Software Development & License Agreement

SOFTWARE LICENSE AGREEMENT



This Agreement made effective as of the 3 1th day of March, 1997 between Cinax Designs Inc. ("Cinax") having an office at #150-1152 Mainland Street, Vancouver, B.C. Canada, V6B 4X2 and Digital LAVA (identified in subsection 3.1) on the following terms and conditions:



1. SCOPE



1.1 Cinax shall create and license software to Digital LAVA who shall utilize the software as defined below. The software to be supplied is set out in Schedule A which may be amended from time to time by listing any additional software to be licen sed to Digital LAVA by Cinax on a replacement Schedule A signed by the parties.



2. DEFINITIONS



2.1 "Engine" shall mean the MPEG software engine developed by Cinax to crop and concatenate a series of MPEG clips plus the APl documentation. The purpose of this Engine is to add an editing functionality into the Digital LAVA Product.



2.2 "Product" means the current production version of the Digital LAVA vPrism software listed in Schedule A to this Agreement, and any future fixes, updates, enha ncements and modifications to those programs created by or for Digital LAVA, but excluding any subsequent releases or enhancements of the Product which do not incorporate the Engine.



2.3 "Services" means the design and development of the Engine in accordance with the Specifications and delivery of the Deliverables.



2.4 "Specifications" means the Specifications for the engine and the contracted Services, attached to this Agreement as Exhibit A. "Schedule" means the schedule for completion of the Services, as set forth in the Specifications.



2.5 "Deliverables" means the various alpha, beta and final versions of the Engine, and supporting documentation, as more fully described in the Specifications.



2.6 "Errors" means defect(s) in a deliverable which prevent it from performing in accordance with the Specifications and or a Severity Level 1, 2 or 3 error, as such errors are described in Schedule B.



2.7 "Library" means the software development library developed by Cinax and used in the development of the Engine under this Agreement.



2.8 "Derivative Technology" means: (i) for copyrightable or copyrighted material, any translation (including translation into other computer languages) portation , modification, correction, addition, extension, upgrade, improvement compilation, abridgment, or other







form in which an existing work may be recast, transformed or adapted; (ii) for patentable or patented material, any improvement thereon; and (ii i) for material which is protected by trade secret, any new material derived from such existing trade secret material, including any new material which may be protected by copyright, patent and/or trade secret.



2.9 "Customer" means resellers, system integrators and software wholesale or retail outlets, and, in the event of Digital LAVA direct sales, end-users.



3. PARTICULARS



3.1 Licensee - Licensee's name and key particulars are:



(a) full name: Digital LAVA Inc



(b) full address: Suite 1260, 10850 Wilshire Boulevard, Los Angeles, CA, USA,



(c) telephone number: 310-470-1149



(d) fax number: 310-470-1769



(e) contact person: Josh Sharfman



(f) e-mail address: josh@digitallava.com





4 DEVELOPMENT



4.1 Services - Digital LAVA hereby retains Cinax to design, develop and test the Engine. Cinax shall use their best efforts to perform the Services in a workmanlike manner and in accordance with the Schedule and the Specifications. Cinax is not obligated to perform any Services, and Digital LAVA has not contracted for any Services, unless and until Exhibit A is executed by both parties and attached hereto.



4.2 Acceptance of Software - For software executable code deliverables, wh ere Cinax delivers to Digital LAVA the alpha, beta and final versions of each Deliverable, Digital LAVA shall evaluate and submit a written acceptance or rejection to Cinax within five (5) business days of receipt of the alpha and beta ve r sions and seven (7) business days after receipt of the final version of the Deliverables. Acceptance shall be in writing, and Digital LAVA shall not unreasonably withhold its acceptance unless a Deliverable is not according to the Specifications or is not according to Schedule A. If Digital LAVA identifies Errors in a deliverable within the acceptance period, Cinax shall correct such Errors following receipt thereof. Cinax shall use its best efforts to correct Errors during acceptance testin g for the alpha and beta versions of each Deliverable and within the time specified in Schedule B with respect to errors discovered during acceptance testing for the final version of each Deliverable.



4.3 Documentation- For documentation or report D eliverables, Digital LAVA shall evaluate each version of such deliverable and in the event that corrections are required Digital LAVA shall specify the corrections needed and Cinax shall deliver an amended version of such documentation within five (5) business days.



4.4 Errors- If Cinax fails to deliver to Digital LAVA any deliverable within the dates







specified in the Schedule A or if any Errors discovered within the acceptance period cannot be eliminated in the correction period sp ecified in the Specifications then Digital LAVA may, at its option: (i) retain the Deliverables to date with rights as set forth in Section 10, and pay Cinax for all outstanding payment milestones for which Digital LAVA has accepted correspon ding deliverables; (ii) extend a correction period to Cinax; or (iii) suspend Digital LAVA's obligations under this Agreement and/or terminate this Agreement for cause pursuant to paragraph 12.2.



