SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________
Form 10-KSB
[X] Annual Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended June 30, 1997
OR
[ ] Transition Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File No.: 0-27828
WANDERLUST INTERACTIVE, INC.
(Name of Small Business Issuer in its charter)
Delaware 13-3779546
(State or other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification
Number)
5301 Beethoven Street, Los Angeles, CA 90066
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (310) 821-7880
Securities registered pursuant to Section 12(b) of the Exchange
Act: None
Securities registered pursuant to Section 12(g) of the Exchange
Act: Common Stock, par value $.01 per share
(Title of class)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act
during the past 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No ___
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained herein, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X].
The issuer's revenues for its most recent fiscal year were
$1,504,420.
The aggregate market value of the shares of Common Stock
held by non-affiliates as reported by NASDAQ on September 30,
1997 was approximately $3,383,258.
As of September 30, 1997, the Registrant had outstanding
5,041,228 shares of Common Stock, par value $.01 per share.
The proxy statement of the Registrant to be filed on or
before October 29, 1997 is incorporated into Part III herein by
reference.
<PAGE>
PART I
ITEM 1. Business.
Wanderlust Interactive, Inc. (the "Company") was formed in
May 1994 to develop and market interactive multimedia software
education and entertainment titles on CD-ROM (Compact Disk Read
Only Memory) for use on multimedia personal computers (MPCs)
using Microsoft Windows-based CD-ROM playback systems. In March
1996, the Company completed an initial public offering of
securities. In February 1997, the Company acquired all of the
outstanding shares of stock of Western Technologies, Inc.
("Western") from Jay Smith III, its present CEO. The Company and
its wholly-owned subsidiary are collectively referred to herein
as the Company.
In May 1995, the Company entered into a license agreement
with MGM/UA Licensing and Merchandising, a division of Metro-
Goldwyn-Mayer Inc. ("MGM"), to use the Pink Panther character and
other related characters (collectively referred to as the "Pink
Panther characters") in two interactive multimedia CD-ROMs (the
"License Agreement"). On May 2, 1996, the License Agreement was
amended to include, among other things, a license to manufacture
and market a companion guide book to the Company's products which
contain the Pink Panther characters and the soundtrack audio CD
with ten original songs to be released October 1997, to the
Company's licensed products. See "Licensing."
The Company completed a CD-ROM entitled "Passport to Peril,"
which it released in October 1996, and an Internet game entitled
"Postcards to Peril" which it released on the Company's web site
in November 1996, and a second interactive CD-ROM involving the
Pink Panther entitled "Hokus Pokus Pink," released in October
1997. Many of the major international publishers who licensed
the first Pink Panther title, "Passport to Peril", have also
licensed "Hokus Pokus Pink".
In connection with the Company's first two CD-ROM titles,
which were completed in September 1996 and September 1997,
respectively, the Company created the artwork, sound, text, and
programming features of these titles.
The Company's subsidiary, Western, has designed and
programmed over forty video and computer games, several of which
have sold over one million units, including "X-Men" for Sega for
Sega Genesis and "Q-Bert" for Parker Brothers. As part of the
acquisition referred to above, the Company acquired rights to
over 40 patents. Western also has created and developed over 20
electronic toys and electronic consumer products including "Talk
to Me Barbie" by Mattel, "Baby Talk II" by Galoob, "IR Ear
Thermometer" by Thermoscan and "Electronic PC Board" for exercise
equipment by Paramount Fitness Equipment.
Since the date of acquisition of Western (February 1997),
Western has begun development of five new projects. These
projects include the development of electronic game software
projects for publishers such as Electronic Arts, Hasbro and TH-Q.
In addition, development has begun on interactive television
projects for Telia InfoMedia, the Swedish Microsystems and
Thomson Consumer Electronics, a parent of RCA. New electronic
toy projects have begun with both Hasbro and Mattel.
Products
The Company also develops entertainment software for a
variety of platforms including Sony PlayStation, Sega Saturn, as
well as PC CD-ROM. Some of the new products are designed for
multiple platforms. The Company's bowling game design "Ten Pin
Alley" has been programmed on all three of these platforms. Some
of the current projects under development will utilize both Sony
Play Station and PC CD-ROM.
The Company creates concepts, develops and licenses toy
designs for a wide variety of play categories. These include
preschool, boy toys and girl toys. Many of the toy designs have
electronic components that are a specialty of the Company. The
Company has designed a number of toys that are specifically
interactive with computer PC CD-ROM software and a number of new
designs will incorporate this feature. Other electronic
specialties include new types of digital remote control and
acceleration sensing devices.
The interactive television applications are an outgrowth of
the game software development capability. These applications are
designed to run on the digital set-top boxes that are used with
satellite television, digital cable and wireless cable
installations now being installed around the world. The first
application for the Company is a suite of games that includes
Trivial Pursuit and is to be installed in a digital cable system
now being implemented in Sweden and other Scandinavian countries.
The Company developed two interactive multimedia software
entertainment titles for use on MPCs. The Company's initial
product format is CD-ROMs for the MPC. The Company is marketing
its initial products under the name "Intelligent Fun & Games."
The first two titles in the "Intelligent Fun & Games" series are
travel and culture titles, featuring the Pink Panther characters.
The Company entered into the License Agreement under which the
Company has the right to utilize the Pink Panther characters for
these two CD-ROM titles. See "Licensing."
In the first two titles, the Pink Panther visits different
countries. The Company's products enable the Pink Panther to
eat, sleep, drink, dress, speak, shop, worship, dance, learn,
work and play with the local citizens. Through this interaction
it is expected that the player will learn about lifestyles,
customs, rituals, food, clothing, religions and other aspects of
the culture he is visiting. The personalities of the Pink
Panther and the other characters are an integral part of the
games, and a humorous script and colorful animation further
enhance the entertainment value of the products.
Distribution
For its first "Pink Panther" titles, the Company utilized a
distributor to market its products to mass market retailers,
specialty stores and directly to consumers in the United States.
The Company entered into a distribution agreement with BMG Music
d/b/a BMG Entertainment ("BMG") in May 1996 which provided for
distribution of the Company's products in the United States (the
"BMG Agreement"). BMG agreed to distribute at least 60,000
units. A dispute arose between BMG and the Company concerning a
guarantee that sixty thousand (60,000) units of Company's first
"Pink Panther" titles would be distributed within the two year
period following the initial commercial release date which
occurred on October 1, 1996 (the "Guarantee") and the
establishment of a fair and competitive "net price" per unit. In
June 1997, BMG and the Company entered into a settlement
agreement (the "BMG Settlement") whereby the BMG Agreement was
terminated, BMG agreed to pay the Company $175,000 and BMG agreed
to reduce the Company's obligations to BMG by approximately
$200,000. In addition, the BMG Settlement provides that BMG
shall continue to have the right to sell and distribute in the
United States, the Company's first title, "Passport to Peril" at
any "net price" established by BMG provided it does not exceed
50,000 units. If BMG sells in excess of 50,000 units, BMG shall
pay the Company a fair and competitive royalty.
The balance of distribution of its products that it
distributes itself has been done by entry into several sub-
license agreements to market its Pink Panther products. The
countries or regions within which the Company has concluded
agreements include Brazil, Taiwan, Finland, Israel, Denmark,
Spain, Germany, Austria, Switzerland, Sweden, Norway, Italy, The
Netherlands and the Dutch-speaking region of Belgium. Each
agreement, which is exclusive for its region, provides for
minimum number of Units to be distributed, which range from
30,000 units over a two-year period to 3,000 over a one-year
period; the royalties to be generated by these agreements range
from $6.00 per unit to $8.00 per unit.
In the United States, educational and entertainment CD-ROMs
are sold through computer stores, consumer electronics stores,
toy stores, book stores, music and video stores (collectively
"specialty stores") mail order catalogues, direct mailings to
consumers and mass merchants. Retailers of computer software
such as CD-ROMs have a limited amount of shelf space, and there
is intense competition among consumer software products for
adequate levels of shelf space and promotional support from
retailers. To the extent that the number of consumer software
products and computer operating systems increases, this
competition for shelf space may intensify. The Company's
products will likely constitute only a relatively small
percentage of a retailer's sales volume, and there can be no
assurance that retailers will purchase the Company's products or
provide the Company's products with adequate levels of shelf
space.
Marketing and Sales
The Company relies primarily on its Chief Executive Officer
and Director of Marketing for sales and licensing of the Company
developments. The Company believes that marketing to both retail
channels and to end users is important to the success of its
products and will be the responsibility of licensees and
distributors. The Company expects its distributors and licensees
will employ a variety of marketing techniques which may include
in store promotions, direct mailings of catalogues and brochures,
advertising in multimedia trade and general consumer publications
to promote sales of its products.
The Company relies on its contacts and relationships within
the industry to license its concepts and obtain development
contracts. In addition, it is constantly seeking new
relationships and customers.
Product Development and Manufacturing
The development of the Company's concepts is generally
developed in-house with the Company's full-time employees plus
occasional freelance artists, animators, writers or programmers.
The Company maintains a schedule and budgeting system designed to
control development costs and to meet deadlines. Currently the
Company's development efforts are concentrated in California.
The development capabilities include programming for a
variety of game systems including IBM PC, Sony PlayStation and
Sega Saturn. Artwork and graphics include two-dimensional
animation for Pink Panther and three-dimensional animation and
graphics for games such as Ten Pin Alley. Audio includes sound
effects, music and voiceover in a variety of formats. Producers
direct the design and development of each of the games and game
design starts with the concept stage and is involved in each step
of the development.
The Company licenses the manufacturing and distribution of
its new concepts to marketing firms, both domestic and
international.
Licensing
In May 1995, the Company entered into the License Agreement
with MGM for use on two interactive multimedia CD-ROMs of the
"Pink Panther" character and other related characters from the
Pink Panther cartoon, including The Inspector, Boss Man, Dr. Von
Schmarty, The Ant and the Aardvark, The Little Old Lady, Manly
Man, Dogfather, Pugg, Louie and Voodooman (collectively referred
to as the "Pink Panther characters"). The License Agreement,
which is nonexclusive, is for four years and provides that MGM
has a right of first negotiation and last refusal with respect to
distribution of the Company's products which contain the Pink
Panther characters (the "Licensed Products") which it has not
exercised. The License Agreement also encompasses the design,
manufacturing and marketing of a companion guide book and audio
soundtrack CD to the Licensed Products.
The Company paid MGM $300,000 as a nonrefundable advance
royalty, which will be applied to future royalties due in respect
of the sale of the Licensed Products. The Company shall pay MGM
(i) 12 1/2 % of the wholesale price for products sold in the
United States and 15% for products sold outside of the United
States and (ii) upon sales of the Licensed Products that are
jointly sold (bundled) with computer hardware systems, 50% of the
Company's revenues, less the cost of goods sold. The License
Agreement also provides that in the event the companion guide
book and soundtrack audio CD are sold separately from the CD-Rom,
the Company shall pay MGM an amount equal to 10% of the wholesale
price of each of these items. MGM has the right to approve the
Company's software titles that use the Pink Panther characters,
which approval may be granted or denied in MGM's sole discretion.
MGM does not own the rights to the Pink Panther theme music
and the Company did not elect to use such music for its first
titles.
The Company has licensed the use of the Trivial Pursuit name
and content for use in the first year of testing of the
interactive television applications in Sweden. The terms were
not announced.
Competition
The Company is aware that the market for its products is
intensely competitive. The principal competitive factors in the
consumer interactive multimedia software market include quality
and originality of products, price, brand name recognition,
marketing capabilities, access to distribution channels, ease of
use and quality of support services.
The Company competes primarily against other companies
offering consumer interactive multimedia and entertainment and
educational software. Existing consumer interactive multimedia
software companies may broaden their product lines or increase
their focus to compete more directly with the Company's products.
These competitors include, among others, Grolier Electronic
Publishing, Inc., Broderbund Software, Inc., Mindscape
International USA, Maxis, Inc., Discovery Communications and
Microsoft Corp. Potential new competitors, including computer
hardware or software manufacturers, diversified media companies
and publishing companies, may enter the consumer interactive
multimedia entertainment software market. The competition for
retail shelf space is also likely to increase due to the
proliferation of consumer software products. Most of the
Company's existing and future competitors have greater financial,
technical, marketing, sales and customer support resources, as
well as greater name recognition and greater access to consumers
than the Company. There can be no assurance that the Company
will respond effectively to this market or that competition will
not develop technologies or products that render the Company's
products obsolete or less marketable. In addition, increasing
competition in the consumer software market may cause prices to
fall, which may materially adversely affect the Company.
Intellectual Property Rights
The Company has registered "Wanderlust," "Adrenalin,"
"Western Technologies," and "Passport to Peril" as trademarks
with the U.S. Patent and Trademark Office. The Company has
applied for registration of the trademarks "Intelligent Fun &
Games" and "Alyce's Adventures in Wonderland." There is no
assurance, however, that the Patent Office will allow such
filings to be registered.
The Company has 40 patents in various areas ranging from
circuit boards to toys. Some of the patents are mechanical
design patents, some are software or article patents and some are
for basic technology ranging from hardware to optical.
The Company intends to treat its concepts and software as
proprietary and will rely primarily on a combination of
trademark, copyright and trade secret laws and employee and
third-party nondisclosure agreements to protect its intellectual
property rights. Also, as the number of software products in the
industry increases and the functionality of these products
overlaps, software developers and publishers may increasingly
become subject to infringement claims. There can be no assurance
that third parties will not assert infringement claims against
the Company in the future with respect to its proposed products.
Although the Company is not currently the subject of any
intellectual property litigation, management believes there has
been substantial litigation regarding copyright, trademark and
other intellectual property rights involving computer software
companies. Policing unauthorized use of the Company's products
may be difficult.
The Company may enter into transactions in countries where
intellectual property laws are not well developed or are poorly
enforced. Legal protection of the Company's rights may be
ineffective in such countries. Any claims or litigation, with or
without merit, could be costly and could result in a diversion of
management's attention, either of which could have a material
adverse effect on the Company. Adverse determinations in such
claims or litigation could also have a material adverse effect on
the Company.
The Company plans to enter into additional license
agreements with other companies for its own design or for their
properties, but there is no assurance that the Company will
successfully negotiate or enter into any such agreements.
Employees
As of September 30, 1997, the Company employed 27 people on
a full-time basis, including persons engaged in game design,
writing, research, sound, art, animation, computer programming,
management and administration. At September 30, 1997, the
Company had engaged approximately four persons as part-time and
free-lance employees. The Company believes that its relations
with employees are satisfactory.
ITEM 2. Property.
The Company operates its California operation from a
noncancellable lease agreement for a production and office
facility for minimum monthly payments of $13,801 through January
31, 1999 for the Company's California-based offices. The lease
provides for two one-year renewal options.
In September 1996, the Company entered into a sublease with
an unaffiliated party for premises located at 462 Broadway, New
York, New York (the "Sublease"). The Sublease terminates on March
31, 2001. For the first year, the Company's rent is $120,000,
with annual increases during the term. The space includes
approximately 15,000 square feet. Presently, the Company
subleases parts of this facility pursuant to sublease agreements
with four unaffiliated entities.
ITEM 3. Legal Proceedings
In 1996, an action was brought against the Company by Robert
Owens ("Owens") in the United States District Court for the
Southern District of New York. The Company did not accept a
subscription from Owens who sought to acquire 90,035 shares of
Common Stock of the Company (the "Common Stock") from the Company
in a private placement. Owens advanced the Company $27,000 which
amount the Company has attempted to return. Owens refused to
accept these funds until recently when he accepted the return of
$13,500 of these funds. The remaining $13,500 is currently being
held in escrow by counsel to the Company for the benefit of
Owens. There is a dispute as to whether Owens performed certain
services for the Company that would enable him to subscribe for
the 90,035 shares of Common Stock. There is no assurance that
Owens may not have a claim against the Company due to the
Company's failure to accept this person's subscription agreement
and failure to issue him 90,035 shares of Common Stock.
Presently, this lawsuit is in the discovery stage. The Company
believes it has meritorious defenses and intends to vigorously
defend itself.
ITEM 4. Submission of Matters to a Vote of Security Holders.
During the Company's fourth fiscal quarter ended June 30,
1997, no matters were submitted to a vote of the security holders
of the Company.
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
(a) The Common Stock is traded in the Over-the-Counter
market and is quoted on the NASDAQ System.
The following table sets forth, for the Company's last two
fiscal years commencing from the inception of trading on March
21, 1996, the high and low bid quotations for the Company's
Common Stock. The market quotations represent prices between
dealers, do not include retail markup, markdown or commissions
and may not represent actual transactions.
Quarter Ended High Bid Low Bid
Fiscal 1996
March 31, 1996 7.50 5.75
June 30, 1996 7.50 5.375
September 30, 1996 1.0625 .65625
Fiscal 1997
September 30, 1996 7.25 6.50
December 31, 1996 6.50 4.125
March 31, 1997 5.125 2.3125
June 30, 1997 2.3125 .625
On September 30, 1997, the closing bid price in the Over-
the-Counter market for the Common Stock, as reported by NASDAQ,
was $1.00 and the closing bid for the Company's warrants to
purchase an additional 2,415,000 shares of Common Stock at $7.00
per share, (the "Warrants"), as reported by NASDAQ, was $.15625.
The Warrants expire on March 20, 1999.
