Exclusive Distribution License Agreement

EXHIBIT 10.5


PRIMUS COMMUNICATIONS CORPORATION
EXCLUSIVE DISTRIBUTION LICENSE AGREEMENT


This Exclusive Distribution License Agreement ("Agreement") is dated as of September 26, 1997, and is made between Primus Communications Corporation, a Washington, USA corporation ("Primus") and Trans Cosmos Inc., a Japanese corporation ("Distributor").


Background


A. Primus has developed computer software programs which allow users to capture, retrieve and electronically publish solutions to product support problems. The programs include the Software (as defined below). Primus wishes to establish a market for the sale and use of the Software primarily within the Exclusive Territory (as defined below).


B. Distributor engages in the licensing and distribution of computer software programs throughout Asia. Distributor wishes to acquire license rights to the Software from Primus for the purpose of marketing, distributing and licensing the Software in the Exclusive Territory, all on the terms and conditions contained in this Agreement.


Agreement


For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:


Section 1. Definitions


For purposes of this Agreement, the following capitalized terms shall have the following meanings:


1.1 Authorized End-User. "Authorized End-User" means any end-user of the
------------------- Software that has entered into a Software License Agreement with Distributor or any of Distributor's sub-distributors.


1.2 Authorized Evaluator. "Authorized Evaluator" means any end-user of the
-------------------- Software that has entered into a form of evaluation agreement (pre-approved in writing by Primus) with Distributor or any of Distributor's sub-distributors. The maximum aggregate number of servers at any one time on which Distributor may install the Software being used by Authorized Evaluators, and the maximum evaluation period under any one evaluation agreement are set forth in Schedule 4(b) to this Agreement.


1.3 Authorized Workstation. "Authorized Workstation" means a computer
---------------------- workstation or terminal of an Authorized End-User, for which Distributor has paid Primus the license fees specified in Schedule 4(a), and a computer workstation or terminal of an Authorized Evaluator that is connected to a server on which a copy of the Software subject to the relevant evaluation agreement has been installed.


1.4 Confidential Information. "Confidential Information" means any and all
------------------------ information disclosed by one party ("Owner") to the other party ("Recipient") that is identified as "confidential" or "proprietary," either by legend on written or electronically stored material, or in advance if disclosed verbally. Confidential Information includes, without limitation, research and development, know-how, inventions, trade secrets, software, and market analysis, research, strategies, projections and forecasts. Confidential Information also includes, without limitation, information disclosed by Owner with permission from a third party, and combinations of or with publicly known information where the nature of the combination is not publicly known.


1.4.1 Exceptions. Confidential Information does not include information
---------- which:


(a) was publicly known at the time of Owner's communication thereof to Recipient, or which subsequently becomes publicly known through no fault of Recipient;


(b) was in the possession of Recipient prior to its being communicated to Recipient by Owner;


(c) becomes available to Recipient on a non-confidential basis from a source other


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than Owner, provided that such source is not bound by any obligation of confidentiality to Owner with respect to such information; or


(d) was independently developed by Recipient without reference to the Confidential Information communicated by Owner.


1.5 Distribution Term. "Distribution Term" means that part of the Term during
----------------- which Distributor (and Distributor's sub-distributors) shall be entitled to exercise the rights licensed to Distributor under Section 2. The Distribution Term may be terminated as described in Section 11.


1.6 Documentation. "Documentation" means the Software user manuals, training
------------- manuals and other documentation, including additional, updated or revised documentation, if any, supplied by Primus to Distributor.


1.7 Early Termination Amount. "Early Termination Amount" means an amount that
------------------------ is equal to the sum of (a) the product of (i) US $770/1/, multiplied by (ii) the number of Authorized Workstations for Authorized End-Users specified in Schedule 4 that have not been licensed to Authorized End-Users on the date of termination of the Distribution Term ("Unlicensed Seats") and (b) the product obtained by multiplying (1) the product obtained by multiplying US $360,290/2/ by a fraction, the numerator of which is the number of Unlicensed Seats, and the denominator of which is 2,120/3/, by (2) a second fraction, the numerator of which is the number of days between the date of termination of the Distribution Term and the third anniversary of the date of this Agreement, and the denominator of which is 1,095/4/.


1.8 Entity. "Entity" means any individual, partnership, company, corporation,
------ trust, association or other entity or organization whatsoever.


