U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from __________ to __________
Commission file number: 0-20102
CAPITOL MULTIMEDIA, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 52-1283993
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
200 Baker Avenue, Suite 300
Concord, MA 01742
(Address of principal executive office)
(508) 287-5888
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Number Outstanding Shares
Title of Class as of August 9, 1997
-------------- --------------------
Common Stock, $.10 Par Value 6,032,065
Transitional Small Business Disclosure Format: Yes [ ] No [X]
Page 1 of 13
<PAGE>
CAPITOL MULTIMEDIA, INC.
JUNE 30, 1997
FORM 10-QSB
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1997
and March 31,1997 3
Condensed Consolidated Income Statements for the
three months ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
three months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis or Plan of
Operation 8
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 12
ITEM 2. Changes in Securities 12
ITEM 3. Defaults Upon Senior Securities 12
ITEM 4. Submission of Matters to a Vote of Security Holders 12
ITEM 5. Other Information 12
ITEM 6. Exhibits and Reports on Form 8-K 12
Signatures 13
See accompanying notes.
Page 2 of 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Capitol Multimedia, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 March 31
1997 1997
----------------------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,365,877 $ 760,065
Short-term investments 598,415 997,036
Accounts receivable, net of allowance for doubtful accts 912,555 1,027,307
Notes and guaranteed royalties receivable 250,000 250,000
Prepaid expenses and other current assets 65,083 76,602
----------------------------
Total current assets 5,191,930 3,111,010
Property and equipment: 882,415 1,629,249
Less: accumulated depreciation and amortization (522,347) (970,874)
----------------------------
360,068 658,375
Notes and guaranteed royalties receivable 1,092,356 1,073,600
Goodwill net of accumulated amortization 806,503 827,182
Other long-term assets 187,904 240,872
----------------------------
Total assets $ 7,638,761 $ 5,911,039
============================
Liabilities and shareholders' equity Current liabilities:
Accounts payable and accrued liabilities $ 428,608 $ 430,768
Unearned revenue and other current liabilities 455,000 395,382
----------------------------
Total current liabilities 883,608 826,150
Notes payable to related parties 1,552,069 1,552,069
Deferred rent 79,880 83,328
----------------------------
Total liabilities 2,515,557 2,461,547
Shareholders' equity:
Common stock, $.10 par value 685,715 685,715
Additional paid-in capital 16,747,202 16,747,202
Accumulated deficit (10,259,369) (11,933,081)
----------------------------
7,173,548 5,499,836
Less treasury stock, at cost (2,050,344) (2,050,344)
----------------------------
Total shareholders' equity 5,123,204 3,449,492
----------------------------
Total liabilities and shareholders' equity $ 7,638,761 $ 5,911,039
============================
</TABLE>
See accompanying notes
Page 3 of 13
<PAGE>
Capitol Multimedia, Inc.
Condensed Consolidated Income Statements
Three Months Ended
June 30
1997 1996
---------------------------
--------(Unaudited)--------
Revenue
Services $ 796,248 $ 1,012,549
Software license 122,721 --
--------------------------
Total revenue 918,969 1,012,549
Cost of services: 524,897 --
--------------------------
Gross margin 394,072 1,012,549
Operating expenses:
Research and development 222,797 549,152
General and administrative 323,788 427,260
Sales and marketing 124,344 --
Amortization of goodwill and developed software 30,680
--------------------------
Total operating expenses 701,609 976,412
Operating income (loss) (307,537) 36,137
Other income (expense):
Interest and other income, net 68,797 60,003
Interest expense (47,652)
Gain on sale of assets 2,037,104 --
--------------------------
Income before income taxes 1,750,712 96,140
Provision for income taxes 77,000 14,400
--------------------------
Net income $ 1,673,712 $ 81,740
==========================
Net income per share $ .26 $ .02
==========================
Weighted average number of shares outstanding 6,914,348 4,832,065
==========================
See accompanying notes.
Page 4 of 13
<PAGE>
Capitol Multimedia, Inc.
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
June 30
1997 1996
--------------------------
------- (Unaudited) ------
<S> <C> <C>
Operating Activities
Net income $ 1,673,712 $ 81,740
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation of property and equipment 47,228 43,626
Amortization of goodwill and developed software 30,680
Gain on sale of assets (2,037,104)
Changes in assets and liabilities (net of effect from disposition):
Accounts receivable (52,749) (241,622)
Prepaid expenses and other current assets 2,581 4,182
Long-term notes, royalties, and other assets 15,821 (18,756)
Accounts payable and accrued liabilities (39,579) 132,161
Unearned revenue and deferred rent 93,588 (48,264)
--------------------------
Net cash used in operating activities (265,822) (46,933)
Investing Activities
Purchases of short-term investments (399,628)
Proceeds from sales of short-term investments 398,621 326,210
Proceeds from sale of assets 2,509,758
Capital expenditures (36,745) (67,930)
--------------------------
Net cash provided by (used in) investing activities 2,871,634 (141,348)
Financing Activities
Proceeds from sale of common stock -- --
--------------------------
Net cash provided by financing activities -- --
--------------------------
Net increase (decrease) in cash and cash equivalents 2,605,812 (188,281)
Cash and cash equivalents at beginning of period 760,065 1,961,393
--------------------------
Cash and cash equivalents at end of period $ 3,365,877 $ 1,773,112
==========================
</TABLE>
See accompanying notes.
Page 5 of 13
<PAGE>
CAPITOL MULTIMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Statement of Information Provided
The accompanying unaudited condensed consolidated financial statements, which
are for interim periods, have been prepared in accordance with Form 10-QSB
instructions and do not include all disclosures provided in the annual
consolidated financial statements. These unaudited condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the footnotes thereto contained in the Annual Report on
Form 10-KSB for the year ended March 31, 1997 of Capitol Multimedia, Inc. (the
"Company"), as filed with the Securities and Exchange Commission. These results
have been determined on the basis of generally accepted accounting principles
and practices applied consistently with those used in the preparation of the
Company's March 31, 1997 Annual Report on Form 10-KSB. The March 31, 1997
balance sheet was derived from audited consolidated financial statements, but
does not include all disclosures required by generally accepted accounting
principles.
2. Reclassifications
Certain amounts in the June 30, 1996 Statement of Operations and Statement of
Cash Flows have been reclassified to conform to the June 30, 1997 presentation.
3. Sale of select multimedia assets and acquisition of Client Server
Technologies, Inc. (CSTI)
On April 16, 1997, the Company sold selected multimedia assets to Davidson &
Associates (Davidson) for $2,509,759 in cash. The assets that were sold include
machinery and capital equipment utilized in art, animation and audio production
in St. Petersburg, Russia, and Concord, Mass. The net asset value of assets
transferred was $472,655. As part of the transaction, the Company amended its
software development contract with Blizzard Entertainment (the Company was paid
all related receivables from the contract) , entered into a work-for-hire
agreement with Davidson related to software engineering services, and assigned
and transferred its present Concord, Massachusetts office lease to Davidson. The
Gain on Sale resulting from this transaction is $2,037,104.
On March 31, 1997, the Company acquired all of the outstanding stock of CSTI for
$3,853,060. The purchase price is composed of 1,200,000 unregistered shares of
the Company's common stock discounted to a value of $1,050,000, issuance of
non-interest bearing convertible long-term notes totaling $1,945,000 to sellers
and discounted to a value of $1,552,069, and cash payments totaling $1,250,991.
Debt holders have the right to convert $945,000 out of the $1,945,000 in
interest and principal under the notes into shares of common stock at a $3.00
per share conversion price in December 1998. The transaction was accounted for
under the purchase method of business combinations. As a result of the
acquisition, $827,182 of goodwill was recorded which will be amortized on a
straight line basis over 10 years, and $2,200,000 of "In-Process Technology"
which was written off at March 31, 1997.
Page 6 of 13
<PAGE>
CAPITOL MULTIMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental pro forma results of operations, assuming the above sale and
acquisition were consummated prior to April 1, 1996, are presented below.
Three Months Ended
June 30
1997 1996
--------------------------
-------- (Unaudited) ------
Total revenue $ 918,969 $ 1,303,642
Cost of services: 442,349 398,629
--------------------------
Gross margin 476,620 905,013
Operating expenses:
Research and development 222,797 220,217
General and administrative 323,788 437,267
Sales and marketing 124,344 106,567
Amortization of goodwill and developed software 30,680 30,680
--------------------------
Total operating expenses 701,609 794,731
Operating income (loss) (224,989) 110,282
Other income (expense):
Interest and other income, net 68,797 85,514
Interest expense (47,652) (45,000)
--------------------------
Income (loss) before income taxes (203,844) 150,796
Provision for income taxes -- 14,628
--------------------------
Net income (loss) $ (203,844) $ 136,168
==========================
Net income (loss) per share $ (.03) $ .02
==========================
Weighted average number of shares outstanding 6,032,065 6,032,065
==========================
4. Subsequent Event
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted for periods ending
after December 17, 1997 including interim periods. At that time, the Company
will be required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options
will be excluded. The impact of this new pronouncement has not been presented
since the Company has not computed the effect at this time.
Page 7 of 13
<PAGE>
CAPITOL MULTIMEDIA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Business Developments
During the quarter ended June 1997, the Company sold certain of its
multimedia assets to Davidson, a division of CUC International, Inc. The Company
retained all rights to its fourteen (14) multimedia CD-ROM products currently on
the market, three (3) new CD-ROM titles , all software tools and engines, and
software development capabilities in the United States and Russia. The Company's
current CD-ROM products are targeted primarily at children ranging from 3 to 14
years of age and are distributed by Davidson and Broderbund Software Inc.
(Broderbund).
The quarter ended June 30, 1997 is the first quarter to include results
from CSTI which the Company acquired on March 31,1997. This acquisition provided
the Company an entry into the supply chain management sector of the business
software market, encompassing the planning and control of material and resources
from order entry through warehousing and logistics to customer delivery. During
the quarter, CSTI signed license and service arrangements with Teleport
Communications Group Inc.(TCG) and Nortel Communications (Nortel) valued in
excess of nine hundred thousand dollars ( $900,000). Revenue from these
agreements should be recognized over the balance of fiscal 1998.
Presentation
Since the Company's April 1997 sale of select multimedia assets and the
March 1997 acquisition of CSTI, the Company has focused on the supply chain
management segment of the business software market , but continues to sell
existing multimedia software titles through its distribution channels.
Accordingly, the discussion and analysis of the Company's results of operations
compares pro forma results for the three months ended June 30, 1997 to pro forma
results for the three months ended June 30, 1996. This pro forma presentation,
which is included in the notes to condensed consolidated financial statements,
assumes that the sale and acquisition had occurred on March 31, 1996. The
Company believes such comparison provides a more meaningful analysis of current
and prior fiscal year results.
Net Sales
The composition of net sales for the three months ended June 30, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
June 30 June 30 % $
1997 1996 Change Change
---------------------------------------------------
<S> <C> <C> <C> <C>
Business software $ 886,619 $ 914,593 (3%) $ (27,974)
Multimedia consumer software sales
and royalties 32,350 389,049 (92%) (356,699)
---------------------------------------------------
Total net sales $ 918,969 $1,303,642 (30%) $ (384,673)
===================================================
</TABLE>
Revenues from business software decreased 27,974 or 3% on a pro forma basis
for the quarter ended June 30, 1997 versus the comparable period in 1996. This
decrease is attributable to a decrease in software license revenue partially
offset by increases in consulting and support
Page 8 of 13
<PAGE>
CAPITOL MULTIMEDIA, INC.
maintenance revenue. License revenue recognition fluctuates with customer
acceptance of the delivered product and product sales to new and existing
customers. The Company is expanding all phases of sales and marketing and has
recently hired a Vice President of Sales and Marketing. The Company is committed
to a substantial investment in and expansion of marketing efforts and alliances.
The Company expects that business software revenue will increase above fiscal
1997 levels during fiscal 1998.
Consumer software sales and royalties decreased $356,699 or 92% primarily
due to the continued competitive conditions of the edutainment CD-ROM market,
oversupply of juvenile edutainment CD-ROM products, intensified competition and
limited retail shelf space. There was also a $17,222 decrease in royalties
relating to the Company's CD-i titles. The Company will not develop new
multimedia products in the foreseeable future, but has three (3) completed
action adventure titles to sell or license. The Company entered into a
distribution agreement in April, 1997 with Davidson to distribute its Magic
Tales series under the Fisher Price label. The Company's outlook on revenue from
consumer software sales and royalties is dependent on the sale or license of the
three new multimedia products.