In order to qualify for continued listing on NASDAQ, a
company, among other things, must maintain a minimum bid price of
$1.00 per share, as an alternative if the bid price is less than
$1.00, maintain $2,000,000 in net tangible assets. In a letter
dated September 9, 1997, NASDAQ informed the Company that the bid
price requirement had not been met. NASDAQ provided the Company
ninety (90) calendar days in which to regain compliance with the
minimum bid price or the alternative requirement. If at any time
within the next ninety (90) calendar days from the date of this
letter, the shares of Common Stock reports a closing bid price of
$1.00 or greater for ten consecutive trading days, it will have
complied with the minimum bid price requirement. If the Company
is unable to demonstrate compliance with the minimum $1.00 bid
price on or before the end of the ninety day period, December 9,
1997, it must submit by that date, its proposals for achieving
compliance. On the basis of the information provided by the
Company, NASDAQ will determine whether or not the Company may
continue to be listed on The NASDAQ Stock Market. If the Company
is unable to satisfy the maintenance requirements for quotation
on NASDAQ, of which there can be no assurance, it is anticipated
that the securities would be quoted in the over-the-counter
market National Quotation Bureau ("NQB") "pink sheets" or on the
NASD OTC Electronic Bulletin Board. As a result, an investor may
find it more difficult to dispose of, or obtain, accurate
quotations as to the market price of the securities, which may
materially adversely affect the liquidity of the market for the
securities. In addition, if the securities are delisted from
NASDAQ, they might be subject to the low-priced security or so-
called "penny stock" rules that impose additional sales practice
requirements on broker-dealers who sell such securities.
(b) On September 30, 1997, there were approximately 113
holders of record of the Common Stock. The Company believes that
there are significantly more beneficial holders of the Common
Stock as many of the shares of Common Stock are held in "street"
name. There were also approximately 25 holders of record of the
Warrants.
(c) No cash dividends have been paid on the Common Stock,
and the Company does not anticipate paying cash dividends in the
foreseeable future.
<PAGE>
ITEM 6. Management's Discussion and Analysis.
(a) Results of Operations.
During Fiscal 1997 the Company had revenues of $1,504,420
as compared to revenues of $50,000 in Fiscal 1996. During Fiscal
1997, the Company had $288,820 of product sales, $613,887 of
revenues for development contracts and $601,713 of royalty
revenues. During Fiscal 1997, the Company incurred a net loss of
$4,486,396, or $1.07 per share, as compared to a loss of
$2,035,000, or $.72 per share, during Fiscal 1996. These
increased losses were largely due to slower product sales and
increased costs of development and higher selling general and
administrative costs during Fiscal 1997.
(b) Liquidity and Capital Resources
As of June 30, 1997, the Company had an accumulated deficit
of $6,843,220. At June 30, 1997, the Company had cash and cash
equivalents of $228,761, as compared to $4,893,658 as of June 30,
1996. The Company's working capital deficit at June 30, 1997 was
$1,116,839 as compared to working capital of $4,287,387 at June
30, 1996. At June 30, 1997, the Company's stockholders' equity
was $4,711,765 as compared to $4,897,161 at June 30, 1996.
The Company has significant requirements for capital to
continue to fund its activities. During Fiscal 1997, the Company
used $3,561,885 of funds as compared to the use of $1,893,944
during Fiscal 1996. These funds were used to fund the Company's
loss from operations during both periods. During Fiscal 1997,
the Company used $1,009,764 of funds in investing activities as
compared to the use of $531,359 during Fiscal 1996. During both
periods, the Company used funds to pay an advance under the
License Agreement and to purchase equipment and fixtures,
primarily computer equipment. In Fiscal 1997, the Company also
advanced $387,500 to its Western subsidiary. During Fiscal 1997,
the Company used $93,248 in financing activities as compared to
generating $6,596,993 from such activities (primarily the
Company's initial public offering of securities) during Fiscal
1996.
In May, 1995, the Company issued units consisting of
convertible debentures and common stock. An aggregate of
$507,500 of debentures payable and 465,374 shares of Common Stock
were issued to various investors in exchange for $1,015,000. The
debentures bear interest at the rate of 8% (payable annually),
and were due in May, 1997. The Company offered the debenture
holders two options in lieu of payment: (1) Conversion into
shares of Common Stock at the rate of $.60 per share or, (2)
extend the due date for one year in exchange for 200 shares of
<PAGE>
Common Stock for each $1,000 so extended. As of June 30, 1997,
404,159 shares of Common Stock were issued in exchange for
$242,500 of the convertible debentures, and 13,000 shares were
issued to extend the due date of $65,000 of convertible
debentures. As of October 7, 1997, holders of $83,750 of
debentures did not exercise either option, one of whom has
threatened litigation against the Company, and such debentures are
due, payable and in default.
Currently, the Company is attempting to raise additional
funds through a private placement offering. In that regard, the
Company has entered into an agreement for consulting services
with Mackenzie Shea, Inc. ("MSI"), pursuant to which MSI will
provide financial and business consulting services to the Company
for a term of 24 months and will be paid $6,000 per month. The
agreement may be cancelled on 30 days notice. MSI has been
issued 250,000 shares of Common Stock and warrants to purchase
500,000 shares of Common Stock for $.25 per share. If MSI fails
to provide the services provided for in the MSI engagement
agreement, the Company may redeem certain of its warrants issued
to MSI for nominal consideration. MSI may appoint one director
to the Company. In addition, the Company has entered into an
agreement for business consulting services with Morgan, Evan &
Company,, Inc. ("Morgen"), pursuant to which Morgen will support
a private placement offering and provide financial and business
consulting services to the Company and will earn a quarterly
retainer fee of 35,000 shares of Common Stock for the first
quarter and 30,000 shares of Common Stock for each subsequent
quarter. In addition, Morgen shall earn a fee of 6% of funds
raised for the Company upon the structuring of the private
placement terms. Such fee will be payable at closing of the
private placement. Lastly, the Company may cancel this agreement
at any time by giving Morgen thirty days prior written notice.
There is no assurance, however, that such additional capital will
be raised.
Due to significant losses and lower sales then forecast from
the Company's first product, the Company has experienced
significant cash flow shortages resulting in the Company
substantially reducing its staff, especially in its New York
office where it went from 50 to three. In addition, the Company
is attempting to further reduce its expenditures. Evenso, unless
the Company raises additional capital or its revenues from
operations dramatically increase, the Company will encounter
increased liquidity pressures that could result in a further
material disruption of its operations. There is no assurance,
however, that such additional capital will be available, or if
available, whether it will be available on terms acceptable to
the Company.
<PAGE>
ITEM 7. Financial Statements.
The financial statements listed below are included on pages
F-1 through F-26 following the signature page.
Title of Document Page
Independent Auditors' Report F-1
Consolidated Balance Sheet
June 30, 1997 F-2
Consolidated Statements of Operations - F-4
Years Ended June 30, 1997
and 1996
Consolidated Statements of Shareholders'
Equity - Years Ended June 30, 1997 F-5
and 1996
Consolidated Statements of Cash Flows - F-7
Years Ended June 30, 1997
and 1996
Notes to Consolidated Financial Statements F-9
ITEM 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Items 9, 10, 11 and 12 are incorporated herein by reference
to the Company's Proxy Statement to be filed on or prior to
October 29, 1997.
ITEM 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Certificate of Incorporation, as amended, incorporated
by reference to the Company's Registration Statement on
Form SB-2, No. 333-00178 (the "Registration
Statement").
3.2 By-Laws, as amended, incorporated by reference to
Exhibit 3.2 to the Registration Statement.
<PAGE>
4.1 Form of Underwriter's Warrant Agreement, including the
form of Underwriter's Warrant, incorporated by
reference to Exhibit 4.1 to the Registration Statement.
4.2 Form of Warrant Agreement between the Company and the
Warrant Agent, including form of Redeemable Warrant,
incorporated by reference to Exhibit 4.2 to the
Registration Statement.
4.3 Form of Convertible Debenture, incorporated by
reference to Exhibit 4.3 to the Registration Statement.
4.4 Form of Warrant issued in connection with the Bridge
Financing, incorporated by reference to Exhibit 4.4 to
the Registration Statement.
10.1 License Agreement between the Company and MGM/UA
Licensing and Merchandising, a division of Metro-
Goldwyn-Mayer Inc. ("MGM/UA"), dated May 25, 1995, as
amended, incorporated by reference to Exhibit 10.2 to
the Registration Statement.
10.2 Amendments to the License Agreement between the Company
and MGM/UA dated October 26, 1995, May 2, 1996 and May
31, 1996, incorporated by reference to Exhibit 10.3 of
the Company's Form 10-KSB for fiscal year ended June
30, 1996 (the "1996 10-KSB").
10.3 Sublease between the Company and Greenpeace, Inc. dated
September 13, 1996 for the Company's premises located
at 462 Broadway, New York, New York, incorporated by
reference to Exhibit 10.5 of the Company's 1996 10-KSB.
10.4 Stock Option Plan, as amended, incorporated by
reference to a Exhibit 10.4 to the Registration
Statement.
10.5 Financial Advisory and Consulting Agreement between the
Company and A.S. Goldmen & Co., Inc. incorporated, by
reference to Exhibit 10.6 to the Registration
Statement.
10.6 Form of Sub-license Agreement entered into by the
Company and its international sub-licensees,
incorporated by reference to Exhibit 10.10 of the
Company's 1996 10-KSB.
10.7 1996 Stock Option Plan, incorporated by reference to
Exhibit A of the Company's 1996 Proxy Statement.
<PAGE>
10.8 Acquisition Agreement among the Company, Western
Technologies, Inc. ("Western") and Mr. Jay Smith III
d/b/a Smith Engineering dated as of December 30, 1996,
incorporated by reference to Exhibit 7(c)(1) of the
Company's Form 8-K dated February 4, 1997 ("1997 Form
8-K").
10.9 License Agreement between Western and Mr. Smith dated
February 4, 1997, incorporated by reference to Exhibit
7(c)(2) of the Company's 1997 Form 8-K.
10.10 Employment Agreement between Western and Mr. Jay Smith
III, incorporated by reference to Exhibit 7(c)(3) of
the Company's 1997 Form 8-K.
10.11 Settlement Agreement and General Releases between the
Company and BMG Music d/b/a BMG Entertainment, dated
June 11, 1997.
10.12 Settlement Agreement between the Company and Ms.
Catherine Winchester, dated as of June 30, 1997.
10.13 Consulting Agreement between the Company and Ms.
Catherine Winchester, dated as of July 1, 1997.
10.14 Settlement Letter between the Company and Mr. Jay Smith
III dated July 31, 1997.
10.15 Software Development and License Agreement dated May
30, 1997, between the Company and Telia Info Media Tele
Vision AB.
10.16 Software Programming Services Agreement dated April 11,
1997, between the Company and THQ, Inc.
10.17 Consulting Agreement dated June 1997, between the
Company and Electronic Arts, Inc.
21 Subsidiaries of the Company.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WANDERLUST INTERACTIVE, INC.
Dated: October 10, 1997 By: s/Jay Smith III
Jay Smith III,
Chief Executive
Officer and Secretary
Pursuant to the requirement, of the Securities Exchange Act
of 1934, as amended, the Company has duly caused this report to
be signed on its behalf by the following persons on behalf of the
Company and in the capacities and on the dates indicated:
Name Capacity Date
s/Jay Smith III
Jay Smith III Chief Executive October 10, 1997
Officer, Secretary and
Director (Principal
Executive, Financial and
Accounting Officer)
s/Catherine Winchester
Catherine Winchester Director October 10, 1997
<PAGE>
Independent Auditor's Report
Board of Directors
Wanderlust Interactive, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of
Wanderlust Interactive, Inc. and subsidiary ("Company") as of June 30,
1997, and the related consolidated statements of operations, changes
in shareholders' equity and cash flows for the years ended June 30,
1997 and 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Wanderlust Interactive, Inc. and subsidiary as of June 30, 1997 and
the consolidated results of its operations and its consolidated cash
flows for the years ended June 30, 1997, and 1996, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, the
Company has suffered recurring losses from operations, has a working
capital deficiency and has defaulted on payment of $83,750 of
convertible debentures. These matters raise substantial doubt as to
the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also discussed in Note 2. The
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
DRUCKER, MATH & WHITMAN, P.C.
North Brunswick, New Jersey
August 28, 1997 except for
Note 21 (b), (c) (d) and (e),
as to which the date is
October 7, 1997
F-1
<TABLE>
<CAPTION>
WANDERLUST INTERACTIVE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1997
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 228,761
Accounts receivable, net of allowance
for doubtful accounts of $23,500 236,981
Costs and estimated earnings in excess
of billings on uncompleted contracts 20,600
Prepaid expenses 24,500
---------
Total current assets 510,842
---------
Fixed assets, net 845,799
---------
Other assets:
Patents and licenses, net of accumulated
amortization of $354,308 3,047,051
Goodwill, net of accumulated
amortization of $17,507 1,663,165
License rights, advance royalty
net of write-off of $100,000 200,000
Capitalized software 99,938
Security deposits and other 55,951
---------
5,066,746
---------
$6,422,746
=========
(continued)
F-2
<PAGE>
WANDERLUST INTERACTIVE, INC. AND SUBSIDIARY
<CAPTION>
CONSOLIDATED BALANCE SHEET (cont.)
June 30, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Current liabilities:
Accounts payable and accrued liabilities $ 744,227
Billings in excess of costs and estimated
earnings on uncompleted contracts 130,285
Notes and loans payable 488,169
Convertible debentures 265,000
----------
Total current liabilities 1,627,681
---------
Due to officer/shareholder 83,300
----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value;
authorized, 100,000 shares;
issued and outstanding, none 0
Common stock, $.01 par value;
authorized, 10,000,000 shares;
issued and outstanding, 5,041,228
shares 50,412
Additional paid-in capital 11,504,573
Accumulated deficit (6,843,220)
----------
4,711,765
----------
$6,422,746
=========
See notes to consolidated financial statements.
F-3
<PAGE>
WANDERLUST INTERACTIVE, INC. AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended June 30,
1997 1996
---------------- --------------
<S> <C> <C>
Revenues:
Product sales $ 288,820 $ 0
Development contracts 613,887 0
Royalties 601,713 50,000
---------- -----------
1,504,420 50,000
---------- -----------
Expenses:
Cost of product sales 143,264 0
Cost of development contracts 716,280 0
Research and development 2,231,998 1,274,183
Selling, general and
administrative 2,936,360 859,546
Interest income, net (37,086) (48,149)
--------- ---------
5,990,816 2,085,580
--------- ---------
Net loss $(4,486,396) $(2,035,580)
========= =========
Net loss per common stock share $ (1.07) $ (0.72)
========= =========
Weighted average shares
outstanding 4,175,058 2,825,802
========= =========
See notes to consolidated financial statements.
F-4
<PAGE>
WANDERLUST INTERACTIVE, INC. AND SUBSIDIARY
<CAPTION>
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock Additional Total
--------------- paid-in Accumulated shareholders'
Shares Amount capital deficit equity
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances,
June 30, 1995 2,024,973 $ 20,250 $ 634,895 $ (321,244) $ 333,901
--------- ------- --------- ---------- ---------
December 1995,
issued for cash,
$1.09 per share 343,746 3,437 371,246 374,683
December 1995,
issued 515,624
warrants for
cash $.01 per
warrant 4,067 4,067
March 1996, issued
for cash, $5.00
per share 1,300,000 13,000 6,487,000 6,500,000
March 1996, issued
2,100,000
warrants for
cash $.25 per
warrant 525,000 525,000
March 1996, issued
Underwriters
warrants for cash 20 20
April 1996, issued
for cash, $5.00
per share 95,000 950 474,050 475,000
April 1996, issued
315,000 warrants
for cash $.25 per
warrant 78,750 78,750
Costs related to
issuance of common
stock and warrants (1,358,680) (1,358,680)
F-5 (continued)
WANDERLUST INTERACTIVE, INC. AND SUBSIDIARY
<CAPTION>
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (cont.)
Common Stock Additional Total
--------------- paid-in Accumulated shareholders'
Shares Amount capital deficit equity
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net loss for the year
ended June 30, 1996 $(2,035,580) $(2,035,580)
-------- ------- --------- --------- ---------
Balances,
June 30, 1996 3,763,719 $ 37,637 $7,216,348 (2,356,824) 4,897,161
February 1997,
issued for
acquisition of
Western 800,000 8,000 3,992,000 4,000,000
February 1997,
issued in settlement
of accounts payable 2,350 23 4,677 4,700
February 1997,
issued for services 8,000 80 15,920 16,000
May 1997, issued
in exchange for
convertible
debentures 404,159 4,042 238,458 242,500
May 1997, issued
for extension
of due date of
debentures 13,000 130 7,670 7,800
June 1997, issued
in connection with
contract settlement 50,000 500 29,500 30,000
Net loss for the
year ended
June 30, 1997 (4,486,396) (4,486,396)
---------- ----- --------- --------- ---------
Balances,
June 30, 1997 5,041,228 $50,412 $11,504,573 $(6,843,220) $4,711,765
========= ====== ========== ========= =========
Per share and other amounts may not reconcile precisely due to roundings.
F-6 See notes to consolidated financial statements.
WANDERLUST INTERACTIVE, INC. AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOW
For the year ended June 30,
1997 1996
--------------- --------------
<S> <C> <C>
Cash flows from operating
activities:
Net loss $ (4,486,396) $ (2,035,580)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Write-off of fixed assets 100,000 -
Write-off of license rights 100,000 -
Amortization 371,815 -
Depreciation 319,970 116,579
Loss on disposal of fixed
assets 29,718 -
Common stock issued for
services 16,000 -
Common stock issued in
connection with settlement 30,000 -
Change in:
Accounts receivable (68,641) -
Costs and estimated earnings
in excess of billings on
uncompleted contracts 49,202 -
Billings in excess of costs
and estimated earnings on
uncompleted contracts (13,664) -
Accounts payable and
accrued liabilities (70,126) 98,481
Other assets 52,937 (49,424)
Prepaid expenses 7,300 (24,000)
Net cash used in operating --------- --------
activities (3,561,885) (1,893,944)
--------- ---------
Cash flows from investing
activities:
Purchase of license - (225,000)
Purchase of fixed assets (536,234) (306,359)
Advances to subsidiary,
prior to acquisition (387,500) -
Capitalized software (99,938) -
Cash acquired from subsidiary 13,908 -
--------- ---------
Net cash used in investing
activities (1,009,764) (531,359)
--------- -------
F-7 See notes to consolidated financial statements.
WANDERLUST INTERACTIVE, INC. AND SUBSIDIARY
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOW (cont.)
