EX-10.27 TETRIS LICENSE AND DISTRIBUTION AGREEMENT

 

1.             DEFINITIONS

 

1.1                                  “ Adapted Game ” shall mean any application or game that incorporates or that infringes any of the intellectual property rights embodied in the Licensed Properties or that under U.S. Copyright Law would be deemed to be a derivative work of the Licensed Properties, and is designed for play on a Mobile Telephony Device, including any new versions or new releases of such application or game that complies with the provisions of Section 5.

 

1.2                                  “ Collateral Product ” shall mean any product that incorporates or that infringes any of the intellectual property rights embodied in the Licensed Properties or that under U.S. Copyright Law would be deemed to be a derivative work of the Licensed Properties, (e.g., T-shirts, hats, shoes, apparel, clothing accessories, sports equipment, pens, and other promotional products), and that is incidental to the Commercial Exploitation of Adapted Games.  Unless the context indicates otherwise, all references to Adapted Games in this Agreement include Collateral Products.

 

1.3                                  “ Commercially Exploit ” (and variants thereof such as “ Commercially Exploiting ” and “ Commercial Exploitation ”) shall mean, as to Adapted Games that are resident on a Mobile Telephony Device or remotely accessed through a Mobile Telephony Device, to make, import, use, reproduce, market, advertise, promote, distribute, sell, exploit, publicly display, publicly perform, prepare derivative works of, license, grant subscriptions to, sublicense or otherwise exploit such games, whether directly or indirectly through a third party acting on Licensee’s behalf, on a revenue-generating basis.

 

1.4                                  “ Distribution Channel ” shall mean any and all methods or channels, whether now known or hereafter developed or devised, of distributing or selling products or other content to be up-loaded, downloaded, remotely accessed and/or used on Mobile Telephony Devices, including, without limitation, the following: (i) over the air provisioning via wireless cellular networks or other satellite wireless networks or systems (using existing or future transport, delivery, transmission, or provisioning technologies of any kind); (ii) online or wireless sites, shops, storefronts or portals; (iii) retailers, including, without limitation, carrier retail locations and other retail locations where Mobile Telephony Devices are generally sold; (iv) OEM methods of distribution, including, without limitation, embedded or bundling transactions; and (v) through the distribution, sale or use of physical media (or similar means) that enable the delivery of such products or content to Mobile Telephony Devices, including, without limitation, SD cards, MMC cards and similar such media.

 

1.5                                  “ Existing Gaming Devices ” means the devices listed in Appendix B , attached hereto.

 

1.6                                  “ Existing License Agreement ” is defined in Recital A., above.

 

1.7                                  “ Game ” shall mean the game known as “TETRIS®”, in whatever form or format.

 

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1.8                                  “ Gaming Device ” shall mean:

 

(a)                                   desktop, laptop and other personal computers and gaming consoles (e.g., PlayStation 2, Xbox);

 

(b)                                  Existing Gaming Devices;

 

(c)                                   any Successor or Derivative Devices to the devices identified in subsection (a) above and to Existing Gaming Devices; and

 

(d)                                  any other device (other than a Mobile Telephony Device) that is conceived, designed or developed after the Effective Date and that is capable of playing games or similar applications (such as handheld gaming devices, iPods, MP3 players, electronic organizers or personal digital assistants, in each case which are not capable of voice telephone communication).

 

The parties acknowledge and agree that any and all devices now existing or conceived, designed or developed after the Effective Date by Nintendo Co. Ld., or any of its Subsidiaries (“ Nintendo ”), will be deemed to be a Gaming Device, unless Nintendo enters into the business of selling Mobile Telephony Devices and the sale of Mobile Telephony Devices represents a material portion of Nintendo’s then-existing overall business or Nintendo is acquired by a company for which the sale of Mobile Telephony Devices represents a material portion of its business.  In each of the foregoing instances, “material” means annual sales of at least one billion U.S. dollars.