The level of net sales realized by the Company in any quarter is
principally dependent on the portion of projects completed, the number of new
software licenses sold and the number of titles shipped for published consumer
software titles. The purchase of supply chain management solutions requires a
significant commitment of capital and resources on the part of the customer, the
sales cycles are long and average from six to nine months. As a result, revenue
recognition is subject to many risks such as budgetary cycles, changes in the
business of a customer and overall economic trends that are not controllable by
the Company. Quarterly results have varied significantly in the past and are
likely to fluctuate in the future as a result of new orders timing, product
development expenditures, the number and timing of new product completions, and
multimedia product shipments and returns. A significant portion of the Company's
operating expenses are fixed and planned expenditures in any given quarter are
based on sales and revenue forecasts. Accordingly, if net sales do not meet the
Company's expectations in any given quarter, operating results and financial
condition could be adversely and disproportionately affected because a
significant portion of the Company's expenses do not vary with revenues. As a
result of these and other factors, the Company's results of operations and
financial condition for any period are inherently difficult to predict. Any
significant change from levels expected by securities analysts or shareholders
could result in substantial volatility in the trading price of the Company's
common stock.
Net sales derived from the Company's published multimedia products are typically
highest in the Company's second and third quarters ending in September and
December each year due primarily to the increased demand for products for the
calendar year-end holiday selling season. There can be no assurance, however,
that any quarterly fluctuations based on seasonality will continue.
Cost of Services
Cost of services are incurred in connection with the sale of supply chain
management software. It consists of costs associated with consulting and
implementation services that are sold as part of a total supply chain management
solution, and costs associated with providing support to customers. These cost
increased $43,720 or 11% during the three months ended June 30, 1997 versus
1996. The Company expects to increase the number of consulting staff, and to
utilize its research and development staff as well as its software engineering
capabilities at the St. Petersburg, Russia facility as a means to grow
consulting revenue. To the extent that the Company's revenues do not increase at
anticipated rates, the hiring of additional consultants could adversely affect
the Company's gross margins. The Company expects this expense to increase in
absolute dollars, but not as a percentage of sales during fiscal 1998.
Page 9 of 13
<PAGE>
CAPITOL MULTIMEDIA, INC.
Research and Development
Research and development expense increased $2,580 or only 2% during the
three months ended June 30, 1997 versus the comparable period in 1996. The
Company expects research and development to increase during fiscal year 1998 as
a result of an expansion of product development for its supply chain management
software. There can be no assurance that the Company will be able to anticipate,
evaluate, and adapt to changes in platforms and evolving technologies, or to do
so in a timely or cost effective manner. The Company expects that the fiscal
year 1998 expense will be below the level of 1997 as a result of the sale of its
art, animation and audio production capabilities to Davidson. The Company's
research and development resources in St. Petersburg, Russia are significantly
reduced from prior years, and as a result is less vulnerable to changes in the
political and economic uncertainties associated with Russia.
Depreciation and Amortization
Depreciation and amortization only slightly changed on a pro form basis.
The Company expects depreciation during fiscal year 1998 to approximate the
fiscal 1997 level, but the acquisition of CSTI will increase the amortization of
goodwill and developed software. The total amortization costs for fiscal 1998
are expected to be approximately $120,000.
General and Administrative
General and administrative expenses decreased $113,479 or 26% during the
three months ended June 30, 1997 versus the comparable period in 1996 as a
result of the consolidation of the Bethesda office into Concord and the
resulting decrease in administrative staff. A significant portion of the
Company's operating expenses are fixed, and planned expenditures in any given
quarter are based on sales and revenue forecasts. Accordingly, if products are
not completed and/or shipped on schedule and net sales do not meet the Company's
expectations in any given quarter, operating results and financial condition
could be adversely affected. Given the Company's recent acquisition and sale of
certain assets, as well as, the consolidation of operations in November of 1996,
the Company expects general and administrative expenses on a pro forma basis to
decrease in absolute dollars and as a percent of sales in fiscal 1998.
Sales and Marketing
Sales and marketing expense increased $17,777 or 17% on a pro forma basis
during the three months ended June 30, 1997 versus the comparable period in
1996. This item includes personnel related costs, as well as, those costs
related to facilities, travel, trade shows, advertising and promotions. Past
CSTI expenditures on sales and marketing were substantially below industry
averages and the Company is committed to an investment in sales and marketing
efforts and alliances. This investment is expected to generate an increase in
future revenue. However, the benefits of such expenditures are not expected to
be realized during fiscal 1998. There can be no assurance that the Company will
be able to realize the benefits from this investment. The Company expects sales
and marketing expenses to increase in absolute dollars and as a percentage of
sales during fiscal 1998.
Page 10 of 13
<PAGE>
CAPITOL MULTIMEDIA, INC.
Gain on Sale of Assets
The gain of $2,037,104 resulted from the sale of select multimedia assets to
Davidson for $2,509,759 in cash. The assets that were sold include machinery and
capital equipment utilized in art, animation and audio production in St.
Petersburg, Russia, and Concord, Mass. This gain is excluded from the pro forma
income statement.
Provision for Income Taxes
The provision for income taxes represents alternative minimum tax
liabilities and state income taxes on income earned. The Company expects an
effective tax rate of approximately 4% for fiscal year 1998. This rate differs
from the statutory rate due to anticipated partial recognition of $4,888,000 in
deferred tax assets which were fully reserved at March 1996.
Liquidity and Capital Resources
The Company's primary sources of liquidity are its cash, cash equivalents,
and short-term investments. During the quarter ended June 1997, cash, cash
equivalents, and investments increased $2,207,191 or 126% to $3,964,292. This
increase relates to $2,510,000 in proceeds from the sale of select multimedia
assets, less $ 37,000 in capital expenditures and $266,000 used to fund
operating activities. The Company will use its working capital to finance
ongoing operations and fund the continued expansion of its sales and marketing
resources. Management expects its existing cash and short-term investments, and
cash generated from operations will be sufficient to meet the Company's expected
liquidity and capital needs for fiscal 1998.
At June 30, 1997, the Company had outstanding Series A Warrants to purchase
492,700 shares of Common Stock at $4.37 per share. These warrants expire March
31, 1998, subject to extension by the Company. Pursuant to the redemption
provision in the Warrant Agreement, the Company has the option of redeeming the
warrants on an "all or nothing basis," and, given favorable market conditions,
may do so. Exercise of these warrants would generate approximately $2,153,000 in
cash.
The Company continues to consider investments in or acquisitions of
compatible businesses. However, there can be no assurance that the Company will
make investments in or enter into business combinations with other entities. In
the event that the Company engages in such transactions, it may require
additional financial resources.
Forward Looking Information
Except for the historical information contained in this Form 10-QSB, the
information set forth herein includes forward looking statements that are
dependent on certain risks and uncertainties. Important factors that could cause
the actual results to differ materially from the anticipated results include,
but are not limited to, the anticipated growth of certain market segments; the
positioning, release dates, and acceptance of Company products in the
marketplace; quarterly fluctuations and seasonality; political, social and
economic stability in Russia; the competitive environment and technological
change in the software industry; and dependence on distribution channels and key
personnel, all of which are difficult to predict and many of which are beyond
the control of the Company. Additional information on these and other factors
which could affect the Company's financial condition and/or results of
operations are included in the Company's March 31, 1997 Form 10-KSB and
Registration Statements on Form S-3 (Registration Nos. 33-45725-A and 333-2476)
filed with the Securities and Exchange Commission.
Page 11 of 13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.52 Severance Agreement with Igor Razboff
10.53 Severance Agreement with Dale DeSharone
10.54 Licensing and Distribution Agreement with Davidson & Associates,
Inc.
10.55 Software Publishing and Licensing Agreement with Broderbund
Software, Inc.
11.1 Computation of Earnings Per Share
21.1 List of Capitol Multimedia, Inc. Subsidiaries
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
On June 26, 1997, the Company filed a Form 8-K/A amending the unaudited
financial statements dated December 31, 1996 for Client Server Technologies,
Inc.(CSTI) previously incorporated as Schedule 3.3(a) of Exhibit 2.6 to the
Company's Form 8-K filed on April 11, 1997. The amended financial statements are
included in Schedule 3.3(b)-Client Server Technologies, Inc. Audited Financial
Statements as of December 31, 1996. A pro forma balance sheet as of March 31,
1997 and pro forma statement of operations for the year ended March 31, 1997
were included.
Page 12 of 13
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAPITOL MULTIMEDIA, INC.
(Registrant)
Date: August 13, 1997 /s/James P. Dore
---------------------------
James P. Dore
Controller (Principal Accounting
Officer)
Date: August 13, 1997 /s/Edward Terino
---------------------------
Edward Terino
Chief Financial Officer &
Secretary / Treasurer
Page 13 of 13
EXHIBIT 10.52
SEVERANCE AGREEMENT WITH IGOR RAZBOFF
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement"), entered into on this 25th day of
April, 1997, by and between Capitol Multimedia, Inc., a Delaware corporation
(the "Company"), and Igor Razboff ("Employee").
WITNESSETH
WHEREAS, Employee has been a key employee of the Company and has made
outstanding contributions to the Company;
WHEREAS, the Company desires to reward Employee for Employee's loyalty and
distinguished service to the Company prior to the Employee's resignation from
the Company;
WHEREAS, the Company desires to provide Employee, as additional
compensation for her service to the Company, with a severance package over and
above the compensation currently earned by Employee;
NOW, THEREFORE, in consideration of the above recitals, the terms and
covenants of this agreement, and other valuable consideration, the receipt and
sufficiency of which is acknowledged, the parties agree as follows:
1. Severance. Employee and the Company agree that Employee's
employment with the Company and that certain employment agreement dated
February 13, 1995, as amended and modified, between the Company and the
Employee will terminate on April 25, 1997 (the "Termination Date"). Upon
the termination of the Employee's employment on such date, Employee shall
receive, subject to Employee's execution of a letter in the form attached
hereto (a "Waiver Letter") as required by Section 11 hereof, a lump sum
cash payment equal to $138,173.14, as consideration for fiscal 1997 bonus,
unpaid fiscal 1998 salary through April 25, 1997, medical benefits, accrued
vacation through April 25, 1997, unused personal allowance ($572.58), all
other employee benefits, and for consulting services rendered to Capitol
over the next twelve months.
2. Consulting Services. As part of the consideration for the severance
payment, Employee agrees to provide a minimum of 5 hours of consulting
services per week to the Company to support the remaining business software
business, including, but not limited to, expanding the supply chain
management software business, assisting in the execution of other strategic
initiatives, and building a business software development organization that
will support all of Capitol's businesses.
3. Covenant Not to Compete. Whereas, the Employment Agreement dated
February 13, 1995 included a covenant not to compete (paragraph 17), which
covered a period beyond the term of
1
<PAGE>
EXHIBIT 10.52
SEVERANCE AGREEMENT WITH IGOR RAZBOFF
employment, Capitol agrees to waive the survival of any post contract
conditions related to confidentiality and non-compete related to the assets
sold to Davidson & Associates, Inc.
4. Board of Directors Seat. Whereas Employee currently serves as a
member of the Company's Board of Directors and is the Chairman of the
Board, the Company will nominate employee for reelection to the Board for
1998 at its 1997 Annual Meeting of Shareholders and nominate Employee to
serve as Chairman of the Board for the same period.
5. Stock Options. In substitution of the options previously granted to
Employee, the Company hereby grants to Employee under the Company's Amended
and Restated 1991 Non-Qualified Employee Stock Option Plan options to
purchase 50,000 shares of common stock at the exercise price equal to the
fair market value as of April 15, 1997. Such options shall become fully
vested on the Termination Date. Such option shall expire on April 14, 2002.
Employee hereby consents to the issuance of such options in substitution
for the options previously granted Employee by the Company.
6. Payment. The Company shall pay Employee all amounts owed to
Employee under this Agreement not later than five (5) days after the date
of Employee's termination; provided that Employee has executed and
delivered to the Company a Waiver Letter.
7. Governing Law. This Agreement shall be construed and governed in
all aspects by the laws of the State of Delaware (exclusive of conflicts of
law principles).
8. Modification. This Agreement shall not be modified or amended
except as agreed to in writing signed by each party or an authorized
representative of each party.
9. No Waiver. The failure of either party to this Agreement to insist
upon the performance of any of the terms and conditions of this Agreement,
or the waiver of any breach of any of the terms and conditions of this
agreement, shall not be construed as thereafter waiving any such terms and
conditions, but the same shall continue and remain in full force and effect
as if no such forbearance or waiver had occurred.
10. Headings. Titles to the sections of this Agreement are solely for
the convenience of the parties and shall not be used to explain, modify,
simplify, or aid in the interpretation of the provisions of this Agreement.
11. Entire Agreement. This Agreement constitutes the entire agreement
and understanding, and merges and supersedes all prior
2
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EXHIBIT 10.52
SEVERANCE AGREEMENT WITH IGOR RAZBOFF
discussions, agreements and understandings between the parties regarding
the subject matter described herein.
