Software Development Letter Agreement

LOGO] Digital Lava Inc.







August 28, 1998





Dr. James Stigler Lesson Lab, Inc. 12436 Santa Monica Blvd. Los Angeles, CA 90025



Dear James,



This letter shall serve as a formal Agreement between Digital Lava, Inc. ("Digital Lava") and Lesson Lab, Inc. ("Customer."). Customer desires that Digital Lava perform custom development and programming services in connection with Digital Lava's VideoVisor Product ("VideoVisor") to allow Customer to customize VideoVisor as set forth in Attachment A hereto.



1. Services. Digital Lava shall provide the Services set forth on Attachment A

hereto and shall deliver to Customer all work product, documentation and

results of such Services (the "Deliverables") according to the Delivery

Schedule set forth on Attachment A. With respect to the performance of

Services, Customer will neither direct nor supervise Digital Lava's

employees or staff with respect to said individuals' tasks or

responsibilities without Digital Lava's express written consent. Digital

Lava intends to perform the Services at Digital Lava's premises.



2. Acceptance. Customer shall have [10] business days after delivery and

installation of the Deliverables (or re-installation resulting from

correction of defects by repair or replacement of the Deliverables) to

evaluate and test the Deliverables to determine that they conform with

Attachment A hereto. If Customer, in its best business judgment, determines

that the Deliverables fail to conform to the requirements of Attachment A,

it shall immediately notify Digital Lava in writing, specifying in detail

the reasons that Customer believes the Deliverables fail to conform.

Digital Lava shall have [15] business days in which to correct and resubmit

the Deliverables to Customer. Customer shall then have [3] business days in

which to re-evaluate and test the Deliverables for conformance with

Attachment A, and shall notify Digital Lava as set forth above of any

nonconformance. Digital Lava shall have [5] business days in which to

correct and resubmit the Deliverables to Customer. Customer shall then have

[2] business days to re-test the Deliverables, and to provide Digital Lava

with notice rejection of the Deliverables for nonconformance. Silence shall

be deemed to be acceptance. If Digital Lava fails to correct the

Deliverables to conform to Attachment A within such time period, Customer





may terminate this Agreement. Upon acceptance of such Deliverables, Digital

Lava shall provide ongoing maintenance and support pursuant to Section 3(b)

of this Agreement.



3. Fees and Payment.



a. Progress Payments. In consideration for the rights and obligations set

forth herein, Customer will pay Digital Lava according to the Payment

Schedule set forth on Attachment A. By executing this Agreement,

Customer confirms the budget for the work, and the charges and

purchases set forth in Appendix A hereto. If Customer wishes to

enlarge the scope of the Services or implement additional features or

subtasks, the parties shall agree upon the costs therefor in advance

in writing.



b. Upgrades and Support. If Customer desires to receive continuing

support and upgrades beyond those set forth on Attachment A, it agrees

to pay Digital Lava an amount equal to Forty Percent (40%) of Payments

due for Services. Any such support and upgrade fees will be due in

cash at the beginning of the year for which such support will be

provided. Note: This was not discussed with Stigler. We can put this

in and choose to waive it.



c. Expenses. Customer will reimburse Digital Lava for incidental expenses

and disbursements incurred by Digital Lava related to travel and

lodging, shipping, and any other incidental expenses incurred in the

performance of the Services. Digital Lava shall bear sole

responsibility for expenses incurred to acquire the necessary tools to

perform the Services. If Digital Lava needs to procure any third party

computer software, hardware, other office supplies or any other

subcontracted services or products to implement, perform, or install

items set forth in Attachment A, which purchase will exceed $1000,

Digital Lava will notify Customer in advance, and obtain approval for

the amount of the purchase plus any applicable sales tax.



d. Billing. Digital Lava will invoice Customer for reimbursable

incidental expenses and disbursements and any Customer approved third

party purchases on a monthly basis. The invoice will include a report

itemizing the expenses and third party purchases. Customer shall pay

all invoices within 30 days of receipt, and shall not make any

deductions thereto.



4. Termination.



a. By Digital Lava. Failure of Customer to make payments to Digital Lava

in accordance with this Agreement shall be considered substantial

nonperformance and cause for termination. If Customer fails to make

payments when due, Digital Lava may, upon seven days' written notice

to Customer suspend performance under this agreement. Unless payment

in full is received by Digital Lava within seven days of the date of

the notice, the suspension shall take







effect without further notice. In the event of a suspension of

services, Digital Lava shall have no liability to Customer for delay

or damage caused Customer because of such suspension of services.



b. By Customer. Customer shall have the right at any time to terminate

this Agreement on thirty (30) days' written notice. In the event of

such termination, and provided termination is not as a result of

Digital Lava's unremedied breach of this Agreement, Customer shall pay

Digital Lava then accrued payments due under the Delivery Schedule,

plus the pro-rated portion of the next payment, if any, due with

respect to items being worked on up to the time of termination, plus

reimbursable expenses, plus twenty percent (20%) of the total charges

due through the date of the termination. Should Customer wish to

delete specific subtasks, Customer will notify Digital Lava

immediately in writing. As long as said deletions represent less than

twenty percent of the labor cost for the project, Customer shall not

be liable for the twenty percent termination penalty.



c. Termination for Breach. Either party may terminate this Agreement upon

seven (7) days' written notice to the other party in the event the

other party materially breaches this Agreement and fails to cure such

breach within fifteen (15) days' written notice from the non-breaching



5. Ownership. All right, title and interest in and to the object code only of

the Deliverables shall be owned by Digital Lava; provided, however, that

Customer shall have the perpetual, non-exclusive right to use the

Deliverables as set forth in this Agreement. No license or other rights in

the Deliverables is granted hereby.



6. Warranties of Digital Lava. Digita ...