For the year ended June 30,
1997 1996
--------------- --------------
<S> <C> <C>
Cash flows from financing
activities:
Issuance of common stock
and warrants, net of
costs of issuance $6,598,840
Payments on notes and
loans payable $ (56,548)
Payments on due to officer,
net of interest accrued (36,700)
Debt acquisition costs (1,847)
---------- ---------
Net cash provided by (used in)
financing activities (93,248) 6,596,993
---------- ---------
Increase (decrease) in cash
and cash equivalents (4,664,897) 4,171,690
Cash and cash equivalents,
beginning 4,893,658 721,968
--------- ---------
Cash and cash equivalents,
ending $ 228,761 $ 4,893,658
========== =========
Cash paid during the year for:
Interest $ 61,075 $ 40,750
========== ==========
Income Taxes $ 800 $ -
========== ==========
Noncash investing and financing activities:
See Note 3 regarding acquisition during fiscal year ended June
30, 1997.
See Note 8 regarding convertible debentures converted during
fiscal year ended June 30, 1997.
During fiscal year ended June 30, 1997, 2,350 shares were issued
in settlement of $4,700 of accounts payable.
During fiscal year ended June 30, 1997, 13,000 shares were issued
for extension of due date of debentures.
See notes to consolidated financial statements.
F-8
</TABLE>
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
1. Summary of significant accounting policies and business
activity:
Business activity and basis of presentation:
The consolidated financial statements of Wanderlust
Interactive, Inc. and subsidiary ("Company") include the
accounts of Wanderlust Interactive, Inc. ("Wanderlust"), its
wholly-owned subsidiary, Western Technologies, Inc.
("Western"), and certain defined assets and certain defined
liabilities of Smith Engineering ("SE"), which was a sole
proprietorship prior to the Company's acquisition of
Western. Intercompany transactions and balances have been
eliminated.
Wanderlust is engaged in the creation, development,
publishing, marketing and selling of interactive multimedia
software entertainment titles on CD-ROM for personal
computers. Wanderlust is located in Los Angeles,
California.
Western and SE are engaged in the invention and development
(including engineering and software development) of
electronic designs, technology, and software, principally
for toys and electronic games. Western licenses or sells
inventions, designs, and software to independent
manufacturers and publishers. Such manufacturers and
publishers generally pay advance royalties or development
fees and may pay additional royalties based on products
sold. Western also provides product development services to
manufacturers. Western and SE are located in Los Angeles,
California.
The Company's customers are concentrated in the toy and
electronic entertainment industries. These industries are
characterized by rapid changes in technology and customer
preferences.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
F-9
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
1. Summary of significant accounting policies and business
activity (continued):
Cash and cash equivalents:
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Concentration of credit risk:
Financial instruments which subject the Company to
concentrations of credit risk consist of temporary cash
instruments and accounts receivable. The Company places its
temporary cash investments with high quality financial
institutions. At times, the Company's cash balances with
these institutions exceed the current insured amount under
the Federal Deposit Insurance Corporation. Accounts
receivables are primarily from development contracts. The
Company reviews its accounts receivable monthly and provides
allowances for potential uncollectible accounts.
Fixed assets:
Fixed assets consist primarily of computers, leasehold
improvements and furniture, and are stated at cost.
Amortization of leasehold improvements is provided on a
straight-line basis over the shorter of the estimated useful
lives of the improvements or the life of the lease.
Depreciation is provided on a straight-line basis over the
estimated useful life of the related assets.
Patents and licenses:
Patents and licenses are amortized on a straight-line basis
over their estimated useful lives of four years.
Goodwill:
Goodwill represents the excess of cost over the fair value
of assets acquired and is amortized using the straight-line
method over 40 years. The Company assesses the
recoverability of its goodwill, and whenever continued
adverse events or changes in circumstances indicate
impairment, a write-off will be recorded. Based on the
short interval since the Company's business combination with
Western, the Company believes no material impairment of
goodwill exists at June 30, 1997.
F-10
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
1. Summary of significant accounting policies and business
activity (continued):
Capitalized software:
Capitalized software consists of salaries and other costs
incurred to develop software from the time technical
feasibility is established through the date the product is
ready for sale. Amortization begins when the software is
available for general release and is calculated on a
product-by-product basis using the faster of the straight-
line method over the estimated useful life or based on
expected units of sale. Amortization expense was nil for
the years ended June 30, 1997 and 1996.
Development contract revenue and cost recognition:
Revenues from fixed-price and modified fixed-price
development contracts are recognized on the percentage-of-
completion method measured by the percentage that costs
incurred to date bear to total estimated costs.
A contract is considered complete when all costs, except
insignificant items, have been incurred.
Contract costs include all direct labor, subcontractor and
other costs and those indirect costs related to contract
performance, such as indirect salaries, employee benefits,
insurance, and payroll taxes.
Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
Changes in job performance, customer acceptance of work
done, technological developments and estimated profitability
may result in revisions to costs and income and are
recognized in the period in which the revisions are
determined.
The asset, "Costs and estimated earnings in excess of
billings on uncompleted contracts", represents revenues
recognized in excess of amounts billed. The liability,
"Billings in excess of costs and estimated earnings on
uncompleted contracts", represents billings in excess of
revenues recognized.
F-11
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
1. Summary of significant accounting policies and business
activity (continued):
Royalty revenue:
Royalties earned by the Company are generally reported by
the licensees on a calendar quarter basis. The Company
recognizes royalty revenue when received.
Net loss per share:
Net loss per share is based on the weighted average number
of shares of common stock outstanding during the period.
Common stock issued for consideration below the initial
public offering price of $5.00 per share during the 12
months preceding the date of the initial filing of a
registration statement with the Securities and Exchange
Commission has been included in the calculation of the
weighted average as if they were outstanding for the entire
period.
2. Going concern:
The accompanying consolidated financial statements have been
prepared on a going concern basis which contemplates the
realization of assets and satisfaction of liabilities in the
normal course of business. The Company has suffered
recurring losses from operations, has a working capital
deficiency and has defaulted on payment of $83,750 of
convertible debentures. These factors raise substantial
doubt about the Company's ability to continue as a going
concern. The financial statements do not include any
adjustments relating to the recoverability and
classification of recorded asset amounts or the amount of
liabilities that might be necessary should the Company be
unable to continue in existence. Continuation of the
Company as going concern is dependent on achieving
profitable operations and satisfying convertible debenture
holders. Management's plans to achieve profitability
include developing new products, obtaining new customers,
and continuation of a cost cutting program started during
fiscal year 1997. Management also plans to obtain
additional investment capital and to continue negotiations
with holders of convertible debentures to defer payment
dates and/or convert debentures to common shares.
F-12
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
3. Acquisition:
On February 4, 1997, Wanderlust closed on an acquisition
agreement among Wanderlust, Western, SE and Mr. Jay Smith,
III ("Mr. Smith"). The agreement provided for the sale of
100% of the outstanding shares of stock of Western and
certain assets and certain liabilities of SE in exchange for
800,000 shares of the Company's common stock. An additional
600,000 shares of the Company's common stock may be issued
if certain events, relating to the Company's obtaining
additional equity capital, transpire. See Note 21 regarding
subsequent event. As part of the acquisition, a license
agreement was entered into between Western and Mr. Smith in
which Mr. Smith granted to Western the exclusive right to
use and market patents and license agreements owned by Mr.
Smith. The license agreement provides that 75% of the
revenues from such patents and licenses will be retained by
Western and 25% will be retained by Mr. Smith until Mr.
Smith receives an aggregate revenue from such patents and
licenses of $2,000,000, at which time no further revenue
will inure to Mr. Smith.
The business combination has been accounted for using the
purchase method. The results of operations of Western for
the period from February 4, 1997 through June 30, 1997 are
included in the Company's statements of operations and cash
flows for the year ended June 30, 1997.
The cost of the acquired enterprise was $5,082,000. 800,000
shares of common stock with an assigned value of $5 each
were issued.
Acquired goodwill will be amortized over forty years using
the straight-line method.
F-13
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
4. Accounts receivable:
June 30, 1997
-------------
Completed contracts $ 20,000
Contracts in progress 110,000
Other 130,481
-----------
260,481
Less allowance for doubtful accounts 23,500
-----------
$ 236,981
===========
5. Billings in excess of costs and estimated earnings on
uncompleted contracts:
June 30, 1997
-------------
Costs incurred $ 293,149
Estimated earnings 12,166
-----------
305,315
Less billings to date (415,000)
-----------
$ (109,685)
==========
Included in the accompanying consolidated balance sheet under the
following:
Costs and estimated earnings in
excess of billings on uncompleted
contracts $ 20,600
Billings in excess of costs and
estimated earnings on uncompleted
contracts (130,285)
-----------
$ (109,685)
===========
6. Fixed assets, net:
June 30, 1997
-------------
Computers $ 1,618,018
Furniture 146,657
Leasehold improvements 327,180
----------
2,091,855
Less accumulated depreciation
and amortization 1,246,056
----------
$ 845,799
==========
F-14
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
7. Notes and loans payable
Note payable, bank, $150,000, due on demand,
being paid in 36 monthly installments
of $4,167 plus interest. The interest
rate is the prime rate plus 2%.
prime rate was 8.50% at June 30, 1997. $24,990
Note payable, bank, $100,000, due on demand,
being paid in 36 monthly installments
of $2,780 plus interest. The interest
rate is prime plus 2%. 38,838
Note payable, bank, $150,000, due on demand,
being paid in 36 monthly installments
of $4,864, which includes principal and
interest. Interest rate is prime plus 2%. 106,099
Note payable, bank, $32,375, due on demand,
being paid in 30 monthly installments
of $1,224, which includes principal and
interest. Interest rate is prime plus 1.5% 29,224
Revolving loan, bank, up to $250,000, due on
demand. Payment of interest only is due
monthly. Interest rate is prime plus 1.5%. 256,951
Loan payable to an individual, $50,000.
Interest accrues at 10% and is payable
annually. The principal is due in
February, 2002. 52,066
-------
$488,169
=======
Substantially all of the above loans are secured by a blanket
lien on all assets of Western, and are personally guaranteed by
Mr. and Mrs. Smith.
8. Convertible debentures:
In May, 1995, the Company issued units consisting of
convertible debentures and common stock. An aggregate of
$507,500 of debentures payable and 465,374 shares of common
stock were issued to various investors in exchange for
$1,015,000. The debentures bear interest at the rate of 8%
F-15
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
8. Convertible debentures (continued):
(payable annually), and were due in May, 1997. The Company
offered the debenture holders two options in lieu of
payment: 1) Conversion into shares of common stock at the
rate of $0.60 per share or, 2) extend the due date for one
year in exchange for 200 shares of common stock for each
$1,000 so extended. As of June 30, 1997, 404,159 shares of
common stock were issued in exchange for $242,500 of the
convertible debentures, and 13,000 shares were issued to
extend the due date of $65,000 of convertible debentures.
See Note 21(e) for subsequent events regarding debentures.
9. Due to officer/shareholder:
This loan is payable to Mr. Smith in the face amount of
$80,000 plus accumulated interest of $3,300. Interest
accrues at 10% and is payable annually. The principal is
due in February, 2002.
10. Incentive stock options:
In 1994, the Company adopted an Incentive Stock Option Plan
("Plan"). In September, 1995, the Company amended the Plan.
The Plan provides for the granting of options to purchase up
to 360,000 shares of common stock at an exercise price equal
to the fair market value of the common stock (110% of fair
market value for a holder in excess of 10%) on the date of
the grant. No options have been exercised to date.
Plan activity during the year ended June 30, 1996 follows:
Average
Shares Price
------ -------
Outstanding at beginning of year 65,023 $1.08
Granted 380,028 3.56
Exercised - -
Forfeited 85,051 1.16
------- ----
Outstanding at end of year 360,000 3.03
Options exercisable ======= ====
at June 30, 1996 8,000 $1.08
Weighted average remaining ======= ====
contractual life, years 4.5
=======
F-16
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
10. Incentive stock options (continued):
Plan activity during the year ended June 30, 1997 follows:
Average
Shares Price
------ -------
Outstanding at beginning of year 360,000 $3.03
Granted 164,509 2.22
Exercised - -
Forfeited 204,988 2.88
------- ----
Outstanding at end of period 319,521 $2.06
Options exercisable at ======= ====
June 30, 1997 67,605 $1.99
Weighted average remaining ======= ====
contractual life, years 3.9
=======
Options outstanding at June 30, 1997:
Shares Price
------ -------
185,508 $0.625
60,000 5.00
36,000 5.50
33,011 1.20
5,002 1.08
-------
319,521
=======
In July, 1996, the Company adopted the 1996 Incentive Stock
Option Plan ("96 Plan"). The 96 Plan provides for the
granting of options to purchase up to 360,000 shares of
common stock at an exercise price equal to the fair market
value of the common stock (110% of fair market value for a
holder of in excess of 10%) on the date of the grant. No
options have been exercised to date.
F-17
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
10. Incentive stock options (continued):
Plan activity during the year ended June 30, 1997 follows:
Average
Shares Price
------ -------
Outstanding at beginning of year - -
Granted 209,000 $2.72
Exercised - -
Forfeited 90,750 4.48
------- ----
Outstanding at end of period 118,250 $1.36
Options exercisable at ======= ====
June 30, 1997 15,312 $0.625
Weighted average remaining ======= ====
contractual life, years 4.4
=======
Options outstanding at June 30, 1997:
Shares Price
------ -------
98,250 $0.625
20,000 5.00
-------
118,250
=======
During the fiscal year ended June 30, 1997, the Company
granted non-plan options as follows: 40,000 at exercise
price of $5.00 plus 55,000 at exercise price of $.625. No
options have been exercised to date.
11. Accounting for stock based compensation:
For the year ending June 30, 1997, the Company adopted the
disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Accordingly, no compensation
cost has been recognized in the consolidated financial
statements for the stock option plans.
F-18
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
11. Accounting for stock based compensation (continued):
Had compensation cost for the Company's stock option plans been
recognized based on the fair value at the grant date for awards
consistent with the provisions of SFAS 123, the Company's net
loss and loss per share would have been as indicated below:
Net loss - as reported $4,486,396
Net loss - pro forma $4,755,851
Loss per share - as reported $1.07
Loss per share - pro forma $1.13
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grants: expected
volatility of 120%; risk-free interest rate of 6.0%; and expected
lives of 4.5 years.
12. Commitments and contingencies:
Commitments:
On June 30, 1997, the Company entered into a settlement agreement
with a former officer. The agreement provides for the
cancellation of an employment agreement and cancellation of
options to purchase 200,000 shares of common stock. The former
officer was issued 50,000 shares of common stock which were
valued at $30,000 and recorded as a charge in the consolidated
statement of operations. The Company also entered into a one
year consulting agreement with the former officer, providing for
compensation of $60,000.
In February, 1997, the Company entered into a three year
employment agreement with an officer providing for base salary of
$150,000 per year.
In May, 1995, the Company entered into a four year nonexclusive
license agreement with Metro-Goldwyn-Mayer Inc., ("MGM") which
provides for use of the "Pink Panther" character. The agreement
was amended in May of 1996, and the Company paid $300,000 as a
nonrefundable advance royalty, to be applied to future royalties.
The agreement provides for payment of the greater of a percentage
royalty on wholesale prices or an absolute minimum per unit sold.
The agreement also provides for the shipment of minimum copies by
certain due dates. Failure to ship such minimum copies may cause
termination of the agreement. The agreement grants MGM a right
to first negotiation and last refusal in regards to distribution
of the licensed products. MGM also has the right to approve, at
its sole discretion, the Company's software titles that contain
the "Pink Panther" character.
F-19
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
12. Commitments and contingencies (continued):
Commitments (continued):
The Company wrote off $100,000 of the advance royalty as a result
of weaker than expected sales of the licensed product.
In September, 1996, the Company entered into a five year lease
for office space in New York, New York. Annual rentals of
$100,000 are due in the first year, and increase to $135,000 by
the fifth year.
The Company is obligated under a lease agreement for office space
in Los Angeles, California. Minimum monthly payments of $13,801
are due through January 31, 1999. The lease provides for two
one-year renewal options.
Rent expense for the fiscal years ended June 30, 1997 and 1996
was $151,813 and $57,173, respectively.
Future minimum rental commitments under both leases are: 1998,
$289,612; 1999, $225,567; 2000, $134,112, 2001, $104,382.
The Company leases computer equipment under several operating
leases that are substantially similar. These leases have
expiration dates from fiscal year ending 1998 to 2001.
Future minimum lease payments are: 1998, $63,930; 1999, $52,711;
2000, $11,012; 2001, $6,691.
See Note 21 regarding commitment arising from subsequent event.
Contingencies:
In July, 1994, the Company effected a private placement of common
stock. The Company did not accept a subscription from one person
who sought to acquire 90,035 shares of Common Stock from the
Company. This individual advanced the Company $27,000, which
amount the Company has attempted to return. This individual
refused to accept these funds until August, 1997 when he accepted
the return of $13,500 of these funds. The remaining $13,500 is
currently being held in an attorney's trust account. There is a
dispute as to whether the individual performed certain services
for the Company that would enable him to subscribe for the 90,035
shares of Common Stock, and that individual filed a lawsuit in
U.S. District Court. There is no assurance that there may not
be a valid claim against the Company due to the Company's failure
to accept the subscription and failure to issue 90,035 shares of
Common Stock. The Company believes it has meritorious defenses
and intends to vigorously defend itself.
