EXHIBIT 10.3
ADDENDUM #1 TO
LICENSING AND DISTRIBUTION AGREEMENTS
(2004-2005 AND 2005-2007)
THIS ADDENDUM #1 TO LICENSING AND DISTRIBUTION AGREEMENTS(this "Addendum")
is dated as of April 13, 2004 ("Effective Date"), by and between Encore
Software, Inc., a Minnesota corporation ("Distributor"), and RIVERDEEP INC., A
LIMITED LIABILITY COMPANY, a Delaware limited liability company ("Riverdeep"),
with respect to the following Recitals.
A. Distributor and Riverdeep have entered into (i) that certain
Licensing and Development Agreement (Manufacturing Rights)(2004-2005), dated as
of March 29, 2004 ("Agreement One"), and (ii) that certain Licensing and
Development Agreement (Manufacturing Rights)(2005-2007), dated as of March 29,
2004 ("Agreement Two", and together with Agreement One, the "Agreements"; each
initially-capitalized term used herein and not otherwise defined shall have the
meaning ascribed to such term in the Agreements), pursuant to which, among other
things, Riverdeep has granted Distributor exclusive rights to replicate, sell,
and distribute the Products into the Channel and the Territory, as more
particularly described in each of the Agreements.
B. Riverdeep currently distributes some or all of the Products into the
Channel through certain agreements with COKeM and has requested Distributor's
consent to maintain such agreements in effect through the expiration of their
terms, or earlier termination. Distributor is willing to agree to such
arrangements upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. CERTAIN DEFINITIONS. As used herein, the following initially-capitalized
terms shall the meaning ascribed to them below.
1.1 "COKeM" means COKeM International, Ltd., and any of its permitted
successors or assigns under the COKeM Agreements.
1.2 "COKeM Agreements" has the meaning ascribed to such term in Section
2.1 below.
1.3 "COKeM Inventory" means COKeM's on-hand inventory of finished units
of the Products (as defined in either of the Agreements) in COKeM's possession
or control as of December 31, 2004, but only if and to the extent that any such
inventory is repurchased by Riverdeep as of such date.
1.4 "COKeM Products" means any and all products to which COKeM has been
granted rights under the COKeM Agreements.
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2. COKeM AGREEMENTS; SELL-OFF AND INVENTORY PURCHASE.
2.1 Riverdeep hereby represents and warrants to Distributor that (i)
attached hereto as Exhibit A is a true and correct schedule of all of the
agreements between Riverdeep and COKeM in effect as of the date hereof other
than the agreement with COKeM set forth on Exhibit C of Agreement One (such
agreements being collectively referred to as the "COKeM Agreements), true,
correct, and complete copies of which have heretofore been provided to
Distributor; (ii) there are no extensions, supplements, amendments or other
modifications ("Modifications") to any of the COKeM Agreements; and, (iii)
notwithstanding the provisions of each of the COKeM Agreements, COKeM currently
has no ability to manufacture any of the COKeM Products.
2.2 From and after the date hereof until the expiration or sooner
termination of all of the COKeM Agreements, Riverdeep shall (i) perform all of
Riverdeep's obligations under the COKeM Agreements (except to the extent
Distributor is responsible therefor hereunder) and shall not enter into or
otherwise agree to any Modifications thereto without Distributor's prior written
consent, to be granted or denied in Distributor's sole discretion; (ii) not
waive any of COKeM's obligations, grant any additional rights, or give any
consents or approvals to COKeM, under any of the COKeM Agreements without
Distributor's prior written consent, to be granted or denied in Distributor's
sole discretion; and, (iii) provide, supply, and fulfill all COKeM Products to
COKeM solely in accordance with the terms of this Addendum.
2.3 Riverdeep hereby appoints Distributor its exclusive inventory
manager to manage, fulfill, and process all purchase orders for COKeM Products
that Riverdeep receives from COKeM from and after April 13, 2004, until the
expiration or sooner termination of all of the COKeM Agreements. To that end, in
respect of the COKeM Agreements, Distributor shall fill purchase orders received
by Riverdeep from COKeM; assist in inventory management; subject to the
reimbursement herein, arrange for the manufacture of all finished goods of COKeM
Products so ordered; and process and ship such units to such locations directed
by Riverdeep. Unless otherwise agreed to between the parties, Riverdeep shall
remain the point of contact with COKeM. In addition, Riverdeep shall remain
directly responsible and solely liable (i) for collecting all amounts due under
the COKeM Agreements and shall remain entitled to collect all amounts in
connection therewith, and (ii) for all amounts due under, and for all
liabilities associated with, the COKeM Products or COKeM Agreements. Riverdeep
shall cooperate with Distributor in order to enable Distributor to carry out its
obligations hereunder.
