable than the License Fee payable to the Licensor for the
Product, then the Licensee shall pay to the Licensor the License Fee
equal to the license fee payable on the other product.
3.2 The Licence Fees shall be paid to the Licensor by cheque in respect of
each quarter ending on 31 March, 30 June, 30 September and 31 December
of each year within 15 days of the end of each quarter.
3.3 The Licensee agrees to keep all usual and proper records and books of
account relating to the sale of the Product. The Licensee will deliver
to the Licensor, when it remits the Licence Fee, written statements
certified by a duly authorised officer of the Licensee showing the sales
of the relevant items of the Product on a country by country basis and a
computation of the Licence Fee accruing.
3.4 The Licensee will keep such records and books of account at its
principal office and the Licensor will have the right, in addition to
the receipt of the figures set out in clause 3.3, during business hours
upon at least seven days notice to examine such records and books of
account, to cause the same to be examined and audited by a firm of
chartered accountants nominated in writing by the Licensor. The cost of
any such audit will be paid by the Licensor unless such examination
discloses errors exceeding CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION % of the amount
payable to the Licensor during the period being audited, then the costs
shall be borne by the Licensee.
3.5 Licensee shall be entitled to a credit equal to the License Fees
previously paid by Licensee for Licensed Materials returned to Licensee
by Licensee's customers.
3.6 Where required by law the Licensee shall be entitled to deduct any
withholding tax from the License Fees and shall advise the Licensor of
the amount and particulars of any deduction in order that the Licensor
may apply for any applicable foreign tax credit.
4. OBLIGATIONS OF LICENSEE
During the terms of this Agreement the Licensee shall:
4.1 ensure that the Product shall be of a high quality based on current
comparable products available in the marketplace;
4.2 actively solicit, negotiate and conclude agreements for the distribution
and sale of the Product throughout the Territory for the optimum benefit
of the Licensor and Licensee;
4.3 promptly advise the Licensor of any litigation or arbitration or threat
of litigation or arbitrator
5
<PAGE>
which may involve the Licensed Programs or Product;
4.4 keep the Licensor advised of the progress of any litigation or
arbitration involving the License, Programs or Product;
4.5 for the purposes of this clause, provide at the request of the Licensor
copies of any documents or other material including legal advice in
relation to such litigation or arbitration;
4.6 if the Licensee becomes aware that any third party infringes or attempts
to infringe any rights acquired by the Licensee under this Agreement,
promptly inform the Licensor of such infringement;
4.7 not hold itself out or engage in any conduct or make any representation
which may suggest to any person that the Licensee is for any purposes
the agent of the Licensor, not sell or offer to sell or licence the
Rights to any other party; and
4.8 obtain all approvals, consents and classifications required by any
Federal or State legislation;
4.9 unless otherwise advised by the Licensor, at intervals which shall be
determined and agreed to jointly by the Licensor and Licensee, provide
to the Licensor for comment and approval which shall not be unreasonably
withheld, reasonableness of the Product to be determined based on
current comparable products in the marketplace at the same retail
selling price, the Product in its current stage of production. The
Licensor agrees to provide all comments, required amendments (if any) or
the Licensor's approval to the Licensee in writing within 5 working days
of receiving the Product and in this regard time shall be of the
essence. If the Licensee has not received any response from the Licensor
within the 5 working days then it shall be deemed that the Licensor has
approved the Product in its current stage of Production;
4.10 the Licensor shall not request amendments to the stages of production of
the Product for which the Licensor has previously granted approval;
4.11 produce at least CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION titles within CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION months from 1 January 1995 and CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION titles each CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION month
period thereafter;
4.12 obtain the Licensor's approval which shall not be unreasonably withheld,
for the use of the Beyond 2000 name and logo for promotion and sale of
the Product only world-wide subject to the Licensee entering into a
standard form of registered user agreement which shall be forwarded to
the Licensee for execution as soon as possible following execution of
this Agreement;
4.13 keep the Licensor informed about whom the Licensee is considering
appointing as distributors of the Product in the various territories
around the world and the Licensee will offer in writing to the Licensor
the last right to match each highest offer (Best Offer) received by the
Licensee from distributors who wish to distribute the Product in each
territory around the world. The
6
<PAGE>
Licensor will have ten working days to match each Best Offer per
territory, in writing, for those territories in which the Licensor
wishes to distribute or arrange distribution of the Product. If the
Licensee has not received acceptance of the Best Offer from the Licensor
within the specified 10 working day period then it shall be deemed that
the Licensor does not wish to exercise its last right to match option in
the territory and the Licensee may appoint a distributor for the Product
in the territory;
4.14 notify the Licensor in writing within 7 days if the Licensee decides to
develop any other product that may be deemed to be a competitive product
to the Product;
5. PROHIBITED USES
5.1 Licensee agrees that, notwithstanding clause 2 of this agreement, it
shall not have rights in respect of any material in the Works which is
specifically identified by the Licensor during the term of this
Agreement as being material for which the Licensor does not own the
copyright for incorporation in the Product UNLESS the Licensee obtains
at its cost permission to use such material from the owners of the
copyright for the material.
6. COPYRIGHT
6.1 Licensee acknowledges that all copyright in the Licensed Programs
remains the property of the Licensor.
6.2 The parties agree that the copyright in the Product will be owned
jointly by the Licensor and the Licensee on the following basis:
(a) the Licensor owns the copyright for the subject matter and material
content of the Product;
(b) the Licensee owns the copyright for the source code, database and
computer programs of the Product.
7. CONFIDENTIALITY
7.1 The parties agree as separate warranties that each of them will keep
entirely secret and confidential the terms of this Agreement (except to
their respective professional advisers or as required by law) and all
information of a secret or confidential or proprietary nature concerning
the business or affairs of the other which may come into their knowledge
as a result of performance of their obligations under this Agreement.
7.2 Each party undertakes to the other that it will not make any use of such
information or enable any other person to make any use of the
information without the prior written consent of the other party.
8. NON ASSIGNMENT
8.1 This Agreement is particular to the License and neither it nor any of
the Rights may be assigned or sub-licensed or otherwise disposed of by
Licensee to any person except in accordance with the terms of this
Agreement.
7
<PAGE>
8.2 The Licensee may assign the Agreement if such assignment occurs upon the
transfer and or sale of the business or any part of the business of the
Licensee PROVIDED THAT the Licensor is satisfied that the assignee is of
sound financial standing.
8.3 The Licensor may assign the rights pursuant to this Agreement.
9. TERMINATION
9.1 Licensor may immediately terminate this Agreement by written notice to
Licensee if:
(a) Subject to clause 8.2, Licensee has an execution levied against it
or a petition for winding up presented or passes a resolution for
winding up or has an official manager appointed or has a receiver
or a receiver and manager of the whole or any part of its property
or undertaking appointed or is a party to or attempts to enter into
any composition or arrangement with its creditors or becomes
insolvent or bankrupt; or
(b) Licensee breaches this Agreement and in the case of a breach which
is capable of remedy fails to remedy that breach within
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION of notice requiring the breach
to be remedied; or
(c) Licensee fails to make the payment required under clause 3 of this
Agreement within CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION of
notice being served on it, being acknowledged by the parties that
time is of the essence in this regard.
9.2 Licensee agrees to indemnify Licensor on demand from and against all
costs and expenses, losses, damages, claims, demands, suits, proceedings
or actions which may be threatened or made against Licensor as a direct
or indirect consequence of any act or default by or on behalf of
Licensee or of any breach by Licensee of any of the terms of this
Agreement.
9.3 Upon termination or expiration of this Agreement, Licensee shall,
subject to clause 9.4, return to Licensor any copies of any Licensed
Programs in its possession.
9.4 Licensee shall have the right to continue to sell in the normal course
of business for a period of twelve months following the expiration of
the term of the Agreement such Products as are produced at time of
expiration provided that:
(a) at the time of such expiration the Licensee delivers to the
Licensor a written and verified inventory of such Products
itemising the sale of Products throughout the Licence Period; and
(b) the Licensee continues to pay the Licence Fee as herein provided.
9.5 Upon expiration of the Licence Period whether by effluxion of time or
otherwise, all rights herein granted by the Licensor to the Licensee
shall revert forthwith to the Licensor free and clear of any claim.
10. REPRESENTATIONS AND OBLIGATIONS
8
<PAGE>
10.1 Licensor warrants that:
(a) it is the owner of the Rights;
(b) it is authorised to enter into this Agreement and to grant the
Rights to Licensee;
(c) no third party has any encumbrance, been granted rights of use,
been granted any option to purchase or taken a licence, of the
Rights;
(d) no third party has given notice of any challenge to the rights in
respect of the Works or brought an action against it in respect of
the whole or part of the Works; and
(e) the Rights have not been assigned or purported to be assigned to
any third party.
10.2 Licensee hereby warrants and represents:
(a) that it shall not use Licensor's name, trade marks or logo or
incorporate any reference to Licensor on any promotional material
without Licensor's approval; and
(b) that credits will be given to Licensor in the Product and any
operational manuals and promotional material, in a form to be
approved by Licensor.
10.3 The Licensor shall:
(a) indemnify the Licensee on demand from and against all costs and
expenses, losses, damages, claims, demands, permits, proceedings or
actions which may be threatened or made against the Licensee in
respect of the whole or part of the Works;
(b) if the Licensor becomes aware that any third party infringes or
attempts to any rights acquired by the Licensee under this
Agreement, promptly inform the Licensee of such infringement;
(c) execute and deliver such further documents, at the expense of the
Licensee, as the Licensee may reasonably require to give effect to
the terms and conditions of this Agreement.
(d) The Licensor shall notify the Licensee in writing of new updates,
revisions and new volumes as they become available and on the
request of the Licensee the Licensor shall provide Licensee with
all updates, revisions and/or new volumes of the Licensed
Materials.
11. COSTS
11.1 Each party shall bear its own costs in connection with the
preparation, negotiation and finalisation of this Agreement.
12. NOTICE
12.1 Any notices to be given hereunder shall be in writing and shall be
signed for or on behalf of the
9
<PAGE>
party giving such notice and shall be given to the party at the address
set alongside that party's name at the commencement of this Agreement
(or such other address as the party may hereafter nominate by notice in
writing to the other parties) or at such telex or facsimile number as a
party may hereafter nominate by notice in writing to the other parties
and shall be deemed to be give or served
(a) where sent by post: two days - after the date of posting;
(b) where sent by telex: on receipt by the sender of the answerback
code of the recipient;
(c) where sent by facsimile: on the same day as despatched, provided
that a confirmation copy is posted;
(d) where delivered personally: on the date of actual delivery; (e)
where sent by courier: on day after despatch.
10
<PAGE>
Executed as an Agreement.
SIGNED for and on behalf of BEYOND PROPERTIES PTY LTD A.C.N. No: 002 861 458
/s/ M. Borglund
- -----------------------------------
Print Name: M. Borglund
-----------------------
Position: Managing Director
-------------------------
in the presence of:
Witness: /s/ John Dawkes
--------------------------
(Print Name): John Dawkes
---------------------
SIGNED for and on behalf of BRILLIANT INTERACTIVE IDEAS PTY LTD A.C.N. 061 228
668
/s/ Mark Miller
- -----------------------------------
Print Name: Mark Miller
-----------------------
Position: Managing Director
-------------------------
in the presence of:
Witness: /s/ Anne Hayek
--------------------------
(Print Name): Anne Hayek
---------------------
11
<PAGE>
EXHIBIT 10.27
BRILLIANT INTERACTIVE, INC.
PROMISSORY NOTE
---------------
U.S. $150,000.00 September 10, 1996
Subject to the terms and conditions of this promissory note (the "Note"),
Brilliant Interactive, Inc., a Delaware corporation (the "Company"), for value
received, promises to pay to the order of Reefknot Ltd., a company formed under
the laws of Ireland, or its registered assigns (the "Noteholder"), whose address
is set forth in Section 8.3 below, the principal amount of ONE HUNDRED AND FIFTY
THOUSAND DOLLARS plus simple interest on the unpaid principal balance from the
date hereof at the rate of ten percent (10%) per annum. Such principal amount
plus all accrued but previously unpaid interest will be due and payable on the
first to occur of (i) the closing of an underwritten initial public offering of
the Common Stock of the Company, and (ii) the first anniversary of the Note
Date.
Principal and interest payable hereunder shall be paid to the Noteholder in
lawful money of the United States of America by wire transfer to such bank
account or at such other address or location as shall be specified by the
Noteholder.
The following is a statement of the rights of the Noteholder and the terms
and conditions to which this Note is subject; and to which the Company and the
Noteholder, by the acceptance of this Note, agree.
1. Events of Default. If any of the following events shall occur and be
-----------------
continuing (each individually referred to as an "Event of Default"), the
Noteholder may declare the entire unpaid principal and accrued interest on this
Note immediately due and payable, without any other presentment, demand, protest
or other notice of any kind or character, all of which are hereby expressly
waived; provided, however, that with respect to the Events of Default described
--------- -------
in Sections 1.a and 1.b below, the unpaid principal and accrued interest on this
Note shall automatically become immediately due and payable, without
presentment, demand, protest or other requirements of any kind, all of which are
hereby expressly waived by the Company;
a. Principal or Interest. (a) Any default in the payment of any part
---------------------
of the interest of this Note shall occur and such default shall be continuing
uncured or unwaived for 30 days after the Noteholder has given the Company
written notice thereof or (b) the Company's failure to observe any covenant or
other provision contained in this Note or the Agreement and such failure of
observation shall be continuing uncured or unwaived for 30 days after the
Noteholder has given the Company written notice thereof;
<PAGE>
b. Involuntary Bankruptcy. Within 180 days after the commencement of
----------------------
an action against the Company seeking any bankruptcy, insolvency,
reorganization, liquidation, dissolution or similar relief under any statute,
law or regulation, such action shall not have been dismissed or all orders or
proceedings thereunder affecting the operations or the business of the Company
stayed, or the stay of any such order or proceeding shall thereafter be set
aside, or within 180 days after the appointment without the consent or
acquiescence of the Company of any trustee, receiver or liquidator of the
Company or of all or any substantial part of the properties of the Company, such
appointment shall not have been vacated; or
c. Voluntary Bankruptcy. The Company shall have commenced a voluntary
--------------------
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or shall have consented to the entry of an order for relief
in an involuntary case under any such law, or shall have consented to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian or similar official, of the Company or for any substantial
part of its property, or shall have made any general assignment for the benefit
of creditors, or shall have failed generally to pay its debts as they become due
or shall have admitted in writing its inability to pay its debts generally as
they become due, or shall have taken any corporate action in furtherance of any
of the foregoing.
2. Remedies. If any Events of Default shall have occurred and be
--------
continuing, the Noteholder may proceed to protect and enforce its rights under
this Note by an action in law, suit in equity or other appropriate proceeding,
whether for specific performance of any agreement contained in this Note or in
the Agreement or for an injunction against a violation of any terms of this Note
or of the Agreement or in aid of the exercise of any power granted by this Note,
the Agreement or by law. In case any action is brought arising from a breach of
any provision of this Note, the non-prevailing party shall pay to the prevailing
party all of the prevailing party's fees and expenses, including without
limitation reasonable attorneys' fees, relating to such action. No course of
dealing and no delay on the part of the Noteholder in exercising any right shall
operate as a waiver thereof or otherwise prejudice the Noteholder's rights,
powers or remedies. No right, power or remedy conferred by this Note or by the
Agreement upon the Noteholder shall be exclusive of any right, power or remedy
referred to in this Note or the Agreement, or now or hereafter available at law,
in equity, by statute or otherwise.