12. Survival of Indemnification. All indemnification obligations
undertaken by the Company on behalf of the Employee whereby the Company has
agreed to indemnify Employee against and in respect of any damages, losses,
claims, or liabilities, including, where applicable, any costs, expenses,
and reasonable fees incident or related thereto (including reasonable
attorney's fees) whether arising by contract or under the Articles of
Incorporation or Bylaws of the Company or otherwise shall survive the
execution of this Agreement, the termination of Employee's employment and
the execution by Employee of a Waiver Letter.
13. Condition to Receipt of Benefits. As a condition precedent to
receiving the benefits provided for under this Agreement, Employee must
sign the attached Waiver Letter on the date of Employee's termination.
This Agreement shall supersede and render null and void any prior
termination agreement between the Company and Employee.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first above written.
/s/ Igor Razboff
------------------------
Igor Razboff
Capitol Multimedia, Inc.,
a Delaware corporation
/s/ Edward Terino
------------------------
By: Edward Terino
Its: Chief Financial Officer
3
EXHIBIT 10.53
SEVERANCE AGREEMENT WITH DALE DESHARONE
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement"), entered into on this 17th day of
April, 1997, by and between Capitol Multimedia, Inc., a Delaware corporation
(the "Company"), and Dale DeSharone ("Employee").
WITNESSETH
WHEREAS, Employee has been a key employee of the Company and has made
outstanding contributions to the Company;
WHEREAS, the Company desires to reward Employee for Employee's loyalty and
distinguished service to the Company prior to the Employee's resignation from
the Company;
WHEREAS, the Company desires to provide Employee, as additional
compensation for her service to the Company, with a severance package over and
above the compensation currently earned by Employee;
NOW, THEREFORE, in consideration of the above recitals, the terms and
covenants of this agreement, and other valuable consideration, the receipt and
sufficiency of which is acknowledged, the parties agree as follows:
1. Severance. Employee and the Company agree that Employee's
employment with the Company and that certain employment agreement dated
February 13, 1995, as amended and modified, between the Company and the
Employee will terminate on April 17, 1997 (the "Termination Date"). Upon
the termination of the Employee's employment on such date, Employee shall
receive, subject to Employee's execution of a letter in the form attached
hereto (a "Waiver Letter") as required by Section 11 hereof, a lump sum
cash payment equal to $130,000, as consideration for unpaid salary, medical
benefits, accrued vacation, all other employee benefits, and for consulting
services rendered to Capitol over the next six months.
2. Consulting Services. As part of the consideration for the severance
payment, Employee agrees to provide a maximum of 5 hours of consulting
services per week to Company to support the remaining multimedia business,
including, but not limited to, entering into additional third party
distribution and/or sales agreements for existing and recently developed
multimedia properties.
3. Covenant Not to Compete. Whereas, the Employment Agreement dated
February 13, 1995 included a covenant not to compete (paragraph 17), which
covered a period beyond the term of employment, Capitol agrees to waive the
covenant not to compete after the termination date, except for (1) a
covenant not to compete in the multimedia production business in St.
Petersburg,
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EXHIBIT 10.53
SEVERANCE AGREEMENT WITH DALE DESHARONE
Russia, and (2) not to hire any former Capitol employees, who are retained
by Davidson & Associates, Inc., both for a period of one year until April
17, 1998.
4 Payment. The Company shall pay Employee all amounts owed to Employee
under this Agreement not later than ten (10) days after the date of
Employee's termination; provided that Employee has executed and delivered
to the Company a Waiver Letter.
5. Governing Law. This Agreement shall be construed and governed in
all aspects by the laws of the State of Delaware (exclusive of conflicts of
law principles).
6. Modification. This Agreement shall not be modified or amended
except as agreed to in writing signed by each party or an authorized
representative of each party.
7. No Waiver. The failure of either party to this Agreement to insist
upon the performance of any of the terms and conditions of this Agreement,
or the waiver of any breach of any of the terms and conditions of this
agreement, shall not be construed as thereafter waiving any such terms and
conditions, but the same shall continue and remain in full force and effect
as if no such forbearance or waiver had occurred.
8. Headings. Titles to the sections of this Agreement are solely for
the convenience of the parties and shall not be used to explain, modify,
simplify, or aid in the interpretation of the provisions of this Agreement.
9. Entire Agreement. This Agreement constitutes the entire agreement
and understanding, and merges and supersedes all prior discussions,
agreements and understandings between the parties regarding the subject
matter described herein.
10. Survival of Indemnification. All indemnification obligations
undertaken by the Company on behalf of the Employee whereby the Company has
agreed to indemnify Employee against and in respect of any damages, losses,
claims, or liabilities, including, where applicable, any costs, expenses,
and reasonable fees incident or related thereto (including reasonable
attorney's fees) whether arising by contract or under the Articles of
Incorporation or Bylaws of the Company or otherwise shall survive the
execution of this Agreement, the termination of Employee's employment and
the execution by Employee of a Waiver Letter.
11. Condition to Receipt of Benefits. As a condition precedent to
receiving the benefits provided for under this Agreement, Employee must
sign the attached Waiver Letter on the date of Employee's termination.
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EXHIBIT 10.53
SEVERANCE AGREEMENT WITH DALE DESHARONE
12. This Agreement shall supersede and render null and void any prior
termination agreement between the Company and Employee.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first above written.
/s/ Dale DeSharone
----------------------
Dale DeSharone
Capitol Multimedia, Inc.,
a Delaware corporation
/s/ Igor R. Razboff
----------------------
By: Igor R. Razboff
Its: Chief Executive Officer
EXHIBIT 10.54
LICENSING AND DISTRIBUTION AGREEMENT WITH DAVIDSON & ASSOCIATES, INC.
LICENSING AND DISTRIBUTION AGREEMENT
This agreement (" Agreement") is entered into as of July 11, 1995 by and between
Davidson & Associates, Inc., a California corporation with its principal place
of business at 19840 Pioneer Avenue, Torrance, CA 90503 ("Davidson") and Capitol
Multimedia, Inc., a Delaware corporation, with its principal place of business
at 7315 Wisconsin Avenue, Suite 800E, Bethesda, MD 20814 ("Capitol").
Whereas, Capitol is a developer and owner of computer software and storybook
content and desires to license same for foreign and domestic distribution; and
Whereas, Davidson desires to license and distribute computer programs developed
by Capitol; and
Now Therefore, by reason of the foregoing premises and in consideration of the
mutual covenants and premises hereinafter set forth, parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following terms will have the
meanings set forth below:
a) Licensed Territory- Worldwide.
b) Work- means the deliverables provided by Capitol to Davidson in
accordance with Exhibit A, attached hereto and incorporated herein.
c) Product(s)- means collectively those application software and related
interactive media products, inclusive of the packaging trademarks, together with
all printed books and booklets, or other materials which refer or relate to the
Products, and any upgrades, updates, new releases, or other modifications to the
Work provided by Capitol.
d) MDF- means marketing development funds spent or allocated by Davidson
for the purposes of marketing the Product(s).
e) Return Reserve Allowance- Davidson will withhold a reserve against
returns, exchanges, refunds, credits and the like in the amount of ten percent
(10%) of Gross Receipts. All undispersed portions of the fund will be liquidated
with the rendition of each of the statements and payments nine (9) months
following the quarter in which the respective Return Reserve Allowance was
originally withheld.
f) Net Receipts- means Gross Receipts, less the Return Reserve Allowance,
cost of goods (approximately $3.50), all public relations expenditures, all MDF
expenditures, and all co-op advertising fund expenditures. The deduction for
public relations, MDF, and co-op advertising expenditures will be limited to
fifteen percent (15%) of the invoiced amounts for all Products actually shipped,
exclusive of sales or use taxes and shipping charges monthly. In the event
public relations, MDF, and co-op advertising expenditures exceed fifteen percent
(15%) of the invoiced amounts for all Products actually shipped, exclusive of
sales or use taxes and shipping charges monthly, the balance shall be carried
forward and added to the allowable expense deductions for future months.
g) Gross Receipts- means the invoiced amounts for all Products actually
shipped, exclusive of sales or use taxes, shipping charges, bad debts, and
credits for returns.
h) Alpha- First playable Work released for testing. The Work will have at
least seventy-five percent (75%) functionality, graphics, sound, video, and
text.
i) Beta- Work released for testing in complete form (one-hundred percent
(100% functionality, graphics, sound, video, and text) and ready to ship in the
opinion of the developer, with the understanding that there may be crashes and
performance issues.
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DAVIDSON & ASSOCIATES, INC. Page 1
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EXHIBIT 10.54
LICENSING AND DISTRIBUTION AGREEMENT WITH DAVIDSON & ASSOCIATES, INC.
j) Script- A written document that sets forth the story and describes all
the graphic elements and animation present in the Product and contains
hand-drawn sketches of the backgrounds and main characters
k) Functional Specifications Document- A written document which describes
how the Product works and includes flowcharts, menus, specific features, a
description of the user interface, on-line help requirements, if any, and
hardware system requirements.
l) Final Audiotape- An audiotape which includes all final dialogue for the
characters and all music and songs to be included in the Title.
OBLIGATIONS OF CAPITOL
2. Delivery of Work. Capitol agrees to develop at its location and at its sole
expense, six (6) software programs and related materials based on international
folktale storybooks created and owned by Capitol (hereinafter the "Title(s)").
The Titles, delivery schedule, and content specifications for same are described
in Exhibit A. Capitol agrees to comply with the delivery in accordance with the
content of Exhibit A and the terms and conditions contained herein. Davidson
must approve the content of a completed milestone before Capitol proceeds to the
next milestone, such approval not to be unreasonably withheld. Should Davidson
be unable to approve the final results of all deliverables, and Capitol will not
for any reason make changes or modifications suggested by Davidson to secure
such approval, the parties agree that senior executives of both will meet to
attempt to resolve any such disagreement. If after such meeting, Davidson
continues to be unable to approve the final content of any Work, Davidson shall
not be required to produce and market the Title derived from such Work. Capitol
agrees to provide to Davidson, concurrent with the delivery of each Title, text,
artwork, and page-layout in electronic format for same.
3. Grant.
(a) License. Capitol hereby grants to Davidson and Davidson hereby accepts
an exclusive, irrevocable, worldwide license and right to use, manufacture or
cause to be manufactured, reproduce electronically and in text form, market and
distribute in a CD-ROM for Macintosh and Windows formats, perform, display,
promote, advertise, sell, and otherwise exploit the Work in a CD-ROM for
Macintosh and Windows format, with the right to sublicense to third parties any
and all proprietary rights contained in or resulting from the Work including,
without limitation, any patents, copyrights, trademarks, trade secrets or other
proprietary rights claimed by Capitol with respect to the Work only in the
Licensed Territory (such license being hereinafter referred to as the
"License").
(b) OEM and Bundling. Davidson shall have the right to sell and license the
Product and the Work through OEM and bundling agreements, subject to the
payments to Capitol in accordance with the terms of Paragraph 12. Davidson shall
also have the right to distribute and to license others to distribute the
Product in their entirety through networks and on-line services. Davidson will
present all proposed OEM, bundling, network, and on-line services opportunities
to Capitol for approval, said approval not to be unreasonably withheld. Capitol
agrees to respond to Davidson's notice of an opportunity described within this
Paragraph 3(b) within one (1) business day of receipt of same.
4. Ownership of Intellectual Property. Capitol shall retain all right and title
to all copyrights and trademarks contained in the Work. Davidson shall not
exploit the intellectual property contained in the Work except as specifically
authorized by this Agreement. Capitol hereby authorizes Davidson to use the
trademarks associated with the Work in connection with the content, packaging,
advertising and sale of the Product.
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DAVIDSON & ASSOCIATES, INC. Page 2
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<PAGE>
EXHIBIT 10.54
LICENSING AND DISTRIBUTION AGREEMENT WITH DAVIDSON & ASSOCIATES, INC.
5. Localization Kit. Capitol agrees to provide to Davidson in accordance with
the schedule included within Exhibit A, a localization kit for each Title of the
Work. The localization kit will be inspected and approved by Davidson prior to
acceptance, such approval to not be unreasonably withheld.
6. Product Quality. Capitol will use commercially reasonable efforts to ensure
the Work is of high quality and free of defects in material and workmanship.
OBLIGATIONS OF DAVIDSON
7. Marketing and Distribution.
(a) Expenditures. Davidson shall use commercially reasonable efforts to
promote and distribute the Product(s) under Davidson's name within the
Territory. Such promotion shall include, but not be limited to advertising the
Product, participating in appropriate trade shows, and directly soliciting
orders from customers for the Product(s). Davidson commits to spending between
seven percent (7%) and ten percent (10%) of Gross Receipts in MDF to support
each Title within a set, but not less than a total of three hundred, twenty-five
thousand dollars ($325,000) in MDF expenditures to support an entire set of
three (3) Titles within the first nine (9) months of release of a set without
prior written approval by Capitol, such approval not to be unreasonably
withheld. A preliminary marketing launch plan is attached as Exhibit B as
representative of the type of expenditures includable for the purposes of
calculating Net Receipts, it may be amended in whole or part at Davidson's sole
discretion. In addition to the MDF, Davidson agrees to spend five percent (5%)
of Gross Receipts for the purpose of a co-op advertising program with its
distributors and dealers.