2.4 No later than 30 days after each month, Riverdeep shall reimburse
Distributor, or Distributor in its sole discretion may deduct from amounts
otherwise payable by Distributor to Riverdeep, all direct costs, fees, charges,
and expenses incurred or owed by Distributor to manufacture, process, fulfill,
handle, and ship all COKeM Products during such period in accordance with
Riverdeep's obligations under the COKeM Agreements (including, without
limitation, cost of goods, shipping, handling, and insurance to the extent
applicable). In addition, Riverdeep shall pay Distributor, or Distributor in its
sole discretion may deduct from amounts otherwise payable by Distributor to
Riverdeep, each month, concurrently with the foregoing amounts, a nonrefundable,
irrevocable management fee equal to 30% of the aggregate amount of such monthly
direct costs.
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2.5 Distributor acknowledges that (i) Distributor's exclusivity under
the Agreements to the accounts serviced by COKeM under the COKeM Agreements
shall be limited to such extent; and (ii) Riverdeep shall not be deemed to be in
breach of that representation and warranty stated at 7.1(iv) of the Agreements
by reason of COKeM's rights under the COKeM Agreements so long as Riverdeep
complies with the terms of this Addendum. However, immediately upon the
expiration of the terms of the COKeM Agreements, or upon their earlier
termination for whatever reason, the exclusivity granted to Encore with respect
to those retail accounts serviced by COKeM under the COKeM Agreements shall
immediately revert back to Encore as was originally contemplated under the
Agreements, and that certain representation and warranty stated at 7.1(iv) of
the Agreements shall apply to Riverdeep without exception.
2.6 Subject to the terms and conditions of this Addendum, Distributor
hereby agrees to purchase from Riverdeep the COKeM Inventory; provided however,
that in no event shall Distributor be obligated to purchase more than ten weeks
of inventory of any SKU of any Product of such COKeM Inventory; and provided
further, that Riverdeep shall have ceased accepting purchase orders from COKeM
as of December 31, 2004. The purchase price for the COKeM Inventory shall be
that amount that COKeM originally paid Riverdeep for such inventory and shall be
payable within 60 days after each month in which any such inventory is sold by
Distributor.
2.7 Notwithstanding anything to the contrary in the Agreements, and
without limiting any other credits, offsets, or reimbursements available to
Distributor under the Agreements:
2.7.1 Riverdeep shall not be entitled to earn Royalties under the
Agreements (i) on COKeM Products for which Distributor acts as inventory
manager pursuant to Section 2.2 above, or (ii) on the COKeM Inventory.
Distributor shall maintain and provide to Riverdeep such sales information
and other data necessary to confirm sales of the COKeM Inventory by
Distributor and the royalty treatment of such inventory as provided
herein.
2.7.2 Distributor shall be entitled to a credit on a monthly basis
against the Guaranteed Royalties under Agreement One (or, if the entire
Guaranteed Royalty under Agreement One has been paid, then the Guaranteed
Royalties under Agreement Two) in an amount equal to that which Riverdeep
would have earned in Royalties under Agreement One (without regard to
Section 2.3.1 above) if each of the following categories of Products had
been distributed by Distributor in accordance with the terms of Agreement
One: (i) those COKeM Products sold by COKeM from and after the date upon
which the COKeM Termination Event (as defined below) occurs, and (ii) the
COKeM Inventory sold by Distributor. Riverdeep shall provide such sales
data to Distributor to enable Distributor to calculate the amount of such
credit.
2.7.3 In addition, Distributor shall be entitled to a credit on a
monthly basis against the Guaranteed Royalties under Agreement One (or, if
the entire Guaranteed Royalty under Agreement One has been paid, then the
Guaranteed Royalties under Agreement Two) in an amount equal to (i) the
amount by which the purchase price paid by Distributor for the COKeM
Inventory under Section 2.2 above, exceeds (ii) the wholesale price for
which Distributor is able to sell the COKeM Inventory.
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3. MODIFICATIONS TO THE AGREEMENTS.