3. Governing Law. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
-------------
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO AGREEMENTS
BETWEEN CALIFORNIA RESIDENTS ENTERED INTO AND TO BE PERFORMED ENTIRELY WITHIN
CALIFORNIA.
4. Notices. Except as otherwise provided herein, all communications
-------
hereunder shall be in writing or by either telecopier or telegraph and, if to
the Company, shall be mailed, telecopied or telegraphed or delivered to
Brilliant Interactive, Inc., c/o Murray Markiles, Esq., Troop Melsinger Steuber
& Pasich, LLP, 10940 Wilshire Blvd., Los Angeles CA 90024
<PAGE>
(telecopier: (310) 443-8601); and if to the Noteholder, shall be mailed,
telecopied, telegraphed or delivered to Reefknot Limited, One Stokes Place, St.
Stephens Green, Dublin 2, Republic of Ireland. All notices given by telecopy or
telegraph shall be promptly confirmed by letter. Any party hereto may by notice
so given change its address for future notice hereunder.
5. Miscellaneous.
-------------
a. In case any provision of this Note shall be invalid, illegal or
unenforceable, it shall, to the extent practicable, be modified so as to make it
valid, legal and enforceable and to retain as nearly as practicable, the intent
of the parties, and the validity, legality and enforceability of the remaining
provisions of this Note shall not in any way be affected or impaired thereby.
b. Any provision of this Note may be amended, waived or modified upon
the written consent of the transferee, successor or assign of the Noteholder. If
this Note is lost, stolen, mutilated or destroyed, the Company shall, on such
terms as to indemnity or otherwise as it may reasonably impose (which shall, in
the case of a mutilated Note, include the surrender and cancellation thereof),
issue a new Note of like denomination and tenor as the Note so lost, stolen,
mutilated or destroyed.
c. This Note constitutes the full and entire understanding and
agreement between the parties with respect to the subjects hereof and thereof.
IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the
date first written above.
Brilliant Interactive, Inc.
By: /s/ Mark Miller
-------------------------
Its: DIRECTOR
------------------------
<PAGE>
EXHIBIT 10.28
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of this _____ day
of _____, 1996, by and between BRILLIANT DIGITAL ENTERTAINMENT, INC., a Delaware
corporation (the "Company"), and __________________ ("Indemnitee").
RECITALS
A. The Company and Indemnitee recognize the increasing difficulty in
obtaining liability insurance for directors, officers, employees and agents, the
significant increases in the cost of such insurance and the general reductions
in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
and agents to expensive litigation risk at the same time that the availability
and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employers and agents of the Company may not be willing to continue to
serve as directors, officers, employees and agents without additional
protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as directors, officers,
employees and agents of the Company and to indemnify its directors, officers,
employees and agents so as to provide them with the maximum protection permitted
by law.
AGREEMENT
The Company and Indemnitee hereby agree as follows:
1. AGREEMENT TO SERVE. Indemnitee agrees to serve and/or continue to
serve the Company, at the Company's will (or under separate written agreement
approved by the Board of Directors of the Company, if such agreement exists), in
the capacity Indemnitee currently serves the Company, as long as Indemnitee is
duly appointed or elected and qualified in accordance with the applicable
provisions of the Bylaws of the Company or any subsidiary of the Company or
(subject to any employment agreement between Indemnitee and the Company) until
such time as Indemnitee tenders a written resignation or is removed in
accordance with the Bylaws; provided, however, that nothing contained in this
-------- -------
Agreement is intended to or shall create any right (express or implied) to
continued employment by Indemnitee.
<PAGE>
2. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while a
director, officer, employee or agent, or by reason of the fact that Indemnitee
is or was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including, without limitation, attorneys' fees,
disbursements and retainers, accounting and witness fees, travel and deposition
costs, and expenses of investigations), judgments, fines and amounts paid in
settlement (if such settlement is approved in advance by the Company) actually
and reasonably incurred by Indemnitee in connection with such action, suit or
proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
---- ----------
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Company or any subsidiary of the Company to procure a judgment in
its favor by reason of the fact that Indemnitee is or was a director, officer,
employee or agent of the Company, or any subsidiary of the Company, by reason of
any action or inaction on the part of Indemnitee while a director, officer,
employee or agent, or by reason of the fact that Indemnitee is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including, without limitation, attorneys' fees, disbursements and
retainers, accounting and witness fees, travel and deposition costs, and
expenses of investigations) and, to the fullest extent permitted by law, amounts
paid in settlement, in each case to the extent actually and reasonably incurred
by Indemnitee in connection with the defense or settlement of such action or
suit (i) if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company and its
stockholders, except that no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company in the performance of Indemnitee's duty to the Company and
its stockholders unless and only to the extent that the court in which such
action or suit is or was pending shall determine upon application that, in view
of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for expenses and then only to the extent
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that the court shall determine; (ii) if Indemnitee is a director, to the extent
that the action or contemplated action seeks monetary damages for breach of
Indemnitee's duties to the Company and its stockholders in circumstances under
which Indemnitee's personal liability therefor has been eliminated as a result
of the provisions of Section 102(b)(7) of the Delaware General Corporation Law;
or (iii) if Indemnitee is an agent other than a director, to the extent that,
were Indemnitee a director, Indemnitee would have the right to be indemnified
under Section 2(b)(ii), above; and in the case of Section 2(b)(ii) and 2(b)(iii)
above, indemnification shall include, to the extent not prohibited by law,
indemnification against all judgments, fines and amounts paid in settlement
actually and reasonably incurred by Indemnitee in connection with such action,
suit or proceeding.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Subsection (a) or (b) of this Section 2 or in defense
of any claim, issue or matter therein, Indemnitee shall be indemnified against
expenses (including, without limitation, attorneys' fees, disbursements and
retainers, accounting and witness fees, travel and deposition costs, and
expenses of investigations) actually and reasonably incurred by Indemnitee in
connection therewith.
(d) INDEMNIFICATION FOR SERVING AS A WITNESS. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee is, by reason
of Indemnitee's status as a director, officer, employee or agent of the Company,
a witness in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, Indemnitee shall be indemnified against
expenses actually and reasonably incurred by Indemnitee in connection therewith.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all reasonable
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil, criminal, administrative or investigative
action, suit or proceeding referenced in Section 2(a) or (b) hereof (but not
amounts actually paid in settlement of any such action, suit or proceeding).
Indemnitee hereby undertakes to repay such amounts advanced only if, and to the
extent that, it shall ultimately be determined that Indemnitee is not entitled
to be indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to Indemnitee within 45 days following
delivery of a written request therefor by Indemnitee to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Company notice, in accordance with Section 14 hereof, of any claim made
against Indemnitee for which indemnifi cation will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company. In addition, Indemnitee shall give the Company
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<PAGE>
such information and cooperation as it may reasonably require and as shall be
within Indemnitee's power.
(c) PROCEDURE. Any indemnification and advances provided for in
Section 2 and this Section 3 shall be made no later than 45 days after receipt
of the written request of Indemnitee. If a claim under this Agreement, under any
statute, or under any provision of the Company's Certificate of Incorporation or
Bylaws providing for indemnification, is not paid in full by the Company within
45 days after a written request for payment thereof has first been received by
the Company, Indemnitee may, but need not, at any time thereafter bring an
action against the Company to recover the unpaid amount of the claim and,
subject to Section 13 of this Agreement, Indemnitee shall also be entitled to be
paid for the expenses (including attorneys' fees) of bringing such action. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in connection with any action, suit or proceeding in
advance of its final disposition) that Indemnitee has not met the standards of
conduct which make it permissible under applicable law for the Company to
indemnify Indemnitee. Indemnitee shall be entitled to receive interim payments
of expenses pursuant to Section 3(a) unless and until such defense may be
finally adjudicated by court order or judgment from which no further right of
appeal exists. It is the intention of the parties that if the Company contests
Indemnitee's right to indemnification, the question of Indemnitee's right to
indemnification shall be for the court to decide, and neither the failure of the
Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, independent legal counsel, or its stockholders) to have made
a determination that indemnification of Indemnitee is proper in the
circumstances because Indemnitee has met the applicable standard of conduct
required by applicable law, nor an actual determination by the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) that Indemnitee has
not met such applicable standard of conduct, shall create a presumption that
Indemnitee has or has not met the applicable standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be obligated
under Section 3(a) hereof to pay the expenses of any proceedings against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, upon the delivery to
Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ separate counsel in any
4
<PAGE>
such proceeding at Indemnitee's expense; and (ii) if (A) the employment of
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not, in fact, have employed counsel to assume the
defense of such proceeding, then the fees and expenses of Indemnitee's counsel
shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this Agreement, the
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any change
in any applicable law, statute or rule which narrows the right of a Delaware
corporation to indemnify a member of its board of directors or its officers,
employees or agents, such change, to the extent not otherwise required by such
law, statute or rule to be applied to this Agreement, shall have no effect on
this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested Directors, the Corporation Law of the
State of Delaware or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity even
though he may have ceased to serve in such capacity at the time of any action,
suit or other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred by him
in the investigation, defense, appeal or settlement of any civil or criminal
action, suit or proceeding, but not, however, for the total amount thereof, the
Company shall nevertheless indemnify Indemnitee for the portion of such
expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees and/or agents
under this Agreement or other wise. Indemnitee understands and acknowledges that
the Company has undertaken or may be required in the future to undertake with
the Securities and Exchange Commission to submit the question of indemnification
to a court in certain circumstances for a determination of the Company's right
under public policy to indemnify Indemnitee.
5
<PAGE>
7. LIABILITY INSURANCE. The Company shall, from time to time, make the
good faith determination whether or not it is practicable for the Company to
obtain and maintain a policy or policies of insurance with reputable insurance
companies providing the directors, officers, employees and agents of the Company
with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all such policies
of liability insurance, Indemnitee shall be named as an insured in such a manner
as to provide Indemnitee the same rights and benefits as are accorded to the
most favorably insured of the Company's directors, if Indemnitee is a director;
or of the Company's officers, if Indemnitee is not an director of the Company
but is an officer; or of the Company's employees, if Indemnitee is not a
director or officer but is an employee; or of the Company's agents, if
Indemnitee is not a director, officer or employee but is an agent.
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain such insurance if the Company determines in good faith that such
insurance is not reasonably available, if the premium costs for such insurance
are dispro portionate to the amount of coverage provided, if the coverage
provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or if Indemnitee is covered by similar insurance
maintained by a subsidiary or parent of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or otherwise as required under Section 145
of the Delaware General Corporation Law, but such indemnification or advancement
of expenses may be provided by the Company in specific cases if the Board of
Directors has approved the initiation or bringing of such suit;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material
6
<PAGE>
assertions made by the Indemnitee in such proceeding was not made in good faith
or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance or other policy of insurance
maintained by the Company;
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute;
(e) UNLAWFUL CLAIMS. To indemnify Indemnitee in any manner which is
contrary to public policy or which a court of competent jurisdiction has finally
determined to be unlawful;
(f) FAILURE TO SETTLE PROCEEDING. To indemnify Indemnitee for
liabilities in excess of the total amount at which settlement reasonably could
have been made, or for any cost and/or expenses incurred by Indemnitee following
the time such settlement reasonably could have been effected, if Indemnitee
shall have unreasonably delayed, refused or failed to enter into a settlement of
any action, suit or proceeding (or investigation or appeal thereof) recommended
in good faith, in writing, by the Company; or
(g) BREACH OF EMPLOYMENT AGREEMENT. To indemnify Indemnitee for any
breach by Indemnitee of any employment agreement between Indemnitee and the
Company or any of its subsidiaries.
10. CONSTRUCTION OF CERTAIN PHRASES.
For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees and/or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on
7
<PAGE>
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee or agent of the Company or any subsidiary of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
opposed to the best interest of the Company" as referred to in this Agreement.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, Indemnitee shall be entitled to be
paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
14. NOTICE. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California,
or in Federal courts located in such State.
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16. CHOICE OF LAW. This Agreement shall be governed by and its provisions
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
BRILLIANT DIGITAL ENTERTAINMENT, INC.
a Delaware corporation, as the Company
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Notice Address:
Brilliant Digital Entertainment, Inc.
6355 Topanga Canyon Boulevard, Suite 513
Woodland Hills, California 91367
AGREED TO AND ACCEPTED:
INDEMNITEE:
- ------------------------
- ------------------------
Notice Address:
- ------------------------
- ------------------------
- ------------------------
9
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EXHIBIT 10.29
EMPLOYEE CONFIDENTIAL INFORMATION
AND NON-SOLICITATION AGREEMENT
This Employee Confidential Information and Non-Solicitation Agreement (the
"Agreement") is made and entered into as of the _____ day of ______________, by
and between Brilliant Digital Entertainment, Inc., a Delaware corporation (the
"Company") and ____________ ("Employee").
RECITALS
A. The Company is engaged in the business of developing, marketing and
distributing interactive multimedia computer software and digital animated
entertainment.
B. Employee is an employee of the Company and, in connection with his or
her employment, has been and/or will be exposed to Confidential Information (as
defined below) and may participate in the development and/or sales and marketing
activities of the Company referred to in Recital "A" above, in addition to many
other confidential aspects of the Company's business.
C. Employee has received and, will, in the course of Employee's
employment with the Company continue to receive, training with respect to and
acquire personal knowledge of the Company's products, plans and business
relationships with customers and potential customers.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing facts and the covenants
hereinafter set forth, and in consideration of the Employee's employment or the
continuation of Employee's employment, the Company and Employee agree as
follows:
1. Definitions.
-----------
For the purpose of this Agreement, the following terms have the
following definitions:
(a) "Confidential Information" means all information of any kind, type
or nature (written, stored on magnetic or other media or oral) which at any time
during the employment of Employee by the Company is or has been compiled,
prepared, devised, developed, designed, discovered or otherwise learned of by
Employee to the extent that such information relates to the Company or any of
its affiliated entities including, without limitation, all of the Company's
price lists, pricing information, customer lists, customer information,
financial information, trade secrets, formulas, patterns, compilations, devices,
methods, techniques, processes, confidential trade knowledge and computer
programs and information; provided,
<PAGE>
however, that any such information which is generally known to the public or
which may be obtained by a reasonably diligent businessman without material cost
or effort from trade publications or other readily available and public sources
of information shall not be deemed to be Confidential Information, unless such
information was first published in breach or violation of this Agreement or any
similar confidentiality agreement.
(b) "Person" means any individual, corporation, partnership, limited
liability company, trust, government or regulatory authority, or other entity.
2. Condition to Employment; At Will Nature of Employment.
-----------------------------------------------------
As a condition to employing and/or continuing to employ Employee, the
Company has required Employee to enter into this Agreement and Employee's
performance of all of his or her obligations under this Agreement is a condition
to Employee's continued employment with the Company. Nothing in this Agreement,
however, shall be construed as obligating the Company to continue to employ
Employee. Employee acknowledges and agrees that Employee's employment by the
Company is not for any specific term and may be terminated by Employee or the
Company at any time, with or without cause, for any reason, and with or without
notice.
