EXHIBIT 10.2
LICENSE AND DISTRIBUTION AGREEMENT
(MANUFACTURING RIGHTS)
(2005 - 2007)
This License and Distribution Agreement (this "AGREEMENT") is entered in
as of March 29, 2004 by and between Riverdeep Inc., A Limited Liability Company,
a limited liability company organized in Delaware ("RIVERDEEP"), and Encore
Software, Inc., a Minnesota corporation ("DISTRIBUTOR").
WHEREAS, Riverdeep is engaged in the business of developing, licensing and
publishing computer software programs, including the Products (as hereinafter
defined);
WHEREAS, Distributor is engaged in the business of selling and marketing
goods in the Territory (as hereinafter defined), including products similar or
related to the Products; and
WHEREAS, Riverdeep and Distributor wish to enter into an agreement
pursuant to which Distributor will manufacture, sell, and distribute the
Products for sale in the Channel (as hereinafter defined) within the Territory.
NOW, THEREFORE, in consideration of the mutual promises set forth herein,
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
1.1 "ADJUSTMENT DATE" means 30 days after the commencement of each Sales
Year.
1.2 "CHANNEL" shall mean all retail accounts, whether sold to directly
or through distributors, including, without limitation, brick and mortar stores
and Internet-based retailers (such as Amazon.com); provided however, that
Riverdeep shall have the right to sublicense Products to sublicensees that will
in turn sell and distribute them into small retail accounts pursuant to (i) the
sublicenses set forth on Exhibit C attached hereto provided that copies of the
same have been furnished to Distributor prior to the Commencement Date, and (ii)
such future sublicenses as the parties shall mutually agree to not to be
unreasonably withheld or delayed, it being agreed that Riverdeep shall not amend
or modify such sublicenses to add new products thereto or to expand the channel
thereof without Distributor's consent, not to be unreasonably withheld or
delayed; and provided further, that notwithstanding anything to the contrary in
this Agreement, nothing contained herein shall limit Distributor's parent
company from selling or distributing the Products to its retail customers
through such parent company's website. At Riverdeep's request, no more
frequently than on a quarterly basis, Distributor shall provide to Riverdeep a
list of current accounts into which Distributor sells or distributes the
Products. The Channel specifically excludes Riverdeep's channels of distribution
other than the retail channel, including, without limitation, (a) sales directly
to end users (including, without limitation, through television, magazine,
catalog, continuity club, mail, door-to-door, email, web, and telemarketing
offers), (b) sales through the OEM channel and, (c) sales in the
educational/schools channel. Distributor shall not distribute Products to any
account that intends, or is reasonable likely, to resell the Products outside of
the Channel or Territory.
1.3 "COMMENCEMENT DATE" shall mean March 31, 2005.
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1.4 "DELIVERABLES" shall have the meaning ascribed to such term in
Section 2.9.
1.5 "DOCUMENTATION" shall mean all printed booklets, pamphlets, user
manuals, maintenance manuals, end user license agreements, registration cards,
promotional materials and any other materials which are distributed with the
Products. Such Documentation shall not be modified, translated, supplemented or
omitted without Riverdeep's prior written approval (not to be unreasonably
withheld or delayed) and any such modifications, translations or supplements
shall remain the property of Riverdeep.
1.6 "END USERS" shall mean the customers of Distributor's Retailers (as
hereinafter defined) to whom such Retailers sell Products for use and not for
re-sale.
1.7 "EXCLUDED PRODUCTS" means (i) genealogy-based and language-based
software programs unless otherwise consented to by Distributor in its sole
discretion; (ii) Products that have been terminated pursuant to Section 10.1.4
hereof; and (iii) such individual SKU's as to which Distributor determines in
its sole discretion it will no longer ship or fulfill retail orders and notifies
Riverdeep of such determination in writing.
1.8 "INTELLECTUAL PROPERTY RIGHTS" means patent rights and registrations
and applications, renewals and extensions therefor, copyright (including, but
not limited to, ownership rights in all titles, computer code, themes, objects,
characters, character names, stories, dialog, catch phrases, locations,
concepts, artwork, animation, sounds, musical compositions, audio-visual effects
and methods of operation, moral rights and any related documentation), copyright
registrations and applications, renewals and extensions therefor, trademark
registrations and applications, renewals and extensions therefor, rights in
trade dress and packaging, trade secrets and other intellectual property rights
recognized by U.S. laws and applicable foreign and international laws, treaties
and conventions.
1.9 "LICENSED MEDIA" shall mean all (i) computer-readable magnetic media
storage devices for the PC, including CD-Rom and DVD-Rom, (ii) DVD's, and (iii)
electronic learning aids (such as, Leapster and Leapad); provided however, in
the case of DVD's and electronic learning aids, Distributor shall only have
exclusive rights only on a Product-by-Product basis and only if Riverdeep is
able to retain such distribution rights in any negotiations involving the
development of the applicable product, it being understood that Riverdeep shall
use good faith commercially reasonable efforts to retain such rights.
Interactive online (unless otherwise a part of the Product itself) and
electronic download are excluded.
1.10 "LOSS EVENT" means, with respect to any Product under this Agreement
or the Prior Agreement, (i) a loss of rights the effect of which limits or
precludes Riverdeep licensing such Product to Distributor under this Agreement
without a default by Riverdeep hereunder; (ii) Riverdeep's failure to initially
procure rights to such Product; (iii) Riverdeep's failure to make such Product
available to Distributor hereunder; (iv) Riverdeep's failure to provide the
Deliverables for such Product as and when required hereunder; or (v) Riverdeep's
decision to discontinue such Product, or (vi) any other event or occurrence the
effect of which limits or impairs the rights granted to Distributor hereunder in
respect of such Product.
1.11 "MEDIATOR" means a mediator to be chosen by the parties from time to
time to resolve specific disputes hereunder pursuant to a mediation procedure to
be mutually agreed upon by the parties within 30 days after the Commencement
Date.
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1.12 "NPD INDEX" means on each Adjustment Date, the size, in US Dollars,
of the market for retail sell-through of software in the United States, as
published in the NPD Techworld database, for the 12-month period ending on the
first day of the current Sales Year. On each Adjustment Date, the NPD Index will
be determined by inserting the following search query into such database: (i)
the Category shall be determined by mutual agreement of the parties within seven
(7) days after the date hereof ; (ii) the existing data shall be extrapolated to
100% of the market using the NPD "100%" function; (iii) the result shall be
based on dollar sales (as opposed to unit sales); and, (iv) the period covered
shall be the prior full 12-month period. If at any time after the Commencement
Date the format or components of the NPD Index (or any of the individual indices
from which it is compiled) are materially changed, or if the NPD Index (or any
of the individual indices from which it is compiled) is no longer published,
either party may send written notification to the other party, whereupon the
parties shall have a period of thirty (30) days to attempt to agree upon a
substitute method for measuring the size of the market previously measured by
the NPD Index. If, by the end of such time, the parties are unable to agree upon
a substitute method, the parties shall assign a mathematical formula to the line
that best fits the five years of data from the NPD Index (or any of the
individual indices from which it is compiled) preceding the applicable
Adjustment Date and, using such formula, shall extrapolate the NPD Index for
each of the subsequent Adjustment Dates.
1.13 "OEM" shall mean: original equipment manufacturers selling hardware,
Non-Traditional OEM's, and Similar Distributors. As used herein, (i)
"Non-Traditional OEM's" shall mean distributors who manufacture Product(s), and
do not sell the Products in the retail channel; and, "Similar Distributors"
shall mean distributors (including entities acting on behalf of Similar
Distributors in licensing software from Riverdeep and other sources) which
advertise, market, distribute and sell products through after-purchase programs
for goods, other than Products, sold in any channel, loyalty programs (defined
as special offers presented to end users who purchase goods from Similar
Distributors, e.g. Frequent Flier Programs, mailers inserted into bills, etc.),
fundraising programs, or direct mail programs, but in any event not selling or
distributing any Product through or into the Channel unless pursuant to a
sublicense approved under Section 1.2 above. As used herein, "after-purchase
programs" shall mean marketing programs through which an end user may receive
the Product for a fee after purchasing another product.
1.14 "PREVIOUSLY-RELEASED PROPERTIES" means interactive software (and all
updates, upgrades, or other modifications thereto) owned or controlled, or that
was owned or controlled, by Riverdeep that is obsolete and no longer distributed
in the Channel.
1.15 "PRODUCT" or "PRODUCTS" shall mean those computer software product
lines of Riverdeep consisting of the individual SKU's for such lines listed on
Exhibit A, as the same may be amended from time to time in accordance with the
provisions of Section 2.6 and 2.7, together with the "Products" as defined in
the Prior Agreement; provided however, that such Products under the Prior
Agreement (whether or not listed on Exhibit A attached hereto) shall not be
deemed to constitute "Products" hereunder until the earlier of (i) the date upon
which Distributor shall have fully recouped the Guaranteed Royalty under the
Prior Agreement; and (ii) the termination of the Prior Agreement pursuant to
Section 12.14 of this Agreement; and provided further, that any Consent-Required
Product shall not constitute a Product hereunder until Riverdeep notifies
Distributor that it has received the corresponding Third Party Consent therefor,
whereupon the same shall constitute a Product hereunder. Riverdeep shall have
the right upon 30 days' prior written notice to Distributor to modify, alter,
improve, change, add to or discontinue any or all the Products in accordance
with the provisions of Section 2.6 and 2.7. Notwithstanding anything to the
contrary in this Agreement, including Exhibit A, in no event shall the Products
include any Excluded Products or Previously-Released Properties. References to
"Products"
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herein shall be deemed to include all SKU's within such Product other than
Previously-Released Properties.