 

1.9                                  “ Licensed Properties ” shall mean: (i) the Game, and all games and elements embodying the essential play pattern, the rules and/or the “look and feel” of the Game, including, without limitation, any of Licensor’s patents, design scripts, screen displays, audiovisual works, the source code and object code for any software included therein, and Licensor’s copyrights and other rights related thereto; (ii) the Tetris Marks; (iii) the Tetris Music; and (iv) any sequels, updates or derivatives to any of items described in the foregoing clauses (i) to (iii) developed by or on behalf of Licensor during the Term.  The Licensed Properties include, without limitation, those items listed in Appendix A , attached hereto, and shall also include any sequels, updates or derivatives thereof developed by or on behalf of Licensor during the Term.

 

1.10                            “ Mobile Telephony Device ” shall mean any mobile device (other than a Gaming Device) now existing or that is conceived, designed or developed after the Effective Date that enables a user to send and receive a telephone call (voice telephone communication).  Examples of devices that would be classified as Mobile Telephony Devices in accordance with the foregoing include, without limitation, mobile telephones, cellular telephones, satellite telephones, fixed wireless telephones, wireless PDA/telephone devices (generally known as “smart phones”) and convergence device handsets or combination or “convergence” devices that combine the ability to send and receive a telephone call (voice telephone communication) with other capabilities (such as RIM Blackberry, Nokia N-Gage,

 

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handheld gaming devices, iPods, MP3 players or electronic organizers, in each case which are capable of voice telephone communication).  A Mobile Telephony Device may operate on any platform, including, but not limited to Wireless Platforms, and may be used to Commercially Exploit Adapted Games through any Distribution Channel.

 

1.11                            “ OEM ” means a manufacturer of a Mobile Telephony Device.

 

1.12                            “Purchase Agreement ” is defined in Recital D., above.

 

1.13                            “ Sublicensee ” shall mean as to Licensee, any Subsidiary, and any unaffiliated third party sublicensee, including, without limitation, an OEM sublicensee, local or foreign distribution partner, third party publisher or a network carrier.

 

1.14                            “ Subsidiary ” shall mean, with respect to any party, a corporation, company, partnership, limited liability company or entity that is controlled by such party.  For purposes hereof, “ control ” shall mean: (i) in the case of corporate entities, direct or indirect ownership of greater than fifty percent (50%) of the stock or shares entitled to vote for the election of the board of directors or other governing body of the entity; and (ii) in the case of non-corporate entities, direct or indirect ownership of greater than or equal to fifty percent (50%) of the equity interest with the power to direct the management and policies of such non-corporate entities.

 

1.15                            “ Successor or Derivative Devices ” shall mean any device that is conceived, designed or developed after the Effective Date and that incorporates substantially the same or similar functionality and features as an existing device, but also includes substantial new functionality and/or features.

 

1.16                            “ Term ” is defined in Section 10.1.

 

1.17                            “ Tetris Design Guidelines ” shall mean Licensor’s guidelines for the design of games published under the trademark “TETRIS®”, as set forth in Appendix C , attached hereto.  Licensor shall provide Licensee the right to participate in updating and/or revising such guidelines, which revised guidelines will apply only to devices designed after the date Licensor releases a revised version of such guidelines to all its licensees of the Licensed Properties.  In all events, such revisions: (i) will be commercially reasonable with respect to changes required from the existing guidelines and with respect to the time required to implement the new guidelines; and (ii) will not have a material adverse impact on Licensee’s ability to Commercially Exploit any Adapted Game.

 

1.18                            “ Tetris Logo ” shall mean Licensor’s Tetris logo, as set forth in Appendix D , attached hereto.

 

1.19                            “ Tetris Marks ” shall mean the trademark “TETRIS®” and the Tetris Logo.

 

1.20                            “ Tetris Music ” shall mean Licensor’s music associated with the play of the Game.