1.9 Exclusive Territory. "Exclusive Territory" means all countries of the
------------------- world, except for countries to which export of the Software is prohibited by applicable US export control laws and regulations.


1.10 Initial Software. "Initial Software" means the first version of the
---------------- Software delivered to Distributor pursuant to this Agreement, together with any modifications thereof delivered to remedy any non-compliance with the warranties under Paragraphs 1.1 through 1.5 of Schedule 5.


1.11 New Software. "New Software" means any versions of the Software delivered
------------ to Distributor by Primus pursuant to Section 4.3 (Upgrades). New Software does not include Initial Software.


1.12 Software. "Software" means the object code Asian language versions of
-------- Primus' computer software programs (including any third party products licensed by Primus and embedded in Primus' computer programs) more particularly described in Schedule 1, including any Upgrades that Primus may provide to Distributor under this Agreement.


1.13 Software License Agreement. "Software License Agreement" means a form of
-------------------------- software license agreement that is identical in all material respects to the form of Software License Agreement attached as Schedule 2(a) or as modified in accordance with this Agreement. If an Authorized End User wishes to acquire support and maintenance services with respect to the Software, Distributor shall ensure that it does so under a form of support and maintenance agreement that is identical in all material respects to the form attached as Schedule 2(b). In cases where Distributor and an Authorized End-User are to execute a support and maintenance agreement, such agreement shall be deemed included in the defined term "Software License Agreement." The forms may be modified as specified in Section 3.4.2. Specific Software License Agreements may have specific modifications which shall be subject to Primus' prior written approval, such approval not to be unreasonably withheld or delayed.


------------------------------------ /1/ Fee per Authorized Workstation /2/ Upgrade Fee /3/ Number of Authorized Workstations licensed to Distributor under this
Agreement /4/ 365 days x 3 year Distribution Term


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1.14 Subsidiary. "Subsidiary" means an Entity in which another Entity owns
---------- equity possessing at least fifty percent (50%) of the total combined voting power of all classes of equity entitled to vote.


1.15 Term. "Term" shall mean the term of this Agreement, as described in
---- Section 11.


1.16 Trademarks. "Trademarks" means the trademarks Primus and
---------- SolutionBuilder(R), and any and all other trademarks and/or service marks of which Primus is the owner or licensee, and that Primus approves in writing for use by Distributor in connection with the Software.


1.17 Upgrades. "Upgrades" means Maintenance Releases, Major Releases and New
-------- Versions (each as defined below).


1.17.1 Maintenance Release. "Maintenance Release" means a new release of the Software with a change in the ZZ component of the Software's X.YY.ZZ version number.


1.17.2 Major Release. "Major Release" means a new release of the Software with a change in the YY component of the Software's X.YY.ZZ version number.


1.17.3 New Version. "New Version" means a new release of the Software with a change in the X component of the Software's X.YY.ZZ version number.


Section 2. Appointment as Distributor


2.1 License Grants. Subject to the provisions of this Agreement, Primus hereby
-------------- grants to Distributor for the Distribution Term, and Distributor hereby accepts:


(a) Exclusive Distribution: An exclusive, non-transferable license, with limited right to sub-license, to (i) promote, market and demonstrate the Software and Documentation throughout the Exclusive Territory, (ii) distribute the Software and Documentation throughout the Exclusive Territory to Authorized End-Users, and (iii) distribute and sub-license the Software and Documentation throughout the Exclusive Territory to Authorized Evaluators for use on Authorized Workstations;


(b) Exclusive Right To Sub-License To Authorized End-Users: An exclusive, non-transferable license, with limited right to sub-license to Distributor's sub-distributors, to sub-license the Software and Documentation throughout the Exclusive Territory to Authorized End-Users, to the extent of the rights contained in the Software License Agreement; and


(c) Reproduction: A non-exclusive, non-transferable license, with right to sub-license to one Entity designated by Distributor and approved by Primus, to reproduce the Software and the Documentation in accordance with sound industry practices at any one location in Japan (or to have the Software and Documentation thus reproduced on its behalf), to the extent necessary to (i) fulfill the obligations of Distributor and its sub-distributors to Authorized End-Users and Authorized Evaluators within the Exclusive Territory, and/or (ii) promote, market and demonstrate the Software.