1.16 "PRIOR AGREEMENT" means that certain License and Distribution
Agreement (Manufacturing Rights) (2004 - 2005), of even date herewith entered
into between the parties, as the same shall have been amended or modified in
writing between the parties from time to time.
1.17 "RETAILERS" shall mean the business entities in the Channel and
Territory to which Distributor markets and distributes, either directly or
through distributors, Products for resale.
1.18 "REVISION EVENT" shall mean, on each of June 30, 2005, and June 30,
2006, a failure by Riverdeep for any reason to revise (i.e., "rev") any seven of
the ten highest revenue generating Products over the prior 12-month period, five
of which must be the five highest revenue generating Products over the prior
12-month period.
1.19 "SALE" of any Product shall mean the granting of a license to use
such Product and the "purchase" of any Product shall mean the obtaining of a
license to use such Product.
1.20 "SALES DISCOUNTS" shall mean price discounts and price protection.
1.21 "SALES YEAR" means each twelve-month period during the Term
commencing on the Commencement Date and each anniversary thereof.
1.22 "TERM" shall mean that period of time specified in Section 9 of the
Agreement.
1.23 "TERRITORY" shall mean the United States.
2. DISTRIBUTION RIGHTS.
2.1 Rights Granted to Distributor. Riverdeep hereby grants to
Distributor the exclusive right and license to replicate, publish, market, sell,
and distribute the Products on the Licensed Media in the Channel in the
Territory. Riverdeep hereby grants to Distributor a non-exclusive,
non-transferable license to use the names of the Products as well as, where
applicable, the "The Learning Company," "Broderbund," "Edmark," and "Riverdeep"
trademarks, all subject to Riverdeep's standard policies and the approval
processes specified herein. Except as expressly provided herein, Distributor
shall have no right to sublicense or otherwise transfer any of the rights
granted under this Agreement. Distributor may not create derivative works of the
software in the Products, nor may it alter or modify such software in any way.
All other rights not granted herein to Distributor are reserved. Distributor is
not authorized to sell the Products for delivery outside the Territory or for
re-sale outside the Territory. Distributor shall have the right, but not the
obligation, to manufacture the Products and may use third-party manufacturers
for such manufacturing. Such third party manufacturers shall be subject to
Licensor's prior written approval, it being agreed that Riverdeep has approved
all of the third party manufacturers set forth on Exhibit E. All rights granted
herein are specifically subject to the additional covenants, terms and
conditions set forth in Exhibit B attached hereto.
2.2 Documentation. Each Product distributed by Distributor under this
Agreement shall be the full retail version of such Product and shall include a
complete copy of the Product's original Documentation (such Documentation shall
not vary with current Riverdeep practices or future industry
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standards), including an end-user license agreement mutually agreed to by the
parties between Riverdeep and such end-users but incorporating Distributor's
warranty and return policy, provided such items are furnished to Distributor on
a timely basis prior to manufacturing of the applicable Products; provided
however, that any items provided by Distributor shall be subject to Riverdeep's
packaging approval requirements provided herein. Riverdeep shall provide an end
user warranty for the Products of form and substance approved by Distributor and
consistent with Distributor's end user return policy. Notwithstanding anything
to the contrary in this Agreement, Distributor shall not be obligated to pay for
any inserts or other promotions for the Products requested by Riverdeep, it
being understood that the manual shall not constitute an insert for purposes of
this sentence. Distributor may, in its sole discretion and expense, put inserts
and promotions into packaging for Products and retain any revenue derived
therefrom, subject to Riverdeep's reasonable approval.
2.3 Assortments, Bundles and Premiums. The license granted herein shall
include the right to sell and/or distribute the Products: (i) as individual
stand-alone units, including jewel case; (ii) as part of an Assortment (as used
herein, "Assortment" shall mean that a Product (or portion/component of a
Product) is sold with another software product or products, but such Product is
not physically packaged with such other product(s)); and (iii) as bundles where
a Product(s) (or portion/component of a Product) is physically packaged or
included on the same physical media with other products ("Bundle"). Assortments
or Bundles that contain software or components other than Products shall be
referred to as "Mixed Assortments" and "Mixed Bundles." All jewel case, Bundles
and Assortments shall be subject to Riverdeep's prior written approval, not to
be unreasonably withheld or delayed. "Premiums" shall mean extra item(s)
provided to an end user who has purchased goods, said extra item(s) to be
provided for no or nominal additional compensation. Distributor shall not
distribute the Products as Premiums, for promotional purposes, or in any other
manner so as to diminish, tarnish or otherwise derogate the Riverdeep brands.
Distributor will not port or otherwise transfer Product intended for use on one
Licensed Media onto another Licensed Media without Riverdeep's prior consent,
which may be given or withheld in Riverdeep's sole discretion.
2.4 Support. During the Term, Distributor shall provide customer support
and technical support via email, telephonic, or online in a manner consistent
with other products distributed by Distributor and industry standards. On
Riverdeep's request, Distributor shall use commercially reasonable efforts to
provide quarterly status reports regarding customer and technical support, in an
agreed format subject to Distributor's existing data limitations, including such
information as number of calls per sku, customer feedback, nature of bug or
other problem. Such delivery shall be made within fifteen (15) days of request.
2.5 Expenses. Except to the extent elsewhere provided in this Agreement,
Distributor will bear all costs and expenses incurred by Distributor in
manufacturing, promoting, channel marketing and distributing the Products,
including but not limited to manufacturing, shipping, handling and warehousing
costs, channel marketing expenditures, price protections and returns.
2.6 Changes to the Product List and Products. Riverdeep shall not have
the right to make any changes to the list of Products licensed hereunder to
Distributor except as set forth in this Section.
2.6.1 Upon the occurrence of a Loss Event, Riverdeep shall notify
Distributor as soon as possible, and if such Loss Event arises for any reason
other than a default by Riverdeep under Riverdeep's license agreement for such
Product, Riverdeep shall have the right to replace such Product with a product
of comparable market value and saleability to be agreed upon by the parties. If
the parties are able to reach agreement as to an appropriate replacement
product, such product shall
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be deemed a "Product" hereunder, Distributor shall have all rights with respect
thereto as provided with respect to other Products hereunder, and Distributor
shall have no further claim against Riverdeep arising out of the failure to
provide the Product so replaced, it being understood that each party shall
retain its rights and obligations in regard to customer support,
representations, warranties, indemnification, returns, credits, license fees and
royalties due on such Product units already in the Channel. If the parties,
operating in good faith and with commercial reasonableness, are unable to reach
agreement on any replacement product within fifteen (15) days after notification
to Distribution of such Loss Event, or if Riverdeep has lost such rights by
reason of a default under its license agreement for such Product, the Guaranteed
Royalty shall be reduced as set forth in Section 4 and Distributor shall have
all of its rights and remedies hereunder, at law, or in equity; provided
however, that Distributor shall cease further manufacturing, sales, and
distribution of the Product within 15 days after notification of any such Loss
Event, if applicable.
2.6.2 Riverdeep shall have the right at any time to add products to
this Agreement, or to modify, upgrade, improve, or enhance Products under this
Agreement, and promptly upon doing so shall provide Distributor with a
replicatible goldmaster and other applicable materials for Distributor's use
hereunder.
2.7 Publishing Plan. Exhibit A lists the dates by which each Product
will be made available by Distributor for shipment. Distributor shall have the
right to request that Riverdeep revise each of the Products periodically during
the Term, and upon such request, Riverdeep shall not unreasonably withhold its
consent to do so, but in any event the ten highest revenue generating Products
over the preceding 12-month period shall be revised at least once in each
eighteen month period commencing on the Commencement Date.
2.8 Exclusive Distributor. Riverdeep shall not license any currently
existing products or future products for the Licensed Media to any other
Distributor for sale or distribution in the Channel and the Territory, other
than Excluded Products. This Section 2.8 shall not apply to any Products for
which Riverdeep has terminated Distributor's right to distribute pursuant to
Section 10.1.4 herein.
2.9 Deliverables. In respect of each of the Products available as of the
Commencement Date, Riverdeep shall provide to Distributor the deliverables set
forth on Exhibit D attached hereto (collectively, the "Deliverables") within 10
days after the Commencement Date. In respect of all other Products, the parties
shall mutually agree upon the ship dates therefor, and thereafter Riverdeep
shall provide the Deliverables for such Products no later than by the dates set
forth on Exhibit D. Without implication as to the materiality of a default in
respect of any other Products, Riverdeep's failure to furnish the Deliverables
for the eight highest revenue generating Products over the preceding 12-month
period shall be deemed to constitute a material default by Distributor hereunder
unless cured under the default provisions hereof. In addition to any other
rights and remedies available to Distributor for a Loss Event arising from
Riverdeep's failure to provide the Deliverables for any Product on a timely
basis, the period that Distributor has to meet any applicable Per Product Market
Share Quota shall be extended on a day-for-day basis for each day of delay, and
Riverdeep shall reimburse Distributor for Distributor's out-of-pocket losses,
costs, and expenses incurred or owed by Distributor arising out of such failure
within thirty (30) days after invoicing Riverdeep therefor.