(b) Published Pricing. Davidson from time to time publishes prices at which
it sells its products to its customers ("Net Pricing"). The Titles shall be
included in Davidson's Net Pricing at twenty-four dollars ($24.00). In the event
of a change in a Title's published net price, Davidson will obtain Capitol's
prior written approval.
8. Storybook Printing. Davidson agrees to print and include with each Product, a
printed storybook version of the Title that is the subject of the Product. The
storybook will be printed from the Work provided by Capitol in accordance with
Paragraph 2 herein.
9. Packaging and Credits.
(a) Davidson will be responsible for the production of all sales and
marketing materials and the manufacture of all packaging and associated
materials for the Titles, said packaging to be approved by Capitol, such
approval not to be unreasonably withheld.
(b) Davidson will display appropriate credit to Capitol for Capitol's
contribution to the Product. This credit will appear in the "About Box"
contained within the Product and on the outside of the Product packaging. Credit
will include the use of the CapDisc(R) name and logo. The tradename "Grandpa
Mouse Tales(R)" will be printed on the outside packaging of all Titles.
10. Ownership of Intellectual Property. Davidson shall retain all rights and
title to all copyrights and trademarks contained in the Product, with the
exception of the copyrights and trademarks owned by Capitol and licensed
hereunder. It is agreed and understood that Davidson shall create and use a
tradename for a line of products within which it will publish the Titles.
The tradename shall be owned by Davidson.
================================================================================
DAVIDSON & ASSOCIATES, INC. Page 3
Page Acknowledgment DAVIDSON /s/ RMD CAPITOL /s/ RB
<PAGE>
EXHIBIT 10.54
LICENSING AND DISTRIBUTION AGREEMENT WITH DAVIDSON & ASSOCIATES, INC.
MISCELLANEOUS
11. Term and Renewal.
(a) Initial Term. This Agreement shall become effective on the date first
above written and shall continue in full force and effect for three (3) years
following the earlier of: (i) initial shipment of the sixth and final Title; or
(ii) forty-five (45) days after receipt of a gold master with respect to the
second Title, unless earlier terminated in accordance with the terms and
conditions hereof.
(b) Automatic Renewal. Unless this Agreement has been terminated as
provided herein or one or both of the parties has served the other with written
notice to the contrary upon no less than ninety (90) days prior to the
expiration of the term of the Agreement, this Agreement shall automatically
renew for an additional period of one (1) year.
(c) Renewal as of Right. If Davidson reaches a sales goal of three hundred
fifty thousand (350,000) units in total sales of all Products, excluding OEM and
bundled units, prior to ninety (90) days before expiration of the initial term,
it shall be entitled, at its discretion, to renew the Agreement for an
additional one (1) year term.
12. Payments and Advances. As consideration for the grant of License, delivery
of Work, and the further obligations of Capitol as described hereunder, Davidson
and Capitol will share equally the Net Receipts. To effectuate this, Davidson
shall pay to Capitol in accordance with Paragraph 11 a payment on the domestic
and international sales of all Products and localized Product in the amount of
one-half (1/2) of Net Receipts. Capitol acknowledges that sales volumes are
speculative and that Davidson therefore makes no representations or warranties
that it or its customers will achieve any particular level of sales volume.
Furthermore, Davidson shall pay Capitol a non-refundable advance, against future
payments resulting from localized Product, in the amount of ninety-thousand
dollars ($90,000) for each Product localization kit accepted by Davidson in
accordance with Paragraph 5 and Exhibit A. Any compensation paid by Davidson to
Capitol shall not be reimbursable.
13. Payments and Statements. Davidson shall account to Capitol with regard to
all Net Receipts within thirty (30) days following the conclusion of each
calendar quarter in which Products are reported sold. Each such accounting
("Statement(s)") shall contain the appropriate calculations relating to the
computation of payments payable to Capitol under this Agreement and such
payments shall be remitted and paid to Capitol with the particular Statement
indicating such amount due. Each Statement shall provide detail by country,
including Gross Receipts, COGS, applicable Return Reserve Allowance, bad debt,
MDF and co-op expenditures (including any carry-overs), and the amount of Net
Receipts retained by Davidson. All Statements hereunder shall be deemed rendered
when deposited, postage prepaid, in the United States mail, addressed to Capitol
at the notice address described in Paragraph 25 herein below. Each Statement and
all items contained therein shall be deemed correct and shall be conclusive and
binding upon Capitol upon the expiration of one (1) year from the date rendered,
unless, within such one (1) year period, Capitol delivers written notice to
Davidson objecting to one or more items of such Statement and such notice
specifies in reasonable detail the items to which Capitol objects and the nature
of and reason for Capitol's objection thereto. In such event Capitol may
exercise its audit rights under Paragraph 14 below, provided said audit
commences within six (6) months from the date Davidson receives written notice
objecting to the Statement.
14. Books of Account and Audits. Davidson shall keep books of account relating
to expenses and the distribution of Products on the same basis and in the same
manner and for the same periods as such records are customarily kept by
Davidson. Capitol may, upon reasonable notice and at its own expense, audit the
applicable records at Davidson's office, in order to verify any Statements
rendered hereunder. Any such audit shall be conducted only by a certified public
accountant whom is not held on retainer by Capitol nor
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DAVIDSON & ASSOCIATES, INC. Page 4
Page Acknowledgment DAVIDSON /s/ RMD CAPITOL /s/ RB
<PAGE>
EXHIBIT 10.54
LICENSING AND DISTRIBUTION AGREEMENT WITH DAVIDSON & ASSOCIATES, INC.
working on a contingency fee and shall take place only during reasonable
business hours and in such manner so as not to interfere with Davidson's normal
business activities. However, no audit may be conducted during the first three
(3) weeks of any calendar quarter. All of the information contained in
Davidson's books and records shall be kept confidential except to the extent
necessary to permit enforcement of Capitol's rights hereunder, and Capitol
agrees that such information inspected and/or copied on behalf of Capitol
hereunder shall be used only for the purposes of determining the accuracy of the
Statements, and shall be revealed only to such employees, agents and/or
representatives of Capitol as necessary to verify the accuracy of the Statements
except to the extent necessary to permit enforcement of Capitol's rights
hereunder. Davidson shall be furnished with a copy of Capitol's auditor report
within thirty (30) days after the completion of such report. In no event shall
an audit with respect to any Statement rendered hereunder commence after the
date on which such Statement has become incontestable pursuant to Paragraph 13
above nor shall any audit continue for longer than ten (10) consecutive business
days nor shall audits be made hereunder more frequently than once annually nor
shall the records supporting any such Statements be audited more than once. In
addition, Davidson shall be responsible for all reasonable documented costs
incurred by Capitol to conduct such an examination should an underpayment of
five (5%) percent or greater be discovered.
15. Sequels, Other Formats, New Titles based on International Folktales, and
Other Media.
(a) Right of First Negotiation. If during the term of this Agreement,
Capitol determines that it wishes to develop and distribute: (i) any Title or
Titles capable of running on other operating system(s) and/or on other media; or
(ii) any sequel to a Title or Titles in any form; or (iii) any new titles in the
Kid Venture Series, Davidson shall have the first right of negotiation to
provide services to Capitol.
(b) Notice and Election. If Capitol decides to develop or distribute any
product described in Paragraph 15(a) above, Capitol shall so notify Davidson in
writing ("New Product Notice"). Davidson shall have the right for a period of
twenty (20) business days after receipt of the New Product Notice, to elect, by
written notice to Capitol, to negotiate to provide services for the product.
(c) Failure to Respond or Agree. If within twenty (20) business days from
receipt of the New Product Notice, Davidson does not elect by written notice to
Capitol to provide services, Capitol shall be released from any obligation with
respect to negotiation with Davidson in connection with such product, and
Capitol shall be free to negotiate with third parties in connection with such
product.
16. Termination.
(a) Termination by Either Party: This Agreement may be terminated forthwith
by either party upon the occurrence of the following, by one party giving
written notice thereof to the other party by registered or certified mail, in
which this Agreement shall terminate on the date set forth in such notice. The
date of mailing said written notice shall be deemed the date on which notice of
termination of this Agreement shall have been given.
(i) If any proceeding in bankruptcy or in reorganization or for the
appointment of a receiver or trustee or any other proceeding under any law
for the relief of debtors shall be instituted by or against the Dealer or
if the Dealer shall make an assignment for the benefit of creditors;
(ii) A material breach by either party of any of the terms of this
Agreement which breach is not remedied by the breaching party to the other
party's satisfaction within thirty (30) days of the breaching party's
receipt of notice of such breach from the other party in the event of a
breach of Paragraph 13 hereunder and within ninety (90) days for all other
breaches.
(b) Effects of Termination or Non-Renewal. Following the effective date of
any termination of this Agreement or expiration of the initial term or any
renewal term: (i) the License granted in Paragraph 3 of this Agreement will be
revoked in accordance with the time period specified within this subparagraph;
and (ii) each party will cooperate with the other in order to effect an orderly
termination of the relationship
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DAVIDSON & ASSOCIATES, INC. Page 5
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EXHIBIT 10.54
LICENSING AND DISTRIBUTION AGREEMENT WITH DAVIDSON & ASSOCIATES, INC.
created by this Agreement, including without limitation, the prompt return of
the masters; and (iii) Davidson may continue to manufacture from all
raw-materials in its possession and sell all Products created during the term of
the Agreement for a period of six (6) months. Davidson will continue to pay
Capitol payments on any Product(s) produced under this Agreement according to
the terms and conditions contained herein, but shall cease all efforts toward
the purchase of further raw-materials, and future development of new Products
relating to the Work, except as described within this Paragraph 16(b). At its
sole discretion, Capitol may elect to purchase from Davidson, at Davidson's
cost, all raw and finished goods in Davidson's possession at termination or
expiration of the initial or renewal term of this Agreement. Davidson will have
no further obligation, whether financial or otherwise, to Capitol after such
termination.
17. Support and Bug Fixes.
(a) Davidson agrees: (i) that its technical representatives, or those to
whom it designates its technical support responsibilities, will provide all
support and assistance with respect to the Products; and (ii) that such
technical representatives will use commercially appropriate efforts to resolve
the problem(s) presented to them. Only to the extent that such technical
representatives are, after the exercise of such commercially appropriate
efforts, unable to resolve a problem(s) so presented will Davidson refer the
problem(s) to Capitol for a resolution or workaround.
(b) For matters referred to Capitol by such technical representatives,
Capitol will endeavor to identify the cause of the alleged malfunction. Capitol
will advise Davidson of a workaround for the problem that will allow continued
utilization of the Products in the manner contemplated by the Product
documentation, or a permanent procedure to correct, avoid, or preclude the
occurrence of the problem in the future. If the solution provided by Capitol is
a workaround, Capitol will thereafter provide a permanent resolution for the
malfunction as soon as possible.
(c) Capitol will have no technical support responsibilities whatsoever with
respect to the Products except as to Davidson.
(d) Capitol will fix all reported bugs, for no additional compensation, on
a priority basis for the first two (2) months after final delivery of any Work,
and on a normal priority basis for the following ten (10) months. Priority basis
to mean Capitol will allocate at least seventy-five percent (75%) of a senior
programmer's time to repair the reported bug(s) until such repair(s) are
complete.
18. Promotional and Complimentary Copies. Davidson shall supply Capitol with
twenty-four (24) commercial copies of each Product at no charge to Capitol.
Additionally, upon request by Capitol, Davidson will provide additional
commercial copies of the Product to Capitol at a price of four dollars ($4) per
copy, plus applicable shipping charges. Capitol agrees not to resell any
software copies obtained under this Paragraph 16. No payment shall be payable to
Capitol for units of the Product distributed by Davidson to any third parties
free of charge for marketing, demonstration, and/or promotional purposes.
19. Assignment. This Agreement will be binding upon and inure to the benefit of
the successors and assigns of the parties hereto. Anything to the contrary
notwithstanding, neither party may assign this Agreement without prior written
approval of the other party.
20. Independent Contractor. The relationship established between Davidson and
Capitol by this Agreement is that of a licensor and a licensee/distributor and
nothing herein contained shall be deemed to establish or otherwise create a
relationship of principal and agent between Davidson and Capitol; it is
understood that both parties are independent contractors who cannot and shall
not be deemed an agent of the other party for any purpose whatsoever, and
neither party nor any of its agents or employees shall have any right or
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DAVIDSON & ASSOCIATES, INC. Page 6
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EXHIBIT 10.54
LICENSING AND DISTRIBUTION AGREEMENT WITH DAVIDSON & ASSOCIATES, INC.
authority to assume or create obligation of any kind, whether express or
implied, on behalf of the other party.
21. Confidentiality. In the course of this Agreement, it is anticipated that the
parties will learn confidential or proprietary information about the other.