With respect to paragraph (b) above, the parties acknowledge that the rights of Authorized End-Users under the Software License Agreement with respect to the Software and the Documentation may in certain respects exceed the distribution and reproduction rights granted to Distributor under this Agreement;


2.2 Reservation. Primus reserves all rights to the Software, Documentation,
----------- Trademarks, and Confidential Information of Primus not expressly included in the scope of the grant of rights to Distributor in this Agreement. Without limiting the generality of the foregoing, Distributor shall use the Software only for the purposes specified in Section 2.1 and in accordance with the following:


2.2.1 Modifications, Derivatives and Combinations; Translations.
--------------------------------------------------------- Except as provided under Section 4.6.2 (Release of Source Code from Escrow), Distributor has no rights to, and shall not modify or create derivatives of the Software or the Documentation. Distributor has no rights to, and shall not


Confidential


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incorporate the Software into any other computer software program. Distributor has no rights to, and shall not translate any of the Software or the Documentation.


2.2.2 Media. Distributor may only distribute the Software to
----- Authorized End-Users and Authorized Evaluators on the following media: CD-ROM; magnetic disk and, in the case of the Documentation, also on paper.


2.2.3 Sub-distributors. With the prior written consent of Primus,
---------------- Distributor may sub-license all or a portion of its distribution rights in Sections 2.1(a) and/or (b) to one or more Subsidiaries of Distributor, and to any other Entity with respect to whose appointment as a sub-distributor Primus has consented in writing, such consent not to be unreasonably withheld or delayed; provided, however, that Distributor's Subsidiaries shall have no sub- licensing right, except for sub-licenses to Authorized Evaluators and Authorized End-Users. Primus hereby approves Distributor's appointment of Primus K.K. as a sub-distributor under this Agreement. Distributor shall ensure that every sub- distributor complies with the obligations of Distributor under this Agreement, as though such obligations applied directly to the sub-distributor. Distributor shall make Primus a third-party beneficiary of Distributor's rights with respect to its sub-distributors, and of the obligations of each such sub-distributor. Distributor shall ensure that all sub-distribution appointments shall terminate upon termination of the Distribution Term, and that all license rights sub- licensed to sub-distributors by Distributor terminate on expiration of the Distribution Term, in each case without any liability on the part of Primus.


2.2.4 Marketing And Promotion Over The Internet. Notwithstanding the
----------------------------------------- exclusivity of Distributor's distribution license, and the restriction to the Exclusive Territory of the licenses granted by Primus to Distributor, each of Primus and Distributor may promote and market their products over the Internet in any language. If an Entity to whom Distributor's exclusive license applies contacts Primus concerning the Software, Primus shall refer that Entity to Distributor. Likewise, if an Entity to whom Distributor's license does not apply contacts Distributor concerning the Software, Distributor shall refer that Entity to Primus. Each of Primus and Distributor may incorporate a hyper-link to the other's web-site in their web-sites with the prior written consent of the other. Such consent may not be unreasonably withheld, and may be revoked by either party at any time upon reasonable grounds.


2.2.5 Reproduction Policy. Within two months of execution of this
------------------- Agreement, Primus and Distributor shall mutually determine a policy for management of copies of the Software created by Distributor. The policy shall address, at a minimum, internal and external serialization, markings, encryption, license management software and license files. Nothing in the policy shall entitle Primus to influence or direct Distributor's targeting and selection of customers for the Software. Distributor and Primus shall comply with the policy.


2.2.6 No Conveyance of Ownership; Trade Secrets. This Agreement
----------------------------------------- does not convey any ownership of the Software or Documentation or any media on which the Software or Documentation is stored. Title to copies of the Software and the Documentation delivered to Distributor, sub-distributors and Authorized Evaluators and Authorized End-Users shall remain with Primus at all times. Accordingly, Distributor's order and receipt of Software and documentation shall not transfer any title to the Software or the Documentation, but only confer upon Distributor the right to transfer possession of them to its sub- distributors and Authorized Evaluators and Authorized End-Users. Distributor acknowledges that the Software, the Documentation and the Confidential Information constitute trade secrets and are the valuable property of Primus and its licensors, and that the Software and Documentation are protected by copyright and trademark rights.