3. OWNERSHIP AND COPYRIGHT AND TRADEMARK NOTICES.
3.1 Riverdeep retains and shall have ownership of all licensed
intellectual property, including registered and unregistered copyrights and
trademarks (and all good will derived therefrom),
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character assets, software code, package design, trade dress and marketing
collateral, and any and all modifications, enhancements and derivative works
thereof and all Intellectual Property Rights embodied therein and related
thereto. All package art and marketing collateral shall be created as a work for
hire, owned by Distributor, except to the extent otherwise required by
Riverdeep's licensors. Distributor shall cooperate with Riverdeep to meet the
requirements of such licensors as pertains to the creation of packaging art and
marketing collateral. Upon Riverdeep's request, no more frequently than once
each quarter during the Term, Distributor shall irrevocably assign and transfer
to Riverdeep in perpetuity and throughout the Universe any and all of
Distributor's right, title and interest (including, without limitation, the
rights generally known as "moral rights" to the extent assignable) in the
packaging art and marketing collateral for the Products created by or on behalf
of Distributor, without representation or warranty other than that Distributor
has not itself theretofore assigned or transferred any rights therein. In
addition, upon and within fifteen (15) days of Riverdeep's request, no more
frequently than once each quarter during the Term, Distributor shall also
provide archived files of all such materials in the same form and format in
which Distributor uses such materials at no cost to Riverdeep. Distributor shall
not create a unitary composite mark involving Riverdeep's trademarks or trade
names. Distributor agrees that all use of such Riverdeep trademarks and trade
names shall be pursuant to Riverdeep's use guidelines, shall inure to the
benefit, and be on behalf, of Riverdeep.
3.2 Distributor hereby agrees that at the termination or expiration of
this Agreement, Distributor shall and does assign, transfer and convey to
Riverdeep all trademarks, service marks, copyrights, equities, good will titles
or other rights, titles and interests throughout the world in and to the
Products (including all packaging, marketing collateral and related materials,
but excluding Distributor's logo and other trademarks proprietary to Distributor
and unrelated to the Products) which may have been obtained by Distributor or
which may have vested in Distributor as a result of its activities under this
Agreement, and that Distributor shall immediately execute any instruments
requested by Riverdeep to accomplish or confirm the foregoing. No consideration
other than the mutual covenants and considerations of this Agreement shall be
necessary for any such assignment, transfer, or conveyance. Distributor
expressly understands and agrees that following termination or expiration of
this Agreement it retains no right to exploit or continue to exploit or in any
way deal with copies of, in any fashion and/or by any means, the Products or any
elements thereof, or packaging, promotion or advertising related thereto or to
the Products, and/or other works which embody the Products in whole or in part
which it created pursuant to this Agreement, without Riverdeep's prior consent.
3.3 Distributor may not adopt any trademark, trade name, design, logo or
symbol, which is similar to or likely to be confused with or to dilute any
Riverdeep mark, name, logo or other intellectual property. Any sale of a Product
shall include the copyright, trademark and other proprietary rights notices as
are contained on the masters of such Product (including the documentation) or as
may be specified from time to time by Riverdeep. The Products shall feature the
Riverdeep brands. Distributor shall mark all packaging to indicate itself as the
manufacturer and distributor of the products, under license from Riverdeep Inc.,
a Limited Liability Company, and its licensors. All packaging is subject to
Riverdeep's approval. Riverdeep's approval of such packaging shall be deemed to
constitute Distributor's compliance with the packaging requirements of this
Agreement.
4. LICENSE FEES; GUARANTEED ROYALTY; THIRD PARTY LICENSING REIMBURSEMENT.
4.1 Earned License Fees. Distributor shall pay Riverdeep the license
fee(s) set forth on Exhibit B of this Agreement according to the terms set forth
on Exhibit B.
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4.2 Guaranteed Royalty.
4.2.1 Subject to further adjustment as provided in this Section 4.2
below, for each Sales Year during the Term of this Agreement, Distributor shall
pay a guaranteed, irrevocable, non-refundable payment (recouped against
royalties as hereinafter provided) as follows (for each Sales Year, the
"Guaranteed Royalty").
(i) In respect of the first Sales Year, the Guaranteed Royalty
shall be 80% of the actual Royalties earned by Riverdeep under the Prior
Agreement from sales of the Products during the "Sales Year" as defined
therein .
(ii) In respect of the second Sales Year, the Guaranteed Royalty
shall be 80% of the actual Royalties earned by Riverdeep from sales of the
Products during the first Sales Year.
The Guaranteed Royalty for each Sales Year shall be paid in twelve equal monthly
installments on the 25th day of each month of the applicable Sales Year.
Notwithstanding the foregoing, upon the occurrence of the first Revision Event,
the Guaranteed Royalty for the current and, if applicable, remaining Sales Years
shall be zero, and within 30 days after the occurrence of such Revision Event,
Riverdeep shall refund to Distributor the amount by which the aggregate
installments of the Guaranteed Royalty theretofore paid by Distributor, exceed
the royalties earned by Riverdeep with respect to sales of the Products in such
Sales Year.
4.2.2 The Guaranteed Royalty for each Sales Year shall be fully
recoupable by Distributor from royalties earned by Riverdeep on Products during
such year and for three additional months into the following Sales Year (for an
aggregate recoupment period of 15 months); provided however, that if at the end
of any Sales Year, Distributor has not fully recouped the Guaranteed Royalty for
such Sales Year, then Distributor shall have 12 months from the first ship date
of any Product that shipped in the last quarter of such Sales Year to recoup
such Guaranteed Royalty from sales of such Products only; provided further, that
if Riverdeep has failed to provide any Deliverable for a Product when due, then
Distributor shall have 12 months from the first ship date of any such Product to
recoup such Guaranteed Royalty from sales of such Products only from the Sales
Year in which such Product was supposed to have shipped; and provided further,
that Distributor shall have an additional 12-month period to recoup all
Guaranteed Royalties from the sales of all of the Products upon the occurrence
of the first Revision Event.
4.2.3 If, on any Adjustment Date, the decline in the NPD Index (i)
from the beginning of the Sales Year under the Prior Agreement until the end
thereof, or (ii) from the beginning of the first Sales Year hereunder until the
end thereof, exceeds thirty (30%) percent, then Distributor shall be entitled to
a credit against next succeeding installment of the Guaranteed Royalty for the
Sales Year in which such Adjustment Date falls and each installment thereafter
until such credit has been fully applied (or if the Term terminates due to a
default by Riverdeep or expires, Distributor shall be entitled to a cash payment
from Riverdeep in the amount of the Applicable Benchmark Credit for such year)
in the amount of the Applicable Benchmark Credit on each such Adjustment Date.
The "Applicable Benchmark Credit" means an amount equal to the product of the
following variables:
(x) the market share of the Products, expressed as a percentage;
times,
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(y) the amount, expressed in gross dollars, by which 70% of the
NPD Index at the beginning of the applicable preceding Sales
Year exceeds the NPD Index at the end of such preceding Sales
Year; times
(z) Riverdeep's royalty rate (i.e., 25%).
4.2.4 In addition, upon the occurrence of a Loss Event, Distributor
shall be entitled to a further credit against the next succeeding installment of
the Guaranteed Royalty for the first and second Sales Years and each installment
thereafter until such credit has been fully applied (or if the Term terminates
due to a default by Riverdeep or expires, Distributor shall be entitled to a
cash payment from Riverdeep in the amount of such credit in such year) in an
amount equal to the Guaranteed Royalty for the most recent 12-month period (such
period and Guaranteed Royalty during the first Sales Year hereunder referring to
the "Guaranteed Royalty" and the "Sales Year" under the Prior Agreement),
multiplied by a fraction, the numerator of which is the gross revenue generated
by the applicable Product as to which such Loss Event occurred over the
preceding 12-month period, and the denominator of which is the gross revenue
generated by all of the Products over the same period (or if such Product was
not released by Riverdeep during such period, the closest like Product). Upon
request, Riverdeep shall provide all such information as may be necessary or
appropriate for Distributor to calculate such credit, including historical
revenue figures and shall make its books and records available to Distributor
for such purpose to the same extent as Distributor would be required to if
Riverdeep initiated an audit hereunder.
4.3 Each quarter during the Term, Distributor shall reimburse Riverdeep
for third party license fees paid by Riverdeep under its license agreements for
the Products in the amount of up to the lesser of (i) $250,000 each such
quarter, and (ii) 50% of the aggregate amount of such fees over such quarter,
such payment to be made within 30 days' receipt of Riverdeep's invoice therefor.