F-20
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
12. Commitments and contingencies (continued):
Contingencies (continued):
In connection with the acquisition discussed in Note 3, the
Company acquired Western, certain assets and liabilities of SE,
and certain rights from Mr. Smith. Prior to the acquisition, SE
entered into a contract with GT Interactive Software Corp. ("GT")
to produce a software title named "Vampire". A dispute has
arisen between GT and SE whereby SE, having spent over $700,000
of its own funds on changing requirements to meet GT demands,
seeks reimbursement of those funds and GT, having failed to
receive a complete project, is seeking the return of $645,000,
funds which GT advanced to SE. The acquisition agreement
specifically provides that the Company has no obligation with
respect to GT. Recently, the Company (as the alleged successor
of SE) received a letter from GT requesting payment for the
Vampire project. The Company responded to GT stating it is not
responsible for any payment because the acquisition agreement
does not provide for the Company to acquire any of the rights to
the Vampire project, nor is the Company the successor to SE. No
lawsuit has been brought by GT against the Company to date. The
Company believes it has meritorious defenses against this claim
and, if a lawsuit is commenced, intends to vigorously defend
itself.
Prior to the acquisition, SE entered into several contracts with
a sub-contractor, Rogue Studios, Inc. ("Rogue"), involving
creation of software known as "Into the Void" ("Software").
Rogue failed to deliver the source code for the Software to SE.
As a result, SE was unable to provide Funsoft GMbh ("Funsoft")
the source code for the Software, thereby causing Funsoft to
cancel its license with Playmates Interactive Entertainment Inc.
("Playmates"). In July, 1997, SE received a letter from
Playmates claiming damages of not less than $120,000 due to SE's
alleged breach of contract with Funsoft. The Company does not
believe it assumed any liabilities relating to Rogue or Playmates
from SE. In any event, SE intends to respond to Playmates that
it is not responsible for any damages since Rogue caused the
breach of contract. No lawsuit has been brought by Playmates
against the Company or SE to date. The Company believes it has
meritorious defenses against this claim and, if a lawsuit is
commenced, intends to vigorously defend itself.
See Note 21 for subsequent event re: contingency.
F-21
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
13. Initial public offering:
In March and April, 1996, the Company closed an initial public
offering of common stock and redeemable warrants. A total of
1,395,000 shares of common stock and 2,415,000 redeemable
warrants were issued. The redeemable warrants are exercisable at
any time during a three year period commencing March 28, 1996 at
an exercise price of $7.00 per share. The redeemable warrants
include an option whereby, under certain conditions, the Company
can redeem the warrants.
In connection with the initial public offering, the investment
banker received, for nominal consideration, five year warrants to
purchase 130,000 shares of common stock and 210,000 redeemable
warrants. These warrants are exercisable at any time during a
four year period commencing March 1997 for $6.00 per share of
common stock and $.30 per redeemable warrant. The Company has
also agreed to utilize the services of the investment banker on a
consulting basis for two years at a monthly fee of $2,000; the
aggregate fee of $48,000 was paid at closing.
14. Bridge financing:
On December 29, 1995 the Company completed a private offering of
343,746 shares of common stock and 515,624 redeemable warrants
for an aggregate consideration of $378,750. The redeemable
warrants provide for automatic conversion into an equal number of
warrants bearing the same rights as those discussed in Note 13,
"Initial public offering".
15. Related party transactions:
During the year ended June 30, 1996, the Company incurred
$250,007 of legal fees and disbursements to a law firm. For the
year ended June 30, 1997, legal fees and disbursements of
$175,888 were incurred to the same law firm. A partner in that
firm was an officer/shareholder/director, and is currently a
shareholder.
F-22
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
16. Income taxes:
For income tax purposes, as of June 30, 1997 the Company has
deferred start-up costs and a net operation loss carryforward
approximating the financial accounting net loss since inception.
The start-up costs will be amortized over five years commencing
during the third quarter of fiscal 1997. The net operating loss
carryforward will expire in 2012. These items result in a
deferred tax asset of approximately $2,275,000. However, a
valuation reserve has been recorded for the full amount due to
the uncertainty of realization of the deferred tax asset.
17. Emergency from development stage:
During the third quarter of fiscal year end June 30, 1997, the
Company no longer considered itself to be in the development
stage. Prior thereto, the Company was considered to be in the
development stage as either planned principal operations had not
commenced, or such operations had commenced, but no significant
revenue was derived therefrom.
18. Concentration of credit risk and major customers:
The Company deals with a relatively small number of customers
which account for the majority for revenues and receivables.
% of Revenues % of Receivables
Year ended June 30, As of June 30,
------------------- ----------------
1997 1996 1997
---- ---- ----
Customer "A" 35% - -
Customer "B" 11% - -
Customer "C" 10% 80% 18%
Customer "D" 3% - 23%
Customer "E" 2% - 20%
19. Business segment information and foreign revenue:
The Company's operations have been classified into two business
segments: publishing and development contracts. Prior to the
Company's acquisition of Western, it operated as a publisher.
F-23
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
19. Business segment information and foreign revenue
(continued):
Information by segment for the fiscal year ended June 30, 1997
follows. Information regarding development contracts is for the
five months ended June 30, 1997:
Development
Publishing contracts Total
---------- ----------- ----------
Revenues $ 747,000 $ 757,000 $1,504,000
Operation loss 3,557,000 929,000 4,486,000
Total assets 1,063,000 5,360,000 6,423,000
Depreciation and
amortization 235,000 457,000 692,000
Capital expenditures 524,000 12,000 536,000
Foreign royalties for the fiscal year ended June 30, 1997 and
1996 were $458,000 and $50,000, respectively.
20. New authoritative accounting pronouncements:
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings
per Share" ("SFAS 128"). This new standard requires dual
presentation of basic and diluted earnings per share ("EPS") on
the face of the consolidated statement of operations and requires
a reconciliation of the numerators and denominators of the basic
and diluted EPS calculations. Adoption of SFAS 128 is required
for the year ended June 30, 1998. The Company's current EPS
calculation conforms to basic EPS. The Company has not made a
determination of the impact on EPS of the adoption of SFAS 128.
21. Subsequent events:
(a) On July 31, 1997, the Company and Mr. Smith entered into
an agreement whereby the 600,000 shares of common stock
contingently issuable (See Note 3) to him were canceled and the
Company committed to lend to Mr. Smith up to $100,000 solely to
allow Mr. Smith to purchase up to $100,000 of shares of common
stock which may be offered in a private offering. If such
offering takes place and such loan is made, the loan will bear
interest at 6% and be payable within three years.
F-24
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
21. Subsequent events (continued):
(b) The Company had entered into an agreement with BMG Music,
d/b/a BMG Entertainment ("BMG") to distribute certain of its
software titles in the United States ("BMG Agreement"). BMG and
the Company reached a settlement of this agreement on June 11,
1997 ("BMG Settlement") which provided in pertinent part, that:
(a) BMG agreed to pay the Company $175,000 and (b) for the BMG
Releasees (as such term is defined in the BMG Settlement) to
release the Company from any obligations to BMG. In connection
with the BMG Agreement, the Company acquired services from
Sonopress in the amount of $62,500. The Company believes
Sonopress is affiliated with BMG and the Company obtained a
release against this obligation pursuant to the BMG Settlement.
On September 17, 1997, the Company received a letter from
Sonopress' counsel requesting payment of $62,500. The Company
believes, pursuant to the terms of the BMG Settlement, that it is
released from this obligation. To date, no lawsuit has been
brought by Sonopress against the Company. There is no assurance
that Sonopress may not have a valid claim against the Company.
The Company believes it has meritorious defenses, and if a
lawsuit is commenced, intends to vigorously defend itself.
(c) On October 3, 1997, the Company entered into an agreement
with a business consulting firm. The agreement provides for the
business consulting firm to assist the Company in its efforts to
seek additional business and/or business relationships and to
advise the Company in its efforts to seek additional equity
financing. The Company is required to (1) pay $20,000 (payable
as operating funds become available but no later than the
distribution of escrowed funds from any financing); (2) issue
250,000 shares of Common Stock and 500,000 Warrants to purchase
additional shares at $.25 per share; (3) pay a monthly fee of
$6,000. In the event of a merger or obtaining of financing the
Company is required to pay a cash fee of 2% to 4% of the gross
proceeds of the transaction, depending upon the amount of the
transaction. In the event the Company does not complete a bridge
loan financing within 60 days of completion of an offering
memorandum, then the Company shall have the right to cancel the
500,000 Warrants. After 90 days from signing, the Company may
terminate the agreement upon 30 days written notice.
(d) On October 6, 1997, the Company entered into an agreement
with an investment banking firm. The agreement provides for the
investment banking firm to identify, evaluate and prioritize
prospective merger parties, purchasers or investors and to
determine a fair value to negotiate a transaction. The Company
is required to pay a retainer fee of 35,000 shares of Common
Stock for the first quarter and 30,000 shares for each subsequent
F-25
<PAGE>
Wanderlust Interactive, Inc. and Subsidiary
Notes to Consolidated Financial Statements
For the years ended June 30, 1997 and 1996
21. Subsequent events (continued):
quarter. The Company may cancel the agreement upon thirty days
written notice. The agreement also provides for a contingent fee
upon a successful transaction, ranging from 2% to 6% of the
valuation of the transaction, depending upon the type of
transaction, to be paid in the same form as that received by the
Company in the transaction.
(e) Subsequent to June 30, 1997, certain holders of
convertible debentures exercised the following options in lieu of
payment:
$93,750 of debentures were converted into 156,250 shares of
Common Stock; the due date of $22,500 of debentures was extended
in exchange for 4,500 shares of Common Stock. $83,750 of
convertible debentures are due and payable as of October 7, 1997.
22. Pro forma information (unaudited):
Supplemental pro forma information for the years ended June 30,
1997 and 1996, as if the acquisition had occurred at the
beginning of each fiscal year:
Year ended June 30,
------------------
1997 1996
---------- ----------
Proforma revenue $3,092,000 $4,600,000
Proforma net (loss) ($5,780,000) ($4,182,000)
Proforma (loss) per share ($1.24) ($1.15)
F-26
<PAGE>
EXHIBIT INDEX
10.11 Settlement Agreement and General Releases between the
Company and BMG Music d/b/a BMG Entertainment, dated
June 11, 1997.
10.12 Settlement Agreement between the Company and Ms.
Catherine Winchester, dated as of June 30, 1997.
10.13 Consulting Agreement between the Company and Ms.
Catherine Winchester, dated as of July 1, 1997.
10.14 Settlement Letter between the Company and Mr. Jay Smith
III dated July 31, 1997.
10.15 Software Development and License Agreement dated May
30, 1997, between the Company and Telia Info Media Tele
Vision AB.
10.16 Software Programming Services Agreement dated April 11,
1997, between the Company and THQ, Inc.
10.17 Consulting Agreement dated June 1997, between the
Company and Electronic Arts, Inc.
C:\WPDOCS\CDKIDZ\10K.97
EXHIBIT 10.11
SETTLEMENT AGREEMENT AND GENERAL RELEASE
THIS SETTLEMENT AGREEMENT AND GENERAL RELEASE (the "Agreement")
is entered into as of this 11th day of June 1997 by and between
BMG Music, d/b/a BMG Entertainment ("BMG"), 1540 Broadway, New
York, New York 10036-4098, and Wanderlust Interactive, Inc., 462
Broadway, New York, New York 10013 ("Owner"), (collectively, the
"Parties") with respect to the agreement dated as of May 15, 1996
between the Parties (the "Distribution Agreement") in connection
with the distribution of Owner's Product(s) entitled "Pink
Panther Passport To Peril" (referred to in the Distribution
Agreement as Pink Panther Intelligent Fun and Games Number 1 and
hereinafter referred to as Owner's Product(s) #1). Except as
otherwise provided herein, all terms defined in the Distribution
Agreement and used herein shall have the same meanings herein as
in the Distribution Agreement.
WITNESSETH
WHEREAS, BMG extended to Owner a Guarantee(s) that sixty thousand
(60,000) units of Owner's Product(s) #1 would be distributed
within two (2) year period following the initial commercial
release date for Owner's Product(s) (such release occurred on
October 1, 1996);
WHEREAS, Owner agreed to establish a "net price" for Owner's
Product(s) #1 which is fair and competitive;
WHEREAS, BMG does not consider the "net price" established by
Owner to be a price which is fair and competitive;
WHEREAS, BMG and Owner have discussed alternative "net price";
WHEREAS, Owner is unwilling to establish a "net price" for
Owner's Product(s) #1 at any of the "net prices" considered by
BMG to be a fair and competitive price;
WHEREAS, such "net price" impacts the Guarantee(s) dispute has
arisen between Owner and BMG regarding the Guarantee(s)
("Dispute");
WHEREAS, the Parties wish to avoid the expense of defending any
action that might be brought against each other regarding the
Dispute by settling their differences on an amicable basis and
fully and finally resolving the Dispute and any related
controversy.
1. NOW THEREFORE, in consideration of the mutual promises
herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the
Parties hereby agree as follows:
(a) Immediately following the full execution of the Agreement,
BMG shall pay to Owner the sum of One Hundred Seventy Five
Thousand ($175,000) Dollars in full and final settlement and
discharge of any outstanding disputes between the Parties in
connection with the Distribution Agreement including, without
limitation, the Guarantee Shortfall ("Settlement Dollars").
Promptly following the full execution of this Agreement, BMG
shall wire transfer the payment to Owner in accordance with
Owner's instructions.
(b) (i) In the Territory, BMG shall continue to have the right
to (A) sell and distribute at any "net price" established by BMG
(in its sole discretion) units of Owner's Product(s) #1 which
have been delivered by Owner to the Warehouse for sale and
distribution in the Territory as of the date hereof (including
BMG's existing inventory (as of such date) of Owner's Product(s)
#1 and any BMG returns inventory of Owner's Product(s) #1 on and
after such date) ("Initial Inventory"); and (B) manufacture, sell
and distribute (at any "net price" established by BMG (in its
sole discretion)) up to an additional twenty five thousand
(25,000) units of Owner's ("Additional Inventory"), provided that
the aggregate number of Initial Inventory and Additional
Inventory units sold and distributed by BMG do not exceed fifty
thousand (50,000) and provided further that the sale and
distribution of any unit of Owner's Product(s) #1 which has been
previously sold, distributed and returned shall count as one (1)
unit sold and distributed. The aggregate number of units of
Owner's Product(s) #1 sold and distributed by BMG shall not
exceed fifty thousand (50,000) units ("Excess Units") unless the
Parties shall first have negotiated (in good faith) a fair and
competitive royalty payable by BMG to Owner in connection with
Net Sales of only the Excess Units.
(ii) If BMG elects to exercise its right to manufacture the
Additional inventory, Owner upon request, shall promptly deliver
or
cause to be delivered to BMG (at BMG's cost and expense) (A) the
Master(s) required by BMG to manufacture the Additional
Inventory; and (B) all materials required by BMG to print the
applicable containers, other packaging materials, graphics, user
guide booklets and inserts (four color separations) which
comprise Owner's Product(s) #1.
(c) Except as otherwise contemplated herein with respect to the
Settlement Dollars and a royalty in connection with the
distribution of Excess Units, BMG shall no longer have any
obligation to account, or make any payments, to Owner. Owner
shall have no obligation to reimburse BMG for any of the costs
and expenses incurred by BMG, on Owner's behalf, with respect to
the Initial Inventory.
<PAGE>
(d) For good and valuable consideration (receipt of which is
hereby acknowledged), Owner hereby assigns, sells, conveys and
transfers to BMG all right, title and ownership interest in and
to Initial Inventory and the Additional Inventory delivered to
the Warehouse and the proceeds from the sale and distribution of
same ("Transfer") and Owner warrants and represents that Owner
possesses the full right to effect the Transfer free from any and
all encumbrances, liens and other claims by third parties.
2. The Distribution Agreement and the Term are terminated as of
the date first written hereinabove, provided, however, that BMG
shall continue to have the right to sell and distribute Initial
Inventory and Additional Inventory in the manner contemplated
herein and all of Owner's warranties, representations and
indemnifications which are contemplated to survive the expiration
or termination of the Term will continue in full force effect.
3. Owner acknowledges and agrees that BMG has fully performed
its obligations to Owner pursuant to the Distribution Agreement,
including, without limitation, with respect to the payment to
Owner of any and all compensation of any kind whatsoever pursuant
to the Distribution Agreement and that Owner is not entitled to
receive any other payments and/or compensation in connection with
the Distribution Agreement or any other agreement (except this
Agreement) or understanding with BMG in connection with the
subject matter of the Distribution Agreement.
4. In consideration of the amount set forth in Paragraph 1(a)
above and the release contained in Paragraph 5 below, Owner, for
itself and for anyone acting on its behalf, fully, irrevocably
and unconditionally releases and discharges BMG, its
predecessors, successors, parents, subsidiaries, affiliates and
assigns, and their respective representatives, directors,
officers, shareholders, agents and employees (collectively, "BMG
Releases") from any and all claims of any kind whatsoever,
whether known or unknown in any federal, state or local court,
arbitral forum or federal, state or local administrative agency,
which "Owner Releases" (as defined below) now has, ever had, or
hereafter may have against any of the BMG Releases by reason of
any act, failure to act, transaction, event or occurrence prior
to the date of this Agreement, including, without limitation, any
obligation arising out of or otherwise in connection with the
Distribution Agreement and/or the subject matter thereof.
5. In consideration of the release contained in Paragraph 4
above, BMG, for itself and for anyone acting on its behalf,
fully, irrevocably and unconditionally releases and discharges
Owner, its predecessors, successors, parents, subsidiaries,
affiliates and assigns, and their respective representatives,
directors, officers, shareholders, agents and employees
(collectively "Owners's Releases") from any and all claims of any
kind whatsoever, whether known or unknown, in any federal, state
or local court, arbitral forum or federal, state or local
administrative agency, which BMG Releases now has, ever had, or
hereafter may have against any of Owner's Releases by reason of
any act, failure to act, transaction, event or occurrence prior
to the date of this Agreement, including, without limitation, any
obligation arising out of or otherwise in connection with the
Distribution Agreement and/or the subject matter thereof.
6. Each Party recognizes and agrees that the making of and
signing of this Agreement are not intended to and do not
constitute or imply an admission of liability or wrongdoing by
the other Party.