 

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1.21                            “ Wireless Platforms ” shall mean any and all computer systems or bases of technologies, now known or hereafter developed or devised (whether hardware-based, software-based, a combination thereof, or otherwise), underlying or embodied on a Mobile Telephony Device, upon which an application program can operate, can be made to operate or can be developed, including without limitation, all development platforms, application environments, runtime environments and programming languages, whether now known or hereafter developed or devised, and further including, without limitation, short message service, BREW (Binary Runtime Environment for Wireless), J2ME (Java 2 Platform, Micro Edition), WAP (Wireless Application Protocol—WML and xHTML), MOPHUN, Smartphone, Symbian, ExEn, Palm OS, Windows Mobile, I-mode (cHTML) and iAppli.

 

2.             GRANT OF RIGHTS

 

2.1                                  Exclusive License Grant .  Licensor hereby grants to Licensee, during the Term, an exclusive, non-transferable (except as set forth in Section 12.3), worldwide, right and license, with the right to sublicense (but only in accordance with Section 2.4) to the Licensed Properties to:

 

(a)                                   create and have created Adapted Games in conformance with the Tetris Design Guidelines and the approval process set forth in Section 5;

 

(b)                                  Commercially Exploit Adapted Games for play only on Mobile Telephony Devices;

 

(c)                                   Use, reproduce and display the Tetris Marks, solely in connection with Licensee’s exercise of the license rights granted under subsection (b) above and Section 2.2 below; and

 

(d)                                  Use, reproduce, modify and perform the Tetris Music, solely in connection with Licensee’s exercise of the license rights granted under subsection (b) above and Section 2.2 below.

 

2.2                                  Non-exclusive Collateral Products License Grant .  Licensor hereby grants to Licensee, during the Term, a non-exclusive, non-transferable (except as set forth in Section 12.3), worldwide, royalty-free, right and license, with the right to sublicense (but only in accordance with Section 2.4) to the Licensed Properties to Commercially Exploit Collateral Products, solely in connection with Licensee’s Commercial Exploitation of Adapted Games, as permitted under Section 2.1 and provided that Licensee receives no monetary compensation (or any equivalent benefit) directly from Licensee’s exercise of the rights granted under this Section 2.2.

 

2.3                                  Exceptions to License Rights .  Licensee acknowledges and agrees that, prior to the Effective Date, Licensor, Licensee or Blue Planet Software, Inc entered into the license agreements listed on Appendix E , attached hereto (the “ Existing Tetris License Agreements ”) pursuant to which Licensor, Licensee or Blue Planet Software, Inc granted to certain licensees the right to Commercially Exploit the Licensed Properties on or in connection with various devices, including Mobile Telephony Devices.  Licensee further acknowledges and

 

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agrees that each Existing Tetris License Agreement will remain in full force and effect until the expiration of the current term or earlier termination of each such agreement in accordance with its terms, and that the license rights granted to Licensee under Section 2.1 are subject to the rights granted to Licensor’s, Licensee’s or Blue Planet Software, Inc.’s licensees under the Existing Tetris License Agreements.  Licensor and Licensee each agrees that it shall allow to lapse (and not renew) each of the Existing Tetris License Agreements to which it is a party upon expiration of the current term of each such agreement.

 

2.4                                  Sublicensing .

 

(a)                                   Licensee has the right to sublicense any of the rights granted to Licensee under Section 2.1 to Sublicensees pursuant to a written agreement with each Sublicensee that imposes obligations on such Sublicensees that are consistent in all material respects with the obligations imposed on Licensee hereunder.

 

(b)                                  Without limiting the provisions of subsection (a), in the event Licensee enters into a written sublicense agreement with a Sublicensee that is not a carrier, OEM, online or wireless portal (e.g., Yahoo) or a “brick and mortar,” online or wireless retailer (e.g., Radio Shack, Amazon.com) and is a third party publisher (each, a “ Publisher Sublicensee ”), Licensee shall enter into a written sublicense agreement with each such Publisher Sublicensee (a “ Publisher Sublicense Agreement ”) that: (i) requires the Publisher Sublicensee to acknowledge Licensor’s and its licensor’s ownership rights in and to the Licensed Properties; and (ii) include provisions that enable Licensee to comply with its obligations under Section 6.  By way of example, the following publishers are Publisher Sublicensees for purposes of this Agreement: Com2uS and G-Mode.  At Licensor’s request, Licensee shall provide Licensor with an unredacted copy of each proposed Publisher Sublicense Agreement to enable Licensor to confirm that such agreement complies with the foregoing requirements.

