Software Distribution Agreement

CERTAIN CONFIDENTIAL INFORMATION
CONTAINED IN THIS DOCUMENT (INDICATED BY
ASTERISKS) HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER 17 C.F.R.
SECTIONS 200.80(B)(4), 200.83 AND 230.406.


SOFTWARE DISTRIBUTION AGREEMENT


This Software Distribution Agreement ("Agreement"), effective as of the 17th day of March, 2003 (the "Effective Date"), is entered into by and between Lindows, Inc., a Delaware corporation ("Supplier"), and Livin' On The Edge, Co., Ltd., a Japanese corporation ("Distributor").


RECITALS


A. Distributor is in the business of licensing and distributing software products in Japan, and desires to distribute Supplier's Product (as defined below) in Japan.


B. Supplier is in the business of developing and licensing software products and services, and desires to authorize Distributor to distribute the Product (as defined below) in Japan. The parties agree as follows:


1. DEFINITIONS


(a) "Customer" shall mean an end-user who purchases the Product within the Territory.


(b) "Documentation" shall mean the end-user manuals relating to the Software and services and related materials provided by Supplier to Distributor hereunder.


(c) "Product" Product shall mean the Software, services, and Documentation listed on Exhibit "A" attached hereto, including any modifications, improvements, alterations, translations, localizations, innovations, or changes of any kind performed on the Software or Documentation by Distributor or agents, sub-licensees, contractors, or employees of Distributor.


(d) "Release Date" shall mean the earlier of (1) the actual date on which Distributor first releases the Localized Product for sale, or (2) 60 days after the Effective Date.


(e) "Software" shall mean the computer program(s) listed in Exhibit A in machine executable object code format.


(f) "Territory" shall mean the Nation of Japan.


(g) "Updates" shall mean versions of the Software, including version patches, subsequently released to the public for the purpose of correcting errors and fixing software bugs that Supplier generally makes available to its customers free of charge. "Updates" does not include subsequent versions of the Software that contain new features or functionality, or which are considered a new software product.


2. APPOINTMENT


Supplier hereby appoints Distributor, and Distributor hereby accepts the appointment, as Supplier's [***] distributor [***] to distribute the Product to Customers in the Territory. The period of this grant shall begin on the Release Date and shall continue for [***] or until the termination of this Agreement. This grant shall include the following permitted uses:


(a) Copying the Software from the Golden Master into copies of CD Rom disks and repackaging such Software for distribution for retail sale within the Territory.


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(b) Distribution of the Product through retail locations within the Territory or via electronic transfer through servers controlled and maintained by Supplier, through an Internet domain address jointly chosen by Distributor and Supplier.


(c) Translating and localizing the English version of the Product into appropriate Japanese language. Supplier reserves the sole and exclusive right to terminate this Agreement in the event that the Product, as translated and localized by the Distributor, does not satisfy Supplier's reasonable requirements. Provided, however, that Supplier shall provide reasonable notice to Distributor with regard to this subsection and Distributor shall have ten (10) days to respond to such notice. Distributor shall have forty-five (45) days after responding to the notice to satisfy such requirement(s).


(d) Authorizing dealers to distribute the Product on behalf of Distributor, provided said dealers distribute the Product consistent with the limitations, terms, and conditions contained herein.


(e) Sublicensing the Product to Customers pursuant to an end user license agreement (the "End User Agreement") with terms consistent with the terms set forth in Exhibit "B" attached hereto.


(f) Using the Product for the purpose of providing customer support services, demonstrations and marketing purposes.


3. OBLIGATIONS OF DISTRIBUTOR


(a) Diligence. Distributor shall use commercially reasonable efforts to promote the marketing and distribution of the Product to realize the maximum sales potential for the Product in the Territory. Except as expressly set forth herein, Distributor shall be solely responsible for all costs and expenses related to the advertising, marketing, promotion, and distribution of the Product and for performing its obligations hereunder.


(b) Repackaging. Any retail repackaging of the Product must be approved by Supplier before the distribution of the Product in the Territory, provided, however, that such approval shall not be unreasonably withheld.


(c) Translation; Localization. Distributor shall translate or localize the Product into the Japanese language, provided, however, that Supplier retains all ownership rights in and to such translated/localized versions of the Product (the "Localized Product"), subject to the termination provisions set forth in Section 2(c), above. Distributor shall provide a copy of any and all publicly released versions of the Product containing such translations/localizations within five (5) days of the Release Date.


(d) Product Support.


(i) Distributor shall provide reasonable technical support to Customers, including without limitation (x) maintaining trained and competent technical and engineering support personnel for the Product who are sufficiently knowledgeable with respect to the Product to answer Customer questions regarding the use and operation of Product, (y) responding promptly to requests for technical support from Customers, and (z) providing technical support services to address and resolve Customers' support requests with respect to the Product.