7. Neither Party shall (a) disclose the terms of this
Agreement, except (i) to comply or to obtain compliance with this
Agreement or (ii) to its legal, financial or tax advisers, or (b)
issue, cause, or to the extent within its control, permit to be
issued or cooperate with the issuance of any article, memorandum,
release, interview, publicity or statement, whether oral or
written, of any kind, to any individual, the public, the press or
the media, which is any way concerns this Agreement and/or the
subject matter hereof. In the event either Party does not comply
with this Paragraph 7, then the other Party shall have no
adequate remedy at law and shall be able to enforce this
Paragraph 7 by injunction and such other relief as may be just
and proper.
8. The provisions of this Agreement are severable. If any of
its terms are deemed unenforceable, the remaining provisions
shall remain in effect. Further, this Agreement will be
construed and enforced in accordance with the laws of the State
of New York applicable to contracts negotiated, executed and
performed entirely within the State of New York; provided,
however, that any choice-of-law rules shall not apply. Only a
State or Federal court of competent jurisdiction in the State of
New York, County of New York shall have exclusive jurisdiction
over any dispute arising out of or in connection with this
Agreement, and the Parties hereby consent to the personal
jurisdiction of such court and waive any objection based on venue
or forum conveniens.
9. a) This Agreement may be executed in counterparts and by
different Parties hereto on separate counterparts, but all such
counterparts together shall constitute one and the same
Agreement. For purposes of this Agreement, facsimile signatures
shall be deemed to be original. This Agreement may only be
modified in a writing signed by all parties; provided that the
terms of this Paragraph 9 shall apply to any such modification.
b) This Agreement contains the entire understanding between
the Parties and supersedes all prior, oral and written
agreements, understandings, commitments and practices with
respect to the content hereof.
10. Each Party, for itself, has carefully read and fully
understands all of the terms of this Agreement, including,
without limitation, that this Agreement constitutes a full and
complete waiver and general release of all claims, that such
Party has been given a sufficient period of time within which to
review this Agreement, including, without limitation, with an
attorney, and to the extent such Party desires, such party has
done so; that such party hereby waives any specific period for
the review and/or revocation of this Agreement; that this
Agreement will become effective when signed by all Parties
hereto; and that such Party has signed this Agreement
voluntarily, without duress, coercion or undue influence.
WHEREFORE, the parties hereto have executed this Agreement as of
the date first stated above.
WANDERLUST INTERACTIVE, INC. BMG MUSIC
By: s/ Jay Smith By: s/ T. Jones
Date: June 26, 1997 Date: June 26, 1997
WP51\CDKIDZ\SETT-AGR.897
EXHIBIT 10.12
SETTLEMENT AGREEMENT
SETTLEMENT AGREEMENT, effective as of June 30, 1997, between
Wanderlust Interactive, Inc., a Delaware corporation with offices
located at 462 Broadway, New York, New York 10013 (the "Company")
and Catherine Winchester residing at 258 Broadway, New York, New
York 10007 ("Ms. Winchester").
R E C I T A L S
WHEREAS, Ms. Winchester was employed with the Company pursuant to
an Agreement between the Company and Ms. Winchester dated as of
November 7, 1995 (the "Employment Agreement");
WHEREAS, there is a dispute with respect to the relationship
between the Company and Ms. Winchester;
WHEREAS, the Company and Ms. Winchester desire to renegotiate
their relationship in accordance with the terms hereof; and
WHEREAS, the Company and Ms. Winchester have decided to settle
their outstanding differences, modify their relationship and
settle and resolve all of their outstanding disputes as of the
date hereof;
NOW THEREFORE, in consideration of the mutual covenants
hereinafter set forth, and for other good and valuable
consideration, the parties hereto have agreed, and do hereby
agree, as follows:
1. Cancellation of Employment Agreement. The Company and Ms.
Winchester hereby agree to cancel the Employment Agreement as of
June 30, 1997.
2. Cancellation of Stock Options. The Company and Ms.
Winchester (collectively referred to as the "Parties") hereby
agree to cancel the stock option agreement to purchase 200,000
shares of the Company's Common Stock (the "Common Stock") dated
January 20, 1997. The Parties hereby agree that Ms. Winchester's
stock option agreement dated May 20, 1997 to purchase 10,000
shares of Common Stock shall remain in full force and effect.
3. Consulting Agreement. The Company hereby agrees to retain
Ms. Winchester as a consultant for a period of one year in
accordance with the terms specified in the consulting agreement
to be dated as of July 1, 1997 (the "Consulting Agreement"), a
copy of which is attached hereto as Exhibit 1. The Company
hereby agrees to pay Ms. Winchester $5,000 per month, to be
payable on the 15th of each month starting July 1, 1997.
4. Covenant Not to Compete. Ms. Winchester, at any time during
or within six months after termination of her consultancy shall
not in any manner, engage or become interested in as owner,
stockholder, partner, director, officer, employee, consultant or
otherwise, on an operational level in which she is personally
involved, any business which directly competes with any of the
Company's products which are either published or under
development which Consultant has been personally involved with at
the time of the termination of her consultancy. For a period of
six months after termination of her consulting agreement,
provided Consultant has not been terminated without cause and
provided the Company has not breached this Agreement, Ms.
Winchester will not solicit business from the Company's current
or prospective customers from the same departments within or
lines of business of the Company without the consent of the
Company. Ms. Winchester acknowledges that these provisions are
necessary for the Company's protection and are not unreasonable,
since she is also able to obtain employment or consulting
assignments with companies whose businesses are not directly
competitive with those of the Company and its affiliates. The
period, the geographical area and the scope of these restrictions
on Ms. Winchester's activities are divisible, so that if any
provision of this Article 4 is invalid, that provision shall be
automatically modified to the extent necessary to make it valid.
The foregoing to the contrary notwithstanding, Ms. Winchester's
ownership of less than three (3) percent of the stock of a
publicly-owned company which competes with the Company shall not
be considered a violation of the provisions of this Article 4.
5. Additional Shares of Common Stock. The Company hereby agrees
to issue Ms. Winchester 50,000 shares of Common Stock.
6. Assignment. The Company hereby agrees to assign to Ms.
Winchester all of its rights to the "ALYCE" project, including
its copyright, subject to the right of the Company to receive 50%
of any proceeds from revenues generated by such project after
recoupment of the costs properly allocated to such project.
7. Computer Equipment and Expenses. The Company hereby agrees
to transfer to Ms. Winchester a laptop computer currently in her
possession and to pay her an additional $1,500 for reimbursement
of expenses.
8. Attorney's Fees. The Parties hereby agree to be responsible
for their own attorney's fees.
9. Releases. The Parties hereby agree to release each other and
their heirs, executors, administrators, successors and assigns
from all actions, causes of action, suits, debts, sums of money,
account, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances,
trespasses, damages, judgments, extents, executions, claims and
demands whatsoever, in law or equity, which against the Parties
and their heirs, executors, administrators, successors and
assigns had as of the date hereof.
10. New York Law to Govern. This Agreement shall be governed
by, construed and interpreted in accordance with the laws of the
State of New York.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
12. Paragraph Headings. Paragraph headings are inserted herein
for convenience only and are not intended to modify, limit or
alter the meaning of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands and
executed this Agreement as of the day and year first above
written.
WANDERLUST INTERACTIVE, INC.
By:___________________________
Authorized Officer
______________________________
Catherine Winchester
C:\WP51\DATA\CDKIDZ\SETL-AGT.715
EXHIBIT 10.13
CONSULTING AGREEMENT
CONSULTING AGREEMENT made as of July 1, 1997 by and between
Wanderlust Interactive, Inc., a Delaware corporation, located at
462 Broadway, New York, New York 10013 (hereinafter referred to
as the "Company") and Catherine Winchester, residing at 258
Broadway, New York, New York 10007 (hereinafter referred to as
the "Consultant").
WITNESSETH:
WHEREAS, the Company creates, publishes, manufactures and
markets educational, high quality, interactive multimedia titles
for consumers (the "Products"); and
WHEREAS, the Consultant is experienced in creating and
marketing interactive multimedia titles.
NOW, THEREFORE, the Company and the Consultant intending to
be legally bound, agree as follows:
1. Consultancy. The Company, pursuant to the terms and
conditions set forth in this Agreement, hereby retains the
Consultant. The Consultant agrees to accept the position set
forth herein. The Consultant will make herself available for up
to twenty (20) hours per month to assist the Company provided
such services do not interfere with Consultant's other
professional responsibilities, in which case Consultant will
advise the Company of reasonable alternate times she can be
available; it being understood that Consultant intends to obtain
other employment.
2. Term. Except as otherwise provided herein, the term
of this Agreement shall commence July 1997 and shall terminate on
June 30, 1998, unless terminated sooner in accordance herewith
(the "Term").
3. Compensation.
a. Except as otherwise set forth herein, as
compensation for all services to be rendered by the Consultant to
the Company pursuant to the terms of this Agreement, the
Consultant shall be paid a fee of $5,000 per month or $60,000 per
year (the "Compensation") commencing on the Commencement Date,
payable on the 15th day of each month starting July 1, 1997.
b. At any time, the Board of Directors of Company may
grant to the Consultant a bonus or increase her Compensation in
an amount which, in the discretion of the Board of Directors of
the Company, is deemed appropriate.
4. Termination.
4.1 Termination Without Cause. This Agreement shall
automatically be terminated without notice in the event of the
death or disability of the Consultant.
4.2 Termination For Cause. The Company may terminate
the Consultant's engagement under this Agreement without
liability if such engagement is terminated "for cause". The term
"for cause" shall, for the purposes of this Agreement, mean (i) a
material breach by the Consultant of the provisions of this
Agreement, (ii) the commission by the Consultant of a fraud
against the Company or the conviction of the Consultant for
aiding or abetting, or the commission of, a felony or of a fraud
or a crime involving moral turpitude or a business crime, (iii)
the knowing possession or use of illegal drugs or prohibited
substances or the excessive drinking of alcoholic beverages,
which impairs the Consultant's ability to perform her duties
hereunder, or (iv) being under the influence of such drugs,
substances or alcohol during the Consultant's hours of
engagement. In the event of such termination for cause, the
Consultant shall be entitled to receive her Compensation up to
the date of such termination.
5. Administration; Expenses. The Consultant shall report
to the Board of Directors of the Company, at such intervals as
may be determined from time to time. The Consultant shall be
reimbursed by the Company for all expenses reasonably incurred by
her.
6. Restrictive Covenants.
6.1 Inventions. Any program, discovery, process,
design, invention or improvement which the Consultant makes or
develops during her engagement by the Company, on behalf of the
Company and in connection with the Company's business or research
activities as then conducted or contemplated, shall belong to the
Company and shall be promptly disclosed to the Company. During
the Consultant's engagement and for a period of one year
thereafter, the Consultant shall, without additional
compensation, execute and deliver to the Company any instruments
of transfer and take such other action as the Company may request
to carry out the provisions of this Article 6, including without
limitation, filing, at the Company's expense, patent, copyright
or trademark applications for anything covered by this Article 6
and the prompt assignment of the same to the Company.
6.2 Confidential Information. The Consultant agrees
that she shall not, without the written consent of the Company or
in the regular course of the Company's business, either during
the term of consultancy with the Company or for a period of one
year thereafter, disclose to any person, firm, corporation,
association, or entity whatsoever, any information relevant to
the operation of the Company's business including, but not
limited to, any confidential, proprietary or secret aspect of the
affairs of the Company or any affiliate of the Company or in any
manner or way use such information in competition with the
Company.
6.3 Competition. The Consultant, at any time
during or within six months after termination of her consultancy
shall not in any manner, engage or become interested in as owner,
stockholder, partner, director, officer, employee, consultant or
otherwise, on an operational level in which she is personally
involved, any business which directly competes with any of the
Company's products which are either published or under
development which Consultant has been personally involved with at
the time of the termination of her consultancy and shall not hire
any Company employee within six months of the termination of her
consultancy, without the consent of the Company. For a period of
six months after termination of her consulting agreement,
provided Consultant has not been terminated without cause and
provided the Company has not breached this Agreement, she will
not solicit business from the Company's current or prospective
customers from the same departments within or lines of business
of the Company without the consent of the Company. The
Consultant acknowledges that these provisions are necessary for
the Company's protection and are not unreasonable, since she is
also able to obtain employment or consulting assignments with
companies whose businesses are not directly competitive with
those of the Company and its affiliates. The period, the
geographical area and the scope of these restrictions on the
Consultant's activities are divisible, so that if any provision
of this Article 6.3 is invalid, that provision shall be
automatically modified to the extent necessary to make it valid.
The foregoing to the contrary notwithstanding, the Consultant's
ownership of less than three (3%) percent of the stock of a
publicly-owned company which competes with the Company shall not
be considered a violation of the provisions of this Article 6.3.
7. Injunction. It is recognized and hereby acknowledged
by the Consultant that a breach or violation by the Consultant of
any of the covenants or agreements contained in this Agreement
may cause irreparable harm and damage to the Company hereto, the
monetary amount of which may be virtually impossible to
ascertain. As a result, the Consultant recognizes and
acknowledges that the Company shall be entitled to an injunction,
without posting any bond or security in connection therewith,
from any court of competent jurisdiction enjoining and
restraining any breach or violation of any of the restrictive
covenants contained in Article 6 of this Agreement by the
Consultant or her associates, partners or agents, either directly
or indirectly, and that such right to injunction shall be
cumulative and in addition to whatever other rights or remedies
the Company may possess. Nothing contained in this Article 7
shall be construed to prevent the Company from seeking and
recovering from the Consultant damages sustained as a result of
any breach or violation by the Consultant of any of the covenants
or agreements contained in this Agreement, and that in the event
of any such breach, the Company shall avail itself of all
remedies available both at law and at equity.
8. Miscellaneous.
8.1 Notices. Any notice or other communication to
a party under this Agreement shall be in writing, and if by use
of the mail shall be considered given when mailed by certified
mail, return receipt requested, to the party at the following
address or at such other address as the party may specify by
notice to the other:
(a) If to the Company, to it at its address set
forth above, and
(b) If to the Consultant, to her at her address set
forth above.
8.2 Benefit. This Agreement shall be binding upon
and inure to the benefit of the respective parties hereto and
their legal representatives, successors and assigns.
8.3 Validity. The invalidity or unenforceability of
any provisions hereof shall in no way affect the validity or
enforceability of any other provision.
8.4 Entire Agreement. This Agreement constitutes
the entire Agreement between the parties, and supersedes all
existing agreements between them. It may only be changed or
terminated by an instrument in writing signed by both parties.
8.5 New York Law to Govern. This Agreement shall be
governed by, construed and interpreted in accordance with, the
laws of the State of New York.
8.6 Corporate Action. The execution and delivery of
this Agreement by the Company has been authorized and approved by
all requisite corporate action.
8.7 Waiver of Breach. The failure of a party to
insist on strict adherence to any term of this Agreement on any
occasion shall not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that
term or any term of this Agreement. Any waiver hereto must be in
writing.
8.8 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
8.9 Paragraph Headings. Paragraph headings are
inserted herein for convenience only and are not intended to
modify, limit or alter the meaning of any provision of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands
and executed this Agreement as of the day and year first above
written.
WANDERLUST INTERACTIVE, INC.
By:
Authorized Officer
Catherine Winchester
cdkidz\cnsl-agr.cw
Exhibit 10.14
WANDERLUST INTERACTIVE
Intelligent Fun & Games
462 Broadway
New York, New York 10013
July 31, 1997
Mr. Jay Smith III
CEO
Wanderlust Interactive, Inc.
5301 Beethoven Street
Los Angeles, CA 90066-7047
Re: Settlement
Dear Mr. Smith:
Wanderlust Interactive, Inc. ("Wanderlust"), entered into an
agreement with you d/b/a Smith Engineering, a sole proprietorship
("Smith"), and Western Technologies, Inc. ("Western") as of
December 30, 1996 (the "Agreement"). There is a dispute with
respect to the terms of the Agreement between Wanderlust, Smith,
and Western (collectively the "Parties"). This confirms we have
agreed to resolve our differences as follows:
1. Wanderlust Loan to Smith. Wanderlust hereby agrees to make
to Smith a non-recourse loan of up to $100,000 for up to three
years at 6% interest per annum solely to allow Smith to purchase
up to $100,000 of Shares of Common Stock offered by Wanderlust in
the first private offering of securities after the date hereof in
which shares are issued.
2. Cancellation of Smith's Entitlement of Wanderlust Shares of
Common Stock. The Parties hereby agree to cancel Smith's
entitlement to receive up to 600,000 additional shares of Common
Stock of Wanderlust upon the happening of certain events pursuant
to the Agreement.
3. Mutual Releases. The Parties hereby agree to release each
other and their heirs, executors, administrators, successors and
assigns from all actions, causes of action, suits, debts, sums of
money, account, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances,
trespasses, damages, judgments, extents, executions, claims and
Mr. Jay Smith III
July 31, 1997
Page 2
demands whatsoever, in law or equity, which against the Parties
and their heirs, executors, administrators, successors and
assigns had as of the date hereof.
If the terms of this letter reflect our agreement, kindly sign
below where appropriate and return a copy of this letter to me.
Sincerely,
WANDERLUST INTERACTIVE, INC.
By: ________________________
Authorized Signature
Confirmed and Agreed
to this ___ day of July, 1997
________________________
Jay Smith III
WESTERN TECHNOLOGIES, INC.
By: ____________________________
Jay Smith, III, CEO
c:\wp51\cdkidz\Settl.728
EXHIBIT 10.15
Software Development & License Agreement
(Two Open TV Applications)
This Agreement is made this 30th day of May, 1997 by and between
Adrenalin Entertainment, a division of Wanderlust Interactive,
Inc., a Delaware corporation with offices at 5301 Beethoven
Street, Los Angeles, CA 90066 ("Developer"), and Telia InfoMedia
Tele Vision AB, Box 1112, 131 26 NACKA STRAND SWEDEN (courier
post delivery: Automobilgatan 8-16) ("Company").