3.1 The first sentence of Section 4.2.1 of Agreement One is hereby
amended in its entirety to read as follows:
"Distributor shall pay a guaranteed, irrevocable, non-refundable
payment (recouped against royalties as hereinafter provided) for the
Sales Year (as the same may be increased in accordance with this
Section 4.2.1 below, the "Guaranteed Royalty") in the amount of
$9,000,000. In the event that Riverdeep is able to obtain for Encore
during the first Sales Year (i) all of the rights granted to COKeM
under all of the COKeM Agreements, and (ii) a mutual termination and
release, in form and substance satisfactory to Distributor in its
sole discretion, pursuant to which COKeM shall have relinquished all
its rights under the COKeM Agreements to distribute the Products
into the Channel and shall have released all claims related to the
distribution of Products in the Channel by Distributor or otherwise
arising under the COKeM Agreements (the satisfaction of the
aforementioned conditions being referred to herein as the "COKeM
Termination Event"), the Guaranteed Royalty shall be increased by
$2,000,000, such amount to be pro-rated based on the remaining
portion of the Sales Year. (Thus, for example, if the COKeM
Termination Event occurs at the end of 6 months after the
Commencement Date, then the Guaranteed Royalty shall be increased by
$1,000,000.)"
3.2 Section 9.1 of Agreement Two is hereby amended in its entirety to
read as follows:
"This Agreement shall commence on the Commencement Date and shall
continue in effect for a period of five (5) 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 of the first, second, third,
fourth, and fifth Sales Year is conditioned on the payment of the
applicable Guaranteed Royalty for the preceding Sales Year."
3.3 Section 4.2.1(ii) of Agreement Two is hereby amended in its entirety
to read as follows:
"In respect of each of the second, third, fourth, and fifth Sales
Years, the Guaranteed Royalty shall be 80% of the actual Royalties
earned by Riverdeep from sales of the Products during the preceding
Sales Year; provided however, that such Guaranteed Royalty shall be
prorated in respect of any portion of a Sales Year hereunder;
provided further, that no Guaranteed Royalty shall be payable under
any circumstances for any period of time that the Term is extended
solely in order to accommodate any extended recoupment periods under
Section 4.2.2. For clarity, any adjustments or credits that could
accrue in any Sales Year under Agreement Two prior to this Addendum
shall accrue in the same manner and be applied to the same extent
during the third, fourth, and fifth Sales Years created by this
Addendum."
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3.4 All references in each Agreement to the term "Agreement" shall
hereafter mean such Agreement as the same has been amended in accordance with
the terms hereof.
4. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. Both parties reaffirm the
representations and warranties set forth in the Agreements, as amended by the
terms hereof.
5. CONFLICT. In the event of any conflict between the terms of the Agreements
and the terms of this Addendum, the terms of this Addendum shall prevail.
Otherwise, except as specifically set forth in this Addendum, all the terms and
conditions of the Agreements are hereby ratified and affirmed.
6 ENTIRE AGREEMENT. This Addendum is the sole agreement between the parties
to the subject matter hereof and supersedes all prior understandings, writings,
proposals, representations, or communications, oral or written, of either party
relating to the subject matter of this Addendum. This Addendum may be executed
in any number of counterparts.
7. NO THIRD PARTY BENEFICIARIES. Nothing contained herein shall be deemed or
construed as conferring any rights or benefits to or upon any party not a party
to this Agreement, including, without limitation, COKeM.
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IN WITNESS WHEREOF, the parties have caused their authorized signatories to
execute this Addendum as of the date set forth above.
ENCORE SOFTWARE, INC., a Minnesota RIVERDEEP, INC., A LIMITED LIABILITY COMPANY,
corporation a Delaware limited liability company
By:________________________________ By: ______________________________________
Stephen P. Miller Name:
CFO Title:
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EXHIBIT A
SCHEDULE OF THE COKeM Agreements
1. That certain License Agreement (Distribution Rights), dated as of December
30, 2003, between Riverdeep, Inc. and COKem International, Ltd.,
concerning the distribution of the products therein to Amazon.com, BJ's
Wholesale Clubs, and Fry's.
2. That certain License Agreement (Distribution Rights), dated as of December
30, 2003, between Riverdeep, Inc. and COKem International, Ltd.,
concerning the distribution of the products therein to Amazon.com, BJ's
Wholesale Clubs, and Fry's.
3. That certain License Agreement (Distribution Rights),, dated as of
December 30, 2003, between Riverdeep, Inc. and COKem International, Ltd.,
concerning the distribution of the products therein to Best Buy.
4. That certain License Agreement (Distribution Rights), dated as of December
30, 2003, between Riverdeep, Inc. and COKem International, Ltd.,
concerning the distribution of the products therein to Best Buy.
5. That certain License Agreement (Distribution Rights), dated as of December
30, 2003, between Riverdeep, Inc. and COKem International, Ltd.,
concerning the distribution of the products therein to Sam's Wholesale
Clubs.
6. That certain License Agreement (Distribution Rights), dated as of December
30, 2003, between Riverdeep, Inc. and COKem International, Ltd.,
concerning the distribution of the products therein to Sam's Wholesale
Clubs.
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