(ii) Distributor shall ensure that all Customer questions regarding the use or operation of Product are initially addressed to and answered by Distributor. Unless otherwise agreed in


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writing by Supplier, Distributor shall not represent to any third party that Supplier is available to answer questions from any Customer directly.


(e) End User License. Prior to providing any Customer with any Software, Distributor shall ensure that each Customer has read and agreed to the terms and conditions of the End User Agreement contained in each Software unit . Distributor shall not conduct, support, or permit, and shall not authorize any third party to conduct, support, or permit, the copying, modification, alteration, reverse engineering, disassembly or decompiling of the Product.


4. OBLIGATIONS OF SUPPLIER


(a) Product Support and Training. Supplier shall provide Distributor with engineering and technical support for the Product, including providing corrections or workarounds to correct defects, bugs, or errors in the Product. In the event a critical defect is discovered, Supplier agrees to use best efforts to correct the defect and provide such correction within fifteen (15) calendar days after notice thereof. A critical defect is generally defined as one which causes the Product not to function for which there is no known workaround. Supplier shall maintain a telephone number and technicians to receive calls from Distributor's technical staff for so long as Supplier has technicians responding to product support calls, currently 8 a.m. to 6 p.m. Pacific Standard Time (USA). Supplier shall also provide Distributor with a pager number pursuant to which Supplier's technician shall respond within four (4) hours to any page received from Distributor, twenty-four (24) hours a day seven (7) days a week concerning problems and questions. Supplier shall respond to email questions regarding product support and training sent by Distributor within twenty-four (24) hours. Supplier shall also provide training with respect to the use, reproduction, installation and distribution of the Software as contemplated under the Agreement.


(b) E-commerce transaction services and infrastructure. Supplier shall provide Distributor with such e-commerce transaction services and infrastructure necessary for the sale of the Product through any Internet web site through which the parties agree to distribute the Product.


(c) Marketing Support. Supplier shall provide Distributor with reasonable marketing support, including providing reasonable quantities of Supplier's advertising and promotional materials, pricing information and technical data related to the Product. Supplier may also from time to time provide, at Supplier's sole discretion, monetary support for certain marketing and promotional activities involving the Product, such as exhibitions, conventions, trade shows and advertisements.


(d) Japanese Language Click-N-Run Warehouse Aisle. Within thirty (30) days of the Effective Date of this Agreement, Supplier shall establish and maintain an aisle within the Click-N-Run Warehouse containing references to software applications which may be of interest to Japanese-speaking end-users. Supplier exercises its sole and absolute discretion as to which software application titles to place within the Japanese language aisle.


(e) Software and Click-N-Run Memberships. Within fifteen (15) days of the Effective Date of this Agreement, Supplier shall provide the following to Distributor: (x) a golden master for the LindowsOS ;(y) a golden master for the Click-N-Run Express; (z) the Click-N-Run Membership identification numbers for the Click-N-Run Warehouse in the amount consistent with the number of memberships ordered by Distributor as described in Section 6(a). In the event that Distributor purchases additional memberships, or makes additional payment pursuant to Section 6(a) below, Supplier shall provide the membership identification numbers within ten (10) days of receipt of Distributor's payment for such memberships.


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(f) Software Updates. Supplier shall make available to Distributor for distribution any Updates to the Software within ten (10) days after release to the public. Supplier shall deliver a golden master for each Update to Distributor.


(g) Post-termination Obligations. After the termination of this Agreement, Supplier shall continue to provide Distributor with engineering and technical support pursuant to Section 4(a) [***]. After the termination of this Agreement, Supplier shall continue to provide warranty coverage to Customers of the Product up to the expiration of the Customers' warranty period. Supplier shall further continue to provide Click-N-Warehouse membership privileges for Customers up to the expiration of such membership privileges.


5. PRICE/PRICE CHANGE


(a) Price. Distributor shall pay Supplier [***]. Distributor shall maintain records of any and all Customer returns, including the name, address, telephone number, and e-mail address of the Customer returning the Product, the date of the return and reason for the return. Distributor shall maintain such records for a period of one (1) year after termination of this agreement and shall permit inspection and copying of such records by Supplier upon ten (10) days notice by Supplier.


(b) [***]


(c) Click-N-Run Memberships. For each Click-N-Run stand-alone membership or membership renewal sold by Distributor through the e-commerce infrastructure provided for in Section 4(b), Supplier shall pay Distributor, in regular monthly intervals, [***]. All Click-N-Run membership renewals or stand-alone memberships sold pursuant to this Agreement [***].


(d) Price Decreases. The parties may negotiate in good faith a discount to the Price in order to allow Distributor to be competitive in obtaining certain distribution accounts, such as accounts with OEMs.


(e) Taxes. Prices do not include any Japanese taxes, including franchise, sales and use taxes, if any. Distributor shall be solely responsible for payment of any and all such taxes or obligations, including any fines, penalties, or interest relating thereto.


6. [***]


(a) [***]


(b) [***]

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