Capitol and Davidson will keep confidential this information and any other
information which Capitol and Davidson may acquire with respect to the other's
business, including, but not limited to, information developed and relating to
new products, customers, pricing, know-how, processes, and practices, unless and
until the other party consents to disclosure, or unless such knowledge and
information otherwise becomes generally available to the public through no fault
of the other party. Neither party will disclose to others, without the other's
consent, the fact that it is acting on behalf of the other party and will not
publish on the subject of this relationship without first providing the other
party with the opportunity to review and offer reasonable objection to the
contemplated publication. This undertaking to keep information confidential will
survive the termination of this Agreement. Both parties will require each of his
employees performing Services to execute a Nonemployee Confidentiality
Agreement, if requested by the other party. At the termination of this
Agreement, both parties will return to the other all drawings, specifications,
manuals and other printed or reproduced material (including information stored
on machine readable media) provided by the other party.
22. Competing Products. Capitol represents that it has advised Davidson in
writing prior to the date of signing this Agreement of any relationship with
third parties, including competitors of Davidson, which would present a conflict
of interest with the Services and Work or Product or which would prevent Capitol
from carrying out the terms of this Agreement.
23. Limitation of Liability. THE LIABILITY OF EITHER PARTY, IF ANY, FOR DAMAGES
FOR ANY CLAIM OF ANY KIND WHATSOEVER AND REGARDLESS OF THE LEGAL THEORY, WITH
REGARD TO THE LICENSE GRANTED HEREUNDER OR THE SERVICES PERFORMED HEREUNDER,
SHALL NOT INCLUDE COMPENSATION, REIMBURSEMENT OR DAMAGES ON ACCOUNT OF THE LOSS
OF PRESENT OR PROSPECTIVE PROFITS, EXPENDITURES, INVESTMENTS OR COMMITMENTS,
WHETHER MADE IN ESTABLISHMENT, DEVELOPMENT OR MAINTENANCE OF REPUTATION OR
GOODWILL OR FOR ANY OTHER REASON WHATSOEVER. IN NO EVENT SHALL EITHER PARTY BE
LIABLE TO THE OTHER FOR SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES.
24. Representations and Warranties. Capitol warrants and represents that Capitol
has full right and power to enter into this Agreement; that the Work will be
original; that the Work will not contain any libelous or otherwise unlawful
material or violate any copyright or personal or proprietary right of any person
or entity. Davidson warrants and represents that it has full right and power to
enter into this Agreement.
25. Indemnification.
(a) Davidson shall defend, indemnify and hold harmless Capitol, its
officers, directors, employees and agents from and against any and all
liabilities, damages costs and fees ( including reasonable attorney's
fees ) for any claims or actions arising out of or relating to
Davidson's distribution of the Product(s), and any obligations
Davidson has undertaken to perform for Capitol hereunder. Such
indemnification obligation of Davidson is conditioned upon Capitol
immediately notifying Davidson in a writing that sets
================================================================================
DAVIDSON & ASSOCIATES, INC. Page 7
Page Acknowledgment DAVIDSON /s/ RMD CAPITOL /s/ RB
<PAGE>
EXHIBIT 10.54
LICENSING AND DISTRIBUTION AGREEMENT WITH DAVIDSON & ASSOCIATES, INC.
forth with specificity the claim or action to which such
indemnification obligation applies. Davidson will have the right to
control the defense of each such claim or lawsuit or proceeding
arising therefrom without the prior written approval of Licensee.
(b) Capitol shall defend, indemnify and hold harmless Davidson, its
affiliated companies and partners and their respective officers, directors,
employees and agents from and against any and all liabilities, damages, costs
and fees (including reasonable attorney's fees) for any claims or actions
arising out of or relating to the License(s) granted hereunder and any and all
obligations Capitol has undertaken to perform for Davidson or any
representations and warranties Capitol has made hereunder. Such indemnification
obligation of Capitol is conditioned upon Davidson immediately notifying Capitol
in a writing that sets forth with specificity the claim or action to which such
indemnification obligation applies. Capitol will have the right to control the
defense of each such claim and any lawsuit or proceeding arising therefrom. In
no event will Davidson settle any such claim or lawsuit or proceeding arising
therefrom without the prior written approval of Capitol. In defending against
such claim or action, Capitol may (i) contest; (ii) settle; (iii) procure for
Davidson and its customers the right to continue using the Products, as
applicable; or (iv) modify or replace the Products, as applicable, so that they
no longer infringe. Capitol acknowledges that the warranties and representations
herein shall survive the termination of this Agreement.
26. Governing Law. This Agreement shall be construed in accordance with the
substantive law of the State of New York.
27. Notices. Any notice required under this Agreement will be given by first
class United States mail, postage prepaid with return receipt requested, or by
facsimile, telex, overnight courier or personal delivery to the address of the
receiving party given below. Notices will be deemed effective three (3) days
after the date of mailing thereof; notice by personal delivery or recorded
delivery shall be deemed given on the day of actual delivery. Copies of notices
sent by mail may be sent simultaneously by fax for information purposes only.
To Davidson: Attn.: Nargess Fassih, with a copy to:
Director, New Business Development Attn.: Paula V. Duffy,
Davidson & Associates V.P.- General Counsel
19840 Pioneer Avenue
Torrance, CA 90503
Fax: (310) 793-0601
To Capitol: Attn. with a copy to:
President Attn.: Chief Financial
Capitol Multimedia, Inc. Officer
7315 Wisconsin Avenue
Suite 800 East
Bethesda, MD 20814
Fax: (301) 907-7005/6
28. Equitable Relief. Because of the uniqueness of the services to be performed
by the parties, in addition to the other rights and remedies that the parties
may have for a breach of this Agreement, the parties shall have the right to
enforce this contract, in all of its provisions, by injunction, specific
performance, or other relief in a court of equity.
================================================================================
DAVIDSON & ASSOCIATES, INC. Page 8
Page Acknowledgment DAVIDSON /s/ RMD CAPITOL /s/ RB
<PAGE>
EXHIBIT 10.54
LICENSING AND DISTRIBUTION AGREEMENT WITH DAVIDSON & ASSOCIATES, INC.
29. Survival. The rights and obligations set forth in Paragraphs 4, 8, 11,
14(b), 15, 17, 18, 19, 21, 22, 23, 24, 27, 28 and 31 shall survive the
termination or expiration of this Agreement or any determination that this
Agreement or any portion hereof or exhibit hereto is void or voidable.
30. Waiver. No waiver of any default or breach of this Agreement by either party
shall be deemed a continuing waiver or a waiver of any other breach or default,
no matter how similar.
31. Force Majeure. The obligations of Capitol and Davidson hereunder are subject
to and contingent upon the absence of interference or interruptions such as
strikes, riots, war, invasion, fire, explosion, accident, delays in carriers,
acts of God and all other delays beyond the party's reasonable control, and any
interference with the obligation of either of the parties by any such reason
shall not be deemed a breach thereof, but shall suspend this Agreement for a
reasonable period to allow the effected party to recover from said interference
of interruption. The term of the Agreement as stated in Paragraph 9 shall be
extended by a time period equal to any suspension of the Agreement in accordance
with this Paragraph.
32. Severability. If a provision herein contained shall be held by any court of
competent jurisdiction to be illegal, void or unenforceable, such provision
shall be of no force or effect while such infirmity shall exist, but such
infirmity shall have no effect whatsoever upon the binding force or
effectiveness of any of the other provisions hereof, it being the intention of
the parties hereto that had they, or either of them, known of such infirmity,
they would have entered into a contract, each with the other, containing all of
the other provisions hereof. In the event the infirmed provision causes the
contract to fail of its essential purpose, then the entire Agreement shall fail
and become void.
33. Entire Agreement. This Agreement including all Schedules and Exhibits
constitute and contain the entire agreement between the parties with respect to
the subject matter hereof and supersede any prior oral or written agreements.
Nothing herein contained shall be binding upon the parties until this Agreement
has been executed by each and has been delivered to the parties. This Agreement
may not be changed, modified, amended or supplemented, except in writing signed
by all parties to this Agreement. Each of the parties acknowledges and agrees
that the other has not made any representations, warranties or agreements of any
kind, except as may be expressly set forth herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
DAVIDSON & ASSOCIATES CAPITOL MULTIMEDIA
/s/ Robert M. Davidson /s/ Robert I. Bogin
- ---------------------------------- --------------------------------
Robert M. Davidson, Chairman & CEO Robert I. Bogin, President
July 13, 1995 July 13, 1995
- ------------- -------------
Date Date
================================================================================
DAVIDSON & ASSOCIATES, INC. Page 9
Page Acknowledgment DAVIDSON /s/ RMD CAPITOL /s/ RB
<PAGE>
EXHIBIT 10.54
LICENSING AND DISTRIBUTION AGREEMENT WITH DAVIDSON & ASSOCIATES, INC.
================================================================================
DAVIDSON & ASSOCIATES, INC. Page 10
Page Acknowledgment DAVIDSON /s/ RMD CAPITOL /s/ RB
<PAGE>
EXHIBIT 10.54
LICENSING AND DISTRIBUTION AGREEMENT WITH DAVIDSON & ASSOCIATES, INC.
EXHIBIT A
Capitol shall develop the following Titles in accordance with the Development
Schedules set forth below. Capitol agrees it will not proceed to a subsequent
milestone until the previous milestone has been accepted by Davidson, said
approval not to be unreasonably withheld.
Title 1: Baba Yaga and the Magic Geese
Title 2: Imo and the King
Title 3: The Little Samurai
Title 4: TBD by January 15, 1996
Title 5: TBD by January 15, 1996
Title 6: TBD by January 15, 1996
Capitol shall have the obligation of including Davidson's animated logo in the
splash screen (introductory sequence) of all Titles.
DEVELOPMENT SCHEDULES (FOR ALL TITLES):
Title 1: Baba Yaga and the Magic Geese
Date Milestones
---- ----------
Delivered, Delivery of the Product Development Schedule
Pending
Approval
Delivered, Delivery of final Script and Functional Specifications Document
Pending
Approval
Delivered, Delivery of Final Audiotape
Pending
Approval
07-28-95 Delivery of storybook materials with page layouts
Delivered, Delivery of Alpha version to Davidson QA department
Pending
Approval
07-28-95 Delivery of Beta version and user instruction manual to Davidson
QA department, excluding WIN95
08-11-95 Delivery of Beta version and user instruction
manual to Davidson QA department- WIN 95 platform
08-18-95 Delivery of Golden Master to Davidson
*Dates listed above are for informational purposes only
Title 2: Imo and the King
Date Milestones
Delivered, Delivery of the Product Development Schedule
Pending
Approval
Delivered, Delivery of final Script and Functional Specifications Document
Pending
Approval
================================================================================
DAVIDSON & ASSOCIATES, INC. Page 11
Page Acknowledgment DAVIDSON /s/ RMD CAPITOL /s/ RB
<PAGE>
EXHIBIT 10.54
LICENSING AND DISTRIBUTION AGREEMENT WITH DAVIDSON & ASSOCIATES, INC.
07-14-95 Delivery of Final Audiotape
08-18-95 Delivery of storybook materials with page layouts
08-04-95 Delivery of Alpha version to Davidson QA department
08-18-95 Delivery of Beta version and user instruction manual to Davidson
QA department
09-01-95 Delivery of Golden Master to Davidson
* Dates listed above are for informational purposes only.
Title 3: The Little Samurai
Date Milestones
---- ----------
Delivered, Delivery of the Product Development Schedule
Pending
Approval
Delivered, Delivery of final Script and Functional Specifications Document
Pending
Approval
07-21-95 Delivery of Final Audiotape
08-18-95 Delivery of storybook materials with page layouts
08-18-95 Delivery of Alpha version to Davidson QA department
09-01-95 Delivery of Beta version and user instruction manual to Davidson
QA department
09-15-95 Delivery of Golden Master to Davidson
* Dates listed above are for informational purposes only.
Title 4: TBD
Date Milestones
---- ----------
1-16-96 Delivery of the Product Concept
__-__-9_ Delivery of final Script and Functional Specifications Document
__-__-9_ Delivery of Final Audiotape
__-__-9_ Delivery of Final Product Specifications including minimum
hardware configurations
__-__-9_ Delivery of storybook material with page layouts
__-__-9_ Delivery of Alpha version to Davidson QA department
__-__-9_ Delivery of Beta version and user instruction manual to Davidson
QA department
__-__-9_ Delivery of Golden Master to Davidson
* Dates listed above are for informational purposes only.