 

2.5                                  Restrictions and Exclusions .  Only Licensee and its Sublicensees, if any, may Commercially Exploit the Adapted Games.  End user players of the Adapted Games are granted a license to use the Adapted Games for their personal use only.

 

2.6                                  Reservation of Rights .  Licensor reserves all rights and licenses in and to the Licensed Properties not expressly granted to Licensee in this Agreement.  No rights or licenses are granted to Licensee or its Sublicensees by implication, estoppel or otherwise.

 

2.7                                  Delivery of Licensed Properties to Licensee .  Licensor shall deliver all Licensed Properties listed in Appendix A to Licensee on the Effective Date.  All written materials shall be provided in hard copy and in a computer file (if feasible, in a data file that may be accessed using an application that enables text searching, e.g., in a Microsoft Word file).

 

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3.             PROMOTION AND MARKETING

 

3.1                                  Obligation .  During the Term, Licensee shall use its commercially reasonable efforts to Commercially Exploit the Adapted Games.

 

4.             PAYMENT

 

4.1                                  Initial Payment .  In partial consideration of the license rights granted by Licensee to Licensor hereunder, Licensee will pay Licensor a non-refundable, non-recoupable license fee in the amount of seven million four hundred thousand dollars ($7,400,000).  In no event will the license fee paid by Licensee pursuant to this Section 4.1 be deemed an advance against any royalties payable by Licensee pursuant to Section 4.3.

 

4.2                                  Certain Definitions .  For purposes of calculating the royalties payable by Licensee to Licensor under this Agreement, the terms Net Revenue and Permitted Deductions are defined as follows:

 

(a)                                   “Net Revenues ” shall mean the amounts actually received by Licensee from the Commercial Exploitation of the Adapted Games by Licensee and its Sublicensees, net of the Permitted Deductions; provided , however, that: (i) Net Revenues shall be calculated without regard for any taxes withheld from amounts paid to Licensee or any Sublicensee, and (ii) as to Publisher Sublicensees only, the amounts received by Licensee will be deemed to be no less than the amount actually received by such Publisher Sublicensee in connection with the Commercial Exploitation of the Adapted Games, without deduction of any kind other than carrier or platform provider revenue shares.  In addition, “Net Revenues” shall include any amounts not collected by Licensee (or its Sublicensees) from any affiliated customers.

 

(b)                                  “ Permitted Deductions ” shall mean any actual returns, chargebacks, refunds or credits that are supported by written documentation, and any fees, charges, expenses or other amounts paid by Licensee or Sublicensees to network carriers, Wireless Platform providers or Distribution Channel owners for the Adapted Games.  “Permitted Deductions” shall not include any fees, charges, expenses or other amounts paid by Licensee to third parties for advertising, promotional, marketing and like services or for content included within Adapted Games.

 

4.3                                  Royalties .  Licensee shall pay to Licensor royalties based on Licensee’s Net Revenues from the Commercial Exploitation by Licensee and its Sublicensees of the Adapted Games (“ Payments ”) calculated in accordance with the applicable royalty rate set forth in Appendix F , attached hereto.

 

4.4                                  Payment Terms .  Licensee shall make all Payments due and payable under Section 4.3 on a quarterly basis within forty-five (45) days after the last day of each calendar quarter.  All payments shall be made by wire transfer in U.S. dollars into Licensor’s bank account at Key Bank, 201 S. Warrant St., Syracuse, New York 13202, Account No. 326900004903, ABA No. 021300077.  All expenses

 

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connected with transferring Payments shall be borne by Licensee.  Licensee may not setoff against any Payments due and payable under Section 4.3 amounts that Licensee or any Sublicensee claims are due to it under this Agreement or otherwise.