In no event shall Distributor's obligation under this Section 4.3 exceed
$1,000,000 for each Sales Year. Distributor shall have the right to request
reasonable back-up documentation to verify the license fees paid by Riverdeep.
5. UNDERTAKINGS OF THE PARTIES.
5.1 Marketing of the Products. Distributor shall use commercially
reasonable efforts to promote the sale of the Products in the Territory and
Channel. Distributor shall undertake channel marketing of the Products
throughout the Territory, consistent with industry standards. Distributor shall
maintain a commercially reasonable sales organization which can be best utilized
for the promotion of the sales of the Products.
5.2 Conduct of Business. Distributor will conduct its business in a
manner that will reflect favorably at all times on the Products and the good
name, goodwill and reputation of Riverdeep; avoid deceptive, misleading or
unethical practices or advertisements that are or might be detrimental to
Riverdeep, the Products, or the public; and not publish or employ or cooperate
in the publication or employment of any misleading or deceptive advertising
materials. Distributor agrees that the Products replicated and distributed by
Distributor shall at all times shall be of high standard and of such style,
appearance and quality as to protect and enhance the Products and the good will
pertaining thereto, shall meet Riverdeep's reasonable quality standards and
specifications as stated herein, and shall be manufactured, sold, distributed
and promoted in accordance with all applicable, Federal, state and local laws
and regulations. Distributor may not sell Products that Distributor
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knows to be damaged or defective or which it would reasonably consider to be
"seconds" based on industry standards.
5.3 Compliance with Laws. Distributor will comply in all material
respects with the laws and regulations of all applicable local, state and
federal jurisdictions relating to Distributor's activities hereunder, including,
but not limited to, all state and federal laws and regulations governing product
warranties for the Products.
5.4 Sales Materials. Subject to Riverdeep providing underlying data for
the Sales Materials, Distributor may reproduce sales materials, including
technical specifications, drawings, advertisements and samples (collectively,
"Sales Materials") as reasonably required, provided that all copyright,
trademark and other property markings are reproduced. Such materials remain the
property of Riverdeep, and, except insofar as they are distributed by
Distributor in the course of its performance of its duties under this Agreement,
must be promptly returned to Riverdeep upon the expiration or termination of
this Agreement without charge to Riverdeep.
6. PUBLIC ANNOUNCEMENT; CONFIDENTIALITY OF INFORMATION AND MATERIALS. Neither
party may issue a press release or make other public announcement regarding the
existence of this Agreement, without the express written consent of the other
except to the extent reasonably interpreted to be required by applicable laws,
rules or regulations, and in such case, Distributor shall endeavor, but shall
not be obligated, to provide Riverdeep with notice of such announcement and an
opportunity for review. The parties each shall hold in strict confidence and
shall not disclose to others (except for affiliates, investors, advisers and
consultants on a need to know basis and subject to confidentiality, or otherwise
as required by law) or use, either before or after termination or expiration of
this Agreement, any technical or business information, manufacturing technique,
process, experimental work, trade secret or other confidential matter relating
to the Products, except to the extent disclosure is reasonably required in
connection with Distributor's marketing activities in the Territory and except
to the extent that Riverdeep may assign the proceeds under this Agreement as set
forth in Section 12.3.
7. REPRESENTATIONS AND WARRANTIES.
7.1 Riverdeep. Riverdeep represents and warrants that (i) it is duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, and that it has the full rights,
power, legal capacity and authority to enter into this Agreement, and to carry
out the terms hereof; (ii) this Agreement has been executed by its duly
authorized representative and is a valid, legally binding and enforceable
obligation of Riverdeep; (iii) Riverdeep is either the owner of the Products and
all Intellectual Property Rights therein or has procured all necessary rights
and licenses from the owners of such rights to enter into and carry out the
terms of this Agreement; (iv) the Products have not been sold, assigned, leased,
licensed or in any other way disposed of or mortgaged, pledged or encumbered in
a manner that would violate the license granted to Distributor hereunder, and
that it is under no contractual or other legal obligation which would interfere
in any way with the full, prompt, and complete performance of its obligations
pursuant to this Agreement (including with regard to Riverdeep's contracts with
COKeM that relate to the Products); (v) no consent of any person or entity not a
party to this Agreement is required or necessary for Riverdeep to carry out its
obligations hereunder; (vi) there is no litigation, claim or proceeding of any
nature pending or threatened in writing against or relating to the Products or
any Intellectual Property Rights related thereto which would have any material
adverse effect on the rights granted to Licensee hereunder; (vii) no default has
occurred under any agreement or contract to which Riverdeep is a party pursuant
to which Riverdeep licenses any Product from a third party, nor has any event
10
occurred, which, with the giving of notice or the passage of time, would
constitute a default under any such agreement or contract; and (viii) neither
the Products, nor any of the deliverables, nor the use of the Products or such
deliverables by Distributor in the manner specifically authorized hereunder, nor
the grant of the rights under this Agreement, is or will be an infringement of
or otherwise in violation of the rights of any third party in the Territory,
including, without limitation, the Intellectual Property Rights, or will violate
any applicable laws, rules, or regulations.
7.1.1 In this regard, Riverdeep hereby acknowledges and agrees that
Distributor shall be entitled to use and exploit in connection with its rights
under this Agreement all artwork and features and elements thereof and all other
materials provided by Riverdeep to Distributor under this Agreement without
being obligated to independently verify that, to the extent the same has or may
have been provided to Riverdeep by a third party, Riverdeep has cleared all
rights to Distributor's use and exploitation of such materials. Without limiting
the generality of the preceding sentence, Distributor at any time shall have the
right in its sole discretion to require that Riverdeep provide to it evidence
satisfactory to Distributor that all such rights to any such materials have been
cleared with all third parties, and upon receipt of such request, Riverdeep
shall promptly do so. In no event shall any such request for verification by
Distributor or disclosure by Riverdeep concerning the impairment of such rights
be deemed to abrogate or otherwise limit or affect the protections afforded to
Distributor under this Agreement in respect of Distributor's use or exploitation
of such materials.
7.2 Riverdeep further represents and warrants the goldmaster candidate
for each Product shall (i) correspond to, and perform in all material respects
in accordance with, any relevant specifications, functional or other
descriptions contained in the written materials accompanying the Products and in
all of Riverdeep's advertising and promotional materials (including, any final
demonstration versions of the Products, produced, released or approved by
Riverdeep), without interruption or error, (ii) function in all respects on the
hardware and software specified, (iii) be free from viruses, bugs, and
operational limiting routines, the effect of which would materially impair the
ability of the end-user to use and enjoy the Product as so intended, (iv) not
contain any viruses, worms, date bombs, time bombs, or other code designed to
cause the Products to cease operating or to damage, interrupt, or interfere with
any end-user's hardware, software or data, and (v) be free of other material
defects. If any goldmaster candidate fails to comply with Riverdeep's
representation and warranty under this Section, without limiting any right or
remedy in this Agreement, Riverdeep shall provide patches or fixes to such
Product that prevents it from functioning as represented to Distributor or
otherwise keeps it from satisfying the requirements of this Section, any such
patches or fixes to be provided as soon as commercially reasonable following
Distributor's request therefor, but in no event later than 15 days thereafter
for any material bug attributable to Riverdeep's product coding and 30 days for
all other Products, it being understood that any such patch or fix so provided
shall be deemed to cure Riverdeep's breach of the foregoing representation so
long as such patch or fix, taken together with the Product itself, would not
have resulted in a breach of such representation, and other than for any
out-of-pocket losses, costs, or expenses incurred or owed by Distributor as a
result of such breach. Distributor shall notify Riverdeep of crash bugs promptly
after becoming aware of the existence thereof and of any other impairment event
in a commercially reasonable period of time thereafter.
7.3 Riverdeep shall pay all amounts due under each of its licenses for
the Products and shall otherwise maintain the same in effect through the term
thereof. Riverdeep shall not grant any waiver or forebearance with respect
thereto if the effect of such waiver or forebearance would be to accelerate the
date of the expiration or termination thereof from the original term.
11
EXCEPT AS SET FORTH IN THIS SECTION, RIVERDEEP MAKES NO REPRESENTATION OR
WARRANTY WITH RESPECT TO ANY PRODUCT OR THE RELATED DOCUMENTATION AND TO THE
EXTENT PERMITTED UNDER APPLICABLE LAW THE PRODUCTS ARE DELIVERED "AS IS." THE
WARRANTY STATED HEREIN IS EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT, AND
SUCH WARRANTY CONSTITUTES THE ONLY WARRANTY MADE BY Riverdeep WITH RESPECT TO
THIS AGREEMENT OR THE PRODUCTS, ARTICLES, MATERIALS, REPLACEMENT PARTS OR
SERVICES TO BE SUPPLIED HEREBY.