W I T N E S S E T H:
WHEREAS, Developer possesses certain creative and technical
expertise and experience in the field of computer programming
and, in particular, the creation and development of interactive
television applications;
WHEREAS, Company desires Developer to develop certain Interactive
television applications now known as "Mah-Jongg Tile Game" and
"Trivial Pursuit" to operate on the Open TV interactive
television cable system ("Software") in accordance with the
specifications to be provided in Schedule A attached hereto
(Specifications) and in accordance with the Time Schedule also
identified in Schedule A;
WHEREAS, Company desires to license certain rights in the
Software from Developer;
WHEREAS, Developer is willing and able to develop such Software
and license rights to Company in accordance with the terms and
conditions recited herein.
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained, the parties hereto agree as follows:
1. Responsibilities of Developer
a) Developer agrees to develop the Software in accordance with
the Specifications identified in Schedule "A" attached hereto.
b) Developer agrees to deliver the Software in accordance with
the Delivery Schedule provided in Schedule A attached hereto.
Developer's conformance with the Delivery Schedule is contingent
on prompt approval of preceding development milestones and timely
payment of amounts due hereunder by Company.
c) Developer shall provide Company with semi-monthly written
reports on the status of the development of the Software. In
addition, Developer's Producer will make herself reasonably
available for telephone consultation at the request of Company.
d) For a period of six (6) months following the acceptance date
of the Software by Company, Developer will, at its own expense
and in an expeditious fashion, make all necessary modifications
to software so that it will operate in material accordance with
the Specifications.
2. Developer's Ownership Rights: Grant of License: Territory.
It is understood and agreed that the Software developed by
Developer hereunder is the sole and exclusive property of
Developer throughout the world. Subject to the terms and
conditions contained herein, Developer hereby grants Company an
exclusive license for fifty (50) years from the date first above
written to perform the Software, publicly, and to permit others
to do so, in the countries of the European continent,
Scandinavia, the United Kingdom, and Eire (the "Territory").
Notwithstanding the foregoing grant of rights, nothing herein
will prevent Developer from incorporating elements of computer
code contained in the Software into other software products
developed by Developer and supplied by Developer to third
parties, or exploited by Developer, in the Territory. Such use
will not be deemed an infringement of Company's rights or result
in any liability on the part of Developer or any third party.
3. Equipment and Documentation to be Provided by Company.
Company will provide Developer at no charge with sufficient set-
top boxes and documentation to permit Developer to perform the
services required hereunder.
4. Compensation
a) Company shall pay Developer the following non-returnable
license fees in accordance with the following schedule. All
amounts are in United States dollars and are net of all
withholding and/or taxes.
1. fifty thousand dollars ($50,000) upon execution of this
Agreement;
2. twenty five thousand dollars ($25,000) at the mid-point of
production;
3. thirty five thousand dollars ($35,000) upon acceptance of the
Software by Company, Software will be deemed complete when it is
demonstrated by Developer using a computer network in Developer's
labs. Acceptance by Company will not be unreasonably withheld or
delayed.
b) In addition to the foregoing, if Company sublicenses or
otherwise exploits rights to the Software outside the network
operated by Telia (it being understood that Company shall not
sublicense or otherwise exploit "Trivial Pursuit" outside Sweden
without the express written consent of Developer), Company will
pay Developer twenty five percent (25%) of all amounts received
by Company in connection with such sub-licensing or other
exploitation.
c) In addition to the foregoing, Company hereby agrees to
reimburse Developer for all expenses previously approved by
Company incurred in the performance of this Agreement.
Previously approved expenses may include, but not necessarily be
limited to, overseas courier service, airfare and hotel expenses,
ground transportation, and a reasonable per diem which may be
incurred whenever it is necessary for Developer personnel to
travel outside the Los Angeles area. Developer shall invoice
Company on a monthly basis for such expenses and payment shall be
made on a not 30-day basis by Company.
d) In addition to the foregoing, Company may order up to 6,600
additional questions for the "Trivial Pursuit" Software at a cost
of not greater than $6 per question. Upon receiving Company's
order, Developer will use its best commercial efforts to provide
the additional questions according to the timetable requested by
Company; provided however, that Company understands that all such
questions are subject to review and approval by Developer's
licenser, and Developer can not control the timing of such review
and approval.
e) Upon request of Developer, Company will promptly provide
Developer with all requested usage data, and information
describing the nature and amount of premium channel charges for
use of Software in Sweden. In the event Developer's license in
connection with the "Trivial Pursuit" Software product requires
payment for use of "Trivial Pursuit" on Company's premium channel
in Sweden, then Company will remit to Developer the amount
required by Developer's licenser and Developer will pass along
the amount so received to its licenser. As used in this section,
a "premium channel" is any channel or service not included in
basic cable or broadcast service, for which a separate charge is
made, whether individually, or as part of a package of channels.
5. Payments by Developer to Company During the Term, Developer
will pay Company twenty five percent (25%) of net amounts
received by Developer as a result of licensing rights to the
Software outside the Territory. As used in this Article 6, "net
amounts received" means all amounts received by Developer from
such licensing activities, less amounts required to be paid by
Developer to third parties, such as but not limited to, its
licenser in connection with "Trivial Pursuit".
6. Accounting Statements
a) Each party agrees to keep all usual and proper records and
books of account in connection with the exploitation of the
Software. These books and records will be maintained in
accordance with generally accepted accounting principles. Each
party will deliver to the other within thirty (30) days after the
end of each quarter-annual period, detailed written statements in
the English language setting forth all revenues receiving arising
from exploitation of the Software during such period. Each such
statement will advise the applicable party in writing of the
nature and source of all such revenue.
b) Simultaneous with the delivery of each accounting statement,
the accounting party will pay to the other party by bank-to-bank
wire transfer all amounts shown to be due in the applicable
statement. All payments will be made in United States dollars
using the currency exchange rate in effect on the day the
applicable statements is issued. In the event that the
accounting party is unable because of governmental restrictions
to make payment in the manner described in the preceding
sentence, it will deposit (at the receiving party's expense) to
the receiving party's credit or account, or to such other account
as the receiving party may from time to time designate, in a
depository selected by the receiving party, all sums payable to
the receiving party here under. Interest on all amounts not
received on the dates provided herein will accrue from the date
due at the annual rate of fifteen percent (15%) or the maximum
rate allowed under applicable law (whichever is less). Nothing
herein will, however, be deemed a waiver of the accounting
party's obligation to account and pay all amounts due on the
dates provided herein.
7. Audits
a) A party receiving accounting statements may, from time to
time, examine the records and books of account of the party
providing the statements, as provided in this paragraph only. An
examination may take place only for the purpose of verifying the
accuracy of the applicable accounting statements. An examination
may be made for any particular statement only once, and only
within two years from the date in which the applicable statement
has been received. Books and records may be examined only during
normal business hours, only at the place the party issuing the
statement normally maintains the books and records to be
examined, and only upon reasonable notice. A certified public
accountant, attorney, or equivalent may be engaged to make this
examination. In the event that any examination of any statement
reveals underpayment or under credits in an amount equal to at
least five percent (5%) of the amount otherwise paid or credited
in connection with the applicable statement, then the reasonable
cost of the examination will be paid by the accounting party.
b) If a party has any objections to an accounting statement,
specific notice of that objection together with reasons for it
must be given within three years after receiving the applicable
statement. Each accounting statement will become conclusively
binding on both parties at the end of that three year period, and
not subject to any further objection.
8. Company's Warranties: Confidential Information: Additional
Undertakings. Company warrants and represents:
a) Company possesses the full right, power, and authority to
enter into and perform this Agreement;
b) The source code, documentation and related information
(collectively, "Source Code") to be provided by Developer to
Company for each of the Software products is proprietary and
confidential information of Developer and/or its licenser and
suppliers. Company agrees not to disclose or provide the Source
Code to any third party or use the Source Code for any purpose
other than expressly provided in this Agreement. However,
Company may disclose the Source Code in accordance with judicial
or other governmental order, provided Company shall give
Developer reasonable written notice prior to such disclosure and
shall comply with any applicable protective order or equivalent.
Further, Company shall not be obligated to maintain the
confidentiality of Source Code which Company can prove: (i) is
already known to Company without an obligation to maintain the
same as confidential; (ii) becomes publicly known through no
wrongful act of Company; (iii) is rightfully received from a
third party without breach of an obligation of confidentiality
owed to Developer; or (iv) was independently developed by Company
prior to receipt of the applicable Software product. This
provision shall survive the termination or expiration of this
Agreement.
c) Company agrees to defend, indemnify, and hold Developer
harmless from any and all liability, loss, damage, cost, or
expense (including reasonable attorneys' fees) paid or incurred
by reason of any breach of any of Company's covenants,
warranties, representations, or undertakings hereunder, or by
reason of or in respect of the distribution, exhibition, or
performance of the Software, provided, however, that the
Company's liability to Developer arising out of any obligation of
indemnification will in no event exceed the amount of
consideration paid by Company to Developer hereunder.
d) Credits. At the time of delivery of the "gold" master
visions of each Software product, Developer will provide Company
with all notices and credits which must appear on each Software
product (for example, on start-up screens, credit screens, or
otherwise) and on advertising for each Software product. Company
will take all necessary steps to incorporate the credits which
are required by Developer. Developer may change these notices
upon written notification to Company. Upon such written
notification, Company will use its best efforts to promptly
modify the notices and credits.
e) Developer reserves the right to promote its status as
Developer of the Software, as well as the Agreement.
9. Developer's Warranties. Developer warrants and represents.
a) Developer has the full right, power, and authority to enter
into this Agreement and to provide the Software;
b) the Software is an original work of authorship developed by
or under the direct supervision of Developer;
c) for a period of six months following the acceptance date (the
"Warranty Period"), Software will perform in material accordance
with the detailed design Specifications provided in Schedule A.
In the event that Software does not so perform during this
Warranty Period, Developer shall, at its expense and in an
expeditious fashion, make all necessary changes and modifications
to Software to correct such failure to perform. The foregoing
constitutes Company's exclusive remedy in the event Software so
fails to perform.
d) Developer agrees to defend, indemnify, and hold Company
harmless from any and all liability, loss, damage, cost, or
expense (including reasonable attorneys' fees) paid or incurred
by reason of any breach of any of Developer's covenants,
warranties, or representations hereunder and not due to any
violation or breach by Company of any of its covenants,
warranties, or representations set forth herein; provided,
however, that Developer's liability to Company will in no event
exceed the amount of consideration paid by Company to Developer
hereunder. Furthermore, Developer warrants that it holds all
necessary intellectual property rights in and to the Software;
that to the best of Developer's knowledge and belief Company's
utilization of the Software in accordance with this Agreement
will not infringe upon any third party's intellectual property
rights; and to the best of its knowledge and belief the Software
is free from computer viruses and bugs. For purposes of this
Section, a "bug" means a programming defect which results in the
failure of the Software to: (i) execute continuously, or; (ii)
execute in material conformity with the applicable
Specifications. In the event of any breach of this warranty, the
aforesaid in this Article 9(d) will apply.
10. Infringements
a) Company shall have the right, in its sole discretion, to
prosecute lawsuits against third persons for infringement of its
rights in the Software. Any lawsuit shall be prosecuted solely
at Company's expense and all sums recovered shall be retained by
Company.
b) Developer agrees to provide reasonable cooperation to Company
in the prosecution of any such suit and Company shall reimburse
Developer for any expenses incurred by Developer in connection
with such cooperation.
11. Assignment of this Agreement Company may assign this
Agreement, or assign, sublicense, or otherwise transfer any of
the rights granted hereunder to any company within the Telia
group provided that such company operates primarily in Sweden.
12 Termination
a) Bankruptcy and Insolvency. If Company will be adjudged a
bankrupt or if any insolvency proceedings are instituted by or
against Company and are not dismissed within thirty (30) days
after the institution thereof, or in the event of any
reorganization proceedings, either voluntary or involuntary,
whether or not in bankruptcy, or if a trustee or receiver is
appointed to take over all or a portion of Company's assets,
Company's rights under this Agreement will automatically
terminate. Such termination will be deemed effective of the
commencement of the event which gave rise to such termination.
In the event of such termination caused by Company, then all
moneys due and unpaid by Company pursuant to this Agreement will
thereupon become due and payable. No moneys paid to Developer
will be refundable to Company in any event. Further, all master
disks, CD ROMS and all copies thereof will be returned to
Developer at Company's expense, and in no event will title
thereto, or any rights therein, be acquired by or vest in any
trustee, receiver, or in any other party by reason of such
insolvency, bankruptcy, or other occurrence affecting Company.
b) Breaches If either Company or Developer will fail or refuse
to deliver any of the statements or payments provided hereunder,
and/or fails or refuses to perform any other material obligation
required hereunder, and such failure or refusal is not fully
cured within thirty (30) days following the date of written
notice advising of such failure or refusal, then in addition to
such other rights and remedies which it may have under the law or
otherwise under this Agreement, the notifying party will have the
absolute right during the continuing period of the applicable
failure or refusal to terminate the other party's rights
hereunder with immediate effect and without affecting any of its
own rights hereunder. If this Agreement is so terminated, each
party will, nevertheless, continue to be responsible for
accounting and payments set forth in this Agreement. Upon
notification from Developer. Company will return all master
disks, CD ROMS and other parts in its possession that were
provided under this Agreement.
c) Termination Procedure Upon the termination of this
Agreement, all rights herein granted by Developer to Company will
immediately terminate and will thereupon revert to Developer,
free and clear of all claims by Company.
13 Notices All notices required or permitted to be sent under
this Agreement will be in writing and will be sent by fax with a
courtesy copy sent by DHL courier or other equivalent air courier
service, prepaid. Notices will be sent to Developer's or
Company's address first above written. Notices will be effective
on the next business day after dispatch. Developer or Company
may change the address or party will be effective only upon
receipt. Developer's fax number is (310) 821-4251. Company's
fax number is (468) 448-8619.
14 Miscellaneous
a) This Agreement represents the entire agreement between the
parties in connection with the subject matter of this Agreement.
It can not be changed except upon a written instrument signed by
both parties. This Agreement is governed by and interpreted in
accordance with the copyright law of the United States, and those
laws of the State of California which are applicable to
agreements entered into and performed entirely within the State
of California.
b) No warranties or representations will be deemed to have been
made by either party except as expressly set forth herein.
c) In the event any one or more of the provisions of this
Agreement will be held to be invalid, illegal, or unenforceable,
the remaining provisions of this Agreement will be unimpaired and
the invalid, illegal, or unenforceable provision will be replaced
by a mutually acceptable provision which, being valid, legal, and
enforceable, comes closest or unenforceable provision.
d) A waiver by either party of any term or condition of this
Agreement will not be deemed or construed to be a waiver of such
term or condition for the future. All remedies, rights,
undertakings, and obligations contained in this Agreement will be
cumulative and none will be in limitation of any other remedy,
right, undertaking, or obligation of either party.
e) Nothing herein contained will be construed to create a
partnership or joint venture between the parties hereto and
neither party has the power to bind the other except as expressly
provided herein. Company in all dealings hereunder is an
independent contractor.
f) Anything in this Agreement to the contrary notwithstanding,
Company agrees that it will not permit the public performance of,
or otherwise exploit or make any use whatsoever of the "Trivial
Pursuit" Software product after the last day of Developer's
rights (which date Developer will advise Company upon written
request of Company) unless it first enters into separate
agreement(s) with all parties controlling rights to "Trivial
Pursuit", including, but not necessarily limited to, Developer's
licenser. Developer will request that Developer's licenser give
Company the right of first refusal to acquire further rights (in
whatever form they may be offered (if at all) by Developer's
licenser) to "Trivial Pursuit".
g) Developer will not be bound by this Agreement until it is
signed by both parties.
IN WITNESS WHEREOF, Developer and Company, intending to be
legally bound, have executed this Agreement on the day and date
first above written.
"Company" "Developer"
TELIA INFOMEDIA TELEVISION AB ADRENALIN ENTERTAINMENT, a
division of Wanderlust
Interactive, Inc.
By: s/ SSL By: s/ Jay Smith
PED\SDLA.897
EXHIBIT 10.16
SOFTWARE PROGRAMMING SERVICES AGREEMENT
This Agreement for video game software programming
(hereinafter the "Agreement") is made and entered into as of the
11th day of April, 1997 by and between Adrenalin Entertainment, a
division of Western Technologies, a California Corporation, with
offices at 5301 Beethoven Street, Los Angeles, CA 90066
(hereinafter the "Developer"), and THQ, Inc., a New York
Corporation, with offices at 5016 N. Parkway Calabash, Suite 100,
Calabash, CA 91302 (hereinafter the "Company").
W I T N E S S E T H :
In consideration of the promises and covenants made herein
by each party to the other, the parties agree as follows:
ARTICLE 1
DEFINITIONS AND GENERAL
DESCRIPTION OF SERVICES
1.1 The following terms shall have the following meanings
when used in this Agreement and the Appendices attached hereto
and made a part hereof:
(a) "Final Delivery Date" shall mean the date set
forth on Appendix C attached hereto on or before which the Final
Work Product must be delivered to the Company.
(b) "Final Work Product" shall mean Work Product in a
condition ready for submission to THQ, Inc. and Sony for
approval.
(c) "Licensed Materials" shall mean the property
described in Appendix A attached hereto which the Company has
licensed from the Licensor in connection with the development of
Software Devices.
(d) "Licensor" shall mean the person from whom the
Company is licensing the Licensed Materials.
(e) "Milestones" shall mean the date on which the
parties entered into this Agreement and all subsequent dates set
forth on Appendix C, on or prior to which the Developer is
required to submit to the Company Work Product meeting the
requirements set forth for that Milestone, until THQ, Inc. and
Sony approve of the Final Work Product.
(f) "Software Devices" shall mean video game
cartridges or discs which embody the Final Work Product and
operates through the Target System.
(g) "Specifications" shall mean the detailed game
description, in the form of Appendix A annexed hereto, provided
by the Company to the Developer, which Specifications shall be
the sole property of the Company.
(h) "Target System" shall mean the computer system or
video game system described in Appendix A on which the Software
Devices will operate.