3. Confidentiality.
---------------
(a) Employee shall not, at any time from and after the date hereof and
throughout perpetuity, directly or indirectly, disclose, reveal or permit access
to all or any portion of the Confidential Information, or any tangible
expressions or embodiments thereof (including any facilities, apparatus or
equipment which embody or employ all or any portion of the Confidential
Information), to any Person without the written consent of the Company, except
to Persons designated or employed by the Company.
(b) Without the prior written consent of the Company, Employee shall
not, directly or indirectly, use or exploit the Confidential Information at any
time from and after the date hereof and throughout perpetuity for any purpose
other than in connection with his or her employment duties and obligations to
the Company, and any gain or profit of any kind or nature obtained or derived by
Employee or to which Employee may become entitled, directly or indirectly, at
any time as a result of the disclosure of use of all or any part of the
Confidential Information in violation of the provisions of this Agreement shall
be held in trust by Employee for the express benefit of the Company and shall be
remitted thereby to the Company on demand.
(c) Employee acknowledges and agrees that the uses of Confidential
Information specifically prohibited hereunder include, without limitation, the
following:
(i) Using any Confidential Information to induce or attempt to
induce any Person, who is either a customer of the Company or who was being
actively solicited by the Company at any time during which Employee is or was
employed by the Company, to cease doing business or not to commence doing
business in whole or in part with the Company; or
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(ii) Using any Confidential Information to solicit or assist in
the solicitation of the business of any customer for any products or services
competing with those products and services offered and sold by the Company at
any time during which Employee is employed by the Company.
4. Disclosure and Assignment of Rights.
-----------------------------------
(a) Employee shall disclose in writing to the Company full and
complete details respecting any Confidential Information devised, developed,
designed or discovered by Employee while in the employ of the Company. Such
disclosure shall be made promptly upon such development, design or discovery,
and shall be disclosed in writing pursuant to the form attached as Exhibit "A"
to this Agreement, or such other form as the Company may from time to time
provide.
(b) Employee agrees to assign and does hereby irrevocably assign to
the Company all of his or her right, title and interest in and to any
Confidential Information devised, developed, designed or discovered by him or
her or in which he or she may otherwise obtain, or has otherwise obtained, any
rights, while in the employ of the Company. Employee agrees to take any actions,
including the execution of documents or instruments, which the Company may
reasonably require to effect the Employee's assignment of rights pursuant to
this Paragraph 4(b), and Employee hereby constitutes and appoints, with full
power of substitution and resubstitution, the President of the Company as his or
her attorney-in-fact to execute and deliver any documents or instruments which
Employee is obligated to execute and deliver pursuant to this Paragraph 4(b).
(c) Employee shall promptly notify the Company of any patent relating
to any portion of the Confidential Information which is applied for by, or
issued to, Employee ("Patent"). Such notice shall be in writing on the form
attached as Exhibit "B" to this Agreement, or on such other form as the Company
may from time to time provide. On the written request of the Company, Employee
shall sell to the Company, and the Company shall purchase from Employee, all
right, title and interest of Employee in and to any Patent, whether or not
Employee is employed by the Company at the time the Patent issues. The purchase
price for any Patent shall be $1, and shall be paid by the Company at the time
it makes the written request to purchase the Patent. Employee agrees to execute
any and all documents and instruments necessary to evidence and effect the
transfer to the Company of all right, title and interest of Employee in and to
the Patent.
(d) At the request of the Company, Employee shall assist the Company
in applying for and obtaining both domestic and foreign patents, or copyrights,
as the case may be, on all Confidential Information that the Company deems to be
patentable or copyrightable devised, developed, designed or discovered by
Employee or in which he or she may otherwise obtain, or has otherwise obtained,
any rights, while in the employ of the Company, and Employee shall execute at
any time or times any and all documents and perform all acts reasonably
requested by the Company which the Company deems to be necessary or desirable in
order to
3
<PAGE>
obtain such patents or copyrights or otherwise to vest in the Company full and
exclusive title and interest in and to all such Confidential Information, to
protect the same against infringement by others and otherwise to aid the Company
in connection with any continuations, renewals or reissues of any patents or
copyrights, or in the conduct of any proceedings or litigation in regard
thereto. All expenses of procuring any patent or copyright shall be born by the
Company.
5. Tangible Expressions of Confidential Information.
------------------------------------------------
(a) Without limiting the generality of any other provision of this
Agreement, Employee specifically acknowledges and agrees that all tangible
expressions of the Confidential Information, including, without limitation, all
documents, instruments, sketches, drawings, notes, records, plans,
specifications, manuals and tapes, and all reproductions, copies or facsimiles
thereof, have been developed, made or invented exclusively for the benefit of
and are the sole and exclusive property of the Company, it successors and
assigns and constitute "work for hire" under Section 201 of Title 17 of the
United States Code.
(b) Employee shall not remove any tangible expressions of the
Confidential Information from the premises of the Company.
(c) Upon either the written request of the Company, or upon
termination of the Employee's employment with the Company, Employee shall
deliver to the Company all tangible expressions of the Confidential Information
which are in the possession or under the control of Employee.
6. Certain Inventions of Employee.
------------------------------
Notwithstanding anything to the contrary herein, pursuant to Section
2870 of the California Labor Code, this Agreement does not apply to any
invention for which no equipment, supplies, facilities or trade secret
information of the Company was used and which was developed entirely on
Employee's own time, and (i) which does not relate at the time of conception or
reduction to practice of the invention either to the business of the Company or
to the Company's actual or demonstrably anticipated research or development, or
(ii) which does not result from any work performed by Employee for the Company.
7. Covenant Not to Solicit.
-----------------------
Employee covenants and agrees that for so long as he or she is
employed by the Company and for three years thereafter, Employee shall not hire,
solicit or cause to be solicited for employment by Employee or by any third
party any person who is as of the date of such solicitation or who was within
the 12-month period prior to the date of such solicitation an employee of the
Company or any subsidiary or affiliate of the Company.
8. Business Opportunities.
----------------------
4
<PAGE>
Employee covenants and agrees that for so long as he or she is
employed with the Company, he or she will not, without the prior written consent
of the Company (which consent may be withheld by the Company in the exercise of
its absolute discretion), engage, directly or indirectly, in any business,
venture or activity that Employee is aware or reasonably should be aware that
the Company or any affiliate of the Company is engaged in, intends at any time
to become engaged in, or might become engaged in if offered the opportunity, or
in any other business, venture or activity if the Company reasonably determines
that such activity would adversely affect the business of the Company or any
affiliate thereof or the performance by Employee of any of Employee's duties or
obligations to the Company. Employee further covenants and agrees that if he or
she ever engages in any such business, venture or activity in contravention of
this paragraph 8, all gross profits, compensation, rents and other income or
gain (computed without reduction for the value of the services performed by the
Company, if any) derived by Employee in connection therewith shall be held by
Employee for the benefit of the Company and the affiliates thereof, and shall be
remitted to the Company upon demand.
9. Notices.
-------
Any notice to the Company required or permitted hereunder shall be
given in writing to the Company, either by personal service, or by registered or
certified mail, postage prepaid, duly addressed to the Board of Directors of the
Company at its then principal place of business. Any such notice to the Employee
shall be given in a like manner, and, if mailed, shall be addressed to Employee
at his home address then shown in the files of the Company. For the purpose of
determining compliance with any time limit herein, a notice, if sent by mail,
shall be deemed given on the date it is so deposited in the United States mail.
10. Miscellaneous Provisions.
------------------------
(a) Injunctive Relief. Employee agrees that in the event of any
-----------------
breach by Employee of any of the covenants and agreements set forth in this
Agreement, including, without limitation, the covenants and agreements set forth
in Paragraphs 3,7 and 8 hereof, the Company would encounter extreme difficulty
in attempting to prove the actual amount of damages suffered by it as a result
of such breach and would not have adequate remedy at law in such event. Employee
therefore agrees that, in addition to any other remedy available at law or in
equity, in the event of such breach, the Company shall be entitled to seek and
receive specific performance and temporary, preliminary and permanent injunctive
relief from violation of any of said covenants and agreements from any court of
competent jurisdiction without necessity of proving the amount of any actual
damage to the Company resulting from such breach.
5
<PAGE>
(b) Successors and Assigns. This Agreement shall be binding on the
----------------------
parties hereto and their respective successors and assigns. Employee's duties,
obligations, rights and privileges hereunder may not be delegated or assigned by
him in any manner. The benefits hereunder with respect to the rights of the
Company may be assigned by the Company to any other corporation or other
business entity which succeeds to all or substantially all of the business of
the Company through merger, consolidation, corporate reorganization or by
acquisition of all or substantially all of the assets of the Company.
(c) Severability. If any provision of this Agreement is or becomes or
------------
is deemed invalid, illegal or unenforceable in any jurisdiction such provision
shall be deemed amended to conform to the applicable laws of such jurisdiction
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it will be stricken, but the
validity, legality and enforceability of such provision shall not in any way be
affected or impaired thereby in any other jurisdiction and the remainder of this
Agreement shall remain in full force and effect.
(d) Controlling Law. All of the provisions of this Agreement shall be
---------------
construed in accordance with the laws of the State of California as applied to
residents of that State entering into contracts to be performed solely within
such state.
(e) Waiver. Waiver by either of the parties of any breach of any
------
provision of this Agreement shall not operate or be construed as a waiver of any
prior or subsequent breach of the same or any other provision hereof.
(f) Survival of Employee's Obligations. The obligations of Employee
----------------------------------
hereunder shall survive the termination of Employee's employment with the
Company and the termination of this Agreement regardless of the reason or cause
for such termination.
(g) Attorneys' Fees. The prevailing party in any litigation
---------------
instituted under this Agreement shall, in addition to other remedies, be
entitled to be reimbursed by the other party for all expenses of such
litigation, including reasonable attorneys' fees.
(h) Notification of Subsequent Employer. The Company may, without
-----------------------------------
notifying Employee, notify any subsequent employer of Employee of the rights and
obligations of Employee under this Agreement.
(i) Inspection of Files. Employee acknowledges and agrees that any
-------------------
property situated on the Company's premises, including disks and other storage
media, filing cabinets or other work areas, is subject to inspection by Company
personnel at any time without notice.
6
<PAGE>
(j) Entire Agreement. This instrument contains the entire agreement
----------------
of the parties with respect to the subject matter hereto and into which all
prior agreements and negotiations are merged.
IN WITNESS WHEREOF, the parties hereto have entered into and executed this
Agreement of the date first above written.
"COMPANY"
Brilliant Digital Entertainment, Inc.
By:
-----------------------
Its:
-----------------------
"EMPLOYEE"
---------------------------
7
<PAGE>
NOTICE OF DISCOVERY
Pursuant to Paragraph 4(a) of that certain Employee Confidential
Information Agreement (the "Agreement") between Brilliant Digital Entertainment,
Inc. (the "Company") and myself, I hereby disclose full and complete details of
the following Confidential Information (as defined in Paragraph 1(a) of the
Agreement) (I have attached additional sheets if the space provided herein is
insufficient):
I agree to provide such further information regarding such Confidential
Information as may be requested by the Company.
(Name)
(Date)
8
<PAGE>
NOTICE OF PATENT
Pursuant to Paragraph 4(c) of that certain Employee Confidential
Information Agreement (the "Agreement") between Brilliant Digital Entertainment,
Inc. (the "Company") and myself, I hereby notify the Company that I have applied
for or obtained the following described Patent (as defined in Paragraph 4(c) of
the Agreement):
(i) Patent No.:
(ii) Date of Issuance:
(iii) General Description of Subject Matter of Patent:
I agree to provide such further information regarding such Patent as may be
requested by the Company.
(Name)
(Date)
9
<PAGE>
EXHIBIT 10.30
COMMERCIAL LEASE
SUITABLE FOR SHOPS, SHOP DWELLINGS, SMALL OFFICE
BUILDINGS AND FACTORIES WHERE THE TERM OF LEASE
(INCLUDING THE PERIOD OF ANY OPTION) DOES NOT EXCEED
THREE YEARS.
PUBLISHED BY THE REAL ESTATE INSTITUTE OF N.S.W.
THIS LEASE is made in duplicate on the day of 1994
at in the State of New South Wales.
PARTIES BETWEEN - HILROK PROPERTIES PTY. LIMITED
of 17 The Corso, Manly LANDLORD
whose agent is Not applicable AGENT
(Name and business address)
AND [Deleted] TENANT
(Name and address)
PETER DODDS of 10/51 Dee Why Parade, Dee Why
and SIMON VAN WYK of 9A Whistler Street, Manly
PREMISES The Landlord leases the Premises known as 1st Floor Offices above
the building located at 17 The Corso, Manly and having its entrance
from Market Lane
including all fixtures listed in the inventory which is signed by
all parties and attached as part of this lease.
USE The Premises shall be used only as an office to operate a multi
media development studio and related business
RENT The rent shall be two thousand six hundred dollars $2,600.00 per
month commencing on the 11th day of July, 1994 and payable in
advance by the Tenant on the 11th day of every month to the
Landlord at his above address or at any other reasonable place as
he notifies in writing.
TERM The term of the lease shall be one year
commencing on the 11th day of July, 1994
and ending on the 10th day of July, 1995
OPTION Subject to Condition 32 of this lease the Landlord offers a renewal
of this lease for a further term of 2 years.
HOLDING Unless either party gives the other written notice at least one
OVER month before the end of the term that vacant possession shall be
given on that day, the lease shall continue as a periodic lease
from month to month at the same rent or at a rent which both
parties agree to.
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<PAGE>
[Deleted]
INCREASES
[Deleted]
BASE YEARS
INSURANCE The amount of cover for public liability referred to in Condition
4(b) is $5,000,000.00
CONDITIONS The parties agree to the conditions set out above and on the
following pages and also to those conditions implied by Sections 84
and 85 of the Conveyancing Act, 1919, which are not expressly
negatived or modified by this lease.
NOTE
It is advisable for the Tenant to insure his own property and
insure against his liability for public risk as the occupier.
THE LANDLORD AGREES
Possession 1. To give possession of the Premises to the Tenant on the day on
Condition which the term of the lease commences.
of Premises 2. To ensure that the Premises are in a reasonably fit condition
Security for use at the commencement of the lease.
Insurance 3. To ensure that the external doors and windows contain locks and
catches in working order at the commencement of the lease.
4. (a) To insure the Premises against damage arising from fire,
lightning and explosion and other hazards, (including
earthquake, storm and tempest, water damage, explosion,
impact, aircraft, not s/civil commotions and malicious
damage).
(b) To insure for public liability covering all sums which he
shall become legally liable to pay as owner and Landlord
for a minimum amount as noted on the front page of this
lease.
Use of 5. To allow the Tenant to use and occupy the Premises without
Premises unreasonable interference by the Landlord or his agent.
Rates and 6. To pay council, water and sewage rates and land tax promptly.
Taxes 7. To provide the Tenant with a stamped copy of the lease signed
Lease Copy by both parties as soon as practicable.