7.4 Distributor. Distributor covenants, represents and warrants that (i)
it is duly incorporated, validly existing and in good standing under the laws of
the jurisdiction in which it is incorporated, and that it has the full rights,
power, legal capacity and authority to enter into this Agreement, and to carry
out the terms hereof; (ii) this Agreement has been executed by its duly
authorized representative and is a valid, legally binding and enforceable
obligation of Riverdeep; (iii) Distributor's exercise of its rights and
performance of its obligations hereunder will not violate any laws or other
legal requirements; (iv) Distributor will not create, incur or permit any
encumbrance, lien, security interest, mortgage, pledge, assignment or other
hypothecation upon the License or Products or permit the commencement of any
proceeding or foreclosure action on a lien created by Distributor or any of its
agents or contractors on the License or Products, or to obtain any assignment
thereof, whether or not involving any judicial or nonjudicial foreclosure sales.
8. INDEMNIFICATION AND INSURANCE
8.1 Riverdeep Indemnity. Riverdeep shall indemnify, defend, and hold
Distributor harmless from and against all claims, suits, demands, actions and
proceedings, judgments, penalties, damages, costs and expenses (including
reasonable legal fees and costs), losses or liabilities ("DAMAGES") arising out
of (i) any trademark, trade dress, copyright, or patent infringement claim,
claim involving appropriation of trade secrets, claim arising out of the use and
exploitation of a person's appearance, performance, voice, or likeness in a
Product or Previously-Released Property, or claim arising out of anyone's right
to publicity or invasion of privacy contained in a Product or
Previously-Released Property; (ii) any amounts due to third parties for license
fees, royalties, dues, fees, or other amounts arising out of the content of or
included in any Product (including without limitation, public performance fees,
music sync license fees, and amounts due to any guilds, unions or collective
societies in connection with such content and the use and exploitation thereof);
(iii) any product liability claim or other claim for injury or damage done to
any person arising out of the use or operation of software in the Product; (iv)
any claim arising out of or relating to the manufacturing, marketing, sale,
distribution, or other exploitation of Previously-Released Properties or
Products existing in the Channel prior the Commencement Date excluding amounts
for which Distributor is responsible under Section 5 and 6 of Exhibit B; (v) any
Damages incurred by Distributor resulting from a breach by Riverdeep of any
provision of this Agreement; (vi) Distributor's costs of goods and out-of-pocket
losses arising out of a Loss Event in respect of any Product, without regard to
whether such Product is replaced pursuant to Section 2.6 or any reduction to the
Guaranteed Royalty; or, (vii) any liabilities associated with inventory in the
Channel from and after the expiration or sooner termination of the Term except
to the extent (A) of such liabilities for which Distributor is expressly liable
therefor under Section 10.2 of the Prior Agreement, or (B) of such liabilities
other than for returns, Sales Discounts, MDF for such inventory for which
Distributor would otherwise be
12
responsible under this Agreement which arise out of an event or condition
occurring during the Term.
8.1.2 Riverdeep shall not be obligated to defend or be liable for
costs and/or damages under this Section 8 to the extent that the alleged
infringement arises out of or is in any manner attributable to any modification
of any Product by Distributor (or any of Distributor's resellers), including
packaging and marketing collateral.
8.1.3 If any intellectual property claim which Riverdeep is
obligated to defend has occurred, or in Riverdeep's opinion is likely to occur,
Distributor agrees to permit Riverdeep, at Riverdeep's option and expense,
either to procure for Distributor (or its customers) the right to continue using
the subject Product or to replace or modify such Product so that it becomes
non-infringing; provided that any such action is at no cost or expense to
Distributor and any replacement is in accordance with Section 2.6 hereof.
8.2 Distributor Indemnity. Distributor shall indemnify and hold
Riverdeep harmless from and against all Damages which may arise or result from
or relate to (i) contract claims between Distributor and any of its
distributors, resellers, replicators, or retailers relating to any of the
Products; (ii) any Damages incurred by Riverdeep as a result of any sale by
Distributor of any Product outside of the Territory; (iii) any Damages incurred
by Riverdeep resulting from a breach by Distributor of any provision of this
Agreement; (iv) any third party claims of misleading advertising by Distributor;
or (v) any trademark, trade dress, copyright, or patent infringement claim,
claim involving appropriation of trade secrets, claim arising out of the use and
exploitation of a person's appearance or likeness, in each case solely arising
out of any Product packaging created by or on behalf of Distributor, or claim
arising out of anyone's right to publicity or invasion of privacy contained in
any such Product packaging other than any claim relating to underlying art
assets or other materials provided by or on behalf of Riverdeep to Distributor;
(vi) any unfair trade practice, antitrust, or consumer protection claims
relating to the manufacture, marketing, sale or distribution of the Products by
Distributor; (vii) any personal injury claims relating to Distributor's
manufacture, sale, marketing or distribution of the Products, except to the
extent arising from the software in the Products; and (viii) any claims by
Riverdeep's licensors arising from or related to Distributor's incomplete or
inaccurate reporting relating to the sale of the Products (it being understood
that Distributor shall not be liable under this clause (viii) for incomplete or
inaccurate information provided to it by a third party).
8.3 The indemnifications provided for herein are conditioned upon the
indemnified party's furnishing the indemnifying party with prompt written notice
of any such claim or suit and upon reasonable cooperation in defense of such
claim or suit. In such event, the indemnifying party shall have the option to
undertake and conduct the defense of any such claim or suit. The indemnifying
party shall not settle any claim or suit without the prior written consent of
the indemnified party, which shall not be unreasonably withheld or delayed. The
indemnifications hereunder shall survive the termination of this Agreement.
8.4 NEITHER PARTY SHALL UNDER ANY CIRCUMSTANCES BE LIABLE FOR ANY
CONSEQUENTIAL, INDIRECT, SPECIAL, INCIDENTAL OR EXEMPLARY DAMAGES, INCLUDING
WITHOUT LIMITATION, ANY LOSS OF REVENUES, PROFITS, OR BUSINESS OR OTHER ECONOMIC
LOSS ARISING OUT OF OR IN CONNECTION WITH THE SERVICES PROVIDED HEREUNDER,
ARISING UNDER CONTRACT, TORT OR OTHERWISE, AND EVEN IF ADVISED OF THE
POSSIBILITY OF SUCH LOSS, EXCEPT AS SPECIFICALLY PROVIDED FOR ELSEWHERE IN THIS
AGREEMENT. THE FOREGOING SHALL NOT LIMIT EITHER
13
PARTY'S INDEMNIFICATION OBLIGATIONS HEREUNDER TO THE EXTENT THAT A THIRD PARTY
CLAIMS ANY SUCH DAMAGES AGAINST A PARTY HEREUNDER.
8.5 Insurance. Distributor shall obtain, at its own expense, general
liability, including product liability, insurance providing adequate protection
for Riverdeep in amounts no less than One Million Dollars ($1,000,000.00) for
bodily injury to any person per any one occurrence and One Hundred Thousand
Dollars ($100,000.00) for property damage per any one occurrence. Simultaneously
with the execution of this Agreement, Distributor shall submit to Riverdeep
fully paid policies or certificates of insurance naming Riverdeep as an
additional insured party and, providing that coverage shall extend to all claims
or suits arising out of the use of the Products manufactured or sold under this
Agreement, and further requiring that the insurer shall not terminate or
materially modify such without written notice to Riverdeep at least twenty (20)
days in advance thereof.
9. TERM OF AGREEMENT.
9.1 This Agreement shall commence on the Commencement Date and shall
continue in effect for a period of two (2) years from the Commencement Date (as
the same may be extended hereunder, the "TERM"). The Term shall be extended for
any extended recoupment periods under Section 4 hereof. Each year is conditioned
on the payment of the applicable Guaranteed Royalty for the preceding Sales
Year.
9.2 The Term may be renewed for successive one (1) year terms upon the
mutual written agreement of the parties.
10. TERMINATION.
10.1 Termination For Cause. Either party may terminate this Agreement,
without further notice, for cause as follows:
10.1.1 Either party may immediately terminate this Agreement upon
written notice to the other party in the event that proceedings in bankruptcy or
insolvency are instituted by or against the other party, or a receiver is
appointed, or if any substantial part of the assets of the other party is the
object of attachment, sequestration or other type of comparable proceeding, and
such proceeding is not vacated or terminated within sixty (60) days after its
commencement or institution.
10.1.2 Either party may terminate this Agreement if the other party
commits a material breach of any of the terms or provisions of this Agreement
and does not cure such breach within thirty (30) days (or such shorter period as
may be expressly provided for in such applicable term or provision) after
receipt of written notice given. Distributor shall hold its affiliates, third
party manufacturers and authorized sublicensees to the same standards that
Distributor is held. If any of Distributor's affiliates, third party
manufacturers or authorized sublicensees commits any activity which would be a
breach of the Agreement by Distributor if Distributor had committed such
activity, Distributor shall within three business days following notice thereof
take commercially reasonable efforts to terminate such activity. Thereafter, if
the activity is not terminated within the earlier of thirty (30) days or the
period allowed for cure, pursuant to the applicable agreement with such third
party manufacturer or sublicensee, Distributor shall terminate the contractual
relationship with such third party.
14
10.1.3 [Intentionally Omitted.]