Title 5: TBD
Date Milestones
---- ----------
1-16-96 Delivery of the Product Concept
__-__-9_ Delivery of final Script and Functional Specifications Document
__-__-9_ Delivery of Final Audiotape
__-__-9_ Delivery of Final Product Specifications including minimum
hardware configurations
__-__-9_ Delivery of storybook material with page layouts
__-__-9_ Delivery of Alpha version to Davidson QA department
================================================================================
DAVIDSON & ASSOCIATES, INC. Page 12
Page Acknowledgment DAVIDSON /s/ RMD CAPITOL /s/ RB
<PAGE>
EXHIBIT 10.54
LICENSING AND DISTRIBUTION AGREEMENT WITH DAVIDSON & ASSOCIATES, INC.
__-__-9_ Delivery of Beta version and user instruction manual to Davidson
QA department
__-__-9_ Delivery of Golden Master to Davidson
* Dates listed above are for informational purposes only.
Title 6: TBD
Date Milestones
1-16-96 Delivery of the Product Concept
__-__-9_ Delivery of final Script and Functional Specifications Document
__-__-9_ Delivery of Final Audiotape
__-__-9_ Delivery of Final Product Specifications including minimum
hardware configurations
__-__-9_ Delivery of storybook material with page layouts
__-__-9_ Delivery of Alpha version to Davidson QA department
__-__-9_ Delivery of Beta version and user instruction manual to Davidson
QA department
__-__-9_ Delivery of Golden Master to Davidson
* Dates listed above are for informational purposes only.
================================================================================
DAVIDSON & ASSOCIATES, INC. Page 13
Page Acknowledgment DAVIDSON /s/ RMD CAPITOL /s/ RB
<PAGE>
EXHIBIT 10.54
LICENSING AND DISTRIBUTION AGREEMENT WITH DAVIDSON & ASSOCIATES, INC.
EXHIBIT B
- --------------------------------------------------------------------------------
Marketing Activity $'s Allocated
- --------------------------------------------------------------------------------
Print Advertising $55,000.00
- --------------------------------------------------------------------------------
Direct Mail $5,000.00
- --------------------------------------------------------------------------------
Promotions $25,000.00
- --------------------------------------------------------------------------------
Packaging $78,000.00
- --------------------------------------------------------------------------------
Public Relations $3,200.00
- --------------------------------------------------------------------------------
Consumer Sales Efforts $98,500.00
- --------------------------------------------------------------------------------
Marketing Manpower $21,000.00
- --------------------------------------------------------------------------------
Total* $325,800.00*
-------------
EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
BRODERBUND SOFTWARE, INC.
SOFTWARE PUBLISHING AND LICENSING AGREEMENT
This Agreement, dated February 9, 1996, is made between Broderbund Software,
Inc., a Delaware corporation doing business at 500 Redwood Blvd., Novato, CA
94948 ("Publisher"), and Capitol Multimedia, Inc., a Delaware corporation doing
business at 7315 Wisconsin Avenue, Suite 800E, Bethesda, Maryland 20814
("Author"), and whose federal taxpayer identification number is 52-1283993.
RECITALS
A. Author possesses expertise in the field of multimedia software development
and has developed or is developing the Properties and Works described below.
B. Publisher possesses expertise and is engaged in the business of software
publishing, marketing and distribution, and desires to obtain the rights
transferred by this Agreement for the purpose of publishing the Works.
C. Publisher wishes to develop an ongoing, long-term relationship with Author
for the purpose of publishing future works.
NOW, THEREFORE, the parties agree as follows:
AGREEMENT
1. The Work(s).
1.01 Work(s). Author shall develop at its location and at its sole expense
software programs and related materials based on Gregory & the Hot Air Balloon
and Darby the Dragon (each a "Property" and collectively the "Properties"), as
described herein. Specifically, Author shall develop a Windows/Macintosh CD-ROM
version of each of the Properties (each a "Work" and collectively the "Works").
Author will be responsible for all aspects of product development for the Works.
Author's responsibilities shall include but not be limited to product design,
research, programming, screen writing, art direction, character design, screen
graphics, animation, sound design, sound recording, music composition, music
production, music recording and voice talent. Publisher shall be responsible for
all product testing, quality assurance, packaging, manufacturing, marketing,
promotions, sales, distribution and customer/technical support. Author and
Publisher shall work together in good faith and each shall provide the other
with commercially reasonable support in the other party's area of
responsibility, as appropriate under the circumstances.
Capitol Multimedia (Gregory/Darby) 2/8/96 1
<PAGE>
EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
1.02 Conversions. A Conversion ("Conversion") shall be defined as an
adaptation of a Work to enable it to function on additional computer platforms
other than platforms supporting either (i) the current Macintosh operating
system and any upgrades, derivations, or modifications thereto; or (ii) the
Windows 3.1 or Windows 95 operating system, and any upgrades, derivations or
modifications thereto.
1.03 Sequels. A Sequel ("Sequel") shall be defined as any software program
set chronologically after or before the events depicted in a Work that has one
or more of the following features: a) the title of the Work is contained in the
title or subtitle of the software product; b) the software product is based in
whole or in substantial part on any one or more of the character(s) in the Work;
or c) the software product is based in whole or in part on any storyline
contained in the Work. Sequels shall include prequels, as well as sequels to
Sequels.
1.04 Derivative Products. A Derivative Product ("Derivative Product") shall
be defined as any product other than a computer software program which is based
upon or suggested by the Works or any audiovisual effects (including animated
and/or static characters and figures) contained in or presented by the Works.
Derivative Products include but are not limited to posters, articles of
clothing, books, comic books, musical recordings, toys, magazines and other
forms of merchandise.
1.05 On-Line Version. An On-Line Version ("On-Line Version") shall be
defined as any interactive multimedia product or program derived from the Works
which is specifically designed and implemented for delivery via on-line
distribution, including through commercial online services and cable television
systems.
1.06 Linear Media Products. A Linear Media Product ("Linear Media Product")
shall be defined as any noninteractive electronic media products, including, but
not limited to, linear motion pictures, videos or television programs, which are
derived from the Works.
1.07 Foreign Language Adaptations. A Foreign Language Adaptation shall be
defined as any adaptation of the Works for any foreign (i.e., non--US) territory
or any language other than English. Examples of Foreign Language Adaptations
include but are not limited to: a.) fully localized, wherein all text in the
Work(s) is translated and all audio is dubbed, re--recorded, or subtitled, with
localized packaging; and b.) partially localized, where some but not all of the
elements described in the preceding section are translated or otherwise
localized. Publisher shall have the right to publish Foreign Language
Adaptations, subject to the terms and conditions herein.
Capitol Multimedia (Gregory/Darby) 2/8/96 2
<PAGE>
EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
2. Delivery and Acceptance.
2.01 Delivery. Author shall deliver each deliverable item defined in
Appendix A of this Agreement to Publisher, which deliverable item shall conform
to the specifications also set forth in Appendix A, in accordance with the
delivery schedule set forth in Appendix B to this Agreement. Author will give
Publisher written notice of each delivery, and no delivery shall be considered
complete until Publisher has received written notice and verified receipt of the
deliverable item. If Author fails to deliver any deliverable item on or before
the specified delivery dates, Publisher shall provide written notice to Author
of such failure to deliver.
2.02 Delivery of Masters. Author shall deliver to Publisher the final
Win/Mac master for the first Work by March 15, 1996 and shall deliver the final
Win/Mac master for the second Work by May 25, 1996.
2.03 Localization Kits. Author shall provide Publisher with localization
kits for the Works to allow Publisher to develop and publish Foreign Language
Adaptations.
2.04 Acceptance. A deliverable item shall be deemed accepted by Publisher
upon Publisher's written notice to Author that the deliverable item conforms to
the specifications set forth in Appendix A. In the event that the deliverable
item does not conform to the specifications set forth in Appendix A, Publisher
shall give Author written notice of the aspects in which the deliverable item is
deficient; Author shall have a reasonable amount of time, which shall in no
event exceed thirty (30) days without the written consent of Publisher, to
correct such deficiencies. If Publisher gives notice in the manner specified
above and the changes submitted by Author do not cause the deliverable item to
conform to the specifications set forth in Appendix A, or no changes are
submitted within a reasonable time as defined above, then Publisher may
terminate this Agreement by giving written notice to Author.
3. Grant of Rights.
3.01 Rights to the Works, On-Line Versions and Foreign Language
Adaptations. Author hereby grants Publisher, its successors and assigns the
exclusive worldwide right to publish, manufacture, reproduce, market and
distribute the Works, On-Line Versions and Foreign Language Adaptations. Author
shall retain the copyrights in the Works, On-Line Versions and Foreign Language
Adaptations and Author hereby grants Publisher the right to use any trademark,
label or copyright associated with the Works, On-Line Versions or Foreign
Language Adaptations throughout the world. Further, Author hereby grants and
assigns to Publisher for its use any and all intellectual property rights
including, without limitation, all rights now or hereafter protected by the
copyright laws (common and statutory) of the United States, foreign countries,
and international copyright conventions with respect to the Works, On-Line
Versions and Foreign Language Adaptations. Further, Author grants
Capitol Multimedia (Gregory/Darby) 2/8/96 3
<PAGE>
EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
Publisher the right to produce related products as marketing tools for the
Works, On-Line Versions and Foreign Language Adaptations without compensation
therefrom to Author.
3.02 Right to Sequels. Author hereby grants to Publisher, its successors
and assigns, the exclusive worldwide right to publish, manufacture, reproduce,
market and distribute Sequels. Author shall retain the copyright in Sequels and
Author hereby grants to Publisher the right to use any trademark, label or
copyright associated with Sequels throughout the world. Further, Author assigns
to Publisher for its use any and all intellectual property rights including,
without limitation, all rights now or hereafter protected by the copyright laws
(common and statutory) of the United States, foreign countries, and
international copyright conventions with respect to Sequels. Further, Author
grants Publisher the right to produce related products as marketing tools for
Sequels without compensation therefrom to Author. Notwithstanding the above, in
the event that Publisher does not exercise its option to determine to publish a
Sequel to a Work within eighteen (18) months after the date of publication of
such Work (as described in Section 5.04), the rights to such Sequel shall revert
to Author. In the event that Publisher does not exercise its Sequel option with
regard to either Work, then all Sequel rights shall revert to Author and
Publisher shall have no further rights in any Sequels to the Works.
3.03 Rights to Conversions and Linear Media Products. Author shall retain
the exclusive worldwide right to develop, reproduce, market and distribute
Conversions and Linear Media Products. This right includes the right to use any
trademark, label or copyright associated with the Conversions and Linear Media
Products and to license the Conversions and Linear Media Products and associated
trademarks, labels and copyrights for use in any form throughout the world.
3.04 Rights to Derivative Products. Author shall retain the exclusive
worldwide right to manufacture, reproduce, market and distribute Derivative
Products. This right includes the right to use any trademark, label or copyright
associated with the Derivative Products, and to license the Derivative Products
and associated trademarks, labels and copyrights for use in any form throughout
the world.
3.05 Rights to Underlying Technology. Author shall retain all rights in the
technology underlying the Works and Publisher acknowledges and agrees that
Author may utilize the technology in Author's other products provided that such
products do not infringe on Publisher's rights as set forth in this Agreement.
Capitol Multimedia (Gregory/Darby) 2/8/96 4
<PAGE>
EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
4. Royalty and Development Fees.
4.01 Royalties. Publisher shall pay Author as non-refundable royalties the
following percentages of Sales Receipts (as defined in Section 4.02 below),
after subtracting from any such royalties all acceptance fees described in
Section 4.03 and Appendix B or development fees described in Section 4.04 of
this Agreement. Acceptance fees shall be subtracted specifically from the sale
of each Work or Sequel, as appropriate, and development fees shall be subtracted
from the sale of Foreign Language Adaptations.
Sales of the Work, On-Line Versions, Sequels, Foreign
Language Adaptations and Conversions by Publisher 30%
OEM sales of the Work, Sequels, Foreign Language Adaptations
and Conversions 50%
4.02 Sales Receipts. Sales Receipts ("Sales Receipts") shall be defined as
actual cash receipts derived from the sale by Publisher of the Works, Sequels,
Foreign Language Adaptations, On-Line Versions or Conversions by Publisher less
the following amounts, as relating to such cash receipts:
a. Sales or use taxes, excise taxes and value-added taxes for licensing (where
applicable);
b. Cost of goods (which is hereby defined to be actual costs to Publisher of all
components of the final packaged goods, such as CD media, manual, packaging,
registration cards, etc., plus an overhead charge not to exceed ten percent
(10%) of the total actual costs; currently, cost of goods for a Work is
estimated to be $3.50 per unit; such amount shall be adjusted each October 1st
and determined on an annualized basis);
c. Duties;
d. Returns, including a reserve for future returns which shall not exceed $7,000
per Work;
e. Price protection allowances;
f. Any packing or shipping charges, to the extent the same are actually included
in the invoice price;
g. Any amounts received by Publisher for promotional, backup, upgrade, or
replacement copies;
Capitol Multimedia (Gregory/Darby) 2/8/96 5
<PAGE>
EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
Notwithstanding the foregoing, for purposes of calculating royalties, sales
receipts from sales made by Publisher directly to end users (including, but not
limited to, schools and consumers) through the mails or otherwise ("Direct
Sales") shall be calculated by multiplying the actual number of units sold
through Direct Sales times the per unit price charged to Publisher's largest
volume distributor.