Receipts 8. To issue rent receipts showing the Tenant's name, the address
of the Premises, the amount received, the date of payment and
the period for which the payment was made.
THE TENANT AGREES
Rent 9. To pay the rent promptly and in advance.
Consents 10. To obtain at his own expense all necessary consents that may be
for Use required from municipal or shire or other authorities to carry
Charges on his proposed business at the Premises (being the use for
which the Premises are leased).
11. To pay all charges for gas, electricity and telephone and any
excess water, garbage or sanitary charges, relating to the
Tenant's use of the Premises.
Care of 12. To take care of the Premises and to keep them in a clean
Premises condition, and in particular:
(a) To make no alterations or additions to the Premises,
including the erection of any sign or antenna, without the
written consent of the Landlord.
(b) To do no decorating that involves marking, defacing or
painting any part of the Premises, without the written
consent of the Landlord.
(c) To put nothing down any sink, toilet or drain likely to
cause obstruction or damage.
(d) To keep no animals or birds on the Premises, without the
written consent of the Landlord.
(e) To ensure that rubbish is not accumulated on the Premises
and to cause all trade refuse to be removed regularly in a
manner acceptable to the Landlord.
(f) To ensure that nothing is done that might prejudice any
insurance which the Landlord has in relation to the
Premises.
(g) To notify the Landlord promptly of any loss, damage or
defect in the Premises.
Use and (h) To notify the Landlord promptly of any infectious disease,
Occupation or the presence of rats, cockroaches or similar pests.
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<PAGE>
13. Not to sleep or permit anyone to sleep on the Premises nor
to hold or permit to be held any sale by auction on the
Rules and Premises.
Regulations 14. To ensure that he, his employees, licensees and agents observe,
obey and perform the Rules and Regulations forming part of this
lease and such further Rules and Regulations as the Landlord
may from time to time make and communicate to the tenant (not
being inconsistent with this lease) for the safety, care and
cleanliness of the Premises and of the building.
Insurance 15. (a) To do nothing in the building or keep anything therein that
would increase the insurance premium payable by the
Landlord on the building except with the written consent of
the Landlord.
(b) To do nothing which would make any Insurance Policy void.
(c) To insure all plate glass.
(d) To pay all insurance premiums increased as a result of his
actions.
Indemnity 16. (a) To compensate and meet all claims of
(i) the Landlord for the loss of or damage to part or
whole of the Premises;
(ii) any person for the loss of or damage to his personal
property; and
(iii) any person for personal injury or death as a result
of any accident or neglect or a deliberate or
careless act on the Premises or a breach of any
condition of the lease by the Tenant, his employees
or agents or any person present on the Premises with
the consent of the Tenant, his employees or agents.
(b) In these circumstances the Tenant shall meet all claims
whether they are made directly against him or against the
Landlord. Any resultant repairs to the Premises or to any
other parts of the building shall be carried out at the
expense of the Tenant by a builder approved by the
Landlord.
(Delete Condition 17 or 18 as applicable)
Rates, 17. [Deleted]
Taxes and 18. [Deleted]
Insurance
Premiums
BOTH PARTIES AGREEMENT THAT
Unforeseen 19. If something happens to the Premises so that the whole or a
Event substantial part can no longer be occupied, and the parties are
in no way responsible, then either party shall have the right
to terminate the lease, provided written notice is given within
fourteen days of the event.
Inspections 20. The Landlord or his agent shall inspect the Premises at the
commencement of the lease and on its termination and take note
of their condition including state of cleanliness, state of
repair, and working order of appliances.
Repairs 21. (a) The Tenant shall have repaired in a proper way any damage
to the Premises resulting from neglect or a deliberate or
careless act or a breach of any condition of the lease by
the Tenant or any person on the Premises with his consent.
(b) Except as in Condition 21(a), the Landlord shall carry out
without delay all reasonable repairs necessary for the
Tenant's ordinary use and occupation of the Premises,
having regard to the condition of the Premises at the
commencement of the lease.
Access 22. (a) The Landlord shall respect the Tenant's rights to privacy.
(b) The Tenant shall allow access to the Landlord and his
agent.
(i) when it is reasonable that they or either of them
should view the condition of the Premises or carry
out repairs, or
(ii) to erect "to let" signs and to show the Premises to
intending tenants after notice terminating the lease
has been given, or
(iii) to erect "for sale" signs and to show the Premises to
intending purchasers, after the Landlord has given
the Tenant notice of his wish to sell.
(c) The Landlord shall give the Tenant reasonable notice of the
time and date for such access. As far as possible it shall
be convenient for both parties.
(d) The Landlord may have access at any time with the consent
of the Tenant or in the case of an emergency.
Costs 23. (a) The Tenant shall pay all reasonable costs relating to the
lease, including stamp duty.
(b) The Landlord shall pay all other costs relating to his
management of the Premises.
Statutes 24. Each party shall observe as applicable to himself all relevant
statutes, statutory regulations and by-laws relating to health,
safety, noise and other standards with respect to the Premises.
Notices 25. Any written notice required or authorized by the lease:
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<PAGE>
(a) Shall be served on the Tenant personally, or by pre-paid
post to the Premises, or by being left there in the post
box.
(b) Shall be served on the Landlord by personal service on him
or his agent, or by pre-paid post to his or his agent's
address as shown in the lease or as notified in writing, or
by being left in the post box at that address.
(c) Shall be deemed to be served on the second week day after
posting, where it is sent by pre-paid post.
(d) May take effect on any day of the month if it relates to
the termination of a periodic lease, provided it gives the
required length of notice.
Mitigation 26. Where there has been a breach of any of the conditions of the
lease by either party, the other party shall take all
reasonable steps to minimize any resultant loss or damage.
Payment 27. (a) After a notice terminating the lease or demanding immediate
after possession has been given, any acceptance of or demand for
Notice rent or money by the Landlord shall not of itself be
evidence of a new lease with the Tenant or alter the legal
effect of the notice.
(b) Where the Tenant unlawfully remains in possession after the
termination of the lease, the Landlord is entitled, in
addition to any other claim, to payments equal to the rent
as compensation for the use and occupation of the Premises.
Disputes 28. In any dispute or proceeding between the parties, both parties
shall act reasonably and without delay and make all admissions
necessary to enable the real issues to be decided.
Termination 29. (a) Where the lease has become a periodic lease from month to
month, either party may terminate it by giving one months
written notice.
(b) The Landlord shall have the right to re-enter the Premises
peacefully or to continue the lease as a periodic lease
from week to week:
(i) Where the Tenant has failed to pay rent for a period
in excess of fourteen days, whether formally demanded
or not, or
(ii) Where the Tenant has seriously or persistently
breached any of the conditions of the lease, or
(iii) Upon the Tenant being declared bankrupt or insolvent
according to law or making any assignment for the
benefit of creditors or taking the benefit of any Act
now or hereafter to be in force for the relief of
bankrupts or insolvents. (Section 8.5(1)(d) of the
Conveyancing Act, 1919, as amended, is hereby varied
accordingly).
(c) If the Landlord intends to exercise his right to re-enter,
he shall serve the Tenant with a written notice stating the
reason and demanding immediate possession.
(d) If the Landlord intends to exercise his right to continue
the lease as a periodic lease from week to week, he shall
serve the Tenant with a written notice stating the reason
and informing the Tenant of the variation to the lease.
Upon service of the notice, the lease shall continue with
all its conditions, except for the term and Holding Over
conditions, as a periodic lease from week to week which may
be terminated by one week's written notice from either
party.
(e) The Landlord shall have the right to re-enter the Premises
without giving notice, if he has reasonable grounds to
believe that they have been abandoned.
(f) The Tenant shall have the right to terminate the lease if
the Landlord has seriously or persistently breached any of
its conditions. He shall give the Landlord fourteen days'
written notice, indicating at the same time the nature of
the breach.
(g) Any action by the Landlord or Tenant in accordance with
Conditions 29(b), (c), (d), (e), or (f), shall not affect
any claim for damages in respect of a breach of a condition
of the lease.
(h) The Tenant may remove his fixtures and shall remove his
signs provided that any damage or defacement occasioned to
any part of the Premises in the course of such removal
shall be remedied by the Tenant immediately and at his own
expense. If he fails to do so the Landlord may do so at the
Tenant's expense.
(i) Upon the termination or determination of the lease for any
cause the Tenant shall promptly and peacefully give vacant
possession of the Premises in the condition and state of
repair required by Conditions 12 and 21(a) of the lease,
and at the same time hand over all keys.
Parting 30. (a) The Tenant shall not assign or sub-let or part with
with possession of the Premises or any part thereof except with
Possession the written consent of the Landlord.
(b) The Landlord shall not withhold his consent unreasonably,
provided that the Tenant gives him fourteen days notice and
the Tenant pays any reasonable expenses involved in the
Landlord giving consent.
Cleaning 31. [Deleted]
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<PAGE>
Responsibility 32. (a) The Tenant shall give to the Landlord or his agent not
of the Tenant more than six (6) months and not less than three (3)
months prior to the expiration of the term granted in
this lease notice in writing if he wishes to take a
renewal of the lease for the further term offered.
Provided he has duly and punctually paid the rent and
shall have duly performed and observed on his part all
the conditions and agreements contained in this lease
up to the expiration of the term granted, then the
Landlord will at the cost of the Tenant grant to him
the further term at a rent which would at such time be
current market rental of the Premises.
(b) In the event of any dispute between the Landlord and
the Tenant as to such rent the rent shall be determined
by the President of the Real Estate Institute of New
South Wales or his appointee. The total rent is not to
be less than the total rent payable just prior to the
expiration of this lease and the lease shall be subject
to all other conditions as are contained in this lease
with the exception of the Option Condition. The costs
of such rental determination shall be borne in equal
shares by the parties unless otherwise agreed.
Interpretation 33. (a) The word "agent" in context with "Landlord" includes
the Landlord's estate agent or managing agent and any
other person authorized to act on behalf of the
Landlord.
(b) The word "Landlord" includes the heirs, executors,
administrators and assigns of the Landlord, and where
the context permits includes the Landlord's agent.
(c) The word "Tenant" includes the executors,
administrators and permitted assigns of the Tenant.
(d) The word "fixtures" includes fittings, furniture,
furnishings, appliances, plant, machinery and
equipment.
(e) The word "month" shall mean calendar month.
(f) Where the context permits, words expressed in the
singular include the plural and vice versa, words
expressed in the masculine gender include the feminine,
and words referring to a person include a company.
(g) Where two or more Tenants or Landlords are parties, the
conditions of the lease shall bind them jointly and
individually.
(h) When this lease is signed by both parties and
witnessed, it is a deed at law from that time.
(i) Headings in the margin have been inserted to assist the
parties but they do not form a legal part of the lease.
Guarantor's 34. In consideration of the Landlord leasing the Premises to
Liability the Tenant in accordance with this lease, the Guarantors
for themselves and each of them and each of their executors
and administrators unconditionally agree that they and each
of them will be (with the Tenant) jointly and severally
liable to the Landlord for the payment of the rent and all
other moneys payable by the Tenant, and also for the due
performance and observance of all the terms and conditions
on the part of Tenant contained or implied. AND IT IS
HEREBY EXPRESSLY AGREED AND DECLARED that the Landlord may
grant to the Tenant any time or indulgence and may compound
or compromise or release the Tenant without releasing or
affecting the liability of the Guarantors.
SPECIAL CONDITIONS
Special conditions forming part of this lease are to be signed by both parties
and attached.
RULES AND REGULATIONS
1. No sign, advertisement or notice shall be inscribed or painted or affixed
on any part of the outside or the inside of the Premises except of such
color, size and style and in such place upon or in the building as are
approved in writing by the Landlord. Upon request by the Tenant, interior
signs on glass doors and on the directory tablets will be provided for him
and at his expense by the Landlord.
2. The Tenant shall not obstruct the entrance passages, halls, staircases, or
fire escapes of the Premises or use them or any part of them for any
purpose other than for going in and out of the Premises.
3. The Tenant will not obstruct or interfere with the rights of other Tenants
or in any way injure or annoy them or conflict with the regulations of any
public authority or with the terms of any insurance policy upon the
building or its contents.
4. The Tenant shall not install or position any heavy equipment or
article without first obtaining the written consent of the Landlord, which
consent may prescribe the maximum weight and the position in which such
heavy equipment or article may be placed or secured; the Tenant shall make
good at his expense all damage caused to the building or any part of it by
the introduction, installation, presence or removal of any heavy equipment
or article of which the Tenant has ownership, custody or control. Before
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<PAGE>
any safe or heavy article is moved into the building due notice must be
given to the Landlord and the moving of it in and about the building shall
only be done under the supervision of the Landlord or his agent.
5. In the event of any emergency or other eventuality whereby the toilets or
washrooms on any floor are not available for use the Landlord may
impartially withdraw the right of exclusive use of all or any of the toilet
or washroom areas and services not affected so as to ensure availability of
these facilities to all occupants of the building, and no rental adjustment
will be made during such temporary arrangements.
6. In carrying goods or furniture in the lifts priority shall at all times be
given to passenger traffic.
7. All doors and windows of the Premises shall be securely fastened on all
occasions when the Premises are left unoccupied. The Landlord reserves the
right for his agents, employees, servants and workmen to enter and fasten
them if they are left unfastened or insecurely fastened.
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<PAGE>
PLEASE READ THIS LEASE THROUGH _____________ BEFORE AND AFTER SIGNATURE
We hereby enter into this lease and agree to all its conditions
SIGNED BY THE LANDLORD
in the presence of
Jan Butcher /s/
________________________________ __________________________________
Name of Witness Signature of Landlord
/s/ J. Butcher /s/ Simon van Wyk; /s/ Peter Dodds
________________________________ __________________________________
Signature of Witness Signature of Tenant
SIGNED BY THE TENANTS PETER DODDS
and SIMON VAN WYK
________________________________ __________________________________
Name of Witness Signature of Guarantor
________________________________
Signature of Witness
SIGNED BY THE GUARANTOR
in the presence of
________________________________
Name of Witness
________________________________
Signature of Witness
THE COMMON SEAL of THE COMMON SEAL of THE COMMON SEAL of
was hereunto affixed by the was hereunto affixed was hereunto affixed
authority of the Board of by the authority of by the authority of
Directors and in the the Board of Directors the Board of Directors
presence of: and in the presence of and in the presence of
/s/
- --------------------------- ---------------------- ----------------------
Secretary Secretary Secretary
FORM OF SURRENDER OF LEASE
I.
proprietor of the lease do hereby in consideration of __________________________
surrender all my estate therein to the landlord or the other present owner of
the reversion thereon expectant.
In witness I have hereto subscribed my name this ___________________________
day of __________________, 19_____.
Signed _________________________________
Accepted ________________________________
-7-
<PAGE>
SPECIAL CONDITIONS
------------------
1. It is acknowledged by the Tenants that the Premises have brand new carpet
and are freshly painted.
2. [Deleted]
3. If the Tenants wish to avail themselves of any signage on the Market Lane
entrance to the Premises, they shall be responsible for the re-painting of
the area immediately in the vicinity o the signage with a full gloss paint
as agreed to by the Landlord. In that event the Tenant shall restore that
area to the same condition the area was in at the commencement of the
Lease.