10.1.4 On each Adjustment Date, Riverdeep may, at its discretion
upon 30 days' prior written notice to Distributor to be given no later than such
Adjustment Date, terminate the Agreement as to further distribution in the
Channel of any of Riverdeep's seven highest revenue generating Products over the
preceding Sales Year (such period during the first Sales Year hereunder
referring to the "Sales Year" under the Prior Agreement) if Distributor does not
sell or distribute a sufficient number of units in any Sales Year to meet 70% of
any applicable Per Product Market Share Quota (defined below), unless within 90
days after receipt of Riverdeep's notice electing to terminate such Product,
Distributor sells or distributes sufficient additional units to meet such
percentage of Per Product Market Share Quota; provided however, no Product shall
be terminated by reason of this subsection if a new release has not been on the
market for at least the same amount of time as the previous version. Distributor
shall cease all further distribution into the Channel of any such Product within
sixty (60) days of notice thereof. In such event, at Riverdeep's request, the
inventory for said Product shall be returned or destroyed at Riverdeep's
expense. Notwithstanding any such termination, each party's rights and
obligations in regard to customer support, representations, warranties,
indemnification, returns, credits, license fees and royalties due on Products
already in the Channel shall survive. The "Per Product Market Share Quota"
means, for each of Riverdeep's seven highest revenue generating Products ,the
net unit quantity of the Product sold (by Riverdeep or Distributor, as
applicable) during the twelve months prior to the applicable Sales Year,
adjusted by the same percentage that the Industry Standard decreased or
increased in comparison to the twelve months prior to the applicable Sales Year.
"INDUSTRY STANDARD" shall be equal to the combined number of units of all of the
software titles in each specifically applicable sub-category sold during each
Sales Year, or the twelve months preceding the first Sales Year, as applicable,
and shall be determined based on data from NPD Techworld. For example, if in
Sales Year 2, according to NPD Techworld combined sales of all of the software
titles equaled four hundred five thousand (405,000) units, the Industry Standard
for Sales Year 2 is set at four hundred five thousand (405,000) units. This is
then compared to the preceding Sales Year's Industry Standard, for purposes of
this example four hundred fifty thousand (450,000) units. In this example, the
Industry Standard in Sales Year 2 would be calculated to be ten percent (10%)
lower than the Industry Standard Sales Year 1. Therefore, assuming Product A
sold 100,000 units in Sales Year 1, the Per Product Market Share Quota for the
new version of Product A in Sales Year 2 would be 90,000 units (100,000 x
(1-10%)).
10.2 Rights Upon Termination. Upon termination of this Agreement, by
expiration of the Term or otherwise, all further rights and obligations of the
parties shall cease, except that the parties shall not be relieved of (i) their
respective obligations to pay any monies due or which become due as of or
subsequent to the date of termination, and (ii) any other respective obligations
under this Agreement which specifically survive or are to be performed after the
date of termination. Riverdeep shall provide written notice to the Channel that
Riverdeep or its new distributor will take responsibility for all returns, Sales
Discounts, and MDF from and after such expiration or sooner termination;
provided however, that Distributor shall remain responsible for credits given by
or on behalf of Riverdeep to its retail customers following the expiration or
sooner termination of the Term in respect of inventory then in the Channel in an
aggregate amount equal to such credits that Distributor was entitled to charge
to Riverdeep under Section 6 hereof when Distributor entered into this Agreement
with Riverdeep, but in no event shall any such credits exceed that which apply
in respect of thirteen (13) weeks of inventory in the Channel as of such
expiration or sooner termination of the Term. Distributor and any authorized
sublicensees shall immediately cease all manufacturing, selling, marketing,
distributing, advertising and/or promoting of the Products. Distributor shall
not increase sales in the Channel prior to expiration of the Agreement in a
manner inconsistent with
15
standard industry practices and Distributor's inventory management practices
during the Term. In the event of expiration or termination for Riverdeep's
breach, Distributor shall, at Riverdeep's direction, destroy Products in
Distributor's possession, or transfer all Products in its possession to
Riverdeep, provided that Riverdeep shall reimburse Distributor the actual cost
of goods for eleven (11) weeks of projected channel sell-through of the Products
as of the date of expiration or termination, plus shipping and handling fees for
all units transferred to Riverdeep. In the event that the parties cannot agree
on eleven (11) weeks of projected channel sell-through for the Products, the
matter shall be referred to the Mediator to determine the quantity based upon
such data as the parties each shall submit in support of their respective
position. Such Mediator shall be advised at the time of engagement to invoice
each party for 50% of fees and costs. In the event of termination for
Distributor's breach, Distributor shall, at Riverdeep's direction, destroy
Products in Distributor's possession, or transfer Products in its possession to
Riverdeep, provided that Riverdeep shall reimburse Distributor the actual cost
of goods plus shipping and handling fees for all units transferred to Riverdeep.
Upon termination or expiration of the Agreement for Distributor's breach,
Distributor's payment obligation for earned and guaranteed royalties shall
survive and shall be due and payable upon the same terms and conditions as
provided for herein subject to any obligation under applicable law to mitigate
damages suffered by virtue of Distributor's breach.
10.3 Unforeseen Circumstances. No delay or failure by the parties hereto
in the performance of any obligation of this Agreement shall be deemed a breach
of this Agreement nor shall it create any liability, if the same shall arise by
reason of any cause beyond the reasonable control of the affected party,
including, but not limited to, labor disputes, strikes, wars, terrorism, riots,
insurrection, civil commotion, accident, shortage of materials or equipment,
government regulations, fire, flood, storm, or any other acts of God, including
defects and/or breakdowns of equipment and programming errors not within the
reasonable control of the affected party, provided that the party so affected
shall use commercially reasonable efforts to avoid or remove such cause of
nonperformance and shall continue performance hereunder as soon as practicable.
The foregoing shall not excuse the performance of any financial obligations
hereunder under any circumstance. In the event such cause occurs and exceeds
sixty (60) calendar days, the party not so affected may cancel this Agreement
upon written notice.
10.4 Bankruptcy. The parties hereby agree and intend that this Agreement
is an executory contract governed by Section 365 of the Bankruptcy Code.
(a) In the event of Distributor's bankruptcy, the parties intend that
any royalties earned under this Agreement during the bankruptcy period be deemed
administrative claims under the Bankruptcy Code because the parties recognize
and agree that the bankruptcy estate's enjoyment of this Agreement will (i)
provide a material benefit to the bankruptcy estate during its reorganization
and (ii) deny Riverdeep the benefit of the exploitation of the rights through
alternate means during the bankruptcy reorganization.
(b) The parties acknowledge and agree that any delay in the decision of
trustee of the bankruptcy estate to assume or reject the Agreement (the
"Decision Period") materially harms Riverdeep by interfering with Riverdeep's
ability to alternatively exploit the rights granted under this Agreement during
a Decision Period of uncertain duration. The parties recognize that arranging
appropriate alternative exploitation would be a time consuming and expensive
process and that it is unreasonable for Riverdeep to endure a Decision Period of
extended uncertainty. Therefore, the parties agree that the Decision Period
shall not exceed sixty (60) days.
(c) Riverdeep, in its interest to safeguard its valuable interests
(including, without limitation, its intellectual property rights in the
Products), has relied on the particular skill and knowledge base of Distributor.
Therefore, the parties acknowledge and agree that in a bankruptcy context this
Agreement is a
16
license of the type described by Section 365(c)(1) of the Bankruptcy Code and
may not be assigned without the prior written consent of Riverdeep.
10.5 Cross-Default. An uncured material default under the Prior Agreement
by either party shall be deemed to constitute a an uncured material default
under this Agreement, the occurrence of which will entitle the party not so in
default to pursue all rights and remedies hereunder, including termination and
such other rights and remedies as such party may have at law or in equity.
10.6 Survival of Terms. Sections 3, 4, 6, 7, 8, 10.2, 10.5, 11 and 12 of
this Agreement shall survive any termination of this Agreement.
11. BOOKKEEPING OBLIGATIONS AND INSPECTION RIGHTS.
11.1 Distributor shall maintain true and complete books of account
containing an accurate record of all data necessary for the proper computation
of payments hereunder, and Riverdeep shall have the right, by a certified public
accountant appointed by it and reasonably approved by Distributor, to examine
such books at all reasonable times (but not more than once in each calendar year
and not during the first fifteen days of any quarter) for the purpose of
verifying the accuracy of the reports and computation rendered by Distributor.
Upon reasonable advance written notice (but in no event less than 15 days), such
examination shall be made during normal business hours at the principal place of
business of Distributor. If such examination reveals that reports furnished by
Distributor were inaccurate by more than five percent (5%) and that amounts in
excess of those paid to Riverdeep are due, the cost of such examination shall be
borne by Distributor, and Distributor shall pay the amount of any discrepancy to
Riverdeep, plus interest at the rate of nine percent (9%) per year or part
thereof on any deficiencies.
11.2 Distributor will make commercially reasonable efforts to facilitate
Riverdeep's ability to enter and inspect all premises and facilities (including,
without limitation, storage and shipping facilities) of Distributor and its
manufacturer(s) and distributor(s), and its and their warehousers and/or
shippers, in order to ensure that the manufacture, packaging, labeling,
advertising and promotion and distribution of Products comply with Distributor's
obligations hereunder and all applicable laws. Distributor will make
commercially reasonable efforts to provide all information reasonably requested
by Riverdeep regarding the testing, manufacture, quality control, storage and
shipment of the Products.