(i) "Territory" shall mean throughout the world.
(j) "Work Product" shall mean computer source code,
object code, graphic materials, music, sound effects,
documentation created by the Developer and all other materials
developed and used by the Developer in connection with the
Services (Defined in Section 1.2 below). Specifically excluded
from this definition should be pre-existing source and object
code, utilities, operating systems, algorithms and development
tools to which Developer holds copyright, patent and other
rights.
1.2 The Developer agrees to provide the Company with all
video game software programming services, in accordance with the
Milestones herein established, which are necessary for the
development of the Software Devices to be used and played on the
Target System (hereinafter the "Services"). The Services shall
include, but are not limited to, product design, programming,
graphics and animation development, documentation, alpha testing,
beta testing, and "bug correction", as may be more fully set
forth on Appendices A and B.
ARTICLE 2
DEVELOPMENT OF WORK PRODUCT
2.1 The Work Product, developed hereunder by the Developer
shall be delivered to the Company on or before each Milestone set
forth in Appendix C, in such form as required for submission at
the relevant Milestone. Within ten (10) working days after
receipt of the Developer's Work Product, the Company shall
evaluate such Work Product to determine, in its Company's sole
discretion, whether the Work Product is acceptable and complies
with the requirements established for such Milestone,
notwithstanding the requirements of the preceding sentence, the
parties agree that the Company's approval of the Work Product is
subject to the contractual requirements of third parties and,
therefore, Milestone 8 is subject to possible delays.
2.2 In the event that the Work Product submitted for
approval is rejected by the Company for any reason, the Company
shall advise the Developer of such rejection and shall set forth
the necessary modification(s). The Developer will, at no
additional cost to the Company, promptly make such
modification(s) and resubmit the Work Product, as so modified, to
the Company for approval. This process shall be repeated until
the Work Product is approved by the Company.
2.3 Notwithstanding anything to the contrary contained
herein, if (i) the Developer fails to submit the Work Product to
the Company on or before the date of a relevant Milestone or (ii)
such Work Product is submitted, but is not in a form acceptable
to the Company, within thirty-five (35) days after such
Milestone,, such shall be deemed a material breach of this
Agreement by the Developer. If such breach is not cured, as
provided in Section 12.2 hereafter (except that with respect to
the thirty-five (35) day period described above, the Developer
shall have only ten (10) days to cure such breach), the Company,
in addition to any other remedies it may have, in equity or at
law, shall be entitled to terminate the project without any
further compensation.
2.4 Each installment of the advance (the "Advance")
described in Appendix C, if any, shall be due and payable to the
Developer within thirty (30) days after the Company's approval
and acceptance of the Work Product at each Milestone. If the
payment of an installment of the advance exceeds thirty (30) days
after the Company's approval and acceptance, the Company will pay
a 1.5% penalty of the installment, and shall pay a similar 1.5%
penalty for each thirty (30) days thereafter until the
installment is paid.
ARTICLE 3
FINAL DELIVERY AND ACCEPTANCE
3.1 The Final Work Product, including, without limitation,
a copy of the final version of the annotated source code in
machine and human readable forms, shall be delivered to the
Company on or before the Final Delivery Date set forth in
Appendix C. The Developer shall not deliver the Final Work
Product until it has been thoroughly tested by the Developer and
is certified by the Developer to be free of errors (commonly
known as "bugs"). Within twenty (20) working days after the
receipt of the Developer's Final Work Product, the Company shall
evaluate such Final Work Product to determine, in its sole
discretion, whether or not the Final Work Product is ready for
submission to THQ, Inc. and Sony. Notwithstanding the
requirements of the preceding sentence, the parties agree that
the Company's approval of the Work Product is subject to the
contractual requirements of third parties, and is therefore
subject to possible delays.
3.2 In the event that the Final Work Product is rejected
by the Company for any reason, the Company will advise the
Developer, in writing, in what respects the Final Work Product
requires modification. The Developer will, at no additional cost
to the Company, promptly make such modifications. The Final Work
Product, as modified, shall then be resubmitted to the Company
for approval. This process shall be repeated until the Final
Work Product is approved by the Company.
3.3 Notwithstanding anything to the contrary herein, if
(i) the Developer fails to submit the Final Work Product to the
Company on or before the Final Delivery Date or (ii) the Final
Work Product is submitted, but is not in a form acceptable to the
Company, within thirty-five (35) days after the Final Delivery
Date, such shall be deemed a material breach of this Agreement by
Developer. If such breach is not cured, as provided in Section
12.2 hereafter (except that with respect to the thirty-five (35)
day period described above, the Developer shall have only ten
(10) days to cure such breach), the Company, in addition to any
other remedies it may have, in equity or at law, shall be
entitled to terminate the project without any further
compensation.
3.4 Concurrent with its submission of the Final Work
Product, the Developer shall deliver to the Company all
information necessary to enable the Company to produce necessary
documentation (including, but not limited to a User's Manual)
pertaining to the Final Work Product and its use in the Software
Devices. Such information shall be in the form of written
documentation pertinent to the technical performance of the
Software Devices and their use on the Target System. The
Developer hereby warrants the accuracy of all such information
provided.
3.5 Any installment of Advance payable to the Developer by
the Company is also set forth on Appendix C. Said installment is
due and payable within thirty (30) days after the Company's
approval and acceptance of the Final Work Product. If the
payment of an installment of the Advance exceeds thirty (30) days
after the Company's approval and acceptance, the Company will pay
a 1.5% penalty of the installment, and shall pay a similar 1.5%
penalty for each thirty (30) days thereafter until the
installment is paid.
ARTICLE 4
SUBMISSION TO THQ, INC.
4.1 Any installment of the Advance payable to the
Developer by the Company, upon THQ, Inc.'s approval is also set
forth on Appendix C. Said installment is due and payable within
thirty (30) days after THQ, Inc.'s approval of the Final Work
Product. If the payment of an installment of the Advance exceeds
thirty (30) days after the Company's approval and acceptances,
the Company will pay a 1.5% penalty of the installment, and shall
pay a similar 1.5% penalty for each thirty (30) days thereafter
until the installment is paid.
ARTICLE 5
ROYALTIES
5.1 The Company shall pay royalties to the Developer, as
set forth on Appendix B annexed hereto, on the Company's sales of
Software Devices embodying the Final Work Product. These
royalties pertain solely to the Company's sale of the Software
Devices described in this Agreement.
5.2 Royalties payable to the Developer hereunder shall be
earned when the Company invoices customer for units for the
Software Devices embodying the Final Work Product, less quarterly
adjustments for credits and returns.
5.3 No royalties shall be payable hereunder with respect
to (i) Software Devices embodying the Final Work Product used for
promotional purposes or furnished free to the trade, press or for
public relations use, provided that no more than two percent (2%)
of the Software Devices embodying the Final Work Product will be
used for such purposes; or (ii) Software Devices embodying the
Final Work Product furnished free or sold to distributors, sub-
distributors, dealers, or others for less than the actual per
unit manufacturing cost of the applicable Software Devices.
5.4 No royalties will be paid to the Developer until the
Company has recouped the total Advance set forth in Appendix C
calculated using the Schedule of Royalties set forth in Appendix
B.
ARTICLE 6
ROYALTY ACCOUNTINGS
6.1 The Company will compute the Developer's royalties
hereunder on a calendar year quarterly basis. Within forty-five
(45) days after the last day of each quarterly accounting period,
the Company shall deliver to the Developer a statement covering
such royalties and will pay any royalties owed simultaneously
with delivery of the statement.
6.2 The Company will maintain books and records which
report the sales of Software Devices embodying the Final Work
Product. Developer may examine these books and records, as
provided in this paragraph only. The Developer may make such
examinations during regular business hours and upon reasonable
notice only. Each examination will take place at the place the
Company normally keeps the books and records to be examined. The
Developer shall be limited to two (2) such examinations each
twelve (12) months, during the term of this Agreement and for one
(1) year thereafter.
<PAGE>
6.3 If the Developer has any objection to a royalty
statement, specific notice must be given to the Company within
one (1) year after the date the Developer receives the applicable
statement. Each royalty statement will become conclusively
binding on the Developer at the end of that period, and the
Developer will to have the right to institute any action against
the Company in connection with any royalty accounting, or to
institute an action against the Company for royalties in
connection with sales of the Software Devices embodying the Final
Work Product, unless the action is commenced within the above
time period.
6.4 In connection with any claims by the Developer that
additional monies are payable by the Company under this Agreement
and based upon examination of the Company's books and records in
connection with Section 6.2 hereof (hereinafter "Claim"), the
Company will not be deemed in breach of this Agreement unless
within sixty (60) days of the Company's receipt of the
Developer's written Claim, together with sufficient documentation
to support the Developer's Claim, sent by certified mail, return
receipt requested, the Company shall neither (i) pay such
additional monies claimed by the Developer, not (i) contest such
Claim, in whole or in part, by written notice to the Developer.
In the event the Company contests the Claim, it will not be
deemed in breach of this Agreement unless such Claim has been
reduced to a final non-appealable judgment by a court of
competent jurisdiction and the Company will have failed to pay
the Developer the amount thereof within thirty (30) days after
the Company shall have received notice of the entry of such non-
appealable judgment.
ARTICLE 7
ASSIGNMENT OF RIGHTS; OWNERSHIP OF WORK PRODUCT
7.1 The Services being performed by the Developer are done
at the Company's request and the resultant Work Product shall be
considered a work made for hire within the meaning of the
copyright laws of the United States and any foreign jurisdiction
recognizing such right of authorship, and, to the extent that the
Work Product is not deemed to be a work made for hire, the
Developer hereby assigns to the Company all right, title and
interest to the exclusive rights to the Work Product free from
any claims of the Developer or any third-party; provided,
however, for the pre-existing source and object code, utilities,
operating systems, algorithms and development tools to which
Developer holds copyright, patent and other rights, Developer
hereby grants Company a non-exclusive, royalty free license for
the term of copyright, patent and other rights therein.
7.2 In addition, the Developer, upon its submission to the
Company of the information and documentation used in connection
with the creation of the User's Manuals, shall assign to the
Company all right, title and interest to the exclusive rights to
such information and documentation free from any claims of the
Developer or any third party.
7.3 The rights assigned the Company hereunder shall give
the Company or any third party designated by the Company, the
unlimited right to manufacture and sell the Software Devices
embodying the Final Work Product, by any method in which the
Company desires, and to use any trademarks, trade names or labels
in connection therewith. In the event that any properties
contained in the Work Product shall be deemed to be owned by the
Developer, this Developer shall license the Company to use all of
such properties for the term of this Agreement. Notwithstanding
anything to the contrary contained herein, the Company shall have
no obligation to manufacture, market, promote or sell any
Software Devices embodying the Final Work Product.
ARTICLE 8
INTELLECTUAL PROPERTY ASSIGNMENT &
DEVELOPER'S WARRANTIES
8.1 Subject to the Developer's retained rights provided in
Paragraphs 1.1(j) and 7.1 elsewhere in this Agreement, from the
date the Work Product is initially delivered to the Company,
copyright in the Work Product, in the Territory, will be deemed
assigned by Developer to the Company. On or around such date,
the Developer shall execute an assignment of copyright in a form
reasonably acceptable to the Company evidencing the foregoing
transfer. The Company shall have the right to register, in the
office of the Register of Copyrights of the United States, and in
any other jurisdiction in the Territory, all or any part of the
Work Product in its name as the owner thereof. The same rights
shall apply with respect to the Developer's delivery of the
information and documentation used in connection with the
creating of the User's Manual.
8.2 The Developer warrants and represents that it has the
right and authority to enter into this Agreement and to fully
perform all of its obligations hereunder.
8.3 The Developer warrants that the Work Product (other
than those elements, if any, provided to the Developer by the
Company) is a wholly owned original work of authorship developed
by its employees, or under their direct supervision, and does not
infringe upon the copyrights of any person, firm or corporation.
Developer also warrants that the pre-existing source and object
code, utilities, operating systems, algorithms and development
tools to which Developer holds copyright, patent and other
rights, to which Developer has granted the Company a non-
exclusive, royalty free license for the term of copyright, patent
and other rights therein, that Developer owns such the rights
granted as a license and that such license and Company's use
thereunder shall not violate any other party's rights or
contracts between Developer and other parties.
8.4 The Developer warrants and represents that the
Developer, commencing on execution of this Agreement and
continuing until the expiration or earlier termination of this
Agreement, at no charge to the Company, will promptly correct any
programming defects in the Work Product or Final Work Product.
ARTICLE 9
COMPANY'S WARRANTIES
9.1 The Company warrants and represents that it has the
right and authority to enter into this Agreement and to fully
perform all of its obligations hereunder.
9.2 The Company warrants that it has acquired all rights
in the Licensed Material and that the Developer's use of the
Licensed Material will not infringe upon the rights of any other
person, firm or corporation.
ARTICLE 10
INDEMNIFICATIONS
10.1 The Developer will indemnify and hold the Company, its
directors, officers, employees and agents harmless from and
against all liabilities, losses, damages, costs and expenses
(including, but not limited to, reasonable attorney's fees),
arising out of or associated with any written demand letter and
subsequent negotiations, any legal action or claim filed in a
court of law, or arbitration arising out of a breach of
Developer's warranties under this Agreement and/or the
Developer's activities or negligence in creating the Software
Device as set forth hereunder.
10.2 The Company will give the Developer prompt notice of
any claim arising due to any breach of any of Developer's
warranties given hereunder. The Company will have the right to
participate in its defense or settlement with counsel of
Company's and Developer's mutual choice, and all costs and
expenses therefor will be borne by the Developer.
10.3 The Company will indemnify and hold the Developer, its
directors, officers, employees and agents harmless against any
losses, liabilities, damages and expenses (including reasonable
attorney's fees) which they or any of them incur or be obligated
to pay in any action, claim or proceeding against them or any of
them, in connection with or arising out of (a) the Company's
breach of any of its representations or warranties herein or (b)
the Company's marketing, advertising, sales, distribution and/or
other exploitation of the Software Devices which embody the Final
Work Product, in whole or in part or (c) the Company's fault or
negligence in connection with the transactions completed by this
Agreement. The provisions of this Section 10.3 shall not apply
to any claim which arises as a result of a breach of any
representation or warranty made by the Developer herein.
ARTICLE 11
EXCUSABLE DELAY (FORCE MAJEURE),
DELAY OF COMPLETION
11.1 In the event either party is prevented from fulfilling
its material obligations hereunder or said obligations are
materially interfered with by reason of events of war, fire,
flood, earthquake, explosion, or other natural disaster, such
obligation which cannot be performed shall be delayed until it
can be performed. The party claiming excusable delay must
promptly notify the other party of such delay. If the delay
continues for more than thirty (30) days, the other party may
terminate this Agreement by giving fifteen (15) days prior
written notice to the delaying party, provided that the Agreement
will not terminate if the party claiming excusable delay
substantially performs the material obligation which has been
delayed within such fifteen (15) day period.
ARTICLE 12
TERM OF AGREEMENT; BREACH
12.1 This Agreement shall become effective on the date this
Agreement is signed and shall remain effective as long as the
said product remains for sale by the Company.
12.2 In the event of a material breach of this Agreement by
either party, the non-breaching party may (reserving cumulatively
all other rights and remedies at law or in equity unless
expressly stated herein) terminated this Agreement by giving
thirty (30) days prior written notice. Notwithstanding the
foregoing, this Agreement will not terminate at the end of the
notice period if the party in breach has cured the breach about
which it has been notified. In the event that the Company
terminates this Agreement as a result of a material breach of
this Agreement by the Developer, the Developer shall not be
entitled to any royalties or other compensation, directly or
indirectly related to the Software Devices, by reason of this
Agreement or otherwise. Excepting those advances previously paid
or earned by the developer.
12.3 The Company may cancel this Agreement at any time
prior to the Final Delivery Date, without case, by providing the
Developer with written notice of such cancellation. In the event
of such cancellation, the Company's sole obligation and liability
shall be to pay the Developer (i) installments of any Advance
payable to the Developer for all Milestones completed prior to
the date of such cancellation and (ii) the installment of the
Advance, if any, which the Developer would have received upon its
completion of the Milestone immediately following such
cancellation. Such payments shall be the exclusive remedy with
respect to the Company's termination of this Agreement without
cause.
ARTICLE 13
ASSIGNMENT
13.1 This Agreement and the Appendices will be binding on
the parties' respective successors and permitted assigns.
13.2 The Developer may not assign this Agreement and/or any
of the rights or obligations hereunder without the prior written
consent of the Company; provided, however, Developer may assign
its rights to receive royalties under this Agreement subject to
Company's approval not to be unreasonably withheld.
13.3 The Company may assign this Agreement to any person,
upon written notification to the Developer, provided, however,
such assignment shall not relieve the Company of its obligations
hereunder, unless assignee agrees to accept such obligations in
writing.
ARTICLE 14
RELATIONSHIP OF THE COMPANY AND THE DEVELOPER
14.1 The Developer is an independent contractor. The
Developer is not the Company's employee or agent. The Developer
will not be entitled to compensation for its Services except as
provided in the Agreement and the Appendices. The Developer, and
the Company shall be responsible for the payment of its
employees' compensation, disability benefits, unemployment
insurance, and for withholding income taxes and social security.
The Developer shall not be entitled to receive any benefits
provided by the Company to its employees.
14.2 The Developer shall not have any authority to make
agreements or representations on the Company's behalf or to hold
itself out to be the Company's employee, agent or servant.
14.3 The Developer agrees to indemnify and hold the Company
and its directors, officers and employees harmless from and
against all claims, liabilities or obligations asserted against
any of them for the Company's not withholding taxes or making
unemployment and worker compensation payments and the like, as a
result of the Developer's independent contractor status. Such
indemnification shall include any penalties and interest asserted
thereon as well as the payment of the reasonable attorney's fees.
<PAGE>
ARTICLE 15
EQUIPMENT PROVIDED TO DEVELOPER
15.1 The Company may provide the Developer with the use (at
Developer's place of business) of development board systems
adequate to perform the Service.