4. At the expiration of this lease, or any option exercised by the Tenants,
the Tenants agree to re-paint the walls and ceiling of the subject Premises
to restore it to the same condition that it was in at the commencement of
the lease.
5. At the expiration of this Lease or any option exercised by the Tenants,
the Tenants agree to have the carpet professionally cleaned to restore it
to a reasonable condition taking into account nominal wear and tear over
the term of the Lease. If at the time the Tenants vacate the carpet is
soiled and damaged, beyond normal wear and tear and it is unable to be
cleaned, then the Tenants will replace the carpet.
-8-
<PAGE>
EXHIBIT 10.31
LOAN AGREEMENT
AGREEMENT dated 24/10 1994 between:
1. BRILLIANT INTERACTIVE IDEAS PTY LTD A.C.N 061 288 668 of 17 The Corso
Manley 2095 (the "Debtor" ); and
2. PACIFIC INTERACTIVE EDUCATION PTY LTD A.C.N. 059 193 289 of 30 Avoca St
Bondi 2026 (the "Creditor").
IT IS AGREED as follows:
1. DEFINITION AND INTERPRETATION
- ----------------------------------
1.1 Definitions
- ----------------
The following definitions apply unless the context requires otherwise:
"Event of Default" means any event referred to in Clause 4.1.
"Interest Rate" means the rate of 12.5% per annum.
"Principal Sum" means an amount not exceeding $800,000.
1.2 Interpretation
- ----------------
Headings are for convenience only and do not affect interpretation. The
following rules of interpretation apply unless the context requires otherwise.
(a) The singular includes the plural and otherwise.
(b) A gender includes all gender.
(c) Where a word or phrase is defined, its other grammatical forms have a
corresponding meaning.
(d) A reference to a person includes a body corporate, and unincorporated body
or other entity and conversely.
(e) A reference to a Clause or Schedule is to a clause of or schedule to this
Agreement.
(f) A reference to any part to this Agreement or any other agreement or
document includes the party's successors and permitted assigns.
(g) A reference to any agreement or document is to that agreement or document
as amended, novated, supplemented, varied or replaced from time to time,
except to the extent prohibited by the Agreement or that other agreement or
document.
<PAGE>
(h) A reference to any legislation or to any provision of any legislation
includes any modification or re-enactment of it, any legislative provision
substituted for it and all regulations and statutory instruments issued
under it.
(i) A reference to "dollars" or "$" is to Australian currency.
(j) A reference to a right or obligation of any two or more persons confers
that right, or imposes that obligation, as the case may be, jointly and
severally.
(k) A reference to conduct includes, without limitation, any omission,
statement or undertaking, whether or not in writing.
2. AGREEMENT TO LEND
- ----------------------
Upon the execution of this Agreement the Creditor shall lend the Principal Sum
to the Debtor in full or in installments as requested by the Debtor. The Debtor
acknowledges that $720,000 has been advanced by the Creditor prior to execution
of this Agreement which amounts are all subject to the terms and conditions
contained herein.
3. PAYMENT BY THE DEBTOR
- --------------------------
In consideration of the Creditor lending the Principal Sum to the Debtor, the
Debtor agrees with the Creditor as follows:
3.1 Principal Sum
- ------------------
The Debtor shall repay the Principal Sum to the Creditor on or before 31
December 1994.
3.2 Interest
- -------------
(a) The Debtor shall pay interest on the amount of the Principal Sum at the
Interest Rate to the Creditor on the last business day of each calendar
month.
(b) That interest rate shall:
(i) accrue from day to day;
(ii) be calculated on monthly rests; and
(iii) be calculated from the date of each advance of the Principal Sum.
2
<PAGE>
3.3 Other moneys
- -----------------
The Debtor shall pay on demand all the moneys payable under this Agreement by
the Debtor to the Creditor.
3.4 Expenses
- -------------
The Debtor shall pay to the Creditor on demand all moneys (including, without
limitation, all stamp duty and all legal costs and expenses as between solicitor
and own client) which the Creditor pays or is liable to pay;
(a) in relation to the preparation, execution and completion of this Agreement;
and
(b) by reason of any Event of Default.
3.5 Manner of payment
- ----------------------
The Debtor shall pay to the Creditor the Principal Sum and interest and other
moneys:
(a) by bank cheque delivered to the address of the Creditor specified in the
Agreement or at any other address as may be notified; or
(b) in immediately available funds to the account specified,
by the Creditor to the Debtor from time to time.
4. DEFAULT
- ------------
4.1 Events of Default
- ----------------------
Each of the following is an Event of Default:
(a) A Debtor fails to pay an amount payable by it under this Agreement when
due.
(b) A Debtor is, or under applicable legislation is taken to be, unable to pay
its debts (other than as the result of a failure to pay a debt or claim the
subject of a good faith dispute) or stops or suspects or threatens to stop
or suspend payment of all or a class of its debts.
4.2 Consequences
- -----------------
At any time after an Event of Default, the Creditor may by notice to the Debtor
declare the Principal Amount and interest and other moneys immediately due and
payable, and the Debtor shall immediately pay such amounts to the Creditor.
3
<PAGE>
5. NOTICES
- ------------
Any notice given under this Agreement:
(a) must be in writing;
(b) must be signed by the sender or a person duly authorised by the sender; and
(c) will be taken to be duly given when delivered, received or left at the
address of the recipient specified in the Agreement or at any other address
it may have notified the sender.
6. ENTIRE AGREEMENT
- ---------------------
This Agreement contains the entire agreement between the parties with respect to
its subject matter. It sets out the only conduct relied on by the parties and
supersedes all earlier conduct by the parties with respect to its subject
matter.
7. AMENDMENT
- --------------
This Agreement may be amended only by another agreement executed by all parties.
8. ASSIGNMENT
- ---------------
The rights and obligations of each party under this Agreement are personal.
They cannot be assigned, charged or otherwise dealt with, and no party shall
attempt or purport to do so, without the prior written consent of all the
parties.
9. NO WAIVER
- --------------
No failure to exercise and no delay in exercising any right, power or remedy
under this Agreement will operate as a waiver. Nor will any single or partial
exercise of any right, power or any other right, power or remedy.
10. NO MERGER
- --------------
The rights and obligations of the parties will not merge on completion of any
transaction under this Agreement. They will survive the execution and delivery
of any assignment or other document entered into for the purpose of implementing
any such transaction.
11. GOVERNING LAW
- ------------------
This Agreement is governed by the laws of New South Wales. The parties submit
to the non-exclusive jurisdiction of courts exercising jurisdiction there.
EXECUTED as an Agreement in Sydney.
4
<PAGE>
SIGNED by BRILLIANT INTERACTIVE IDEAS PTY LTD
In the presence of:
/s/ G. Druckerman
-------------------------------------
Signature
/s/ E. Druckerman
- ----------------------------------
Witness
G. Druckerman
-------------------------------------
Print Name
E. Druckerman
- ----------------------------------
Print Name
SIGNED by PACIFIC INTERACTIVE EDUCATION PTY LTD
in the presence of:
/s/ M. Miller
-------------------------------------
Signature
/s/ C.M. Lowery
- ----------------------------------
Witness
M. Miller
-------------------------------------
Print Name
Catherine Lowery
- ----------------------------------
Print Name
5
<PAGE>
EXHIBIT 10.32
COMMERCIAL LEASE
SUITABLE FOR SHOPS, SHOP DWELLINGS, SMALL OFFICE BUILDINGS AND FACTORIES
WHERE THE TERM OF LEASE (INCLUDING THE PERIOD OF ANY OPTION) DOES NOT
EXCEED THREE YEARS.
PUBLISHED BY THE REAL ESTATE INSTITUTE OF N.S.W.
THIS LEASE, is made in duplicate on the EIGHTH day of AUGUST 1994 at SYDNEY
in the State PARTIES
THIS LEASE is made in duplicate on the EIGHTH day of AUGUST,
1994 at SYDNEY in the State of New South Wales.
PARTIES BETWEEN P W SECURITIES PTY LTD ACN 001 994 252 LANDLORD,
REGISTERED OFFICE: C/- HORWATH & HORWATH CHARTERED
ACCOUNTANTS
(Name and address)
307 PITT STREET,
SYDNEY, NSW 2000
whose agent is
RAINE & HORNE INTERNATIONAL PTY LTD AGENT
(Name and business address)
55 HARRINGTON STREET
SYDNEY NSW 2000
AND SEGA OZISOFT PTY LTD ACN 056 032 476 TENANT
(Name and business address)
200 COWARD STREET
MASCOT NSW 2020 GUARANTOR
PREMISES (name and address)
The landlord leases the premises known as FLOOR 1, SUITE 6
202 JERSEY ROAD, WOOLLAHRA NSW 2025
including all fixtures listed in the inventory which is
signed by all parties and attached as part of this lease.
USE The premises shall be used only as COMMERCIAL OFFICES.
RENT The rent shall be FIFTEEN THOUSAND SIX HUNDRED DOLLARS
$15,600.00 per ANNUM commencing on the FIRST day of
SEPTEMBER, 1994 BY WAY OF TWELVE (12) EQUAL MONTHLY
INSTALLMENTS OF $1,300 and payable in advance by the tenant
on the FIRST day of every MONTH to the agent at his above
address or at any other reasonable place as he notifies in
writing.
TERM The term of the lease shall be ONE (1) YEAR commencing on
the FIRST day of SEPTEMBER, 1994, and ending on the THIRTY-
FIRST day of AUGUST, 1995.
OPTION Subject to Condition 32 of this lease the landlord offers a
renewal of this lease for a further term of TWO (2) TERMS OF
ONE (1) year.
HOLDING OVER Unless either party gives the other written notice at least
one month before the end of the term that vacant possession
shall be given on that day, the lease shall continue as a
periodic lease from month to month at the same rent or at a
rent which both parties agree to.
INCREASES The tenant's percentage of increases in rates, taxes and
insurance premiums to be paid in accordance with Condition
17 is 11.66%.
BASE YEARS Municipal Rates: 1993
Water and Sewerage Rates: 1993 /1994
Land Tax: 1993
Building Replacement Insurance: 1993
<PAGE>
INSURANCE The amount of cover for public liability referred to in
Condition 4(b) is $5,000,000 (FIVE MILLION DOLLARS).
CONDITIONS The parties agree to the conditions set out above and on the
following pages and also to those conditions implied by
Section 84 and 85 of the Conveyancing Act, 1919, which are
not expressly negatived or modified by this lease.
NOTE
It is advisable for the tenant to insure his own property
and insure against his liability for public risk as the
occupier.
THE LANDLORD AGREES
Possession 1. To give possession of the premises to the tenant on the
day on which the term of the lease commences.
Condition of 2. To ensure that the premises are in a reasonably fit
Premises condition for use at the commencement of the lease.
Security 3. [Deleted]
Insurance 4. (a) To insure the premises against damage arising from
fire, lightning and explosion and other hazards
(including earthquake, storm and tempest, water
damage, explosion, impact, aircraft, riots/civil
commotions and malicious damage).
(b) To insure for public liability covering all sums
which he shall become legally liable to pay as
owner and landlord for a minimum amount as noted on
the front page of this lease.
Use of Premises 5. To allow the tenant to use and occupy the premises
Rates and Taxes without unreasonable interference by the landlord or his
agent.
6. To pay council, water and sewerage rates and land tax
promptly.
7. To provide the tenant with a stamped copy of the lease
signed by both parties as soon as practicable.
Lease Copy 8. To issue rent receipts showing the tenant's name, the
Receipts address of the premises, the amount received, the date
of payment and the period for which the payment was
made.
THE TENANT AGREES
Rent 9. To pay the rent promptly and in advance.
Consents for Use 10. To obtain at his own expense all necessary consents that
may be required from municipal or shire or other
authorities to carry on his proposed business at the
premises (being the use for which the premises are
leased).
Charges 11. To pay all charges for gas, electricity and telephone
and any excess water, garbage or sanitary charges,
relating to the tenant's use of the premises.
Care of Premises 12. To take care of the premises and to keep them in a clean
condition, and in particular:
(a) To make no alterations or additions to the premises,
including the erection of any sign or antenna,
without the written consent of the landlord.
(b) To do no decorating that involves marking, defacing
or painting any part of the premises, without the
written consent of the landlord.
(c) To put nothing down any sink, toilet or drain likely
to cause obstruction or damage.
(d) To keep no animals or birds on the premises, without
the written consent of the landlord.
<PAGE>
(e) To ensure that rubbish is not accumulated on the
premises and to cause all trade refuse to be removed
regularly in a manner acceptable to the landlord.
(f) To ensure that nothing is done that might prejudice
any insurance which the landlord has in relation to
the premises.
(g) To notify the landlord promptly of any loss, damage
or defect in the premises.
(h) To notify the landlord promptly of any infectious
disease, or the presence of rates, cockroaches or
similar pests.
Use and Occupation 13. Not to sleep or permit anyone to sleep on the premises
nor to hold or permit to be held any sale by auction on
the premises.
Rules and 14. To ensure that he, his employees, licensees and agents
Regulations observe, obey and perform the Rules and Regulations
forming part of this lease and such further Rules and
Regulations as the landlord may from time to time make
and communicate to the tenant (not being inconsistent
with this lease) for the safety care and cleanliness of
the premises and of the building.
Insurance 15. (a) To do nothing in the building or keep anything
therein that would increase the insurance premium
payable by the landlord on the building except with
the written consent of the landlord.
(b) To do nothing when would make any Insurance Policy
void.
(c) To insure all plate glass.
(d) To pay all insurance premiums increased as a result
of his actions.
Indemnity 16. (a) To compensate and meet all claims of
i) the landlord for the loss or damage to part or
whole of the premises.
ii) any person for the loss or of damage to his
personal property, and
iii) any person for personal injury or death
as a result of any accident or neglect or a
deliberate or careless act on the premises or a
breach of any condition of the lease by the tenant,
his employees or agents or any person present on the
premises with the consent of the tenant, his
employees or agents.
(b) In these circumstances the tenant shall meet all
claims whether they are made directly against him or
against the landlord. Any resultant repairs to the
premises or to any other parts of the building shall
be carried out at the expense of the tenant by a
building approved by the landlord.
(Delete Condition 17 or 18 as applicable)
Rates, Taxes and 17. To reimburse the landlord immediately, when requested,
Insurance Premiums for all increases in municipal or shire rates, water and
sewerage rates and land tax at the agreed percentage
above the amount payable in respect of the base years
noted on the front page of the lease, and all increases
in insurance premiums above the amount payable at the
commencement date of this lease, as are from time to
time payable by the landlord in the land hereby leased
is the only land owned by the landlord. All amounts
mentioned in this condition shall be deemed to accrue
from day to day and shall be apportioned in respect of
time accordingly.
or
18. [Deleted]
BOTH PARTIES AGREE THAT
Unforeseen Event 19. If something happens to the premises so that the whole
or a substantial part can no longer be occupied, and the
parties are in no way responsible, then either party
shall have the right to terminate the lease, provided
written notice is given within fourteen days of the
event.
Inspections 20. The landlord or his agent shall inspect the premises at
the commencement of the lease and on its termination and
take note of their condition including state of
cleanliness, state of repair, and working order of
appliances.