4.5 Design Review and Specification Changes- Cinax unde rstands that there may be additions, deletions or other changes which may affect the Specifications at any time during the term of this Agreement. Upon notice of any such changes by Digital LAVA, Cinax and Digital LAVA agree to work together to make any necessary changes to the Specifications, and Cinax shall alter the services in order to accommodate any such changes to the Specifications.



5. GRANT OF LICENSE



5.1 License to Digital LAVA- Cinax hereby grants to Digital LAVA the non-exclusive, non-transferable worldwide right and license of renewable term to:



(i) use, copy, demonstrate and sub-license the Engine as a part of its Product; and otherwise carry on the activities contemplated by and as set out in this Agreement subject to the termination provisions contained in this Agreement.



5 .2 Royalty to Cinax - In return for such license Digital LAVA agrees to pay Cinax a royalty based on the revenues or any portion thereof derived by Digital LAVA from the resale, distribution or sub-license of the Digital LAVA-developed Product or th ird party products using the Engine.



6. PURCHASE AND SALE OF PRODUCT



6.1 Reporting- Digital LAVA shall notify Cinax of all Product sales made on a quarterly basis, in the format specified in Schedule C.



6.2 Title/Security Interest in Engine - Title to Engine shall remain in Cinax and Cinax shall have a security interest in such units until Digital LAVA pays Cinax in full for all amounts owing from Digital LAVA to Cinax in connection with shipments of which the Engine forms a part. Digital LAVA shall sign all instruments and do all acts that Cinax, acting reasonably, requires to effect, perfect, register or record such retention of title and security interest.













7. PAYMENT



7.1 Services - Digital LAVA shall pay Cinax for the Services performed as set forth and in accordance with the applicable Schedule A, not to exceed *****(1) provided that (i) Cinax has completed the milestones and delivered the Deliverable; and (ii) Digital LAVA has accepted the Deliverables. Such pa yments will be due net five (5) days from the later of (i) acceptance by Digital LAVA of the Deliverable associated with any payment milestone or (ii) receipt by Digital LAVA of a Cinax invoice associated with any payment milestone.



7.2 Up Front Lic ense Fee - Digital LAVA shall pay to Cinax an up front licensing fee of *****(1) for use of the Engine. *****(1) will be due net thirty (30) days from the later of (i) acceptance by Digital LAVA of the Final Deliverable or (ii) receipt by Digital LAVA of a Cinax invoice associated with the Final Deliverable, and the balance of *****(1) on the first reporting date as per Schedule A.



7.3 Royalty free copies- The first seventy five (75) copies of the Product shipped, including upgrades of the Product shipped to existing users, shall not be subject to royalties.



7.4 Royalties Payable and Base - For each subsequent unit of the Product shipped Digital LAVA shall pay to Cinax a royalty as set out in Schedule A. which amount shall reflect the most of: *****(1) of the Product Net Sales Price invoiced by Digital LAVA to the Customer, or at the royalty floor price of fifty dollars ($50) U.S.



7.5 Minimum Royalty - During each year the Agreement is in effect, Digital LAVA shall license from Cinax not less than 200 copies of the Engine at the royalty floor price of *****(1) U.S . Digital LAVA shall have the right to prepay royalties to achieve the minimum in any given year. Failure by Digital LAVA to license the minimum copie s in a particular year of the Agreement shall be a default of this Agreement on the part of Digital LAVA entitling Cinax to terminate the Agreement.





7.6 The royalty charges applicable to Product are due upon invoice by Cinax and Cinax shall invoice the Digital LAVA for such charges and all such invoices according to Schedule C. Invoices are payable within 30 days of the invoice receipt. An y amounts outstanding for 30 days shall be subject to interest at a rate of 1% per month (12% per annum).



7.7 Digital LAVA shall pay all applicable sales, use, withholding and excise taxes, and any other assessments against the Digital LAVA in t he nature of taxes, duties or charges however designated on the Product or its license or use, on or resulting from this Agreement, exclusive of taxes based on the net income of Cinax.



7.8 Inspection Rights - Cinax shall have the right to audit Digital LAVA's records and





- -------- (1) Confidential information is omitted and identified by an * and filed

separately with the SEC pursuant to a request for Confidential Treatment.





papers which are relevant to the resale, distribu tion or sub licensing of the Product once per year. Such audits shall be performed by an independent accounting firm and shall be conducted at Digital LAVA's headquarters. Written notification of such audits shall be received by Digital LA V A at least thirty (30) days prior to such audit. Audit costs shall be Cinax's responsibility, unless audit determines a discrepancy of 25% or greater between Product shipped and reported, in which case Digital LAVA shall be responsible for audit cos ts.



8. SUPPORT



8.1 Software Maintenance - Cinax shall provide software support and maintenance services relative to the product as described herein:



a) Software Maintenance: Cinax shall use its best efforts to rectify any

problem with the Product which results in the Product not being in

substantial conformance to the functional specifications as contained in

the documentation in Schedule A;



b) Support Availability: Cinax shall provide reasonable telephone and e-mail

support for the Engine between the hours of 8:30 a.m. and 5:00 p.m.,

Pacific Standard Time, excluding weekends and Canadian statutory' holidays,

to Digital LAVA onl ...