15.2 The Developer shall not utilize such equipment for any
reason other than the performance of the Services for the Company
hereunder. Any other use shall be deemed a material breach of
this Agreement. In the event that the Company shall terminate
this Agreement as a result of such breach, pursuant to the
provisions of Section 12.2 hereof (except that there shall be no
cure period for any breach pursuant to this Section 15.2), in
addition to any other remedies it may have, in equity or in law,
the Company shall be entitled to terminate the project without
any further compensation.
ARTICLE 16
CONFIDENTIAL INFORMATION
16.1 During the term of this Agreement and for a period of
three (3) years from the expiration or earlier termination of
this Agreement, the Developer will regard and preserve as
strictly confidential all information and material, including
specifications, software design notice, marketing information,
manufacturing information, and customer or client information,
provided to the Developer by the Company in connection with the
Developer's Services (hereinafter "Confidential Information of
the Company" or "Information").
16.2 The Developer further acknowledges and agrees that, in
the event of a breach of threatened breach of this Article 16,
the Company shall have no adequate remedy in money or damages
and, accordingly, shall be entitled to preliminary, permanent and
other injunctive relief without having to post bond or prove
irreparable injury.
16.3 The Company and the Developer agree that the Developer
will have no obligation in connection with specific Confidential
Information of the Company to the extent, but only to the extent
that (i) such Information is already known to the Developer, free
from any obligation to keep such Information confidential, at the
time it is obtained from the Company, (ii) such Information is or
becomes publicly known in the trade or otherwise through no
wrongful act of the Developer, or (iii) such Information is
rightfully received by the Developer from a third party without
restriction and without breach of this Agreement.
16.4 Upon request of the Company, upon completion of
Services, or upon termination of this Agreement as otherwise
provided herein, all Confidential Information of the Company will
be returned to the Company. The Developer will not retain any
copies of any Confidential Information of the Company after such
Information is returned to the Company.
16.5 The Developer agrees to cause all of its employees who
are employed in the development of the Work Product and/or will
have access to any Confidential Information to enter into a
Confidentiality Agreement in the form of Appendix D annexed
hereto.
ARTICLE 17
GENERAL
17.1 This Agreement and the Appendices shall be construed
in accordance with the laws of the State of California applicable
to agreements executed and to be wholly performed therein. The
parties hereto agree that any dispute arising out of or relating
to this Agreement may be instituted and prosecuted in the courts
of competent jurisdiction of the State of California located in
Los Angeles County, and the parties hereto irrevocably submit to
the jurisdiction of said courts and waive any rights to object to
or challenge the appropriateness of said forums.
17.2 Except as otherwise provided in this Agreement and/or
the Appendices, this Agreement and/or the Appendices can be
modified, amended, or any provision waived by only a written
instrument signed by the Company and by an authorized
representative of the Developer.
17.3 This Agreement, combined with the Appendices, is the
entire Agreement between the parties in connection with the
subject matter of the Agreement and the Appendices; it
incorporates, replaces and supercedes all prior agreements,
promises, proposals, representations, understandings and
negotiations, written or not, between the parties in connection
therewith.
17.4 In the event any one or more of the provisions of this
Agreement or the Appendices are unenforceable, it will be
stricken from this Agreement, but the remainder of the Agreement
and Appendices will be unimpaired.
17.5 The headings in this Agreement are for purposes of
reference only.
17.6 Upon first publication of the Software Devices which
embody the Final Work Product, the Company will provide the
Developer with twenty-four (24) gratis copies of the Software
Devices. Thereafter, the Developer will be permitted to purchase
such reasonable additional quantities as required at the
Company's lowest wholesale prices, plus applicable shipping
charges.
17.7 THQ, Inc. will provide Developer's logo on packaging
and manual, with sign-off privileges for Developer's
representation of said logos. Location of logo is subject to
THQ, Inc.'s and Sony's discretion.
17.8 As of sixty (60) days prior to final delivery of
products, the Developer will support any known hardware devices.
The Developer makes no warranties as to the compatibility of the
hardware devices appearing at retail after said date.
IN WITNESS WHEREOF, the parties hereto, each acting under
due and proper authority, and intending to be legally bound, have
executed this Agreement on the date first above written.
AGREED & ACCEPTED BY ADRENALIN ENTERTAINMENT,
A DIVISION OF WESTERN TECHNOLOGIES, INC.
By:s/Jay Smith III
Jay Smith III duly authorized and as
President of Western Technologies, Inc.
AGREED & ACCEPTED BY THQ, INC.
By:s/Steve Ryno
Steve Ryno, duly authorized and as
Vice President of Product
Development of THQ, Inc.
C:\WPDOCS\CDKIDZ\SRVCS-AG.828
EXHIBIT 10.17
ELECTRONIC ARTS INC.
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is made as of June
___, 1997 (the "Effective Date") by and between ELECTRONIC ARTS
INC., a Delaware corporation with its offices at 1450 Fashion
Island Boulevard, San Mateo, California 94404 ("EA") and
Adrenalin Entertainment, a division of Western Technologies, a
California corporation with offices at 5301 Beethoven Street,
Los Angeles, CA 90066-7047 ("Consultant").
1. DEVELOPMENT
1.01 Deliverable Items. Consultant hereby agrees to develop and
to deliver to EA each of the items noted as a Deliverable Item
("Deliverable Items") on Exhibit A hereto, at the times set forth
on such Exhibit A.
1.02 Product. Consultant agrees and acknowledges that EA is not
obligated to develop a product based on the Deliverable Item and,
furthermore, that if EA does decide to develop such a product,
that it is not obligated to contract with Consultant for the
development of such product.
2. COMPENSATION
In consideration of the development and delivery of the
Deliverable Items and of the assignment set forth in Section 3,
EA agrees to pay to Consultant the sums set forth on Exhibit B at
the times set forth on such Exhibit B. Consultant shall not be
entitled to any additional compensation in connection with EA's
use and/or exploitation of the rights granted to EA under this
Agreement, unless such compensation is specifically designated in
this Agreement.
3. ASSIGNMENT
3.01 General. Consultant hereby grants and assigns to EA without
reservation all Consultant's right, title and interest in and to
each Deliverable Item.
3.02 Moral Rights. For purposes of this subsection, "Moral
Rights" means any rights of paternity or integrity, any right to
claim authorship of the Deliverable Items, to object to any
distortion, mutilation or other modification of, or other
derogatory action in relation to, any Deliverable Item, whether
or not such would be prejudicial to Consultant's honor or
reputation, and any similar rights existing under judicial or
statutory law of any country in the world, or under any treaty,
regardless of whether or not such right is denominated or
generally referred to as a "moral" right. Consultant hereby
irrevocably transfers and assigns to the EA any and all Moral
Rights that Consultant may have in each Deliverable Item.
Consultant also hereby forever waives and agrees never to assert
any and all Moral Rights it may have in each Deliverable Item,
even after termination of Consultant's work on behalf of the EA
or this Agreement.
3.03 Execution of Documents. Consultant will cooperate with EA,
at EA's expense, in obtaining patent, copyright, trademark or
other statutory projections for each Deliverable Item in each
country in which one or more is sold, distributed or licensed and
in taking any enforcement action, including any public or private
prosecution, to protect EA's intellectual property rights in or
to each Deliverable Item. Consultant hereby grants EA the
exclusive right, and appoints EA as attorney-in-fact, to execute
and prosecute in Consultant's name as author or inventor or in
EA's name as assignee any application for registration or
recordation of any copyright, trademark, patent or other right in
or to any Deliverable Item, and to undertake any enforcement
action with respect to any Deliverable Item. Consultant will
execute such other documents of registration and recordation as
may be necessary to perfect in EA, or protect, the rights
assigned to EA hereunder in each country in which EA reasonably
determines to be prudent.
3.04 Survival. The assignment set forth in this Section 3 will
survive any expiration or termination of this Agreement.
4. EQUIPMENT, SOFTWARE AND ASSISTANCE PROVIDED BY EA
To assist Consultant in the development of any Deliverable Item,
EA may from time to time provide Consultant with certain
equipment, software and assistance as described in Exhibit C. At
any time upon demand of EA, Consultant shall return to EA all
equipment and software provided to Consultant hereunder.
Consultant shall obtain no rights to any equipment or software
provided by EA except for the limited right to use the same in
the development of Deliverable Items.
5. CONFIDENTIALITY
5.01 Definitions
(a) "Confidential Information" means Confidential Information
of Consultant and Confidential Information of EA, except to the
extent any of the following may be included therein: (i)
information that becomes known to the general public without
breach of the nondisclosure obligations of this Agreement; (ii)
information that is obtained from a third party or independently
developed without breach of a nondisclosure obligation and
without restriction on disclosure; and (iii) information that is
required to be disclosed in connection with any suit, action or
other dispute related to this Agreement.
(b) "Confidential Information of Consultant" means: any
information designed in writing as "confidential" by Consultant.
(c) "Confidential Information of EA" means: (i) the contents of
the Deliverable Item(s) to be delivered by Consultant hereunder;
(ii) the concepts embodied in any source code developed or
supplied by EA hereunder; (iii) any concepts or source code
included in EA's development aids; (iv) any information
concerning the existing or future products of hardware
manufacturers; (v) any methods used by EA or its affiliates to
prevent unauthorized duplication of software programs; (vi) the
terms of this Agreement and any Exhibit, Addenda or other
attachment hereto; (vii) any information contained on the reports
provided to Consultant hereunder; and (viii) any additional
information designated in writing as "confidential" by EA or its
Affiliates.
5.02 Protection of Confidential Information. Each party agrees
to hold in confidence, and not to use except as expressly
authorized in this Agreement, all Confidential Information of the
other party an to use at least the same degree of care that it
uses to protect its own Confidential Information of like
importance, but in no event less than reasonable care, to prevent
the unauthorized disclosure or use of the other party's
Confidential Information, both during and after the term of this
Agreement.
5.03 Survival. After termination of this Agreement, the
provisions of this Section 5 will continue in effect except that
nothing in this Agreement will impair the right of either party
to use, develop or market ideas or programs similar to those in
the Deliverable Items so long as such use, development or
marketing does not infringe on the copyright, trademark, patent,
license or other rights of the other party.
6. REPRESENTATIONS AND WARRANTIES
6.01 Consultant's Representations. Consultant represents and
warrants to EA that:
(a) Each of the Deliverable Items will be the original work of
Consultant and will not infringe upon any patent, copyright,
trade secret, trademark, or other intellectual property or
proprietary rights of any third party;
(b) Consultant is the sole and exclusive owner of all rights in
each of the Deliverable Items subject; only to the rights herein
assigned to EA;
(c) Consultant has not previously granted and will not grant any
rights in the Deliverable Items to any third party which are
inconsistent with the rights assigned to EA herein;
(d) Each of Consultant's employees, contractors, artists or
partners who has been or will be involved in the development of
the Deliverable Items, or who will have access to any
Confidential Information of EA, will have signed, before
beginning such involvement, an agreement with Consultant with
respect to proprietary rights and confidentiality substantially
in the form attached to this Agreement as Exhibit D; and
(e) Consultant has full power to enter into this Agreement, to
carry out its obligations hereunder and to grant the rights
herein granted to EA.
6.02 Survival. The representations and warranties stated in
this Section 6 will survive the expiration or termination of this
Agreement.
7. TERM AND TERMINATION
The term of this Agreement will commence on the Effective Date
and will continue in effect until acceptance of all Deliverable
Items and payment for the same by EA, unless sooner terminated by
mutual written consent of the parties in accordance with the
following:
7.01 Termination of EA's Convenience. If EA determines at any
time and in its sole discretion that, due to progress of the
development, market conditions or for any other reason, EA
desires to terminate this Agreement, EA may do so by giving
written notice to Consultant, without further liability of any
kind to Consultant.
7.02 Termination for Breach. In the event of a material breach
by either party of a material provision hereof, which breach is
not cured within thirty (30) days after written notice thereof by
the other party, then the nonbreaching party may, effective
thirty (30) days after written notice of failure to cure to the
breaching party, terminate this Agreement.
8. LIMITATION OF LIABILITY
REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN FAILS OF ITS
ESSENTIAL PURPOSE, NEITHER PARTY WILL BE LIABLE TO THE OTHER
PARTY FOR ANY INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL
DAMAGES OR THE LOSS OF ANTICIPATED PROFITS ARISING FROM OR
RELATED TO THIS AGREEMENT, EVEN IF SUCH PARTY IS NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES AND WHETHER OR NOT SUCH DAMAGES ARE
FORESEEABLE.
9. GENERAL TERMS
9.01 Amendment. No amendment or modifications of this Agreement
will be made except by an instrument in writing signed by both
parties.
9.02 Independent Contractors. Consultant is an independent
contractor, and nothing in this Agreement will be deemed to place
the parties in the relationship of employer-employee, principal-
agent, partners or joint venturers.
9.03 Tax Withholdings. EA shall have the right to withhold all
amounts required by law for any foreign, national, state or local
sales, use, value added, withholding or other taxes, customs
duties or similar tariffs and fees and such amounts may be
deducted from amounts due and payable to Consultant under this
Agreement.
9.04 Equitable Relief. Consultant acknowledges that the
performance of Consultant's obligations hereunder and the rights
and licenses assigned to EA hereunder are of a unique, unusual,
extraordinary and intellectual character which gives them a
special value, the loss of which cannot be reasonably or
adequately compensated in damages in an action at law, that a
material breach by Consultant of this Agreement will cause EA
great and irreparable injury and damage and, therefore, that EA
will be entitled to injunctive relief to prevent such injury or
damage.
9.05 Force Majeure. Neither party will be deemed in default of
this Agreement to the extent that performance of disaster,
accident, act of government, shortages of material or supplies or
any other cause reasonably beyond the control of such party
("Force Majeure"), provided that such party gives the other party
written notice thereof promptly and, in any event, within fifteen
(15) days of discovery thereof, and uses its diligent, good faith
efforts to cure the breach. In the event of such Force Majeure,
the time for performance or cure will be extended for a period
equal to the duration of the Force Majeure but no in excess of
six (6) months.
9.06 Assignment. This Agreement may not be assigned in whole or
in part by Consultant without the prior written consent of EA,
which consent will not be unreasonably withheld, except that
Consultant may assign (subject to any rights of EA) Consultant's
interest in all or part of the payments due Consultant hereunder
upon notice in writing to EA.
9.07 Right of Offset. Notwithstanding any provision contained
in this Agreement, neither party will be prohibited from
exercising any right of offset that may be available at law.
9.08 Governing Law; Forum. This Agreement will be deemed
entered into in San Mateo County, California and will be governed
by and interpreted in accordance with the substantive laws of the
State of California without application of conflict of law
principles. The parties agree that any dispute arising under
this Agreement will be resolved in the sate or federal courts
within the Northern District of California and Consultant
expressly consents to jurisdiction therein.
9.09 Severability. Should any provision of this Agreement be
held to be void, invalid or inoperative, such provision will be
enforced to the maximum extent permissible and the remaining
provisions of this Agreement will remain in full force and
effect.
9.10 Notices. Any notice required or permitted to be sent
hereunder will be given by hand delivery, by registered, express
or certified mail, return receipt requested, postage prepaid, or
by nationally-recognized private express courier or by facsimile
to either party at the address listed above, or to such other
addresses of which either party may so notify the other. Notices
will be deemed given when hand delivered if by hand delivery, or
when sent if by any other authorized method.
9.11 Complete Agreement. This Agreement, together with the
exhibits hereto, which are incorporated into this Agreement by
this reference, constitutes the entire agreement between the
parties with respect to the subject matter hereof, and supersedes
all prior and contemporaneous negotiations, understandings,
correspondence and agreements with respect to which subject
matter.
ELECTRONICS ARTS INC. CONSULTANT
By: s/Richard Hilleman By: s/Jay Smith
Name: Richard Hilleman Name: Jay Smith
Date: July 8, 1997 Date: July 7, 1997
<PAGE>
Exhibits:
Exhibit A: DELIVERABLE ITEMS, DELIVERY DATES AND ACCEPTANCE
PROCEDURE
Exhibit B: PAYMENT SCHEDULE
Exhibit C: EQUIPMENT, SOFTWARE AND ASSISTANCE PROVIDED BY EA
Exhibit D: ASSIGNMENT, AND CONFIDENTIALITY AGREEMENT
<PAGE>
EXHIBIT A
DELIVERABLE ITEMS, DELIVERY DATES AND ACCEPTANCE PROCEDURE
ACCEPTANCE PROCEDURE
After delivery of any Deliverable Item, EA will have thirty (30)
business days to examine and analyze the delivered item to
determine whether it conforms to its specifications and whether
it is, in EA's sole judgment, acceptable. EA will notify
Consultant of EA's acceptance or rejection of the Deliverable
Item and, in the case of any rejection, will provide Consultant
with a reasonably detailed list of deficiencies in the
Deliverable Item. If EA fails to notify Consultant of EA's
acceptance or rejection within such period, Consultant may
request a written acceptance or rejection. If EA does not
provide such a written acceptance or rejection by no later than
ten (10) business days after Consultant's request, then the
Deliverable Item will be deemed accepted. In the case of a
rejection, Consultant will use diligent efforts to correct the
deficiencies and will resubmit the Deliverable Item, as
corrected, within five (5) business days of EA's rejection. This
procedure will be repeated until EA either accepts the
Deliverable Item or elects to terminate this Agreement pursuant
to Section 7.01.
<PAGE>
EXHIBIT B
PAYMENT SCHEDULE
1. Execution of Agreement $20,000
2. Acceptance of Deliverable Item $20,000
Total $40,000
<PAGE>
EXHIBIT C
EQUIPMENT, SOFTWARE AND ASSISTANCE PROVIDED BY EA
NONE
WP51\DATA\MISC\CONSL.AGR
EXHIBIT 21
Subsidiaries of Wanderlust Interactive, Inc.
Name Jurisdiction of Incorporation
Western Technologies, Inc. Delaware
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