<PAGE>
Repairs 21. (a) The tenant shall have repaired in a proper way any
damage to the premises resulting from neglect or a
deliberate or careless act or a breach of any
condition of the lease by the tenant or any person
on the premises with his consent.
(b) Except as in Condition 21(a), the landlord shall
carry out without delay all reasonable repairs
necessary for the tenant's ordinary use and
occupation of the premises, having regard to the
condition of the premises at the commencement of the
lease.
Access 22. (a) The landlord shall respect the tenant's right to
privacy.
(b) The tenant shall allow access to the landlord and
his agent:
i) when it is reasonable that they or either of
them should view the condition of the premises
or carry out repairs, or
ii) to erect 'to let' signs and to show the
premises to intending tenants, after notice
terminating the lease has been given, or
iii) to erect 'for sale' signs and to show the
premises to intending purchasers, after the
landlord has given the tenant notice of his
wish to sell.
(c) The landlord shall give the tenant reasonable notice
of the time and date for such access. As far as
possible it shall be convenient for both parties.
(d) The landlord may have access at any time with the
consent of the tenant or in the case of emergency.
23. (a) The tenant shall pay all reasonable costs relating
to the lease, including stamp duty.
(b) The landlord shall pay all other costs relating to
his management of the premises.
Statutes 24. Each party shall observe as applicable to himself all
relevant statutes, statutory regulations and by-laws
relating to health, safety, noise and other standards
with respect to the premises.
Notices 25. Any written notice required or authorized by the lease:
(a) Shall be served on the tenant personally, or by pre-
paid post to the premises, or by being left there in
the post box.
(b) Shall be served on the landlord by personal service
on him or his agent, or by pre-paid post to his or
his agent's address as shown in the lease or as
notified in writing, or by being left in the post
box at that address.
(c) Shall be deemed to be served on the second week day
after posting, where it is sent by pre-paid post.
(d) May take effect on any day of the month if it
relates to the termination of a periodic lease,
provided it gives the required length of notice.
Mitigation 26. Where there has been a breach of any of the conditions
of the lease by either party, the other party shall take
all reasonable steps to minimise any resultant loss or
damage.
Payment after 27. (a) After a notice terminating the lease or demanding
Notice immediate possession has been given, any acceptance
of or demand for rent or money by the landlord shall
not of itself be evidence of a new lease with a
tenant or alter the legal effect of the notice.
(b) Where the tenant unlawfully remains in possession
after the termination of the lease, the landlord is
entitled, in addition to any other claim, to
payments equal to the rent as compensation for the
use and occupation of the premises.
Disputes 28. In any dispute or proceeding between the parties, both
partes shall act reasonably and without delay and make
all admissions necessary to enable the real issues to be
decided.
Termination 29. (a) Where the lease has become a periodic lease from
month to month, either party may terminate it by
giving one months written notice.
(b) The landlord shall have the right to re-enter the
premises peacefully or to continue the lease as a
periodic lease from week to week:
<PAGE>
i) Where the tenant has failed to pay rent for a
period in excess of fourteen days, whether
formally demanded or not; or
ii) Where the tenant has seriously or persistently
breached any of the conditions of the lease, or
iii) Upon the tenant being declared bankrupt or
insolvent according to law or making any
assignment for the benefit of creditors or
taking the benefit of any Act now or hereafter
to be in force for the relief of bankrupts or
insolvents. (Section 85 (l)(d) of the
Conveyancing Act, 1919, as amended, is hereby
varied accordingly).
(c) If the landlord intends to exercise his right to re-
enter, he shall serve the tenant with a written
notice stating the reason and demanding immediate
possession.
(d) If the landlord intends to exercise his right to
continue the lease as a periodic lease from week to
week, he shall serve the tenant within a written
notice stating the reason and informing the tenant
of the variation to the lease. Upon service of the
notice, the lease shall continue with all its
conditions, except for the Term and Holding Over
conditions, as a periodic lease from week to week
which may be terminated by one week's written notice
from either party.
(e) The landlord shall have the right to re-enter the
premises without giving notice, if he has reasonable
grounds to believe that they have been abandoned.
(f) The tenant shall have the right to terminate the
lease if the landlord has seriously or persistently
breached any of its conditions. He shall give the
landlord fourteen days' written notice, indicating
at the same time the nature of the breach.
(g) Any action by the landlord or tenant in accordance
with Conditions 29 (b), (c), (d), (e), or (f), shall
not affect any claim for damages in respect of a
breach of a condition of the lease.
(h) The tenant may remove his fixtures and shall remove
his signs provided that any damage or defacement
occasioned to any part of the premises in the course
of such removal shall be remedied by the tenant
immediately and at his own expense. If he fails to
do so the landlord may do so at the tenant's
expense.
(i) Upon the termination or determination of the lease
for any cause the tenant shall promptly and
peacefully give vacant possession of the premises in
the condition and state of repair required by
Conditions 12 and 21(a) of the lease, and at the
same time hand over all keys.
Parting with 30. (a) The Tenant shall not assign or sub-let or part with
Possession possession of the premises or any part thereof
except with the written consent of the Landlord.
(b) The landlord shall not withhold his consent
unreasonably, provided that the tenant gives him
fourteen days notice and the tenant pays any
reasonable expenses involved in the landlord giving
consent.
Cleaning 31. (a)
(b) [Deleted]
(c)
Renewal 32. (a) The tenant shall give to the landlord or his agent
not more than six (6) months and not less than three
(3) months prior to the expiration of the term
granted in this lease notice in writing if he wishes
to take a renewal of the lease for the further term
offered. Provided he has duly and punctually paid
the rent and shall have duly performed and observed
on his part all conditions and agreements contained
in this lease up to the expiration of the term
granted, then the landlord will at the cost of the
tenant grant to him the further term at a rent which
would at such time be current market rental of the
premises.
(b) In the event of any dispute between the landlord and
the tenant as to such rent the rent shall be
determined by the President of the Real Estate
Institute of New South Wales or his appointee. The
total rent is not to be less than the total rent
payable just prior to the expiration of this lease
and the lease shall be subject to all other
conditions as are contained in this lease with the
exception of the Option Condition. The costs of such
rental determination shall be borne in equal shares
by the parties unless otherwise agreed.
<PAGE>
Interpretation 33. (a) The word 'agent' in context with "landlord" includes
the landlord's estate agent or managing agent and
any other person authorized to act on behalf of the
landlord.
(b) The word 'landlord' includes the heirs, executors,
administrators and assigns of the tenant.
(c) The word 'tenant' includes the executors,
administrators and permitted assigns of the tenant.
(d) The word 'fixtures' includes fittings, furniture,
furnishings, appliances, plant, machinery and
equipment.
(e) The word 'month' shall mean calendar month.
(f) Where the context permits, words expressed in the
singular include the plural and vice versa, words
expressed in the masculine gender include the
feminine, and words referring to a person include a
company.
(g) Where two or more tenants or landlords are parties,
the conditions of the lease shall bind them jointly
and individually.
(h) When this lease is signed by both parties and
witnessed, it is a deed at law from that time.
(i) Headings in the margin have been inserted to assist
the parties but they do not form a legal part of the
lease.
Guarantor's 34. In consideration of the landlord leasing the premises to
Liability the tenant in accordance with this lease, the Guarantors
for themselves and each of them and each of their
executors and administrators unconditionally agree that
they and each of them will be (with the tenant) jointly
and severally liable to the landlord for the payment of
the rent and all other moneys payable by the tenant, and
also for the due performance and observance of all the
terms and conditions on the part of the tenant contained
or implied. AND IT IS HEREBY EXPRESSLY AGREED AND
DECLARED that the landlord may grant to the tenant any
time or indulgence and may compound or compromise or
release the tenant without releasing or affecting the
liability of the guarantors.
35.0 SECURITY DEPOSIT
(1) The Lessee shall give to the Lessor prior to the commencement of this lease
a Security Deposit to the amount of Three Thousand Nine Hundred Dollars
($3,900.00) (herein called "the security deposit") which shall be held by
the Lessor as security for the punctual performance of the Lessee's
obligations.
(2) If the Lessee defaults in the payment of rent or in performing any other
obligation under the lease, the Lessor may appropriate the security deposit
towards its claim against the Lessee for rent and for damages for breach of
covenant.
(3) The Lessor may recover rent and damages for a breach of covenant without
being limited to the security deposit.
(4) The Lessor shall repay the Lessee the Security Deposit together with all
interest accrued on termination of this lease subject in the provisions of
this clause.
36.0 PERIODICAL PAYMENT
The lessee shall pay rental by way of periodical payment or as otherwise
instructed by the lessor or his managing agent.
37.0 PENALTY INTEREST
If any money payable by the Lessee under this lease is unpaid for fourteen (14)
days after it was due, the Lessee shall pay to the Lessor interest at a rate of
20.0% per centum per annum on the unpaid amount from the date on which it was
due until the date of actual payment. This interest shall be paid on demand and
the Lessee shall continue in default until full payment is made. Thereafter all
payments made by the Lessee to the Lessor under this lease until otherwise
agreed by the Lessor shall be by bank cheque or cash. If the Lessor demands or
accepts rent or other money payable by the Lessee under this lease after default
by the Lessee, this demand or acceptance shall not be construed as a waiver,
acceptance or release of the breach.
38.0 KEEPING FIXTURES, FITTING, ETC IN GOOD ORDER AND REPAIR
The Lessee shall keep the interior of the demised premises including the doors
and windows thereof and the fixtures and carpets therein in good and tenantable
repair and in a clean and sanitary condition and shall not do or suffer to be
done act and or thing that might choke or otherwise damage the sewerage
connections drains fittings and carpets and at the expiration or sooner
determination of the occupation by the Lessee shall
<PAGE>
deliver up the premises to the Lessor in as good repair as at the commencement
of the occupation by the Lessee (fair wear and tear and damage by fire excepted)
with all glass unbroken and with locks doors keys windows convenience thereto
belonging in good order and the ceilings wall windows doors floor coverings and
carpets uninjured and undefaced.
39.0 REDECORATION
The Lessee shall as and when reasonably necessary at the termination of this
lease paint with two coats of a quality paint or paper those parts of the
premises previously painted or papered including but not limited to the
perimeter walls, columns and ceilings in a proper and workmanlike manner and to
the reasonable satisfaction of the Lessor.
40.0 PUBLIC RISK INSURANCE
The Lessee shall effect and maintain adequate Public Risk insurance in the sum
of Five Million Dollars ($5,000,000) and save harmless and indemnify the Lessor
from and against all damages costs actions claims and demands which may be
recovered or made-against him by any clerk servant customer or invitee of the
Lessee for any injury which he or she may sustain while using the demised
premises.
PLATE GLASS INSURANCE
The Lessee shall insure and during the continuance of this Lease keep insured in
the joint names of the Lessor and the Lessee the plate glass in the windows and
doors of the demised premises.
41.0 FIRE EVACUATION OR EMERGENCY EVACUATION
The Lessee and its staff shall co-operate with the Lessor and his agent in
implementing fire evacuation procedures.
41.1 INDEMNITIES AGAINST INJURIES DURING DRILLS OR EMERGENCY EVACUATIONS
The Lessee shall indemnify and save harmless the Lessor against all claims
actions costs suits and demands made by or in respect of any clerk, servant,
customer or invitee of the Lessee who sustains injuries while taking part in a
fire drill or an emergency evacuation.
42.0 ALTERATIONS AND ADDITIONS
The Lessee will not without the previous consent in writing of the Lessor make
any alterations to additions in or to the demised premises or any part thereof
other than partitioning not involving permanent fixing to walls and ceilings and
in particular without limiting the generality hereof the Lessee shall not:
(i) install any fixtures partitioning equipment or appliances whether for the
purpose of illumination heating cooling ventilating or air conditioning
the demised premises;
(ii) in any way deface the walls ceilings partitioning floors walls or fixtures
or any part of the demised premises;
(iii) bring on to the demised premises any machinery safe or other plant or
equipment of such nature or size as may be likely to cause any structural
or other damage to the floor coverings floors or walls or any other parts
of the demised premises of the building of which the demised premises form
part; and
(iv) make any such alterations or additions without first obtaining the
necessary approvals of all relevant authorities and shall at least twenty-
one (21) days before commencement of any work furnish to the Lessor proper
plans and specifications of such work for the Lessor's approval which
approval shall not be unreasonably withheld.
43.0 CLEANING
The Lessee shall at all times during the said term keep the demised premises and
the windows thereof in a clean and sanitary condition and free from any
accumulation of rubbish or dirt.
44.0 NO ASSIGNMENT, ETC.
Not during the continuance of this Lease to assign, transfer, demise, sub-let,
part with, share the possession of, or grant any license affecting, or mortgage,
charge, or otherwise deal with or dispose of the demised premises or any part
thereof, or by any act or deed procure the demised premises or any part thereof
to be assigned, transferred, demised, sub-let unto, shared or put into
possession of any person or persons, licensed, mortgaged, charged or otherwise
dealt with or disposed of unless:
(i) the Lessee give to the Lessor not less than one (1) month's notice in
writing of his desire to deal with the demised premises in the manner
aforesaid
<PAGE>
(ii) the Lessee is not in default in the observance and performance of the
covenants and agreements on the Lessee's part herein contained or implied;
(iii) the Lessee proposes to assign, transfer, sub-lease, or grant a license to
an assignee, transferee, sub-lessee or license who:
(a) proves to the satisfaction of the Lessor that he is a respectable,
responsible and solvent person capable of adequately carrying on the
business proposed to the carried on by him in the Demised Premises;
(b) enters into a covenant with the Lessor in the form required by the
Lessor that he will duly perform and keep the covenants and
agreements on the Lessee's part herein contained;
(c) furnishes to the Lessor such guarantee or guarantees of the
performance of his obligations under this Lease as the Lessor shall
require;
(d) pays to the Lessor reasonable costs and disbursements associated with
the granting of its consent including all legal fees, stamp duty and
registration fees; and
(iv) the Lessee enters into a deed in the form required by the Lessor under
which he releases the Lessor from all claims which the Lessee then has, or
may thereafter have against the Lessor in respect of, or in any way
arising from this Lease.
45.0 CONDITION OF PREMISES
The lessee acknowledges that they are leasing the premises in their present
condition and state of repair and to this effect, relies on their own
inspections, and has made their own inquiries.
46.0 STATUTORY REQUIREMENTS
The Lessee shall observe and perform at its own expense the provisions of any
Act Regulation Rule Ordinance or By-Law for the time being applicable in any way
to the demised premises arising from the nature of the business therein
conducted by the Lessee or otherwise from the Lessee's occupation of such
premises and in particular but without affecting the generality of the foregoing
shall so observe and perform the provisions of the Factories and Shops Act, the
Public Health Act, the Local Government Act and any Act or Acts replacing any of
the said Acts and any Regulations Rules or Ordinances or By-Laws for the time
being in operation under any such act as aforesaid but nothing in this covenant
shall require the Lessee to carry out or meet the cost of any work of a
structural nature.
47.00 CAR PARKING
.01 The lessee shall be entitled to park two (2) motor vehicles (not in excess
of 5 tonnes) at the building during the term of this lease.
.20 The lessee shall pay $70.00 per calendar month commencing 1 September 1994
for one (1) car space of the entitled two (2) car spaces under this lease.