2.2.7 Reverse Engineering. Distributor shall not decompile, or
------------------- create or attempt to create, by reverse engineering or otherwise, the source code from the object code supplied under this Agreement or use it to create a derivative work, except to the extent necessary to use the source code as provided in Section 4.6.2 (Source Code Escrow Release).
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2.2.8 Rights to Acquire Software. Distributor shall not grant to any Entity
-------------------------- any rights to sub-license the Software and/or the Documentation that (a) can be exercised more than six (6) months after such Entity first executes a Software License Agreement, except with the prior written approval of Primus, such approval not to be unreasonably withheld or delayed, and (b) entitle such Entity to use the Software and/or Documentation for a license fee of less than Seven Hundred Seventy US Dollars (US $770) per Authorized Workstation. If, in consequence of exercise of any such right, Distributor would be obligated to provide such Entity with rights to more Authorized Workstations than those for which Distributor has paid license fees under this Agreement then, at Primus' sole and absolute discretion, Primus shall either (x) assume (and Distributor shall assign) such obligations, or (y) increase the number of Authorized Workstations licensed to Distributor under this Agreement and, to the extent necessary, extend the Distribution Term on a non-exclusive basis upon receipt from Distributor of a license fee per Authorized Workstation of Seven Hundred Seventy US Dollars (US $770).


Section 3. Distributor's Obligations


3.1 Best Efforts. Throughout the Distribution Term, subject to Section 3.1.2,
------------ Distributor shall use its commercially reasonable best efforts to maximize licensing of the Software in the Exclusive Territory by end-users. Without limiting the generality of the foregoing, throughout the Distribution Term:


3.1.1 Promotion of Software by Distributor. Distributor shall diligently
------------------------------------ and adequately: (a) engage in market research for the purpose of identifying discrete markets within the Exclusive Territory and optimum marketing and distribution strategies; (b) advise Primus of all such measures as are necessary for the localization of the Software; (c) advertise and promote licensing of the Software to end-users in the Exclusive Territory, using Primus' Trademarks wherever possible; (c) employ staff having specialized or technical training with respect to the Software; (d) coordinate sales and services training programs with Primus; (e) establish, train and maintain a sales and services network with respect to the Software; and (f) demonstrate the uses and efficiencies of the Software in presentations to industry leaders, and in presentations at national and regional industry conventions within the Exclusive Territory.


3.1.2 Scope of Best Efforts Obligation. The provisions of this Section 3.1
-------------------------------- shall only apply to that part of the Exclusive Territory composed of Japan. If Distributor does not comply with the provisions of this Section 3.1, no breach of this Agreement giving rise to damages shall occur unless (a) Primus shall have notified Distributor in writing of the nature of the non-compliance, and (b) the non-compliance shall be continuing following the expiration of the sixty (60) day period commencing on the date on which Distributor is so notified.


3.2 Software Installation and Deployment; End-User Training. Throughout the
------------------------------------------------------- Distribution Term, subject to Sections 4.3 and 4.4, Distributor shall be solely responsible for the installation and deployment of the Software licensed by Authorized Evaluators and Authorized End-Users, and for training of Authorized Evaluators and Authorized End-Users in the use of the Software. Distributor shall do so in a good, professional and workmanlike manner, consistent with industry standards.


3.3 Software Support. Throughout the Distribution Term, subject to Section
---------------- 4.4, Distributor shall be solely responsible for level one support of Software licensed to Authorized Evaluators and Authorized End-Users, and shall answer their questions regarding the use and operation of the Software and any technical problems encountered. Distributor shall escalate to Primus any such questions and problems that Distributor is reasonably unable to answer. Distributor acknowledges that end-user dissatisfaction may severely damage the prospects of the Software and Primus' general reputation.


3.3.1 Nature of Support. At a minimum, Distributor shall (a) use skilled
----------------- support technicians experienced in the provision of post-delivery technical support for software support industry products; (b) provide telephone support for a minimum of eight (8) hours a day, five (5) days a week, with a call response time of not more than 1 hour; and (c) provide on-site support, as necessary. Distributor shall


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provide such support in a good, professional and workmanlike manner, consistent with industry standards.


3.4 Agreements With End-Users.
-------------------------


3.4.1 Protection of Primus' Trade Secrets and Other Intellectual Property
------------------------------------------------------------------- Rights. Except as expressly specified in writing by Primus, Distributor shall ------ not disclose any Confidential Information to any potential customer unless under an appropriate and effective non-disclosure agreement.


3.4.2 Software License Agreement. Distributor may modify the Software
-------------------------- License Agreement to ensure compliance with local antitrust and other government regulations within the Exclusive Territory, but shall first obtain Primus' prior written consent to each modification, such consent not to be unreasonably withheld or delayed. The licensor and/or support service provider under the Software License Agreements with Authorized End-Users may be either Distributor or any of Distributor's sub-distributors.