 

4.5                                  Delay of Royalty Payment .  In case a Payment is not made within the forty-five (45) day period described in Section 4.4, such unpaid Payment will bear interest calculated at the rate of one percent (1%) per month, compounded daily, for the number of actual days that have elapsed between the date such Payment was due and the date it is paid or the highest rate permitted by applicable law, whichever is lower.

 

4.6                                  Quarterly Royalty Reports .  Within forty-five (45) days after the end of each calendar quarter, Licensee shall furnish to Licensor a written royalty report for the immediately preceding calendar quarter in the format set forth in Appendix G , attached hereto (each such report, a “ Royalty Report ”).  However, the first such Royalty Report shall cover the time period between the Effective Date and the end of the then-current calendar quarter.

 

4.7                                  Taxes .  All foreign, federal, state, county or municipal sales, use, excise or similar tax assessments, levies, fees or other charges assessed or charged on the payments by Licensee to Licensor hereunder shall be Licensor’s responsibility.  Except as required by law, Licensee shall not withhold any taxes, levies, fees or charges from any amounts payable to Licensor; provided, however, if Licensee is required by applicable law to withhold any amount for payment of taxes, levies, fees or charges, Licensee shall remit the amounts withheld to the appropriate taxing authorities and provide Licensor with a written receipt from the tax authority for all such taxes, levies, fees or charges so withheld.  Licensee shall provide all assistance, documentation and information reasonably required for Licensor to obtain an exemption or reduced withholding tax rate.

 

4.8                                  Records .  During the Term and for a period of two (2) years thereafter, Licensee shall keep and maintain complete and accurate books, records and other customary documentation (and shall require its Sublicensees to maintain such books, records and other customary documentation) (collectively, “ Royalty Records ”) regarding Licensee’s and its Sublicensees’ Commercial Exploitation of the Adapted Games.  Such Royalty Records shall be in sufficient detail and shall include, without limitation, all data and information reasonably required to enable Licensor to confirm the information set forth in the Royalty Reports delivered to Licensor pursuant to Section 4.6 during the 2 year period prior to the audit.

 

4.9                                  Audit .  For the purpose of verifying the correctness of the Payments paid or to be paid by Licensee, Licensor may retain, at its own expense, not more than once during any calendar year, an independent nationally recognized certified public accountant (who shall not be compensated on a contingent fee basis) to audit the Royalty Records solely for the purpose of verifying the accuracy of the Payments. Notwithstanding the foregoing, Licensor will have the right to have an additional audit conducted within one (1) year following any occurrence of a Material Shortfall (defined below).  Licensor’s accountant may only conduct such an audit

 

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upon a minimum of fifteen (15) days written notice prior to any audit; provided , that all audits are conducted during Licensee’s regular business hours and on Licensee’s premises.  Licensor’s accountant shall enter into an appropriate confidentiality agreement with Licensee, and shall deliver a copy of its audit report and related work papers simultaneously to Licensor and Licensee.  If any audit uncovers a shortfall in payments owed to Licensor hereunder, then Licensee shall immediately pay such shortfall to Licensor plus interest pursuant to Section 4.5 hereof on the amount past due.  If such shortfall exceeds five percent (5%) of the Payments due and payable to Licensor during the royalty period(s) in which the shortfall occurred (a “ Material Shortfall ”), Licensee shall, in addition, immediately reimburse Licensor the reasonable out-of-pocket costs paid by Licensor to the accountant in connection with conducting such an audit.

 

5.             QUALITY AND APPROVAL OF ADAPTED GAMES

 

5.1                                  Quality .  Licensee may itself create or have created Adapted Games.  Licensee agrees that the Adapted Games shall meet Licensor’s standards of quality, as reasonably determined and applied by Licensor.  Licensee shall not Commercially Exploit any new version of an Adapted Game, unless and until the same has been submitted to Licensor.