.30 The lessee shall not use or permit the Car Parking Area to be used for any
purpose other than for the purposes of parking motor vehicles and in
particular, but without limiting the generality hereof, shall not clean,
grease, oil, repair or wash any motor vehicles in the Car Parking Area.
.40 The lessee shall not do, omit to do or permit to be done or omitted any
act, matter or thing which shall be a nuisance or annoyance or obstruction
to the lessor and other users, occupants or tenants of the building.
.50 The lessee shall keep the lessor indemnified against all liability for
death or injury to persons or loss of damage to property caused by any
motor vehicle of any clerk, servant, customer or invitee of the Lessee
brought upon the Car Parking Area and any land adjacent thereto and the
lessor shall not be responsible for any injury to person, or loss of or
damage to any motor vehicle parked on the Car Parking Area whilst in the
course of obtaining access or egress to or from the Car Parking Area.
48.0 COSTS
The Lessee shaft on demand pay the Lessor's solicitors reasonable and proper
costs and disbursements in respect of the preparation completion and
registration of this Lease including Stamp Duty and registration fees.
<PAGE>
SPECIAL CONDITIONS
Special conditions forming part of this lease are to be signed by both parties
and attached.
RULES AND REGULATIONS
1. No sign, advertisement or notice shall be inscribed or painted or affixed on
any part of the outside or the inside of the premises except of such color,
size and style and in such place upon or in the building as are approved in
writing by the landlord. Upon request by the tenant, interior signs on glass
doors and on the director tablets will be provided for him and at his
expense by the landlord.
2. The tenant shall not obstruct the entrance passages, halls, staircases, or
fire escapes of the premises or use them or any part of them for any purpose
other than for going in and out of the premises.
3. The tenant will not obstruct or interfere with the rights of the other
tenants or in any way injure or annoy them or conflict with the regulations
of any public authority or with the terms of any insurance policy upon the
building or its contents.
4. The tenant shall not install or position any heavy equipment or article
without first obtaining the written consent of the landlord, which consent
may prescribe the maximum weight and the position in which such heavy
equipment or article may be placed or secured; the tenant shall make good at
his expense all damage caused to the building or any part of it by the
introduction, installation, presence or removal of any heavy equipment or
article of which the tenant has ownership, custody or control. Before any
safe or heavy article is moved into the building due notice must be given to
the landlord and the moving of it in and about the building shall only be
done under the supervision of the landlord or his agent.
5. In the event of any emergency or other eventuality whereby the toilets or
washrooms on any floor are not available for use the landlord may
temporarily withdraw the right of exclusive use of all or any of the toilet
or washroom areas and services not affected so as to ensure availability of
these facilities to all occupants of the building, and no rental adjustment
will be made during such temporary arrangement.
6. In carrying goods or furniture in the lifts priority shall at all times be
given to passenger traffic.
7. All doors and windows of the premises shall be securely fastened on all
occasions when the premises are unoccupied. The landlord reserves the right
for his agents, employees, servants and workmen to enter and fasten them if
they are left unfastened or insecurely fastened.
<PAGE>
PLEASE READ THIS LEASE THROUGH CAREFULLY BEFORE AND AFTER SIGNATURE
We hereby enter into this lease and agree to all its conditions
SIGNED BY THE LANDLORD
In the presence of ____________________________________
Name of Witness
/s/
______________________________
Signature of Landlord
____________________________________
Signature of Witness
SIGNED BY THE TENANT
In the presence of ____________________________________
Name of Witness
/s/
______________________________
Signature of Tenant
/s/
____________________________________
Signature of Witness
SIGNED BY THE GUARANTOR
In the presence of ____________________________________
Signature of Witness
______________________________
Signature of Guarantor
____________________________________
Signature of Witness
THE COMMON SEAL of
was hereunto affixed by the authority of the Board of Directors and in the
presence of
______________________________
Secretary
THE COMMON SEAL of
was hereunto affixed by the authority of the Board of Directors and in the
presence of
______________________________
Secretary
THE COMMON SEAL of
was hereunto affixed by the authority of the Board of Directors and in the
presence of
______________________________
Secretary
FORM OF SURRENDER OF LEASE
I, ______________________________________________________, proprietor of the
lease do hereby in consideration of _______________________ surrender all my
estate therein to the landlord or the other present owner of the reversion
thereon expectant. In witness I have hereto subscribed my name this
________________ day of _________________, 19_____.
Signed _____________________________________
Accepted ___________________________________
<PAGE>
EXHIBIT 10.33
PACIFIC INTERACTIVE EDUCATION, PTY. LIMITED
-----------------------
-----------------------
September 13, 1996
Brilliant Digital Entertainment, Inc.
6355 Topanga Canyon Blvd., Suite 503
Woodland Hills, CA 91367
Brilliant Interactive Ideas, Pty., Limited
17 The Corso
Manly, New South Wales 2095
Australia
Re: Indebtedness
----------------
Gentlemen:
Reference is made to certain indebtedness of Brilliant Interactive Ideas,
Pty., Limited ("Brilliant") to Pacific Interactive Education Pty. Limited
("PIE"), which, at August 30, 1996 amounted to AUS $867,547.25, and accrues
interest at the rate of 12.5% per annum (together will all additional interest
accruing thereon, the "Loan"). By this letter, PIE agrees with Brilliant and
Brilliant Digital Entertainment, Inc. ("BDE") that the maximum amount that may
be borrowed under the Loan is increased from Australian $800,000 to Australian
$900,000 and hereby extends the maturity date of the Loan to the earlier to
occur of (i) the closing of the initial public offering of share of Common
Stock of BDE; and (ii) December 31, 1996, at which time the Loan shall be due
and payable in full.
If the foregoing terms are acceptable to you, please confirm your
acceptance by signing below.
Sincerely,
PACIFIC INTERACTIVE EDUCATION, PTY. LIMITED
By: /s/ Mark Miller
-----------------
Its: DIRECTOR
------------
13 September, 1996
AD10-MSUBORD.DOC
Page 1 of 2
<PAGE>
Brilliant Interactive Ideas, Pty. Ltd.
Brilliant Digital Entertainment, Inc.
September 13, 1996
page 2
Agreed to and Accepted this 13 day
of September 1996.
BRILLIANT DIGITAL BRILLIANT INTERACTIVE IDEAS,
ENTERTAINMENT, INC. PTY., LTD.
By: /s/ Mark Miller By: /s/ Mark Miller
------------------ -----------------------
Its: DIRECTOR Its: DIRECTOR
------------------ -----------------------
13 September, 1996
AD10-MSUBORD.DOC
Page 2 of 2
<PAGE>
EXHIBIT 10.34
THIS AGREEMENT is made the 12th day of September 1996
- --------------
BETWEEN:
- -------
1. CRAWFORD PRODUCTIONS PTY., LTD., A.C.N. 004 326 407 of 259 Middleborough
-------------------------------
Road, Box Hill in the State of Victoria, 3128
("Crawfords")
2. BRILLIANT INTERACTIVE IDEAS PTY. LTD., A.C.N 061 288 668 of Lvl 1, 17 The
--------------------------------------
Corso, Manly, in the State of New South Wales, 2095
("BII").
BACKGROUND TO THIS AGREEMENT:
- ----------------------------
A. Crawfords is a producer of television and film productions.
B. BII is a manufacturer of computer games software.
C. The parties wish to enter into the Joint Venture for their mutual benefit
on the terms and conditions of this Agreement.
1. DEFINITIONS AND INTERPRETATION
------------------------------
1.1 Unless the context otherwise requires:
(a) "Ancillary Rights" means the rights to exploit by any means the
Software, the Project and the Content including the Original
Material and to the extent that the Parties own such rights, the
Third Party Material. Such exploitation could include without
limitation:
(i) character merchandising
(ii) using and authorizing others to use the whole or part of
the title of a Project as a trade mark, service mark,
style or business name;
(iii) exploiting a soundtrack based on any of the Projects and
any music included in the Projects;
<PAGE>
(iv) publishing books in volume form developed from the
Scripts from the Projects;
(v) exploiting and distributing the cinematograph films which
form part of the Content through usual channels of
distribution of such materials such as theatrical
release, video tapes and video discs and free to air and
pay television.
(vi) exploiting still photographs of the production of the
Projects.
(b) "CLAIM" against any person means any claim, action, proceeding,
judgment, liability, loss or cost which is or may be incurred or
suffered by or bought or made or recovered against the person;
(c) "CONTENT" means for each Project, all text, graphics, animation,
audio and/or digital video components, all artistic, literary
and dramatic works and all other components of the Project other
than the Software, as defined below, including without
limitation, any copyrights, trade secrets and other intellectual
or industrial property rights therein.
(d) "CONTENT GROSS PROCEEDS" means the gross proceeds derived from
the exploitation of the Content by Crawfords pursuant to
clause 7;
(e) "JOINT VENTURE" means the joint development, production and
exploitation of interactive movies by the parties;
(f) "ORIGINAL CONTENT" means that part of the Content which is
produced and created especially for the Project pursuant to
clauses 5.1 and 3.1;
(g) "PARTIES" means the Parties to this Agreement;
(h) "PROJECTS" means the projects selected by the parties for
developing into interactive multipath movies titles as part of
the Joint Venture;
(i) "SAND" means Sega Australia New Development Pty. Ltd. which is a
developer of high-end computing systems;
(j) "SOFTWARE" means all computer code (both source and object)
including, but not limited to, SCuD, ScripNav, MM Player,
LypSynch and any other comparable tool and all interfaces,
navigational devices, menus, menu structures or arrangements,
icons, help and other operational instructions and
2
<PAGE>
the literal and nonliteral expressions of ideas that operate,
cause, create, direct, manipulate, access or otherwise affect
the Content of a Project, provided however, that Software shall
not include Content.
(k) "THIRD PARTY INVESTORS" means third parties who may invest money
in the development and the production of the Projects including
Australian Federal and State government film and multimedia
funding bodies, private investors and multimedia publishers;
(l) "THIRD PARTY MATERIAL" means material included in the Content
which is the subject of intellectual property rights not wholly
owned by Crawfords and which is not Original Content.
1.2 Unless the context otherwise requires:
(a) words denoting the singular include the plural and vice versa;
(b) words denoting any gender include all genders;
(c) references to persons extend to and include natural persons,
companies and other entities, and references to any one of these
extend to and include each of the others;
(d) references to natural persons extend to and include their
personal representatives, successors and permitted assigns;
(e) references to companies or other entities extend to and include
their successors and permitted assigns;
(f) expressions used in this Agreement that are defined in the
Copyright Act 1968 (Cth) and that are not separately defined in
this Agreement, have the meanings attributed to them in that
Act;
(g) derivatives from a defined or interpreted word have a
corresponding meaning or interpretation;
(h) references to statutes include statutes amending, consolidating
or replacing the statutes;
(i) clause headings are included for convenience of reference only
and to not affect the construction of this Agreement;
3
<PAGE>
(j) the Schedule forms part of this Agreement; and
(k) "INCLUDING" and similar words are not words of limitation.
SCOPE OF THE JOINT VENTURE
- --------------------------
2. The Parties intend that the Joint Venture will include:
(a) obtaining the services of BII to provide the technology
necessary to create interactive multipath movies using the
Content, which movies shall operate and perform in accordance
with or higher than the technology and quality standards
heretofore met by BII in connection with other multipath movies
previously produced;
(b) obtaining the services of BII to use the SAND technology produce
the Content into finished interactive multipath movie titles;
and
(c) exploiting the finished Projects and the Ancillary Rights for
the mutual benefit of the Parties.
3. SELECTED PROJECTS
-----------------
3.1 The Parties intend that the initial Projects in the Joint Venture
will be "AMZOR THE POWERLESS" and "MOONBEAM" both of which have been
written and created by BRIAN DOUGLAS. Pursuant to an Option Agreement
between Crawfords and Mr. Douglas, Mr. Douglas has transferred all of
his right, title and interest in such Project to Crawfords.
3.2 Any different (in the event the initial Projects are not developed),
or further Projects, if any, to be developed as part of the Joint
Venture will be mutually selected by the Parties in the management
meetings referred to in clause 12. To the extent the Parties do not
mutually agree to develop future Projects, the Party proposing such
Project shall be free to independently develop same and the Party
refusing to proceed shall be restricted from proceeding with such
Project without the proposing Party's prior written consent, which
may be granted in such Parties sole discretion.
4
<PAGE>
4. MUTUAL OBLIGATIONS
------------------
4.1 The Parties will:
(a) contribute equally to the agreed funding of the development and
productions of the Projects. The Parties presently envisage that
the cost of each completed Project may be up to ONE MILLION
-----------
DOLLARS Australian ($1,000,000).
-------
(b) together develop budgets for the development and production of
the Projects using any relevant information that can be provided
by Crawfords, SAND and BII, and prepare preproduction
documentation, and presentation documentation which is necessary
to be prepared in order for the Parties to apply to Third Party
Investors for money required to produce the Projects into
finished interactive film titles;
(c) jointly in the names of the Joint Venturers, apply to Third
Party Investors for funding for the further development and
production of the Projects to a finished product; and
(d) jointly seek publishing of the Projects in interactive and
computer based formats.
(e) jointly select a team of people to be assigned to various roles
in the development and production of each Project.
CRAWFORDS' OBLIGATIONS:
- ----------------------
5. Production of Content
---------------------
5.1 Subject to clause 5.3, in addition to its obligations elsewhere set
out in this Agreement, Crawfords will be responsible for overseeing
the development and production of the Content including without
limitation producing the cinematograph film component of the Content.
The Joint Venture will be responsible for selecting the Third Party
Material and obtaining the necessary rights to use the Third Party
Material in the Projects. Development of the Content includes without
limitation providing: story lines, screenplays, scripts (including
rewrites), voice, music, acting, production, direction, outline
budgets and locations all for that part of the Content which consists
of conventional cinematograph film; provided however, as to sound
mixing, Crawfords shall only provide such service if they have the
"Pro Tools" brand sound studio set up which is compatible with BII's
systems.
5
<PAGE>
5.2 In producing the Original Content, Crawfords will supply its
production facilities to the Joint Venture at rates comparable to the
rates charged by third parties for similar facilities at the time of
production.
5.3 The Parties will have joint creative control of each Project,
including the Content; provided such control shall be exercised on a
day-to-day basis by the Creative Director of each Project, who shall
be jointly approved by the Parties and who will ensure that the
Content complies with the agreed requirements of any Third Party
Investors. As such, Crawfords shall secure BII's approval as to the
creative elements of the Content and in carrying out its obligations
under this clause 5.
5.4 Crawfords shall obtain in the name of the Joint Venturers, a full
assignment or an exclusive license in perpetuity of all rights in the
Original Content.
5.5 The Joint Venture will ensure that for all Content other than the
Original Content it obtains adequate rights to include such Content
in the Projects and to exploit the Projects incorporating such
Content as contemplated by this Agreement, and as far as possible
using reasonable endeavors, to exploit the Ancillary Rights.
6. PRODUCTION BUDGET
-----------------
6.1 BII will produce, in consultation with Crawfords and for Joint
Venture approval, a production budget for the Content which will
include all direct above and below the line costs, development costs
and indirect costs of producing and developing the Content such as
insurance and a Completion Guarantee.