3.4.3 Compliance With Software License Agreements. Distributor shall comply
------------------------------------------- in all material respects with its obligations under Software License Agreements and other agreements with Authorized Evaluators and Authorized End-Users.


3.5 No Activity Outside the Exclusive Territory. Distributor shall not,
------------------------------------------- outside the Exclusive Territory and in relation to the Software, seek or solicit any customers, or establish any subsidiary office or sales or marketing facility for the purpose of licensing the Software. Distributor shall not license or otherwise dispose of all or any of the Software outside the Exclusive Territory.


3.6 Periodic Reports. Throughout the Distribution Term, Distributor shall
---------------- periodically, but not more frequently than once per calendar quarter, or at any time upon the reasonable request of Primus, furnish Primus with a report summarizing Distributor's distribution efforts, marketing conditions, and promotional and other activities with respect to the Software.


3.7 Accounting.
----------


3.7.1 Provision of Information. Distributor shall, and shall ensure that its sub-distributors shall keep current, complete and accurate records regarding (a) the location, model name, and serial number of all servers on which the Software is installed, (b) the number of installations of the client portion of the Software made by Distributor, any sub-distributor, Authorized Evaluator and/or any Authorized End-User, and (c) invoicing and payment of Authorized End- Users' support and maintenance fees (collectively, "Distribution Records"). To the extent that Distribution Records relate to activities carried on by Authorized End-Users and Authorized Evaluators, Distributor and its sub- distributors shall only be obligated to keep such records to the best of their knowledge. Distributor shall provide such information to Primus within ten (10) days of Primus' written request; provided, however, that Primus may not request such information more frequently than once per quarter.


3.7.2 Audit Rights. Upon ten (10) days prior written notice, Primus may, by an Independent Auditor (as defined below), inspect, audit, and copy the Distribution Records and, to the extent provided by the Software License Agreement, and except as restricted by applicable local law, access the servers of Distributor, its sub-distributors and of Authorized End-Users on which the Software is installed, at any time during the regular business hours of the user thereof, but only for the purposes of determining that Primus has been properly paid all fees to which it is entitled under this Agreement. Unless an audit discloses a material discrepancy in favor of Distributor or any of its sub- distributors, Primus (i) may exercise such audit rights no more than once during any twelve (12) month period, and (ii) shall pay Distributor's reasonable expenses incurred with respect to the audit. In the event of any understatement of the license fees due, Distributor shall promptly pay such fees based upon the fee per Authorized Workstation paid by Distributor under this Agreement, and Primus will extend this Agreement to correct
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any such deficiency. Primus' acceptance of any payment shall be without prejudice to any other rights or remedies of Primus under this Agreement or applicable law.


3.7.3 Independent Auditor. "Independent Auditor" means an independent public accounting firm mutually acceptable to Distributor and Primus. If Distributor and Primus cannot agree on the identity of the Independent Auditor, they shall each require their own respective accounting firms to jointly designate an Independent Auditor, within ten (10) days of written request by one to the other. The Independent Auditor shall have executed a Non-Disclosure Agreement prohibiting it from disclosing each of Primus' and Distributor's Confidential Information to third parties, except as may be necessary to enforce this Agreement. The Independent Auditor shall act as expert and not as arbitrator.


3.7.4 Log Files. Upon written request by Primus, Distributor shall, to the extent provided by the Software License Agreement, and except as restricted by applicable local law, transmit to Primus a current, complete and correct copy of the log file for each server of Distributor, its sub-distributors and of Authorized End-Users on which the Software is installed; provided, however, that unless review of a log file has indicated additional fees are due to Primus, Primus (i) may not request a copy of the log file more frequently than once a quarter, and (ii) shall pay Distributor's reasonable expenses incurred with respect to such transmission.


3.8 Governmental Compliance. Distributor shall obtain and maintain all
----------------------- required licenses, permits, certificates and authorizations needed to perform its obligations under this Agreement, including without limitation those required for (a) Distributor's appointment as distributor; (b) Distributor's status as a licensee under Primus' intellectual property rights; (c) the import of the Software into those parts of the Exclusive Territory in or to which Distributor is marketing or distributing the Software; and (d) the marketing, distribution and licensing of the Softw ...