12. MISCELLANEOUS.
12.1 Entire Agreement. This Agreement contains the entire understanding
of the parties hereto relating to the Products, supersedes any prior written or
oral agreement or understandings between the parties with respect to the
Products, and cannot be changed or terminated orally. This Agreement may be
amended only by a writing signed by the parties hereto.
12.2 Enforceability. The invalidity or unenforceability of any provision
of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement.
12.3 Assignment. Neither party shall assign this Agreement without the
prior consent of the other, not to be unreasonably withheld or delayed, except
to an entity which controls, is controlled by, or under common control with such
party ("control" defined as the power to directly or indirectly direct the
management of the applicable entity or ownership of 50% or more of the voting
17
shares thereof) or a merger of a party into another business entity, the sale or
transfer of the ownership interest or control of a party, or the sale or
transfer of more than 50% of a party's assets
12.4 Successors. All rights and obligations arising out of this Agreement
shall inure the benefit of, and be binding on and enforceable by the parties and
their respective successors and permitted assigns.
12.5 Currency. All dollar amounts herein are expressed in United States
funds.
12.6 Governing Law. This Agreement and its validity, construction and
performance shall be governed in all respects by the laws of the State of
California.
12.7 Notices. All notices or other communications required or permitted
to be given pursuant to this Agreement shall be in writing and shall be
considered as properly given or made if hand delivered, mailed first class mail,
postage prepaid, sent by prepaid telegram (or telex or other facsimile
transmission) or sent by express overnight courier service:
If to Riverdeep, to: If to Distributor, to:
- ------------------- ---------------------
Riverdeep Inc. A Limited Liability Company Encore Software, Inc.
500 Redwood Blvd. 16920 S. Main Street
Novato, CA 94947 Gardena, CA 90248
Attention: Chief Operating Officer Attention: Michael A. Bell
Fax: (415) 763-4931 Fax: (310) 768-1822
With a copy to: With a copy to:
Riverdeep, Inc. Encore Software, Inc.
500 Redwood Boulevard 16920 S. Main Street
Novato, California 94947 Gardena, CA 90248
Attention: Counsel Attn: General Counsel
Fax: (415) 763-4931
or to such other address as any such party may have designated by like notice
forwarded to the other party hereto.
12.8 Dispute Resolution; Election of Remedy. Any dispute, controversy, or
claim arising out of, in connection with, or in relation to this Agreement or
the breach thereof shall be resolved in a state or federal court venued in Marin
or San Francisco County, the jurisdiction of which is stipulated. The parties
waive any right to claim forum non conveniens, or to otherwise object to
jurisdiction or venue. Unless expressly set forth to the contrary, either
party's election of any remedies provided for in this Agreement will not be
exclusive of any other remedies available hereunder or otherwise at law or in
equity.
12.9 Injunctive Relief. Distributor understands and agrees that Riverdeep
will suffer irreparable harm in the event that Distributor fails to comply with
the any of its obligations under Section 2.1 or Section 3, above, and that
monetary damages in such event would be substantial and inadequate to
18
compensate Riverdeep. Consequently, in such event Riverdeep will be entitled, in
addition to such monetary relief as may be recoverable by law, to such
temporary, preliminary and/or permanent injunctive relief as may be necessary to
restrain any continuing or further breach by Distributor, without showing or
proving any actual damages sustained by Riverdeep.
12.10 Independent Contractors. The parties hereto are independent
contractors and neither party is an employee, agent, partner or joint venturer
of the other. Neither party shall have the right to bind the other party,
whether directly or indirectly, to any agreement with a third party or to incur
any obligation or liability on behalf of such other party, whether directly or
indirectly.
12.11 No Third Party Beneficiaries. Except for the parties hereto, no
other party shall be entitled to any rights, benefits, or privileges under this
Agreement.
12.12 Offset. Notwithstanding any provision of this Agreement, at any time
during the Term or any extension of this Agreement and after expiration or
termination of this Agreement, either party has the right to offset any and all
amounts or credits which such party owes to the other party hereunder against
any and all amounts which other party owes such party hereunder.
12.13 Relationship to Prior Agreement. Notwithstanding anything to the
contrary in this Agreement or in the Prior Agreement, upon the Commencement Date
hereof and any time thereafter, Distributor shall have the right, but not the
obligation, to terminate the Prior Agreement.
19
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
signed under seal as of the date first set forth above.
RIVERDEEP INC., A LIMITED LIABILITY ENCORE SOFTWARE, INC.
COMPANY
By: ________________________________
Name: John Rim By: _________________________
Its: VP, Asst. Treasurer, Name:
Riverdeep Interactive Learning USA, Inc., Title:
Sole Member of
Riverdeep Inc., a Limited
Liability Company
20
INDEX OF EXHIBITS
EXHIBIT A - SCHEDULE OF PRODUCTS
EXHIBIT B - CERTAIN ADDITIONAL TERMS
EXHIBIT C - SCHEDULE OF APPROVED SUBLICENSES
EXHIBIT D - SCHEDULE OF DELIVERABLES FOR EACH PRODUCT
EXHIBIT E - SCHEDULE OF PRE-APPROVED THIRD PARTY MANUFACTURERS
EXHIBIT F - ROYALTY REPORT TEMPLATE
21
EXHIBIT A
SCHEDULE OF PRODUCTS
[see attached]
22
Attachment to Exhibit A (2005-2007)
SKU TITLE
- --- -----
TBD Mavis Beacon Teaches Typing 16
TBD Mavis Beacon Teaches Typing 16 Deluxe
TBD Mavis Beacon Teaches Typing 16 Deluxe MM
TBD Mavis Beacon Teaches Typing 16 MM
TBD Reader Rabbit Learning System 1st Grade
TBD Reader Rabbit Learning System 1st Grade
TBD Reader Rabbit Learning System 1st Grade
TBD Reader Rabbit Learning System 1st Grade
TBD Reader Rabbit Learning System 1st Grade
TBD Reader Rabbit Learning System 1st Grade
TBD Reader Rabbit Learning System Kindergarten
TBD Reader Rabbit Learning System Kindergarten
TBD Reader Rabbit Learning System Kindergarten
TBD Reader Rabbit Learning System Kindergarten
TBD Reader Rabbit Learning System Kindergarten
TBD Reader Rabbit Learning System Kindergarten
TBD Reader Rabbit Learning System Preschool
TBD Reader Rabbit Learning System Preschool
TBD Reader Rabbit Learning System Preschool
TBD Reader Rabbit Learning System Preschool
TBD Reader Rabbit Learning System Preschool
TBD Reader Rabbit Learning System Preschool
TBD Mavis Beacon Teaches Computing Skills
TBD Mavis Beacon Teaches Other
TBD Destination Success Consumer
TBD Kid Pix Deluxe 4
TBD The Print Shop 21
TBD Carmen Sandiego Geography Pack
TBD PM 16 GOLD
TBD PM 16 PLAT
TBD PM 16 PLAT DVD
TBD Adventure Workshop
TBD Calendar Creator
TBD Click Art
TBD *3D Home Architect
*Subject to mutual agreement of the parties by September 1, 2004
EXHIBIT B
SCHEDULE OF CERTAIN ADDITIONAL TERMS
1. [Intentionally Omitted.]
2. Royalties and Payment Terms:
a) [Intentionally Omitted].
b) Earned Royalty. Riverdeep shall earn royalties for sales of Products
during each Sales Year as provided below, provided that the same shall not be
payable until Distribution has recouped from such amounts the corresponding
Guaranteed Royalty for such year.
25% of Net Receipts for finished goods; provided however, that upon
the first Revision Event to occur, the royalty rate shall thereafter
be reduced as follows:
Revision Event Condition: Earned Royalty Rate:
------------------------- --------------------
If Riverdeep revised at least 6 out of its 10 highest 22%
revenue generating Products over the prior 12-month period,
which include 5 of its 5 highest revenue generating Products
over the prior 12-month period.
If Riverdeep revised less than 6, but more than 4, of its 20%
10 highest revenue generating Products over the 12-month
period, and at least 4 of those are within its 5 highest
revenue generating Products over the prior 12-month period.
Riverdeep revised any other combinations of its Products 16%
that do not fall into one of the preceding categories.
"NET RECEIPTS" is defined as gross sales from the sale of Products,
less actual credits granted for returns, rebates, product mark-down
expenses, and Sales Discounts. To the extent gross sales or
dilutions relate to Mixed Assortments or Mixed Bundles, then
Distributor may only apply such gross sales or deduct dilutions in
an amount proportional to the percentage of Products in said Mixed
Assortment or Mixed Bundle. With each royalty statement, Distributor
may take a reasonable reserve for anticipated returns, not to exceed
20% of royalties earned for the applicable reporting period. With
23
each monthly statement, Distributor will liquidate each reserve
held, and pay to Riverdeep any royalties then due that are in excess
of the liquidated reserve. Distributor may not deduct: cash
discounts granted as terms of payment; promotional/new store
discounts; costs, taxes or duties incurred in manufacturing,
handling, shipping, importing, or selling. At Riverdeep's request,
Distributor shall review its customer credit status with Riverdeep
on a regular basis, but not more than once each quarter.