6.2 Both Crawfords and BII will use their best endeavors to ensure that
all production conducted by the Parties for each Project in
performing their obligations under this Agreement, is in accordance
with the budget for that Project as agreed by the Parties from time
to time.
6.3 Neither Party will spend in excess of the amount budgeted for the
various production and development activities in a Project including
the acquisition of Third Party Material without the written consent
of the other Party. If the cost of production of any of the Projects
exceeds the agreed production budget for that Project, to the extent
such overage is not financed by Third Parties, it shall be
contributed by Crawfords and BII jointly and equally.
6
<PAGE>
7. DISTRIBUTION OF CONTENT
-----------------------
7.1 Crawfords will be responsible for developing and producing any
cinematograph films using all or any part of the Content and will do
so upon the approval of the Creative Director.
7.2 Crawfords will on behalf of the Joint Venture, be responsible for any
distribution of the whole or any component of the Content (for
example, cinematograph Films which form part of the Content) through
channels through which Crawfords generally distributes its
audio/visual products such as theatrical distribution, free to air
television and all forms of pay television. Crawfords may appoint
sub-distributors for this purpose. Crawfords will use all its
reasonable endeavors to maximize the terms from these sources on
behalf of the Joint Venture.
7.3 In distributing the Content, Crawfords will not and will not permit
others to deduct from the Content Gross Proceeds, expenses other than
marketing expenses which are to be agreed between the Parties and
which will not exceed 5% of the Content Gross Proceeds. Crawfords may
deduct a distribution fee from Content Gross Proceeds as specified in
and subject to clause 7.4.
7.4 Distribution fees payable to Crawfords for its efforts as detailed in
this clause 7 will not exceed thirty percent (30%) of the Gross
Content Proceeds. This amount includes any commissions payable to
sub-distributors. After deduction of such distribution fees and
marketing expenses, which shall be pre-approved as to amount and
whether to be classified as distribution fees or marketing expenses
by BII, which approval shall not be unreasonably withheld, the
balance of the Content Gross Proceeds will be paid into the Joint
Account.
8. BII'S OBLIGATIONS:
-----------------
8.1 In addition to its obligations elsewhere set out in this Agreement,
BII will:
(a) provide its marketing expertise (and position as a major
computer games Producer and Distributor) to assist in developing
the Projects including supplying market research information and
other information as to market size and potential returns which
will be helpful in developing the Joint Venture to maximum
profitability for both Parties;
(b) provide its services and Software to the Joint Venture at rates
equivalent to the rates charged by persons providing similar
services in the Australian multimedia industry.
7
<PAGE>
(c) provide under nondisclosure agreement any technical information
held by BII and/or SAND which would be helpful in assisting with
the development and production of the Projects.
(d) use its knowledge and experience in multimedia publishing in
seeking to maximize proceeds from the distribution of the
Projects in all interactive computer based formats. BII will use
all reasonable endeavors to obtain publisher attachments to the
Projects preferably for each Project prior to completion of the
Project. This will include showing each Project to at least four
key International multimedia publishers during the Project's
development in order that a publishing agreement be reached
prior to completion of the Project. BII's activities under this
sub-clause will be conducted in consultation with Crawfords.
(e) be responsible for the non-conventional film function, including
without limitation the production of 3D graphics, including
model and character creation, sound, scene lay-up, animation,
special effects, lay-up and editing using SAND tools.
8.2 In distributing the Project in CD-Rom or other multimedia format, BII
will not and will not permit others to deduct expenses other than
marketing expenses for the distribution of the Project in
interactive/computer based format, which are to be agreed between the
Parties and which will not exceed 5% of the gross proceeds from such
distribution.
8.3 The commissions to be deducted by publishers of the Project in CD-Rom
or other multimedia format will not exceed 30% of the gross proceeds
derived from such exploitation of the Project. This amount includes
commission payable to sub-distributors. After deduction of such
distribution fees and marketing expenses, which shall be preapproved
as to amount and whether to be classified as distribution fees or
marketing expenses by Crawfords, which approval shall not be
unreasonably withheld. the balance of the gross proceeds derived from
such exploitation will be paid into the Joint Account.
9. INSURANCE
---------
The Parties agree that for any of the Projects which reach the production
stage which means principal photography of the cinematograph film component
of the Content, they will take out appropriate insurances.
8
<PAGE>
10. COPYRIGHT
---------
10.1 Subject to the rights of any Third Party Investors, the Parties will
own all rights (including Copyright) in the completed Content as
tenants in common in equal shares. BII and SAND, as set forth in the
attached Agreement, will own all rights (including Copyright) in the
Software.
10.2 The Parties will own the copyright in the Original Content as tenants
in common in equal shares. Crawfords hereby assigns to BII 50% of all
present and future rights owned or to be owned by Crawfords in
respect of the Original Content. Assignments (or exclusive licenses)
of rights in Original Content to be made by third party owners of
Original Content will be assigned to the parties as tenants in common
in equal shares. The physical materials created for each Project by
Crawfords vests in the Joint Venture.
10.3 Assignments and licenses of Third Party Materials will be assigned or
licensed (as the case may be) to the parties jointly as tenants in
common in equal shares.
10.4 Notwithstanding anything herein to the contrary, the Parties
acknowledge that the Software, including without limitation the SAND
engine and the "look and feel" of the Software, is owned by BII and
shall not be considered an asset of the Joint Venture or Crawfords
and that only BII has the right to use, sublicense, transfer or
otherwise exploit the Software. Therefore, neither Crawfords nor the
Joint Venture have any right to exploit Ancillary Rights in regard to
the Software and, furthermore, in the event the Parties do not
jointly develop further Projects, the right of Crawfords or the Joint
Venture to use the Software shall only be pursuant to a separate
license agreement to be mutually agreed to by the Parties in good
faith.
11. PROFIT SHARE
------------
The Parties will share equally in all proceeds derived from the
exploitation of the Projects and the Ancillary Rights unless otherwise
specified in this Agreement.
12. MANAGEMENT OF THE JOINT VENTURE:
-------------------------------
12.1 Each party may appoint and remove from time to time two (2)
representatives (or other number as the Parties may agree) to
represent them in the management of the Joint Venture, Crawfords
first representatives are JOHN KEARNEY and BRIAN DOUGLAS.
12.2 BII's first representatives are KEVIN BERMEISTER and MARK MILLER.
9
<PAGE>
12.3 The representatives of the Parties will meet in order to discuss any
matter relating to the Joint Venture. The meetings shall be property
minuted and shall take place:
(a) monthly at a time and place to be agreed between the Parties;
(b) any other time upon either Party giving three (3) days' notice
to the other Party requesting a meeting.
12.4 At the commencement of each meeting held in accordance with clause
11.2, the representatives will appoint from among themselves a Chair
of the meeting alternating between the representatives from Crawfords
and the representatives of BII. The Chair of each meeting will not
have a casting vote.
13. CO-EXECUTIVE PRODUCERS
----------------------
Each Party will appoint a co-executive producer to act in a joint capacity
during the development of the Projects. The co-executive producer appointed
by Crawfords is John Kearney. The co-executive producer appointed by BII is
Kevin Bermeister.
14. TRADEMARKS
----------
14.1 Neither Party may use the titles of the Projects or the Content other
than for the Joint Venture unless otherwise agreed by the Parties.
14.2 Neither Party may use the Projects titles or the Content other than
in accordance with this Agreement.
15. CREDITS
-------
For each Project which is produced, the Parties will receive the following
credits in the credit section of each interactive multipath movie title:
(a) The Parties shall each receive for each Project, additional
credits as appropriate to the roles which each Party plays in
the production of each Project.
(b) Presentation credit shall be granted in alphabetical order as
follows: "Brilliant Interactive Ideas and Crawford Productions
presents".
10
<PAGE>
16. BANK ACCOUNTS
-------------
16.1 The Parties will open bank accounts in their joint names with a bank
to be agreed between the Parties as follows:
(a) on first receipt of any production funds for the Projects an
account to be called the "Production Account":
(b) on receipt of any profits derived from exploitation of the
Projects on account to be called the "Returns Account".
16.2 All moneys received by the Parties for production of the Project will
be paid into the Production Account. All moneys expended by the
Parties on production of the Projects (in accordance with the
Production Budget) to be paid out of the Production Account.
16.3 All moneys derived from exploitation of the Projects including
exploitation of the Content and exploitation of the Ancillary Rights
will be paid into the Returns Account.
17. BOOKS OF ACCOUNT AND AUDIT
--------------------------
Each Party must keep proper books and records of its income, expenditure,
assets and liabilities which relate in any way to the Joint Venture and
must upon reasonable notice, provide access to such books and records to
the other Party.
18. PUBLICITY
---------
The Parties will not make any public announcement or representation to the
media about the Joint Venture or any matter relating to the Joint Venture
or either Party's obligations under the Joint Venture without the written
consent of the other Party.
19. CONFIDENTIALITY
---------------
Each Party AGREES that without the prior written consent of the other
------
Party it will not make any statement or announcement or give any
information directly or indirectly in connection with Joint Venture, the
Project, the Parties' plans in respect of the Projects, the provisions of
this Agreement or concerning the affairs of the other Party to any person
other than to the Parties' professional advisers.
11
<PAGE>
20. TERMINATION
-----------
20.1 Either Party may terminate this Agreement if:
(a) the other Party breaches a material term of this Agreement and
does not remedy such breach upon the first Party giving 21 days'
notice that such breach must be remedied;
(b) the other Party has an administrator, a liquidator or
provisional liquidator or receiver and manager appointed to it;
(c) the other Party has an application [other than a frivolous or
vexatious application) or an order made for its winding up or
dissolution or a resolution passed for its winding up or
dissolution other than for the purposes of a reconstruction or
amalgamation on terms approved by the other Party;
(d) The other Party causes or threatens to cease carrying on
business or stops payment of its debts generally;
(e) The other Party is unable to pay its debts as and when they will
due;
(f) the other Party enter into voluntary liquidation;
(g) the other Party is declared bankrupt.
20.2 On termination of this Agreement;
(a) the Joint Venture will be dissolved; and
(b) any assets, including the rights of the Parties in the Content
as co-tenants, owned by the Parties as part of the Joint Venture
will be offered for sale with each Party having the right to bid
for those assets. If the assets are sold, the proceeds of such
sale will be distributed in the following order;
(i) to pay any third party liabilities incurred by the
Parties as part of the Joint Venture;
(ii) to reimburse the Parties for any costs incurred by the
Parties arising out of this Agreement;
(iii) the balance (if any) to be shared equally between the
Parties.
12
<PAGE>
21. RELATIONSHIP BETWEEN THE PARTIES
--------------------------------
21.1 The Joint Venture is limited to the terms and conditions set out in
this Agreement and does not constitute a joint venture between the
Parties for any other purpose.
21.2 This Agreement does not constitute a partnership of any kind between
the parties nor does it render either Party liable for the debts,
obligations or liabilities of the other Party.
21.3 Neither Party may enter into an agreement or incur liabilities on
behalf of the other Party or on behalf of the Joint Venture without
the prior written consent of the other Party except as otherwise
specified in this Agreement or in any other agreement between the
Parties.
22. NOTICES
-------
Any notice or other communication to be served or given to a Party must be
in writing and be hand delivered or sent by registered post or facsimile to
the address of that Party in this Agreement (or at another address if that
Party may notify the other in writing) and is deemed sufficiently served or
given it:
(a) in the case of hand delivery on the date of delivery;
(b) in the case of registered post, 48 hours after being sent by
registered post;
(c) in the case of facsimile upon receipt of the "transmission OK" or
equivalent acknowledgment of transmission.
23. ENTIRE AGREEMENT
----------------
23.1 This Agreement contains the whole agreement between the Parties
concerning the subject matter of this Agreement. There are no other
agreements, warranties, undertakings, terms, conditions or work
representations (other than those implied by law and incapable of
negation).
23.2 This Agreement may be amended only by another agreement executed by
the Parties.
23.3 This Agreement may be executed in any number of counterparts all of
which taken together constitute one and the same document.
13
<PAGE>
23.4 If any of this Agreement is rendered as void or ineffective by
operation of law, the validity or effectiveness of the remainder is
unaffected.
23.5 Failure of a Party to enforce at any time any provision of this
Agreement or the granting of any time or other indulgence does not
constitute a waiver of that provision or the right of that party to
enforce that or any other provision at any time.
24. ASSIGNMENT
----------
The rights of the Parties arising out of or under this Agreement are not
assignable by either Party without the prior written consent of the other
Party which shall not be unreasonably withheld.
25. FURTHER STEPS
-------------
Each Party will do all things and execute all further documents necessary
to give full effect to this Agreement.
26. COSTS AND STAMP DUTY
--------------------
Each Party will bear their own legal costs arising out of the preparation
of this Agreement.
27. GOVERNING LAW
-------------
This Agreement is governed by the laws of Victoria, Australia, and the
Parties submit to the exclusive jurisdiction of the Courts of that State.
IN WITNESS WHEREOF the parties hereto have hereunder set their hands and seals
- ------------------
the day and year first hereinbefore written.
SIGNED for and on behalf of )
- ------
CRAWFORD PRODUCTIONS PTY LTD )
- ----------------------------
by its duly authorized officer )
in the presence of: )
/s/ John Kearney
_______________________________ Witness
SIGNED for and on behalf of )
- ------
BRILLIANT INTERACTIVE IDEAS PTY LTD )
- -----------------------------------
by its duly authorized officer )
in the presence of: )
/s/ Mark Miller
_______________________________ Witness
14
<PAGE>
EXHIBIT 11.1
BRILLIANT DIGITAL ENTERTAINMENT, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 3, 1993 YEAR ENDED JUNE 30,
(INCEPTION) ----------------------
TO JUNE 30, 1994 1995 1996
----------------- ---------- ----------
<S> <C> <C> <C>
Weighted average shares outstanding... 4,420,000 4,424,420 4,473,040
========== ========== ==========
Net Income (Loss)..................... $ (249,480) $ (423,853) $ 553,412
========== ========== ==========
Net Income (Loss) per common share.... $ (0.06) $ (0.10) $ 0.12
========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
1. Brilliant Interactive Ideas, Pty. Ltd., an Australian corporation.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated September 13, 1996, in the Registration Statement
Form S-1 and related Prospectus of Brilliant Digital Entertainment, Inc. for
the registration of 2,300,000 shares of its Common Stock.
Ernst & Young LLP
September 15, 1996
Los Angeles, California
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 53,061
<SECURITIES> 0
<RECEIVABLES> 657,550
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 717,474
<PP&E> 362,457
<DEPRECIATION> (164,185)
<TOTAL-ASSETS> 915,746
<CURRENT-LIABILITIES> 1,045,179
<BONDS> 0
0
0
<COMMON> 4,420
<OTHER-SE> (133,853)
<TOTAL-LIABILITY-AND-EQUITY> 915,746
<SALES> 2,053,877
<TOTAL-REVENUES> 2,053,877
<CGS> 738,842
<TOTAL-COSTS> 804,748
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,762
<INCOME-PRETAX> 553,412
<INCOME-TAX> 0
<INCOME-CONTINUING> 553,412
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 553,412
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