4.03 Acceptance Fee. Publisher shall pay Author an acceptance fee on
acceptance of the final masters of the Works as an advance against
non-refundable royalties on the Works, as more specifically described in
Appendix B hereto.
4.04 Development Fees for Foreign Language Adaptations. After acceptance by
Publisher of localization kits (as more specifically described in Appendix C),
Publisher shall pay Author Foreign Language Adaptation non-refundable
development fees in the amount of $150,000 per Property as an advance against
royalties on the international sales of the Foreign Language Adaptations.
4.05 Derivative Product Fees. The parties agree that Derivative Products
may be merchandised by a third party (i.e., a licensing specialist). Author
shall pay Publisher twenty percent (20%) of all revenues received by Author from
such Derivative Products after subtracting amounts paid to such licensing
specialist (if any).
4.06 Licenses. A License will be any sale of the Works or Sequels by a
third party under (a) specific license from Publisher for international versions
of the Works or Sequels for countries not supported by Publisher, or (b)
specific license from Author for hardware formats not directly supported by
Publisher (i.e., Conversions not performed by Publisher) including, without
limitation, video game platforms. Author and Publisher each shall receive as
royalties twenty percent (20%) of license receipts.
4.07 Linear Media Products. Author shall pay Publisher twenty percent (20%)
of all fees (other than development fees) paid to Author by a third party for
any Linear Media Product.
5. Modifications, Enhancements and Revisions.
5.01 Modifications. Publisher shall have the right to reasonably request
that Author make any modification prior to publication to the Works or any
Foreign Language Adaptation or Sequel to be published by Publisher that it
deems, in its sole discretion, necessary. Author agrees to make any
modifications it deems reasonable.
5.02 Revisions, Enhancements and Updates. Publisher shall have the right to
publish revised, enhanced or updated editions or versions of the Works, Foreign
Language Adaptations and Sequels to be published by Publisher. As mutually
agreed by the parties, Author shall be responsible for any commercially
reasonable changes in the Works, Sequels published by Publisher or Foreign
Language Adaptations at the
Capitol Multimedia (Gregory/Darby) 2/8/96 6
<PAGE>
EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
reasonable request of Publisher and to supply any new material for the Works,
Sequels published by Publisher or Foreign Language Adaptations as may be
necessary to revise, enhance or update the Works, Sequels published by Publisher
or Foreign Language Adaptations.
5.03 Conversions. Author retains the exclusive rights as described in
Section 3 of this Agreement with respect to any Conversions which are developed
during the term of this Agreement. If Author or Publisher desires to develop a
Conversion, the party so desiring shall notify the other party. Thereafter,
Publisher shall have a right of first refusal to publish the Conversions for any
platform which Publisher can reasonably demonstrate that it has devoted
significant resources to and which is then currently supported by Publisher. In
the event that Publisher performs a Conversion, Author shall receive royalties
under the primary royalty schedule set forth in Section 4.01. If, however, the
Conversion is performed by a third party, it shall be treated as a License, and
Publisher shall receive twenty percent (20%) of Author's revenues as set forth
in Section 4.06.
5.04 Sequels. Publisher retains the rights as described in Section 3 with
regard to Sequels which are developed by Author during the term of this
Agreement. In the event that Author desires to develop a Sequel to either of the
Works, Publisher shall have eighteen (18) months following the commercial
release of each Work in which to decide whether to publish a Sequel. In the
event that Publisher determines to publish such Sequel, the terms and conditions
set forth herein applicable to the Works shall also apply to such Sequel(s).
With respect to each Property, for a period of eighteen (18) months following
commercial release of the respective Work (the "Sequel Period"), Publisher shall
have a Sequel Right, as follows. If, during the Sequel Period, Publisher gives
to Author written notice that Publisher wishes to publish a Sequel to a Work
("Publisher Sequel Notice"), Author shall agree to develop such Sequel according
to a commercially reasonable schedule, according to the same terms and
conditions as contained in this Agreement with respect to a Work. If Publisher
gives Publisher Sequel Notice and Author fails to develop the requested Sequel
in a commercially reasonable time, Author shall have no right to develop a
sequel at any time with any third party. If, during the Sequel Period, Author
gives Publisher written notice that Author wishes to develop a Sequel to a Work
("Author Sequel Notice"), Publisher shall respond during the Sequel Period and
shall agree to publish such Sequel according to a commercially reasonable
schedule according to the same terms and conditions as contained in this
Agreement with respect to the Work. Either party's failure to respond to a
Sequel Notice with respect to a Property shall not act as a waiver of rights
with respect to Sequels for the other Property.
6. Accounting; Reports. Publisher shall make quarterly accounting of Sales
Receipts to Author and pay royalties on said receipts by the fifteenth (15th)
day following the end of the quarter. Such accounting statement shall break out
gross receipts, the cost of goods (which shall be adjusted each October 1st and
determined on an annualized
Capitol Multimedia (Gregory/Darby) 2/8/96 7
<PAGE>
EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
basis), the reserve for returns, the price protection reduction and net sales
receipts for each Work, On-Line Version, Sequel, Foreign Language Adaptation and
Conversion, if any (each statement shall provide detail by country for Foreign
Language Adaptations). Publisher shall cooperate with Author to provide Author
with specific accounting information it may reasonably request. Author shall
have the right to examine Publisher's books for the sole purpose of verifying
the accuracy of such quarterly accounting, at Author's own expense, during
normal business hours, no more frequently than twice a year. Publisher shall
also provide Author with calendar quarterly reports setting forth the amount of
sell-in for each Work for the previous quarter.
7. Term.
7.01 Basic Term. The term of this Agreement shall continue until it is
terminated by either or both parties in the manner and under the conditions
defined elsewhere in this Agreement. With respect to each Work and Sequel, in
the event that, for any twelve (12) month period ending on an anniversary of the
commercial release of the particular Work, Publisher has sold fewer than
twenty-five thousand (25,000) units of the Work, Author may terminate this
Agreement with respect to that Work only by giving Publisher written notice that
Author intends to terminate the Agreement with respect to such Work. Upon
receipt of such written notice, Publisher shall have thirty (30) days to pay to
Author the amount of royalties it would have received on Sales of twenty-five
thousand (25,000) units of such Work in order to continue this Agreement and
maintain its rights in the Works as set forth herein. The formula to determine
the dollar amount per Unit necessary to calculate the amount to be paid to
Author to maintain these rights shall be: total royalties earned and paid for
during the twelve (12) month period divided by the total number of units of the
Work sold during the same period multiplied by (25,000 minus number of Units
sold during the same period).
7.02 Cessation of Publication. If Publisher at any time ceases to produce
and to market the Works and all Foreign Language Adaptations, Conversions and
Sequels published by Publisher, Publisher shall notify Author in writing and
Author may, by written notice to Publisher, terminate this Agreement as provided
for in Section 13.02.
8. Support and Bug Fixes.
(a) Publisher agrees: (i) that its technical representatives, or those to
whom it designates its technical support responsibilities, will provide all
support and assistance with respect to the Works; and (ii) that such technical
representatives will use commercially appropriate efforts to resolve the
problem(s) presented to them. Only to the extent that such technical
representatives are, after the exercise of such commercially appropriate
efforts, unable to resolve a problem(s) so presented will Publisher refer to
problem(s) to Author for a resolution or work around.
Capitol Multimedia (Gregory/Darby) 2/8/96 8
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EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
(b) For matters referred to Author by such technical representatives,
Author will endeavor to identify the cause of the alleged malfunction. Author
will advise Publisher of a work around for the problem that will allow continued
utilization of the Works in the manner contemplated by the Work documentation,
or a permanent procedure to correct, avoid, or preclude the occurrence of the
problem in the future. If the solution provided by Author is a work around,
Author will thereafter provide a permanent resolution for the malfunction as
soon as possible.
(c) Author will have no technical support responsibilities whatsoever with
respect to the Works except as to Publisher.
(d) Author will fix all reported bugs, for no additional compensation, on a
priority basis for the first two (2) months after final delivery of any Work,
and on a normal priority basis for the following ten (10) months. Priority basis
shall mean Author will allocate at least seventy-five percent (75%) of a senior
programmer's time to repair the reported bug(s) until such repair(s) are
complete.
9. Warranties.
9.01 Warranties of Author. Author warrants that Author possesses full power
and authority to make this Agreement; that it is the sole author of the Works;
that the Works are not in the public domain; that the Works are original with
Author in every respect; that neither the Works nor any part thereof has
previously been published; and that Author has not heretofore granted any rights
to the Works to any other person or persons. Author agrees to defend and
indemnify Publisher for and against all claims arising from the breach or
alleged breach of any warranty given herein, and against all claims of patent,
trade secret and copyright infringements and any related claims such as unfair
competition, by third parties arising from the Works, provided that Publisher
gives Author prompt written notice of any such claim. If Author breaches this
condition, Publisher may withhold payments due to Author under this or any other
agreement with Publisher until Publisher is indemnified for the cost of
defending or settling any infringement claim or for the payment of any judgment
arising from an infringement claim. The provisions of this Section 9.01 shall
survive any termination of this Agreement.
9.02 Warranties of Publisher. Publisher warrants that Publisher possesses
full power and authority to make this Agreement. Publisher agrees to defend and
indemnify Author for and against all claims arising from the breach or alleged
breach of any warranty given herein, as well as for and against all claims by
third parties of trademark and copyright infringement relating to Publisher's
trademark or the packaging, marketing and sales material for the Works, provided
that Author gives Publisher prompt written notice of any such claim. The
provisions of this Section 9.02 shall survive any termination of this Agreement.
Capitol Multimedia (Gregory/Darby) 2/8/96 9
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EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
10. Publishing the Works; Marketing. Publisher shall use commercially reasonable
efforts to market, promote, price and distribute the Works according to its
practice for software products of a similar nature and quality which it
distributes which generate similar revenues. Publisher shall have the sole right
to determine the manner, style or design of publication or marketing of the
Works and any Foreign Language Adaptations, Sequels or Conversions published by
Publisher, the title under which the Works and any Foreign Language Adaptations,
Sequels or Conversions published by Publisher, will be published, and the price
at which the Works and any Foreign Language Adaptations, Sequels or Conversions
published by Publisher, shall be sold or licensed.
11. Non-Exclusive. Both parties shall be free to publish other children's
adventure game software without limitation so long as such software does not
infringe on the rights of either party as set forth herein and/or use the
characters or storyline of the Works or any Sequel published by Publisher.
12. Copyright, Trademarks and Attribution.
12.01 Copyright. Publisher shall place a copyright notice upon the
packaging and collateral materials and Author shall place such notice upon the
software title screen. In the case of the Works or any Foreign Language
Adaptation, Sequel or Conversion published by Publisher this notice shall read:
Software (C) 199__, Capitol Multimedia, Inc.
Packaging (C) 199_, Broderbund Software, Inc.
12.02 Trademarks. Any trademarks used by Publisher to name or identify the
Works shall be the exclusive property of Author. Any trademarks used to name or
identify the series of products shall be the exclusive property of Publisher.
12.03 Attribution; Packaging and Promotional Materials. Publisher desires
to promote Author as a creative talent in the field of computer software, and
agrees to place Author's name on the front of the packages at Publisher's
discretion, in the on-screen credits of the Works and in the documentation,
consistent with Publisher's established practice. Author agrees to place
"Broderbund Presents" on the splash screens at the beginning of the Works.
Publisher shall provide Author with the requisite materials to facilitate the
incorporation of the "Broderbund Presents" screen. Author shall have a right of
approval on all background material of Author not provided by Author. Author
hereby grants Publisher the right to utilize Author's relevant trademarks in
Publisher's packaging, documentation and promotional materials relating to the
Works, Foreign Language Adaptations, and Conversions or Sequels published by
Publisher. From time to time, as deemed appropriate by Publisher, Author shall
be provided with an opportunity to consult with Publisher on packaging and
collateral materials.
Capitol Multimedia (Gregory/Darby) 2/8/96 10
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EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
13. Termination.
13.01 Termination for Cause. Either party may terminate this Agreement if
the other party has committed a default hereunder and such default has not been
cured within thirty (30) days of written notice to the other party, except that
if there is a bonafide dispute as to the amount of royalties to be paid
hereunder, such disputes shall be submitted to arbitration by the American
Arbitration Association in San Francisco, CA, and Author may not terminate this
Agreement unless and until Publisher has failed to pay the amounts due with
interest at the lawful rate as specified in the arbitrator's award. Claims for
damages arising out of a breach of this contract shall survive any termination.