 

5.2                                  Quality Control Process .  At least ten (10) days prior to the commercial release or distribution of any Adapted Game, Licensee shall provide to Licensor: (A) the gold master of such Adapted Game, and (B) sample text and sample screen shots for such Game.  Licensor will have the right to test the Adapted Game on representative Mobile Telephony Devices on which such Adapted Game is designed to operate, including applicable Mobile Telephony Devices with the lowest functionality on which Licensee intends to distribute the Adapted Game.  If Licensor disapproves of any such Adapted Game, then (i) Licensor shall notify Licensee in writing within five (5) business days of receipt of such Adapted Game, which written notice shall specify in detail the basis for such disapproval; and (ii) Licensee shall promptly modify the Adapted Game so as to overcome Licensor’s written objections.  This procedure will be repeated with each submission until Licensor fails to provide a written notice of disapproval to Licensee within five (5) business days of receipt of a revised version of the Adapted Game.  Licensor may not disapprove any Adapted Game based on the failure of an Adapted Game to conform with the Tetris Design Guidelines if and to the extent it is impossible or commercially impracticable for Licensee to make such Adapted Game conform with the Tetris Design Guidelines due to a conflict with a Wireless Platform’s or Mobile Telephony Device’s technical requirements applicable to such Adapted Game.  Licensee shall not be required to submit to, or seek approval from, Licensor any ported, localized, updated or derivative version of a previously approved version of an Adapted Game.

 

5.3                                  Copies of Adapted Games .  Upon commercial release of any new version of an Adapted Game, Licensee shall provide to Licensor two copies of the same in a format mutually agreed upon by the parties.  Licensor shall have the absolute and unqualified right, at any time, to request samples of and to inspect each Adapted

 

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Game (including any promotional materials) to ensure they meet Licensor’s commercially reasonable standard of quality.

 

5.4                                  Promotional Materials .  Licensor has the right to review and disapprove each new marketing, advertising, or promotional material (“ Promotional Material ”) that incorporates a Tetris Mark.  Licensee shall provide to Licensor a copy of such Promotional Material at least ten (10) days prior to any commercial release or public distribution of such Promotional Material.  If Licensor reasonably disapproves of any Promotional Material, then (i) Licensor shall notify Licensee in writing within five (5) business days of receipt of such Promotional Material, which written notice shall specify in detail the basis for such disapproval; and (ii) Licensee shall promptly modify such Promotional Material so as to overcome Licensor’s reasonable written objections.  This procedure will be repeated with each submission until Licensor fails to provide a written notice of disapproval to Licensee within five (5) business days of receipt of such Promotional Material.

 

6.             PROPRIETARY RIGHTS

 

6.1                                  Licensor’s Ownership Rights .  Licensor and its licensors exclusively own all right, title and interest in and to the Licensed Properties, including all worldwide copyright rights, trademark rights and all other intellectual property or proprietary rights therein.  Without limiting the foregoing, Licensee expressly acknowledges and agrees that it will not challenge the validity of Licensor’s and its licensors’ ownership, proprietary or other rights or interests in the Game and the Licensed Properties.

 

6.2                                  Licensee Ownership Rights .  Subject to and without limiting Licensor’s and its licensor’s rights and interests in and to the Licensed Properties, as between Licensee and Licensor, Licensee will own all right, title and interest in and to any code, modules, game elements, functionality, features and other portions of the Adapted Games developed by or on behalf of Licensee (or its Sublicensees) (collectively, “ Licensee-Owned Developments ”), including all worldwide copyright rights, trademark rights and all other intellectual property or proprietary rights therein.  Licensor acknowledges that it will have no rights or interests in and to any such Licensee-Owned Developments, except as set forth below in Section 6.3 or unless otherwise expressly agreed to in writing by the parties.

 

6.3                                  Joint Ownership Rights .  Notwithstanding the provisions set forth in Section 6.2, subject to and without limiting Licensor’s and its licensors’ rights and interests in and to the Licensed Properties, Licensor and Licensee shall jointly own all copyright rights, trademark rights and any other intellectual property or propr