Distributor, in consultation with Riverdeep, will develop and
designate wholesale pricing strategies, pricing envelopes, and
lifecycle management pricing guidelines around which Distributor may
operate on a day-to-day basis independent of Riverdeep consultation;
provided however, deviations from current pricing models outside of
these parameters will require that Distributor consult with
Riverdeep and Distributor will develop and designate any such
pricing strategies, pricing envelopes, and lifecycle management
pricing guidelines that so deviate from the current models.
Distributor shall have full discretion with respect to the price it
charges its retail customers. At such time as a Product reaches
late-stage "closeout" status, Distributor shall request Riverdeep's
consent to closeout the Product inventory through one or more
closeout distributors. If Riverdeep shall fail to grant such consent
within fifteen (15) days thereafter, then Riverdeep shall be
required to purchase such inventory for an amount equal to
Distributor's cost of goods therefor.
c) [Intentionally Omitted.]
d) Reporting and Payment. Detailed reporting and payment of earned
royalties shall be provided no later than twenty-one (21) days following the end
of each calendar month. Royalty reports shall contain such information as is
included in a template report attached hereto as Exhibit F.
e) Late Charges. Any payments which are made to Riverdeep or Distributor
hereunder more than thirty (30) days after the due date therefor, shall bear
interest at the rate of 9% per annum from the date such payments are due to the
date of payment. Each party's right hereunder to interest on late payments shall
not preclude such party from exercising any of its other rights or remedies
pursuant to this Agreement or otherwise with regard to the other party's failure
to make timely remittances.
3. Marketing Plan And Reports: Distributor shall provide Riverdeep, within 90
days of the Commencement Date, with a retail forecast for each Product licensed
hereunder. In the event that Products are added to Exhibit A, Distributor shall
provide Riverdeep with a retail forecast for each such Product no less than
within a reasonable period of time prior to Riverdeep's planned Gold Master date
for each such Product. For Riverdeep's review and consultation, Distributor will
provide Riverdeep (a) with a sales and marketing plan and forecast including
reasonably detailed information, on a quarterly basis; (b) a ninety (90) day
rolling retail forecast for each active Product provided on a monthly basis; (c)
on the first business day of each week during the Term, Distributor will provide
Riverdeep with a report detailing gross shipments by Retailer for the previous
week. Distributor will provide Riverdeep with the following reports on a monthly
basis within nine (9) business days of the end of every month: SKU by reporting
Retailer; EDI Sell-Through; Product Returns authorized; and Inventory Report.
Distributor will provide Riverdeep with the following reports within thirty (30)
business days of the end of every month (concurrent with royalty reporting): SKU
by Sublicensee (if any approved); and Product units sold and/or distributed by
Sublicensee (if any approved).
24
Distributor shall use commercially reasonable efforts to market and sell the
Products and to promote the Products at industry trade shows specified by
Riverdeep and agreed to by Distributor, which agreement shall not be
unreasonably withheld. Distributor shall submit all marketing campaigns to
Riverdeep for review and approval, not to be unreasonably withheld or delayed.
Distributor shall use commercially reasonable efforts to meet all product
availability commitments made by Riverdeep (prior to the Commencement Date) to
retail accounts, including meeting replenishment orders for fixed plan-o-grams,
provided that Riverdeep shall have furnished Distributor with all deliverables
and information Distributor may require to do so on a timely basis.
Distributor will not discriminate against the Products in favor of Distributor's
other similar products.
Distributor shall not liquidate or deep-discount the Products, or otherwise
distribute in a manner that may reasonably be expected to reduce the good will
associated with or otherwise tarnish the Riverdeep brands. Products will only be
sold to Retailers, or to distributors for resale, shipment and/or distribution
to Retailers, who Distributor has a good faith belief will sell such Products in
the Territory and Channel to the public in the same general manner in which
merchandise of the same general description is customarily marketed, displayed
and sold. In the event Distributor learns that any Retailer is treating the
Products in a manner less favorably than similar merchandise, Distributor will
inform Riverdeep and will make commercially reasonable efforts to have the
problem corrected to Riverdeep's satisfaction. If Riverdeep is not satisfied
within a reasonable period then, upon written request of Riverdeep, Distributor
will discontinue future shipments to such Retailer and will not provide such
Retailer with Licensed Article(s) thereafter without Approval.
4. Approvals. Distributor shall create and produce its own packaging, labels,
disc art, end-user documentation, marketing and promotional materials, all
subject to Riverdeep review, guidance, feedback and approval at the following
stages:
- Concept design
- Alpha package design, including copy
- Final mechanical.
A submission shall be approved or disapproved within ten (10) business days from
receipt of the materials except the final mechanical, which will be approved
within five (5) business days of receipt of materials. Approval shall not be
unreasonably withheld or delayed. A submission shall in no instance be deemed
approved. If approval is not granted, Riverdeep shall identify the reasons for
disapproval and such corrective measures which, when taken, will result in
approval upon resubmission. Among other reasons, Riverdeep may reasonably
withhold approval in relation to the maintenance of brand and trade dress
consistency between versions, product lines, and in its other channels.
Distributor acknowledges that some of Riverdeep's licensors may have approval
rights regarding packaging, software development and their proprietary brands
and other names. Distributor shall reasonably cooperate with Riverdeep when
third-party licensor approval is required. Distributor shall provide archived
files of all approved materials, suitable for reproduction and in a form and
format specified by Riverdeep, within 10 days of Riverdeep's approval.
Neither Distributor (any permitted sublicensees) nor third party manufacturers
shall manufacture Products without Riverdeep's prior written approval of the
materials to be reproduced unless such materials have been furnished to it by
Riverdeep. Notwithstanding such approval, Distributor (any permitted
sublicensees), and third party manufacturers shall be responsible to include on
all Products and
25
Packaging any third-party licensor's name, trademark, and logo, and all
applicable notices. Riverdeep's approval shall not relieve Distributor of this
obligation; provided however, Riverdeep's approval of any given packaging shall
be deemed to constitute Distributor's compliance with the packaging requirements
hereof.
26
EXHIBIT C
SCHEDULE OF APPROVED SUBLICENSES
AGREEMENT TITLE DATE OF AGREEMENT: BY AND BETWEEN RIVERDEEP AND:
- --------------- ------------------ -----------------------------
OEM License Agreement March 30, 2003 MPS Multimedia, Inc.
OEM License Agreement June 15, 2003 MPS Multimedia, Inc.
OEM License Agreement June 30, 2003 ROI
OEM License Agreement June 30, 2003 COKeM
OEM License Agreement September 30, 2003 Digital1Stop
June 30, 2003 Big Island
September 30, 2002 Software Mackiev
PC Treasures
[Last three licenses subject to review by Distributor]
27
EXHIBIT D
SCHEDULE OF DELIVERABLES
DUE DATE (Based On Number Of Days Before The
DELIVERABLES Agreed Upon Ship Date)
------------ ----------------------
Layered, high resolution files for available artwork for 90
Packaging as well as all but not limited to available marketing
copy, legal copy, twenty screenshots, product/corporate logos,
and key art
Manual in electronic format:
Draft 45
Final Version 30
Documentation 90
Layered, high resolution files for available sell sheets and 90
other promotional materials
25, 50, 100, and 200 word product descriptions, title 90
treatments (where available)
Press accolades, awards, reviews, endorsements (where available) 90
Product demos and .avi's (where applicable and available) 90
Product walk-through documents (where available) 90
Competitive analysis - development features 90
Product design document 90
System requirements 90
ESRB Rating (if applicable) and certificate 45
Age range / grade level 90
Retailer and promotional history (where available) 90
6 samples of existing product 90
goldmaster candidate Submission - three copies 45
28
Replicatable Goldmaster - three copies 30
29
EXHIBIT E
SCHEDULE OF APPROVED THIRD PARTY MANUFACTURERS
ACUPRINT 5920 Bowcroft Street
Los Angeles, CA 90016
ADVANCED COLOR GRAPHICS 245 York Place
Claremont, CA 91711
ADVANCE PAPER BOX 6100 S Gramercy Place
Los Angeles, CA 90047
BERT-CO GRAPHICS 3800 North Mission Road
Los Angeles, CA. 90031
COLOUR CONCEPTS 1525 Third St - Suite E
Riverside, CA 92507
DELTA PRINTING SOLUTIONS 28210 N Avenue Stanford
Valencia, CA 91355
FUTURE MEDIA PRODUCTIONS 24811 Ave Rockefeller
Valencia, CA 91355
PRIMARY COLOR 2361 McGaw Avenue
Irvine, CA 92614
RITEK GLOBAL MEDIA 18560 San Jose Ave.
City of Industry, CA 91748
SONOPRESS LLC 108 Monticello Rd.
Weaverville, NC 28787
TECHNICOLOR 3233 E. Mission Oaks Blvd
Camarillo, CA 93012
30
EXHIBIT F
ROYALTY REPORT TEMPLATE
[see attached]
31