13.02 Effect of Termination. In the event of any termination of this
Agreement after publication, (a) Author may retain all acceptance fees paid
prior to the date of the termination, (b) Publisher's obligation to pay Author
royalties from Sales Receipts for the Works and any Foreign Language
Adaptations, Conversions or Sequels published by Publisher, shall continue, (c)
any licensing agreements concerning the Works, Conversions, Sequels, Foreign
Language Adaptations, Derivative Products or Linear Media Products entered into
by Author with third parties shall continue in full force and effect, and
royalties therefrom shall be paid to Publisher pursuant to the terms of this
Agreement, (e) Publisher will have the right to continue to execute sales of any
copies of the Works, Foreign Language Adaptations, Conversions or Sequels that
are in the inventory of Publisher (or in production) at the time of termination,
and Publisher will continue to pay Author royalties based upon Sales Receipts
from said sales, as specified in Section 4.01.
13.03 Termination During Development Period. Publisher cannot guarantee
that in the volatile software marketplace any potential product will remain
marketable during its entire development period. If for any reason Publisher in
its sole judgment elects not to publish the Works, Publisher may terminate this
Agreement at any time prior to publication by giving written notice to Author.
All monies paid to Author prior to such termination shall be non-refundable and
no obligations shall ensue to Publisher. All rights in the intellectual property
created by Author shall be retained by Author and Publisher shall have no
further rights in the Works.
14. Proprietary Information. Each party acknowledges that it may be furnished
with or may otherwise receive or have access to information which relates to
past, present or future products, software, research, development, inventions,
processes, techniques, designs or other technical information and data,
marketing plans, etc. (the "Proprietary Information"). Each party agrees to
preserve and protect the confidentiality of the Proprietary Information and all
physical forms thereof, whether disclosed to the other party before this
Agreement is signed or afterward, INCLUDING THE TERMS OF
Capitol Multimedia (Gregory/Darby) 2/8/96 11
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EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
THIS AGREEMENT. In addition, a party shall not disclose or disseminate the
Proprietary Information for his/her own benefit or for the benefit of any third
party. The foregoing obligations shall not apply to any information which (a) is
publicly known; (b) is given to a party by someone else who is not obligated to
maintain confidentiality; or (c) a party had already developed prior to the day
this Agreement is signed, as evidenced by documents. Neither party shall take or
cause to be taken any physical or electronic forms of Proprietary Information
(nor make copies of same) without the other party's written permission. Within
three (3) days after the termination of this Agreement (or any other time at the
other party's request), a party shall return to the other party all copies of
Proprietary Information in tangible form. Author shall require each of his/her
employees working on the Works to sign Publisher's standard Independent
Contractor Confidentiality Agreement. Notwithstanding any other provisions of
this Agreement, the requirements of this Section 14 shall survive any
termination of this Agreement for a period of five (5) years.
15. Author's Free Copies. Author shall be entitled to one hundred (100) free
copies of each Work per year, provided, however, that Author shall not resell
such copies. In addition, Author shall be entitled to purchase at cost up to an
additional fifty (50) copies of each Work.
16. Entire Agreement. This Agreement, including Appendices A, B and C, contains
the entire agreement between the parties and supersedes any prior agreement.
This Agreement may be changed only by mutual agreement in writing.
17. Governing Law, Assignment and Attorneys' Fees. This Agreement shall be
governed by the laws of the State of California. Although Author may not assign
obligations under this Agreement without Publisher's prior written consent, this
Agreement shall be binding upon the personal representatives and assigns of
Author and the successors and assigns of Publisher. In the event of any legal
action between the parties arising from or relating to this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees from the other
party.
18. Notice. Any notice required or permitted to be given by the provisions
hereof shall be conclusively deemed to have been received by a party hereto on
the day it is delivered to such party at the address indicated above in this
Agreement (or at other such address as such party shall specify to the other
party in writing) by U.S. Mail with Acknowledgment of Receipt or by any
commercial courier providing equivalent acknowledgment of receipt.
Capitol Multimedia (Gregory/Darby) 2/8/96 12
<PAGE>
EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
19. Counterparts. This Agreement may be executed in counterparts, each of which
shall be an original and which collectively, with the counterpart signed by the
other party hereto, shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned hereby acknowledge that they have read and
understand the terms of this Agreement, including Appendices A, B and C (which
are hereby included in this Agreement by this reference), and that by signing
this Agreement they agree to be bound by all terms, conditions and obligations
contained herein.
PUBLISHER AUTHOR
BRODERBUND SOFTWARE, INC. CAPITOL MULTIMEDIA, INC.
By: /s/ Laurie Strand By: /s/ Robert Bogin
- -------------------------- ------------------------
Name: Laurie Strand Name: Robert Bogin
-------------------- ----------------------
Title: Exec. Publisher Title: President
By: /s/ Harry Roy Wilker
---------------------
Name: Harry Roy Wilker
Title: Senior Vice President
Capitol Multimedia (Gregory/Darby) 2/8/96 13
<PAGE>
EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
APPENDIX A
SPECIFICATIONS FOR THE WORK AND ITS DELIVERABLE ITEMS
Target Machine: IBM/Tandy or 100% compatible 486 SX 33 MHz. 66 MHz or faster
recommended
Minimum Required Memory: 8MB RAM
Required Peripherals: Mouse, hard drive, Windows compatible sound card
Video Formats Supported: Super VGA (640 x 480) 256 color only
DOS Supported: Win 95, Windows 3.1; MS/PC-DOS 5.0 or higher
Magnetic Media Size(s) Supported: Double speed CD-ROM drive
Target Machine: MAC LC 575/PERFORMA 575 and above
256 color 13" monitor, 8MB RAM with 4MB free, Double speed CD-ROM drive, hard
drive, System 7.1 or higher.
The deliverable items for the Works shall be as follows:
I. The ALPHA MILESTONE shall be a version of the Works which includes all key
segments of the Works, although some final graphics, sound effects and music may
still be missing. The Alpha Milestone deliverables, in order to be accepted,
must be playable or usable in the same manner as the intended Final Version so
as to provide the user with the "look and feel" of the completed Works and
permit the writing of first draft documentation, package copy, etc. and the
taking of screen photographs for package and publicity purposes. Author
understands that Author is expected to review the Alpha Milestone in order to
discover all possible program defects.
II. The ALPHA COMPLETION SCHEDULE shall be provided by Author to Publisher at
the time of the Alpha Milestone. It shall contain a list of all graphics,
animations, sounds and music remaining to be implemented, including a list of
those elements which are perceived as being in need of adjustment, tuning or
balancing, along with a planned completion date for each item. Author
understands that Publisher will utilize this schedule to plan the introduction
and marketing of the Works, and that its comprehensiveness and accuracy are of
critical importance.
III. The BETA MILESTONE shall be a version of the deliverables which Author
believes is ready for shipment to customers and use by consumers, and which will
be tested by Publisher prior to its release. The Beta shall contain all program
graphics, animations, sound and music and a title screen. Author understands
that Author is expected to review the Beta Milestone in order to discover all
possible program defects, and that this testing is to be in addition to any and
all testing conducted by Publisher.
IV. The FINAL MILESTONE shall be the golden master which, having been tested by
Publisher, is accepted by Publisher for the purpose of publication.
Author hereby agrees to and accepts these specifications for the Works.
PUBLISHER AUTHOR
BRODERBUND SOFTWARE, INC. CAPITOL MULTIMEDIA, INC.
By: /s/ Laurie Strand By: /s/ Robert Bogin
--------------------- ----------------------
Name: Laurie Strand Name: Robert Bogin
Title: Exec. Publisher Title: President
By: /s/ Harry Roy Wilker
---------------------
Name: Harry Roy Wilker
Title: Senior Vice President
Capitol Multimedia (Gregory/Darby) 2/8/96 14
<PAGE>
EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
APPENDIX B
SCHEDULE OF DELIVERABLE ITEMS AND DEVELOPMENT FEES
Gregory & the Hot Air Balloon
Date Due Deliverable Item Fee
- -------- ---------------- ---
2/15/96 Alpha
3/10/96 Beta
3/25/96 Acceptance of Final Work $100,000
3/25/96 Localization Kit $150,000
Darby and the Dragon
Date Due Deliverable Item Fee
- -------- ---------------- ---
4/10/96 Alpha
5/1/96 Beta
5/25/96 Acceptance of Final Work $100,000
5/31/96 Localization Kit $150,000
PUBLISHER AUTHOR
BRODERBUND SOFTWARE, INC. CAPITOL MULTIMEDIA, INC.
By: /s/ Laurie Strand By: /s/ Robert Bogin
--------------------- ----------------------
Name: Laurie Strand Name: Robert Bogin
Title: Exec. Publisher Title: President
By: /s/ Harry Roy Wilker
---------------------
Name: Harry Roy Wilker
Title: Senior Vice President
Capitol Multimedia (Gregory/Darby) 2/8/96 15
<PAGE>
EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
APPENDIX C
LOCALIZATION KITS
The Localization Kit includes the following:
o Localization Database: Provides a complete listing of all audio, video,
graphic, and textual assets requiring translation.
o All internally developed asset processing tools and Capitol's editor,
"Composer," required to prepare and assemble the translated product. Also,
a listing of all commercially available software applications used in the
creation and processing of program assets.
o Detailed instructions on how to:
- create and process translated audio, graphic and textual assets;
- change the menu, error message, and dialogue text;
- compile and/or link code files and integrate all assets into a built
product with "Composer".
o A verified, "as-recorded" script of all the dialogue in the product.
o The following graphic files:
- 8 bit versions of all backgrounds, storybook pages, and interfaces and
buttons, and text sprites used in the product with the proper palettes
for remapping.
Note: Capitol works in .BMP format.
- All animations and corresponding scripts provided as compiled Composer
resources.
o The following audio files:
- Edited English dialogue files for each character in high resolution
44.1/16 bit, mono, processed format with the L1 normalization and
other applied processing settings.
- Ambiance, background noises, music, and sound effects mixed without
dialogue in 44.1/16 bit Sound Designer 2 format.
- Mixed audio assets in 22.05Khz.WAV format.
o Author shall provide technical consultation to Publisher as needed during
the localization process for each Work.
Capitol Multimedia (Gregory/Darby) 2/8/96 16
<PAGE>
EXHIBIT 10.55
SOFTWARE PUBLISHING AND LICENSING AGREEMENT WITH BRODERBUND SOFTWARE, INC.
PUBLISHER AUTHOR
BRODERBUND SOFTWARE, INC. CAPITOL MULTIMEDIA, INC.
By: /s/ Laurie Strand By: /s/ Robert Bogin
--------------------- ----------------------
Name: Laurie Strand Name: Robert Bogin
Title: Exec. Publisher Title: President
By: /s/ Harry Roy Wilker
---------------------
Name: Harry Roy Wilker
Title: Senior Vice President
Capitol Multimedia (Gregory/Darby) 2/8/96 17
EXHIBIT 11.1
CAPITOL MULTIMEDIA AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(UNAUDITED)
Three Months Ended June 30 1997 1996
---------- ----------
PRIMARY EARNINGS PER SHARE
Net Income $1,673,712 $ 81,740
Interest income from using the treasury stock method 91,051
---------- ----------
Net Income $1,764,763 $ 81,740
========== ==========
Weighted average number of share
outstanding during the three months 6,032,065 4,832,065
Incremental shares issuable pursuant
to outstanding options and warrants 882,283 *
---------- ----------
Weighted average number of shares used in
the computation of net income per share 6,914,348 4,832,065
========== ==========
Primary earning per common share $ .26 $ .02
========== ==========
*Antidilutive
In computing net income per share using the treasury stock method, net income
has been increased by $91,051 in interest income for the three months ended June
30,1997. Fully diluted and primary net income per share for the three months
ended June 30,1997 were not materially different.
EXHIBIT 21.1
LIST OF CAPITOL MULTIMEDIA, INC. SUBSIDIARIES
Name of Subsidiary State of Jurisdiction of Incorporation
- ------------------ --------------------------------------
Animation Magic, Inc. Delaware
Client Server Technologies, Inc. Massachusetts
Limited Company " Paragon" St. Petersburg, Russia
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES 3-5 OF
THE COMPANY'S FORM 10QSB FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,365,877
<SECURITIES> 598,415
<RECEIVABLES> 1,047,657
<ALLOWANCES> 135,102
<INVENTORY> 0
<CURRENT-ASSETS> 5,191,930
<PP&E> 882,415
<DEPRECIATION> 522,347
<TOTAL-ASSETS> 7,638,761
<CURRENT-LIABILITIES> 883,608
<BONDS> 0
0
0
<COMMON> 685,715
<OTHER-SE> 16,747,202
<TOTAL-LIABILITY-AND-EQUITY> 7,638,761
<SALES> 918,969
<TOTAL-REVENUES> 3,024,870
<CGS> 524,897
<TOTAL-COSTS> 1,226,506
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,652
<INCOME-PRETAX> 1,750,712
<INCOME-TAX> 77,000
<INCOME-CONTINUING> 1,673,712
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,673,712
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
